S-1/A

As filed with the Securities and Exchange Commission on December 17, 2010

Registration No. 333-169584

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

 

Amendment No. 2
To
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

QUARK PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

California	2834	94-3192416
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

6501 Dumbarton Circle
Fremont, CA 94555
(510) 402-4020

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

 

Daniel Zurr, Ph.D.
Chief Executive Officer
6501 Dumbarton Circle
Fremont, CA 94555
(510) 402-4020

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

 

Copies to:

Robert L. Jones, Esq.
Robert J. Brigham, Esq.
Michael E. Tenta, Esq.
Cooley LLP
3175 Hanover Street
Palo Alto, CA 94304-1130
(650) 843-5000

 

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

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

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

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

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

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

Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o

 

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 that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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

SUBJECT TO COMPLETION, DATED DECEMBER 17, 2010

PRELIMINARY PROSPECTUS

QUARK PHARMACEUTICALS, INC.

Minimum Offering of       Units
Maximum Offering of       Units
Each Unit consisting of       Shares of Common Stock and       Warrants

Quark Pharmaceuticals, Inc. is offering on a best efforts basis a maximum of       units and a minimum of       units, with each unit consisting of       shares of common stock, par value $0.001 per share, and       warrants. This is our initial public offering, and no public market currently exists for our units or our common stock or our warrants.

We estimate the offering price of each unit will be between    New Israeli Shekels (NIS) and NIS          per unit. The offering price will be determined in an auction process and shall not be lower than NIS (approximately $        ), the minimum price for the purpose of this offering. Unless the offering is fully subscribed at a price higher than the minimum price, the offering will be priced at the minimum offering price. For further details regarding the auction process, see under the heading “Plan of Distribution” beginning on page 127 of this prospectus.

Each warrant shall be exercisable into one share of our common stock at an exercise price of       per share. The warrants will be exercisable for       years from the date on which they are issued. Upon the closing of the offering, the shares of our common stock and the warrants comprising the units will be issued and will trade separately on the Tel Aviv Stock Exchange, or TASE.

The offering price per unit will be determined in an auction process on the TASE and shall not be lower than NIS (approximately $        ), the minimum price for the purpose of this offering. Unless the offering is fully subscribed at a price higher than the minimum price, the offering will be priced at the minimum offering price, and if the offering is not subscribed at the minimum offering price, the offering will be cancelled. For further details regarding the auction process, see under the heading “Plan of Distribution” beginning on page 120 of this prospectus. We have appointed a member of the TASE to act as our offering coordinator to administrate the offering. This offering is not underwritten.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 11.

	Per Share	Minimum Total	Maximum Total
Public minimum offering price	$	$	$
Distribution commissions	$	$	$
Minimum proceeds, before expenses, to Quark Pharmaceuticals, Inc.	$	$	$

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is       , 2010

QUARK PHARMACEUTICALS, INC.
  
TABLE OF CONTENTS

	Page
Summary		1
Risk Factors		11
Forward-Looking Statements		32
Use of Proceeds		33
Dividend Policy		35
Capitalization		36
Dilution		38
Selected Financial Data		40
Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Business		57
Management		86
Compensation Discussion and Analysis		93
Certain Relationships and Related Party Transactions		114
Principal Shareholders		116
Description of Capital Stock		119
Shares Eligible for Future Sale		122
Material U.S. Federal Income and Estate Tax Consequences to Non-U.S. Holders		124
Plan of Distribution		127
Legal Matters		132
Experts		132
Where You Can Find Additional Information		132
Index to Financial Statements		F-1

You should rely only on the information contained in this prospectus and any free-writing prospectus that we authorize to be distributed to you. We have not authorized anyone to provide you with information different from or in addition to that contained in this prospectus or any related free-writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and are seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial conditions, results of operations and prospects may have changed since that date.

This prospectus contains market data and industry forecasts that were obtained from industry publications. We have not independently verified any of this information.

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SUMMARY

This summary highlights selected information appearing elsewhere in this prospectus and does not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the section entitled “Risk Factors,” and our financial statements and related notes included elsewhere in this prospectus.

Our Business

We are a clinical-stage pharmaceutical company engaged in discovering and developing novel RNAi interference or RNAi-based therapeutics. We have a fully integrated drug development platform that spans therapeutic target identification based on our proprietary gene discovery science and technology, to clinical drug development. We have initially been focusing on RNAi-based therapeutics for the treatment of diseases associated with oxidative stress and ischemic injury. We believe that our insight into the molecular mechanisms underlying these diseases, combined with our ability to design, chemically modify and successfully deliver synthetic small-interfering RNA, or siRNA, to specific organs in the body, enables us to rapidly develop drug candidates, often directed against the same target across multiple therapeutic areas. We have three product candidates in clinical development in five different indications: PF-655 (previously RTP801i-14) for the treatment of diabetic macular edema and for wet age-related macular degeneration; QPI-1002 (previously I5NP or AKIi-5) for the prevention of acute kidney injury and for the prevention of delayed graft function in kidney transplant patients; and QPI-1007 for ocular neuroprotection. We have licensed PF-655 to Pfizer on an exclusive worldwide basis and we granted an option for an exclusive license to QPI-1002 to Novartis. We have a broad pipeline based on our internally developed and proprietary chemically modified siRNA structures. Several of our product candidates are based on novel targets and therapeutic concepts discovered using our BiFAR^TM target gene discovery platform. We believe that our platform technologies, siRNA capabilities and intellectual property combined with expertise of our regulatory, medical, preclinical and clinical development group will enable us to continue to advance new product candidates into clinical development, either directly or through collaborations with major pharmaceuticals companies.

RNAi Overview

RNA interference, or RNAi, is a recently discovered process that occurs naturally within cells and, facilitated by siRNA, selectively silences the activity of specific genes. Genes are the basic units of inheritance. Genes provide cells with instructions for producing proteins encoded by them. Many human diseases are caused by the abnormal behavior of proteins. The ability to stop or reduce production of a protein by selectively silencing the gene that directs its synthesis could be very beneficial in the treatment of disease. We believe that RNAi-based therapeutics potentially have significant advantages over traditional therapies, including broad applicability to treat many diseases, the ability to selectively inhibit expression of disease-associated target genes, inherent drug potency and shortened drug discovery timelines. To date, the major challenges in the development of RNAi-based therapeutics have been delivery of siRNA molecules to the organ and cells relevant to a particular disease as well as siRNA drug specificity, nuclease stability and pro-inflammatory properties associated with innate immune response.

Our Approach

Our insight into the pathogenesis of diseases, combined with our proprietary targets and concepts and our siRNA delivery strategies, led us to select siRNA as the modality for our clinical programs. We believe that our integrated discovery and development approach, our siRNA technology platform and intellectual property are particularly well-suited to RNAi-based therapeutics and are based on the following main capabilities:

• Identifying clinically attractive drug targets and concepts, often but not exclusively using our BiFAR discovery platform.  Using our BiFAR^TM discovery platform, we have identified and validated many gene and protein targets for diseases, including diseases associated with oxidative stress and ischemic injury. Our current clinical programs focus on diseases in organs that we viewed as attractive based on our ability to successfully deliver our siRNA molecules to the target cells in that organ.

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• Selection of diseases associated with oxidative stress/ischemic injury across several therapeutic areas for the same target.  We believe that our focus on diseases, which share common molecular mechanisms, will enable us to more quickly identify drug candidates capable of treating multiple diseases based on proprietary targets common to diseases in different organs of the body. For example, we have demonstrated in preclinical models that inhibition of the RTP801 gene has beneficial therapeutic effects in various diseases associated with oxidative stress, such as wet age-related macular degeneration in the eye and chronic obstructive pulmonary disease, or COPD in the lung. Furthermore, we have also demonstrated that temporary and reversible inhibition of the gene p53 limits the injury caused by oxidative stress in the kidney and in the inner ear, and thus is potentially useful for the treatment of acute renal failure and acute hearing loss.

• Designing and modifying our siRNA molecules to enable successful local or systemic delivery.  Our siRNA drug candidates have a chemically modified, stabilized structure and properties that we believe offer significant advantages over standard siRNAs. In preclinical studies, we have successfully delivered siRNA molecules and suppressed target genes in the back of the eye, inner ear, proximal tubules of the kidney, lung and spinal cord, demonstrating both local and systemic delivery. We select the route of delivery that is clinically relevant for the given organ. Two of our siRNAs were delivered via local administration to the back of the eye in Phase I and Phase II studies. Our QPI-1002 was, according to publicly available information, the first siRNA administered systemically to human patients.

• Optimizing our siRNA molecules for improved potency, stability and selectivity.  We use our internally developed siRNA structure and intellectual property to design lead drug candidates with enhanced properties and intellectual property position.

We believe that our approach has the potential to generate several additional Investigational New Drug applications, or INDs, in the coming years, either for new indications for the same drug or for new drugs.

In addition, our BiFAR^TM target discovery platform directly identifies clinically relevant critical genes and proteins that are responsible for certain disease traits, has historically been important to us. We have applied this platform in several disease programs. The application of the BiFAR^TM platform to diseases associated with oxidative stress yielded our pool of proprietary targets from which we have derived our current product candidates. In addition, from 1995 through 2005, the BiFAR^TM platform allowed us to generate cash for our operations as well as rights to potential products through agreements with several pharmaceutical companies.

Our Product Candidates

The following table sets forth the status of our product pipeline:

Product Candidate	Indication	Status	Commercialization Rights
PF-655	Diabetic Macular Edema	Phase II DEGAS study completed. Interim data received in November 2010.	Pfizer (Worldwide)
PF-655	Wet Age-related Macular Degeneration	Phase II MONET study ongoing, enrollment completed. Interim data received in November 2010.	Pfizer (Worldwide)
QPI-1002	Acute Kidney Injury	Phase II expected to initiate dosing in the second half of 2011	Option granted to Novartis for Worldwide rights
QPI-1002	Delayed Graft Function in Kidney Transplant patients	Phase II ongoing (Interim analysis expected by mid 2012)	Option granted to Novartis for Worldwide rights

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Product Candidate	Indication	Status	Commercialization Rights
QPI-1007	Non Arteritic Anterior Ischemic Optic Neuropathy	Phase I (Dosing and preliminary review of data expected to be completed during the second half of 2011)	Quark (Worldwide)
QPI-1007	Glaucoma indication	Preclinical toxicity studies initiated to enable Phase 2 multiple dosing	Quark (Worldwide)
Program for pipeline siRNAs for neuro protection and neural regeneration	Diseases of the central nervous system, eyes, ears, spinal cord injury, peripheral nerve injuries, neuropathic pain, hearing loss conditions, vestibular diseases.	In vivo proof-of-concept was accomplished in spinal cord injury with a drug candidate with endpoints of post-injury recovery and reduction of neuropathic pain. Further in vivo studies are ongoing in several indications, including glaucoma, hearing loss and others	Quark (Worldwide)
Program for respiratory system conditions	Acute Lung Injury, Lung Transplantation	In vivo proof-of-concept studies were accomplished in lung transplantation models. Further in vivo studies are ongoing	Quark (Worldwide)
Program for chronic conditions by systemic administration of siRNA	Chronic Kidney Disease Cancer	Delivery studies and in vivo proof-of-concept studies at various stages.	Quark (Worldwide)
Fibrotic diseases in collaboration with Nitto Denko	Fibrotic conditions in the liver and other organs	Preliminary proof of concept was successfully performed by Nitto Denko. We are currently performing siRNA design and delivery studies.	Nitto Denko (Worldwide)

PF-655 Phase II for Diabetic Macular Edema and for Wet Age-Related Macular Degeneration. PF-655 has been studied in two Phase II clinical trials for the treatment of diabetic macular edema and for the treatment of wet age-related macular degeneration, from both of which Pfizer received interim results in November 2010. PF-655 is a stabilized, synthetic, chemically modified siRNA that inhibits our proprietary target RTP801, a gene we believe plays a significant role in wet age-related macular degeneration and diabetic macular edema. Wet age-related macular degeneration is the leading cause of central vision loss in the elderly and occurs when the light sensing cells in the central portion of the retina, called the macula, malfunction and over time cease to work. Diabetic macular edema is the result of retinal microvascular changes that occur in patients with diabetes and is the major cause of visual impairment in diabetic patients. We have licensed PF-655 to Pfizer on an exclusive worldwide basis. We have successfully completed our Phase I clinical trial in age-related macular degeneration patients. No drug-related adverse events were observed. Approximately 80% of subjects showed stable or improved vision two weeks after a single injection of the siRNA. Patients in this study showed a mean improvement of 4 letters (about one line gain) on a visual acuity test at 28 days after a single injection of PF-655. These changes were presented as clinically meaningful at the ARVO conference in 2009 by a lead investigator of the study, Dr. Quan Nguyen from the Wilmer Ophthalmological Institute of the Johns Hopkins University School of Medicine. Pfizer is conducting the Phase II clinical trials in collaboration with us. Enrollment in both Phase II trials was completed. In the Phase II DEGAS trial for diabetic macular edema we expect to complete dosing and one year follow-up on all patients by the end of 2010. Depending

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on the results, Pfizer may decide to initiate preparations for Phase III clinical trial or to initiate a Phase IIb trial or may stop trials. In the Phase II MONET trial for age-related macular degeneration we expect to completed dosing and initial follow-up by the end of 2010. Depending on the results, Pfizer may initiate a dose-ranging Phase IIb clinical trial in age-related macular degeneration.

QPI-1002 for Acute Kidney Injury and Delayed Graft Function.  We completed two Phase I trials for the prevention of acute kidney injury in patients undergoing major cardiac surgery and for prevention of delayed graft function in kidney transplant patients. In both trials, QPI-1002 was administered systemically via intravenous injection with no dose-limiting toxicities observed. Based on publicly available information, we believe that this was the first siRNA administered systemically in a human clinical trial. QPI-1002 is a synthetic, chemically modified siRNA molecule designed to temporarily inhibit the expression of p53, a gene we believe plays a significant role in ischemic injury related conditions in the kidney. Acute kidney injury is a syndrome characterized by a rapid decline of kidney function leading to death in a high percentage of cases. Major cardiovascular surgery is one of the many causes of acute kidney injury. Currently, there are no effective drug therapies to prevent acute kidney injury. Delayed graft function results most often from ischemia-reperfusion injury that can occur during the transplantation process and is particularly common in kidneys from deceased donors. Delayed graft function is associated with poorer long-term outcome for the kidney transplant patient, with increased incidence of acute rejection, increased hospital stays and increased consumption of peri-transplant resources. We have recently initiated dosing in a Phase II trial for delayed graft function and expect to initiate dosing in a Phase II clinical trial for AKI within the second half of 2011. In August 2010 we granted to Novartis an option for a worldwide exclusive license to QPI-1002 for all indications.

QPI-1007 for Non arteritic Anterior Ischemic Optic Neuropathy.  QPI-1007 is being developed as a neuroprotective agent for the treatment of sudden vision loss associated with non-arteritic anterior ischemic optic neuropathy. We are conducting a Phase I trial to evaluate the safety and tolerability of OPI-1007 in patients suffering from of non-arteritic anterior ischemic optic neuropathy. QPI-1007 is a chemically modified siRNA and it is our first drug candidate based on novel siRNA structures developed internally by Quark. QPI-1007 is designed to inhibit the expression of the pro-apoptotic gene, caspase 2, via the RNAi pathway. Apoptosis (programmed cell death) is thought to be the main cause of the death of retinal ganglion cells in non-arteritic anterior ischemic optic neuropathy and glaucoma. In preclinical studies, QPI-1007 was effective in preserving retinal ganglion cell integrity in three different ocular disease models of retinal ganglion cell damage. If OPI 1007 is determined to be safe and effective in non-arteritic anterior ischemic optic neuropathy we may develop QPI-1007 also for glaucoma. We expect to complete dosing and have preliminary results in our Phase I clinical trial in the second half of 2011. In addition to safety data, we have designed the study to identify a potential trend in biological activity compared to historical data. Depending on the results, we may initiate Phase II trials in a glaucoma condition, in non-arteritic anterior ischemic optic neuropathy, in both indications or none of them.

Pipeline Programs:  We have three broad programs that aim to design and develop siRNA molecules based on our internally developed siRNA structures to treat diseases that are unmet medical needs. Most of the programs are in proof of concept studies in animal models, a subset of these is in lead candidate optimization stage, some are at the stage of delivery studies in vivo. We expect to file at least one IND application in 2012 based on research in these programs. We also expect to file an IND application in the research program we perform in collaboration with Nitto Denko. Our major internal research and development programs comprise:

• Neuroprotection and neural regeneration program.  We include in this category our pipeline programs in diseases of the central nervous system, and diseases of the eyes and ear, in particular those diseases where nerve cell or neuron protection and /or regeneration of the long fibers of a nerve cell, or axons, carrying outgoing sensory and motor messages, is important. Also, in many cases neuronal injury is associated with allodynia, or neuropathic pain. We have demonstrated siRNA delivery to the neurons in several disease conditions listed below and we are developing a novel non-invasive delivery to the back of the eye, inner ear and brain. Our primary siRNA drug candidate for neuroregeneration and neuropatic pain is a siRNA designed to inhibit expression of a gene called RhoA with which we have shown proof of concept for both end points in spinal cord

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injury. We are now optimizing RhoA siRNA with the purpose of generating the lead siRNA for formal preclinical development. In line with our strategy of developing a drug candidate in several diseases based on common pathological mechanism, we are testing RhoA siRNA, together with siRNAs targeting other genes, in animal models for spinal cord injury, optic nerve regeneration, neuropathic pain, hearing loss and vestibular diseases such as Meneiere’s disease, and other central nervous system diseases based on invasive and non invasive delivery to the back of the eye, inner ear and brain.

• Respiratory and inflammatory diseases program.  Based on siRNA delivery by inhalation we have shown proof of concept for our dual siRNA drug candidate for prevention of primary graft dysfunction an animal model of lung transplantation. This drug cocktail may be useful for treatment of acute lung injury in conditions other than lung transplantation since the pathological mechanism of response to ischemic injury is essentially unchanged.

• Treatment of chronic diseases by systemic administration.  This category includes our development for treatment of chronic kidney disease and cancer indications. We are currently performing delivery optimization studies.

Fibrotic diseases in collaboration with Nitto Denko.  No effective treatments are available for most of the serious fibrotic diseases and our objective is to develop potential therapies within our fully-funded collaboration with Nitto Denko. The collaboration aims to develop one or more new siRNA drugs that may offer an effective treatment to fibrotic diseases. The collaboration utilizes Quark’s technology and intellectual property in RNAi, potentially combined with Nitto Denko’s delivery technology to identify, select, optimize and develop a new siRNA drug based on a therapeutic concept and target gene identified by Nitto Denko and its collaborating scientists. While the initial disease indication for development is yet to be determined by joint teams of Quark and Nitto Denko, potential diseases include liver fibrosis, lung fibrosis, bone marrow fibrosis and kidney fibrosis, all major unmet medical needs. Quark successfully performed a feasibility study funded by Nitto Denko confirming the validity of the concept of treating fibrotic disease with an siRNA drug inhibiting the Nitto Denko target gene. The collaboration was initiated in July 2010. We expect to file a first IND application in 2012.

siRNA Technology Development

We have an ongoing program that aims to develop new siRNA-related technologies and to improve our current technology platform and our intellectual property position in the RNAi space. This program has two arms:

• Development of novel siRNA structures that are free from third party IP. We have developed a number of novel structures and filed six patent applications to date. Based on our understanding of the siRNA mechanism, this program uses our siRNA expertise to identify critical positions and chemical modification patterns to enhance activity, reduce unwanted or off-target effects, minimize unwanted immune response effects and increase the stability of our siRNA drug candidates.

• Development of proprietary drug delivery methods.  This program includes novel non- invasive delivery of siRNA to the inner ear, brain, back of the eye and novel methods of delivery to tumor cells.

Israeli National siRNA Project Consortium

The Israeli Chief Scientist and the head of the research and development national projects conditionally approved the establishment of a consortium headed by the wholly owned subsidiary of Quark, QBI Enterprises Ltd (QBI), together with several leading members of the industry and prominent scientists in academia in Israel, to develop novel generic technologies in the field of RNAi. We believe that the approval of a national project for siRNA is recognition of the government of Israel to financially support a project of national importance that can potentially create jobs and generate revenues for the state of Israel.

Our License Agreement with Pfizer

In September 2006, we granted Pfizer an exclusive worldwide license to develop and commercialize drug candidates that inhibit our proprietary target gene RTP801 through RNAi. Under the agreement, Pfizer has the

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exclusive right to develop and commercialize drugs for both ophthalmic and non-ophthalmic indications. Pfizer is responsible for all future preclinical and clinical development costs of the licensed drug candidates, as well as all regulatory filings and approvals. Pfizer is currently performing two Phase II clinical trials in collaboration with us. Israel has been a major source of patients in these two studies. Through September 30, 2010, Pfizer had paid us an aggregate of approximately $52 million in up-front fees, cost reimbursements and milestone payments. The agreement provides for up to $314 million in development and product approval milestone payments, assuming the development and approval in all major markets of a product for two ophthalmic indications and at least one non-ophthalmic indication. Pfizer is required to pay us royalties on any sales of licensed products and up to an additional $309 million of sales-based milestone payments.

Our Option Agreement with Novartis

In August 2010, we granted Novartis an option for an exclusive worldwide license to develop and commercialize QPI-1002 and any other p53-directed siRNAs controlled by us for any indication. Under the agreement, Novartis paid us a non-refundable option grant fee of $10 million and has the right to exercise the option during the Phase II trials of QPI-1002. This right will expire on different dates depending on whether interim and/or final results of these trials meet pre-defined criteria. If Novartis exercises the option, Novartis will be responsible for further development following the current Phase II trials and Quark will be entitled to option exercise fees and development, product approval, and sales-based milestone payments of up to $670 million as well as to royalties on sales.

Corporate Information

We were incorporated in California in December 1993 under the name Expression Systems, Inc. In April 1997, we changed our name to Quark Biotech, Inc. In June 2007, we changed our name to Quark Pharmaceuticals, Inc. Our principal executive offices are located at 6501 Dumbarton Circle, Fremont, California, 94555, and our telephone number is (510) 402-4020. Our website address is www.quarkpharma.com. The information contained on our website is not incorporated into and does not constitute a part of this prospectus, and the only information that you should rely on in making your decision whether to invest in our common stock is the information contained in this prospectus and any free writing prospectus. As used in this prospectus, references to “Quark,” “our,” “us” and “we” refer collectively to Quark Pharmaceuticals, Inc. and all of its subsidiaries unless the context requires otherwise.

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THE OFFERING

Securities offered by us

      units, with each unit consisting of one share of common stock and ___ warrants

Upon the closing of the offering, the shares of our common stock and the warrants comprising the units will be issued and will trade separately on the TASE

Common stock to be outstanding after this offering

      shares

Warrants to be outstanding after this offering

      warrants

Use of proceeds

To conduct two Phase II clinical trials of our current product candidates QPI-1002, a Phase I clinical trial of QPI-1007 and a Phase II clinical trial of QPI-1007, and continuation of the development of our product candidates in preclinical development, all subject to the receipt of necessary regulatory approvals and achievement of other milestones.

Proposed Tel Aviv Stock Exchange symbol

The number of shares of common stock that will be outstanding immediately after this offering is based on 21,384,630 shares of common stock outstanding as of October 31, 2010 and excludes:

• 2,632,919 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $1.49 per share;

• 638,103 shares of common stock reserved for future issuance under our 2007 Equity Incentive Plan; and

• 500,000 shares of common stock reserved for future issuance under our 2010 Employee Stock Purchase Plan.

• Except as otherwise indicated, all information in this prospectus assumes the conversion of all our outstanding shares of preferred stock into 17,996,100 shares of common stock prior to the completion of this offering.

Currently, there is no public market for our common stock in the United States or anywhere else in the world and no assurances can be given that a public market will develop the United States or, if developed, that it will be sustained. We have applied to have our common stock is listed on the TASE. The shares of our common stock and Warrants which are being offered under this prospectus are expected to be listed for trading on TASE promptly after the registration statement filed with the SEC of which this prospectus is a part is declared effective.

Concurrently with the effectiveness of the registration statement of which this prospectus forms a part, we are publishing a Supplemental Notice to an Incomplete Prospectus published by us in Israel which is intended for non-U.S. investors based in Israel. Such investors should refer to the Incomplete Prospectus and the Supplemental Notice, which together form the Israeli prospectus that we filed with the Israel Securities Authority, or ISA, and which will be available at http://www.magna.isa.gov.il.

The Auction Process

We plan to conduct this offering using an auction process for all investors, both individual and institutional. To participate in the auction, investors will submit bids to purchase units that specify the number of units the investor would be interested in purchasing and the price the investor would be willing to pay. Bids must be submitted to TASE members. We intend to use the auction to determine the offering price per unit for the offering. All valid bids to purchase units at or above the determined offering price per unit will receive an allocation of units at the offering price. If the number of units represented by successful bids

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exceeds the number of units we are offering, then all bidders making bids above the offering price per unit will receive all the units for which they bid, all bidders making bids at the offering price per unit will receive some of the units for which they bid, on a pro-rata basis, and all bidders making bids below the offering price per unit will receive no units. During the period in which the TASE members collect bids by potential investors, potential investors can withdraw or amend their bids. However, shortly before the termination of the period in which bids can be submitted, TASE members will stop accepting any amendments to placed bids or withdrawals thereof, at which point, the bids will become irrevocable. We will publish a press release announcing the commencement of the bidding process a few hours prior to the commencement including a detailed timetable of the auction day. See the section entitled Plan of Distribution for a description of how this process will work.

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SUMMARY FINANCIAL DATA

The following summary financial data should be read together with our audited financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results.

	Years Ended December 31,									For the nine month ended September 30
	Audited									Unaudited
	2007			2008			2009			2009			2010
	(in thousands, except share and per share data)
Statements of Operations Data:
Revenues	$	27,878		$	17,276		$	2,655		$	2,065		$	2,810
Cost of development services		—			1,719			1,712			1,339			869
Gross profit		27,878			15,557			943			726			1,941
Operating costs and expenses:
Research and development		20,774			18,726			15,744			13,024			13,659
General and administrative		7,055			5,018			5,087			3,823			4,820
Total operating costs and expenses		27,829			23,744			20,831			16,847			18,479
Operating income (loss)		49			(8,187	)		(19,888	)		(16,121	)		(16,538	)
Financial income (expenses), net		940			722			87			61			(538	)
Income (loss) before income taxes		989			(7,465	)		(19,801	)		(16,060	)		(17,076	)
Income taxes		—			(1,667	)		160			62			(210	)
Net income (loss)		989			(9,132	)		(19,641	)		(15,998	)		(17,286	)
Changes of redemption value of Series F and H Preferred Stock		(336	)		—			—			—			(1,368	)
Deemed dividend as a result of warrants modification		(117	)		—			—			—			—
Income attributable to preferred shareholders		536			—			—			—			—
Net loss to common Stockholders	$	(—)		$	(9,132	)	$	(19,641	)	$	(15,998	)	$	(18,654	)
Net loss per share of common stock: Basic and diluted income (loss) per share		—		$	(2.76	)	$	(5.80	)	$	(4.72	)	$	(5.51	)
Weighted average number of shares used in computing basic and diluted net loss per share:		2,970,351			3,307,871			3,388,119			3,387,988			3,388,530
Proforma net loss per share of common stock:
Basic and diluted net loss per share pro forma (unaudited)								(1.03	)					(0.86	)
Weighted average number of shares used in computing basic net loss per share pro forma (unaudited):								19,084,219						20,092,037

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	As of June 30, 2010
	Actual			As adjusted(1)
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	8,728		$
Working capital		3,034
Total assets		12,373
Deferred revenues		1,479
Redeemable convertible preferred stock		37,000
Total stockholders’ equity (deficiency)		(34,003	)

(1) The as adjusted balance sheet data reflects (i) the conversion of all our outstanding shares of preferred stock into shares of common stock prior to the completion of this offering, and (ii) the sale of     units in this offering at an assumed initial public offering price of $     per share, after deducting distribution commissions and estimated offering expenses.

(2) Each $1.00 increase (decrease) in the assumed initial public offering price of $     per unit, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $     million, assuming that the number of units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting commissions and estimated offering expenses payable by us. We may also increase or decrease the number of units we are offering. Each increase (decrease) of one million units in the number of units offered by us would increase (decrease) each of cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $       million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated discounts and commissions and offering expenses payable by us. The proforma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks, as well as all of the other information contained in this prospectus, before investing in our common stock. If any of the following possible events actually occur, our business, business prospects, cash flow, results of operations or financial condition could be harmed. In this case, the trading price of our common stock could decline, and you might lose all or part of your investment in our common stock. In assessing these risks, you should also refer to the other information contained in this prospectus, including our financial statements and related notes. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations.

Risks Related to Our Business

Our success is dependent on the success of our lead product candidates, PF-655, QPI-1002 and QPI-1007, and we cannot be certain that they will achieve success in clinical trials, that they will receive regulatory approval or be successfully commercialized.

We have three drug candidates in clinical studies in five disease indications. PF-655, is currently being evaluated in two Phase II clinical trials for the treatment of wet age-related macular degeneration and diabetic macular edema, QPI-1002 is being evaluated in a Phase II clinical trial for the prevention of delayed graft function in kidney transplant patients and enrollment in a Phase II study in cardiovascular surgery patients for the prevention of acute kidney injury will be initiated in 2011, and QPI-1007 is being evaluated in a Phase I clinical study for the treatment of non-arteritic anterior ischemic retinopathy. These drug candidates will require the successful completion of these and other planned Phase II and Phase III clinical trials before we are able to submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for approval. This process can take many years and require the expenditure of substantial resources. In September 2006, we licensed PF-655 to Pfizer on an exclusive worldwide basis. As a result, we will not control the development of PF-655. Clinical trials required for FDA approval of PF-655, QPI-1002 and QPI-1007 may not be successfully completed. If these clinical trials fail to demonstrate that PF-655, QPI-1002 and QPI-1007 are safe and effective, these drug candidates will not receive approval for marketing. Even if PF-655, QPI-1002 and QPI-1007 receive regulatory approval for marketing, they may never be successfully commercialized. If PF-655, QPI-1002 and QPI-1007 do not receive regulatory approval or are not successfully commercialized, we may not be able to generate revenue, become profitable or continue our operations.

Other than PF-655, QPI-1002 and QPI-1007, all of our other programs are in preclinical studies or early stage research. If we are unable to develop and commercialize our early stage product candidates, our business will be adversely affected.

In addition to our PF-655, QPI-1002 and QPI-2007 drug candidates, a key element of our strategy is to discover, develop and commercialize a portfolio of new products. We are seeking to do so through our internal research programs and intend to explore strategic collaborations for the development of new products. Whether or not any product candidates are ultimately identified, research programs to identify new disease targets and product candidates require substantial technical, financial and human resources. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield a successful commercial product for many reasons, including the following:

• competitors may develop alternatives that render our product candidates obsolete;

• a product candidate may not have a sustainable intellectual property position in major markets;

• a product candidate may, after additional studies, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective;

• a product candidate may not receive regulatory approval;

• a product candidate may not be capable of production in commercial quantities at an acceptable cost, or at all; or

• a product candidate may not be accepted by patients, the medical community or third-party payors.

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There is a limited amount of information upon which you can evaluate our business and prospects.

We have limited experience in drug development and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute our business plan, we will need to successfully:

• execute product development activities;

• build and maintain a strong intellectual property portfolio;

• obtain regulatory approvals;

• gain market acceptance for our products, if approved;

• develop and maintain successful strategic relationships;

• develop sales and marketing capabilities or collaborate with others for these functions; and

• manage our spending as costs and expenses increase due to clinical trials and in anticipation of regulatory approvals and commercialization.

If we are unsuccessful in accomplishing these objectives, we may not be able to develop product candidates, raise capital, expand our business or continue our operations.

We have a history of losses and may never be profitable.

We have experienced significant operating losses since our inception. As of September 30, 2010 we had accumulated net losses of approximately $111.3 million. To date, we have neither developed any products nor generated any revenues from the sale of products. Further, we do not expect to generate any such revenues in the foreseeable future. We expect to continue to incur annual net operating losses for at least the next several years as we expand our efforts to discover, develop and commercialize novel therapeutics. We anticipate that the majority of any revenue we generate over the next several years will continue to be from collaborations with pharmaceutical companies, but we cannot be certain that we will be able to secure or maintain these collaborations, or meet the obligations associated with these collaborations, or achieve any milestones that we may be required to meet to receive payments.

To become and remain profitable, we must succeed in developing and commercializing novel drugs that achieve market acceptance. This will require us and our licensees and collaborators to be successful in a range of challenging activities, including the preclinical testing and clinical trial stages of development and obtaining regulatory approval, and manufacturing, marketing and selling these product candidates. These activities may not be successful, and we may never generate revenues that are significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we cannot become and remain profitable, the market price of our common stock could decline. In addition, we may be unable to raise capital, expand our business, diversify our product pipeline or continue our operations.

We will require substantial additional funds to continue our research and development activities. If additional funds are not available we may need to significantly scale back or cease our operations.

We have used substantial funds to develop our technologies and will require substantial funds to conduct further research and development, including preclinical testing and clinical trials of any product candidates, and to manufacture and market any products that are approved for commercial sale. Because the successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to develop and commercialize them. We anticipate that our current resources, as supplemented by proceeds from this offering and expected research and development funding and milestone payments from our collaborators, will sustain our business through the first half of 2013. We expect our research and development expenses for this period to be between $26 million and $39 million.

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Our future capital requirements and the period for which we expect our existing resources to support our operations may vary from what we expect. We have based our expectations on a number of factors, many of which are difficult to predict or are outside of our control, including:

• our progress in demonstrating that siRNAs can be used as drugs;

• progress in our research and development programs, as well as the magnitude of the spending to support these programs;

• the timing, receipt and amount of milestone and other payments, if any, from present and future collaborators;

• our ability to establish and maintain additional collaborative arrangements;

• the resources, time and costs required to initiate and complete our preclinical testing and clinical trials, obtain regulatory approvals, protect our intellectual property and obtain and maintain licenses to third-party intellectual property; and

• the timing, receipt and amount of sales and royalties, if any, from our potential products.

If our estimates and predictions relating to these factors are incorrect, we may need to modify our operating plan.

We will be required to seek additional funding in the future and intend to do so through either collaborative arrangements, public or private equity offerings or debt financings, or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our shareholders. For example, if we raise additional funds by issuing equity securities, our shareholders will experience further dilution. Debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting future business activities. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise pursue on our own.

We expect to rely on revenues from our licensees and collaborators as an important source of revenue. If our relationships with Pfizer, Nitto Denko, Novartis or any future licensees and collaborators are unsuccessful, a collaborator terminates a collaboration or there is competition between us and a collaborator for the development of drugs targeting the same diseases, our business could be adversely affected.

In September 2006, we entered into a license agreement with Pfizer under which we licensed to Pfizer the exclusive worldwide rights to develop and commercialize our RNAi technology based molecules derived from and inhibiting our proprietary target gene RTP-801 for both ophthalmic indications and non-ophthalmic indications. We had acquired some of these rights from Silence Therapeutics, or Silence, formerly known as Atugen AG, under a December 2004 collaboration agreement. We expect that a substantial amount of the funding for our operations could come from our license agreements with Pfizer and Nitto Denko, our option and license agreements with Novartis and other similar agreements we may enter into in the future, through expense reimbursement, milestone payments and, if a product candidate is successfully commercialized, royalties. Substantially all of our revenues for 2007, 2008 and 2009 were attributable to our Pfizer agreement.

Under the Silence agreement, Silence may terminate our license if we fail to achieve development milestones, but these milestones are considered to be satisfied as long as the Pfizer agreement remains in effect. Pfizer may terminate the agreement without cause at any time upon prior written notice. If not terminated, the agreement will remain in effect in each country at least until the expiration of all relevant patents or ten years from the first commercial sale of the licensed product. Pfizer may at any time and for any reason discontinue the development of or regulatory approval process for the drug candidates it licensed from us, and instead elect to commercialize its own proprietary drug candidates or those of other licensors. Additionally, if Pfizer terminates its agreement with us, we would be required under the Silence agreement to achieve a pre-agreed development milestone within a defined time period following the termination. Pfizer has significantly greater financial resources than we do and has far more experience in developing and marketing

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drugs, which could put us at a competitive disadvantage if we were to compete with Pfizer in the development of RNAi-based drugs targeting the same disease. If required to develop RTP-801, we may not be able to do so successfully, do so as efficiently as Pfizer or at all. If we are unable to meet the remaining development milestones as specified in our RTP-801 development plan, we may lose our rights to one or more of the Silence patents. Although our agreement with Pfizer grants us the option to take an exclusive license to Pfizer intellectual property relating to RTP-801, if any, this license would then impose an additional cost that may not be commercially feasible. In addition, this option does not extend to (i) Pfizer’s intellectual property licensed from third parties under agreements that prohibit transferring rights to another party such as us, and (ii) certain devices Pfizer may have used in conjunction with developing RTP-801.

In addition, our execution of the option agreement with Novartis created a question regarding the amounts that may be due under our license agreement with Silence as a result of payments that we receive from Novartis. Following negotiations with Silence, we have agreed in principle on a sharing ratio for the payments we may receive. This agreement in principle will be reflected in an amendment to our license agreement with Silence, which is currently being prepared.

In the future, we hope to enter into similar license or collaboration agreements with pharmaceutical companies for the development of product candidates we may identify. If our relationship with Pfizer or any future collaborations are unsuccessful or terminated early, our business would be adversely affected.

We are also at risk that these collaborations or other arrangements may not be successful. Factors that may affect the success of our collaborations include the following:

• Our collaborators may incur financial and cash-flow difficulties that force them to limit or reduce their participation in our joint projects;

• Our collaborators may be pursuing alternative technologies or developing alternative products that are competitive to our product, either on their own or with others;

• Our collaborators may terminate their relationships with us. This could make it difficult for us to attract new collaborators or adversely affect perception of us in the business and financial communities; Our collaborators may pursue higher priority programs or change the focus of their development programs, which could affect their commitment to us. Pharmaceutical and biotechnology companies historically have re-evaluated their priorities from time to time, including following mergers and consolidations, a common occurrence in recent years; and

• Our collaborators may become the target of litigation for purported patent or intellectual property infringement, which could delay or prohibit commercialization of our products and which would reduce our revenue from such products.

Because we have licensed some of our drug candidates to third parties, we are more dependent on third parties for the successful development and commercialization of those drug candidates.

Our decision to license some of our drug candidates to third parties means we have relinquished control over how those drug candidates are developed and commercialized and how they are perceived in the marketplace. As a result, our success is dependent, in part, on the efforts of those licensees. In addition, our drug candidates may receive negative publicity relating to the activities of our licensees, regardless of whether such publicity is properly attributable to the merits of our drug candidates. If we receive negative publicity based on the activities of our licensees, our business, financial condition and results of operations and the value of our common stock could be materially and adversely affected.

We may not be able to execute our business strategy if we are unable to enter into or maintain license or collaboration agreements with other companies that can provide capabilities and funds for the development and commercialization of our drug candidates. If we are unsuccessful in forming or maintaining these relationships, our business may be adversely affected.

We do not have any manufacturing, sales, marketing or distribution capabilities and have limited drug development capabilities. Accordingly, we have and plan to continue to enter into agreements with other companies that can provide such capabilities. For example, we may enter into agreements with major

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pharmaceutical companies to jointly develop specific drug candidates and to jointly commercialize them if they are approved. In such agreements, we would expect our pharmaceutical collaborators to provide substantial capabilities in clinical development, regulatory affairs, marketing and sales. We may not be successful in entering into any such agreements on favorable terms. Even if we do succeed in securing such agreements, we may not be able to maintain them if, for example, development or approval of a drug candidate is delayed or sales of an approved drug are disappointing. Furthermore, any delay in entering into these agreements could delay the development and commercialization of our drug candidates and reduce their competitiveness even if they reach the market. Any such delay could adversely affect our business.

We have granted licenses or options to license and agreed to collaborate with third parties to fund all or part of the costs of drug development and commercialization, such as our collaboration with Pfizer, as well as collaborations with Mitsubishi Pharma Corporation, Sankyo Co., Ltd., Astellas Pharma Inc., AstraZeneca, Taisho Pharmaceutical Co., Ltd. and Shionogi & Co and Nitto Denko Corp. Except for our collaboration with Pfizer and Nitto Denko, the research funding under each of these agreements has ended. While we may at some point receive payments from certain of these collaboration partners upon the achievement of development milestones by these partners, except for our collaboration with Pfizer and Nitto Denko, none of the agreements are expected to be material to our business in the future. We may not, however, be able to enter into additional collaborations, and the terms of any collaboration agreement we do secure may not be favorable to us. If we are not successful in our efforts to enter into future collaboration arrangements, we may not have sufficient funds to develop drug candidates internally, or to bring any drug candidates to market, which would substantially harm our business.

RNAi-based drug development is unproven and may never lead to marketable products.

Our future success depends on the successful development of products based on RNAi technology. Neither we nor any other company has received regulatory approval to market therapeutics utilizing siRNAs. The scientific discoveries that form the basis for our efforts to discover and develop new siRNA drugs are relatively new. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Skepticism as to the feasibility of developing RNAi therapeutics has been expressed in scientific literature.

Very few drug candidates based on these discoveries have ever been tested in animals or humans. Currently, no drugs based on RNAi technology have been approved or have progressed beyond Phase III clinical trials. We currently have only limited data suggesting that we can introduce into siRNAs the properties typically required of drugs, such as the ability to be stable in the body long enough to reach the tissues in which their effects are required, or the ability to enter cells within these tissues in order to exert their effects. We may make significant expenditures trying to optimize these properties without success. In addition, these compounds may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory studies, and they may interact with human biological systems in unforeseen, ineffective or harmful ways. As a result, we may never succeed in developing a marketable product. If we do not successfully develop and commercialize drugs based upon our siRNA drug candidates, we may not become profitable and the value of our common stock will decline.

Any failure or delay in completing clinical trials for our product candidates could severely harm our business.

Each of our product candidates must undergo extensive preclinical studies and clinical trials as a condition to regulatory approval. Preclinical studies and clinical trials are expensive and take many years to complete. We estimate that clinical trials and related regulatory review in initial indications for our most advanced product candidates, PF-655, QPI-1002 and QPI-1007, will continue for at least several more years, but could take significantly longer to complete. The completion of clinical trials for our product candidates may be delayed or halted for many reasons, including:

• delays or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective sites;

• regulators or institutional review boards may not authorize us to commence a clinical trial;

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• our inability, or the inability of our collaborators or licensees, to manufacture or obtain from third parties materials sufficient to complete our preclinical studies and clinical trials;

• delays in patient enrollment, and variability in the number and types of patients available for clinical trials;

• risks associated with trial designs;

• difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

• poor effectiveness of product candidates during clinical trials;

• safety issues, including serious adverse events;

• the failure of patients to complete clinical trials due to side effects, dissatisfaction with the product candidate or other reasons;

• governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and

• varying interpretation of data by the FDA and similar foreign regulatory agencies.

Clinical trials may require the enrollment of large numbers of patients, and suitable patients may be difficult to identify and recruit. Our ability to enroll sufficient numbers of patients in our clinical trials depends on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the eligibility criteria for the trial and competition for patients from other clinical trials. Patients participating in the trials may not live through completion of the trial or may suffer adverse medical effects unrelated to treatment with our product candidate. The results from preclinical testing and prior clinical trials may not be predictive of results obtained in later and larger clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing promising results in earlier clinical trials. Our failure to adequately demonstrate the safety and effectiveness of any of our product candidates will prevent us from receiving regulatory approval and negatively impact our business.

It is possible that none of our product candidates will complete clinical trials in any of the markets in which we intend to sell those product candidates. We also do not know and are unable to predict what clinical trials the FDA will require us to conduct, which could result in additional delays in bringing our product candidates to market. Accordingly, we may not receive the regulatory approvals needed to market our product candidates. Any failure or delay in completing clinical trials for our product candidates would delay commercialization of our product candidates and severely harm our business and financial condition.

We may be unable to obtain U.S. or foreign regulatory approval and, as a result, be unable to commercialize our drug candidates.

Our drug candidates are subject to extensive governmental regulations relating to development, clinical trials, manufacturing and commercialization. Rigorous preclinical testing and clinical trials and an extensive regulatory approval process are required to be successfully completed in the United States and in many foreign jurisdictions before a new drug can be sold. Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. It is possible that none of the drug candidates we may develop will obtain the regulatory approvals necessary for us or our licensees or collaborators to begin selling them.

We have little experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. The time required to obtain FDA and other approvals is unpredictable. Any analysis we perform of data from preclinical and clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. We may also encounter unexpected delays or increased costs due to new government regulations, for example, from future legislation or administrative action, or from changes in FDA policy during the period of product development, clinical trials and FDA regulatory review.

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Because the drugs we are intending to develop may represent a new class of drug, the FDA has not yet established any definitive policies, practices or guidelines in relation to these drugs. While we expect any product candidates that we develop will be regulated as a new drug under the Federal Food, Drug, and Cosmetic Act, the FDA could decide to regulate them or other products we may develop as biologics under the Public Health Service Act. If the FDA decides to regulate our product candidates as biologists, oversight for such candidates would shift from the FDA’s Center for Drug Evaluation and Research (CDER) to its Center for Biologics Evaluation and Research (CBER), and we would apply for marketing via a Biologics Licensing Application (BLA) rather than an New Drug Application (NDA). Either pathway relies on sound scientific evaluation of product safety and efficacy for determining approvals, and would not significantly change our development approach. The lack of policies, practices or guidelines may hinder or slow review by the FDA of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining requirements we may not have anticipated. Such responses could lead to significant delays in the clinical development of our product candidates. In addition, because there may be approved treatments for some of the diseases for which we may seek approval, in order to receive regulatory approval, we will need to demonstrate through clinical trials that the product candidates we develop to treat these diseases, if any, are not only safe and effective, but safer or more effective than existing products.

Any delay or failure in obtaining required approvals could have a material adverse effect on our ability to generate revenues from the particular drug candidate. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses for which we may market the product. These limitations may limit the size of the market for the product.

We are also subject to numerous foreign regulatory requirements governing 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 FDA approval described above as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by the FDA does not assure approval by regulatory authorities outside the United States.

Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our approvals to market drugs and our business would be seriously harmed.

Following any initial regulatory approval of any drugs we may develop, we will also be subject to continuing regulatory review, including the review of adverse drug experiences and clinical results that are reported after our drugs are made commercially available. This would include results from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our drug candidates will also be subject to periodic review and inspection by the FDA. The discovery of any previously unknown problems with the product, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from the market. We do not have, and currently do not intend to develop, the ability to manufacture material for our clinical trials or on a commercial scale. We expect to continue to contract with third parties to manufacture these materials for us. Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured products ourselves, including reliance on the third-party manufacturer for regulatory compliance. Our product promotion and advertising will also be subject to regulatory requirements and continuing regulatory review.

If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approval, product recalls and seizures, operating restrictions and criminal prosecutions.

Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.

Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third-party payors and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:

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• our ability to provide acceptable evidence of safety and efficacy;

• the prevalence and severity of adverse side effects;

• the availability, relative cost and relative efficacy of alternative and competing treatments;

• the effectiveness of our marketing and distribution strategy;

• publicity concerning our products, if any, or competing products and treatments; and

• our ability to obtain sufficient third-party insurance coverage or reimbursement.

If our approved product candidates, if any, do not become widely accepted by physicians, patients, third-party payors and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.

The pharmaceutical market is intensely competitive. If we are unable to compete effectively with existing drugs, new treatment methods and new technologies, we may be unable to commercialize any drugs that we develop.

The pharmaceutical market is intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are pursuing the development of novel drugs for the same indications that we are targeting or expect to target.

If PF-655 is approved for wet age-related macular degeneration and/or for diabetic macular edema, we anticipate that it would compete with other marketed therapeutics, particularly vascular endothelial growth factor inhibitor drugs, primarily Genentech’s Lucentis, approved by the FDA for wet age-related macular degeneration and which has become the standard-of-care for the treatment of wet age-related macular degeneration and recently approved for diabetic macular edema by the EMEA in Europe. PF-655 may also face competition from off-label use of Genentech’s Avastin, currently approved for the treatment of various cancers. Additional wet age-related macular degeneration therapeutics that are in development could also compete with PF-655. These include further anti-vascular endothelial growth factor angiogenesis inhibitors drugs. Among these, Alcon Research is evaluating Anecortave Acetate (Retaane), an antiangiogenic synthetic steroid drug, Allergan is developing its siRNA drug candidate AGN211745, Regeneron’s intravitreal formulation of soluble decoy receptor vascular endothelial growth factor VEGF Trap-Eye (aflibercept) is in Phase III clinical trials for wet age related macular degeneration in collaboration with Bayer, CoMentis, Inc. is developing ATG3, a topical eye drop therapy, MacuSight and Santen are developing Perceiva (sirolimus, rapamycin) for age related macular degeneration and diabetic macular edema, Ophthotech is developing E10030, a pegylated aptamer that binds and inhibits PDGF in combination with Lucentis, Alimera is developing pSivida’s Iluvien® and intravitreal insert, to deliver fluocinolone acetonide, a corticosteroid, to the retina for up to three years as a treatment for diabetic macular edema and age related macular degeneration.

We are not aware of specific drugs marketed for the prevention of acute renal failure or of delayed graft function in renal transplant patients that would compete with QPI-1002 if it is approved. However, in response to the unmet medical need, new products could be developed for the prevention of acute renal failure, such as Action Pharma’s AP214 for acute kidney injury, or existing products could be used off-label, such as Nesiritide, a recombinant form of human B-type natriuretic peptide (hBNP) therapy approved for the treatment of acute congestive heart failure.

Many of our competitors have:

• much greater financial, technical and human resources than we have at every stage of the discovery, development, manufacture and commercialization of products;

• more extensive experience in preclinical testing, conducting clinical trials, obtaining regulatory approvals, and in manufacturing and marketing pharmaceutical products;

• product candidates that are based on previously tested or accepted technologies;

• products that have been approved or are in late stages of development; and

• collaborative arrangements in our target markets with leading companies and research institutions.

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We will face intense competition from drugs that have already been approved and accepted by the medical community for the treatment of the indications for which we may develop drugs. We also expect to face competition from new drugs that enter the market. We believe a significant number of drugs are currently under development, and may become commercially available in the future, for the treatment of some conditions for which we are developing or in the future may try to develop drugs, such as wet age-related macular degeneration. Any competitive drugs may be more effective, or marketed and sold more effectively, than any products we develop.

If we successfully develop drug candidates, and obtain approval for them, we will face competition based on many different factors, including:

• the safety and effectiveness of our products;

• the ease with which our products can be administered;

• the timing and scope of regulatory approvals for these products;

• the availability and cost of manufacturing, marketing and sales capabilities;

• price;

• reimbursement coverage; and

• patent position.

Our competitors may develop or commercialize products with significant advantages over any products we develop based on any of the factors listed above or on other factors. Our competitors may therefore be more successful in commercializing their products than we are, which could adversely affect our competitive position and business. Competitive products may make any products we develop obsolete or noncompetitive before we can recover the expenses of developing and commercializing our drug candidates. Furthermore, we also face competition from existing and new treatment methods that reduce or eliminate the need for drugs, such as the use of advanced medical devices. The development of new medical devices or other treatment methods for the indications we are targeting could make our drug candidates noncompetitive, obsolete or uneconomical.

In addition to the competition we face from competing drugs in general, we also face competition from other companies working to develop novel drugs using technology that competes more directly with our own. Any of these companies may develop its RNAi technology more rapidly and more effectively than us. We may also compete with companies working to develop drugs based on an alternative mechanism of the body to suppress the activity of specific genes, known as antisense. Antisense molecules are strands of nucleic acids, deoxyribonucleic acid (DNA) or ribonucleic acid (RNA), complex biomolecules found in all living cells. Antisense molecules interact with complementary strands of nucleic acids to inhibit expression of specific genes. The development of antisense drugs is more advanced than that of RNAi therapeutics, and antisense technology may become the preferred technology for drugs that inhibit expression of specific genes.

It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our product candidates, their use and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to protect our product candidates from unauthorized making, using, selling, offering to sell or importation by third parties is dependent upon the extent to which we have rights under valid and enforceable patents, or have trade secrets that cover these activities.

We have licensed several patents and patent applications relating to RNAi technology. In addition, we have and are seeking patents in the United States, Europe and selected other jurisdictions for our product candidates, delivery methodologies and target genes. However, any patents we obtain or license from third parties may be challenged, invalidated, held unenforceable or circumvented. The existence of a patent will not necessarily protect us from competition or from claims of a third party that our products infringe their

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issued patents. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in the United States. The biotechnology patent situation outside the United States is even more uncertain.

Despite our efforts and the efforts of our patent associates and consultants in the US and foreign jurisdictions, our pending patent applications may not result in issued patents. The patent position of pharmaceutical and biotechnology companies, including ours, is generally uncertain and involves complex legal, ethical and factual considerations.

There is no uniform, global policy regarding the subject matter and scope of claims allowable in pharmaceutical or biotechnology patents. The criteria applied by the United States Patent and Trademark Office and other patent offices throughout the world to grant patents are not always predictable or uniform. The United States Patent and Trademark Office and its foreign counterparts have upheld stringent standards for RNAi patents that have been prosecuted thus far.

The current international standard for patentability requires that an invention be a) novel; b) non-obvious or have an inventive step; and c) have utility or industrial applicability. However, each national patent office implements the standard differently and each national court interprets the claims independently.

In the US, various District Courts, the Court of Appeals of the Federal Circuit (CAFC) and the Supreme Court (SC) have ruled in cases that set forth new interpretations for the above three requirements, thereby amending the standards for what is considered patentable.

For example, in September 2010 the USPTO published a 15-page notice updating the 2007 KSR (from the Supreme Court case KSR International Co. v. Teleflex Inc., et al.) Guidelines for Examiners. The update reviews more than 20 of the most relevant Federal Circuit case law dealing with obviousness since KSR. Since the 2007 KSR case the threshold for meeting the non-obviousness requirement has risen. In a recent case heard in the Southern District of New York, the American Civil Liberties Union (ACLU) and other public organizations successfully challenged the validity of patents to human genes. The case has been appealed to the CAFC for review and decision.

In Europe, a ten-year debate led to the 1998 adoption of EU Directive 98/44/EC on the legal protection of biotechnological inventions, known as the “Biotech Patent Directive”. Its purpose is to clarify the distinction between what is patentable and what is not. For example, the directive rules out the patenting of methods of treatment and surgery in a human subject but allows patenting of individual human, animal or plant genes and gene sequences, and their functions, as long as the patentability criteria are fulfilled. Case law continues to evolve in Europe, as in the US. For example, Article 123 of the European Patent Convention is being interpreted very strictly resulting in many patents being found invalid.

In light of the history outlined above, we do not know the degree of future protection for our proprietary rights or the scope of claims that will be allowed in any patents issued to us or to third parties.

Competitors may successfully challenge our owned and licensed patents, produce similar drugs that do not infringe our patents, or produce drugs in countries where we do not have patent protection or that do not respect our patents. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our owned or licensed patents and patent applications. To the extent we rely on third parties for our proprietary rights, we will have limited control over the prosecution, protection and defense of such rights.

The degree of future protection to be afforded by our proprietary rights is uncertain and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

• others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents, or for which we are not licensed under our license agreements;

• we or our licensors or collaborators might not have been the first to make the inventions covered by our pending patent applications, or the pending patent applications and issued patents of our licensors;

• we or our licensors or collaborators might not have been the first to file patent applications for these inventions;

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

• our pending patent applications may not result in issued patents;

• our issued patents and the issued patents of our licensors or collaborators may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties;

• we may not develop additional proprietary technologies that are patentable; or

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

We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our product candidates is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

Our research and development collaborators may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research that may be relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be insufficient or inadequate to protect our trade secrets and may impair our patent rights. If we do not apply for patent protection prior to such publication or if we cannot otherwise maintain the confidentiality of our technology and other confidential information, then our ability to receive patent protection or protect our proprietary information may be jeopardized.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

The cost to us of any litigation or other proceedings relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to continue our operations. Should third parties file patent applications, or be issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings before the U.S. Patent and Trademark Office to determine priority of invention which could result in substantial costs to us or an adverse decision as to the priority of our inventions. An unfavorable outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties. There is no guarantee that any prevailing party would offer us a license or that we could acquire any license made available to us on commercially acceptable terms.

Third parties are, and have been, actively seeking patent protection in the RNAi field. We are aware of a number of currently pending patent applications that, if granted, might arguably cover our activities or product candidates, depending on the scope of claims allowed, if any, including patent applications owned by Merck & Co., Inc., Alnylam Pharmaceuticals, Thermo Fisher Scientific, Isis Pharmaceuticals, Marina Biotech, Sylentis and others. In addition, claims could be made that we infringe existing patents which we have concluded do not cover our work in the RNAi field. Furthermore, patent applications and granted patents may exist of which we are unaware that could cover our work in the RNAi field. If any parties successfully claim that our creation or use of proprietary technologies infringes upon their intellectual property rights, we might be forced to pay damages, potentially including treble damages, if we are found to have willfully infringed on such parties’ patent rights. In addition to any damages we might have to pay, a court could require us to stop the infringing activity or obtain a license. Any license required under any patent may not be made available on commercially acceptable terms, if at all. In addition, such licenses are likely to be non-exclusive and, therefore, our competitors may have access to the same technology licensed to us. If we fail to obtain a

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required license and are unable to design around a patent, we may be unable to effectively market any products we successfully develop, which could limit our ability to generate revenues or achieve profitability and possibly prevent us from generating revenue sufficient to sustain our operations. Moreover, we expect that a number of our collaborations will provide that royalties payable to us for licenses to our intellectual property may be offset by amounts paid by our collaborators to third parties who have competing or superior intellectual property positions in the relevant fields, which could result in significant reductions in our revenues from any products developed through collaborations.

If we fail to comply with our obligations under any inbound licenses or related agreements, we could lose license rights that are necessary for developing and protecting our RNAi technology and any related product candidates that we develop.

We have licensed certain patents and patent applications from Silence and Alnylam Pharmaceuticals, Inc. relating to RNAi technology, and from University of Illinois Chicago, or UIC, and Dharmacon that are important for the development of our drug candidates. All licensors have the right to terminate their license agreements with us if we default under them. Maintaining our licenses with Silence, Alnylam, UIC and Dharmacon is critical to our continued development of our product candidates. Loss of one or more of these licenses could jeopardize our intellectual property position.

Our current inbound licenses impose, and any future inbound licenses we enter into are likely to impose, various development, commercialization, funding, royalty, diligence, sublicensing, insurance and other obligations on us. If we breach any of these obligations, the licensor may have the right to terminate the license or render the license non-exclusive, which could result in us being unable to develop, manufacture and sell products that are covered by the licensed technology or enable a competitor to gain access to the licensed technology. Additionally, some of these licenses impose field-of-use restrictions that may limit future growth with regard to new markets or products. Our licenses from Alnylam relating to p53 and RTP-801 are limited to products for the treatment of specific diseases. In addition, while we cannot currently determine the amount of the royalty obligations we will be required to pay on sales of future products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in products that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize products, we may be unable to achieve or maintain profitability.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our licensees, collaborators, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or commercialize our product candidates.

We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the

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third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.

We do not have manufacturing experience or resources and we must incur significant costs to develop this expertise or rely on third parties to manufacture our product candidates.

We do not have manufacturing experience for our RNAi drug candidates, which requires us to depend on third parties that might not be able to deliver sufficient quantities of product at acceptable quality levels in a timely manner, or at all. In order to develop products, apply for regulatory approvals and commercialize our products, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities. We may manufacture clinical trial materials ourselves, but more likely would rely on others to manufacture the materials we will require for any clinical trials that we initiate. Only a limited number of manufacturers supply synthetic siRNA. We currently rely on several contract manufacturers, including Avecia, Agilent Technologies, and BioSpring for our supply of synthetic siRNA, and Pyramid Laboratories for the supply of our final material for clinical trials. There are risks inherent in pharmaceutical manufacturing that could affect the ability of our contract manufacturers to meet our delivery time requirements or provide adequate amounts of material to meet our needs. Included in these risks are synthesis and/or purification failures and contamination during the manufacturing process, both of which could result in unusable product and cause delays in our development process. The manufacturing process for any products that we may develop is an element of the FDA approval process and we need to contract with manufacturers who can meet the FDA requirements on an ongoing basis. In addition, if we receive the necessary regulatory approval for any product candidate, we also expect to rely on third parties, including our collaborators, to produce materials required for commercial production. We may experience difficulty in obtaining adequate manufacturing capacity for our needs. If we are unable to obtain or maintain contract manufacturing for these product candidates, or to do so on commercially reasonable terms, we may not be able to successfully develop and commercialize our products.

To the extent that we enter into manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner and consistent with regulatory requirements. The failure of a third-party manufacturer to perform its obligations as expected could adversely affect our business in a number of ways, including:

• we may not be able to initiate or continue clinical trials of products that are under development;

• we may be delayed in submitting applications for regulatory approvals for our products;

• we may lose the cooperation of our collaborators;

• we may be required to cease distribution or recall some or all batches of our products; and

• ultimately, we may not be able to meet commercial demands for our products.

If a third-party manufacturer with whom we contract fails to perform its obligations, we may be forced to manufacture the materials ourselves, for which we may not have the capabilities or resources, or enter into an agreement with a different third-party manufacturer, which we may not be able to do on reasonable terms, if at all. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer or the reverification of an existing manufacturer could negatively affect our ability to develop product candidates or produce approved products in a timely manner or within budget. Furthermore, a manufacturer may possess technology related to the manufacture of our product candidates or approved products that such manufacturer owns independently. This would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third-party manufacture our products.

The loss of members of our management team could substantially disrupt our business operations.

Our success depends to a significant degree upon the continued contributions of our management team, and particularly Daniel Zurr, Ph.D., our founder, President and Chief Executive Officer. The loss of Dr. Zurr,

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whether from retirement, competing offers, or other causes, could prevent us from executing our business strategy, cause us to lose a strategic partner or otherwise materially affect our operations. Dr. Zurr, as well as the rest of our management team and key employees, are at-will employees, and we do not maintain any key-person life insurance policies.

We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to maintain our operations or grow effectively.

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain qualified management, clinical and scientific personnel for all areas of our organization. In this regard, in anticipation of increased development and commercialization activities, we are currently planning to increase the total number of our full time employees significantly over the next couple of years. As a result, we expect personnel costs to increase in the future. The increase in costs will depend on the timing and compensation of the new hires. If we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to implement our development and commercialization activities or grow effectively. We have in the past maintained a rigorous, highly selective and time-consuming hiring process. We believe that our approach to hiring has significantly contributed to our success to date. However, our highly selective hiring process has made it more difficult for us to hire a sufficient number of qualified employees and, as we grow, our hiring process may prevent us from hiring the personnel we need in a timely manner. If we do not succeed in attracting qualified personnel and retaining and motivating existing personnel, our existing operations may suffer and we may be unable to grow effectively.

We lack marketing and commercialization experience for biopharmaceutical products and we may have to rely on third parties for these capabilities.

We currently do not have sales, marketing or distribution capabilities. We intend to hire sales and marketing personnel to enable us to commercialize some of our product candidates. If we are unsuccessful in hiring and retaining sales and marketing personnel with appropriate technical and sales expertise or in developing an adequate distribution capability to support them, our ability to generate product revenues will be adversely affected. To the extent we cannot or choose not to use internal resources for the marketing, sales or distribution of any potential products in the United States or elsewhere, we intend to rely on collaboration partners or licensees. We may not be able to establish or maintain such relationships. To the extent that we depend on collaboration partners or other third parties for marketing, sales and distribution, any revenues we receive will depend upon their efforts. Such efforts may not be successful, and we will not be able to control the amount and timing of resources that our licensees or collaborators or other third parties devote to our products.

If any products we develop become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, our business could be harmed.

Our ability to commercialize any product candidate profitably will depend in part on the extent to which reimbursement for such product candidate and related treatments will be available from government health administration authorities, private health insurers or private payors, and other organizations in the United States and internationally. Even if we succeed in bringing one or more product candidates to market, these products may not be considered cost-effective, and the amount reimbursed for any product may be insufficient to allow us to sell it profitably. Because our product candidates are in the early stages of development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. There may be significant delays in obtaining coverage for newly approved products, and coverage may be more limited than the purposes for which the product candidate is approved by the FDA or foreign regulatory agencies. Moreover, eligibility for coverage does not mean that any product will be reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Increasingly, the third-party payors who reimburse patients, such as government and private payors, are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. If the reimbursement we are able to obtain for any product we develop is inadequate in light of our development and other costs, our business could be harmed.

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We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

• decreased demand for our product candidates;

• impairment of our business reputation;

• withdrawal of clinical trial participants;

• costs of related litigation;

• substantial monetary awards to patients or other claimants;

• loss of revenues; and

• the inability to commercialize our product candidates.

Although we currently have product liability insurance coverage for our global clinical trials for expenses or losses up to an aggregate limit of $10 million, our insurers may not reimburse us, or our insurance coverage may not be sufficient to reimburse us, for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

If we or our licensees, collaborators, manufacturers or service providers fail to comply with applicable laws and regulations, we or they could be subject to enforcement actions, which could affect our ability to market and sell our products and may harm our reputation.

If we or our licensees, collaborators, manufacturers or service providers fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, which could affect our ability to develop, market and sell our products under development successfully and could harm our reputation and lead to reduced acceptance of our products by the market. These enforcement actions include:

• warning letters;

• recalls or public notification or medical product safety alerts;

• restrictions on, or prohibitions against, marketing our products;

• restrictions on importation of our products;

• suspension of review or refusal to approve pending applications;

• suspension or withdrawal of product approvals;

• product seizures;

• injunctions; and

• civil and criminal penalties and fines.

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We are subject to foreign exchange risk.

We expect to derive substantially all of our revenues in U.S. dollars. However, the substantial majority of our Israeli subsidiary’s expenses are denominated in NIS and we anticipate that a material portion of our Israeli subsidiary’s expenses will continue to be denominated in NIS. We do not engage in foreign currency hedging arrangements. Accordingly, fluctuations in exchange rates between the U.S. dollar and NIS may adversely affect our results of operations.

We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.

We use hazardous chemicals and radioactive and biological materials in our business and are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials. Although we believe our safety procedures for handling and disposing of these materials and waste products comply with these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, we could be held liable for any resulting damages. We are uninsured for third-party contamination injury.

We have significant operations in Israel, which may be adversely affected by acts of terrorism or major hostilities.

Our primary research and development facilities are located in Ness Ziona, Israel. We are subject to a number of risks and challenges that specifically relate to these operations. Since the establishment of the State of Israel in 1948, a number of armed conflicts have occurred between Israel and its Arab neighbors. Any hostilities involving Israel could adversely affect our operations. In addition, our operations could be materially and adversely affected by acts of terrorism or major hostilities in the Middle East. Any such effects may not be covered by insurance. These operations may not be successful if we are unable to meet and overcome these challenges, which could limit the growth of our business and may have an adverse effect on our business and operating results.

We are subject to the risk of natural disasters, including earthquakes.

We have facilities located in the San Francisco Bay Area, Boulder, Colorado, and Israel. The San Francisco Bay area is in close proximity to known earthquake fault zones. If a fire, earthquake, flood or other natural disaster disrupts our research or development efforts, our business, financial condition and operating results could be materially adversely affected. Although we maintain personal property and general business interruption coverage, we do not maintain earthquake or flood insurance coverage for personal property or resulting business interruption.

Risks Related to the Units, Our Common Stock and this Offering

We are selling this offering without an underwriter and may be unable to sell any units. Unless we are successful in selling the units and receiving the proceeds from this offering, we may have to seek alternative financing to implement our business plans.

This offering is not-underwritten on a firm commitment basis. In the event we do not sell at least            units the offering will be cancelled. In such event we may have to seek alternative financing to implement our business plans.

The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the price you paid for them in this offering.

We have applied to list our common stock on the Tel Aviv Stock Exchange. We have not, however, applied to list or have our stock quoted on any stock exchange or quotation system in the United States. Prior to this offering, there has not been a public market for our common stock. We cannot assure you that an active trading market for our common stock will develop in Israel following this offering, and we do not expect that any active public trading market for our common stock will develop in the United States.

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You may not be able to sell your shares quickly or at the market price if trading in our common stock is not active.

The trading price of our common stock on the Tel Aviv Stock Exchange is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

• new products or services introduced or announced by us or our licensees or collaborators, or our competitors, and the timing of these introductions or announcements;

• the issuance of patents to competitors;

• actual or anticipated results from and any delays in our clinical trials;

• actual or anticipated regulatory approvals or our product candidates or competing products;

• actions taken by regulatory agencies with respect to our product candidates, clinical trials, manufacturing process or sales and marketing activities;

• changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;

• the success of our development efforts and clinical trials;

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

• developments concerning our licensing and collaboration arrangements, including but not limited to those with our sources of manufacturing supply;

• actual or anticipated variations in our quarterly operating results;

• announcements of technological innovations by us, our licensees or collaborators, or our competitors;

• actual or anticipated changes in earnings estimates or recommendations by securities analysts;

• conditions or trends in the biotechnology and biopharmaceutical industries;

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

• general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors;

• changes in the market valuations of similar companies;

• sales of common stock or other securities by us or our shareholders in the future;

• additions or departures of key scientific or management personnel;

• developments relating to proprietary rights held by us or our competitors;

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

• trading volume of our common stock.

In addition, the stock market in general and the market for biotechnology and biopharmaceutical companies in particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business and financial condition.

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The TASE members accepting orders in the auction process will not be bound by suitability protections for customers purchasing the units akin to FINRA Rule 2310.

The commercial banks or members of TASE in Israel that will be authorized to receive bids from customers wishing to purchase units in this offering are not member firms or registered representatives of the Financial Industry Regulatory Authority, Inc. (“FINRA”). As such, TASE member will not be subject to FINRA Rule 2310 (Recommendations to Customers (Suitability)) that requires that registered representatives take into account several factors such as the customer’s financial status before recommending investments to individual investors (non-institutional). Notwithstanding the foregoing, investment advisors in Israel are subject to the Israeli Law for the Regulation of Investment Advice, Investment Marketing and Investment Management, 1995 that contains, among others, several provisions aimed at protecting the interest of investors, including a requirement to accommodate the service to the needs and instructions of the client.

Following the offering, we shall be subject to certain provisions of the Israel Securities Law — 1968, which deal mainly with disclosure issues, and to certain provisions of Israel Companies Law — 1999, which deal mainly with corporate governance issues. Both provisions differ from US securities laws and the default provisions generally applicable to California corporations, respectively. Certain of these provisions may be unenforceable and stockholder rights may be adversely affected.

As a result of the offering of securities in Israel, we are subject to certain provisions of the Israel Securities Law — 1968. Pursuant to Section 39A of the Israel Securities Law — 1968, rules and regulations of the Israeli Companies Law — 1999 listed in the Fourth Schedule to the Israel Securities Law apply to issuers incorporated in jurisdictions outside Israel which offer securities to the public in Israel.

In addition, pursuant to Section 39A of the Israel Securities Law, we are subject to a number of other provisions of the Israeli Companies Law, including provisions applicable to:

• Our Chairman of the Board of Directors and our Chief Executive Officer (Sections 95 and 121(c) of the Israeli Companies Law)

• proxy statements required under the Israeli Companies Law (Sections 87 and 89 of the Israeli Companies Law);

• our Audit Committee (Sections 114 to 117 of the Israeli Companies Law), our Internal Auditor (Sections 146 to 153 of the Israeli Companies Law);

• derivative claims and class action lawsuits (Sections 194 to 218 of the Israeli Companies Law);

• duties of officers (Sections 252 to 256 of the Israeli Companies Law);

• transactions with controlling stockholders (Sections 270(d) and 275 to 282 of the Israeli Companies Law and all regulations promulgated thereunder);

• The appointment of external directors (Sections 239 to 249A of the Israeli Companies Law);

• Tender offers (sections 328 to 340 and 342 of the Israeli Companies Law) and Israel Securities Regulations (Purchase Offers), 2000,

The foregoing provisions of Israeli law are only applicable to the extent permitted by California law. In the event of a conflict between these provisions and California law, California law will prevail.

Our largest shareholder and management beneficially own a significant percentage of our stock and will be able to exercise significant influence over matters subject to shareholder approval.

As of October 31, 2010, our executive officers, directors and largest shareholder, together with their respective affiliates, beneficially owned approximately 79.9% of our voting stock, including shares subject to outstanding options and warrants, and we expect that upon completion of this offering, that same group will continue to beneficially own at least    % of our outstanding voting stock. Accordingly, even after this offering, these shareholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring shareholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of

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delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our common stock.

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

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules implemented by the Securities and Exchange Commission and Israel Securities Authority, imposes various requirements on public companies, including requiring the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect director and officer liability insurance to be expensive, and we may be required to incur substantial costs to maintain the same or similar coverage in the future.

The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As a result of our compliance with Section 404, we will incur substantial accounting expense and expend significant management efforts and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to ensure such compliance. As a reporting corporation under the Israel Securities Law, we will also be required to file periodic and immediate reports according to the Israel Securities Law and regulations, resulting in significant additional legal, accounting and other expenses. We expect these expenses will be increased by our need to reconcile the requirements of U.S. and Israeli laws, and the fact that the Israel Securities Law and regulations are designed mainly for companies incorporated under the Israel Companies Act, as opposed to under U.S. law, as we are.

Future sales of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. After this offering, we will have up to            shares of common stock outstanding.

Under the rules of the Tel Aviv stock exchange, certain of our stockholders will be restricted from selling our securities for between three and 18 months following this offering. These restrictions, together with additional restrictions under U.S. securities laws are described in “Shares Eligible for Future Sale,” limit the number of shares of common stock that may be sold immediately following this offering.

All of the shares of common stock and warrants sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, except for any shares purchased by our affiliates as defined in Rule 144 under the Securities Act of 1933, as amended. 21,384,630 shares of common stock outstanding as of October 31, 2010, plus an additional 2,632,919 shares issuable upon the exercise of outstanding options will be available for sale, subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended and the restrictions imposed by the Tel Aviv Stock Exchange.

After this offering, the holders of approximately 17,996,100 shares of common stock based on shares outstanding as of October 31, 2010, will be entitled to rights with respect to registration of such shares under the Securities Act of 1933, as amended. If such holders, by exercising their registration rights, cause a large number of securities to be registered and sold in the public market, these sales could have an adverse effect on the market price for our common stock. If we were to initiate a registration and include shares held by these holders pursuant to the exercise of their registration rights, these sales may impair our ability to raise capital.

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Anti-takeover provisions in our charter documents and under California law could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management.

Provisions in our articles of incorporation and our bylaws may delay or prevent an acquisition of us that would be beneficial to shareholders or a change in our management. In addition, these provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team. These provisions include:

• a prohibition on actions by our shareholders by written consent;

• advance notice requirements for election to our board of directors and for proposing matters that can be acted upon at shareholder meetings;

• elimination of cumulative voting in the election of directors; and

• the ability of our board of directors to amend our bylaws without shareholder approval.

In addition, as a California corporation, we are subject to the provisions of Section 1203 of the California Corporations Code, which requires us to provide a fairness opinion to our shareholders in connection with their consideration of any proposed “interested party” reorganization transaction. These provisions could make it more difficult for a third party to acquire a majority of our outstanding voting stock by discouraging a hostile bid, or delaying, preventing or deterring a merger, acquisition or tender offer in which our shareholders could receive a premium for their shares, or effect a proxy contest for control of Quark or other changes in our management, even if the proposed acquisition or change in management could be considered beneficial by some shareholders.

If you purchase shares of common stock sold in this offering, you will experience immediate dilution. You will experience further dilution if we issue shares in future financing transactions or upon exercise of options or warrants.

If you purchase shares of common stock in this offering, you will experience immediate dilution of $      per share because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire. This dilution is due in large part to the fact that most of our earlier investors paid substantially less than the initial public offering price when they purchased their shares. If we issue additional common stock or issue securities convertible into or exchangeable or exercisable for common stock, our shareholders will experience additional dilution. In addition, if we raise additional funds through the sale of equity securities, new investors could have rights superior to our existing shareholders.

Because our management will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use them and the proceeds may not be invested successfully.

We intend to use the net proceeds from this offering for general corporate purposes, and therefore, our management will have broad discretion as to the use of the offering proceeds. Accordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for our company.

We have not declared any dividends on our common stock to date, and we have no intention of declaring dividends in the foreseeable future.

The decision to pay cash dividends on our common stock rests with our board of directors and will depend on our earnings, unencumbered cash, capital requirements and financial condition. We do not anticipate declaring any dividends in the foreseeable future, as we intend to use any excess cash to fund our operations. Investors in our common stock should not expect to receive dividend income on their investment,

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and investors will be dependent on the appreciation of our common stock to earn a return on their investment. Additionally, our ability to pay future dividends may be restricted by the terms of any debt financing and tax considerations.

Risks Related to the Auction Process for Our Offering

The auction process may result in a phenomenon known as the “winner’s curse,” and, as a result, investors may experience significant losses.

The auction process may result in a phenomenon known as the “winner’s curse.” At the conclusion of the auction, bidders that receive allocations of units in this offering (successful bidders) may infer that there is little incremental demand for our shares above or equal to the public trading price. As a result, successful bidders may conclude that they paid too much for our units and could seek to immediately sell their shares to limit their losses should our stock price decline. In this situation, other investors that did not submit successful bids may wait for this selling to be completed, resulting in reduced demand for our common stock in the public market and a significant decline in our stock price. Therefore, we caution investors that submitting successful bids and receiving allocations may be followed by a significant decline in the value of their investment in our common stock shortly after our offering.

Successful bidders may receive the full number of units subject to their bids, so potential investors should not make bids for more units than they are prepared to purchase.

Successful bidders may be allocated all or almost all of the units that they bid for in the auction. Therefore, we caution investors against submitting a bid that does not accurately represent the number of units that they are willing and prepared to purchase.

If research analysts publish or establish target prices for our common stock that are below the offering price for our units or the then current trading market price of our shares, the price of our shares of common stock may fall.

Although the offering price of our units may have little or no relationship to the price determined using traditional valuation methods, research analysts may rely on these methods to establish target prices for our common stock. If research analysts publish target prices for our common stock that are below the offering price of our units or the then current trading market price of our shares, our stock price may decline.

The mechanics of our bid process make it difficult for persons not having an account with a TASE member at the time of the bid process to place a bid for our units.

We are conducting our bid process in compliance with the rules of the TASE and the Israeli Securities Authority. As a result of the manner in which we are conducting the offering and while the bidding process is open to everyone, bids must be submitted through TASE members. For description of the offering mechanism, see “Plan of Distribution.” The need to submit a bid through a TASE member makes it potentially difficult and costly for persons not having an account with a TASE member to bid on our units.

The amount of proceeds from this offering is dependent upon the outcome of the auction process.

The amounts set forth in the “Use of Proceeds” section indicate our proposed use of proceeds from this offering. Due to the nature of the auction process, the outcome of the auction will determine the proceeds of the offering and there is no assurance that we will be able to sell any units in this offering. The offering will not be completed, and bids submitted will be cancelled, if the minimal amount indicated in the “Use of Proceeds” section shall not be achieved as a result of the offering.

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FORWARD-LOOKING STATEMENTS

Some of the statements under the sections of this prospectus 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 contain forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Many important factors affect our ability to achieve our objectives, including:

• our ability to continue to develop our product candidates;

• the successful and timely completion of clinical trials;

• our ability to maintain and form relationships with our licensees and collaborators;

• our ability to obtain and maintain regulatory clearance or approval of our products;

• the impact of competition on our product candidates; and

• our ability to obtain and maintain intellectual property protection for our products.

In addition, you should refer to the section of this prospectus entitled “Risk Factors” for a discussion of other important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all.

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of units comprised of ___ shares of our common stock and ___ warrants in this offering will be a maximum of approximately $    million, and a minimum of approximately $   , based upon an assumed initial public offering price of $    per unit (the mid-point of our anticipated range of offering prices), after deducting estimated distribution commissions and offering expenses payable by us, excluding proceeds received from the exercise of the warrants. The offering price will be determined in an auction process, as detailed in the Plan of Distribution, and shall not be lower than NIS      (approximately $    ), the minimum price for the purpose of this offering. There is no assurance that we will sell the maximum number of units or that we will sell any units at all. Each $1.00 increase (decrease) in the assumed initial public offering price of $    per unit, would increase (decrease) net proceeds to us from this offering by approximately $    million, assuming the number of units offered by us is at the minimum level, as set forth on the cover page of this prospectus. We may also increase or decrease the number of units we are offering. Each increase (decrease) of one million units in the number of units offered by us would increase (decrease) the net proceeds to us from this offering by approximately $    million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated discounts and commissions and offering expenses payable by us, excluding proceeds received from the exercise of the warrants. We do not expect that a change in the offering price or the number of units by these amounts would have a material effect on our uses of the net proceeds from this offering, although it may impact the amount of time prior to which we will need to seek additional capital. We will not receive any proceeds from the exercise of the warrants unless and to the extent that the warrants are exercised. In general, our top priority is the completion of development of clinical and preclinical stage products that are subject to agreements with third parties (including option, license and collaboration). Should our future financial position not be sufficient to complete all such programs, we will assess the best resource allocation at that time. We currently expect to use our net proceeds from this offering, together with existing cash resources and anticipated funding from existing collaborators, to conduct two Phase II clinical trials of our product candidate QPI-1002, a Phase I clinical trial of QPI-1007, a Phase II trial of QPI-1007 following the Phase I trial and continuation of the development of our product candidates in preclinical stage, all subject to the receipt of necessary regulatory approvals and achievement of other milestones, as follows:

• Approximately $16.2 million to complete Phase II clinical trials of our product candidate QPI-1002 for Delayed Graft Function.

• Approximately $23.6 million to complete Phase II clinical trials of our product candidate QPI-1002 for Acute Kidney Injury.

• Approximately $2.2 million to complete Phase I clinical trials of our product candidate QPI-1007.

• Approximately $12.2 million to complete a Phase II clinical trials of our product candidate QPI-1007 in development for NAION and Glaucoma.

We may also seek to obtain debt or other non-equity financing to cover a portion of the costs to complete development and commercialize any or all of our drug candidates, to fund development of our other preclinical and early-stage product candidates and/or for the acquisition or in-licensing of, or investment in, products, product candidates, or companies that complement our business. However, we have no current understandings, commitments or agreements with respect to any such potential financing.

The expected use of the net proceeds of this offering represents our current intentions based upon our present plans and business conditions. We anticipate that the net proceeds we receive in this offering, together with our existing cash resources and anticipated research and development funding and milestone payments from existing collaborators, will be sufficient to fund our operations through the first half of 2013 and, subject to the receipt of necessary regulatory approvals and achievement of other necessary milestones, to complete Phase II clinical trials of QPI-1002 and to complete Phase I clinical trial and prepare and conduct Phase II clinical trial of our product candidate QPI-1007. The amounts we actually expend in these areas will depend upon a number of factors, including the success of research and product development efforts, FDA approval of our products, cash generated from future operations and actual expenses to operate our business. The use of proceeds as specified above are our estimates as of the date of this prospectus, however, we cannot be certain of all of the particular uses for the net proceeds to be received upon the closing of this offering. Our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the proceeds of this offering.

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The amount and timing of our expenditures will depend on several factors, including the progress of our research and development efforts and the amount of cash used by our operations. Pending their uses, we plan to invest the net proceeds of this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

The offering coordinator, Clal Finance Betucha Investment Management Ltd., will hold the offering proceeds in trust after the pricing of the offering and before the issuance of the units. Prior to the public tender, as described in the Plan of Distribution, the offering coordinator will open a special trust account at a banking corporation in the name of Quark, bearing interest, and will provide the TASE members with the details of the trust account, which will be used for the monies received from persons ordering units in the offering. The trust account will be managed exclusively by the offering coordinator for and on behalf of Quark, in accordance with section 28 of the Israel Securities Law. Monies accrued to the trust account are expected to be invested by the offering coordinator in unlinked, liquid deposits bearing daily interest, to the extent possible. If, at the end of the public tender, all the units on offer have been purchased and TASE approval has been obtained to list the units for trading, the offering coordinator will pay the monies and interest accrued in the trust account to Quark.

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.

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CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2010:

• on an actual basis;

• on an as adjusted basis to reflect:

• the conversion of all of our outstanding shares of preferred stock into 17,696,100 shares of common stock immediately prior to the closing of this offering; and

• the sale of     units, the maximum number offered under this prospectus, with each unit comprised of     shares of common stock and     warrants, in this offering at an assumed initial offering price of $     per unit, after deducting underwriting discounts and commissions and estimated offering expenses.

You should read the information in this table together with our financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

	As of September 30, 2010 (Unaudited)
	Actual			Pro-forma			Pro-forma as adjusted
	(in thousands, except share and per share data)
Series H Redeemable Convertible Preferred stock $0.001 par value:
7,700,000 shares authorized at September 30, 2010, 7,400,000 issued and outstanding at September 30, 2010; Aggregate liquidation preference of $44,400 at September 30, 2010; No shares authorized or issued and outstanding proforma	$	37,000		$	—
Stockholders’ equity:
Common stock $0.001 par value:
Authorized: 74,800,000 shares at September 30, 2010; Issued and outstanding: 3,388,530 shares at September 30, 2010; 74,800,000 shares authorized and 21,084,630 shares, issued and outstanding proforma		3			21
Series A – G Convertible Preferred stock $0.001 par value:
Authorized: 25,882,410 shares at September 30, 2010; Issued and outstanding: 25,879,611 shares issued at September 30, 2010; Aggregate liquidation preference of $86,443 at September 30, 2010; none issued and outstanding proforma		26			—
Additional paid in capital		77,263			114,271
Accumulated deficit		(111,295	)		(111,295	)
Total stockholders’ equity		(34,003	)		2,997
Total capitalization		(34,003	)	$	2,997

Each $1.00 increase (decrease) in the assumed initial public offering price of $     per unit, would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by approximately $     million, assuming that the number of units offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and offering expenses payable by us, excluding proceeds received from the exercise of the warrants. We may also increase or decrease the number of units we are offering. Each increase (decrease) of one million units in the number of units offered by us would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by approximately $    million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated distribution commissions and estimated offering expenses payable by us, excluding proceeds received from the exercise of the warrants. The pro forma as adjusted

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information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The outstanding share information in the table above is as of September 30, 2010 and excludes:

• 300,000 shares of common stock issuable upon conversion of outstanding Series H Redeemable Preferred Stock resulting from the exercise of warrants, on October 18, 2010.

• warrants exercisable for     shares of our common stock to be sold in this offering;

• 2,683,457 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $1.97 per share; and

• 587,565 shares of common stock reserved for future issuance under our 1997 Stock Plan.

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DILUTION

If you invest in our units in this offering, your ownership interest in our common stock will be diluted to the extent of the difference between the initial public offering price per share and the proforma net tangible book value per share of our common stock after this offering. Net tangible book value per share is determined by dividing the number of outstanding shares of our common stock into our total tangible assets (total assets less intangible assets) less total liabilities (including redeemable preferred stock). As of September 30, 2010, we had a historical net tangible book value of our common stock of $34 million, or approximately $(10.03) per share, not taking into account the conversion of our outstanding convertible preferred stock. The proforma net tangible book value of our common stock as of September 30, 2010 was approximately $     million, or approximately 0.14 per share, based on the number of shares outstanding as of September 30, 2010, after giving effect to the conversion of the redeemable preferred stock and all outstanding convertible preferred stock into shares of common stock prior to completion of this offering.

Investors participating in this offering will incur immediate, substantial dilution. After giving effect to the sale of the maximum number of units offered in this offering at an assumed initial public offering price of $     per unit, after deducting estimated distribution commissions and offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2010, would have been approximately $     million, or approximately $     per share of common stock, excluding proceeds received from the exercise of the warrants. This represents an immediate increase in pro forma as adjusted net tangible book value of $     per share to existing shareholders, and an immediate dilution of $     per share to investors participating in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per unit
Historical net tangible book value per share as of September 30, 2010
Pro forma decrease in net tangible book value per share attributable to conversion of convertible preferred stock
Pro forma net tangible book value per share before this offering
Pro forma increase in net tangible book value per share attributable to investors participating in this offering
Pro forma as adjusted net tangible book value per share after this offering
Pro forma dilution per share to investors participating in this offering

Each $1.00 increase (decrease) in the assumed initial public offering price of $    per unit, with each shares of common stock comprising the units to be offered at a price between $___ and $___ per share, and each warrant comprising the units to be offered at a price between $____ and $____, would increase (decrease) our pro forma as adjusted net tangible book value by approximately $    million, or approximately $    per share, and the pro forma dilution per share to investors in this offering would be approximately $    per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, excluding proceeds received from the exercise of the warrants. We may also increase or decrease the number of shares we are offering. An increase of one million units in the number of units offered by us, over and above the maximum number of shares specified on the cover of this prospectus, would increase our pro forma as adjusted net tangible book value by approximately $    million, or $    per share, and the pro forma dilution per share to investors in this offering would be $    per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated distribution commissions and estimated offering expenses payable by us, excluding proceeds received from the exercise of the warrants. Similarly, a decrease of one million units in the number of units offered by us would decrease our pro forma as adjusted net tangible book value by approximately $    million, or $    per share, and the pro forma dilution per share to investors in this offering would be $    per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated distribution and commissions and offering expenses payable by us, excluding proceeds received from the exercise of the warrants. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

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The following table summarizes, on a pro forma basis as of September 30, 2010, the differences between the number of shares of common stock purchased from us, the total consideration and the weighted average price per share paid by existing shareholders and by investors participating in this offering at an assumed initial public offering price of $     per unit, and before deducting estimated distribution commissions and offering expenses payable by us:

	Total consideration				Weighted average price per share
	Number	Percent	Amount	Percent
	(in thousands)
Existing shareholders before this offering
Investors participating in this offering
Total

The above discussion and tables are as of September 30, 2010 and exclude:

• 300,000 shares of common stock issuable upon exercise of outstanding Series H Redeemable Convertible Preferred stock warrants, with an exercise price of $5.00 per share, and conversion of the resulting shares;

• 2,683,457 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $1.97 per share; and

• 587,565 shares of common stock reserved for future issuance under our 2007 Equity Incentive Plan.

The following table summarizes, on a pro forma basis as of September 30, 2010, after giving effect to the exercise of all stock options and warrants outstanding as of September 30, 2010, the differences between the number of shares of common stock purchased from us, the total consideration and the weighted average price per share paid by existing shareholders and by investors participating in this offering at an assumed initial public offering price of $     per share, before deducting estimated distribution commissions and offering expenses payable by us:

	Total consideration				Weighted average price per share
	Number	Percent	Amount	Percent
	(in thousands)
Existing shareholders before this offering
Investors participating in this offering
Total

The number of shares of common stock outstanding in the table above is based on the pro forma number of shares outstanding as of September 30, 2010.

Effective upon the closing of this offering, an aggregate of       shares of our common stock will be reserved for future issuance under our 2007 Equity Incentive Plan and 2010 Employee Stock Purchase Plan. To the extent that any options or warrants are exercised or new options or shares are issued under our benefit plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

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SELECTED FINANCIAL DATA

The following selected financial data should be read together with our financial statements and accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

We derived the statements of operations data for the years ended December 31, 2007, 2008 and 2009 and the balance sheet data as of December 31, 2008 and 2009 from our audited financial statements appearing elsewhere in this prospectus. The statement of operations data for the years ended December 31, 2005 and 2006 and the balance sheet data as of December 31, 2005, 2006 and 2007 are derived from our audited financial statements, which are not included in this prospectus.

The following financial data for the nine months ended September 30, 2009 and 2010, and as of September 30, 2010 have been derived from our unaudited financial statements which are included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results and results for the nine months ended September 30, 2010 are not necessarily indicative of results to be expected for the full year.

	Years ended December 31,															Nine months ended September 30,
	2005			2006			2007			2008			2009			2009			2010
	(in thousands, except share and per share data)
	(audited)															(unaudited)
Statements of Operations Data:
Revenues	$	3,438		$	4,252		$	27,878		$	17,276		$	2,655		$	2,065		$	2,810
Cost of development services		—			—			—			1,719			1,712			1,339			869
Gross profit		3,438			4,252			27,878			15,557			943			726			1,941
Operating costs and expenses:
Research and development		9,049			18,881			20,774			18,726			15,744			13,024			13,659
General and administrative		2,224			2,986			7,055			5,018			5,087			3,823			4,820
Total operating costs and expenses		11,273			21,867			27,829			23,744			20,831			16,847			18,479
Operating income (loss)		(7,835	)		(17,615	)		49			(8,187	)		(19,888	)		(16,121	)		(16,538	)
Financial income (expenses), net		377			656			940			722			87			61			(538	)
Income (loss) before income taxes		(7,458	)		(16,959	)		989			(7,465	)		(19,801	)		(16,060	)		(17,076	)
Income taxes		—			—			—			(1,667	)		160			62			(210	)
Net income (loss)		(7,458	)		(16,959	)		989			(9,132	)		(19,641	)		(15,998	)		(17,286	)
Changes of Redemption Value of Series F and H Preferred Stock		(118	)		638			(336	)		—			—			—			(1,368	)
Deemed dividend as a result of warrants modification		—			—			(117	)		—			—			—			—
Income attributable to preferred shareholders		—			—			536			—			—			—			—
Net income (loss) to common shareholders	$	(7,576	)	$	(16,321	)		—			(9,132	)		(19,641	)		(15,998	)		(18,654	)
Net income (loss) per share of common stock:
Basic and diluted net loss per share	$	(2.91	)	$	(6.21	)		—		$	(2.76	)	$	(5.80	)	$	(4.72	)	$	(5.51	)
Weighted average number of shares used in computing basic and diluted net loss per share		2,599,781			2,628,784			2,970,351			3,307,871			3,388,119			3,387,988			3,388,530
Proforma net loss per share of common stock:
Basic and diluted net loss per share pro forma (unaudited)														(1.03	)					(0.86	)
Weighted average number of shares used in computing basic and diluted net loss per share pro forma (unaudited)														19,084,219						20,092,037

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	As of December 31,											September 30, 2010
	2005		2006		2007		2008		2009
	(in thousands)
	(audited)											(unaudited)
Balance Sheet Data:
Cash and cash equivalents	$	18,326	$	19,842	$	12,234	$	32,734	$	12,842		$	8,728
Working capital		15,537		4,637		8,611		27,412		8,792			3,034
Total assets		21,430		22,892		16,105		36,374		15,690			12,373
Deferred revenues		53		11,677		698		16		81			1,479
Redeemable convertible preferred stock		874		236		0		27,000		27,000			37,000
Total shareholders’ equity (deficiency)		17,185		5,410		9,391		1,576		(17,132	)		(34,003	)

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

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

Overview

We are a clinical-stage pharmaceutical company engaged in discovering and developing novel RNA interference or RNAi-based therapeutics. We have a fully integrated drug development platform that spans therapeutic target identification based on our proprietary gene discovery science and technology, to clinical drug development. We initially focus on RNAi-based therapeutics for the treatment of diseases associated with oxidative stress and ischemic injury. We believe that our insight into the molecular mechanisms underlying these diseases, combined with our ability to design, chemically modify and successfully deliver synthetic small-interfering RNA, or siRNA, to specific organs in the body, enables us to rapidly develop drug candidates, often directed against the same target across multiple therapeutic areas. We have three product candidates in clinical development in five different indications: PF-655 (previously RTP801i-14) for the treatment of diabetic macular edema or DME and for wet age-related macular degeneration, or wet AMD; QPI-1002 (previously AKIi-5) for the prevention of acute kidney injury, or AKI (known also as acute renal failure or ARF) and for treatment of delayed graft function or DGF in kidney transplant patients; and QPI-1007 for ocular neuroprotection. We have licensed PF-655 to Pfizer on an exclusive worldwide basis and we granted an option for an exclusive license to QPI-1002 to Novartis. We have a broad pipeline based on our internally developed and chemically modified siRNA structures, protected by intellectual property rights. Several of our product candidates are based on novel targets and therapeutic concepts discovered using our BiFAR^TM target gene discovery platform. We believe that our platform technologies, siRNA capabilities and intellectual property combined with expertise of our regulatory, medical, preclinical and clinical development group will enable us to continue to advance new product candidates into clinical development

We have incurred significant net losses since our inception in December 1993. From inception through September 30, 2010, we have funded our operations primarily through gross proceed $120 million from the sale of equity securities and $128 million pursuant to our license and collaboration agreements with pharmaceutical companies. Through 2005, a substantial portion of our revenues were from our BiFAR^TM gene discovery collaboration agreements with several pharmaceutical companies. In connection with the expiration of research funding under some of those agreements, we ceased certain of our product development efforts. In September 2006, we licensed our drug candidates that inhibit RTP-801 to Pfizer. In June 2010 we entered into a collaboration and license agreement with Nitto Denko pursuant to which Nitto Denko will fund certain of our research program efforts. In August 2010 we granted an option to Novartis for an exclusive license on our QPI-1002 drug candidate for all indications and we recognized a non-refundable option grant fee. Our execution of the option agreement with Novartis created a question regarding the amounts that may be due under our license agreement with Silence as a result of payments that we receive from Novartis. Following negotiations with Silence, we have agreed in principle on a sharing ratio for the payments we may receive. This agreement in principle will be reflected in an amendment to our license agreement with Silence, which is currently being prepared. We may seek to license our other product candidates to third parties in the future. For the next several years, we expect that our revenues will consist primarily of payments from Pfizer, Novartis if the option is exercised, Nitto Denko and any future licensees and collaborators. We have not achieved profitability and we expect to incur significant net losses over the next several years as we expand our research and development activities, advance our product candidates into later stages of clinical development, and expend resources on collaborations and other general corporate activities.

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Financial Operations Overview

The following is a description of components of our revenue and operating expenses.

Revenues.  We generate revenues mainly from research and development services under our collaborations with pharmaceutical companies, from research and development cost reimbursements and up-front and milestone payments under other collaboration and license agreements and to a lesser extent from certain short-term research service agreements and grants.

Revenues under Pfizer agreement,

In connection with the Pfizer agreement, during the year ended December 31, 2006 Pfizer paid us approximately $14.9 million in upfront fees and reimbursement of on-going research and development expenses incurred after effectiveness of the agreement. Of this, during 2006 we recognized $1.7 million related to reimbursement of on-going research and development expenses and $1.5 million related to the amortization of the deferred upfront payment.

During 2007 we recognized $10.3 million related to the first milestone payment from Pfizer as a result of the start of Phase I study for the first licensed product for the first ophthalmic use, $6.4 million related to reimbursement of on-going research and development expenses and $11.2 million related to the amortization of the deferred upfront payment.

During 2008, we recognized revenues revenue under the Pfizer agreement in the total amount of $17.2 million, of which $12.9 million was a milestone payment following the achievement of the second clinical development milestone for our siRNA drug PF-655 in development for the treatment of ocular diseases. A portion of the milestone payment from Pfizer is payable by us to Silence Therapeutics (formerly; Atugen AG) and Alnylam as technology license milestone payments, $1.9 million and $0.4 million, respectively, both of which were recorded by us as research and development expenses. In addition, during the year ended December 31, 2008, $0.7 million was recorded as a result of amortization of deferred revenues and $3.7 million was recorded as revenues from reimbursement of on-going research and development expenses related to the agreement with Pfizer.

During the year ended December 31, 2009, we recognized total revenue under the Pfizer agreement of $2.6 million which was recorded as revenues from development services.

During the nine month periods ended September 30, 2010, the Company recognized total revenue under the Pfizer agreement of $1.4 million from research and development services.

Cost of revenues.  Cost of revenues include direct and allocated expenses that are associated with the clinical development-related services provided to Pfizer.

Research and Development Expenses.  The majority of our operating expenses to date have been for research and development activities. Costs associated with our research activities and product development efforts mainly include the following:

• costs for conducting preclinical studies, clinical trials, and manufacturing by outsourced vendors and clinical research organizations;

• employee and consultant-related expenses, which include salaries and benefits;

• license fees paid to third parties for use of their intellectual property; and

• direct and indirect expenses required for operation and maintenance of labs and research and development offices, such as supplies and material, rent, utilities, depreciation and other expenses,

At any given time, we have multiple ongoing research and development projects. Our internal resources, employees and infrastructure are not directly tied to any individual project and are typically deployed across multiple projects. We group projects into two major categories: “research” and “preclinical and clinical development.” Through our clinical development programs we are developing each of our product candidates in parallel for multiple disease indications, and through our basic research activities are seeking to design potential drug candidates for multiple new disease indications. We have not therefore maintained complete cost information for each of our projects.

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We only commence tracking cost by project when we begin preclinical studies with respect to a particular product candidate and we start development, rather than keeping cost information from the onset of each project. The approximate costs associated with our (a) basic research programs and (b) preclinical and clinical development activities were as follows:

	Cost from proof of concept through September 30, 2010			Year ended December 31,						Period ended September 30,
										Unaudited
				2007		2008		2009		2009		2010
	(in thousands)
Pre-clinical and clinical development
PF-655*		16,770	(2)		5,824		3,256		14		11		11
QPI-1002 for AKI		18,444	(2)		4,927		2,592		2,624		2,217		1,938
QPI-1002 for DGF		9,447			—		1,961		3,922		2,748		4,459
QPI-1007		7,354			—		750		3,709		3,287		2,895
Other					2,536		578		98		136		—
Total pre-clinical and clinical development					13,287		9,137		10,367		8,399		9,303
Research(1)					7,487		9,589		5,377		4,625		4,356
Total research and development				$	20,774	$	18,726	$	15,744	$	13,024	$	13,659

* The product was licensed to Pfizer in September 2006 and development activities have been funded by Pfizer since then, except for certain expenses that are only partly reimbursed by Pfizer according to our agreement with Pfizer.

(1) Research constitutes research costs for our early stage programs and technology development.

(2) Starting from the end of 2006.

Research and development expenses, including those paid to third parties, are expensed as incurred. We expect our research and development expenses to increase in the future as we continue to develop our product candidates and advance new product candidates into clinical development.

The majority of our research and development programs are at an early stage and may not result in any approved products. Phase I clinical trials generally are expected to last between 12 and 18 months, Phase 2 clinical trials are expected to last between 18 and 24 months and Phase 3 clinical trials are expected to last between 24 and 42 months. The length of clinical development depends on the specific disease, patient population, time required for recruitment of patients and other factors. For product candidates that are in preclinical development, the timing of an IND filing varies significantly and is difficult to predict. Product candidates that may appear promising at early stages of development may not reach the market for a variety of reasons. Product candidates may be found to be ineffective or to cause harmful side effects during clinical trials, may take longer to advance through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. As part of our business strategy we may enter into new license and collaboration agreements with third parties to complete the development and commercialization of our product candidates and it is uncertain which of our product candidates, if any, may be subject to future license and collaboration agreements. The participation of a licensee or collaborator may accelerate the time to completion and reduce the cost to us of a product candidate or it may delay the time to completion and increase the cost to us due to the alteration of our existing strategy.

As a result of the uncertainties discussed above and those associated with clinical trial enrollment, as well as the risks inherent in the drug development process, we are unable to estimate with any certainty the duration and costs of future clinical trials or, if not already substantially underway, current clinical trials of our product candidates or when, or to what extent, we will generate revenue or receive royalties from the commercialization and sale of any of our product candidates. Any failure or delay in completing clinical trials,

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or in obtaining regulatory approvals, would cause our research and development expenses to increase and, in turn, have a material adverse effect on our results of operations.

General and Administrative Expenses.  General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, accounting, business development, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, patent related costs and professional fees for legal, consulting and accounting services.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments 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 reported revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. The SEC considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires the exercise of significant judgment and the use of estimates on the part of management in its application. We have discussed the selection and development of the critical accounting policies with the audit committee of our board of directors, and the audit committee has reviewed our related disclosures in this prospectus. Although we believe that our judgments and estimates are appropriate, actual results may differ from those estimates.

We believe the following to be our critical accounting policies because they are both important to the portrayal of our financial condition and results of operations and they require critical management judgment and estimates about matters that are uncertain:

• revenue recognition;

• accruals, — mainly for research and development expenses for activities performed by third parties;

• stock-based compensation;

• fair value of equity instruments and derivatives and

• income taxes.

If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See “Risk Factors” for certain matters that may affect our future results of operations or financial condition.

Revenue Recognition

Our revenue recognition policies are in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”) and Accounting Standards Codification No. 605-25, “Revenue Arrangements with Multiple Deliverables” (“ASC 605-25”) and Accounting Standards Codification No. 605-45, “Reporting Revenue Gross Versus Net As an Agent” (“ASC 605-45”).

Agreement with Pfizer

Under our agreement with Pfizer, Pfizer is responsible for all preclinical and clinical development costs of the licensed products, as well as all regulatory filings and approvals. The parties share oversight of development through product-specific committees, but Pfizer has ultimate decision-making authority.

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This multiple element arrangement was analyzed to determine whether the deliverables, which include a license and performance obligations such as research and steering committee services, can be separated or whether they must be accounted for as a single unit of accounting in accordance with ASC 605-25. According to ASC 605-25 we considered if (i) the license has stand-alone value and (ii) whether a fair value of any of the undelivered performance obligations can be determined. Because we could not determine fair value of the undelivered performance obligations the arrangement is being accounted for as a single unit of accounting and the upfront front payments are recognized as revenue over the estimated period of when the performance obligations are performed. In addition, revenues are recognized only when we have a contractual right to receive payments, the contract price is fixed or determinable and the collection of the resulting receivable is reasonably assured.

Whenever we determine that an arrangement should be accounted for as a single unit of accounting, it must determine the period over which the performance obligations will be performed and revenue will be recognized.

As we can reasonably estimate when the performance obligations cease or become inconsequential and the performance obligations are provided on a best-efforts basis, the total payments under the arrangement, excluding royalties and payments contingent upon achievement of substantive milestones, are recognized as revenue on a straight-line basis over the period we expect to complete its performance obligations.

Significant management judgment is required in determining the period over which we expect to complete its performance obligations under the arrangement. In addition, as the Company is involved in joint steering and research committees as part of this multiple element arrangement that is accounted for as a single unit of accounting, we assess whether its involvement constitutes a performance obligation or a right to participate. Because Pfizer has acknowledged that the Company can be released from its joint steering and research committees anytime upon request and without penalty, such services are considered inconsequential or perfunctory and are not considered to be performance obligations.

This collaboration agreement also contains milestone payments. During the period in which the Company has research performance obligations, milestone payments are considered to be substantive. Substantive milestone payments are considered to be performance bonuses that are recognized upon achievement of the milestone only if all of the following conditions are met:

• The consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement to the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone.

• The consideration relates solely to past performance.

• The consideration is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

Reimbursement of costs is recognized as revenue on a gross basis as costs are being incurred in accordance with the provisions of ASC 605-45 provided the amounts are determinable, and collection of the related receivable is reasonably assured.

In 2008, we amended our agreement with Pfizer and started to generate revenue by providing professional services and assistance to Pfizer on a time-and-materials basis. Under the agreement terms, we are paid for services provided by company personnel based on per employee rates and actual hours the employee contributed towards Pfizer projects as well as for costs paid by us to third parties in performing the service.

Revenue is recognized as services are performed, provided that evidence of an arrangement has been obtained, fees are fixed and determinable and collectability is reasonably assured.

Research Collaborations with Pharmaceutical Companies

Under these agreements, our performance obligations were provided on a best-efforts basis. The total payments under each arrangement, excluding royalties and payments contingent upon achievement of development milestones by our collaborators, were recognized as revenue on a straight-line basis over the

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periods in which we completed our performance obligations. Revenue was limited to the lower of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period ending dates.

We have no further performance obligations and are not involved in our collaborators’ research and development plans. We may be entitled to future milestone payments and royalties from our collaborators, depending on the progress of development of a drug candidate. Revenue from such milestone payments and royalties will be recognized when due and collection is reasonably assured.

Other short term service agreements:

Under certain short term fixed-price service contracts, we agree to perform limited research services using its technology and research platforms for a fixed price. Under these agreements, revenue is deferred until the Company completes its milestone performance obligations.

Accrued Research and Development Costs

We estimate our accrued research and development costs based on our estimates of the services received pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage preclinical studies, clinical trials and other research activities on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Accrued research and development costs include accruals for the following:

• contract research organizations in connection with preclinical studies;

• contract research organizations and other clinical sites in connection with clinical trials; and

• contract manufacturers in connection with the production of components and drug materials for preclinical studies and clinical trials.

We record accruals for these research and development contracts based upon progression and percentage of completion of work done. Determination of progress of each contract is based on reports and deliverables but also on estimates such as time for completion and others. All such costs are included in research and development expenses. Costs of setting up a preclinical study or clinical trial are expensed immediately. Costs related to patient enrollment in clinical trials are rerecorded and accrued for as patients are enrolled in the trial.

Stock-Based Compensation

We account for stock-based compensation in accordance with Accounting Standards Codification No. 718-10, “Compensation — Stock Compensation” (“ASC 718-10”). ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated income statements.

We recognize compensation costs net of a forfeiture rate for only those shares expected to vest on straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We selected the Black-Scholes option pricing model as the most appropriate fair value method for its stock-options awards. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term.

The computation of expected volatility is based on realized historical stock price volatility of competitive Companies. The interest rate for period within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends. The expected term is calculated based on the “simplified method” as defined in Staff Accounting Bulletin No. 107 or SAB 107, “Share Based Payments” and Staff Accounting Bulletin No. 110, or SAB 110, as the average between the vesting period and the contractual life of the

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options. The Company adopted SAB 110 effective January 1, 2008 and will continue to apply the simplified method until sufficient historical experience is available to provide a reasonable estimate of the expected term for stock option grants.

Stock-based compensation expense includes the fair value of each option to purchase shares of our common stock on the date of grant and is amortized over the vesting period of the underlying option, generally four years using the straight-line method. As further discussed in fair value of equity instruments and derivatives section below there are significant judgments and estimates inherent in the determination of the reassessed fair values.

For non-employees, stock -based compensation expense is recognized over the period of expected service by the non-employee. As the service is performed, we are required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments may result in higher or lower stock-based compensation expense in the statement of operations than originally estimated or recorded. Ultimately, the final compensation charge for each option grant to non-employees is unknown until those options have vested or services have been completed.

Fair value of our common stock

The fair value of the common stock underlying stock options granted during the periods presented were estimated by our board of directors with input from management based upon several factors, including progress and milestones attained in our business. In the absence of a public trading market for our common stock, our board of directors was required to estimate the fair value of our common stock. Our board of directors considered numerous objective and subjective factors in determining the fair value of our common stock at each option grant date, including the factors described below:

• the common stock underlying the option involved illiquid securities in a private company;

• prices of our Series A, Series B, Series C, Series D, Series E, Series F, Series G and Series H preferred stock issued by us primarily to outside investors in arm’s-length transactions, and the rights, preferences and privileges of the preferred stock relative to the common stock

• our performance and the status of research and product development efforts;

• developments concerning our collaborations;

• the composition of and additions to the management team;

• our stage of development and business strategy, including our regulatory review status with regulatory authorities; and

• the likelihood of achieving a liquidity event for the shares of common stock underlying these stock options, such as an initial public offering, merger or sale of us, given prevailing market conditions.

In connection with the preparation of the financial statements necessary for the filing of our initial public offering, we have reassessed the fair value of our common stock at option grant dates since 2009 to the present. We did not use a contemporaneous valuation from an unrelated valuation specialist at the time of the option grants during 2009, because we believed our board of directors’ estimates of the fair value of our common stock to be reasonable and consistent with our understanding of how similarly situated companies in the biotechnology industry were valued. In addition, management’s efforts at the time were focused on product development and the financial and managerial resources available to support an unrelated party valuation were limited.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value

Our board of directors determined the estimated fair value of our common stock on the date of grant based on several factors, including the price at which Series H preferred stock was issued by us to outside investors in arms-length transactions in 2008 and 2010, and the rights, preferences and privileges of the preferred stock relative to the common stock, important developments relating to advancement of our technology and clinical programs, our stage of development and business strategy, the likelihood of achieving a liquidity event for the shares of common stock, such as an initial public offering or sale of our company,

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given prevailing market conditions, and the market prices of various publicly held life science companies and the level of broad based life science stock indices.

As part of our preparation for our initial public offering during the second quarter of 2010, and in accordance with the valuation approaches set forth in the American Institute of Certified Public Accountants, or AICPA, Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors reassessed, retrospectively, the fair value of our common stock in 2009. In reassessing the fair value of our common stock, we considered numerous objective and subjective factors, including:

• a third-party independent valuation report prepared by Variance Economic Consulting, Ltd;

• the pricing of private sales of our preferred shares;

• the comparative rights and preferences of our ordinary shares and our preferred shares;

• the progression of our research and product development efforts;

• significant changes, events and milestones in our business development, including the entry into significant license agreements and collaboration arrangements;

• the likelihood of an initial public offering; and

• the market prices and multiples of comparable publicly held biotech companies.

The retrospective analysis utilized the following methods outlined in the AICPA Practice Aid:

Discounted Future Cash Flow Method (DCF).  To reach enterprise value as of September 30, 2009, and September 1, 2010 we performed a valuation using DCF methodology at each valuation date. Under the DCF method, the fair value of the business is estimated based on the stream of benefits investors expect to receive, the timing of such benefits and the risk borne by investors.

Option Pricing Model.  Once the enterprise value was estimated pursuant to the foregoing analyses, the value was allocated among the company’s debt and its various classes of equity based on the characteristics of each such class and its claim on the company’s assets. Stock characteristics that were factored into the analyses included liquidation preferences, participation features, convertibility features and value sharing between classes of stock. Because the proceeds of any liquidation event are to be divided among the holders of our preferred stock prior to any distribution to the holders of our common stock, we determined that the shares of common stock have the nature of a stock option, which has a positive value only when our liquidation value exceeds the liquidation preference of our preferred stock. Accordingly, an option pricing model was used to estimate the value of our common stock. The common stock value was derived from the value for the company based upon the DCF method at the valuation date. This approach also took into account the relative seniority, rights, liquidation preferences and conversion ratios of the convertible preferred securities, common stock and warrants as of the valuation date under scenarios of both liquidation and initial public offering.

Based on the foregoing, we determined that the fair value of our common stock in September 2009 was $1.10 per share. The fair market value of our common stock was estimated using the option pricing method utilizing the binomial model described above, with the following assumptions for September 30, 2009: a risk-free interest rate of 0.40% – 0.95%, dividend yield of 0%, volatility of the expected market value of our total invested capital of approximately 75% and an expected term of 2.3 years.

Between September 30, 2009 and August 31, 2010, we did not grant any stock options. The valuation analysis of our common stock as of September 1, 2010 utilized the DCF methodology and was also based on estimates provided by underwriters utilizing the market prices. The factors considered in the valuation of our common stock included a third party independent valuation report prepared by Variance Economic Consulting, Ltd. In this report, the fair market value of our common stock was estimated using the option pricing model describing above, with the following assumptions for August 30, 2010: a risk-free interest rate of 0.25% –  0.5%, dividend yield of 0%, volatility of the expected market value of our total invested capital of approximately 75% and an expected term of 1.3 years.

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In our valuation, we considered both the possibility of a successful initial public offering and the possibility that a public offering would not be accomplished. Based on the expected probability of the occurrence of the initial public offering and the non- initial public offering scenarios, the fair value of our common stock was determined. As of September 1, 2010 we estimated a 40% likelihood of a successful initial public offering.

The most significant factors contributing to the increased value of our common stock between September 2009 and September 2010 were our entry into an option license agreement in August 2010 with Novartis and the progress in the development of our product candidates. During this period we filed and received FDA approval for an IND of QPI-1007 and started the Phase I trial for this product. Our partner Pfizer, in collaboration with us, completed the enrollment of the Phase II clinical trials of our product candidate for PF-655, for both age related macular degeneration and diabetic macular edema indications. We completed enrollment of the two phase I studies with QPI-1002, for acute kidney injury and delayed graft function. Finally, we started the Phase II clinical trials of our product candidate for QPI-1002 for delayed graft function in kidney transplant patients.

Based on the above, our board of directors determined the fair value of our common stock to be $4.55 per share in September 1, 2010, of which $2.56 was attributable to the successful initial public offering scenario as of that date.

Since September 2010, the following events occurred that may impact the value of our comment stock. We have continued to make progress in our Phase II and Phase I clinical trails and we have made further progress towards the completion of this offering.

We have not granted any stock options following September 1, 2010.

Aggregate Intrinsic Value of Outstanding Stock Options

Based upon an assumed initial public offering price of $       per share, the aggregate intrinsic value of outstanding stock options vested and unvested as of October 31, 2010 was $       million, of which $         million related to vested stock options and $      million related to unvested stock options expected to vest.

	September 30, 2010		Weighted Average Exercise Price		Assumed IPO Price	Aggregate Intrinsic Value
Vested		1,429,779	$	2.21	$	$
Unvested		1,253,678		1.69
Total outstanding		2,683,457		1.97		$

Preferred Stock Warrant Liability

We account for our preferred stock warrant in accordance with Accounting Standards Codification 480-10, “Distinguishing Liabilities from Equity” (“ASC 480-10”), which requires that a financial instrument, other than an outstanding share, that, at inception, is indexed to an obligation to repurchase the issuer’s equity shares, regardless of the timing or likelihood of the redemption shall be classified as a liability. We measure the fair value of our warrant liability using an option-pricing model with changes in fair value recognized in earnings. Any modifications to the warrant liability are recorded in earnings during the period of the modification.

The significant assumptions used in estimating the fair value of our warrant liability include the strike price, estimate for volatility, risk free interest rate, estimated fair value of the preferred stock, and the estimated life of the warrant. Changes to these assumptions will impact the value of the liability.

Income taxes

We are required to calculate and account for income taxes in each jurisdiction in which we operate. This involves estimating the current tax exposure in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Our estimates regarding the valuation allowance for deferred tax assets require that we make significant estimates and judgments regarding our future operating results. Our ability to

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realize deferred tax assets depends on our future taxable income as well as limitations on their utilization. A deferred tax asset is reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The projections of our operating results on which the establishment of a valuation allowance are based involve significant estimates regarding future demand for our products, competitive conditions, product development efforts, approvals of regulatory agencies and product costs. If actual results differ from these projections, or if our expectations of future results change, it may be necessary for us to adjust the valuation allowance. Although we believe that our estimates and judgments about the tax contingencies and valuation allowance are reasonable, actual results could differ, and we may be exposed to income tax expenses that could be material.

We accounts for income taxes in accordance with ASC 740-10, “Income Taxes” (“ASC 740-10”). ASC 740 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value.

Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to utilize tax attributes, including those in the form of carry forwards for which the benefits have already been reflected in the financial statements. While we believe the resulting tax balances as of December 31, 2009 and 2008 are appropriately accounted for, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material. We have filed or are in the process of filing local and foreign tax returns that are subject to audit by the respective tax authorities. We believe that we adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire.

Results of Operations

Comparison of Nine Months Ended September 30, 2010 and September 30, 2009

Revenue.  Revenue increased to $2.8 million for the nine months ended September 30, 2010 from $2 million for the nine months ended September 30, 2009. The revenue for these periods derived from services provided to Pfizer as described above and in the nine months ended September 30, 2010, the revenue also include $0.7 million from our agreement with Nitto Denko and $0.4 million from our agreement with Novartis.

Cost of development services.  Cost of development decreased from $1.3 million for the nine months ended September 30, 2009 to $0.9 million for the nine months ended September 30, 2010. The decrease results mainly from the completion of the enrollment of patients to Phase II of PFF-655 in 2010.

Research and Development Expenses.  Research and development expenses were $13.7 million for the nine months ended September 30, 2010, compared to $13.0 million for the nine months ended September 30, 2009. Most of the expenses during the nine months ended September 30, 2010 and 2009 were due to salaries, licenses and clinical studies expenses and pre clinical expenses.

General and Administrative Expenses.  General and administrative expenses increased to $4.8 million for the nine months ended September 30, 2010, compared to $3.8 million for the nine months ended September 30, 2009. This increase resulted primarily from an increase of $0.2 million in Patent fees, $0.4 million in professional services expenses due to new agreement of Novartis and Nitto Denko. $0.4 million in payroll and related expenses mainly as a result of waiver of loan to CEO.

Net Financial Income.  Net financial expenses increased to $538,000 for the nine months ended September 30, 2010, from financial income of $61,000 for the nine months ended September 30, 2009. This increase is mainly due to an increase of $565,000 as a result of a change in the fair value of warrants to purchase Series H Redeemable Convertible Preferred Stock.

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Comparison of Years Ended December 31, 2008 and 2009

Revenue.  Revenue decreased from $17.3 million in 2008 to $2.6 million in 2009. This decrease of $14.6 million was primarily due to $12.9 million in revenue recognized in 2008 in connection with a Phase II milestone payment under our agreement with Pfizer, with no corresponding milestone payment recognition in 2009.

Cost of development services.  Cost of development services was $1.7 million in each of the years 2008 and 2009.

Research and Development Expenses.  Research and development expenses decreased from $18.7 million in 2008 to $15.8 million in 2009. This decrease of $2.9 million was primarily due to $2.3 million in license expenses we paid as royalties to Atugen and Alnylam in 2008, with no corresponding payment in 2009.

General and Administrative Expenses.  General and administrative expenses were $5.0 million in each of 2008 and 2009, with no material changes.

Net Financial Income.  Net financial income decreased from $722,000 in 2008 to $87,000 in 2009. This decrease was primarily due to a decrease in our cash balances in 2009 compared to 2008, as well as decreased interest yields on cash and short-term investments.

Income taxes.  Tax expenses changed from $1.6 million tax expenses in 2008 to $160,000 tax income in 2009. The tax expenses in 2008 resulted mainly from accruals due to our tax position.

Comparison of Years Ended December 31, 2007 and 2008

Revenue.  Revenue decreased from $27.8 million in 2007 to $17.3 million in 2008. In 2007 the revenue was derived mainly from recognition of deferred revenue of upfront payment received on the Pfizer agreement in 2006 and from Phase I milestone payment while in 2008 the revenue derived mainly from Phase II milestone payment under our agreement with Pfizer

Cost of development services.  In 2008 following the agreement amendment with Pfizer from May 2008, the company had recorded cost of development services in the amount of $1.7 million. In 2007 there was no cost of development services. Costs related to the agreement with Pfizer were recorded as research and development costs.

Research and Development Expenses.  Research and development expenses decreased from $20.7 million in 2007 to $19.0 million in 2008, a decrease of $1.7 million. Most of this research and development expenditure was for outsourced activities and fluctuation in costs is typical and directly linked to the projects phases in the reported periods. In 2008 we discontinued the development of our hearing loss project which was the primary reason for savings of $3.5 million in outsourced expenses, offset by an increase in internal research and development expenses as a result of an expansion of headcount to support clinical operation activities.

General and Administrative Expenses.  General and administrative expenses decreased from $7.0 million in 2007 to $5.0 million in 2008. This decrease was primarily due to expenses for professional fees associated with our planned initial public offering in 2007 of 1.2 million and the forgiveness of a loan to a related party in 2007 in the amount of 0.7 million.

Net Financial Income.  Net financial income decreased from $0.9 million in 2007 to $0.7 million in 2008 as a result of decreased interest yields on cash and short-term investments.

Income taxes.  Tax expenses increased from $0 in 2007 to $1.6 million in 2008 mainly resulting from our accruals related to accounting for our tax position.

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Liquidity and Capital Resources

Since inception through September 30, 2010, we have financed our operations primarily through private placements of equity securities, receiving aggregate net proceeds from such sales totaling $120 million and proceeds from collaboration, service and license agreements totaling $128 million. As of September 30, 2010, we had $8.7 million in cash and cash equivalents, as compared to $12.8 million, $32.7 million and $12.2 million as of December 31, 2009, 2008 and 2007, respectively. Our cash and investment balances are held in bank deposits and money market funds.

As of September 30, 2010, we had cash and cash equivalents of $8.7 million. Net cash used for operating activities was $14 million for the nine months ended September 30, 2010, compared to $15 million net cash used in operating activities for the nine months ended September 30, 2009, an decrease of $1 million. The loss for the nine months ended September 30, 2010 was $17.3 million and the adjustment to cash was $3.3 million positive. The loss for the nine months ended September 30, 2009 was $15.9 million and the adjustment to cash was $1.0 million positive.

Net cash used in investing activities was $88,000 for the nine months ended September 30, 2010, compared to $56,000 used in investing activities for the nine months ended September 30, 2009, an increase of $32,000. This increase was due primarily to increased purchases of equipment of $45,000 offset by a decrease in other investing activities.

Net cash provided by financing activities was $10.0 million for the nine months ended September 30, 2010, compared to $0 for the nine months ended September 30, 2009. Net cash provided by financing activities for the nine months ended September 30, 2010 consisted of proceeds from the issuance of Series H redeemable preferred stock.

Net cash used in operating activities was $9.6 million, $6.7 million and $19.8 million in 2007, 2008 and 2009, respectively. The use of cash in each period resulted primarily from funding our efforts in research and development, personnel-related costs and obtaining licenses to intellectual property rights. The increase net cash used in 2009 resulted primarily from a substantial decrease in revenue. In 2009 there was no revenue from licenses, which required us to use more cash to support our operations. In 2007 our net cash used in operating activities was impacted by a decrease in the deferred revenues from previous year of approximately $11 million. In addition an increase in tax accrual of $2.5 million, which was paid in 18 monthly installments, impacted our net cash used in operating activates in that year.

Net cash used in investing activities was $305,000, $397,000 and $70,000 in 2007, 2008 and 2009, respectively. The net cash used in investing activities resulted primarily from purchase of equipment of $199,000, $293,000 and $70,000 in 2007, 2008 and 2009 respectively.

Net cash provided by financing activities was $2.3 million, $27.6 million and $0 million in 2007, 2008 and 2009, respectively. The net cash provided by financing activities resulted primarily from exercise of warrants of $2.2 million and sale of redeemable preferred stock of $27 million in 2007 and 2008, respectively.

Based on our current operating plans, we estimate that our existing capital resources, funds to be received pursuant to our agreements with Novartis, Nitto Denko and Pfizer and the net proceeds from this offering, will be sufficient to fund the research and development plans up to meet our financial obligations through the first half of 2013. However, the Series H Redeemable Preferred stock will become redeemable at any time after August 31, 2011, although the holders of a majority of the Series H Redeemable Preferred stock have agreed not to exercise their right of redemption prior to January 31, 2012. The redemption right will terminate upon the closing of a qualified Initial Public Offering. Currently, the redemption right is not at the control of the Company and as such, redemption would adversely affect the Company’s operations and liquidity.

We will need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. We may seek to raise additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to shareholders and debt financing, if available, may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish, on terms

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that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may harm our business and operating results.

Contractual Obligations

Our future contractual obligations at December 31, 2009 were as follows:

	Total		<1 Year		1 – 3 Years		3 – 5 Years		Thereafter
Contractual Obligations	Payments due by period
	(in thousands)
Operating lease obligations(1)	$	587	$	495	$	92	$	—	$	—
Total	$	587	$	495	$	92	$	—	$	—

(1) Our office lease agreement of the Israeli subsidiary ended in June 13, 2010. We are currently negotiating the terms of the new agreement. Since June, 2010 until today we are continuing with the same terms as the previous agreement.

• The table above does not include obligations for accrued severance pay, which as of December 31, 2009 was $0.57 million which is fully covered by deposits for severance pay funds and insurance policies.

• The table above reflects only payment obligations that are fixed and determinable. We also have contractual payment obligations, the amount and timing of which are contingent upon future events. Significant contingent payments related to licensing and other arrangements not included in the contractual obligations table above are as follows:

• Under our December 2004 collaboration agreement with Silence Therapeutics, or Silence, and subsequent amendments, we are required to pay Silence a percentage in the mid teens range, of our receipts from Pfizer under our license agreement with Pfizer, including milestone and royalty payments, but excluding payments specifically committed to cover research and development costs. This percentage may be reduced if we are required to pay royalties to third parties for additional intellectual property. The timing and amount of these receipts from Pfizer, if any, and therefore the corresponding payments to Silence, are contingent on the achievement of milestone and other events and cannot be estimated with any certainty. Under our April 2005 option and license agreement with Silence, we exercised the option to license siRNA-structure related intellectual property for use in siRNA molecules targeting the p53 gene from Silence and we paid an option fee of €50,000 and an exercise fee of €500,000. We granted to Novartis an option to receive a sublicense under the Silence option and license agreement. The option agreement with Novartis created a question regarding the amounts that may be due under our license agreement with Silence as a result of payments that we receive from Novartis. Following negotiations with Silence, we have agreed in principle on a sharing ratio for the payments we receive from Novartis. This agreement in principle will be reflected in an amendment to our license agreement with Silence, which is currently being prepared.

• Under our September 2006 license agreements with Alnylam Pharmaceuticals, Alnylam granted us non-exclusive worldwide licenses under three families of patents and patent applications it owns or controls. The agreements provide for payment by us to Alnylam of annual maintenance fees and up to $6.5 million in contingent development and product approval milestone payments, which are not included in the above table. We will also be required under the license agreements to pay Alnylam low single digit royalties on any sales by us or our sublicensees. We granted Pfizer a sublicense on the patents and patent applications licensed to us under the RTP-801 Alnylam agreement. Under the license agreement we entered into with Pfizer, Pfizer will partially reimburse our payments to Alnylam under the RTP-801 agreement. The amount and timing of these milestone and royalty payments, if any, are contingent, and cannot be estimated with any certainty. We granted Novartis an option for a sublicense under the patents and patent applications licensed to us under the p53 Alnylam agreement.

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• In September 1999, we entered into an exclusive worldwide license with the University of Illinois at Chicago related to the therapeutic inhibition of p53 and small molecule p53 inhibitors for all uses and indications. Under the agreement, we are required to pay the university a future royalty in the low single digit range based on our sales of products incorporating the licensed intellectual property, if any, or a percentage share in the low teens range of any sublicensing revenues, including milestones and royalties, if any, received from sublicensees. These payments to the University of Illinois at Chicago may be reduced in the event we are required to pay additional royalties to third parties for licenses of intellectual property required to develop, manufacture, or commercialize the licensed products. We are also required to pay the University of Illinois at Chicago certain lump -sum payments upon the achievement of certain events. These payments by us to the University of Illinois at Chicago, if any, are contingent and cannot be estimated with any certainty. To date, we have not granted any sublicense under our license from UIC, however we have granted Novartis an option for an exclusive sublicense on patents and patent applications under the UIC agreement through our option agreement with Novartis.

• In January 2010, Dharmacon, Inc., a wholly owned subsidiary of Thermo Fisher Scientific Inc. (“Dharmacon”), granted us an exclusive worldwide license under its patents and patent applications, related to specific siRNA molecule(s) and their use for the inhibition of p53, for all uses and indications. Under the agreement, we are required to pay up to $11.6 million milestone payments upon achievement of development and commercialization milestones as well as single digit royalties on future sales of licensed product. We are also required to pay a low single digit share of any payments we receive from sublicensees, including upfront and milestones payments but excluding royalties on sales by sublicensees and certain other payments. To date, we have not granted any sublicenses under our license from Dharmacon, but we have granted an option for an exclusive sublicense to Novartis thorough our option agreement with Novartis.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Recent Accounting Pronouncements

In October 2009, the FASB issued an update to ASC Topic 605-25, “Revenue recognition — Multiple-Element Arrangements”, that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements: (i) establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis (2) eliminating the residual method of allocation — requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price. (iii) Requiring expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance. The mandatory adoption is on January 1, 2011. The Company may elect to adopt the provisions prospectively to new or materially modified arrangements beginning on the effective date or retrospectively for all periods presented. The Company does not expect the adoption will have material impact on its consolidated financial statements.

In March 2010, the FASB issued an additional update to ASC 605 (ASU No. 2010-17, “Revenue Recognition — Milestone Method), which provides guidance related to revenue recognition that applies to arrangements with milestones relating to research or development deliverables. ASU 2010-17 provides criteria that must be met to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. ASU 2010-17 is effective for interim and annual periods beginning after June 15, 2010. Early adoption is permitted. The Company will adopt ASU 2010-17 on August 1, 2010. The adoption of ASU 2010-17 is not expected to have any material impact on the Company’s financial position, results of operations or cash flows.

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Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to market risk related to changes in interest rates primarily from our investments in certain short-term investments. Our current investment policy is to maintain an investment portfolio through highly rated financial institutions in Israel and the United States, primarily in money market funds. While our cash and investment balances will increase upon completion of this offering, we will maintain an investment portfolio consisting mainly of U.S. money market and government grade securities, directly or through managed funds. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk-sensitive instruments to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates.

Exchange Rate Risk

We do not use derivative financial instruments and have no foreign exchange contracts. From time to time based on market terms, we convert Dollars to NIS to hedge our expenses denominated in NIS. We are exposed to market risk associated with exchange rate movements of the U.S. dollar, our functional and reporting currency, mainly against the NIS. We expect to derive substantially all of our revenues in U.S. dollars. However, the majority of our Israeli subsidiary’s expenses are denominated in NIS, and we anticipate that a material portion of our Israeli subsidiary’s expenses will continue to be denominated in NIS. If the U.S. dollar weakens against the NIS, we will experience a negative impact on our results of operations. Historically, the effect of fluctuations in currency exchange rates has had a low impact on our consolidated operations. We periodically assess the applicability of the U.S. dollar as our functional currency by reviewing the salient indicators. Neither a 10% increase nor decrease from current exchange rates would have a material effect on our operating results or financial condition.

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BUSINESS

Overview

We are a clinical-stage pharmaceutical company engaged in discovering and developing novel RNA interference or RNAi-based therapeutics. We have a fully integrated drug development platform that spans from therapeutic target identification based on our proprietary gene discovery science and technology, to clinical drug development. We focus on RNAi-based therapeutics for the treatment of diseases associated with oxidative stress and ischemic injury. We believe that our insight into the molecular mechanisms underlying these diseases, combined with our ability to design, chemically modify and successfully deliver synthetic small-interfering RNA, or siRNA, to specific organs in the body, enables us to rapidly develop drug candidates, often directed against the same target across multiple therapeutic areas. We have three product candidates in clinical development in five different indications: PF-655 (previously RTP801i-14) for the treatment of diabetic macular edema and for wet age-related macular degeneration; QPI-1002 (previously I5NP or AKIi-5) for the prevention of acute kidney injury and for prevention of delayed graft function in kidney transplant patients; and QPI-1007 for ocular neuroprotection. We have licensed PF-655 to Pfizer on an exclusive worldwide basis and we granted an option to Novartis for an exclusive license to QPI-1002. We have a broad pipeline based on our internally developed chemically modified siRNA structures. Several of our product candidates are based on novel targets and therapeutic concepts discovered using our BiFAR^TM target gene discovery platform. We believe that our platform technologies, siRNA capabilities and intellectual property combined with the expertise of our regulatory, medical, preclinical and clinical development group will enable us to continue to advance new product candidates into clinical development, either directly or through collaborations with major pharmaceuticals companies.

PF-655 has been studied in two Phase II clinical trials for the treatment of diabetic macular edema and for the treatment of wet age-related macular degeneration. PF-655 is a stabilized, synthetic, chemically modified siRNA that inhibits our proprietary target RTP-801, a gene we believe plays a significant role in wet age related macular degeneration and diabetic macular edema. We have licensed PF-655 to Pfizer on an exclusive worldwide basis. Pfizer is responsible for development in collaboration with us and is required to make payments to us upon achievement of development and commercialization milestones, as well as pay us royalties from sales of any approved products. Pfizer has conducted the Phase II clinical trials in collaboration with us. Enrollment in both Phase II trials has been completed and Pfizer received interim results in November 2010. In the development of our drug candidate QPI-1002 we completed two Phase I trials for the prevention of acute kidney injury in patients undergoing major cardiac surgery and for prevention of delayed graft function in kidney transplant patients. In both trials QPI-1002 was administered systemically with no dose limiting toxicities observed in both AKI and DGF trails. QPI-1002 is a synthetic, chemically modified siRNA molecule designed to temporarily inhibit the expression of p53, a gene we believe plays a significant role in ischemic injury related conditions in the kidney. In August 2010 we granted to Novartis an option for a worldwide exclusive license to QPI-1002 for all indications. We are also developing QPI-1007 as a neuroprotective agent for the treatment of sudden vision loss associated with non-arteritic anterior ischemic optic neuropathy. We are conducting a Phase I trial of QPI-1007. QPI-1007, our third siRNA drug candidate is a chemically modified siRNA, designed to inhibit a gene named caspase 2, and it is our first drug candidate based on novel siRNA structure developed internally by Quark. If effective in non-arteritic anterior ischemic optic neuropathy, we plan to develop QPI-1007 also for glaucoma. In addition, we expect to initiate during 2012 formal preclinical studies towards filing IND applications in one or more of our broad pipeline programs based on the novel siRNA structures we develop.

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Our insight into the pathogenesis of diseases, combined with our proprietary targets and concepts and our solution to siRNA delivery, led us to select siRNA as the modality for our clinical programs. We believe that our integrated discovery and development approach is particularly well-suited to RNAi-based therapeutics and is based on the following main capabilities:

• Identifying clinically attractive drug targets using our BiFAR^TM discovery platform.  Using our BiFAR^TM discovery platform, we have identified and validated many gene and protein targets and treatment concepts for diseases, including diseases associated with oxidative stress and ischemic injury. We focus on diseases expressed in organs where we have successfully delivered our siRNA molecules.

• Selection of diseases associated with oxidative stress across several therapeutic areas for the same target.  We believe that our focus on diseases, which share common molecular mechanisms, will enable us to more quickly identify drug candidates capable of treating multiple diseases based on proprietary targets common to diseases in different organs of the body. For example, we have demonstrated in preclinical models that inhibition of the RTP-801 gene has beneficial therapeutic effects in various diseases associated with oxidative stress, such as wet age-related macular degeneration oxygen-induced retinopathy, diabetic macular edema, acute ischemia-reperfusion kidney injury, acute cigarette smoke-induced lung injury and chronic obstructive pulmonary disease. We have licensed to Pfizer the right to develop and commercialize siRNA drug candidates that inhibit RTP-801 in all indications. Furthermore, we have also demonstrated that temporary and reversible inhibition of the gene p53 limits the injury caused by oxidative stress in the kidney and in the inner ear, and thus is potentially useful for the treatment of acute renal failure and acute hearing loss.

• Designing and modifying our siRNA molecules to enable successful local or systemic delivery.  Our siRNA drug candidates have a sequence selected by our SIRS algorithm, and have a chemically modified, stabilized structure and properties that we believe offer significant advantages over standard siRNAs. In preclinical studies, we have successfully delivered siRNA molecules and suppressed target genes in the back of the eye, inner ear, proximal, tubules of the kidney, lung and spinal cord, demonstrating both local and systemic delivery. We select the route of delivery that is clinically relevant for the given organ. Two of our siRNAs were delivered via local administration to the back of the eye in Phase I and Phase II studies. Our QPI-1002 was, according to publicly available information, the first siRNA administered systemically to human patients.

• Optimizing our siRNA molecules for improved potency, nuclease stability, selectivity and lack of stimulation of innate immune response.  We use our internally developed siRNA structures and intellectual property to design lead drug candidates with enhanced properties and a strong intellectual property position.

Some of our product candidates are based on our BiFAR^TM target gene discovery platform and our siRNA technology platform. The BiFAR^TM platform directly identifies clinically relevant critical genes and proteins that are responsible for certain disease traits. BiFAR^TM works by high throughput, genome-wide functional screening of inhibitory elements, such as siRNA, that block activity of key components of pathologic cell responses and thus reverse the disease traits, or disease phenotype. Our BiFAR^TM discovery platform was the basis for several collaboration agreements with pharmaceutical companies and has generated many innovative targets potentially suitable to create drugs to treat a wide range of diseases. Our siRNA technology platform includes proprietary drug delivery methods, proprietary algorithms to select the most appropriate sequence for the siRNA molecule and novel siRNA structures developed based on our deep understanding of the siRNA mechanism. Our novel siRNA structures are created with the aim to provide desirable drug-like properties to our siRNA molecules and to strengthen our intellectual property position.

We believe we have a solid intellectual property position relating to the development and commercialization of our product candidates. We seek patent protection in the United States, Europe and selected other jurisdictions for our product candidates, methods of therapeutic use, delivery methodologies, target genes and our proprietary discovery technology. As of October 30, 2010, we own or control 77 issued and 2 allowed patents in the United States and elsewhere in the world and over 130 patent applications in the

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United States and elsewhere. In addition, we have in-licensed on a non-exclusive basis 32 granted patents in United States and 9 other jurisdictions and 58 patent applications pending in the United States and in 14 other jurisdictions, relating to RNAi technology.

RNAi Overview

RNA interference, or RNAi, is a process that occurs naturally within cells and selectively and temporarily silences the expression of specific genes. In addition, RNAi is a naturally-occurring part of our immune system that is helpful in silencing infectious agents. Genes are the basic units of inheritance. Each gene consists of a defined segment of a substance known as deoxyribonucleic acid, or DNA. Genes provide cells with instructions (via transcription process to messenger RNA molecules) for producing proteins via a translation process of messenger RNAs. Many human diseases are caused by the abnormal behavior of proteins. A particular protein may, for example, be present in too great a quantity, be too active or appear in the wrong place or at the wrong time, or be produced in an aberrant form that has different, unwanted properties and function compared to the native one. In these circumstances, the ability to stop or reduce production of the protein by selectively silencing the expression of the gene that directs its synthesis (by destroying its messenger RNA template or interfering with the translation process) could be very beneficial in the treatment of disease. Harnessing the natural phenomenon of RNAi holds potential for the development of a new class of drugs applicable to a wide range of diseases that result from undesirable protein production. In addition the RNAi approach is applicable to viral diseases by inhibiting viral replication.

The DNA molecule is double-stranded, composed of two complementary strands of building blocks called deoxyribonucleotides. DNA is found is cell nuclei and contain all genetic information of the organism. RNA is another type of nucleic acids found in the cell. Until recently, three major RNA types were known: messenger RNA (mRNA) that is transcribed from DNA and serves a substrate for translation of genetic information stored in DNA into protein; transport RNA, or tRNA, that participates in the process of translation of information encoded in mRNA into protein; and ribosomal RNA that is contained in ribosomes, protein synthesis machines, and performs structural functions. The information in DNA is translated into proteins with the help of another substance called messenger ribonucleic acid. While the predominant form of RNA is a single-stranded molecule, cells also contain fragments of double-stranded RNA. Double-stranded RNA is processed into small fragments called small-interfering RNA, or siRNAs, that act as guides for the sequence-specific silencing of target genes. This occurs when the guide strand siRNA aligns with a messenger RNA molecule having complementary nucleotide sequences and thereby induces its degradation, or interfere with the translation process, thus temporarily silencing expression of the corresponding target gene. The potential application of the RNAi process for drug development was significantly advanced when it was shown in animal models that the introduction of synthetic siRNAs complementary to the target gene can effectively silence expression of the gene.

We believe that RNAi-based therapeutics have potentially significant advantages over traditional therapies, including the following:

• Broad Applicability.  RNAi-based drugs can potentially treat any disease or condition for which an abnormal gene function or a viral agent is identified as the cause of, or as an essential contributing factor to, the disease. Importantly, included are diseases in which the protein causing the disease cannot be targeted effectively by existing drug classes, such as small molecules since their identification requires the protein to have a specific readily measurable function or monoclonal antibodies, due to poor accessibility of the target protein.

• Safety and Therapeutic Precision.  Because RNAi is a naturally occurring process and because natural siRNA consists of nucleic acids, siRNA drugs can be metabolized. RNAi-based drugs may reduce or avoid some of the side effects associated with traditional small molecule drugs, as they can be designed to selectively inhibit expression of disease-associated target genes, with minimal effects on other genes in the body.

• Inherent Potency.  RNAi-based drugs may have a higher potency than certain small molecule drugs because one siRNA molecule can lead to the destruction of multiple target messenger RNA molecules, thus blocking the synthesis of many protein molecules.

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• Shortened and Simplified Drug Discovery Timelines.  When a target gene is identified, the siRNA drug candidate is rationally designed for the sequence-specific silencing of that gene. This process typically takes a number of months and results in the identification of a drug candidate ready for animal studies. In contrast, the identification of small molecule drug candidates is expensive and time-consuming and requires multiple cycles of optimization that include challenging chemical synthesis design and testing, and often takes years.

To date, major challenges in the development of RNAi-based therapeutics have been delivery, nuclease resistance, specificity and avoiding stimulation of innate immune responses:

• Delivery.  Delivery of RNAi-based therapeutics is generally more challenging than traditional small molecule or antibody delivery due to the very fast degradation and excretion of unmodified siRNA from the body. In addition, the siRNA needs to overcome multiple tissue barriers to get inside the target cells before eliciting its biological activity. Systemic delivery of a chemically synthesized siRNA to tissues and cells relevant to disease processes in the body is particularly challenging. Therefore, delivery strategies capable of transporting a siRNA molecule through physical barriers within the body to the target tissue while enhancing cellular uptake of the siRNA molecule, is key to enable the successful therapeutic applications of siRNA drugs.

• Stability.  To date, one of the major limitations of RNAi has been the instability of unmodified siRNAs, which generally break down rapidly in the body. This degradation restricts the duration and magnitude of their potential therapeutic activity. Effective drugs need to be stable in body fluids and in cells to ensure an adequate therapeutic response. Chemically modified siRNA must achieve an optimal balance between stability and low toxicity as the safety profile of siRNA therapeutics depends on the fact that they can be easily degraded by the body.

• Specificity and avoiding induction of innate immune response.  For siRNA-based therapeutics to be a useful as drugs, it is critical that the silencing effect of the siRNA be specific, that is, ideally, the siRNA must not cause any effects other than those related inhibiting the expression of the target gene. There are several types of nonspecific or “off-target” effects that siRNA could potentially display including the possibility of binding to matched target sequences in other messenger RNAs besides the intended target. Furthermore, there are natural defense mechanisms referred to as innate immune responses that can be activated by siRNAs. These unwanted side effects of siRNAs can be avoided by incorporating appropriate chemical modifications. Chemically modified siRNA must achieve the lowest possible level of off-target effects for the siRNA drug to be effective and safe.

Our Approach

To overcome these hurdles, our integrated siRNA discovery and development strategy is based on the following main capabilities:

• Identifying clinically attractive target genes, often but not exclusively by using our BiFAR^TM platform, that when inhibited, reverse disease phenotypes;

• Harnessing our insight into the pathogenesis of diseases associated with oxidative stress in various organs of the body to generate drug candidates that may be active across multiple therapeutic areas, focusing on diseases representing significant unmet medical needs;

• Designing and optimizing synthetic siRNAs for therapeutic application. We select the most appropriate sequences for siRNA using proprietary design algorithms and chemically modify them based on internally developed know-how protected by intellectual property to enhance properties necessary for successful application in the clinic, including:

÷ Potency

÷ Stability

÷ Reduced side effects stemming from off-target activity and activation of innate immune responses

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• Delivering our modified siRNA molecules either locally or systemically to the appropriate diseased organs and cells in the body; and

• Developing our siRNA drug candidates in the most clinically relevant indications. To achieve this goal our fully integrated research, preclinical and clinical development groups work in teams to ensure that optimal drug design and development starts at the stage of discovery. Upon achievement of proof of concept in animal studies, often in collaboration with opinion leaders in the particular indication, our expert developments team (regulatory, medical, preclinical and clinical development) is then responsible for the clinical development.

We believe that our siRNA drug candidates meet the primary challenges of RNAi-based therapeutics development:

Delivery.  In preclinical studies, we have successfully delivered our siRNA candidates locally and systemically to target cells in various organs of interest including the back of the eye, inner ear, proximal tubules of the kidney, lung, spinal cord and brain.

Stability, Specificity and Avoiding Innate Immune Response.  Our siRNA drug candidates have a chemically modified, stabilized structures that we believe offer significant advantages over standard siRNAs. We chemically modify our drug candidates with naturally occurring nucleotides or other nucleotides in specific proprietary combinations and structures, that significantly reduce or completely abrogate unwanted side effects. We have shown in preclinical studies that our siRNA drug candidates exhibit favorable safety profiles following either local or systemic administration at dose levels above the proposed clinical range. In addition, we believe we have demonstrated in vitro and in vivo stability of our drug candidates to elicit therapeutic responses in animal disease models.

Our method for drug candidate selections is shown schematically below.

We begin by identifying indications we view as attractive due to our ability to successfully deliver our siRNA molecules to the target organ and cells, and we select the route of administration that is clinically relevant for delivery to a given organ of interest. From the potential indications, we often select those associated with oxidative stress since it is a main pathogenic feature of numerous diseases in various organs. This allows us to potentially use one siRNA for multiple indications. For example, our PF-655 has been studied in Phase II clinical trials for both wet age-related macular degeneration and diabetic macular edema. We focus on diseases that represent an unmet medical need with significant market potential. We then utilize our pool of proprietary target genes, many of which were previously identified by our BiFAR^TM platform to generate potential siRNA candidates that inhibit these specific target genes. As a next step, we synthesize stabilized siRNA molecules selected by our proprietary software utilizing our siRNA structures developed internally. We test these molecules activity in vitro in cell culture and in vivo in animal models of each disease, often in collaboration with opinion leaders in the particular indication. This process typically takes

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only a few months for each disease. At all times we verify our selection choices in view of patentability, freedom to operate, and clinical development issues for selection of the most suitable indication for clinical development. In all steps of the process our research teams work with medical, marketing and intellectual property personnel with the objective of maximizing the opportunity for future success in clinical trials and commercialization. The outputs of this process are novel siRNA drug candidates that inhibit expression of relevant target genes for the proposed disease indication.

Our Product Candidates

Our current product pipeline includes siRNA drug candidates targeting diseases associated with oxidative stress that represent significant unmet medical needs. The following table sets forth the status of our product pipeline and research programs:

Product Candidate	Indication	Status	Commercialization Rights
PF-655	Diabetic Macular Edema	Phase II DEGAS study completed. Interim data received in November 2010.	Pfizer (Worldwide)
PF-655	Wet Age-related Macular Degeneration	Phase II MONET study ongoing, enrollment completed. Interim data received in November 2010.	Pfizer (Worldwide)
QPI-1002	Acute Kidney Injury	Phase II expected to initiate dosing in the second half of 2011	Option granted to Novartis for Worldwide rights
QPI-1002	Delayed Graft Function in Kidney Transplant patients	Phase II ongoing (Interim analysis expected by mid 2012)	Option granted to Novartis for Worldwide rights
QPI-1007	Non arteritic Anterior Ischemic Optic Neuropathy	Phase I (Dosing and preliminary review of data expected to be completed during the second half of 2011)	Quark (Worldwide)
QPI-1007	Glaucoma	Preclinical toxicity studies for multiple dosing	Quark (Worldwide)
Program for pipeline siRNAs for neuron protection and neural regeneration	Diseases of the central nervous system, eyes and ears such as spinal cord injury, peripheral nerve injuries, neuropathic pain, hearing loss conditions, vestibular diseases.	In vivo proof-of-concept was accomplished in spinal cord injury with a drug candidate with endpoints of post-injury recovery and reduction of neuropathic pain. Further in vivo studies are ongoing in several indications.	Quark (Worldwide)
Program for respiratory system conditions	Acute Lung Injury, Lung Transplantation	In vivo proof-of-concept studies were accomplished in lung transplantation models. Further in vivo studies are ongoing	Quark (Worldwide)
Program for chronic conditions by systemic delivery of siRNA	Chronic Kidney Disease Cancer	Delivery studies and in vivo proof-of-concept studies at various stages.	Quark (Worldwide)
Fibrotic diseases in collaboration with Nitto Denko	Fibrotic conditions in the liver and other organs	Preliminary proof of concepts was successfully performed by Nitto Denko. We are currently performing siRNA design and delivery studies. (Filing of initial IND application expected by 2012)	Nitto Denko (Worldwide)

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Clinical portfolio

PF-655 in Phase II Clinical Trials for Diabetic Macular Edema and Wet Age-Related Macular Degeneration

The Drug Candidate.  PF-655 is a synthetic, chemically modified siRNA molecule designed to inhibit the expression of the hypoxia- inducible gene RTP-801. Using our BiFAR^TM platform, we discovered the gene RTP-801 and identified it as a likely major factor in the induction of various diseases associated with oxidative stress. In September 2006, we exclusively licensed PF-655 to Pfizer for many indications, and are collaborating with them in the development of the drug candidate for ophthalmic indications. PF-655 is being evaluated in two Phase II clinical trials, one for the treatment of diabetic macular edema and another for the treatment of wet age related macular degeneration.

Preclinical results.  We have conducted pharmacology studies of PF-655 in the mouse laser-induced model of choroidal neovascularization, an accepted model of wet age-related macular degeneration. In these studies, PF-655 specifically inhibited expression of RTP-801 in the choroid and inhibited both abnormal blood vessel growth and leakage in a dose-dependent manner as well as migration of inflammatory induced cells. In a side-by-side comparison, the effects of PF-655 on blood vessel growth were superior to that produced by either Macugen® or a neutralizing antibody to mouse VEGF used as an animal analogue to Lucentis®/Avastin®. In similar studies, PF-655 was found to have an additive effect in combination with Macugen® and the mouse anti-VEGF antibody to prevent neovascularization and vessel leakage. These results indicate that PF-655 acts through a different pathway than anti-VEGF drugs. PF-655 was also shown to exhibit anti-apoptotic activity, and demonstrated superior anti-inflammatory properties compared to anti-VEGF drugs. The efficacy seen in the mouse model was further confirmed in a monkey laser-induced choroidal neovascularization model of wet age related macular degeneration.

In support of the diabetic macular edema indication, RTP-801 knockout mice showed a 70% reduction in retinal blood vessel leakage compared to either mice with an intact RTP-801 gene or wild type mice, four weeks after induction of diabetes. Compared to control siRNA, PF-655 was shown to decrease retinal blood vessel leakage in the diabetic mice by 50%.

In preclinical studies, PF-655 was found to be resistant to degradation in body fluids. Based on these studies, we believe that PF-655 delivered locally (i.e., via intravitreal injection) will persist for several weeks, suggesting that relatively infrequent dosing may be possible in humans. Following intravitreal injection in animals, we did not observe any significant systemic exposure, demonstrating a favorable distribution profile combining the desired prolonged local exposure with limited systemic exposure. In preclinical toxicology studies, a low frequency of mild and reversible ocular inflammation was observed. Following intravenous administration, no systemic toxicity was observed in the rat at blood levels more than 10,000 times greater than levels observed in the blood of patients in Phase I human clinical studies.

Phase I Clinical Trial.  We submitted an Investigational New Drug Application to the FDA for this drug candidate on September 20, 2006, and have completed Phase I trial. In the Phase I clinical trials we conducted, no dose limiting toxicities were observed. The study was an open-label, dose escalation trial in patients with wet age related macular degeneration for the safety and tolerability of PF-655 administered as a single intravitreal injection. Stratum 1 of the trial included patients who, due to advanced disease, failed to respond to a prior regimen, or were judged not likely to show improvement in their visual acuity from currently available treatment options such as Lucentis®, Macugen®, PDT or steroid-based therapy, or patients who had failed at least one of these prior treatment options. Stratum 2 of the trial included patients who, in the opinion of the investigator, had the potential to show improvement in visual acuity from other treatment options. Since the trial was conducted in patients, secondary objectives included determination of the changes in visual acuity after administration of PF-655. Although change in visual acuity can indicate clinical activity of the drug candidate, the trial was not designed to measure clinical activity in a statistically significant manner. However, approximately 80% of subjects showed stable or improved vision two weeks after a single injection of the siRNA. Patients in this study showed a mean improvement of 4 letters (about one line gain) on a visual acuity test at 28 days after a single injection of PF-655. These changes were presented as clinically meaningful at the ARVO conference in 2009 by a lead investigator of the study, Dr. Quan Nguyen from the Wilmer Ophthalmological Institute of the Johns Hopkins University School of Medicine.

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This Phase I study served as the basis for further clinical development in both age related macular degeneration and diabetic macular edema. Following its completion, Pfizer initiated two Phase II trials currently being conducted in collaboration with Quark. These trials are discussed separately below.

Development of PF-655 in Diabetic Macular Edema

Disease Background and Market Opportunity.  Diabetic macular edema is swelling of the macula as a result of retinal microvascular changes that occur in patients with diabetes and is the major cause of visual impairment in diabetic patients. Diabetic macular edema is a common complication of diabetic retinopathy and is the cause of most of the functional visual loss in patients with this condition. Diabetes mellitus and its systemic and ophthalmic complications represent an enormous public health threat in the United States. The prevalence of diabetes in the United States is currently estimated at 9% or approximately 21 million, though only about 55% are estimated to be diagnosed. According to a disease review in the Digital Journal of Ophthalmology, diabetic macular edema affects up to 10% of all patients with diabetes with 75,000 new cases occurring every year.

Limitations of Current Therapy.  Laser photocoagulation is the current standard of care in the treatment of diabetic macular edema. Although laser therapy may slow visual loss, the major drawbacks are that it is rarely accompanied by vision gain, and it is not appropriate in all cases of diabetic macular edema. Furthermore photocoagulation is a late and destructive procedure that does not address the underlying etiology of the diseases. There are several classes of drugs that are being employed in the management of diabetic macular edema, including corticosteroids (triamcinolone acetonide) and the anti-VEGF drugs (mainly bevacizumab, and ranibizumab or Avastin® and Lucentis® respectively), however, none of these drugs is currently approved by the FDA for the treatment of diabetic macular edema. Lucentis has been recently approved by EMEA in Europe for this indication.

PF-655 Value proposition.  We believe, based on preclinical and clinical results to date, that PF-655 may offer the following:

• Improvement of visual acuity in subjects with diabetic macular edema.

• PF-655 targets the proprietary gene RTP-801, and has been shown to have a distinct mechanism of action compared to current investigative VEGF-targeting drugs. We believe that the novel mechanism of action offers potential for less frequent dosing compared to competing therapies and VEGF inhibitors currently in development. In addition, due to its different mechanism of action, it may allow potential combination therapy with current therapies and therapies under investigation.

• In preclinical models PF-655 inhibited growth of new blood vessels and reduced vascular permeability, suggesting a therapeutic effect of PF-655 in diabetic macular edema, where increased vascular permeability causes increased retinal thickness and eventually visual acuity loss.

Phase II Clinical trial — the DEGAS study.  PF-655 has been studied in a prospective, randomized, multi-center, comparator study evaluating efficacy and safety of PF-655 versus laser in subjects with diabetic macular edema called the DEGAS trial. This is a Phase II, randomized, single-blind, parallel-assignment safety/efficacy study conducted by Pfizer in collaboration with Quark. Enrollment was completed in the DEGAS study in October 2009 and we expect to have interim results by the end of 2010 based upon 12 month follow up on all patients. Based on the results of this study, Pfizer may decide to proceed to Phase III clinical trials, to initiate a Phase IIb trial or to stop trials.

Development of PF-655 in Age-related Macular Degeneration

Disease Background and Market Opportunity.  Age-related macular degeneration is the leading cause of central vision loss in the elderly. Age-related macular degeneration occurs when the light sensing cells in the central portion of the retina, called the macula, malfunction and over time cease to work. Wet age-related macular degeneration is the more severe form of the disease and accounts for approximately 10% of all AMD cases, yet it causes approximately 90% of blindness associated with age-related macular degeneration. Wet age-related macular degeneration occurs when abnormal blood vessels grow through a process known as neovascularization, or angiogenesis, in the layer of the vascular system immediately behind the retina, called the choroid. This growth is known as choroidal neovascularization, and damages the macula. These new blood

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vessels are weak and leak blood and fluid under the retina. This process causes damage to the retina resulting in impaired vision, blind spots and eventually blindness. Datamonitor estimates that age related macular degeneration affects 7.5 million people in the seven major markets US, Japan, France, Germany, Italy, Spain, and the UK. Close to 1.8 million adults 40 years and older have been diagnosed with the more rapidly progressive wet age-related macular degeneration with associated vision loss, and 200,000 new cases of wet age-related macular degeneration are diagnosed each year, according to National Eye Institute data. The National Eye Institute estimates that the number of people with wet age-related macular degeneration in the United States will increase by 50% to 2.95 million by 2020.

Limitations of Current Therapy.  Current treatments for wet AMD generally slow further vision impairment, and only significantly improve vision in a minority of cases. In addition, there are non-responders to current treatments. Treatment options that attempt to control the abnormal blood vessel growth and leaking associated with wet age-related macular degeneration include laser photocoagulation and photodynamic therapy, as well as the angiogenesis inhibitor drugs Lucentis®, the standard-of-care treatment, Avastin® and Macugen®. Current non-drug therapies utilize a laser to limit the growth of abnormal blood vessels but have been shown to be destructive to the ocular tissues. Lucentis®, Avastin® and Macugen® are inhibitors of the angiogenic growth factor, VEGF, as are most of the drug therapies currently in development. According to published data, in its pivotal clinical trials, Lucentis® significantly improved vision in 29% to 40% of patients treated. Other currently available treatments have not been shown to restore a significant portion of lost visual acuity.

PF-655 Value proposition in Age-Related Macular Degeneration.  Given the limitations of current treatments, we believe that there is a significant need for additional treatments to improve the rate of visual gain, and to permit less frequent intravitreal injections than the currently used regimen of one injection every four weeks for Lucentis® or six weeks for Macugen®. In addition, due to its different mechanism of action, PF-655 may allow potential combination therapy with current therapies and other therapies under investigation.

Current Phase II Clinical Trial — the MONET study.  PF-655 is currently being studied in a Phase II open label multicenter study, the MONET study, for age-related macular degeneration comparing PF-655 versus Lucentis® in the treatment of subjects with choroidal neovascularization. This is a safety/efficacy study conducted by Pfizer in collaboration with Quark. Enrollment of patients was completed in August 2010 and we expect that interim results upon completion of dosing and a 3 months follow up period for part of the patients could be available by the end of 2010. Depending on the results of this study, Pfizer may decide to conduct a dose-ranging Phase IIb clinical trial in age-related macular degeneration in 2011 or stop trials.

QPI-1002 in Clinical Phase II for Acute Kidney Injury and Delayed Graft Function

The Drug Candidate.  QPI-1002 is a synthetic, chemically modified siRNA molecule designed to temporarily inhibit expression of the human gene p53, that we believe plays a significant role in ischemia reperfusion induced injuries of the kidney that lead to development of acute kidney injury and delayed graft function. QPI-1002 is being developed for the prevention and treatment of acute kidney injury in patients undergoing major cardiovascular surgery and for prevention of delayed graft function in kidney transplantation patients. We have granted to Novartis an option for an exclusive worldwide license to QPI-1002 and any potential future p53-directed siRNAs controlled by us, for any indication.

Preclinical results.  We have conducted preclinical studies in rats and monkeys. Rats treated with a single bolus injection of QPI-1002 were significantly protected from ischemia/ reperfusion-induced acute kidney injury. In preclinical studies, p53-targeted siRNA was effective in protecting rat kidneys from acute kidney injury at doses 400-fold below the toxic dose. QPI-1002 was most potentially efficacious when administered within a well-determined time window of hours post injury, and significantly reduced the severity of acute kidney injury. QPI-1002 exhibited a favorable safety profile in rats and monkeys and persisted for a relatively short time in the blood and kidneys. In these studies, QPI-1002 accumulated rapidly and predominantly in the kidneys, specifically in proximal tubules, following intravenous administration, QPI-1002 was also found to be resistant to degradation in body fluids. In addition, the duration of the p53 inhibitory effect in the studies was brief in all tissues tested.

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QPI-1002 in Acute Kidney Injury

Disease Background and Market Opportunity.  Acute kidney injury is a syndrome characterized by a rapid decline of kidney function leading to death in a high percentage of cases. Acute kidney injury complicates approximately 5% of hospital admissions and up to 30% of admissions to intensive care units. During cardiovascular surgery, ischemic conditions caused by reduced blood flow to the kidneys and reperfusion upon removal of the patient from cardiopulmonary bypass and resumption of the natural blood flow can lead to induction of acute kidney injury. Based on data of the Centers for Disease Control and Prevention (CDC) and the Society of Thoracic Surgeons, Adult Cardiac Surgery Database there are approximately 650,000 patient discharges following major adult cardiac surgery procedures each year in the United States. Among cardiac surgical patients who developed acute kidney injury severe enough to require dialysis post-operatively, reported mortality rates during the past decade have remained unacceptably high, in the range of 28% – 63%.

Limitations of Current Therapy.  Currently, there are no approved drug therapies that effectively prevent or treat acute kidney injury. Generally, the goals of currently available treatments are to correct or treat the underlying condition of kidney failure and support patients with renal replacement, such as dialysis, until their kidneys have healed and can function properly. However, despite the use of aggressive dialysis regimens, the mortality rate, particularly in post surgery patients, remains high.

QPI-1002 Value proposition.  We are developing QPI-1002 as a potential new therapy to prevent acute kidney injury, an unmet medical need. In cardiovascular surgery patients, acute kidney injury results from ischemia-reperfusion injury, leading to activation of p53 and subsequent induction of apoptosis (programmed cell death) in the kidney. By temporarily inhibiting the expression of p53, we believe QPI-1002 may afford kidney cells time to repair cellular damage and avoid induction of apoptosis, thus reducing the incidence of acute kidney injury and related mortality and morbidity in cardiovascular surgery patients.

Phase I Clinical Trial.  We submitted an Investigational New Drug Application to the FDA for QPI-1002 for Acute Kidney Injury on July 14, 2006, and have completed a Phase I, randomized, double-blind, dose escalation trial in 16 patients of the safety and pharmacokinetics of a single intravenous injection of QPI-1002 in patients undergoing major cardiovascular surgery. This was a first-in-man study testing the safety and pharmacokinetics of QPI-1002 following injection. This was also the first systemic administration of an siRNA in human subjects. Enrollment was completed in November 2009. No dose-limiting toxicities were observed in this study. Three cases of “Worsening Anemia” Serious Adverse Events (SAEs) observed in patients receiving lower doses of the drug were assessed by one investigator as possibly related to study drug. Aggregate analyses by the independent (unblinded) Data Safety Monitoring Board (DSMB), revealed that these patients blood changes were similar to those observed in the other patients in this study. The safety profile observed in this study appeared to be consistent with that of other patients undergoing cardiac surgery. The DSMB which was responsible for reviewing unblinded safety data from both this study and the delayed graft function Phase I studies has recommended proceeding to Phase II investigations in both acute kidney injury and renal transplant populations, using the highest dose studied in Phase I.

Further development plan.  A Phase II clinical trial in cardiovascular surgery patients is planned to start dosing during the second half of 2011. The trial is a prospective, randomized, double-blind, placebo-controlled Phase II trial of the safety and preliminary efficacy of a single intravenous injection of QPI-1002 in the prevention of acute kidney injury following major cardiovascular surgery performed under cardiopulmonary bypass, in patients at increased risk for acute kidney injury as determined from blood and urinary biomarkers. In the first part of the trial (60 patients) we intend to test the suitability of the biomarkers for accurately selecting patients at increased risk for acute kidney injury. At that time we also expect to a make decision about the remaining part of the Phase II trial and implications, if any, on the study design. If the biomarker feasibility part of the trial is successful, we intend to enroll an additional approximately 140 patients. We estimate that completion of dosing and first interpretable results will not occur before the end of 2012. If the results meet a set of specified success criteria, we could be eligible for exercise of the license option and payment of an option exercise fee from Novartis or if already exercised we would be eligible for an additional payment from Novartis.

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QPI-1002 in Delayed Graft Function

Disease Background and Market Opportunity.  QPI-1002, is being developed to prevent delayed graft function after deceased donor kidney transplantation. Delayed graft function can result from ischemia-reperfusion injury during the transplantation process, leading to activation of p53 and subsequent induction of apoptosis in the kidney. Ischemia reperfusion injury occurs frequently in patients receiving kidneys that have spent a long time outside a living human body, and is particularly common in kidneys from deceased donors. When kidneys are deprived of blood, the lack of oxygen causes damage that triggers inflammation when blood flow is restored. Delayed graft function is often defined as need for dialysis in the first week following transplantation and is associated with poorer long-term patient outcomes. It is also associated with increased incidence of acute rejection; increased hospital stays and increased consumption of peri-transplant resources. Kidneys are the most frequently transplanted organs. According to Datamonitor, approximately 43,000 renal transplants will be performed annually by 2015 in the major countries of the western world, representing an average annual growth rate of 4%. Datamonitor also predicts a significant increase in the use of organs from deceased donors. Based on Organ Procurement and Transplantation data, over 16,600 kidney transplantations were performed in the United States in 2007, 64% from deceased donors. Over 80,000 people are currently on the waiting list for kidney transplant in the United States. The UNOS Renal Transplant Registry database kidney waiting list is currently increasing at a rate of 20% per year and was predicted to include between 100,000 and 150,000 patients in 2010.

Limitations of Current Therapy.  Currently, there are no approved drug therapies that effectively prevent delayed graft function. Delayed graft function affects 25% to 40% of deceased donor renal transplants. According to a recent study reported in Renal and Urology News, each added day of delayed graft function is associated with a 2% increased risk of death in patients surviving at least 90 days after transplantation Currently, the main management strategy is to support the patient with dialysis and to monitor for rejection.

Value Proposition.  We are developing QPI-1002 for the prevention of delayed graft function following deceased donor kidney transplantation. In animal studies, p53-targeted siRNAs were effective in protecting rat kidneys from injury due to both warm and cold ischemia that can occur during organ collection, preservation, transportation and implantation. The mechanism of action, involving temporarily inhibiting the expression of p53, is believed to afford kidney cells time to repair cellular damage and therefore avoid induction of apoptosis. Quark has been granted Orphan Drug status in the Unites States and in the European Union development of QPI-1002 for this indication.

Phase I/II clinical trial.  We submitted an Investigational New Drug Application to the FDA for QPI-1002 for Delayed Graft Function on May 15, 2008, and are currently evaluating QPI-1002 in a Phase I/II clinical study of deceased donor kidney transplantation patients. The Part A or Phase I dose escalation phase of this study was completed in November 2009. No dose-limiting toxicities were observed at the highest dose tested, which was 20-fold above the minimum effective dose in a rat model of kidney injury.

Phase II (Part B).  We have initiated dosing in the Phase II part of this trial, Part B, that aims to demonstrate biological activity of QPI-1002. The study has an adaptive design with several interim analysis points. An adaptive design allows modifications to be made to trial protocol and/or statistical procedures of an ongoing clinical trial. The study protocol includes prospectively planned opportunities for modification of one or more specified aspects of the study design based on analysis of data (usually interim data) from subjects in the study. In this trial, significant interim analysis points are upon dosing 130 and 196 of the planned 326 patients to be enrolled in the study. Interim results will be analyzed by an independent board of experts, who will recommend the course of action at that point. We expect the 196 patient interim results, the first analysis point that we believe could yield statistically meaningful results, by early 2012. If the results meet the set of criteria specified in our agreement with Novartis for this milestone, we will be eligible for option exercise and payment of an option exercise fee from Novartis or if already exercised, we would be eligible for an additional payment from Novartis.

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QPI-1007 in Non-arteritic Anterior Ischemic Optic Neuropathy

The Drug Candidate.  QPI-1007 is being developed as a neuroprotective agent for the treatment of sudden vision loss associated with non-arteritic anterior ischemic optic neuropathy. QPI-1007 is a chemically modified siRNA and it is our first drug candidate based on novel siRNA structures developed internally by Quark. If effective in non-arteritic anterior ischemic optic neuropathy, we also intend to develop QPI-1007 for glaucoma, which shares common pathological features with non-arteritic anterior ischemic optic neuropathy.

QPI-1007 is designed to inhibit the expression of the pro-apoptotic gene, caspase 2, via the RNAi pathway. Apoptosis (programmed cell death) is thought to be the main cause of the death of retinal ganglion cells in non-arteritic anterior ischemic optic neuropathy and glaucoma. Caspase 2 is activated specifically in retinal ganglion cells in rat models of retinal ischemic injury. In preclinical studies, QPI-1007 was effective in preserving retinal ganglion cell integrity in three different disease models of retinal ganglion cell damage. Diseases involving retinal ganglion cell damage are common. Loss of retinal ganglion cells results in irreversible loss of vision in neurodegenerative diseases such as glaucoma, but they are also directly affected in acute diseases characterized by retinal ischemia.

Preclinical results.  Retinal ganglion cell death in non-arteritic anterior ischemic optic neuropathy occurs primarily through apoptosis with caspases playing a major role. Caspase 2 has been shown to be activated specifically in retinal ganglion cells in rat models of retinal ischemic and retrograde trophic factor deprivation injury. Animal studies demonstrated (i) uptake of siRNA in retinal ganglion cells following intravitreal administration, (ii) RNAi-mediated mechanism of action of QPI-1007 in ocular tissues harvested after intravitreal administration and (iii) efficacy of QPI-1007 in three animal models. QPI-1007 exhibited a favorable safety profile in toxicity studies.

Disease Background and Market Opportunity.  Non-arteritic anterior ischemic optic neuropathy is a stroke in the optic nerve, leading to the death of retinal ganglion cells that transmit light signals from the retina to the brain. Since they are unable to divide, loss of retinal ganglion cells results in irreversible loss of vision. Non-arteritic anterior ischemic optic neuropathy is a potentially visually devastating disease that occurs in the middle aged and the elderly and is the most common acute optic neuropathy in older persons. This condition usually begins suddenly with little warning in one eye, but frequently occurs in the other eye over time. Vision loss often includes both the loss of visual field and visual acuity, which can vary from being nearly normal to severely impaired. The unexpected sudden visual acuity and visual field loss makes non-arteritic anterior ischemic optic neuropathy a particularly overwhelming disease for many patients. Authors of an article published in the American Journal of Opthalmology estimated that non-arteritic anterior ischemic optic neuropathy develops in approximately 8000 people each year in the United States. According to a published eMedicine article, bilateral visual loss may be seen in 12 – 19% of non-arteritic anterior ischemic optic neuropathy cases, and it usually occurs sequentially instead of simultaneously.

Limitations of Current Therapy.  No effective treatment currently is available for non-arteritic anterior ischemic optic neuropathy since neither steroids nor surgical treatment have proven to be effective. There is no evidence that optic nerve decompression and anticyclones oxygen inhalation therapy are effective, and the preventive effect of aspirin in ocular crisis is not significant.

QPI-1007 Value Proposition.  Based on our extensive preclinical studies, we believe that QPI-1007 may be an effective neuroprotective agent, with potential use in non-arteritic anterior ischemic optic neuropathy and also in major diseases involving retinal ganglion cell loss, including glaucoma.

Clinical development strategy.  Our clinical development strategy includes:

• Initial development of QPI-1007 will be for neuroprotection of retinal ganglion cells following a single intravitreal administration in non-arteritic anterior ischemic optic neuropathy for human proof of concept for the drug as a neuroprotectant. The reason for using non-arteritic anterior ischemic optic neuropathy for proof of concept is four-fold. First, it is a devastating disorder for which there is no treatment. Second, because the disease develops over a relatively short period of time and usually shows little progress of visual loss beyond the first month or so, it is a suitable indication for testing a neuroprotective agent in a clinical trial to provide proof of principle for the drug. Third, the damage involves retinal ganglion cell loss, a preferential mechanism for potential neuroprotection.

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Fourth, non-arteritic anterior ischemic optic neuropathy mimics an accelerated development of glaucoma, so that positive data in non-arteritic anterior ischemic optic neuropathy clinical trial would increase our confidence in QPI-1007 as a potential treatment of glaucoma as we decide whether to initiate clinical trials for glaucoma either directly or in partnership with a pharmaceutical company.

• Clinical development of QPI-1007 for additional devastating diseases such as neovascular glaucoma or closed angle glaucoma. These diseases often have acute onset, sometimes are clinical emergencies and are followed by a chronic phase. We believe administration of multiple doses QPI-1007 by intravitreal injection could be beneficial to treat such diseases.

• Development of alternative delivery means such as eye drops and/or slow release delivery and clinical development of the drug for the neuroprotective treatment of chronic glaucoma.

Phase I/IIa Clinical Trial.  The Investigational New Drug Application for this indication was submitted to the FDA on September 28, 2009 and dosing in the Phase I study was initiated during the first quarter of 2010. The study is divided into two Stratums. Stratum 1 represents the dose-escalation safety component of the study and is intended to enroll 4 cohorts of patients who are legally blind secondary to chronic optic nerve atrophy or retinal degeneration, each cohort sequentially receiving increasing doses of QPI-1007. Enrollment of Stratum 1 was completed in October 2010. Stratum 2 is designed to further evaluate safety and to determine potential biological activity in non-arteritic anterior ischemic optic neuropathy patients as assessed through changes in visual acuity and visual field following drug administration compared to historical control. Stratum 2 is designed to enroll two dose cohorts of non-arteritic anterior ischemic optic neuropathy patients. We expect to complete dosing in Stratum 2 during the second half of 2011. Based on the results of the current trial, we intend to decide whether to initiate a Phase II clinical trial in glaucoma patients by multiple intravitreal injection dosing and/or a Phase II trial in non-arteritic anterior ischemic optic neuropathy patients.

QPI-1007 Additional indications — Glaucoma

Disease Background  Glaucoma is a chronic progressive disease of the optic nerve with a gradual loss of retinal ganglion cells. According to Research to Prevent Blindness, glaucoma is the second most common cause of legal blindness in the United States. According to the National Eye Institute and Prevent Blindness America, glaucoma affects almost 2.3 million people in the United States over 40 years of age. Vision loss from glaucoma is asymptomatic and irreversible. Clinically, glaucoma is an optic neuropathy that is characterized by progressive loss of retinal ganglion cells. It is often associated with elevated intraocular pressure and characterized by optic disc cupping — an anatomical change of the eye structure — and visual field loss. The central role of raised intraocular pressure is being questioned as many patients continue to demonstrate a disease progression despite control of intraocular pressure. Glaucoma is a collection of diseases and is a final common pathway of many disorders that affect the eye.

Open-angle Glaucoma is a chronic, bilateral, often asymmetrical disease in adults, featuring acquired loss of optic nerve fibers and abnormality in the visual field with an open anterior chamber angle and progressive death of retinal ganglion cells and usually elevated intraocular pressure. According to the National Eye Institute, the disease affects 2.5 to 3 million persons in the United States.

Limitations of the current therapy.  Anti-glaucoma medications have the largest share of the ophthalmic pharmaceutical market. Nevertheless, glaucoma is a disease that currently cannot be cured; instead, current therapies focus on managing it and slowing its progression. Lowering intraocular pressure is currently the only clinical therapy available in the treatment of glaucoma. Unfortunately, many patients continue to lose vision despite successful intraocular pressure control.

QPI-1007 Value proposition.  We believe neuroprotective agents will be a key development in the ophthalmic pharmaceutical market in general and specifically the glaucoma market. The ability to protect retinal ganglion cells from cell death and thereby slow progression of glaucoma, we believe, will represent a major breakthrough in glaucoma treatment and provide opportunity for considerable growth in this segment of the market.

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Preclinical pipeline and Other Research Programs

We are developing additional siRNA drug candidates, several of which have completed proof-of-concept in vivo animal testing. A subset of these is in lead candidate optimization stage. Additional siRNA molecules are currently in proof of concept studies in several indications. In these proof of concept studies we work with leading scientists and physicians at major universities and institutions. Our medical, regulatory and commercial teams evaluate the most suitable indications for future clinical trials and development. Our objective is to complete the preclinical studies necessary to support filing at least one IND application in 2012 for a molecule developed in these programs. We also have a research and development program in fibrotic disease in collaboration with, and fully funded by, Nitto Denko. The objective of this program also is to complete all studies necessary for filing an IND application within 2012. Our additional research programs are directed to developing our technology, in particular novel and proprietary siRNA structures and stabilization chemistry and proprietary specific cell type-targeted siRNA delivery systems.

We have three broad internal programs in which we design and develop siRNA molecules based on our internally proprietary siRNA structures to treat diseases that are unmet medical needs, each of which is briefly described below.

Neuroprotection and regeneration program.  We include in this category our pipeline programs in diseases of the central nervous system (spinal cord and brain), and diseases of the eye and ear, in particular those diseases where neuroprotection and/or axon regeneration is important.

There are numerous severe diseases characterized by acute or progressive death of neurons. In many of the diseases this process begins with injury to the nerve, the long projection of the neuron that conducts electrical nerve impulses away from the neuron’s cell body. Axon loss contributes to neurological symptoms in disorders as diverse as stroke, traumatic brain and spinal cord injury, peripheral neuropathies and chronic neurodegenerative diseases and glaucoma in which the optic nerve is affected. The overall objective of this program is to develop a drug that is able to protect against loss of neurological function and/or improve functional recovery.

We have demonstrated in preclinical models siRNA delivery to the target neurons in several disease conditions listed below and we are developing a novel non-invasive siRNA delivery to the back of the eye, inner ear and brain. Our primary siRNA drug candidate in this category is an siRNA molecule inhibiting the target gene called RhoA. RhoA is a small GTPase that controls cellular functions including motility, growth, differentiation, and apoptosis and is a key intracellular effector of inhibitory signals for outgrowth of neuronal processes. For this molecule we have shown proof of concept in spinal cord injury, demonstrating the capability of the RhoA siRNA molecule to improve neurologic functions and reduce neuropathic pain in a rat spinal cord injury model. We are now optimizing RhoA siRNA with the purpose of generating the lead siRNA for formal preclinical development. In line with our strategy of developing a drug candidate in several diseases based on common pathological mechanism, we are testing RhoA siRNA and siRNAs targeting further genes, in additional disease models including spinal cord injury, neuropathic pain due to peripheral nerve injury, optic nerve regeneration following crush injury and Meniere’s disease. Other pipeline siRNAs are also being tested in these and other models involving neurological pathologies. We are exploring both invasive and non-invasive siRNA delivery to the back of the eye, inner ear and brain.

Respiratory and inflammatory disease program.  We have established that our synthetic siRNAs can be delivered by inhalation efficiently to monkeys and rodent lungs. We have tested activity of several different siRNA molecules in rat and mouse models of lung injury and lung transplantation and have developed a combination of siRNAs inhibiting genes from the family of toll-like receptors (TLRs), a class of proteins that play a key role in the innate immune system and have important function in inflammatory processes. We have demonstrated potential efficacy in preventing primary graft dysfunction in a mouse model of lung transplantation. Primary graft dysfunction is caused by ischemia-reperfusion injury to the lung in the first 72 hours following lung transplantation and is a major cause of early morbidity, chronic graft rejection and mortality. In our preclinical studies our dual siRNA drug candidate effectively reduced infiltration of inflammatory cells, pulmonary edema and intra-graft hemorrhages and prevented impairment of pulmonary function when locally administered shortly after transplantation. We believe that our drug candidate also may

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be useful for treatment of acute lung injury in conditions other than lung transplantation since the pathological mechanisms of response to ischemic injury is similar.

Currently we are completing the proof of concept studies in the rodent model of lung transplantation. Due to the pivotal role of our selected targets in inflammatory processes induced in tissues in response to injury, we are also studying additional indications in which our dual siRNA drug candidate can be used.

Chronic disease by systemic administration.  This category includes our development efforts to treat chronic kidney disease and cancer.

Cancer.  Our programs in cancer include the following areas:

• Targeted treatment of cancer either with a single siRNA agent or in combination with chemotherapeutic agents. Initial indication may be primary and/or metastatic tumors in the lung.  We have demonstrated the feasibility of delivery of siRNA to tumors growing in mouse lungs using inhaled synthetic stabilized siRNA. We demonstrated that treatment of cancer-bearing mice with siRNA targeting our proprietary target sensitized them to chemotherapy and resulted in reduction of tumor load in lungs compared to control. The lungs are a common site of involvement for primary malignancies and for metastases both from lung cancer and other cancers including breast, colon, and prostate cancer.

• Development of targeted delivery.  We believe that targeted delivery to cancer cells is important in order to provide therapeutically relevant concentrations of anticancer agents at the site of action and spare normal tissues. We are working on the concept of using carriers for our siRNA drug candidates to transport the drug to the cancer cells. We have identified and generated a specific proprietary antibody targeting a receptor expressed on cancer cells for targeting our siRNA therapeutics.

• Targeting tumor infiltrating cells that support tumor progression.  Tumor infiltrating cells support tumor growth by promoting, for example, angiogenesis or generation of new blood vessels to feed the tumor. These cells also may suppress antitumor immune responses. By targeting these tumor support mechanisms we believe we can suppress tumor growth.

Chronic kidney disease.  We are currently performing siRNA drug delivery studies with the aim to deliver our siRNA drug candidates to the appropriate cells in the kidneys to treat chronic kidney disease. Chronic kidney disease is the gradual and usually permanent loss of kidney function over time. Chronic kidney disease is a major health problem in the United States. According to the National Kidney Foundation, 26 million adults in the United States have chronic kidney disease and millions of others are at increased risk. Currently there is no specific treatment shown to slow the progression of chronic kidney disease.

Fibrotic diseases.  No effective treatment is available for most of the serious fibrotic diseases and our objective is to develop potential therapies within our fully-funded collaboration with Nitto Denko. Specifically, our goal is to develop one or more new siRNA drugs that may offer an effective treatment to fibrotic diseases. The collaboration utilizes our technology and intellectual property in RNAi to identify, select, optimize and develop a new drug based on a therapeutic concept and target gene identified by Nitto Denko and its collaborating scientists, which drug may potentially be combined with Nitto Denko’s delivery technology. While the initial disease indication for development is yet to be determined by joint teams of Quark and Nitto Denko, potential diseases include liver fibrosis, lung fibrosis, bone marrow fibrosis and kidney fibrosis, all of which are major unmet medical needs. Quark successfully performed a feasibility study funded by Nitto Denko confirming the validity of the concept of treating fibrotic disease with an siRNA drug inhibiting a Nitto Denko target. The collaboration research and development was initiated in July 2010. Our objective is to file a first IND application based on our joint efforts in this collaboration in 2012.

We believe the Nitto Denko collaboration is a validation of our siRNA platform and intellectual property and may assist us in potentially securing additional platform collaboration agreements.

siRNA Technology Development.  We have an ongoing program that aims to develop new siRNA-related technologies and to continuously improve our current technology platform and our intellectual property position in the RNAi intellectual property space. To date, we have filed six patent applications

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claiming novel structures and six patent applications claiming novel delivery methods. QPI-1007 is our first product in clinical trials that has an internally developed novel structure. This program has two arms:

• Development of novel siRNA structures that are free from third party intellectual property. We already have developed a number of structures and filed six patent applications to date. Based on our understanding of the siRNA mechanism, this program uses our siRNA chemistry expertise to identify critical positions on the siRNA sequence and critical patterns and to incorporate chemical modifications at such positions to create siRNA compounds with desirable properties to enhance activity, reduce unwanted or off-target effects, minimize unwanted immune response effects and increase the stability of our siRNA drug candidates.

• Development of proprietary drug delivery methods.  This program includes novel non-invasive delivery of siRNA to the back of the eye, inner ear and the brain, as well as novel methods of delivery to tumor cells.

Israeli National siRNA Project Consortium

In July 2010, the Israeli Chief Scientist and the head of the research and development national projects conditionally approved the establishment of a consortium headed by the wholly owned subsidiary of Quark, QBI Enterprises Ltd., or QBI. QBI, together with several leading members of the industry and prominent scientists in academia in Israel to develop novel generic technologies in the field of RNAi. We believe that the approval of a national project for siRNA is recognition by the government of Israel to financially support a project of national importance that can potentially create more jobs and general revenues for the state of Israel. In broad terms the generic technologies are planned to be developed in the following three categories:

• Chemistry:  Technologies related to chemical modifications, the basic structure and manufacture of RNAi drug molecules. The objective is to allow development of more efficacious drugs with fewer side effects, with freedom to operate in the intellectual property space of RNAi and using efficient manufacturing processes.

• Formulations:  Technologies related to the development of delivery methods and formulations that will facilitate delivery of the drug molecule to the specific organ and cells in the human body in order to treat the disease of interest.

• Analytical Methods:  to facilitate discovery research as well as preclinical and clinical development.

In accordance with the rules of the Chief Scientist and as approved by our Board of Directors, the intellectual property and technologies developed by QBI in the Consortium shall remain with QBI at all times.

Our Strategy

Our goal is to discover, develop and commercialize novel therapeutics addressing significant unmet medical needs by using our novel targets to develop RNAi based drugs. To achieve this goal, we are pursuing the following strategies:

• Pursue clinical development of our drug candidates for the treatment of acute kidney injury and delayed graft function and for ocular neuroprotection;

• Maximize the value of our current collaborations, including our collaboration with Pfizer, our option and license agreements with Novartis and our drug discovery and development collaboration with Nitto Denko, and selectively enter into new collaborations for drug candidates that we develop and into new platform collaborations, while seeking to retain marketing rights in major markets when possible;

• Augment and develop our pipeline utilizing our know-how and intellectual property in siRNA and their local or systemic delivery to specific target cells;

• Expeditiously introduce additional potential drug candidates to preclinical studies and clinical trials; and

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• Continuously develop our siRNA technologies for generation of drug candidates with optimal characteristics and for enhancing our capabilities to deliver siRNA drugs to disease cells and tissues.

• Maintain and expand our patent portfolio in targets and technologies and further strengthen our intellectual property position in chemically modified siRNA.

Our License and Collaboration Agreements

Our License Agreement with Pfizer

In September 2006, we granted Pfizer an exclusive worldwide license to develop and commercialize drug candidates that inhibit our proprietary target gene RTP-801 through RNAi. The lead product candidate under the agreement is our drug candidate, PF-655, previously RTP801i-14, for treating wet age-related macular degeneration and diabetic macular edema, currently in a Phase II clinical trial. Under the agreement, Pfizer has the exclusive right to develop drugs for ophthalmic and non-ophthalmic indications.

Pursuant to the agreement, Pfizer is responsible for all future preclinical and clinical development costs of the licensed drug candidates, as well as all regulatory filings and approvals. The parties will share oversight of development through product-specific committees, but Pfizer has ultimate decision-making authority.

Pfizer will be responsible for manufacturing all product candidates for preclinical and clinical development and for commercial supply. If, however, Pfizer desires a second commercial manufacturing site, Pfizer will consider engaging us to manufacture products commercially, provided that we can competitively satisfy its manufacturing requirements. Pfizer has worldwide commercialization rights to all product candidates licensed under the agreement, but has agreed to appoint us its exclusive distributor in Israel of products developed under the agreement.

In connection with the agreement, through September 30, 2010 Pfizer had paid us an aggregate of approximately $52 million in up-front fees, cost reimbursements and milestone payments. The agreement provides for up to approximately $173 million in additional development and other non-sales based milestone payments in connection with a first ophthalmic indication, of which between 40% to 50% is linked to events up to the receipt of marketing approval and the remainder of which is linked to events following marketing approval. To the extent a second ophthalmic indication is pursued, we would be entitled to receive up to $49 million in development and other non-sales based milestone payments, the majority of which is linked to events following marketing approval. In addition, to the extent that clinical trials for a non-ophthalmic indication are successfully completed, we would be entitled to receive additional tens of millions of dollars. Pfizer is required to pay us royalties on any sales of licensed products at rates higher than 5% and lower than 15%, subject to potential reductions depending upon, for example, the degree of exclusivity of the licensed product in the marketplace and the extent of Pfizer’s third party royalty obligations in connection with the commercialization of our drug. Further Pfizer is required to pay us up to an additional $309 million in sales-based milestone payments.

Pfizer may terminate the agreement without cause at any time upon prior written notice. If not terminated, the agreement will remain in effect in each country until at least the later of the expiration of all relevant patents or ten years from the first commercial sale of the licensed product in each such country. In addition, Pfizer may grant sublicenses for PF-655, provided, however, that our consent will be required for sublicenses in the United States, the largest countries of the EU, or Japan (which consent may not be unreasonably withheld, conditioned or delayed).

Our Option Agreement with Novartis

On August 17, 2010, we entered into an Option Agreement with Novartis International Pharmaceutical Limited (the “Option Agreement”) under which we granted to Novartis an option to license QPI-1002, our siRNA therapeutic directed against the p53 gene. In the event that Novartis exercises this option, we will automatically grant to Novartis an exclusive, worldwide license to develop and commercialize QPI-1002 and any other p53-directed siRNAs controlled by us, pursuant to a separate, pre-negotiated license agreement (the “License Agreement”). During the term of the Option Agreement and License Agreement, we are prohibited from entering into a collaboration or license agreement with any third party in connection with the development or commercialization of any p53-directed siRNA.

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Prior to exercise of the option, we will conduct at our expense Phase II trials on QPI-1002 for two indications: delayed graft function following renal transplantation and acute kidney injury following cardiovascular surgery. Novartis’ option will expire a few months following receipt by Novartis of the final results of the first Phase II clinical trial that meets the pre-defined success criteria, or a few months following receipt of the final results of both Phase II clinical trials, if neither meets the pre-defined success criteria. In the event that Novartis does not exercise the option prior to its expiration, the License Agreement will not come into effect, and in most cases we will be free to enter into agreements with third parties relating to QPI-1002 without further obligation to Novartis. However, under certain circumstances of failure in both Phase II trials, Novartis will have a right of first negotiation for a pre-set period of time in the event that we determine to license QPI-1002 or another p53-directed siRNA to a third party.

Following exercise of the option, Novartis will be solely responsible for all development, manufacturing, and commercialization of the licensed products, except that we will remain obliged to complete at our own expense the remaining portions, if any, of the Phase 2 trials for QPI-1002 that we initiated. Additionally, Quark will have the right to conduct a portion of the phase III clinical trials in Israel and to act as Novartis’ distributor of products in Israel, in accordance with agreements that will be negotiated by the parties. Novartis’ development and commercialization will be overseen by a joint steering committee with members appointed by both us and Novartis, but Novartis will have the deciding vote in the event of any disputes.

Upon execution of the Option Agreement, Novartis paid us a $10 million option grant fee. Assuming that the option is exercised, we could potentially receive up to $480 million in option exercise fees and development and regulatory milestone payments and up to $190 million in sales-based milestone payments. The majority of the development and regulatory milestone payments are linked to events relating to the acute kidney injury indication, and the remainder of the development and regulatory milestone payments are split, in roughly equal parts, between the delayed graft function indication and an unspecified third indication. In addition, we would be entitled to receive royalties on net sales of licensed products at a rates higher than 10% and lower than 20%, subject to potential reductions depending upon, for example, the degree of exclusivity of the licensed product in the marketplace and the extent of Novartis’ third party royalty obligations in connection with the commercialization of our drug.

Either we or Novartis may terminate the License Agreement in the event of an uncured material breach or insolvency of the other party, and Novartis may terminate the License Agreement without cause at any time upon prior written notice. Following termination of the License Agreement by Novartis for our material breach or insolvency, all licenses granted to Novartis will remain in effect, and Novartis’ payment obligations will continue, subject to significant reduction in the event of certain material breaches. If not terminated, the License Agreement will remain in effect, for a particular licensed product in a given country, until the expiration of all relevant patents and regulatory exclusivity with respect to such licensed product and such country, or ten years from the first commercial sale of such licensed product in such country, whichever is later.

Our Research Collaborations with other Pharmaceutical Companies

Between 1995 and 2004 we entered into collaboration agreements with Mitsubishi Pharmaceutical Corporation, Sankyo Co., Ltd., Taisho Pharmaceutical Co., Ltd., AstraZeneca, Astellas Pharma Inc., and Shionogi & Co., Ltd. Under each collaboration, we applied our BiFAR^TM platform to discover novel target genes potentially suitable for drug development in a disease field of interest to the collaborator. Each agreement required the collaborator to fund our research during an initial feasibility period and, if successful, a follow on research period of at least three years. Each collaboration agreement proceeded beyond the initial feasibility period, and in most the funded research stage was extended beyond the initial three year period. The funded research stage has now been completed under each of these collaborations.

In each case, our BiFAR^TM discovery platform yielded target genes potentially suitable for development of therapies to treat the diseases of interest. Most of these collaborators selected a number of targets for further development, and we have granted exclusive licenses in specific disease areas requiring the collaborator to develop and commercialize products within specified time periods. We retain rights to non-selected or returned targets, as well as those that are not developed within the time limits. All of these collaborators are required to make payments to us upon the achievement of certain development milestones

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and to pay royalties on sales of any licensed products. In most cases these collaborators have granted us certain commercialization rights in North America and major European countries.

The Silence Therapeutics (formerly Atugen) Agreements

In December 2004, we entered into a collaboration agreement with Silence. Pursuant to this agreement, Silence granted us an exclusive worldwide license under its RNAi technology to develop and commercialize our RNAi product candidates based on our target gene RTP-801.

In September 2006, we amended the Silence collaboration agreement in connection with the Pfizer license agreement, under which we sublicensed to Pfizer our rights under the license from Silence. This amendment clarified payments among the parties, terminated a license we granted to Silence in 2004, and provided for a direct license from Silence to Pfizer in the event of termination of the Pfizer agreement. Under the amended Silence collaboration agreement, we pay Silence a mid teens range percentage of our receipts from Pfizer under the Pfizer agreement, including milestone and royalty payments, but excluding payments specifically committed to cover research and development costs. The percentage we are required to pay may be reduced if we are required to pay royalties to third parties for additional intellectual property.

Unless earlier terminated, the Silence collaboration agreement will continue in force until the expiration of the royalty term, which will occur upon expiration of all relevant patents or ten years from first commercial sale of a licensed product, whichever occurs last. Either party may terminate the Silence collaboration agreement upon advance notice for the other party’s bankruptcy or uncured material breach.

In April 2005, we entered into a second agreement with Silence, the option and license agreement, pursuant to which Silence granted us options to non-exclusive licenses to Silence’s RNAi-related intellectual property to develop and commercialize siRNA product candidates based on five additional proprietary target genes, including p53. We exercised our option with respect to p53 and paid an option fee of €50,000 and an exercise fee of €500,000. Through September 30, 2010, we have paid $6.3 million in option fee payments and development milestone payments to Silence. Under the agreement we are required to make further payments based on the progress of clinical trials and regulatory approval of licensed products in the United States, Japan and Europe. We are also required to pay royalties on sales of any licensed products for which we have exercised an option. If we elect to sublicense our rights under this Silence agreement we are required to pay, in lieu of any other payments, a fixed percentage of all payments we receive from the sublicensee, the percentage being dependent on the clinical stage of the drug at the time of sublicense. We have not granted any sublicenses at this time but in August 2010 we granted an option to Novartis to obtain a sublicense under our rights under this Silence agreement.

Silence advised us that it believed our option agreement with Novartis should be treated, under our 2005 agreement with Silence, as a sublicense which triggers our payment obligations to Silence. We disputed Silence’s interpretation of our agreement. Following negotiations, we have agreed in principle on a sharing ratio for the payments from Novartis. This agreement in principle will be reflected in an amendment to our license agreement with Silence, which is currently being prepared.

The Alnylam Agreements

In conjunction with the Pfizer agreement executed in September 2006, we entered into a set of license agreements with Alnylam Pharmaceuticals, Inc. Pursuant to these agreements, Alnylam granted us non-exclusive worldwide licenses under three families of patents and patent applications owned or controlled by Alnylam. Each agreement is specific to one of our proprietary targets p53 and RTP-801 and to certain therapeutic fields, including all indications we contemplate for these target genes. We sublicensed our rights under the RTP-801 Alnylam agreements to Pfizer in the September 2006 license agreement. We have not granted any sublicenses at this time under the p53 Alnylam agreements, but in August 2010 we granted an option to Novartis to obtain a sublicense under our rights under these agreement.

Pursuant to the terms of the license agreements, through September 30, 2010, we paid Alnylam fees totaling $2.0 million. The agreements provide for annual maintenance fees and up to $6.5 million in additional development and product approval milestone payments. We are also required to pay low single digit royalties on our sales or sales by our sublicensee. The royalty rates vary based on which patent families cover the

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products sold on a country by country basis. Under the Pfizer agreement, Pfizer will partially reimburse our payments to Alnylam under the RTP-801 agreement.

Unless earlier terminated, the Alnylam license agreements will continue until the expiration or abandonment of all relevant patents and patent applications. Alnylam may terminate the Alnylam license agreements upon advance notice for our uncured material breach. In addition, we can terminate the Alnylam license agreements at will upon advance notice at any time.

Our Agreement with the University of Illinois at Chicago

In September 1999, the University of Illinois at Chicago granted us an exclusive worldwide license under its patents and patent applications related to the therapeutic inhibition of p53 and small molecule p53 inhibitors for all uses and indications.

Under the agreement, we are required to pay the University of Illinois at Chicago a low single digit royalty on sales of products incorporating intellectual property licensed from the University of Illinois at Chicago or a percentage share in the low teens range of any payments we receive from sublicensees, including milestone and royalty payments subject to certain exclusions. Payments to the University of Illinois at Chicago may be reduced in the event we are required to pay additional royalties to third parties for licenses of intellectual property required to develop, manufacture, or commercialize the licensed products. We are also required to pay the University of Illinois at Chicago certain lump-sum payments upon the achievement of certain events. To date, we have not granted any sublicenses under our license from the University of Illinois at Chicago, but we have granted Novartis an option to obtain an exclusive sublicense through our option agreement with Novartis.

Unless earlier terminated, the agreement will continue until the expiration of all relevant patents. Either party may terminate the agreement upon advance notice for the other party’s bankruptcy or uncured material breach, and we can terminate the agreement at will upon advance notice at any time. In addition, the University of Illinois at Chicago may terminate the agreement if we do not meet a general diligence obligation to use commercially reasonable efforts to bring licensed products to market. Our license with respect to a particular licensed product will terminate for failure to meet specific development milestones by agreed-upon deadlines, which we may extend for a limited time period by paying an extension fee.

Our Agreement with Dharmacon

In January 2010, Dharmacon, Inc., a wholly owned subsidiary of Thermo Fisher Scientific Inc. (“Dharmacon”), granted us an exclusive worldwide license under its patents and patent applications related to specific siRNA molecule(s) and their use for the inhibition of p53 for all uses and indications in humans. Dharmacon has retained certain rights with respect to products covered by the licensed patents for uses outside our exclusive field. Under the agreement, we are required to pay up to $11.6 million in milestone payments upon achievement of development and commercialization milestones as well as low single digit royalties on future sales of licensed product. We are also required to pay a low single digit share of any payments we receive from sublicensees, including upfront and milestones payments but excluding royalties on sales by sublicense and certain other payments. To date, we have not granted any sublicenses under our license from the Dharmacon, but we have granted Novartis an option to obtain an exclusive sublicense through our option agreement with Novartis. As of September 30, 2010, the Company paid or accrued $450,000 under the agreement with Dharmacon.

Unless earlier terminated, the Dharmacon agreement will continue until the expiration of all relevant patents. Either party may terminate the agreement upon advance notice for the other party’s bankruptcy or uncured material breach, and in particular, Dharmacon may terminate the agreement if we do not use commercially reasonable efforts to develop and commercialize at least one licensed product. In addition, we can terminate the agreement with advance notice if we discontinue our development program for licensed products.

Our Agreement with Nitto Denko

In June 2010, we entered into a license and collaboration agreement with Nitto Denko Corporation for the development of siRNA therapeutics for the treatment of fibrotic diseases, pursuant to which we granted a license to Nitto Denko to use our siRNA-related intellectual property to develop, manufacture, and

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commercialize siRNA therapeutics directed against specific target genes. We are obligated to perform certain initial research activities for development of these therapeutics through the submission of the first IND application in the United States. Nitto Denko will be responsible for the remaining development, and for the worldwide commercialization of any resulting product. During the term of the agreement, we are prohibited from researching, developing, or commercializing siRNA compounds directed against the target genes that are the subject of the collaboration. The agreement does not restrict our ability to use, or license others to use, our siRNA-related intellectual property in connection with other target genes.

Nitto Denko will fully fund our initial research, and we are entitled to receive low single digit royalties on future sales of licensed products, as well as certain additional payments that will be negotiated by the parties in the future.

Unless earlier terminated, the Nitto Denko agreement will continue until the expiration of the royalty term, which is the later of ten years from the first commercial sale or the expiration of all relevant patents. Either party may terminate the agreement upon advance notice for the other party’s uncured material breach. Nitto Denko may terminate the agreement in the event of the bankruptcy or insolvency of Quark.

In addition, Nitto Denko has the right to terminate the agreement at the end of certain stages of the initial research or at any time after the submission of the first IND application in the United States. Following such a termination of the Agreement, Nitto Denko may retain its license rights under our intellectual property by paying a lump sum payment, which payment will be in lieu of any further payments to us.

As of September 15, 2010, we have received research and development funding of $2.2 million under the above-mentioned agreement with Nitto Denko.

Our Collaboration With BioSpring GmbH

BioSpring GmbH is a manufacturer of siRNA molecules which has been a supplier to us for many years. For the past four years, we have collaborated with BioSpring to identify novel molecules which may be a basis for future drug candidates. BioSpring has assigned to us its ownership interest, if any, in the patents arising from this collaborative work. However, the exact terms and conditions associated with this assignment have not been reduced to a definitive agreement. We recently reached agreement in principle with BioSpring regarding these terms and conditions and are currently in the process of preparing a definitive agreement.

Competition

The pharmaceutical and biotechnology industries are intensely competitive, and several of our product candidates, if commercialized, would compete with existing drugs and therapies. In addition, there are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of products targeting the same markets as our product candidates. Many of these organizations have substantially greater financial, technical, manufacturing and marketing resources than we have. Our ability to compete successfully will depend largely on our ability to:

• design and develop products that are superior to other products in the market;

• attract and retain qualified scientific, product development and commercial personnel;

• obtain patent and/or other proprietary protection for our product candidates and technologies;

• obtain required regulatory approvals; and

• successfully collaborate with pharmaceutical companies in the design, development and commercialization of new products.

We expect to compete on, among other things, product efficacy and safety, time to market, price, extent of adverse side effects and the basis of and convenience of treatment procedures. In order to compete successfully, we will need to identify and develop products and exploit these products commercially before others are able to develop competitive products.

If PF-655 is approved for wet age-related macular degeneration and/or for diabetic macular edema, we anticipate that it would compete with other marketed therapeutics, particularly vascular endothelial growth

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factor inhibitor drugs, primarily Genentech’s Lucentis®, recently approved by the FDA for wet age-related macular degeneration and which has become the standard-of-care for the treatment of wet age-related macular degeneration and is under investigation for diabetic macular edema. PF-655 may also face competition from off-label use of Genentech’s Avastin®, currently approved for the treatment of various cancers. Additional wet age-related macular degeneration therapeutics that are in development could also compete with PF-655. These include further anti-vascular endothelial growth factor angiogenesis inhibitors drugs. Among these, Alcon Research is evaluating Anacortave Acetate (Retaane), an antiangiogenic synthetic steroid drug. Allergan is developing its siRNA drug candidate AGN211745, Regeneron’s intravitreal formulation of soluble decoy receptor vascular endothelial growth factor VEGF Trap-Eve (aflibercept) TRAP is in Phase III clinical trials for wet age related macular degeneration in collaboration with Bayer, CoMentis, Inc. is developing ATG3, a topical eye drop therapy, MacuSight and Santen are developing Perceiva (sirolimus, rapamycin) for diabetic macular edema and age-related macular degeneration, Ophthotech is developing E10030, a pegylated aptamer that binds and inhibits PDGF in combination with Lucentis, Alimera is developing pSivida’s Iluvien® and intravitreal insert, to deliver fluocinolone acetonide, a corticosteroid, to the retina for up to three years as a treatment for diabetic macular edema and age-related macular degeneration.

QPI-1002.  We are not aware of specific drugs marketed for the prevention of acute renal failure. However, in response to the unmet medical need, new products could be developed, such as Action Pharma’s AP214 for acute kidney injury, or existing products could be used off-label, such as Nesiritide, a recombinant form of human B-type natriuretic peptide (hBNP) therapy approved for the treatment of acute congestive heart failure. A phase III trial is ongoing for the use of Nesiritide in thoracic aneurysm repair to prevent acute renal failure.

QPI-1007.  We are not aware of specific drugs approved or marketed as an ocular neuroprotective agent. Recent significant advances in understanding the mechanisms for death of retinal neurons prompted renewed interest in development of neuroprotective agents, in particular focusing on neuroprotection for glaucoma. For example, Pfizer Inc. and NicOx SA were developing PF-03187207 for glaucoma. Following completion of phase II clinical trials, NicOx reacquired the rights to the product from Pfizer.

Manufacturing and Supply

All of our current good manufacturing practices manufacturing is outsourced to third parties with oversight by our internal managers. We have limited non-current good manufacturing practices manufacturing capacity in-house. We rely on third-party manufacturers to produce sufficient quantities of material for use in preclinical studies and clinical trials, particularly synthetic siRNA. We intend to continue this practice for any future clinical trials and large-scale commercialization of any RNAi drug candidates for which we retain significant development and commercialization rights.

Avecia, Agilent Technologies and BioSpring are the primary contract manufacturers on which we rely for our supply of synthetic siRNA, and Pyramid Laboratories is our primary contract manufacturer for the supply of our final formulated products for human testing for clinical trials. All of our contract manufacturers are experienced in manufacturing synthetic siRNA under current good manufacturing practices. Over time, we intend to establish long term commercial supply agreements with our contract manufacturers. The commercial manufacturers will be selected based on results of demonstration syntheses, regulatory track record, commercial manufacturing and control experience, staff experience, training and skill, intellectual property considerations and price.

Pfizer will be responsible for manufacturing all product candidates for preclinical and clinical development and for commercial supply under our agreement.

Intellectual Property

We place considerable importance on obtaining patent protection for our technologies, product candidates and processes, maintaining our intellectual property estate and making every effort in ensuring that we and our sublicensees have the necessary freedom to operate in the siRNA space. Our policy is to seek patent protection for the inventions that we consider important to the development of our business. We intend to continue using our scientific expertise to develop new technologies, siRNA compounds, uses, methods and compositions and to pursue patent protection for these inventions to enhance our intellectual property position in the areas that are important to the development of our business.

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We believe we have a solid intellectual property position relating to the development and commercialization of our product candidates. We seek patent protection in the United States, Europe and selected other jurisdictions for our product candidates, delivery methodologies and target genes.

As of October 2010, we own or control through exclusive licenses 77 issued and 2 allowed patents in the United States and elsewhere in the world and approximately 130 patent applications filed as PCT international patent applications, applications in the United States and in 29 other jurisdictions. In addition, we hold non-exclusive licenses to 32 patents that were granted in United States and in 9 other jurisdictions and to 58 patent applications that are pending in the United States and in 14 other jurisdictions (including patents and patent applications relating to RNAi technology that may be relevant to some of our Clinical Products). Our patents for PF-655 and QPI-1002 drug candidates (some of which were already granted and some if which are still pending) will expire in 2025 or later if the patent term is adjusted (in the United States) or extended in jurisdictions that grant patent term extension (such as the United States, Israel, Japan and others). Most of our siRNA technology patents and pending patent applications (if and when granted) will expire after 2027. Our patents for the QPI-1007 drug candidate (if and when granted) will expire in 2029 or later. The patents and pending patent applications, if and when granted, on siRNA technology in-licensed from Atugen AG (now Silence Therapeutics) will expire in 2023. The expiration dates discussed in this paragraph, relate to the United States and other major countries. The patent expiration dates provided do not take into consideration any patent term extensions that may be granted under the Patent Term Restoration Act in the United States or the Supplementary Protection Certificate in the European Union, or in other countries including Australia, Japan, Korea and Israel, which would extend patent term taking into consideration time lost during the regulatory approval process.

Even if we are granted patents by government authorities or obtain them through licensing, there can be no assurance that our patents will provide significant protection, competitive advantage or commercial benefit. The validity and enforceability of patents issued to pharmaceutical and biotechnology companies has proven highly uncertain. Legal considerations surrounding the validity of patents in the fields of pharmaceuticals and biotechnology are in transition, and we cannot assure you that the historical legal standards surrounding questions of validity will continue to be applied or that current defenses relating to issued patents in these fields will be sufficient in the future. In addition, we cannot assure you as to the degree and range of protections any of our patents, if issued, may afford us or whether patents will be issued. For example, patents which may issue to us may be subjected to further review by government authorities that may ultimately result in the reduction of their scope of protection, and pending patent applications may have their requested breadth of protection significantly limited before being issued, if issued at all. Further, since publication of discoveries in scientific or patent literature often lags behind actual discoveries and since publication of patent applications occur only after 18 months from the date of filing of the priority application, we cannot assure you that we were the first to invent subject matter covered by our pending patent applications, or that we were the first to file patent applications for these inventions.

Many pharmaceutical and biotechnology companies and university and research institutions have filed patent applications or have received patents in our areas of product development. Many of these entities’ applications, patents and other intellectual property rights could limit the scope of our patent claims or even prevent us from obtaining patents or could call into question the validity of any of our patents, if issued, or could otherwise adversely affect our ability to develop, manufacture or commercialize our siRNA drug candidates. Many companies, universities and institutions have filed patent applications on particular aspects of RNAi technology. In the therapeutic field, there are different patent families concerning, among others, siRNAs of specific lengths and including in their structures specific modifications as well as delivery systems and uses of such siRNAs. There is considerable uncertainty in the RNAi-related intellectual property landscape stemming from the fact that the earliest filed patents are just being granted, and many are still in prosecution and the claims of these patent applications are still subject to change.

We have pending patent applications claiming all our siRNA clinical stage drug candidates as composition of matter and for methods of therapeutic use. We have licenses from Silence under their patent family related to specific modifications to general siRNA structures for the PF-655 and QPI-1002 drug candidates. Silence’s Australian patent, European patent and US patent have been granted. In relation to our QPI-1002 drug candidate we have, in addition, exclusive licenses from Dharmacon and from the Board of

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Trustees of the University of Illinois (UIC) related to siRNA sequences and temporary inhibition of p53 gene respectively. One of the patents that relates to temporary inhibition of p53 gene and was licensed on exclusively basis from UIC’s, namely European Patent EP1143943, was opposed by Eleos Inc (in September, 2008). The claims of the EP1143943 patent are directed to use of reversible p53 inhibitors for reducing or eliminating side effects associated with cancer therapy. As such the EP1143943 patent does not cover any of our current therapeutic indications of interest. Our response to Eleos’ arguments and Auxliary request claims were filed at the EPO in June 2009. EPO issued summons to oral proceedings on December 8, 2010. Final resolution of the opposition proceedings will likely take a number of years. We cannot assure you the breadth of the claims that will remain in the EP1143943 patent or that the patent will not be revoked in its entirety.

Further, we are pursuing intellectual property rights related to RNAi technologies, including pending patent applications covering compositions of matter, methods of use, routes of delivery and novel modified siRNA structures.

We have also licensed from Alnylam certain patents in the siRNA space on a non-exclusive basis, including:

• International Patent Application WO 2001/36646 and corresponding patents and applications, known as the “Glover patent,” which claim RNAi uses in mammalian cells;

• International Patent Application WO 2000/044895 and corresponding patents and applications, known as the “Kreutzer-Limmer patent,” which claim therapeutic uses of double-stranded RNAi of specific lengths; and

• United States Patents 7056704 and 7078196, International Patent Application WO 2002/044321 and corresponding patents and applications, known as the “Tuschl patents,” which cover certain structural features of siRNAs.

RNA interference is a relatively new field that has generated much technology and accompanying Intellectual Property, including numerous patents and patent applications, which are held by third parties. These third party patents and patent applications claim many different compounds, compositions and methods relating to the development and commercialization of RNAi therapeutics. Since the majority of these patent applications are still pending in Patent Offices around the world, there is a great deal of uncertainty about which patents will be granted, where and when, and with which claims. These third party patents could make it difficult or impossible for us to develop products based on our Intellectual Property or based on patents that we have licensed in. We routinely screen the patent literature and, when we believe appropriate, enter into discussions with academic and commercial entities that hold patents or are pursuing patent applications on technology or processes that we may wish to license in order to engage in some of our activities.

However, we cannot assure you that these licenses, or any others that we may obtain for our product candidates, will be available on commercially reasonable terms, if at all, or that we will be able to develop alternative technologies if we cannot obtain licenses. Moreover, we are aware of currently pending patent applications that, if granted, might arguably cover our activities or product candidates, depending on the scope of claims allowed, if any, including patent applications owned by Merck & Co., Inc. Alnylam Pharmaceuticals, Isis Pharmaceuticals, Silence Therapeutics, Dharmacon, Sylentis S.A and others.

To protect our rights in any of our patents, if issued, or to protect other proprietary rights, we may need to litigate against infringing third parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of these patents or other proprietary rights. These types of proceedings are often costly and time-consuming, and we cannot assure you that we will undertake to participate in such proceedings or that the deciding authorities will rule in our favor. An unfavorable decision could allow third parties to use our technology without being required to pay us licensing fees or may compel us to license needed technologies to avoid infringing third-party patent and proprietary rights, which may or may not be available. Although we believe that we would have valid defenses to allegations that our current product candidates (if and when they become commercial products), production methods of commercial products and commercial activities infringe the intellectual property rights of third parties, we cannot be certain that a third party will not challenge our position in the future. Also, even if some of these activities were covered by a third party’s patent rights, we may be exempt from claims of infringement to the extent that our activities are

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pre-commercialization activities related to seeking regulatory approval for a product candidate. However, the precise scope of protection for pre-commercialization activities is uncertain in some jurisdictions and we cannot assure you that any defense would be successful. Further, this defense is only available for pre-commercialization activities, and could not be used as a defense for sale and marketing of any of our product candidates. There has been, and we believe that there will continue to be, significant litigation in the biopharmaceutical and pharmaceutical industries regarding patent and other intellectual property rights.

Accordingly, third parties could bring legal actions against us claiming we infringe their patents or proprietary rights, and seek monetary damages and/or to enjoin clinical testing, manufacturing and marketing of one or more of our products. If we become involved in any such litigation, it could consume a substantial portion of our resources, and cause a significant diversion of effort by our technical and management personnel regardless of the outcome of the litigation. If any of these actions were successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product, in which case we may be required to pay substantial royalties or grant cross-licenses to our patents. Moreover, there can be no assurance that any such license will be available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of intellectual property rights of others, which could have a material and adverse effect on our business, financial condition and operations. Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of the adverse party. This can be especially true in intellectual property cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree.

While we pursue patent protection for our product candidates and for various aspects of our technologies when appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, licensees, collaborators and suppliers. Our employment policy requires, where appropriate, each new employee to enter into an agreement that contains provisions generally prohibiting the disclosure of confidential information to anyone outside of Quark and providing that any invention conceived by an employee within the scope of his or her employment duties is our exclusive property. Furthermore, our know-how that is accessed from third parties through licenses, collaborations and research and development contracts and through our relationships with scientific consultants is generally protected through confidentiality agreements. We cannot, however, assure you that these protective arrangements will be honored by third parties, including employees, consultants, licensees, collaborators and suppliers, or that these arrangements will effectively protect our rights relating to unpatented proprietary information, trade secrets and know-how. In addition, we cannot assure you that other parties will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary information and technologies.

Government Regulation

The testing, manufacturing, and potential labeling, advertising, promotion, distribution, export and marketing of our product candidates are subject to extensive regulation by governmental authorities in the United States and in other countries. In the United States, the FDA, under the Federal Food, Drug and Cosmetic Act, or FDCA, and its implementing regulations, regulates pharmaceutical products. Failure to comply with applicable U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending applications for commercialization of products, withdrawal of approval for commercialized products, warning letters, untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, civil penalties and/or criminal prosecution.

Drug Approval Process

At the present time, we believe that our RNA interference-based product candidates will be regulated by the FDA as drugs under the jurisdiction of the FDA’s Center for Drug Evaluation and Research. To obtain FDA approval of a product candidate, we must, among other things, submit data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product candidate and proposed labeling. The testing and collection of data and the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably in reviewing these applications,

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and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing our products.

The steps required before a drug may be approved for marketing in the United States generally include:

• preclinical laboratory tests and animal tests conducted in accordance with Good Laboratory Practices;

• submission to the FDA of an Investigational New Drug Application, or IND, for human clinical testing, which must become effective before human clinical trials commence;

• adequate and well-controlled human clinical trials conducted in accordance with Good Clinical Practices to establish the safety and efficacy of the drug product for each indication for which approval is being sought;

• the submission to the FDA of a New Dug application, or NDA;

• satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with current good manufacturing practices;

• potential FDA inspection of the nonclinical and clinical trial sites that generated the data in support of the NDA; and

• FDA review and approval of the NDA, often after conclusion of an Advisory Committee of external experts concerning the NDA.

Preclinical studies may include laboratory evaluations of the product chemistry, toxicity, and formulation, as well as animal studies to assess the potential safety and efficacy of the product candidate. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the clinical trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed.

Clinical trials involve the administration of the product candidate to healthy volunteers or patients under the supervision of a qualified principal investigator. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted in accordance with the FDA’s good clinical practices requirements. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, and the safety of human subjects. Continuing review and approval by the IRB is required at least annually. The FDA may order the partial, temporary or permanent discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects. The IRB may also require the clinical trial at that site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

Clinical trials typically are conducted in three sequential phases prior to approval, but the phases may overlap. A fourth, or post-approval, phase may include additional clinical studies. These phases generally include the following:

• Phase I.  Phase I clinical trials involve the initial introduction of the drug into human subjects, frequently healthy volunteers. These studies are designed to determine the metabolism and pharmacologic actions of the drug in humans, the adverse effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness. In Phase I, the drug is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and pharmacodynamic properties.

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• Phase II.  Phase II clinical trials usually involve studies in a limited patient population to evaluate the biological activity, including initial efficacy, of the drug for specific, targeted indications, to determine dosage tolerance and optimal dosage, and to identify possible adverse effects and safety risks. Although there are no statutory or regulatory definitions for Phase IIa and Phase IIb, Phase IIa is commonly used to describe a Phase II clinical trial evaluating biological activity, including initial efficacy, adverse effects, and safety risks and Phase IIb is commonly used to describe a subsequent Phase II clinical trial that also evaluates dosage tolerance and optimal dosage.

• Phase III.  If a compound is found to be potentially effective and to have an acceptable safety profile in Phase II (or sometimes Phase I) studies, the clinical trial program will be expanded to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical trial sites. Phase III studies usually include several hundred to several thousand patients. Generally, two adequate and well-controlled Phase III clinical trials are required by the FDA for approval, but for some product candidates, only one Phase III trial may be required.

• Phase IV.  Phase IV clinical trials are studies required of or agreed to by a sponsor that are conducted after the FDA has approved a product for marketing. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as Phase III/IV post approval clinical trials. Failure to promptly conduct Phase IV clinical trials could result in withdrawal of approval for products approved under accelerated approval regulations.

The applicant must submit to the FDA the results of the preclinical and clinical trials, together with, among other things, detailed information on the manufacture and composition of the product candidate and proposed labeling, in the form of an NDA, including payment of a user fee. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has ten months in which to complete its initial review of a standard NDA and respond to the applicant, and six months to complete its review of a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. If the FDA’s evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable, the FDA will issue an approval letter. If there are certain issues or concerns that need to be addressed prior to the agency’s ability to approve the NDA, the FDA’s response to the applicant will take the form of a Complete Response letter, which contains the conditions that must be met in order to secure final approval of the NDA. If and when those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter, authorizing commercial marketing of the drug for certain indications. Sponsors that receive a complete response letter may submit to the FDA information that represents a response to the issues identified by the FDA. Such resubmissions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based on the information submitted by an applicant in response to an action letter. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission, and six months to review a Class 2 resubmission. The FDA may also refer an application to the appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of the advisory committee.

The FDA has various programs, including fast track, priority review, and accelerated approval (Subpart H), that are intended to facilitate the development and expedite the review of certain drugs, and/or provide for approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those for serious or life-threatening conditions, those with the potential to address

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unmet medical needs, and those that provide meaningful benefit over existing treatments. We cannot be sure that any of our drug candidates will qualify for any of these programs, or that, if a drug does qualify, that the review time will be shorter than a standard review.

After approval, certain changes to the approved product, such as adding new indications, making certain manufacturing changes, or making certain additional labeling claims, are subject to further FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical studies be conducted. We cannot be sure that any additional approval for new indications for any product will be approved on a timely basis, or at all.

After a drug has been approved by the FDA for sale, the FDA may require that certain post-approval requirements be satisfied, including the conduct of additional clinical studies or compliance with a Risk Evaluation and Mitigation Strategy, or REMS. If such post-approval conditions are not satisfied, the FDA may withdraw its approval of the drug. In addition, holders of an approved NDA are required to:

• report certain adverse reactions to the FDA;

• submit annual and periodic reports summarizing product information and safety data;

• comply with certain requirements concerning advertising and promotional labeling for their products; and

• continue to have quality control and manufacturing procedures conform to current good manufacturing practices after approval.

The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing facilities, including assessment of compliance with current good manufacturing practices. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain current good manufacturing practices compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.

Other Regulatory Requirements

We are subject to a variety of foreign regulations governing clinical trials and the marketing of any potential products. Outside of the United States, our ability to market any products we may develop depends upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. In any country, however, we will only be permitted to commercialize our products if the appropriate regulatory authority is satisfied that we have presented adequate evidence of safety, quality and efficacy. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The time needed to secure approval may be longer or shorter than that required for FDA approval. The regulatory approval and oversight process in other countries includes all of the risks associated with regulation by the FDA and certain state regulatory agencies as described above.

Employees

As of October 31, 2010, we had 96 employees, 70 of whom were engaged directly in research and development, 22 in general administrative and marketing activities, and 4 in regulatory, clinical affairs and quality activities. None of our employees is covered by a collective bargaining agreement, and we consider our relationship with our employees to be good.

Facilities

Our corporate headquarters are located in Fremont, California, where we occupy approximately 5,540 square feet of office space. The annual lease payments for our corporate headquarters building are approximately $95,000, and the fixed-term lease expires May 31, 2011. Our research and development facility is located in Ness Ziona, Israel, where we occupy approximately 23,110 square feet of office and laboratory space. The annual lease payments for this space are approximately $412,000. The fixed-term lease expired June 13, 2010, after which we may extend the term for an additional year. We also have a small office in

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Boulder, Colorado, where we occupy approximately 9,494 square feet. The annual lease payments are approximately $150,000 and the fixed terms lease expire on August 30, 2011.

Legal Proceedings

We are not currently involved in any material legal proceedings. However, litigation is common in the biopharmaceutical industry, and we may become involved in material legal proceedings in the future.

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors, including their ages and positions, as of October 31, 2010:

Name	Age	Position(s)
Daniel Zurr, Ph.D.	67	President, Chief Executive Officer and Director
Sagit Reich, CPA (Isr)	36	Chief Financial Officer
Rami Skaliter, Ph.D.	52	Chief Operating Officer
Shai S. Erlich, Ph.D.	44	Chief Medical Officer
Elena Feinstein, M.D., Ph.D.	51	Chief Scientific Officer
Juliana Friedmann, M.Sc.	59	Senior Vice President, Strategy & Planning
Smadar Shakked, CPA (Isr)	43	Senior Vice President of Business Development, Finance
Philip B. Simon, Chairman	58	Chairman of the Board of Directors
Philip M. Hahn	68	Director
Yoshitaka Kitao	59	Director
Toshihiro Toyoshima	48	Director
Robert Takeuchi	54	Director

Daniel Zurr, Ph.D. has served as our President, Chief Executive Officer and a member of our Board of Directors since he founded Quark in 1993. Prior to joining Quark, from 1984 to 1993, Dr. Zurr served as vice president for corporate business development for Israel Chemicals, Ltd. From 1980 to 1983, Dr. Zurr served as the director of licensing at G.D. Searle, a specialty pharmaceutical company. Dr. Zurr was the chief executive officer of Plantex-Ikapharm, a pharmaceutical company, from 1972 to 1980. Dr. Zurr obtained his M.Sc. at the Hebrew University of Jerusalem and his Ph.D. from Imperial College, University of London. Dr. Zurr’s experience in prior pharmaceutical companies as well as his experience as a founder of Quark and his tenure with Quark brings industry experience, historic company knowledge as well as continuity to the Board of Directors.

Sagit Reich, CPA (Isr) has served as our Chief Financial Officer since she joined Quark in August 2010. Prior to joining Quark, Ms. Reich worked at the accountancy firm of Ernst &Young, Israel, as Senior manager of public and private companies specializing in the hi-tech industry from 2000 until July 2010. Ms. Reich is licensed Israeli CPA and holds a B.A. in Accounting and Psychology from Tel Aviv University.

Rami Skaliter, Ph.D. has served as our Chief Operating Officer since January 2007. Dr. Skaliter joined Quark in 1995. He has served in various executive positions, including Executive Vice President of Research & Development. Dr. Skaliter obtained his B.Sc. in Biology at the Ben-Gurion University of the Negev, and both his M.Sc. and Ph.D. in Biochemistry at the Weizmann Institute of Science. Between 1993 and 1995, Dr. Skaliter completed his post-doctoral fellowship at Stanford University.

Shai S. Erlich, Ph.D. has served as our Chief Medical Officer since January 2008.Dr. Erlich joined Quark in 1999. He has served in various executive positions, including Senior Vice President of Pharmaceutical Development, from May 2004 to January 2007, Senior Director of Portfolio Management from May 2002 to May 2004 and Director of Product Development Strategic Planning from April 2000 to May 2002. Dr. Erlich obtained his B.Sc. in the medical sciences at the Ben-Gurion University of the Negev, and holds an M.Sc. in Human Genetics in the field of Cancer Genetics from Tel Aviv University, and a Ph.D. in Gene Therapy from Mount Sinai School of Medicine.

Elena Feinstein, M.D., Ph.D. has served as our Chief Scientific Officer since June 2007. Dr. Feinstein joined Quark in 1998 and has served in various executive positions, including Senior Vice President of Research, Vice President of Technology Development and Vice President of Research from 2001 to 2002. Prior to joining Quark, Dr. Feinstein worked from 1985 until 1997 at the Weizmann Institute of Science as a doctoral fellow, post-doctoral fellow, scientist and senior staff scientist. Dr. Feinstein obtained her M.D. from the 2nd Moscow Medical Institute (Moscow Medical University) and completed her Ph.D. in Chemical Immunology at the Weizmann Institute of Science.

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Juliana Friedmann, M.Sc. has served as our Senior Vice President of Strategy and Planning since 2007.Ms. Friedmann joined Quark in 1998. Ms. Friedmann served as our Vice President of Marketing and Business from February 1998 until May 2007. From 1983 until 1998, Ms. Friedmann worked at Dead Sea Bromine, part of Israel Chemicals Ltd., holding a number of progressively senior positions. Previously Ms. Friedmann worked as a patent attorney in Italy. Ms. Friedmann received both her B.S. in Chemical Engineering and her M.Sc. from Ben-Gurion University of the Negev.

Smadar Shakked, CPA (Isr) has served as our Senior Vice President of Business Development, Finance since August 2010. Ms. Shakked served as our Senior Vice President, Finance heading the finance department from 1997 until August 2010. Before joining Quark in 1997, Ms. Shakked worked at the accountancy firm of PWC Kesselman and Kesselman, Israel, as Senior Auditor of private and public companies (specializing in the hi-tech industry) trading in Israel and on NASDAQ, managing financial reports, initial public offerings, tax returns, economic consulting. Ms. Shakked holds a degree in Accounting and Economics from the Hebrew University of Jerusalem, Israel, and in 1994 obtained her Certified Public Accountant (CPA) license. Ms. Shakked also holds an Executive M.B.A. degree from Tel Aviv University.

Philip B. Simon, CPA has served as a member of our Board of Directors since August 1997. Mr. Simon is a partner of Howson & Simon LLP and the president of Lawrence Investments, LLC, one of Quark’s major investors. Mr. Simon serves on the boards of directors of LeapFrog Enterprises, Inc., as well as on the boards of several private companies affiliated with Lawrence Investments, and formerly served on the board of directors of Spring Group plc, a publicly traded United Kingdom company. Mr. Simon joined Lawrence Investments in 1997. Mr. Simon has worked for 29 years as a partner at Howson & Simon. Mr. Simon holds an A.B. from Yale University and a J.D. from Stanford Law School. He is a member of the California Society of Certified Public Accountants. Mr. Simon’s executive and finance experience and his tenure as a director of Quark brings executive and finance experience, historic company knowledge as well as continuity to the Board of Directors.

Philip M. Hahn has served as a member of our Board of Directors since August 2008. He retired from Pfizer, Inc. in 2008 as Vice President and Assistant General Counsel and worked continuously at Pfizer in various positions from 1978 to 2008. Mr. Hahn has extensive experience in structuring, negotiating and drafting major licenses and collaborations with U.S. pharmaceutical and biotech companies, as well as European and Japanese companies and broad experience in pharmaceutical and medical device businesses, including research, development, manufacturing and commercialization of products in U.S. and in foreign markets. Mr. Hahn is also knowledgeable in the areas of commercial, patent, anti-trust, bankruptcy, food and drug, and licensing law. Mr. Hahn is a member of the Bar of the City of New York, New York State Bar Association and has been a lecturer and panel expert at various programs conducted by the American Conference Institute and the New York City Bar Association. He is also a member of the Board and Executive Committee of the New York Region of the Anti-Defamation League. Mr. Hahn holds an A.B. magna cum laude from Brown University, an L.L.B. from Yale Law School and is fluent in French. Mr. Hahn’s experience with other pharmaceutical and biotech companies in the development and commercialization of products in the U.S. and foreign markets brings industry experience and knowledge to the Board of Directors.

Yoshitaka Kitao has served as a member of our Board of Directors since June 2010.He has served as the Chief Executive Officer and Representative Director of SBI Holdings, Inc., SBI Investment Co., Ltd., SBI Capital Co., Ltd. and SBI Card Co., Ltd., and the Chief Executive Officer and Director of SBI VeriTrans Co., Ltd. and Morningstar Japan K.K. He is the Chairman and Director of SBI Mortgage Co., Ltd., Gomez Consulting Co., Ltd. and SBI Securities Co., Ltd. He is the Representative Director of Wall Street Journal Japan K.K. and Director of SBI Benefit Systems Co., Ltd. He was Executive Vice President and Chief Financial Officer of SOFTBANK Corp. from 1995 to 2000 and a Director of SOFTBANK Corp. from 2000 to 2005. He was the Chief Executive Officer and Representative Director of SOFTBANK Finance Corporation from 1999 to 2005. Previously, Mr. Kitao was also the Director of Nomura Wasserstein Perella Co., Ltd. from 1991 to 1992, Managing Director of Wasserstein Perella & Co. International, Limited from 1989 to 1992 and was the General Manager for the Nomura Securities Co., Ltd.’s Corporate Finance and Services Dept. III from 1992 to 1995. Mr. Kitao obtained degrees in Economics from Keio University in 1974 and Cambridge University in 1978. Mr. Kitao’s experience brings management and finance knowledge and expertise to the Board of Directors.

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Toshihiro Toyoshima has served as a member of our Board of Directors since August 2010. Mr. Toyoshima is Chief Executive Officer of Asuka DBJ Partners Co., Ltd., an investment management company with approximately $860 million in assets under management, formed in 2005 as a joint venture between Development Bank of Japan, Inc. and Asuka Asset Management Co., Ltd. Before joining Asuka DBJ Partners, Mr. Toyoshima was the director-general of the Planning Department for Investment Banking of the Development Bank of Japan from October 2004 after working as a senior specialist in charge of the private sector at the World Bank and working in the Planning Department and the Project Finance Department of the Development Bank of Japan. Mr. Toyoshima introduced the concept of project finance and DIP finance to Japan, and arranged a wide range of notable transactions such as Nakayama Joint Power Generation, Universal Studio Japan, Shinko Kobe Power Station of Kobe Steel, Ltd., Kazusa Clean System, and Fukuoka Clean Energy, each of which won the Asia Pacific Deal of the Year Award of the International Project Finance magazine. At the World Bank, Mr. Toyoshima was responsible for the privatization of state-owned enterprises in Botswana, Gambia, Lesotho, and Ethiopia. Mr. Toyoshima supervised the bidding for the privatization of Lesotho Electric Company, the foundation of Gambia Utility Regulatory Agency, and the coordination of the Asian-African trade and investment strategy (part of the Afro-Asian Conference). Since 2005, Mr. Toyoshima has engaged in equity investments of over $1 billion, focusing on unique growth opportunities, businesses with cross-border potentials and with disruptive concepts, part of which investments are listed on eight stock markets across five countries. Mr. Toyoshima holds a B.A. in law from the University of Tokyo and master’s degrees in real estate and urban planning from the Massachusetts Institute of Technology. Mr. Toyoshima’s investment and finance experience with respect to corporate development and growth opportunities brings investment and finance experience and knowledge to the Board of Directors.

Robert Takeuchi has served as a member of our Board of Directors since July 2010. He is currently a director of SBI Investment Co., Ltd. a private equity investment company. From 2004 until the present, Mr. Takeuchi served as president of RT Consulting, Inc. From 1996 to 2004 he was President of SOFTBANK Finance, America Corporation and from 1988 to 1996 he was a Director of CS First Boston. Mr. Takeuchi obtained a B.A. in Economics from the University of California, Los Angeles in 1979. Mr. Takeuchi’s private equity investment and finance experience brings private equity and finance experience and knowledge to the Board of Directors.

Board Composition

Our board of directors currently consists of six members. Directors are elected for a one-year term each year at our annual meeting of shareholders. Under California law, our directors may be removed by the affirmative vote of the holders of a majority of our voting stock.

Director Independence

We are not listed as an issuer, nor have we applied to be listed as an issuer, on any U.S. national securities exchange or inter-dealer quotation system. For purposes of compliance with applicable securities rules, the independence standards required by the Nasdaq Stock Market, Inc. are described below.

Under Nasdaq’s rules, an independent director is a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Under Nasdaq Rule 5605(a)(2), a director is not considered independent if: (i) the director was employed by the company or its subsidiaries or parent company during the preceding three years; (ii) the director received, or had a family member that received, compensation in excess of $120,000 from the company during any twelve month period during the preceding three years (other than for board or committee services, benefits under a retirement plan or payments to a family member who is a non-executive employee of the company); (iii) the director had a family member that was an executive officer of the company during the preceding three years; (iv) the director received from, either directly or through family members or entities under his control, or the company received from any such person, during the current and three preceding years, any property or services totaling the greater of $200,000 or 5% of the recipient’s gross revenues for that year, unless the payments arose from investments in the company’s securities or a non-discretionary charitable contribution matching program; (v) the director was employed, or has a family member who was employed, during the last three years, as an executive officer of another company where any of the issuer’s executive

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officers serve on the compensation committee; or (vi) the director is, or has a family member who is, a partner at the company’s outside auditor or was a partner or employee of the company’s outside auditor who worked on the company’s audit at any time during the preceding three years. Ownership in a company does not by itself disqualify a director from being independent.

Under Nasdaq rules, at least a majority of the members of a listed company’s board of directors must be independent. We have determined that              are independent under Nasdaq rules and, as a result, we currently              with the Nasdaq director independence standards.

Nasdaq requires listed companies to appoint an audit committee of at least three members and adopt an audit committee charter describing the committee’s responsibilities. All directors on the audit committee must be independent, determined in accordance with the definition described above and under Rule 10A-3(b)(1) of the Exchange Act, subject to the exemptions set forth therein. Under an exemption to Rule 10A-3(b)(1), at least one member of Quark’s audit committee must be independent during the 90-day period beginning on the effective date of the registration statement, and during the one-year period beginning on the effective date of the registration statement, a minority of the audit committee is exempt from the requirements of Rule 10A-3(b)(i). Quark’s audit committee is currently comprised of    independent directors and directors who do not meet the independence requirements under the Nasdaq rules and the Exchange Act.

Nasdaq does not require listed companies to have either a compensation committee or nominating and corporate governance committee. If the board chooses to constitute any such committee, however, the committee must be comprised of independent directors.

Director Independence Under Israeli Law

To list our securities on TASE, we will need to comply with certain director independence requirements under Israeli law. Pursuant to Sections 239 through 249A of the Israel Companies Law — 1999, or the Israeli Companies Law, our board of directors will need to include at all times at least two directors who are elected by shareholders where at least one of the following is true: (i) the majority of the votes represented at the shareholders’ meeting includes at least one-third of all of the votes of the shareholders who are not holders of control in the corporation and who participate in the voting (with abstentions not being included in the total votes of the foregoing shareholders); or (ii) the total of opposing votes from among the shareholders referenced in subsection (i) does not exceed 1% of all of the voting rights in the corporation. Directors elected in accordance with this provision are deemed to be “outside directors.”

For purposes of this provision, “control” is defined in the Israeli Companies Law as the ability to direct the activity of the corporation, excluding an ability deriving merely from holding an office of director or another office in the corporation, and a person shall be presumed to control a corporation if he holds 50% or more of the means of control of the corporation such as the right to vote at a general meeting or a corresponding body of the corporation or the right to appoint directors or the chief executive officer of the corporation. If at the time of the appointment of an outside director, all of the members of the board of directors are of one gender, the second outside director shall be of the other gender.

Any vacancy in the office of an outside director may be filled only by the shareholders and may not be filled by the remaining directors. If at any time there are fewer than two outside directors, the board of directors must call a special shareholders’ meeting for the election of outside directors. An outside director may not be removed from office without cause. An outside director is required to be a resident of the State of Israel, provided that an Israeli public company, the shares of which have been offered to the public outside of Israel, or any public company listed on a stock exchange outside of Israel, may appoint an outside director who is not an Israeli resident.

An outside director must have professional qualifications or accounting and financial expertise, and at least one of the outside directors must have accounting and financial expertise.

No individual may be appointed as an outside director if, at the time of appointment or at any time during the preceding two years, he, his relative, partner, employer or a corporate body of which he is a controlling party had a connection to the corporation, to a person who was a controlling party of the corporation at the time of the appointment, or to another corporate body. For the purposes of this provision, (i) “connection” means an employment relationship, commercial or professional ties in general or control, as

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well as service as an officer, other than service as a director who was appointed as an independent director in a corporation that is due to offer shares to the public for the first time, and (ii) “other corporate body” means a corporate body in which the corporation or controlling member of it is a controlling member at the time of the appointment or during the two years before the time of appointment.

A director in a corporation cannot be appointed as an outside director in another corporation if at that time a director of the other corporation serves as an outside director of the first corporation. An outside director may not receive any compensation from the corporation, except as determined by applicable law and except for insurance coverage and indemnification by the corporation’s bylaws or as determined by other applicable law. An individual cannot be appointed as an outside director if he holds any other position or owns any business which might give rise to a conflict of interest with his role as a director, or if such circumstances might harm his ability to act as a director. An individual cannot be appointed as an outside director if he is a member of the Israel Securities Authority or an employee thereof, or if he is a member of the board of directors or an employee of an Israeli stock exchange.

A general meeting of our shareholders at which the appointment of an outside director is on the agenda may only be convened if the nominee has declared that he fulfills the conditions required for being appointed as an outside director.

Each committee of our board of directors authorized to exercise any of the powers of our board of directors must include at least one outside director.

Under the TASE requirements, the term of office of an outside director is to be three years, and a company may appoint an incumbent independent director for one additional term of three years. If our board of directors learns of a suspicion that an outside director no longer meets the condition required under the applicable law for his appointment, or that he has violated his fiduciary duty , the board of directors shall discuss the matter at the meeting first convened after it learned of the matter. If our board of directors determines that the outside director no longer meets a condition required under applicable law for his appointment or that he has violated his fiduciary duty, then the board of directors must call a special meeting of our shareholders for the removal of that outside director. The reasons of our board of directors must be presented at the meeting of our shareholders, and the outside director must be given a reasonable opportunity to present his position; the decision of our shareholders to terminate an outside directors’ term of office must be adopted with the same majority that was necessary for his appointment.

An Israeli court may, pursuant to the application of a director or shareholder, order the removal of an outside director if it determines that the director has ceased to fulfill one of the conditions required under the Israeli Companies Law for his appointment, or that he has committed a breach of a fiduciary duty to the corporation.

For a period of two years following the termination of an outside director, a corporation may not directly or indirectly enter into any employment, consulting or other arrangement for fees with such person, and such person may not serve as a director or officer of the corporation, including a corporation controlled by such person.

Pursuant to Sections 95 and 121(c) of the Israeli Companies Law, we will be subject to certain other procedural and board composition requirements. A director that holds the office of chairman of the board of directors may not also hold the office, or be granted the powers of, the chief executive officer, unless authorized in accordance with Section 121(c) of the Israeli Companies Law. Section 121(c) provides that the shareholders at a meeting of shareholders of a public company may resolve that for a period of no more than three years the chairman of the board of directors may be authorized to fulfill the duties of the chief executive officer, provided that, in counting the votes at the meeting at least one of the following is true: (i) the majority must include at least two-thirds of the shareholders who are not holders of control in the corporation present at the vote and abstaining votes must not be taken into account in counting the votes of such shareholders; or (ii) the total of opposing votes from among the shareholders referenced in subsection (i) does not exceed 1% of all of the voting rights in the corporation.

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Board Committees

Audit Committee

Our audit committee consists of Messrs. Philip B. Simon and Robert Takeuchi. Mr. Simon serves as the chair of our audit committee. The functions of this committee include, among other things:

• reviewing and pre-approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;

• evaluating the performance of our independent auditors and deciding whether to retain their services;

• reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent auditors and management;

• reviewing and approving related-party transactions;

• reviewing with our independent auditors and management significant issues that may arise regarding accounting principles and financial statement presentation, as well as matters concerning the scope, adequacy and effectiveness of our financial controls; and

• establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters.

Our board of directors has determined that each of Messrs.            qualifies as an audit committee financial expert within the meaning of SEC regulations. In making this determination, our board of directors has considered the nature and scope of each member’s education and business experience. Our board of directors also has determined that meet the independence requirements of Rule 10A-3 of the Exchange Act, subject to the exemptions set forth therein. Both our independent registered public accounting firm and management are expected to periodically meet privately with our audit committee.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Messrs.          . Mr.        serves as the chair of our nominating and corporate governance committee. The functions of this committee include, among other things:

• developing and maintaining a current list of the functional needs and qualifications of members of our board of directors;

• evaluating director performance on our board of directors and its applicable committees and determining whether continued service on our board of directors is appropriate for such director;

• interviewing, evaluating, nominating and recommending individuals for membership on our board of directors;

• reviewing and recommending to our board of directors the compensation arrangements for our non-employee directors;

• evaluating nominations by shareholders of candidates for election to our board of directors;

• reviewing and reporting annually to our board of directors an assessment of the board’s performance;

• reviewing and recommending to our board of directors any amendments to our corporate governance documents; and

• reviewing and recommending to our board of directors changes with respect to corporate governance issues, issues of broad social significance and our overall conduct as a responsible corporate citizen.

Compensation Committee

Our compensation committee consists of Messrs.          . Mr.            serves as the chair of our compensation committee. The functions of this committee include, among other things:

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• determining the compensation and other terms of employment of our executive officers and senior management and reviewing and approving corporate performance goals and objectives relevant to such compensation;

• evaluating and recommending to our board of directors the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs; and

• reviewing and approving the terms of any employment agreements, severance arrangements, change-in-control protections and any other compensatory arrangements for our executive officers.

Each member of our compensation committee is a non-employee director as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and is an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended.

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COMPENSATION DISCUSSION AND ANALYSIS

Overview and Objectives

We believe that compensation of our executive officers should focus executive behavior on the achievement of short-term corporate objectives as well as long-term business targets and strategies. It is the responsibility of the independent members of our board of directors to administer our executive compensation practices to ensure that they are competitive and include incentives designed to appropriately motivate executive performance. Tying short and long-term cash and equity incentives to the achievement of clearly identifiable corporate objectives promotes the dual goals of attracting and retaining the best possible executive talent while creating value for our shareholders by aligning their interests with those of our executive officers. While we intend to create an executive compensation program that is competitive with comparable public biotechnology companies, we remain committed to establishing compensation plans that link a proper portion of executives’ overall compensation to the attainment of our corporate performance milestones. We have chosen a mix of awards, both cash and equity, short-term and long-term, and seek to administer our compensation plans to strike a proper balance that advances company objectives, and fulfills our executives’ and shareholders’ expectations.

Our compensation programs for our named executive officers are designed to achieve the following objectives:

• attract and retain talented and experienced executives to make us competitive in the pharmaceutical and biotechnology industry, where there is significant competition for talented employees;

• motivate and reward executives whose knowledge, skills and performance significantly impact corporate results;

• reward the achievement of specifically measured corporate goals and the individual contributions to the achievement of such goals;

• incentivize management to achieve overall corporate objectives and to enhance shareholder value;

• encourage increased team-work among all disciplines within the company; and

• ensure fairness and promote stability among our executive management team.

As discussed in further detail below, our executive compensation program consists of the following three principal components:

Base Salary.  Base salary for our executive officers is determined at commencement of employment and re-evaluated periodically. In determining whether to adjust an executive’s base salary, our board of directors takes such factors as company performance in prior years, individual performance, general economic factors and compensation equity among our executive officers, into consideration.

Bonuses.  During 2009 we did not have a bonus plan or management incentive plan in place to offer incentive compensation to executive management and other key employees. Decisions regarding bonus payments to our executive management and other key employees are made by majority approval of the independent members of our board of directors. Dr. Zurr, our President and Chief Executive Officer, makes recommendations regarding executive compensation, however, Dr. Zurr does not participate in discussions regarding his own compensation.

Stock Option Grants.  Our executive officers receive stock option grants as long-term incentives to ensure a portion of compensation is linked to our long-term success.

Our board of directors does not have any formal policies for allocating compensation among salary, bonus awards and stock option grants.

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Role of the Board of Directors in Setting Executive Compensation

As we did not have a Compensation Committee in place during our 2009 fiscal year, the independent members of our board of directors determined the salary, bonus awards and stock option grants for our executive officers. Dr. Zurr, our President and Chief Executive Officer, makes recommendations regarding executive compensation, however, Dr. Zurr does not participate in discussions regarding his own compensation. None of our other executive officers participate in discussions of our board of directors regarding executive compensation. Our board of directors has also delegated to Mr. Simon the authority to make compensation determinations, in consultation with Dr. Zurr, for executive officers other than the chief executive officer. Our board of directors has not historically engaged third-party consultants with respect to executive compensation matters, or relied on compensation data or surveys of peer companies. We do not believe that our compensation policies and practices, for either our executive or our non-executive employees, are reasonably likely to give rise to risks that would have a material adverse effect on us.

We discuss each of the primary elements of our executive compensation in greater detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation programs are designed to complement each other and collectively serve all of our executive compensation objectives described above.

Compensation Components

The components of our compensation program are as follows:

Annual Compensation

Base salary

The base salaries of all executive officers are reviewed periodically and adjusted to reflect individual roles and performance. We believe that a competitive base salary is a necessary element of any compensation program designed to attract and retain talented and experienced executives. We also believe that a periodic review of base salaries not only motivates and rewards executives for their overall performance, but creates a performance incentive going forward.

Bonuses

Our board of directors did not grant discretionary cash bonuses to our executive officers in 2009. In 2009, we did not have a bonus plan or management incentive compensation plan in place. Decisions regarding bonus payments, if any, to our executive management and other key employees are made by majority approval of our board of directors, except that Dr. Zurr does not participate in discussions regarding his own compensation.

Long-term Incentives

Our salary and bonus programs are intended to compensate our executive officers for short-term performance. We also use equity incentives to reward long-term performance and to help align the interests of our executive officers with those of our shareholders. We believe that long-term performance is achieved through an ownership culture that rewards such performance by our executive officers through the use of equity incentives. Our current long-term incentives consist solely of stock option grants under our 1997 Stock Plan, which was terminated in March 2007, and 2007 Equity Incentive Plan. We believe the grant of stock options is a valuable retention tool and the best approach to achieve our compensation goals with respect to long-term compensation, and option grants currently provide tax and other advantages to our employees relative to other forms of equity compensation. We typically make grants of stock options to our executive officers on a periodic, but not necessarily annual, basis. The date of grant and the fair market value of the award are based upon the date of the board meeting at which the grant is approved. We typically make an initial award of stock options to new employees and periodic awards tied to vesting in prior grants or changes in responsibilities.

Stock option awards provide our executive officers with the right to purchase shares of our common stock at a fixed exercise price typically for a period of up to ten years, subject to continued employment with our company. Stock options are earned on the basis of continued service to us and grants made to new

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employees generally vest over four years, beginning with 25% vesting one year after the date of grant, then pro-rata vesting monthly thereafter. Since 2003, grants made to existing employees generally vest in equal monthly installments over four years. Our board of directors has the authority to determine the vesting schedule and may at times to adjust the vesting schedule for a particular award based on the individual employee’s circumstances. Stock option awards granted to employees who are residents of Israel are made under a sub-plan of our 2007 Equity Incentive Plan. Awards to residents of Israel are granted in trust to a trustee for the benefit of the named employee for certain tax reasons described in further detail below under the heading “— Tax Considerations.”

Our prior equity plan, the 1997 Stock Plan, was terminated in March 2007 when our board of directors adopted its replacement plan, the Quark Pharmaceuticals, Inc. 2007 Equity Incentive Plan. In May 2007, the plan was approved by our shareholders. The plan provides a mechanism to continue our practice of making equity awards to attract and retain talented employees. As of October 31, 2010, our board has approved option grants which are currently outstanding to purchase 2,632,919 shares of our common stock to certain of our employees, including our named executive officers. The plan is described in detail under “2007 Equity Incentive Plan” below. Our board is expected to continue to grant options to our employees to continue our philosophy of incentivizing long-term performance and aligning our executives’ interests with that of our shareholders.

The exercise price of each stock option granted under our 2007 Equity Incentive Plan is not less than the fair market value of our common stock on the date of grant. The fair market value of our common stock for purposes of determining the exercise price of stock options has been determined by our board of directors based on a number of factors applicable to common stock of privately-held companies including, among others, the results of third-party independent valuation reports, the total company valuation implied by the most recent venture capital round of financing, the market value of similarly situated public companies, our current and anticipated future risks and opportunities, the rights and preferences of our preferred stock existing at the time and the lack of a liquid market for our capital stock.

Additionally, we made a personal loan to our Chief Executive Officer in the principal amount of $157,000 in January 2008. The loan was granted to Dr. Zurr in exchange for a promissory note to repay the principal and interest within a fixed term. Under the note, we agreed to forgive the debt upon an initial public offering or upon entering into a significant collaboration or joint venture agreement with a major United States or European based pharmaceutical company. The note was forgiven in full by the Company in September 2010 in recognition of Dr. Zurr’s service to Quark.

Other Compensation

All of our executive officers are eligible for health benefits made generally available to other employees. We also have a 401(k) plan that all employees resident in the United States are eligible to participate in, including our named executive officers resident in the United States. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. Employees contribute their own pre-tax compensation, as salary deductions. Contributions may be made up to plan limits, including “catch-up” contributions, subject to government limitations. The plan permits us to make discretionary matching contributions, subject to established limits. In 2009, we matched 100% of participant contributions up to four percent of eligible compensation. We plan to match participant contributions at this same level in 2010.

We do not believe it is necessary for the attraction or retention of management talent to provide the officers with a substantial amount of compensation in the form of perquisites. In 2009, we provided an allowance to our executive officers for automobile and gasoline expenses, cell phone use, internet and telephone connections for home office use and reimbursement for travel expenses and tax reimbursements. We believe these expenses are justified by the nature of our business operations. Our chief executive offices are located in Fremont, California, and our principal operations are located in Israel. Consistent with our past practices, we intend to continue to maintain our current benefits and perquisites for our executive officers. Our board of directors may revise, amend or add to our officers’ executive benefits and perquisites if deemed advisable.

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Tax Considerations

Grants made to Israeli employees are granted under Section 102(b)(2) of the Israel Income Tax Ordinance pursuant to which the options or the common stock issued upon their exercise must be allocated or issued to a trustee and be held in trust for two years following the date of grant of the options. Under Section 102, any tax payable by an employee from the grant or exercise of the options is deferred until the transfer of the options or ordinary shares by the trustee to the employee or upon the sale of the options or common stock and gains are subject to a capital gains tax of 25%.

Under ASC 718-10, we are required to estimate and record an expense for each award of equity compensation (including stock options) over the vesting period of the award. For the foreseeable future, our stock option program comprises the sole component of our long-term compensation program, and, therefore, we record the expense for each stock option award on an ongoing basis according to ASC 718-10. In the future we may consider the grant of restricted stock to our executive officers in lieu of stock option grants in light of the accounting impact of ASC 718-10 with respect to stock option grants and other considerations.

Section 162(m) of the Internal Revenue Code of 1986 limits our deduction for federal income tax purposes to not more than $1 million of compensation paid to certain executive officers in a calendar year. Compensation above $1 million may be deducted if it is “performance-based compensation.” Our board of directors has not yet established a policy for determining which forms of incentive compensation awarded to our executive officers shall be designed to qualify as “performance-based compensation.” To maintain flexibility in compensating our executive officers in a manner designed to promote our objectives, our board of directors has not adopted a policy that requires all compensation to be deductible. However, our board of directors intends to evaluate the effects of the compensation limits of Section 162(m) on any compensation it proposes to grant, and our board of directors intends to provide future compensation in a manner consistent with our best interests and those of our shareholders.

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Summary Compensation Table

The following table provides information regarding the compensation earned during the year ended December 31, 2009 by our Chief Executive Officer, principal financial officers, and three other most highly compensated executive officers at December 31, 2009 whose combined salary and bonus awards exceeded $100,000 during 2009. We refer to our Chief Executive Officer, principal financial officers, and these other executive officers as our “named executive officers” elsewhere in this prospectus.

Summary Compensation Table for Fiscal Year 2009

Name and Principal Position	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)			Total ($)
Daniel Zurr Chief Executive Officer	$	298,328		—		—	$	93,091		—		—	$	110,822	(1)	$	502,241
Sagit Reich Chief Financial Officer(2)		—		—		—		—		—		—		—			—
Smadar Samira Shakked Senior Vice President,   Business Development,   Finance	$	136,484		—		—	$	47,772		—		—	$	60,519	(3)	$	244,775
Shai Erlich Chief Medical Officer	$	251,333		—		—	$	91,482		—		—	$	40,191	(4)	$	383,006
Elena Feinstein, Chief Scientific Officer	$	186,568		—		—	$	67,060		—		—	$	63,580	(5)	$	317,208
Rami Skaliter Chief Operating Officer	$	203,913		—		—	$	70,080		—		—	$	77,593	(6)	$	351,586
Juliana Friedmann, Senior Vice President, Strategy and Planning	$	114,800		—		—	$	57,425		—		—	$	62,447	(7)	$	234,672

The amounts listed above were paid to the named executive officers in NIS, and the amounts above were converted from NIS to U.S. dollars, based on the annual average exchange rate.

In August 2009, our Board of Directors adopted a cost reduction plan that includes reduction of a certain percentage of each employee’s salary, up to 20%, beginning on September 1, 2009, for a period of 6 months. The aggregate reduction of compensation in that period amounted to $595,000 across all employees. The amounts listed on the table above reflect compensation of our named executive officers after giving effect to the reduction in salary during the period beginning on September 1, 2009 until December 31, 2009. Our board further approved that in certain future events, the employees will be reimbursed for such reductions, and in the six months ended September 30, 2010, and aggregate of $150,000 was paid to all employees whose salaries had been reduced.

(1) Amount includes $39,697 paid for health and welfare benefits for Dr. Zurr, including a manager’s insurance policy, disability, and an education fund; $25,510 provided by the Company as a vehicle and gasoline allowance; $3,827 for internet and telephone reimbursement to maintain a home office; $24,405 for cell phone reimbursement; $2,493 for professional tax preparation fees; $14,890 for gross-up payments for vehicle taxes. The aggregate incremental cost of the perquisites set forth in the table above is computed based on the actual expenses incurred by the company.

(2) Sagit Reich, our Chief Financial Officer, joined Quark in August 2010 and her compensation is not reflected in the Summary Compensation Table for Fiscal Year 2009. See “Compensation Discussion and Analysis — Potential Payments Upon Termination or Change-in-Control” elsewhere in this prospectus which contains a description of our employment agreement with Ms. Reich.

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(3) Amount includes $37,477 paid for health and welfare benefits for Ms. Shakked, including a manager’s insurance policy, disability, and an education fund; $13,899 provided by the Company as a vehicle and gasoline allowance; $498 for phone expenses; $8,645 for gross-up payments for vehicle taxes. The aggregate incremental cost of the perquisites set forth in the table above is computed based on the actual expenses incurred by the company.

(4) Amount includes $38,385 paid for health and welfare benefits for Dr. Erlich, including 401(k) retirement plan contribution, life and disability insurance, and $1,806 for cell phone reimbursement. The aggregate incremental cost of the perquisites set forth in the table above is computed based on the actual expenses incurred by the company.

(5) Amount includes $47,128 paid for health and welfare benefits for Ms. Feinstein, including a manager’s insurance policy, disability, and an education fund; $10,322 provided by the Company as a vehicle and gasoline allowance; $28 for internet and telephone reimbursement to maintain a home office; $6,102 for gross up payments for vehicle taxes. The aggregate incremental cost of the perquisites set forth in the table above is computed based on the actual expenses incurred by the company.

(6) Amount includes $55,015 paid for health and welfare benefits for Dr. Skaliter, including a manager’s insurance policy, disability, and an education fund; $9,976 provided by the Company as a vehicle and gasoline allowance; $6,037 for cell phone reimbursement; $717 for internet and telephone reimbursement to maintain a home office; $5,848 for gross up payments for vehicle taxes. The aggregate incremental cost of the perquisites set forth in the table above is computed based on the actual expenses incurred by the company.

(7) Amount includes $32,164 paid for health and welfare benefits for Ms. Friedmann, including a manager’s insurance policy, disability, and an education fund; $17,083 provided by the Company as a vehicle and gasoline allowance; $1,687 for cell phone reimbursement; $1,596 for internet and telephone reimbursement to maintain a home office; $9,917 for gross up payments for vehicle taxes. The aggregate incremental cost of the perquisites set forth in the table above is computed based on the actual expenses incurred by the company.

Employment Agreements and Potential Payments Upon Termination or Change-in-Control

We have entered into employment agreements with each of our named executive officers, the general terms of which are described in greater detail below. The amount of compensation payable to each named executive officer at, following, or in connection with their termination or a change-in-control is described below and identified on the table set forth below. Regardless of the manner in which a named executive officer’s employment terminates, the named executive officer is entitled to receive amounts accrued during their term of employment, including salary and unused vacation pay. Additionally, our Israeli executive officers are entitled to one month’s salary for each year of employment or a portion thereof. The figures on the table set forth below assume that the termination occurred on December 31, 2009.

Name	Acceleration of Vesting of Stock Options(1)	Continuation of Benefits During Notice Period(2) ($)		Severance Payment(3) ($)		Total ($)
Daniel Zurr
Termination without cause(4)					325,000		325,000
Change-in-Control							0
Sagit Reich
Termination without cause(5)			74,172		—		74,172
Change-in-Control(6)					—		0
Smadar Samira Shakked
Termination without cause(7)			70,337				70,337
Change-in-Control							0
Shai Erlich
Termination without cause(8)			105,000				105,000

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Name	Acceleration of Vesting of Stock Options(1)	Continuation of Benefits During Notice Period(2) ($)		Severance Payment(3) ($)	Total ($)
Change-in-Control						0
Elena Feinstein, M.D., Ph.D.
Termination without cause(9)			90,286			90,286
Change-in-Control						0
Rami Skaliter
Termination without cause(10)			99,020			99,020
Change-in-Control						0
Juliana Friedmann
Termination without cause(11)			60,000			60,000
Change-in-Control						0

In addition to the payments set forth in the table above, employees of the company’s subsidiary are generally entitled to certain severance payments under the Israeli Severance Pay Law, which requires the company’s subsidiary to deposit in a severance payment fund an amount equal to one month of salary for each year of employment or a portion thereof for each employee, based on the employee’s most recent salary. Upon termination, the employees are entitled to severance in an amount equal to one month’s salary for each year of employment or a portion thereof, which is payable by the company’s subsidiary from the severance payment fund. This arrangement does not discriminate in scope, terms or operation in favor of executive officers of the company’s subsidiary and is available generally to salaried employees of the company’s subsidiary.

(1) The amount listed in this column represents the Black-Scholes conversion value of the acceleration of vesting of stock options based on the closing price of our common stock on December 31, 2009, which was $1.10.

(2) Represents the present value of the continuation of our current employee benefits, including medical, dental, disability and life insurance.

(3) The amounts listed in this column do not include the payment of accrued salary and vacation that would be due upon termination of employment.

(4) Under Dr. Zurr’s employment agreement with the company and its subsidiary, Dr. Zurr is entitled to a severance payment equal to 12 months salary for termination without cause or for resignation for good reason, as set out in the employment agreement with Dr. Zurr.

(5) Under Ms. Reich’s employment agreement with QBI, upon termination without cause, Ms. Reich is entitled to continuation of benefits during a 90-day notice period.

(6) Under Ms. Reich’s employment agreement with QBI, Ms. Reich is entitled to accelerated vesting of 40% of the stock options held by Ms. Reich upon a “Qualified IPO” as defined in the company’s articles of incorporation, as amended from tie to time. Upon a merger or acquisition of the company that results in a change in control, Ms. Reich is entitled to accelerated vesting of 100% vesting of stock options held by Ms. Reich. Ms. Reich joined QBI in August 2010 and was not entitled to any change of control benefits as of December 31, 2009.

(7) Under Ms. Shakked’s employment agreement with QBI, Ms. Shakked is entitled to a notice period of 120 days prior to termination without cause with continuation of salary and benefits during that period.

(8) Under Dr. Erlich’s employment agreement with QBI, Dr. Erlich is entitled to severance in the amount equal to four months salary for termination upon a termination without cause.

(9) Under Dr. Feinstein’s employment agreement with QBI, Dr. Feinstein is entitled to a notice period of 120 days prior to termination without cause, with continuation of salary and benefits during that period.

(10) Under Dr. Skaliter’s employment agreement with QBI, Dr. Skaliter is entitled to a notice period of 120 days prior to termination without cause, with continuation of salary and benefits during that period.

(11) Under Ms. Friedmann’s employment agreement with QBI, Ms. Friedmann is entitled to a notice period of 120 days prior to termination without cause, with continuation of salary and benefits during that period.

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Daniel Zurr, Ph.D.

In January 2008, we entered into an employment agreement with Daniel Zurr, our President and Chief Executive Officer. The agreement provides that Dr. Zurr will receive an aggregate annual base salary of $325,000. In addition, Dr. Zurr is eligible to participate in the Company’s standard employee benefit plans, as in effect from time to time, which include group insurance plans (such as health, life and disability) and a retirement savings plan. Dr. Zurr is also entitled to the use of a company automobile and reimbursement for expenses associated with its use, including maintenance and all taxes. Dr. Zurr’s employment may be terminated under the agreement, with or without cause, at any time. Upon a termination without cause or Dr. Zurr’s resignation for good reason, including a material reduction in his compensation (except if the compensation of similarly situated officers is similarly reduced) or if the company materially breaches its obligations under any agreement with Dr. Zurr and the company does not remedy such reduction or breach during a period following Dr. Zurr’s notice to the Chairman of the Board, Dr. Zurr would be entitled to a lump sum payment equal to twelve months of his then current base salary as severance; provided, however, that if Dr. Zurr remains a member of the board following the termination of his employment, or serves as a consultant to the company following the termination of his employment, then this severance payment shall be offset by any compensation paid to Dr. Zurr by the company in connection with such role(s). Assuming that Dr. Zurr’s employment was terminated other than for cause, or Dr. Zurr resigned for good reason, at December 31, 2009, he would have been entitled to a lump sum payment of $325,000.

Sagit Reich

In August 2010, QBI entered into an employment agreement with Sagit Reich, our Chief Financial Officer. Under the terms of the agreement, Ms. Reich is entitled to an annual salary of approximately $158,000. Ms. Reich was also awarded options to purchase an aggregate of 120,000 shares of our Common Stock under our 2007 Equity Incentive plan. 40% of the options granted to Ms. Reich shall vest on the company’s “Qualified IPO,” as such term is defined in the company’s amended and restated articles of incorporation, as amended from time to time, and 100% of the options granted to Ms. Reich shall vest on a change-in-control of the company. In addition, upon a successful Qualified IPO, Ms. Reich is entitled to a bonus, at the discretion of the CEO of the Company. Any such bonus shall be paid within 60 days of the Qualified IPO, provided Ms. Reich’s employment with the QBI has not terminated. QBI is obligated to pay a certain percentage of Ms. Reich’s salary to a manager’s insurance policy which would cover payments made towards severance, pension, disability and an education fund. Ms. Reich is also entitled to the use of a company automobile and reimbursement for expenses associated with its use and maintenance, including all taxes, and reimbursement for a company cell phone. Ms. Reich’s employment is terminable at any time for cause and otherwise terminable by either party upon 90 days advance written notice.

Smadar Samira Shakked

In September 1997, QBI entered into an employment agreement with Smadar Samira Shakked, our Senior Vice President of Business Development, Finance. Under the terms of the agreement, as last amended July 2008, Ms. Shakked is entitled to an annual salary of approximately $151,000. QBI is obligated to pay a certain percentage of Ms. Shakked’s base salary to apply towards a manager’s insurance policy which would cover payments made towards severance, pension, disability and an education fund. QBI’s aggregate obligations total approximately 23% of Ms. Shakked’s base salary. Ms. Shakked is also entitled to the use of a company automobile and reimbursement for expenses associated with its use and maintenance, including all taxes. Ms. Shakked’s employment is terminable without notice at any time for cause and otherwise terminable by either party upon 120 days advance written notice. Assuming Ms. Shakked’s employment was terminated, other than for cause, at December 31, 2009, she would have been entitled to $70,337.

Shai Erlich, Ph.D.

In March 2003, we entered into an employment agreement with Shai Erlich, Ph.D., our Chief Medical Officer. Under the agreement, as amended, Dr. Erlich is entitled to an annual salary of $315,000 and benefits made generally available to all employees, including medical, dental, life and accidental death and disability insurance, and participation in our 401(k) plan. Additionally, Dr. Erlich was granted an option to purchase 10,000 shares of our common stock under our 1997 Stock Plan to replace previous grants that had been made under our plan for Israeli employees. The agreement also provides Dr. Erlich with limited reimbursement of

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relocation expenses. Either party may terminate the agreement upon 60 days advance written notice for any reason, provided however, we may terminate the agreement for cause at any time. In the event we have cause to terminate Dr. Erlich’s employment, subject to certain limitations, such termination would be effective upon notice to Dr. Erlich. Upon a termination without cause, Dr. Erlich would be entitled to severance equal to four months of his base salary. Assuming Dr. Erlich’s employment was terminated, other than for cause, at December 31, 2009, he would have been entitled to $105,000.

Elena Feinstein, M.D., Ph.D.

In June 2007, QBI entered into an employment agreement with Elena Feinstein, M.D., Ph.D., our Chief Scientific Officer. The agreement, as amended, provides that Dr. Feinstein will receive an annual salary of $200,000. Pursuant to the agreement, QBI is obligated to establish and pay a certain percentage of Dr. Feinstein’s salary to a manager’s insurance policy which would cover payments made towards severance, pension, disability, and an education fund. QBI’s aggregate obligations total approximately 23% of Dr. Feinstein’s base salary. Dr. Feinstein is entitled to the use of a company automobile and reimbursement for expenses associated with its use and maintenance, including all taxes, and reimbursement for a company cell phone. Under the agreement, upon a termination without cause, Dr. Feinstein would be entitled to notice of 120 days, with continuation of salary and benefits during that period. Assuming Dr. Feinstein’s employment was terminated, other than for cause, at December 31, 2009, she would have been entitled to $90,286.

Rami Skaliter, Ph.D.

In May 2007, QBI entered into an employment agreement with Rami Skaliter, Ph.D., our Chief Operating Officer. Under the terms of the agreement, as amended, Dr. Skaliter is entitled to an annual salary of approximately $220,000. Additionally, pursuant to the agreement, QBI is obligated to establish and pay a certain percentage of Dr. Skaliter’s salary to a manager’s insurance policy which would cover payments made towards severance, pension, disability, and an education fund. QBI’s aggregate obligations total approximately 23% of Dr. Skaliter’s base salary. Dr. Skaliter is entitled to the use of a company automobile and reimbursement for expenses associated with its use and maintenance, including all taxes, and reimbursement for a company cell phone. Upon a termination without cause, Dr. Skaliter would be entitled to notice of 120 days, with continuation of salary and benefits during that period. Assuming Dr. Skaliter’s employment was terminated, other than for cause, at December 31, 2009, he would have been entitled to $99,020.

Juliana Friedmann, M.Sc.

In February 1998, QBI entered into an employment agreement with Juliana Friedmann, our Senior Vice President of Strategy and Planning. Under the agreement, as last amended July 2008, Ms. Friedmann is entitled to an annual salary of approximately $126,300. Additionally, QBI is obligated to pay a certain percentage of Ms. Friedmann’s base salary to apply towards a manager’s insurance policy which would cover payments made towards severance, pension, disability and an education fund. QBI’s aggregate obligations total approximately 23% of Ms. Friedmann’s base salary. Ms. Friedmann is also entitled to the use of a company automobile and reimbursement for expenses associated with its use and maintenance, including all taxes, and reimbursement for a company cell phone. Ms. Friedmann’s employment is terminable without notice at any time for cause and otherwise terminable by either party upon 120 days advance written notice. Assuming Ms. Friedmann’s employment was terminated, other than for cause, at December 31, 2009, she would have been entitled to $60,000.

Grants of Plan-Based Awards

All stock options granted to our named executive officers are incentive stock options, to the extent permissible under the Internal Revenue Code of 1986, as amended. The exercise price per share of each stock option granted to our named executive officers prior to December 31, 2009 was not less than the fair market value of our common stock as determined by our board of directors on the date of the grant. Stock options are granted under our 2007 Equity Incentive Plan, 1997 Stock Plan or our 2003 Israeli Stock Option Plan.

In March 2009 and September 2009, our board of directors approved option grants to certain of our employees and executive officers, including our named executive officers. Dr. Zurr was granted an option to purchase 48,965 shares of our common stock; Ms. Samira Shakked was granted an option to purchase 40,000 shares of our common stock; Dr. Erlich was granted an option to purchase 45,000 shares of our common

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stock; Dr. Feinstein was granted an option to purchase 55,000 shares of our common stock; and Dr. Skaliter was granted an option to purchase 65,000 shares of our common stock. The exercise price of these options is $1.10 per share, which is equal to the fair market value per share of our common stock on the grant date for such options, as determined by our board of directors. These stock options vest in equal monthly installments over a period of four years beginning on the date of grant.

On March 30, 2009, our board of directors repriced the stock option grant to purchase 48,965 shares of our common stock held by Dr. Zurr from an exercise price of $2.75 per share to $1.10 per share, in order to reflect the fair market value of the company’s common stock as of March 30, 2009 and as a means of incentivizing long-term performance. As a result of the repricing, using the Black-Scholes option valuation model, the incremental fair value of the repriced options, as of March 30, 2009, is equal to $0.38 per share of common stock underlying the stock option, for an aggregate amount of $18,607.

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Grants of Plan-Based Awards

Name (a)	Grant Date (b)		Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#) (i)	All Other Option Awards: Number of Securities Underlying Options (#) (j)			Exercise or Base Price of Option Awards ($/Sh) (k)		Grant Date Fair Value of Stock and Option Awards (l)
			Threshold ($) (c)	Target ($) (d)	Maximum ($) (e)	Threshold ($) (f)	Target ($) (g)	Maximum ($) (h)
Daniel Zurr Chief Executive   Officer		3/30/2009									48,965	(1)	$	1.10	$	0.66
Smadar Samira Shakked Senior Vice   President of   Business   Development,   Finance		3/30/2009									15,000		$	1.10	$	0.66
		9/16/2009									25,000		$	1.10	$	0.68
Shai Erlich Chief Medical   Officer		9/16/2009									45,000		$	1.10	$	0.68
Elena Feinstein, M.D., Ph.D. Chief Scientific   Officer		9/16/2009									55,000		$	1.10	$	0.68
Rami Skaliter Chief Operating   Officer		9/16/2009									65,000		$	1.10	$	0.68
Juliana Friedmann Senior Vice President, Strategy and Planning		3/30/2009									15,000		$	1.10	$	0.66
		9/16/2009									60,000		$	1.10	$	0.68

(1) On March 30, 2009, our board of directors repriced the stock option grant to purchase 48,965 shares of our common stock held by Dr. Zurr. As a result of the repricing, the company measured the incremental fair value, as of March 30, 2009, as $0.38 per share of common stock underlying the stock option using the Black-Scholes option valuation model. On May 13, 2009, Daniel Zurr agreed to, and the company’s board of directors approved, the cancellation of options to acquire 20,000 shares of common stock of the company as part of the investors’ agreement.

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Outstanding Equity Awards At December 31, 2009

The following table sets forth certain information regarding equity awards granted to our named executive officers outstanding as of December 31, 2009. The options generally have four-year vesting terms and expire 10 years after the date of grant.

	Option Awards
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)			Number of Securities Underlying Unexercised Options (#) Unexercisable (c)			Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)		Option Exercise Price ($) (e)		Option Expiration Date (f)
Daniel Zurr		39,889	(1)		9,076	(1)		—	$	1.10		3/30/19
Sagit Reich		—			—			—		—		—
Rami Skaliter		27,586	(2)		—			—		5.80		12/04/13
		33,189	(1)		15,086	(1)		—		1.10		03/19/17
		16,250			43,750	(3)		—		1.10		12/29/18
		4,062	(4)		60,938	(4)		—		1.10		09/16/19
Smadar Samira Shakked		6,896	(2)		—			—		5.80		12/04/13
		23,706	(1)		10,776	(1)		—		1.10		03/19/17
		8,125	(3)		21,875	(3)		—		1.10		12/29/18
		2,812	(5)		12,188	(5)				1.10		03/30/19
		1,562	(4)		23,438	(4)				1.10		09/16/19
Shai Erlich		2,586	(2)		—			—		5.80		05/16/13
		4,310	(2)		—			—		17.40		05/16/13
		12,068	(2)		—			—		5.80		12/29/15
		46,228	(1)		21,013			—		1.10		03/19/17
		18,958	(3)		51,042					1.10		12/29/18
		2,812	(4)		42,188					1.10		09/16/19
Juliana Friedmann		28,448	(1)		12,931			—		1.10		03/19/17
		8,125	(3)		21,875			—		1.10		12/29/18
		2,812	(5)		12,188					1.10		03/30/19
		3,750	(4)		56,250					1.10		09/16/19
Elena Feinstein, M.D., Ph.D.		6,896	(2)		—			—		5.80		12/04/13
		15,085	(6)		2,156			—		5.80		06/15/16
		30,818	(1)		14,009					1.10		03/19/17
		16,250	(3)		43,750					1.10		12/29/18
		3,437	(4)		51,563					1.10		09/16/19

(1) This option vests monthly over a 4-year period from March 19, 2007.

(2) This option is fully vested as of December 31, 2009.

(3) This option vests monthly over a 4-year period from November 12, 2008.

(4) This option vests monthly over a 4-year period from September 16, 2009.

(5) This option vests monthly over a 4-year period from March 30, 2009.

(6) This option vests monthly over a 4-year period from June 15, 2006.

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Option Exercises and Stock Vested

None of our named executive officers exercised stock options or had shares of restricted stock vest in 2009.

Pension Benefits

None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us. Our board of directors may elect to adopt qualified or non-qualified benefit plans in the future if it determines that doing so is in the best interest of the company and our shareholders, but we do not currently maintain such plans.

Nonqualified Deferred Compensation

None of our named executive officers participate in or have account balances in nonqualified defined contribution plans or other nonqualified deferred compensation plans maintained by us. Our board of directors may elect to provide our officers and other employees with non-qualified defined contribution or other nonqualified deferred compensation benefits in the future if it determines that doing so is in the best interest of the company and our shareholders, but we do not currently maintain such plans.

Compensation of Non-Employee Directors

Director Compensation for Fiscal Year 2009

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)	Option Awards ($)			Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	Total ($)
Philip B. Simon, Chairman	$	—		$	29,020	(1)			$	29,020
Yoshitaka Kitao	$	—							$	—
Robert Takeuchi	$	—
Philip M. Hahn	$	7,959		$	9,782	(2)			$	17,741
Toshihiro Toyoshima	$	—
Trent Gunter	$	14,192		$	1,997	(3)			$	16,189
Peter Thompson	$	18,442		$	1,997	(4)			$	20,439
Kazyuki Matsui	$	0		$	1,789	(5)			$	1,789

Fees paid to non-employee directors as disclosed in the table above were pro rated amounts paid to Messrs. Hahn, Gunter and Thompson for their services as members of the Company’s board of directors, based on an annual retainer of $20,000, plus amounts equal to $1,250 and $500 for every meeting of the Company’s board of directors attended in person or by conference telephone, respectively.

(1) Grant date fair market value of stock option grant, computed in accordance with FASB ASC Topic 718, is equal to $0.66 per share; the exercise price is equal to $1.10 per share. The aggregate number of shares of common stock underlying option grants outstanding at the end of 2009 is equal to 164,482.

(2) Grant date fair market value of stock option grant, computed in accordance with FASB ASC Topic 718, is equal to $0.66 per share; the exercise price is equal to $1.10 per share. The aggregate number of shares of common stock underlying option grants outstanding at the end of 2009 is equal to 49,750.

(3) Grant date fair market value of stock option grant, computed in accordance with FASB ASC Topic 718, is equal to $0.66 per share; the exercise price is equal to $1.10 per share. The aggregate number of shares of common stock underlying option grants outstanding at the end of 2009 is equal to 20,000. Mr. Gunter no longer serves on the company’s board of directors.

(4) Grant date fair market value of stock option grant, computed in accordance with FASB ASC Topic 718, is equal to $0.66 per share; the exercise price is equal to $1.10 per share. The aggregate number of stock option grants outstanding at the end of 2009 is equal to 20,000. Mr. Thompson no longer serves on the company’s board of directors.

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(5) Grant date fair market value of stock option grant, computed in accordance with FASB ASC Topic 718, is equal to $0.66 per share; the exercise price is equal to $1.10 per share. The aggregate number of stock option grants outstanding at the end of 2009 is equal to 20,000. Mr. Matsui no longer serves on the company’s board of directors.

Prior to             , our non-employee directors, other than those set forth in the table above who received fees earned in cash, were reimbursed for the actual costs of company-related travel only. No other compensation was paid to our outside directors in connection with their services.

In recognition of the added responsibility each of our non-employee directors will have as board members of a public company, in         , 2010, our board of directors approved the following compensation arrangements for non-employee directors:

2007 Equity Incentive Plan

Our board of directors adopted the 2007 Equity Incentive Plan, or 2007 Plan, in March 2007 and our shareholders approved the 2007 Plan in May 2007. The 2007 Plan will terminate on March 1, 2017, unless sooner terminated by our board of directors.

Stock Awards.

The 2007 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards, performance cash awards, and other stock-based awards, collectively, the “stock awards”.

Eligibility.

Incentive stock options may be granted only to our employees (including employees of our parent or subsidiary corporations). Our employees, directors, and consultants (and those of our affiliates) are eligible to receive all other types of stock awards under the 2007 Plan. Pursuant to Exhibit B to the 2007 Plan, referred to as the “Israeli sub-plan”, stock awards may be granted to participants who are subject to taxation in the State of Israel in a manner that qualifies the awards for favorable tax treatment under Section 102 of the 1961 Israeli Income Tax Ordinance (New Version). The Israeli sub-plan modifies the terms of stock awards granted to Israeli participants only to the extent necessary to comply with the requirements set by Israeli law.

Share Reserve.

The number of shares of common stock reserved for issuance under the 2007 Plan is 3,349,060 (of which 638,103 were available as of October 31, 2010), with the number of shares to be automatically increased on January 1st of each year, from 2008 until (and including) 2017, by four percent (4%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. Notwithstanding the foregoing, our board of directors may act prior to the first day of any calendar year, to provide that there shall be no increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year shall be a lesser number of shares of common stock than would otherwise automatically occur.

If stock awards granted under the 2007 Plan expire or otherwise terminate without being exercised in full or are settled in cash, the shares of common stock not acquired pursuant to those awards become available for subsequent issuance under the 2007 Plan. If any shares of common stock issued pursuant to a stock award are forfeited because of a failure to vest in those shares, the forfeited shares will become available for subsequent issuance under the 2007 Plan. In addition, shares withheld in satisfaction of applicable withholding taxes or reacquired as consideration for the exercise of an option will become available for subsequent issuance under the 2007 Plan.

Award Limits.

No employee may be granted stock awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the fair market value of the common stock on the date of grant (such as options and stock appreciation rights) covering more than 689,655 shares of common stock during any calendar year. In addition, no person may be granted performance stock awards covering more than 25,862 shares of common stock during any calendar year. Finally, no person may be granted performance cash awards with a value exceeding $1,000,000 during any calendar year.

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Administration.

Subject to the provisions of the 2007 Plan, our board of directors has the authority to determine what type of stock award will be granted, the provisions of each stock award granted, the number of shares subject to each stock award, and the time or times a participant is permitted to receive stock pursuant to a stock award. Our board of directors has the power to accelerate the vesting and exercisability of a stock award. Our board of directors also has the authority to reprice any outstanding options and to cancel outstanding options and grant new stock awards in substitution therefore. As administrator of the 2007 Plan, our board of directors has the authority to construe and interpret its provisions. Our board of directors has the power to suspend or terminate the 2007 Plan at any time, to amend the 2007 Plan in any respect deemed necessary or advisable, to submit any amendment to the 2007 Plan for shareholder approval, to approve forms of award agreements for use under the 2007 Plan, to exercise such powers and to perform such acts that are not inconsistent with the provisions of the 2007 Plan, and to adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the 2007 Plan by employees, directors or consultants who are foreign nationals or employed outside the United States.

Our board of directors has the authority to delegate some or all of the administration of the 2007 Plan to a committee or committees composed of one or more members of our board. In the discretion of our board of directors, a committee may consist solely of two or more “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act, or solely of two or more “outside directors” within the meaning of Section 162(m) of the Code. The 2007 Plan also permits delegation of limited authority to one or more officers with respect to grants to employees other than officers of Quark. As used herein with respect to the administration of the 2007 Plan, “committee” refers to any committee appointed by our board, any subcommittee thereof, as well as our board of directors acting in its authority to administer the 2007 Plan.

Stock Options.

Options may be granted under the 2007 Plan pursuant to stock option agreements in the form adopted from time to time by the committee. The exercise price of options generally may not be less than 100% of the fair market value of the stock subject to the option on the date of grant. The exercise price may, at the discretion of the committee, be paid in (a) cash or check, (b) pursuant to a broker-assisted cashless exercise, (c) by delivery of other shares of common stock, (d) by a “net exercise” arrangement, or (e) in any other form of legal consideration acceptable to the committee. Options generally become exercisable in cumulative increments, or “vest,” as based on the optionee’s continued service with Quark or an affiliate. Shares covered by different options granted under the 2007 Plan may be subject to different vesting terms. The maximum term of options granted under the 2007 Plan is 10 years, subject to earlier expiration in the event of a termination of service. Options under the 2007 Plan generally expire three (3) months after termination of a participant’s service, with such period extended in the case of death or disability to twelve (12) months and eighteen (18) months, respectively. Notwithstanding the foregoing, the post-termination exercise period will be extended in the event that exercise of the option following termination of service is prohibited by applicable securities laws. In no event, however, may an option be exercised beyond the expiration of its term. Except as otherwise provided in the applicable stock option agreement, options granted under the 2007 Plan are not transferable other than by will or the laws of descent and distribution.

Special Rules for Incentive Stock Options.

No incentive stock option may be granted under the 2007 Plan to any person who, at the time of the grant, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of Quark or its affiliates, unless the exercise price of such option is at least 110% of the fair market value of the common stock subject to the option on the date of grant and the term of the option does not exceed five years from the date of grant. The aggregate fair market value, determined on the date of grant, of the shares of common stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under the 2007 Plan and any other equity plans of Quark and its affiliates) may not exceed $100,000 (any excess of such amount is treated as nonstatutory stock options). No more than 1,950,019 shares of common stock may be issued pursuant to the exercise of incentive stock options.

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Restricted Stock Awards.

Restricted stock awards may be granted under the 2007 Plan pursuant to the form of restricted stock award agreement adopted from time to time by our committee. Restricted stock awards may be granted in consideration for services rendered to Quark or an affiliate or for any other form of legal consideration acceptable to the committee. Restricted stock awards may be subject to vesting in accordance with a schedule to be determined by the committee. Upon termination of a participant’s service, any or all of the unvested shares of common stock subject to the restricted stock award may be forfeited by the participant and reacquired by Quark, as provided under the terms of the applicable award agreement. Rights to acquire shares under a restricted stock award agreement generally are not transferable, except as expressly permitted by the committee.

Restricted Stock Unit Awards.

Restricted stock unit awards may be granted under the 2007 Plan pursuant to the form of restricted stock unit award agreement adopted from time to time by the committee. At the time of grant, the committee will determine the consideration, if any, to be paid by the participant upon delivery of each share of common stock subject to the restricted stock unit award. The consideration to be paid (if any) by the participant for each share of common stock subject to a restricted stock unit award may be paid in services rendered to Quark or an affiliate or any other form of legal consideration as determined by the committee. Restricted stock award units may be subject to vesting pursuant to a schedule determined by the committee. Vested units may be settled by the delivery of shares of common stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the committee. The committee may also impose restrictions or conditions that delay the delivery of the shares of common stock (or their cash equivalent) subject to a restricted stock unit award to a time after vesting. Upon the termination of a participant’s service, the unvested portion of the restricted stock unit award will be forfeited by the participant and reacquired by Quark unless otherwise provided in the restricted stock unit award agreement. Dividend equivalents may be credited in respect of shares of common stock covered by a restricted stock unit award, as determined by the committee and contained in the award agreement. Such dividend equivalents may be converted into additional shares of common stock covered by the restricted stock unit award in such manner as determined by the committee. Any additional shares covered by the restricted stock unit award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying restricted stock unit award agreement to which they relate.

Stock Appreciation Rights.

Stock appreciation rights may be granted under the 2007 Plan pursuant to the form of stock appreciation rights agreement adopted from time to time by the committee. Stock appreciation rights may be granted as stand-alone stock awards or in tandem with other stock awards. Each stock appreciation right will be denominated in shares of common stock equivalents. The strike price of each stock appreciation right will generally not be less than one hundred percent (100%) of the fair market value of the common stock equivalents subject to the stock appreciation right on the date of grant. The appreciation distribution payable on the exercise of a stock appreciation right will be not greater than an amount equal to the excess of (a) the aggregate fair market value (on the date of the exercise of the stock appreciation right) of a number of shares of common stock equal to the number of common stock equivalents in which the participant is vested under such stock appreciation right, and with respect to which the participant is exercising the stock appreciation right on such date, over (b) the strike price that will be determined by our board of directors at the time of grant of the stock appreciation right. Stock appreciation rights will be subject to vesting on such schedules as determined by the committee. The appreciation distribution may be paid in common stock, in cash, in any combination of the two or in any other form of consideration, as determined by the committee. The maximum term of stock appreciation rights granted under the 2007 Plan is 10 years, subject to earlier expiration in the event of a termination of service. Stock appreciation rights granted under the 2007 Plan generally expire three (3) months after termination of a participant’s service.

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Performance Stock Awards.

A performance stock award is a stock award that may be granted, may vest, or may be exercised based upon the attainment during a performance period of certain performance goals. The performance goals may be set in respect of any one or more of the following criteria: (i) earnings per share; (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) total shareholder return; (v) return on equity; (vi) return on assets, investment, or capital employed; (vii) operating margin; (viii) gross margin; (ix) operating income; (x) net income (before or after taxes); (xi) net operating income; (xii) net operating income after tax; (xiii) pre-tax profit; (xiv) operating cash flow; (xv) sales or revenue targets; (xvi) increases in revenue or product revenue; (xvii) expenses and cost reduction goals; (xviii) improvement in or attainment of working capital levels; (xix) economic value added (or an equivalent metric); (xx) market share; (xxi) cash flow; (xxii) cash flow per share; (xxiii) share price performance; (xxiv) debt reduction; (xxv) implementation or completion of projects or processes; (xxvi) customer satisfaction; (xxvii) shareholders’ equity; and (xxviii) to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the committee. Performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. At the time of the grant of any performance award, the committee is authorized to determine whether, when calculating the attainment of performance goals (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; and (v) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles. In addition, the committee retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of performance goals. The maximum number of shares that may be granted to any participant in a calendar year is 75,000. A performance stock award may, but need not, require the completion of a specified period of continuous service. The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained will be determined by the committee. In addition, to the extent permitted by applicable law and the applicable award agreement, the committee may determine that cash may be used in payment of performance stock awards.

Performance Cash Awards.

A performance cash award is a cash award that may be granted upon the attainment during a performance period of certain performance goals (as described above). A performance cash award may also require the completion of a specified period of continuous service. The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained will be conclusively determined by the committee in its sole discretion. The maximum amount that may be granted to any participant in a calendar year is $1,000,000. The committee may provide for or may permit a participant to elect for, the payment of any performance cash award to be deferred to a specified date or event. The committee may specify the form of payment of performance cash awards, which may be cash or other property. In addition, the committee may determine that common stock authorized under the 2007 Plan may be used in payment of performance cash awards.

Other Stock Awards.

The committee may grant other incentive awards based in whole or in part by reference to the value of Quark’s common stock. Subject to the provisions of the 2007 Plan, the committee has the authority to determine the persons to whom and the dates on which such other stock awards will be granted, the number of shares of common stock (or cash equivalents) to be subject to each award, and other terms and conditions of such awards. Such awards may be granted either alone or in addition to other stock awards granted under the 2007 Plan.

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Tax Withholding.

The committee may require a participant to satisfy any federal, state, local, or foreign tax withholding obligation relating to a stock award by (a) causing the participant to tender a cash payment; (b) withholding shares of common stock from the shares of common stock issued or otherwise issuable to the participant in connection with the award; (iii) withholding cash from an award settled in cash or other payments made to a participant; or (iv) by such other method as may be set forth in the award agreement.

Changes to Capital Structure.

In the event any change is made to our common stock without the receipt of consideration, whether through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or otherwise, our board of directors will appropriately adjust: (a) the class(es) and maximum number of securities subject to the 2007 Plan, (b) the class(es) and maximum number of securities that may be issued pursuant to the exercise of incentive stock options, (c) the class(es) and maximum number of securities (or amount of cash consideration) that may be awarded to any person pursuant to performance stock awards and other stock-based awards intended to satisfy the requirements of Section 162(m) of the Code (such as options and stock appreciation rights), and (d) the class(es) and number of securities and price per share of stock subject to outstanding stock awards. Our board of directors will make such adjustments, and its determination will be final, binding and conclusive.

Corporate Transactions; Changes in Control.

In the event of certain significant corporate transactions, outstanding stock awards under the 2007 Plan may be assumed, continued, or substituted by any surviving corporation. If the surviving corporation does not assume, continue, or substitute such stock awards, then (a) with respect to any such stock awards that are held by individuals performing services for Quark or its affiliates at the effective time of the transaction, the vesting and exercisability provisions of such stock awards will be accelerated in full and such stock awards will be terminated if not exercised prior to the effective date of the corporate transaction, and (b) all other outstanding stock awards will be terminated if not exercised prior to the effective date of the corporate transaction. A stock award may be subject to additional acceleration of vesting and exercisability as may be provided in the stock award agreement for such stock award or as may be provided in any other written agreement between Quark or any affiliate and the participant. The acceleration of stock awards in connection with significant corporate transactions and changes in control may be viewed as an anti-takeover provision, which may have the effect of discouraging a proposal to acquire or otherwise obtain control of Quark.

Duration, Termination, and Amendment.

Our board of directors may suspend or terminate the 2007 Plan at any time. The 2007 Plan is scheduled to terminate immediately prior to the 10^th anniversary of the date it was adopted by our board of directors. No rights may be granted under the 2007 Plan while the 2007 Plan is suspended or after it is terminated. Our board of directors may amend or modify the 2007 Plan at any time, subject to any shareholder approval required by applicable law or regulation.

2010 Employee Stock Purchase Plan

In October 25, 2010, our board of directors adopted our 2010 Employee Stock Purchase Plan (or ESPP) and our shareholders approved the ESPP in         . The ESPP will become effective upon completion of this offering.

Share Reserve.  The ESPP authorizes the issuance of 500,000 shares of common stock pursuant to purchase rights to be granted to our employees or the employees of any of our parent or subsidiary companies designated by our board of directors to participate in the ESPP. The number of shares of common stock available for issuance will automatically increase on January 1st of each year commencing in         and ending on (and including) January in an amount equal to                   shares of common stock. Notwithstanding the foregoing, our board of directors may act prior to the first day of any calendar year, to provide that there shall be no increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year shall be a lesser number of shares of common stock than would otherwise

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occur pursuant to the preceding sentence. If any purchase right granted under the ESPP will for any reason terminate without having been exercised, the shares of common stock not purchased under such purchase right will again become available for issuance under the ESPP. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code.

Administration.  Our board of directors administers the ESPP and has the final power to construe and interpret both the ESPP and the purchase rights granted thereunder. Our board of directors has the power, subject to the provisions of the ESPP, to determine the provisions of each offering of rights to purchase our common stock, and whether employees of any of our parent or subsidiary companies will be eligible to participate in the ESPP. Our board of directors has the power to delegate administration of the ESPP to a committee or committees. As used herein with respect to the ESPP, “board of directors” refers to any committee or committees our board appoints as well as to our board itself. The ESPP will be implemented through a series of offerings of such duration as determined by our board of directors to eligible employees, provided that in no event may an offering exceed 27 months. Each offering will consist of one or more purchase periods as determined by our board of directors prior to the commencement of that offering. Our board of directors has the authority to alter the duration of subsequent offerings or change the number of purchase dates within each such offering. The provisions of separate offerings need not be identical. When an eligible employee elects to join an offering, he or she will be granted a purchase right to acquire shares of common stock on each purchase date within the offering. On the purchase date, all payroll deductions collected from the participant are automatically applied to the purchase of common stock, subject to certain limitations. Our board of directors had not yet established the terms of any offering.

Payroll Deductions.  Generally, all regular employees, including executive officers, employed by us or by any of any of our parent or subsidiary companies designated by our board of directors may contribute, normally through payroll deductions, up to 15% of their eligible cash compensation (or such lesser amount set by our board of directors for a specific offering) for the purchase of common stock under the ESPP. Amounts deducted and accumulated for a participant are used to purchase shares of our common stock on the purchase dates established by our board of directors. All payroll deductions made for a participant are credited to his or her account under the ESPP and deposited with our general funds. A participant may make additional payments into such account only as specifically provided for in the offering and only if the participant has not exceeded certain limitations under the ESPP or under the terms of such offering. The ESPP permits common stock to be purchased at a price per share no less than the lower of (i) 85% of the fair market value of a share of our common stock on the offering date, or (ii) 85% of the fair market value of a share of our common stock on the applicable purchase date.

Purchase of Stock.  An eligible employee must sign and return an agreement in order to participate in the ESPP. In connection with offerings made under the ESPP, our board of directors may specify a maximum number of shares of common stock a participant may purchase and the maximum aggregate number of shares of common stock that may be purchased by all participants in such offering. In addition, in connection with each offering that contains more than one purchase date, our board of directors may specify a maximum aggregate number of shares of common stock that may be purchased by all participants on any purchase date under the offering. If the aggregate number of shares to be purchased upon exercise of outstanding purchase rights in the offering would exceed the maximum aggregate number of shares of common stock available, our board of directors will make a pro rata allocation of available shares in a uniform and equitable manner. Unless the employee’s participation is discontinued, his or her right to purchase shares is exercised automatically at the next purchase date at the applicable price.

Withdrawal.  During an offering, a participant may cease making contributions and withdraw from the offering by delivering a notice of withdrawal and terminating his or her payroll deductions in such form as we may require. Such withdrawal may occur at any time prior to the end of an offering except as otherwise provided by our board of directors. Upon such withdrawal, we will refund accumulated payroll deductions without interest to the employee, and such employee’s right to participate in that offering will terminate. However, an employee’s withdrawal from an offering does not generally affect such employee’s eligibility to participate in subsequent offerings under the ESPP.

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Reset Feature.  Our board of directors has the authority to provide that if the fair market value of a share of our common stock on the first day of any purchase period within a particular offering is less than the fair market value on the start date of that offering, then the participants in that offering will automatically be transferred and enrolled in a new offering which will begin on the first day of that purchase period and the participant’s purchase rights in the original offering will terminate.

Limitations.  Our board of directors may limit participation in the ESPP to those persons who are customarily employed more than 20 hours per week and five months per calendar year by us (or by any of our parent or subsidiary companies designated by our board of directors) on the first day of an offering. The Board may also provide that a person must have been employed for such continuous period preceding the first day of the offering as our board of directors may require, but in no event may the required period of continuous employment be greater than two (2) years. In addition, our board of directors may provide in any offering that certain of our employees who are “highly compensated” as defined in the Code are not eligible to participate in the ESPP. Our board of directors may also provide that each person who, during the course of an offering, first becomes an eligible employee shall, on a date or dates specified in the offering, receive a purchase right under that offering at a price equal to the market price of our common stock at that time, which purchase right will be deemed to be a part of that offering, and such purchase right shall generally have the same characteristics as any purchase rights originally granted under that offering. No employee is eligible to participate in the ESPP if, immediately after the grant of purchase rights, the employee would own, directly or indirectly, stock possessing 5% or more of the total combined voting power or value of all classes of our stock or of any of our parent or subsidiary companies (including any stock which such employee may purchase under all outstanding purchase rights and stock options). In addition, no employee may purchase more than $25,000 worth of our common stock (valued at the time each purchase right is granted) for each calendar year during which those purchase rights are outstanding.

Termination of Employment.  Purchase rights granted pursuant to any offering under the ESPP terminate upon cessation of employment for any reason, and we will refund all accumulated payroll deductions to the terminated employee without interest.

Restrictions on Transfer.  A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution, or by a beneficiary designation as provided in the ESPP. During a participant’s lifetime, purchase rights shall be exercisable only by such participant.

Changes to Capital Structure.  In the event that there is any change to the outstanding common stock (whether by reason of merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or other transaction not involving the receipt of consideration by Quark), appropriate adjustments will be made to (a) the class(es) and maximum number of securities subject to the ESPP, (b) the class(es) and maximum number of securities by which the share reserve is to increase automatically each year, (c) the class(es) and number of securities subject to outstanding purchase rights, and (d) the class(es) and number of securities imposed by purchase limits under each ongoing offering.

Corporate Transactions.  In the event of certain significant corporate transactions, any surviving or acquiring corporation may assume or substitute similar purchase rights for those outstanding under the ESPP. If the surviving or acquiring corporation does not assume such rights or substitute similar rights, then the participants’ accumulated payroll deductions will be used to purchase of shares of common stock within ten (10) business days prior to the corporate transaction under any ongoing offerings, and such purchase rights will terminate immediately thereafter.

Termination and Amendment.  Our board of directors may amend, suspend or terminate the ESPP at any time. Any amendment of the ESPP must be approved by our shareholders to the extent shareholder approval is necessary for the ESPP to satisfy Sections 423 of the Code or other applicable laws and regulations. Purchase rights granted before amendment or termination of the ESPP generally may not be altered or impaired by any amendment or termination of the ESPP without consent of the employee to whom such purchase rights were granted. No purchase rights may be granted under the ESPP while the ESPP is suspended or after it is terminated.

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Compensation Committee Interlocks and Insider Participation

Our board of directors de-constituted our Compensation Committee on April 16, 2009, based on a determination that the board of directors did not need a Compensation Committee in place at the time. During the fiscal year ended December 31, 2009, Dr. Zurr, our Chief Executive Officer, participated in the deliberations of our Board of Directors with respect to executive officer compensation. Dr. Zurr makes recommendations regarding executive compensation, however, Dr. Zurr does not participate in discussions regarding his own compensation. None of our executive officers currently serves or in the prior three years has served as a member of the Board of Directors or compensation committee of any entity that has one or more executive officers serving on our board.

Limitation of Liability and Indemnification

Our amended and restated articles of incorporation, which will become effective upon the completion of this offering, limits the liability of our directors to the fullest extent permitted by California law. The California Corporations Code authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers, subject to certain exceptions, by reason of the fact that the person is or was an agent of the corporation, if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation.

Our amended and restated bylaws, which will become effective upon the completion of this offering, provide that we will indemnify our directors and executive officers, and may indemnify other officers, employees and other agents, to the fullest extent permitted by law. Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our amended and restated bylaws permit such indemnification. We have obtained such a directors’ and officers’ liability insurance policy.

We intend to enter into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request.

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a summary of transactions from January 1, 2007 to October 31, 2010 to which we have been a party in which the amount involved exceeded $120,000 and in which any of our executive officers, directors or beneficial holders of more than five percent of our capital stock had or will have a direct or indirect material interest, other than compensation arrangements which are described under the section of this prospectus entitled “Compensation Discussion and Analysis.”

Policies and Procedures for Related Party Transactions

We anticipate adopting a policy prior the completion this offering, but do not currently have a policy in place.

Sale of Securities

In March 2008, April 2008 and May 2010, we issued and sold to holders of more than 5% of our capital stock an aggregate of 7,400,000 shares of Series H preferred stock at a purchase price of $5.00 per share, for an aggregate consideration of approximately $37,000,000. Upon the completion of this offering, these shares will convert into an aggregate of 7,400,000 shares of common stock.

In May 2010, in connection with the issuance of shares of Series H preferred stock to investors, we issued and sold warrants to purchase an aggregate of 300,000 shares of Series H preferred stock, all of which warrants have been exercised as of October 31, 2010 at a purchase price of $5.00 per share, for an aggregate consideration of $1,500,000. Upon the completion of this offering, these shares will convert into an aggregate of 300,000 shares of common stock.

The participants in these preferred stock and preferred stock warrant issuances include the following holder of more than 5% of our capital stock. The following table presents the number of shares issued to this related party. For a description of current beneficial ownership, see “Principal Shareholders”.

Purchaser	Series H preferred stock
5% Shareholders
SBI Holdings, Inc.		8,831,510

Amended and Restated Investors’ Rights Agreement

We have entered into an investors’ rights agreement with the purchasers of our outstanding preferred stock and certain holders of common stock and warrants to purchase Series H Preferred stock, including entities with which certain of our directors are affiliated. As of October 31, 2010, the holders of 17,996,100 shares of our common stock, including the shares of common stock issued upon the automatic conversion of our preferred stock and shares of common stock issued upon the conversion of shares of preferred stock issued upon the exercise of warrants, are entitled to rights with respect to the registration of their shares under the Securities Act. For a description of these registration rights, see “Description of Capital Stock —  Registration Rights.”

Employment Agreements

We have entered into employment agreements with our executive officers and directors. For more information regarding these agreements, see “Compensation Discussion and Analysis — Employment Agreements and Potential Payments Upon Termination.”

Stock Options Granted to Executive Officers and Directors

We have granted stock options to our executive officers and directors. For more information regarding these stock options, see “Management — Executive Compensation.”

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Indemnification Agreements with Executive Officers and Directors

Effective upon the closing of this offering, we will have entered into an indemnification agreement with each of our directors and executive officers. These indemnification agreements and our amended and restated articles of incorporation and amended and restated bylaws will indemnify each of our directors and officers to the fullest extent permitted by the California Corporations Code. See “Management — Limitation of Liability and Indemnification.”

Loan to Chief Executive Officer

Additionally, we made a personal loan to our Chief Executive Officer in the principal amount of $157,000 in January 2008. The loan was granted to Dr. Zurr in exchange for a promissory note to repay the principal and interest within a fixed term. Under the note, we agreed to forgive the debt upon an initial public offering or upon entering into a significant collaboration or joint venture agreement with a major United States or European based pharmaceutical company. The note was forgiven in full by the Company in September 2010 in recognition of Dr. Zurr’s service to Quark.

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PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial ownership of our common stock as of October 31, 2010 and as adjusted to reflect the sale of the common stock in this offering for:

• each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;

• each of our named executive officers;

• each of our directors; and

• all of our executive officers and directors as a group.

The percentage ownership information shown in the table is based upon 21,384,630 shares of common stock outstanding as of October 31, 2010, assuming the conversion of all outstanding shares of our preferred stock as of October 31, 2010.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before December 30, 2010, which is 60 days after October 31, 2010. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

Except as otherwise noted below, the address for each person or entity listed in the table is c/o Quark Pharmaceuticals, Inc., 6501 Dumbarton Circle, Fremont, California 94555.

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	Number of shares beneficially owned		Percentage of shares beneficially owned (%)
Name and Address of Beneficial Owner			Before offering		After offering
5% Shareholders
SBI Holdings, Inc. (1) Izumi Garden Tower 1-6-1 Roppongi, Minato-ku Tokyo 106-6019		8,831,510		41.3
Lawrence Investments, LLC (2) Attn: Lawrence J. Ellison Oracle Corporation 500 Oracle Parkway Redwood Shores, CA 94605		5,492,332		26.1
Executive Officers and Directors
Daniel Zurr, Ph.D. (3)		1,770,833		8.3
Rami Skaliter, Ph.D. (4)		151,300		*
Juliana Friedmann (5)		94,729		*
Smadar Shakked, CPA (Isr) (6)		107,647		*
Shai Erlich, Ph.D. (7)		132,522		*
Elena Feinstein, M.D., Ph.D. (8)		114,599		*
Sagit Reich, CPA (Isr)		0		*
Yoshitaka Kitao (9)		8,831,510		41.3
Toshihiro Toyoshima (10)		988,662		4.6
Philip M. Hahn (11)		31,520		*
Philip B. Simon (12)		5,595,248		26.0
Robert Takeuchi				*
All executive officers and directors as a group (13 persons)		17,913,479		80.6

* Represents beneficial ownership of less than 1%.

(1) Includes 149,625 shares held directly by SBI Broadband Capital Co., Ltd., 620,000 shares held directly by TS-MI No. 1 Investment Limited Partnership, 318,302 shares held directly by TS-US No. 1 Investment Limited Partnership, 340,000 shares held directly by TS-US No. 3 Investment Limited Partnership, 1,398,318 shares held directly by SBI Life Science Technology Investment LPS, 932,212 shares held directly by SBI Life Science Technology II Investment LPS, 869,470 shares held directly by SBI Selective Target Investment LPS, 265,500 by SBI Bio Life Science Investment LPS, 244,125 shares held directly by SBI Broadband Fund No. 1 Limited Partnership, 236,250 shares held directly by SBI BB Mobile Investment LPS, 210,000 shares held directly by IP Investment LPS, †157,500 shares held directly by SBI BB Media Investment Limited Partnership, 1,820,000 shares held directly by SBI Bond and Private Equity Fund III and 1,273,208 shares held directly by Japan Trustee Services Bank Ltd. re: RTB Trans-Science Global Biotechnology Fund (collectively, the “SBI Companies”). Mr. Yoshitaka Kitao is the Representative Director and CEO of SBI Holdings, Inc. (“SBI Holdings”) which controls the SBI Companies. Mr. Kitao disclaimer beneficial ownership of these shares, except to the extent of his pecuniary interest therein.

(2) Mr. Philip B. Simon is the President of Lawrence Investments LLC (“Lawrence Investments”). Mr. Simon has voting authority over the shares held by Lawrence Investments, although Mr. Lawrence J. Ellison, by virtue of his control of Lawrence Investments, possess the ultimate authority over the voting and disposition of such shares. Mr. Simon disclaims beneficial ownership of the shares held by Lawrence Investments except to the extent of his pecuniary interest therein.

(3) Includes 46,696 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

(4) Includes 124,405 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

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(5) Includes 79,729 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

(6) Includes 91,096 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

(7) Includes 132,522 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

(8) Includes 114,599 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

(9) Includes 8,831,510 shares of common stock beneficially owned directly by the SBI Companies. See footnote 1.

(10) Includes 988,662 shares of common stock beneficially owned directly by Asuka DBJ Investment LPS. Mr. Toyoshima is the CEO of Asuka DBJ Partners Co Ltd., the general partner of Asuka DBJ Investment LPS. Mr. Toyoshima disclaims beneficial ownership of the shares held by Asuka DBJ Investment LPS except to the extent of his pecuniary interest therein.

(11) Includes 31,520 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010.

(12) Includes 102,916 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of October 31, 2010. Includes 5,492,332 shares of common stock beneficially owned directly by Lawrence Investments. Mr. Simon is the President of Lawrence Investments. Mr. Simon disclaims beneficial ownership of the shares held by Lawrence Investments except to the extent of his pecuniary interest therein.

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DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering and the filing of our amended and restated articles of incorporation, our authorized capital stock will consist of   shares of common stock, par value $0.001 per share, and   shares of preferred stock, par value $0.001 per share.

The following is a summary of the rights of our common stock and preferred stock. This summary is not complete. For more detailed information, please see our amended and restated articles of incorporation and amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.

Units

Each unit consists of   shares of our common stock and   warrants. Each warrant shall be exercisable into one share of our common stock at an exercise price equal to   and will be exercisable for   years from the date on which they are issued.

Common Stock

Outstanding Shares.

Based on 21,384,630 shares of common stock outstanding as of October 31, 2010, which assumes the conversion of all outstanding preferred stock into 17,996,100 shares of common stock upon the completion of this offering, the issuance of shares of common stock in this offering, and no exercise of outstanding options or warrants, there will be   shares of common stock outstanding upon completion of this offering. As of October 31, 2010, assuming the conversion of all outstanding preferred stock into common stock upon the completion of this offering, we had approximately 134 record holders of our common stock.

As of October 31, 2010, there were 2,632,919 shares of common stock subject to outstanding options, and no shares subject to outstanding warrants.

Voting Rights.

Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of the shareholders, including the election of directors. Our amended and restated articles of incorporation and amended and restated bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors have the ability to elect all of the directors standing for election.

Dividends.

Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of our outstanding shares of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.

Liquidation.

In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to shareholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.

Rights and Preferences.

Holders of our common stock have no preemptive or subscription rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.

Fully Paid and Nonassessable.

All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

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Preferred Stock

Upon the closing of this offering, all outstanding shares of preferred stock will convert into shares of common stock. See Notes 10 and 11 to our financial statements for a description of the currently outstanding preferred stock.

Warrants

Warrants Issued Under the Units

Each unit offered in this offering consists of         shares of our common stock and        warrants. Each warrant shall be exercisable into one share of our common stock at an exercise price equal to   per share. The warrants will be exercisable for a period of    years commencing on the date on which they are issued. The exercise prices of the warrants have been determined by our management based on management’s assessment of prevailing market conditions.

Shares of our common stock issued upon the exercise of the warrants will have the same rights afforded to holders of our common stock, as in effect on the date of exercise of the warrant or as thereafter amended or modified.

Registration Rights

Under our Fourth Amended and Restated Investor Rights Agreement, following the completion of this offering, the holders of 17,996,100 shares of common stock, or their permitted transferees, have the right to require us to register their shares with the SEC so that those shares may be publicly resold, or to include their shares in any registration statement we file, in each case as described below.

Demand Registration Rights.

At any time beginning six months after the completion of this offering, the holders of at least 33% of shares having registration rights issued upon conversion of Series A, Series B, Series C, Series D, Series E, Series F, Series G and Series H preferred stock, shares held by certain of our founders and other holders and shares of common stock issued upon exercise of warrants to purchase common stock, have the right to request that we file registration statements for such holders, so long as the aggregate value of securities to be sold under such registration statement is at least $3,000,000 or such requesting holders include at least an aggregate of 15% of securities held by them in such registration. We are only obligated to file up to two registration statements upon the request of such holders and shall not be required to effect a service of process in order to effect a registration. The registration rights are subject to other specified conditions and limitations, including the right of underwriters to limit the number of shares in any such registration under certain circumstances, or if our President shall sign a certificate to be furnished to such holders which includes a statement that, in the good faith judgment of our board of directors, it would be seriously detrimental to the Company or our shareholders to effect such a registration in the near future.

“Piggyback” Registration Rights.

Following the completion of this offering, if we register any securities on our own account for public sale, we are required to give shareholders holding registration rights notice of such registration and include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration.

Form S-3 Registration Rights.

If we are eligible to file a registration statement on Form S-3, and holders of at least 2% of our then outstanding shares having registration rights, assuming the exercise or conversion of all outstanding warrants and stock options to purchase common stock, shall request the Company to file a registration on Form S-3 with an aggregate offering price to the public that would exceed $1,000,000, then we shall be obligated to use our best efforts to register such shares. However, we shall not be required to effect such registration more than twice in any twelve month period.

Expenses of Registration.

We will pay all expenses relating to all demand registrations, Form S-3 registrations and piggyback registrations, other than underwriting discounts and commissions and stock transfer taxes.

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Expiration of Registration Rights.

The registration rights described above terminate as to each holder at such time as a public market for the Company’s common stock exists, and all shares held by such holder may be sold within a three month period pursuant to Rule 144 or any other applicable exemption from registration.

Anti-Takeover Provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws

Provisions of our amended and restated articles of incorporation and amended and restated bylaws, which will become effective prior to the closing of this offering, may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

• provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

• require that following completion of this offering any action to be taken by our shareholders must be effected at a duly called annual or special meeting of shareholders and not be taken by written consent;

• provide that shareholders seeking to present proposals before a meeting of shareholders or to nominate candidates for election as directors at a meeting of shareholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a shareholder’s notice;

• do not provide for cumulative voting rights following the time that we become a listed company (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose); and

• provide that shareholders will be permitted to amend our amended and restated bylaws only upon receiving at least 66 2/3% of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

In addition, as a California corporation, we are subject to the provisions of Section 1203 of the California Corporations Code, which requires us to provide a fairness opinion to our shareholders in connection with their consideration of any proposed “interested party” reorganization transaction.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is         . The transfer agent and registrar’s address is           .

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock. Following this offering, we expect that our common stock will be listed on the Tel Aviv Stock Exchange, or TASE. We do not expect that a public market will develop for our common stock or any other of our securities in the United States.

Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future.

• Based on the number of shares of common stock outstanding as of October 31, 2010, upon the closing of this offering,   shares of our common stock will be outstanding, assuming no exercise of options. All of the shares sold in this offering will be freely tradable unless held by our affiliates. Of the remaining shares of common stock outstanding after this offering, approximately 16,047,979 will be restricted as a result of restrictions imposed by TASE; and

• all such restricted shares will be eligible for sale under Rule 144 or Rule 701 upon expiration restrictions imposed by TASE, as further described below, at least 180 days after the date of this offering, provided that certain shares held by affiliates will be subject to the volume limitations described below.

Rule 144

In general, a person who has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to and compliant with the Exchange Act periodic reporting requirements for at least 90 days before the sale. In addition, under Rule 144, any person who is not an affiliate of ours, has not been an affiliate of ours during the preceding three months and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of 1% of the number of shares of our common stock then outstanding. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares.

Restrictions on Transfer Imposed by the Tel Aviv Stock Exchange

Under the rules of TASE, for three months following the initial listing of our securities on TASE each of our directors, our chief executive officer and all of beneficial holders of 5% or more of our outstanding common stock, unless such beneficial holder acquired its securities in the offering, will be restricted from selling or entering into any other transaction with shares of our common stock or other of our securities held by them. Beginning three months after initial listing, through until the end of the eighteenth month following listing, 2.5% of the total number of shares of our common stock held by such persons will be released from these restrictions each month. At the end of the eighteenth month following listing of our common stock on

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TASE, our directors, our chief executive officer and all of beneficial holders of 5% or more of our outstanding common stock will cease to be under any restrictions regarding transactions in our common stock or other securities under the rules of TASE.

In addition, under the rules of TASE, for three months following the initial listing of our common stock on TASE, any holder of our securities that is not an employee of ours and that acquired those securities during the 12 months prior to submission of our TASE listing application, is restricted from selling or entering into any other transaction with those securities acquired during that prior 12 month period. Beginning three months after initial listing of our common stock on TASE, through until the end of the ninth month following listing, 12.5% of the total number of these securities whose sale is restricted will be released from these restrictions each month, and at the end of the ninth month will cease to be under any restrictions under the rules of TASE. There are several exceptions to the above restrictions, primarily that (1) following 6 months from listing, a transaction outside TASE can be made provided that the recipient undertakes the remaining restriction, and (2) restricted securities may be pledged so long as the exercise of the pledge shall not occur during the period of restriction.

Registration Rights

Upon the closing of this offering, the holders of 17,996,100 shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of this registration. Any sales of securities by these shareholders could have a material adverse effect on the trading price of our common stock. See “Description of Capital Stock — Registration Rights.”

Equity Incentive Plans

We intend to file with the SEC a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our 2007 Equity Incentive Plan and 2010 Employee Stock Purchase Plan. The registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to the lock-up agreements described above, if applicable.

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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS

The following summary describes the material U.S. federal income and estate tax consequences of the acquisition, ownership and disposition of common stock acquired in this offering by certain Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income and estate taxes and does not deal with foreign, state and local consequences that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor U.S. federal tax consequences other than income and estate taxes. Special rules different from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code, such as financial institutions, insurance companies, tax-exempt organizations, broker-dealers and traders in securities, U.S. expatriates, regulated investment companies, real estate investment trusts, “controlled foreign corporations,” “passive foreign investment companies,” corporations that accumulate earnings to avoid U.S. federal income tax, persons that hold our common stock as pan of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or integrated investment or other risk reduction strategy, partnerships and other pass-through entities, and investors in such pass-through entities. Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and Treasury regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income and estate tax consequences different from those discussed below. We have not requested any ruling from the U.S. Internal Revenue Service, or IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions. This discussion assumes that the Non-U.S. Holder holds our common stock as a capital asset.

The following discussion is for general information only and is not tax advice. Persons considering the purchase of common stock pursuant to this offering should consult their own tax advisors concerning the U.S. federal income and estate tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction, including any state, local or foreign tax consequences.

For the purposes of this discussion, a “Non-U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of common stock that is not a U.S. Holder. A “U.S. Holder” means a beneficial owner of common stock that is for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation or other entity treated as a corporation created or organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust if it (x) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (y) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

Distributions

Subject to the discussion below, distributions, if any, made on our common stock to a Non-U.S. Holder of our common stock to the extent made out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) generally will constitute dividends for U.S. tax purposes and will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us with a properly-executed IRS Form W-8BEN, or other appropriate form, certifying the Non-U.S. Holder’s entitlement to benefits under that treaty. In the case of a Non-U.S. Holder that is an entity, Treasury Regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.

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We generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that you maintain in the United States) if a properly-executed IRS Form W-8ECI, stating that the dividends are so connected, is filed with us (or, if stock is held through a financial institution or other agent, with such agent). In general, such effectively connected dividends will be subject to U.S. federal income tax, on a net income basis at the regular graduated rates, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments.

To the extent distributions on our common stock, if any, exceed our current and accumulated earnings and profits, they will constitute a non-taxable return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain and taxed in the same manner as gain realized from a sale or other disposition of common stock as described in the next section.

Gain on disposition of common stock

A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our common stock unless (i) the gain is effectively connected with a trade or business of such holder in the United States (and if required by an applicable income tax treaty, are attributable to a permanent establishment that such holder maintains in the United States), (ii) in the case of a Non-U.S. Holder who is a nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (iii) we are or have been a “United States real property holding corporation” within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder’s holding period. In general, we would be a United States real property holding corporation if interests in U.S. real estate comprised (by fair market value) at least half of our real estate assets and other business assets. We believe that we are not, and do not anticipate becoming, a United States real property holding corporation. Even if we are treated as a United States real property holding corporation, gain realized by a Non-U.S. Holder on a disposition of our common stock will not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned directly, indirectly and constructively, no more than five percent of our common stock at all times within the shorter of (a) the five year period preceding the disposition or (b) the holder’s holding period and (2) our common stock is regularly traded on an established securities market. There can be no assurance that our common stock will continue to qualify as regularly traded on an established securities market.

If you are a Non-U.S. Holder described in (i) above, you will be required to pay tax on the net gain derived from the sale at regular U.S. federal income tax rates, unless a specific treaty exemption applies, and corporate Non-U.S. Holders described in (i) above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual Non-U.S. Holder described in (ii) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by U.S. source capital losses (even though you are not considered a resident of the United States).

Information reporting requirements and backup withholding

Generally, we must report information to the IRS with respect to any dividends we pay on our stock including the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient’s country of residence.

Dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a properly-executed IRS Form W-8BEN or otherwise establishes an exemption. The current backup withholding rate is 28%, but is scheduled to increase to 31% after 2010.

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Under current U.S. federal income tax law, U.S. information reporting and backup withholding generally will apply to the proceeds of a disposition of our common stock effected by or through a U.S. office of any broker, U.S. or foreign, except that backup withholding may be avoided if the holder provides a properly-executed IRS Form W-8BEN or otherwise meets documentary evidence requirements for establishing Non-U.S. Holder status or otherwise establishes an exemption. Generally, U.S. backup withholding will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the U.S. through a non-U.S. office of a non-U.S. broker. Backup withholding may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.

Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may generally be obtained, provided that the required information is timely furnished to the IRS.

Recently enacted legislation affecting taxation of our common stock held by or through foreign entities

Recently enacted legislation generally will impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid after December 31, 2012 to a foreign financial institution unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). The legislation also will generally impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of our common stock paid after December 31, 2012 to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. Holders are encouraged to consult with their own tax advisors regarding the possible implications of the legislation on their investment in our common stock.

New healthcare legislation

Under newly enacted legislation, certain U.S. holders that are individuals, estates or trusts will be required to pay an additional tax on, among other things, interest and dividends on and capital gains from the sale or other disposition of notes and stock for taxable years beginning after December 31, 2012. U.S. holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our notes and common stock.

Federal estate tax

An individual who is treated as the owner of, or has made certain lifetime transfers of, an interest in our common stock will be required to include the value thereof in his or her gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax unless an applicable estate tax treaty provides otherwise, even though such individual was not a citizen or resident of the United States at the time of his or her death. Although the U.S. federal estate tax has been repealed for the tax year 2010, it is set to be reinstated (absent new legislation) at its pre-2001 rates and exemptions.

THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAW.

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PLAN OF DISTRIBUTION

We are offering a minimum of        units up to a maximum of       units, with each unit consisting of       shares of common stock and     warrants to purchase an additional       shares of common stock, for       NIS per unit, with aggregate gross proceeds of up to       NIS (approximately $      ). The offering is not underwritten. Pursuant to a distribution agreement dated             , 2010, we have engaged Clal Finance Underwriting Ltd., or Clal, as our leading distributor for this offering. Clal has not made an underwriting commitment, but is undertaking to market our securities for distribution commissions detailed below, along with a number of other Israeli distributors. Clal is not obligated to purchase or sell any units, nor is it required to arrange for the purchase and sale of any specific number or Shekel amount of units, other than to use its “best efforts” to arrange for the sale of units by us. As a result, we may not sell the entire amount of units being offered. The distribution agreement provides that we will pay Clal a fee equal to                                 . In addition, we have agreed to issue to Clal warrants to purchase         . The foregoing does not attempt to summarize all substantive provisions of the distribution agreement, a copy of which has been filed as an exhibit to the Registration Statement of which this prospectus is a part.

Apart from Clal, we have engaged the following distributors to market our securities for distribution commissions detailed below:

There is currently no public or other trading market in the U.S. or in Israel for our shares of common stock or warrants, and we cannot give any assurance to you that the shares offered by this prospectus will have a market value, or that they can be resold for at least the sale price if and when an active secondary market might develop, or that a public market for our shares or warrants will be sustained even if one is ultimately developed. Upon the consummation of the offering, the units will separate immediately and the shares of our common stock and the warrants comprising the units will be issued and will trade separately. The shares of our common stock and warrants which are being offered under this prospectus will then be listed for trading on the TASE, conditioned upon completion of the offering, including the satisfaction of all of TASE’s requirements for listing the securities offered.

If the TASE listing requirements cannot be met, the offering will be cancelled. The relevant TASE requirements for the Company are currently as follows:

Minimum shareholders’ equity after listing		25 Million NIS
Minimum number of shareholders		100
Minimum value of shares per each of the above shareholders		16,000 NIS
Minimum total value of shares held by the public		20 Million NIS
Minimum public holdings		ranges from 25% to 10%, dependent upon the total value of shares held by the public

The Company may qualify, prior to the listing, as a Research and Development Company according to TASE regulations, in which case the relevant requirements will be as follows:

Minimum shareholders’ equity after listing		8 Million NIS
Minimum number of shareholders		35
Minimum value of shares per such shareholders		16,000 NIS
Minimum total value of shares held by the public		16 Million NIS
Minimum public holdings		ranges from 10% to 7.5%, dependent upon the total value of shares held by the public

During the allocation process following the public tender, the offering coordinator may price the offering at a lower price, in order to be able to accept additional orders so as to meet, for example, the applicable minimum number of shareholders requirement specified above.

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The Tender to Sophisticated Investors

The offering of our securities will begin with the publication of the Israeli prospectus, a copy of which will be filed with the Israel Securities Authority. Following our meetings with investors in Israel, a tender for “sophisticated investors” will be held.

Sophisticated are investors are defined under the Israel Securities Law as being one of the following:

• A joint investment mutual fund, as defined in the Israel Joint Investment Trust Law, or a managing company for such a fund;

• A provident fund or its managing company, as defined in the Israel Control of Financial Services Law;

• An insurer, as defined under the Israel Insurance Business (Control) Law;

• A banking corporation and auxiliary corporation as defined in the Israel Banking (Licensing) Law, with certain exceptions;

• A portfolio manager, as defined in the Israel Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law,, who purchases for himself or herself or for certain clients;

• An investment advisor as defined in the Israel Regulation of Investment Advice and Portfolio Management Law, purchasing for himself or herself;

• A Tel Aviv Stock Exchange member purchasing for itself or for certain clients who are investors;

• An underwriter meeting certain prescribed qualifications under the Israel Securities Law;

• A “venture capital fund,” which means a corporation whose main business is investing in corporations, which, at the time the investment is made, are preliminary engaged in research and development or in the manufacture of innovative and high-tech products or processes, where the risk of investment is higher than what is customary for other investments;

• A corporation which is primarily engaged in capital market activity and which is wholly owned by certain prescribed investors listed in the Israel Securities Law.

• A corporation, except for a corporation that was incorporated for the purpose of purchase securities in a specific offering, whose equity exceeds 250 million NIS.

Sophisticated investors, which as described above include Israeli mutual funds, insurers, banks and investment advisors, will be allowed to place early commitments for the purchase of securities. The early commitment process for sophisticated investors will take place during      business day(s) in Israel. In order to make an early commitment, a sophisticated investor must commit to purchase at least 800,000 NIS of units (if the company is qualified as a Research and Development Company under TASE regulations, at least 400,000 NIS). A sophisticated investor must state the minimum price under which it commits to make the order, and may make up to three different orders, with different prices. The aggregate amount of all early commitments is limited: if the value of securities offered is higher than 25 million NIS and not above 200 million NIS, the aggregate amount of early commitments accepted may not exceed 80% of the amount of securities offered. The “value of securities offered” is determined as the product of the minimum price and the quantity offered.

During the     day period in which we collect bids from sophisticated investors, such investors can withdraw or amend their bids. However, we will stop accepting any amendments to placed bids by sophisticated investors or withdrawals thereof at       p.m., at which point the bids from sophisticated investors will become irrevocable.

The bids from sophisticated investors are non-binding on us unless we complete the offering. If, following the tender to sophisticated investors, we accept a sophisticated investor’s bid, in whole or in part, we have agreed to pay that sophisticated investor an early commitment commission of   %, regardless of whether the early commitment ultimately results in the allocation of units to the sophisticated investor

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following the public offering. In addition, sophisticated investors will be entitled to allocation of more securities than other investors in case of oversubscription to the offer. Holding a tender for sophisticated investors will not oblige us to hold the public tender, or to complete the offering. If we elect to perform a new tender to sophisticated investors, bids made in the initial tender would be canceled and new bids would have to be made.

Based on the results of the tender to sophisticated investors, we may suspend the offering and wait for better market conditions, or elect to continue with the road show and then perform a new tender to sophisticated investors, or to continue to the public tender with or without commitments from sophisticated investors. If we elect to perform a new tender to sophisticated investors, bids made in the initial tender would be canceled and new bids would have to be made.

The price and quantity of the units described in the incomplete prospectus may be changed after the tender to sophisticated investors, and without revising the incomplete prospectus, so long as the maximum aggregate offering price, calculated by multiplying the maximum number of units to be offered by the estimated maximum price, does not change by more than 20% from the maximum aggregate offering price indicated in this prospectus.

The Public Auction Process

Following the tender for sophisticated investors, we will determine the final size, minimum price and estimated pricing range of the offering and publish a supplemental notice to the Israeli prospectus, and in the United States, a free writing prospectus. The maximum aggregate offering price, calculated by multipyling the maximum number of units to be offered by the estimated maximum price, could change by no more than 20% from the maximum aggregate offering price indicated in this prospectus, and will not change once the public auction process is commenced. The supplemental notice and free writing prospectus will contain the following information:

• results of the tender to sophisticated investors, including the names of the sophisticated investors from whom we have accepted orders, and the size of and price of each sophisticated investor’s early commitment that we have accepted;

• any changes to the minimum price for the public tender, based on the results of the tender to sophisticated investors;

• any changes to the anticipated range of offering prices; and

• any changes to the terms of the warrants included as part of the units.

We intend to perform a Uniform Offering, as prescribed under Israel Securities Act and Regulations, in which the offer is directed at all prospective investors (the general public in Israel), and the allocation of securities is made according to the results of the tender. More specifically, Section 17C of the Israeli Securities Act provides that the offer and sale, pursuant to a prospectus, of securities which are listed or intended to be listed for trading on a stock exchange, such as TASE, shall be carried out on equal terms and in an equal manner to all. Offering securities according to this principle is termed a “Uniform Offering.”

The supplemental notice and free writing prospectus described above will define the period for submitting orders. This period shall start no earlier than five TASE trading hours following the publication of the supplemental notice and may end up to 45 days after the publication of the supplemental notice. Orders are submitted by investors to the offering coordinator or to other commercial banks or members of TASE in Israel that are authorized to receive such orders on forms which may be obtained from such authorized entities. Orders received by the authorized entities will be transferred in sealed envelopes to the offering coordinator which will keep them in a sealed box.

Each prospective investor is entitled to place up to three orders at various prices, with a minimum price as described in the supplemental notice and free writing prospectus. Each order shall state the price and amount. Any order lower than the minimum price will be void. The orders are cumulative. There is no maximum sale price. Orders may only be submitted for whole units. In light of the offering structure per the regulations promulgated by the ISA, each TASE member accepting orders and the offering coordinator guarantees the bids submitted in the auction through such TASE member or offering coordinator, as the case

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may be. During the period in which the TASE members collect bids from the potential investors, potential investors can withdraw or amend their bids. However TASE members will stop accepting any amendments to placed bids or withdrawals thereof immediately at the conclusion of the auction period, which will occur at       p.m. Israel time on the day of the auction. At this point, the bids will become irrevocable.

       hour after the close of the bidding process, at       p.m. Israel time on the day of the auction, the offering coordinator, in the presence of our independent accountants, will review all bids to determine the offering price per unit and the number of the units to be issued.

If we are unable to complete an offering of a minimum of      units at a price of at least      per unit, the offering will be cancelled.

Determination of Unit Price

Provided the TASE regulations requiring a minimal dispersion of securities are satisfied, as further described below, the only factor in establishing the offering price will be the highest price at which all securities offered in the prospectus can be sold. If the amount of securities for which orders were placed is smaller then the amount offered in the prospectus, the sale price will be the minimum price stipulated in the supplemental notice and free writing prospectus described above . Purchasers of securities that proposed a price that is higher than the sales price will be allocated the full amount ordered. Purchasers of securities that proposed a price that is equal to the sale price will be allocated securities on a pro-rata basis according to the ratio between the number of securities they offered to purchase and the total orders placed at such price, with a preference with regards to allocation of securities given to sophisticated investors in case of oversubscription. Orders placed for a price that is lower than the sale price will not be accepted. The sale price shall be the same for all, including sophisticated investors whose early commitments were accepted in the sophisticated investor tender. If the price specified in a sophisticated investor’s early commitment is below the sale price, the order will not be accepted and the sophisticated investor will not receive any units as a result of that early commitment. Sophisticated investors will, however, receive the early commitment commission described above, regardless of whether their early commitment is accepted in the public tender, and regardless of whether this offering is completed. Sophisticated investors may also place orders in the public tender, but such orders will not have preferential terms.

TASE regulations require a minimal dispersion of securities in order to ensure market liquidity. In case the required dispersion is not achieved, re-allocation can be stipulated by us according to Israel Securities Regulations and the standards detailed in the Israeli prospectus by setting the sale price lower. In such a case, we would re-allocate according to the following three steps:

(1) Cancel the quantity preference given to sophisticated investors who made early commitments at the sale price.

(2) If step 1 is not sufficient to meet the minimal dispersion requirements, cancel the quantity preference given to sophisticated investors who submitted at a price higher than the sale price.

(3) If step 2 is not sufficient to meet the minimal dispersion requirements, set a lower sale price which is the highest sale price allowing the minimum public holdings required under TASE’s regulations, but in any event not lower than the minimum sale price.

The completion of the offering is conditioned upon satisfying all TASE’s requirements for listing the securities offered, and minimal proceeds in an amount of         NIS (approximately $    ).

Upon completion of the offering, we will pay the distributors the following commissions:   % of gross proceeds plus Israel Value Added Tax, or VAT, as management and distribution commission; and additional % of gross proceeds + VAT in case the offering             , as success commission. Clal, the lead distributor, shall determine according to its discretion and following the approval of the company, how the above commissions shall be distributed among others distributors. In addition, the Offering Coordinator,           , who is responsible for various matters concerning the submission of orders and the offering proceeds, shall be entitled to a commission of       NIS + VAT.

Distributors are not qualified as underwriters under Israel Securities Regulations, and do not assume liability for the disclosure in the prospectus. Distributors, or entities related to distributors, may bid on or

130

purchase our securities, and such bids can be made at the tender for Institutional Investors or at the Public Tender. Bids made by distributors, or related entities, at the tender for sophisticated investors are detailed in the Supplemental Notice to the Israeli Prospectus; purchases made by distributors, or related entities, at the Public Tender, shall be published in the report on the offering’s results.

Acceptance of Bids

We will publish the offering results in a report published in Israel on the day following the public tender, and will, within the required time period, file a final prospectus with the Securities and Exchange Commission in accordance with Rule 430A. On the same day, TASE members will transfer to the Offering Coordinator the consideration due as a result of acceptance of orders by the Company, according to the notices sent by the Offering Coordinator, which will inform the investor the extent to which their bids were accepted one trading day following the public tender. The notices will include the price, the number of units allotted to the investor and the consideration required to be paid. TASE members, which are financial institutions qualified to perform transactions in securities and regulated by the TASE, are responsible for the payment of the consideration owed for orders submitted through them and which were accepted. Proceeds from sophisticated investors that submitted orders in the tender for sophisticated investors are charged by the Offering Coordinator. All funds must be submitted by TASE members and sophisticated investors on the same day that they are advised that their bids have been accepted in the public tender. The proceeds are held by the Offering Coordinator in a trust account for the benefit of investors whose orders have been accepted, and, conditioned on the sale of at least the minimum number of units at the minimum price, as specified in this prospectus (as it may be modified or amended), will be transferred to us by the Offering Coordinator simultaneously with the allocation of the units through the TASE clearing house.

131

LEGAL MATTERS

The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP of Palo Alto, California.

EXPERTS

Kost, Forer Gabbay and Kasierer, a member of Ernst & Young Global, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009, as set forth in their report. We’ve included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Kost, Forer Gabbay and Kasierer’s report, given on their authority as experts in accounting and auditing.

We have engaged the services of an independent valuation firm, Variance Economic Consulting, Ltd., to perform an analysis to determine the fair value of our common stock for accounting purposes on various measurement dates.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information with respect to Quark Pharmaceuticals, Inc. and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549, on official business days between 10:00 a.m. to 3:00 p.m. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

Upon the closing of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.quarkpharma.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained on, or that can be accessed through, our website is not part of this prospectus.

132

QUARK PHARMACEUTICALS, INC.
  
CONSOLIDATED FINANCIAL STATEMENTS
  
U.S. DOLLARS IN THOUSANDS

INDEX

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-3 – F-5
Consolidated Statements of Operations		F-6
Statements of Changes in Stockholders’ Equity (Deficiency)		F-7
Consolidated Statements of Cash Flows		F-8 – F-9
Notes to Consolidated Financial Statements		F-10 – F-42

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Quark Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Quark Pharmaceuticals, Inc. (“the Company”) and its subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity (deficiency) and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries at December 31, 2009 and 2008 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

	/s/ KOST FORER GABBAY & KASIERER
Tel-Aviv, Israel	KOST FORER GABBAY & KASIERER
September 24, 2010	A Member of Ernst & Young Global

Except Notes 1 and 15, as to which the date is December 17, 2010.

F-2

QUARK PHARMACEUTICALS, INC.
  
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands

	September 30, 2010		December 31
			2009		2008
	Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	8,728	$	12,842	$	32,734
Restricted cash		83		83		81
Accounts receivable		941		397		392
Other receivables and prepaid expenses (Note 4)		1,153		722		1,380
Total current assets		10,905		14,044		34,587
LONG-TERM LEASE DEPOSIT AND RESTRICTED BANK DEPOSIT		318		306		299
LONG-TERM DEFERRED TAX ASSETS		—		35		5
LOAN TO RELATED PARTY (Note 5)		—		156		155
SEVERANCE PAY FUND		664		631		645
PROPERTY AND EQUIPMENT, NET (Note 6)		486		518		683
Total assets	$	12,373	$	15,690	$	36,374

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

F-3

QUARK PHARMACEUTICALS, INC.
  
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)

	Pro forma stockholders’ equity as of September 30, 2010		September 30, 2010		December 31,
					2009		2008
	Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Trade payables			$	2,386	$	1,547	$	1,163
Accrued research and development fees				898		915		1,783
Other payables and accrued expenses (Note 7)				2,464		1,404		1,638
Income tax payable and reserves (Note 9)				644		1,305		2,575
Deferred revenues				1,479		81		16
Total current liabilities				7,871		5,252		7,175
ACCRUED SEVERANCE PAY				592		570		623
LONG-TERM DEFERRED TAX LIABILITIES				13		—		—
WARRANTS TO SERIES H REDEEMABLE CONVERTIBLE PREFERRED STOCK (Note 10b)				900		—		—
COMMITMENTS AND CONTINGENT LIABILITIES (Note 8)
REDEEMABLE PREFERRED STOCK (Note 10):
Series H Redeemable Convertible Preferred stock of $0.001 par value – Authorized: 5,400,000, 5,400,000 and 7,700,000 (unaudited) shares at December 31, 2008, 2009 and September 30, 2010, respectively; Issued and outstanding: 5,400,000, 5,400,000 and 7,400,000 (unaudited) shares at December 31, 2008, 2009 and September 30, 2010, respectively; Aggregate liquidation preference of $32,400 and $44,400 (unaudited) at December 31, 2009 and September 30, 2010, respectively. None issued and outstanding (pro forma) at September 30, 2010 (unaudited)	$	—		37,000		27,000		27,000
STOCKHOLDERS’ EQUITY (DEFICIENCY):
Stock capital (Note 11) –
Common stock of $0.001 par value – Authorized: 72,500,000, 74,800,000 and 74,800,000 (unaudited) shares at December 31, 2008 and 2009 and at September 30, 2010; Issued and outstanding: 3,387,330 and 3,388,530 (unaudited) shares at December 31, 2008, 2009 and September 30, 2010, respectively. 21,084,630 shares issued and outstanding (pro forma) at September 30, 2010 (unaudited)		21		3		3		3

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

F-4

	Pro forma stockholders’ equity as of September 30, 2010			September 30, 2010			December 31,
							2009			2008
	Unaudited
Series A – G Convertible Preferred stock of $0.001 par value – Authorized: 25,882,410 shares at December 31, 2008, 2009 and September 30, 2010; Issued and outstanding: 25,879,611 shares at December 31, 2008, 2009 and September 30, 2010; Aggregate liquidation preference of $86,443 at December 31, 2008, 2009 and September 30, 2010. None issued and outstanding (pro forma) at September 30, 2010 (unaudited)		—			26			26			26
Additional paid-in capital		114,271			77,263			75,480			74,547
Accumulated deficit		(111,295	)		(111,295	)		(92,641	)		(73,000	)
Total stockholders’ equity (deficiency)	$	2,997			(34,003	)		(17,132	)		1,576
Total liabilities and stockholders’ equity (deficiency)				$	12,373		$	15,690		$	36,374

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

F-5

QUARK PHARMACEUTICALS, INC.
  
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)

	Nine month ended September 30						Year ended December 31
	2010			2009			2009			2008			2007
	Unaudited
Revenues (Note 14)	$	2,810		$	2,065		$	2,655		$	17,276		$	27,878
Cost of development services		869			1,339			1,712			1,719			—
Gross profit		1,941			726			943			15,557			27,878
Operating costs and expenses:
Research and development		13,659			13,024			15,744			18,726			20,774
General and administrative		4,820			3,823			5,087			5,018			7,055
Total operating costs and expenses		18,479			16,847			20,831			23,744			27,829
Operating income (loss)		(16,538	)		(16,121	)		(19,888	)		(8,187	)		49
Financial income (expenses), net (Note 12)		(538	)		61			87			722			940
Income (loss) before income taxes		(17,076	)		(16,060	)		(19,801	)		(7,465	)		989
Income taxes (Note 9)		(210	)		62			160			(1,667	)		—
Net income (loss)		(17,286	)		(15,998	)		(19,641	)		(9,132	)		989
Changes of redemption value of series F and H Preferred stock		(1,368	)		—			—			—			(336	)
Deemed dividend as a result of warrants modification (Note 11b)		—			—			—			—			(117	)
Income attributable to Preferred stockholders		—			—			—			—			536
Net loss to Common stockholders	$	(18,654	)	$	(15,998	)	$	(19,641	)	$	(9,132	)	$	—
Basic and diluted net loss per share of Common stock (Note 13)	$	(5.51	)	$	(4.72	)	$	(5.80	)	$	(2.76	)	$	—
Weighted average number of shares used in computing basic and diluted net loss per share		3,388,530			3,387,988			3,388,119			3,307,871			2,970,351
Pro forma net loss per share of Common stock	$	(0.86	)				$	(1.03	)
Weighted average number of shares used in computing basic net loss per share – pro forma (unaudited)		20,092,037						19,084,219

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

F-6

QUARK PHARMACEUTICALS, INC.
  
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
U.S. dollars in thousands (except share data)

	Common stock				Convertible Preferred stock				Additional paid-in capital		Accumulated deficit			Total stockholders’ equity
	Stock		Amount		Stock		Amount
Balance at January 1, 2007		2,628,784	$	3		24,735,847	$	25	$	69,786	$	(64,404	)	$	5,410
Reclassification of series F Preferred stock		—		—		1,143,764		1		571		—			572
Stock-based compensation to employees		—		—		—		—		479		—			479
Compensation related to options to non-employees		—		—		—		—		2		—			2
Exercise of options		28,791		*)		—		—		25		—			25
Exercise of warrants		542,606		*)		—		—		2,250		—			2,250
Changes in the redemption value of series F Preferred stock		—		—		—		—		—		(336	)		(336	)
Deemed dividend as a result of warrants modification		—		—		—		—		117		(117	)		—
Net income		—		—		—		—		—		989			989
Balance at December 31, 2007		3,200,181		3		25,879,611		26		73,230		(63,868	)		9,391
Stock-based compensation to employees		—		—		—		—		693		—			693
Compensation related to options to non-employees		—		—		—		—		14		—			14
Exercise of options		42,467		*)		—		—		10		—			10
Exercise of warrants		144,682		*)		—		—		600		—			600
Net loss		—		—		—		—		—		(9,132	)		(9,132	)
Balance at December 31, 2008		3,387,330		3		25,879,611		26		74,547		(73,000	)		1,576
Stock-based compensation to employees		—		—		—		—		932		—			932
Exercise of options and warrants		1,200		*)		—		—		1		—			1
Net loss		—		—		—		—		—		(19,641	)		(19,641	)
Balance at December 31, 2009		3,388,530		3		25,879,611		26		75,480		(92,641	)		(17,132	)
Stock-based compensation to employees		—		—		—		—		745		—			745
Compensation related to options to non-employees		—		—		—		—		5		—			5
Fair value of deferral of March 2008 series H Convertible Preferred stock date in the redemption value of series H Preferred stock		—		—		—		—		1,033		—			1,033
Changes in the redemption value of series H Preferred stock		—		—		—		—		—		(1,368	)		(1,368	)
Net loss		—		—		—		—		—		(17,286	)		(17,286	)
Balance at September 30, 2010 (unaudited)		3,388,530	$	3		25,879,611	$	26	$	77,263	$	(111,295	)	$	(34,003	)

*) Represents an amount lower than $1.

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

F-7

QUARK PHARMACEUTICALS, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

	Nine month ended September 30						Year ended December 31
	2010			2009			2009			2008			2007
	Unaudited
Cash flows from operating activities:
Net income (loss)	$	(17,286	)	$	(15,998	)	$	(19,641	)	$	(9,132	)	$	989
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		136			182			233			330			485
Stock-based compensation		750			706			932			707			481
Forgiveness of loan to a related party		150			—			—			—			564
Decrease (increase) in accounts receivable		(544	)		(18	)		(5	)		1,125			(870	)
Decrease (increase) in other receivables and prepaid expenses		(483	)		65			(59	)		390			(553	)
Change in deferred taxes, net		100			(105	)		687			(909	)		—
Increase (decrease) in trade payables		839			493			384			(769	)		(223	)
Increase (decrease) in accrued research and development fees		(17	)		(135	)		(868	)		301			(206	)
Increase (decrease) in other payables and accrued expenses		1,060			(41	)		(234	)		(557	)		769
Increase (decrease) in tax payables		(661	)		(167	)		(1,342	)		2,575			—
Change in fair value of warrants to Redeemable Preferred stock classified as liability		565			—			—			—			—
Increase (decrease) in deferred revenues		1,398			(4	)		65			(682	)		(10,979	)
Gain on sale of property and equipment		(16	)		(9	)		(9	)		(47	)		(5	)
Severance pay, net		(11	)		(24	)		(39	)		(26	)		3
Increase (decrease) in accrued interest on loan to a related party and others		(6	)		2			73			(19	)		(33	)
Net cash used in operating activities		(14,026	)		(15,053	)		(19,823	)		(6,713	)		(9,578	)
Cash flows from investing activities:
Purchase of property and equipment		(105	)		(54	)		(70	)		(293	)		(199	)
Investment in restricted cash		—			(2	)		—			(1	)		(80	)
Investment in restricted bank deposit								—			—			(55	)
Proceeds from sale of property and equipment		17			11			11			58			12
Decrease (increase) of long-term lease deposit		—			(11	)		(11	)		(11	)		17
Loan to related party		—			—			—			(150	)		—
Net cash used in investing activities		(88	)		(56	)		(70	)		(397	)		(305	)

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

F-8

QUARK PHARMACEUTICALS, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

	Nine month ended September 30						Year ended December 31
	2010			2009			2009			2008		2007
	Unaudited
Cash flows from financing activities:
Proceeds from issuance of series H Redeemable Convertible Preferred stock and warrants		10,000			—			—			27,000		—
Exercise of warrants		—			—			—			600		2,250
Exercise of options		—			1			1			10		25
Net cash provided by financing activities		10,000			1			1			27,610		2,275
Increase (decrease) in cash and cash equivalents		(4,114	)		(15,108	)		(19,892	)		20,500		(7,608	)
Cash and cash equivalents at the beginning of the period		12,842			32,734			32,734			12,234		19,842
Cash and cash equivalents at the end of the period	$	8,728		$	17,626		$	12,842		$	32,734	$	12,234
Supplemental information on financing activities not involving cash flow:
Deemed dividend as a result of warrants modification	$	—		$	—		$	—		$	—	$	(117	)
Supplemental cash flow activities:
Cash paid during the period for:
Income taxes	$	525		$	264		$	404		$	10	$	16

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

F-9

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 1:- GENERAL

a. Quark Pharmaceuticals, Inc. (formerly: Quark Biotech, Inc.) (“the Company”) was incorporated in the State of California in December 1993.

The Company is a clinical-stage biopharmaceutical company focused on discovering and developing novel therapeutics, based on pioneering gene discovery science and technology, with an initial focus on RNA interference-based therapeutics for the treatment of diseases associated with oxidative stress. The Company’s product candidate portfolio is based on novel targets and therapeutic concepts discovered using its proprietary target gene discovery platform.

Q.B.I. Enterprises Ltd. (“Ltd.”), a wholly-owned subsidiary, is engaged in research and development. Quark Metabolix Inc. (“QMI”), owned 80% by the Company, is inactive since September 2004.

For major licenses, collaboration agreements and customers, see Notes 3 and 14.

b. The Company and its subsidiary are devoting substantially all of their efforts toward research and development activities. In the course of such activities, the Company has sustained operating losses and expects such losses to continue in the foreseeable future. The Company’s accumulated deficit as of September 30, 2010 is $111,295 (unaudited). The Company will have to obtain additional capital resources to maintain its research and development activities beyond 2011.

The Company is addressing its liquidity issues by implementing initiatives to allow the coverage of budget deficit. Such initiatives include equity financing and costs reduction. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing needed for the long-term development and commercialization of its products.

In March 2008 and May 2010, the Company raised from new and existing investors approximately $27,000 and $10,000, respectively, in consideration of series H Redeemable Preferred stock and warrants to series H Redeemable Preferred stock. On October 2010 the warrants to series H Redeemable Preferred stock were exercised in consideration of $1,500 (see Notes 15). The series H Redeemable Preferred stock are redeemable at any time after August 31, 2011. The redemption right will terminate upon the conversion of all of the series H Redeemable Preferred stock or upon the closing of a qualified Initial Public Offering (“IPO”) as defined in the Company’s articles of incorporation (see Note 10). In November 25, 2010, the Company received from the majority of its Redeemable Preferred stockholders a commitment not to exercise the redemption rights before January 31, 2012. Consequently, according to the Company’s articles of incorporations as further described in Note 10, the holders of the series H Redeemable Preferred stock will not be able to redeem their shares before that date.

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

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

In June 2009, the FASB issued FAS 168, “The FASB Accounting Standards Codifications and Hierarchy of GAAP — a Replacement of SFAS 162” (as codified in ASC 105, “Generally Accepted Accounting Principles”). FAS 168 amended the hierarchy of generally accepted accounting principles. Subsequent to its adoption in September 2009, the FASB Accounting Standards Codification^TM (“Codification” or “ASC”) became the single source of authoritative U.S. GAAP. The Codification did not create any new GAAP standards but incorporated existing accounting and reporting standards into a new topical structure with a new referencing system to identify authoritative accounting standards, replacing the prior references to Statement of Financial Accounting Standards (SFAS), Emerging Issues Task Force (EITF), FASB Staff Position (FSP), etc. Authoritative GAAP included in the Codification is designated by topical index, and new accounting updates will be designated as Accounting Standards Updates (ASU), with a year and assigned sequence number. References to prior standards have been updated to reflect the new referencing system.

F-10

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

a. Unaudited information:

The consolidated balance sheet as of September 30, 2010 and the related consolidated statements of operations and cash flows for the nine months ended September 30, 2009 and 2010, and the statement of changes in stockholders’ equity (deficiency) for the nine months ended September 30, 2010 are unaudited. This unaudited information has been prepared by the Company on the same basis as the audited annual consolidated financial statements and, in management’s opinion, reflects all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information, in accordance with generally accepted accounting principles, for interim financial reporting for the periods presented and, accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for audited financial statements. Results for interim periods are not necessarily indicative of the results to be expected for the entire year.

b. Use of estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions are employed in estimates used in contingencies, deferred taxes, tax liabilities, stock-based compensation costs, marked to market liability warrants, as well as in estimates used in applying the revenue recognition policy. Actual results could differ from those estimates.

c. Financial statements in U.S. dollars:

The accompanying financial statements have been prepared in U.S. dollars, the functional and reporting currency of the Company.

Ltd. conducts the majority of its operations in Israel. However, most of Ltd.’s revenues are in the U.S. dollar and the Company’s management believes that the dollar is the currency of the primary economic environment in which Ltd. operates. Thus, the functional and reporting currency of Ltd. is the U.S. dollar.

Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Accounting Standards Codification No. 830-10, “Foreign Currency Matters”. All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.

d. Principles of consolidation:

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

e. Cash equivalents:

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash with an original maturity of three months or less when purchased.

f. Restricted cash:

Restricted cash is an interest bearing saving account which is used as security for the Company’s short-term credit.

g. Property and equipment:

F-11

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

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

	%
Machinery and equipment		15 – 33
Office furniture and equipment		6 – 33
Motor vehicles		15
Leasehold improvements		Over the shorter of the term of the lease or its useful life

h. Impairment of long-lived assets:

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360-10, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During 2007, 2008 and 2009 and September 30, 2010 (unaudited), no impairment losses have been identified.

As required by ASC 820, “Fair Value Measurements”, the Company applies assumptions that marketplace participants would consider in determining the fair value of long-lived assets (or assets group).

i. Long-term lease deposits and restricted bank deposit:

Long-term lease deposits and restricted bank deposit includes long-term deposits for offices rent.

j. Revenue recognition:

The Company generates revenues mainly from periodic fees for research services under its collaborations with pharmaceutical companies, from research and developments cost reimbursements, upfront and milestone payments under other collaboration agreements and to a lesser extent from certain short-term research service agreements and grants received.

The Company’s revenue recognition policies are in accordance with the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”) and Accounting Standards Codification No. 605-25, “Revenue Arrangements with Multiple Deliverables” (“ASC 605-25”) and Accounting Standards Codification No. 605-45, “Reporting Revenue Gross Versus Net as an Agent” (“ASC 605-45”).

License agreement with Pfizer Inc. (“Pfizer”):

This multiple element arrangement was analyzed to determine whether the deliverables, which include a license and performance obligations such as research and steering committee services, can be separated or whether they must be accounted for as a single unit of accounting in accordance with ASC 605-25. According to ASC 605-25 the Company considered if (i) the license has stand-alone value and (ii) whether a fair value of any of the undelivered performance obligations can be determined. Because the Company can not reliably estimate the fair value of the undelivered performance obligations (due to lack of historical experience with providing similar services), the arrangement is being accounted for as a single unit of accounting and the upfront payments are recognized as revenue over the estimated period

F-12

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

to complete the performance obligations. In addition, revenues are recognized only when the Company has a contractual right to receive payments, the contract price is fixed or determinable, and the collection of the resulting receivable is reasonably assured.

Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, it must determine the period over which the performance obligations will be performed and revenue will be recognized.

As the Company can reasonably estimate when the performance obligations are completed or become inconsequential and the performance obligations are provided on a best-efforts basis, the total payments under the arrangement, excluding royalties and payments contingent upon achievement of substantive milestones, are recognized as revenue on a straight-line basis over the period the Company expects to complete its performance obligations.

Significant management judgment is required in determining the period over which the Company is expected to complete its performance obligations under the arrangement. In addition, as the Company is involved in joint steering and research committees as part of this multiple element arrangement that is accounted for as a single unit of accounting. The Company assesses whether its involvement in the aforementioned committees constitutes a performance obligation or a participation right. Because Pfizer has acknowledged that the Company can be released from its joint steering and research committees at anytime upon request and without penalty, such services are considered inconsequential or perfunctory and are not considered to be performance obligations.

This collaboration agreement also contains milestone payments. During the period in which the Company has research performance obligations, milestone payments are considered to be substantive. Substantive milestone payments are considered to be performance bonuses that are recognized upon achievement of the milestone only when all of the following conditions are met:

• the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement to the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone.

• The consideration relates solely to past performance.

• The consideration is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

Reimbursement of costs is recognized as revenue on a gross basis as costs are incurred in accordance with the provisions of ASC 605-45-45-23, when the amounts are determinable, and collection of the related receivable is reasonably assured.

Development services to Pfizer:

In 2008, the Company started to generate revenue from providing professional services and assistance to Pfizer on a time-and-materials basis (see also Note 3a). Under this contract, the Company is reimbursed for labor costs at negotiated monthly billing rates per employee as well as being reimbursed for costs paid by the Company to third parties in performing the service. This service contract is not in the scope of ASC 605-35 and, accordingly, revenue is recognized as services are performed, provided that evidence of an arrangement has been obtained, fees are fixed and determinable and collectability is reasonably assured.

For more details about the collaboration with Pfizer, see Note 3a.

F-13

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Other short-term service agreements:

Under certain short-term fixed-price service contracts, the Company agrees to perform limited research services using its technology and research platforms for a fixed price. Under these agreements, revenue is deferred until the Company completes its milestone performance obligations.

Deferred revenue:

Deferred revenue is recognized for payments received in advance of the culmination of the earnings process. Deferred revenue is expected to be recognized within the next twelve months.

Cost of revenue:

Cost of revenues includes direct and allocated expenses that are associated with the clinical development-related services to third parties. All such costs are expensed as incurred.

k. Research and development costs:

Research and development costs, including direct and allocated expenses, consist of independent research and development costs, royalties and license fees to third parties and costs associated with collaborative research and development arrangements. All such costs are expensed as incurred.

l. Accounting for stock-based compensation:

1. The Company accounts for stock-based compensation in accordance with ASC 718-10, “Compensation — Stock Compensation”. ASC 718-10 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations.

The Company recognizes compensation costs net of a forfeiture rate only for those shares expected to vest, on straight-line basis over the requisite service period of the award, which is generally four years. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company selected the Black-Scholes option-pricing model as the most appropriate fair value method for its stock-option awards. The option-pricing model requires a number of assumptions, of which the most significant are the expected stock price, volatility and the expected option term.

The computation of expected volatility is based on actual historical stock price volatility of comparative companies. Expected life of options granted is calculated using the simplified method, as defined in SAB 107 and reaffirmed in SAB 110, “Share-Based Payments”, as the average between the vesting period and the contractual life of the options. The Company currently uses the simplified method as adequate historical experience is not available to provide a reasonable estimate. The risk-free interest rate is based on the U.S. Treasury yield curve with an equivalent term to the expected life of the options, in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore, use an expected dividend yield of zero in the option pricing model.

2. The Company applies ASC 718-10 and ASC 505-50, “Equity-Based Payments to Non-Employees”, with respect to options and warrants issued to non-employees. ASC 718-10 and ASC 505-50, require the use of option valuation models to measure the fair value of the options and warrants at the measurement date.

F-14

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

m. Fair value of financial instruments:

The following methods and assumptions were used by the Company in estimating their fair value disclosures for financial instruments:

The carrying amounts of cash and cash equivalents, other receivables, trade payables and other payables approximate their fair value due to the short-term maturity of such instruments.

The Company adopted the provision of ASC 820, “Fair Value Measurements and Disclosures” on January 1, 2008. ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1 —  quoted prices in active markets for identical assets or liabilities;

Level 2 —  inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3 —  unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The changes in Level 3 liabilities measured at fair value on a recurring basis are summarized as follows:

	Fair value of warrants
Balance at December 31, 2009	$	—
Fair value of warrants at issuance date		335
Net change in fair value of warrants		565
Balance at September 30, 2010 (unaudited)	$	900

n. Basic and diluted net earning (loss) per share:

The Company applies the two class method as required by ASC 260-10, “Earnings Per Share”. ASC 260-10 requires the income or loss per share for each class of shares (Common and Preferred stock) to be calculated assuming 100% of the Company’s earnings are distributed as dividends to each class of shares based on their contractual rights.

According to the provisions of ASC 260-10, the Company’s series of Preferred stock and warrants for Preferred stock are not participating securities in losses and, therefore, are not included in the computation of net earning (loss) per share.

F-15

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

Basic and diluted net income or loss per share, are computed based on the weighted average number of shares of Common stock outstanding during each year. Diluted net income or loss per share is computed based on the weighted average number of shares of Common stock outstanding during the period, plus dilutive potential shares considered outstanding during the period, in accordance with ASC 260-10.

For the years ended December 31, 2007, 2008 and 2009 and for the nine months ended September 30, 2010 (unaudited), all outstanding Convertible Preferred stock, options and warrants have been excluded from the calculation of the diluted loss per share since their effect was anti-dilutive.

Basic and diluted pro forma net income or loss per share (unaudited), as presented in the statements of operations, have been calculated as described above and also give effect to the automatic conversion of all series of Preferred stock, that will occur upon closing of the Initial Public Offering (“IPO”).

The following table presents the calculation of pro forma basic and diluted net income or loss per share:

1. Numerator:

	Nine months ended September 30 2010			Year ended December 31 2009
	Unaudited
Net loss to Common stock as reported	$	(18,654	)	$	(19,641	)
Reversal of changes of redemption value of series H Preferred stock		1,368			—
Net loss available to Common stock – pro forma	$	(17,286	)	$	(19,641	)

2. Denominator:

a) Basic:

	Nine months ended September 30 2010		Year ended December 31 2009
	Unaudited
	Number of shares
Weighted average number of shares of Common stock		3,388,530		3,388,119
Effect of weighted average potential shares of Common stock assumed from conversion of Preferred stock		16,703,507		15,696,100
Denominator for pro forma basic net loss per share of Common stock		20,092,037		19,084,219

b) Diluted:

Weighted average number of shares of Common stock for basic loss per share		20,092,037		19,084,219
Denominator for pro forma diluted net loss per share of Common stock		20,092,037		19,084,219

F-16

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

o. Derivatives instruments:

ASC 480-10, “Distinguishing Liabilities from Equity” requires warrants convertible to redeemable shares to be classified as liability even though the underlying shares may be classified as equity (or temporary equity) under other accounting guidance. As a result of ASC 480-10, the Company’s warrants convertible to series H Redeemable Preferred stock were classified as liability and marked to fair value at each reporting date.

p. Unaudited pro forma stockholders’ equity:

The Company’s Board has authorized the filing of a Registration Statement with the U.S. Securities and Exchange Commission and with the Israeli Securities Authority to register the Company’s Common stock. Upon the closing of the IPO, all of the authorized, issued, and outstanding Preferred stock will be automatically converted into shares of Common stock. Unaudited pro forma stockholders’ equity as of September 30, 2010, as adjusted for the assumed conversion of such shares is disclosed in the balance sheet.

The pro forma stockholders’ equity as of September 30, 2010 does not reflect the conversion of the outstanding warrants to series H Convertible Preferred stock into Common stock upon the closing of the Company’s IPO, since there is no assurance that the warrants will be exercised.

q. Income taxes:

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes”. ASC 740-10 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value. For the impact of the adoption of an amendment to ASC 740-10, see Note 9h.

Effective January 1, 2007, the Company adopted an amendment to ASC 740, “Accounting for Uncertainty in Income Taxes” (formerly issued as “FIN 48”). The amendment clarifies the accounting for uncertainty in income taxes by prescribing a minimum recognition threshold for a tax position taken or expected to be taken in a tax return that is required to be met before being recognized in the financial statements. ASC 740 also provides guidance on measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The adoption of the amended ASC 740 on January 1, 2007, had no impact on the Company’s financial statements and no adjustments of accruals for tax contingencies were recorded.

r. Concentration of credit risks:

Financial instruments that potentially subject the Company and its subsidiary to concentration of credit risk consist principally of cash and cash equivalents.

Cash and cash equivalents are deposited in major banks or financial institutions in the U.S. and Israel. Such deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

F-17

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

s. Retirement plans and severance pay:

The Company sponsors a 401(k) retirement savings plan covering all of the U.S. employees. Each eligible employee may contribute a portion of its eligible compensation to the plan. The Company will match this contribution up to an amount of 4% of an employee’s eligible compensation.

The Company’s contributions to the plan were approximately $57, $97 and $120 for the years ended December 31, 2007, 2008 and 2009, respectively. As of September 30, 2010, the Company’s contributions to the plan were approximately $105 (unaudited).

The liability of the Company’s Israeli subsidiary for severance pay which are not under section 14 is calculated pursuant to Israel’s Severance Pay Law, based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees of the subsidiary are entitled to one month’s salary for each year of employment or a portion thereof.

The subsidiary’s liability for all of its employees is fully provided by monthly deposits with severance pay funds and insurance policies and by an accrual. The value of these policies is recorded as an asset in the Company’s consolidated balance sheets.

The deposited funds may be withdrawn only upon the fulfillment of the provisions of Israel’s Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies and includes immaterial interest income.

As of September 30, 2010, most of the subsidiary’s employees, arrangements are under section 14 to the Israeli Severance Pay Law, 1963, pursuant to which the severance pay liability is fully covered by the deposits with the severance pay funds. Regarding employees that have signed section 14, related obligation and amounts deposited on behalf of such obligation are not stated on the balance sheet as they are legally released from obligation to such employees once the deposited amounts have been paid.

Severance pay expenses for the years ended December 31, 2007, 2008 and 2009 amounted to $225, $269 and $292, respectively. For the nine months ended September 30, 2010, severance pay expenses amounted to $215 (unaudited).

t. Research and development expenses, net:

Research and development expenses are charged to the statement of operations as incurred.

Royalty and non-royalty bearing grants from the Office of the Chief Scientist of the Israel Ministry of Industry, Trade &Labor (“OCS”), the Bi-national Industrial Research and Development Foundation (“BIRD”), are recognized at the time the Company is entitled to such grants, on the basis of the research and development expenses incurred. Such grants are presented as a reduction from research and development expenses.

u. Recently issued accounting pronouncements:

In October 2009, the FASB issued an update to ASC Topic 605-25, “Revenue recognition-Multiple-Element Arrangements”, that provides amendments to the criteria for separating consideration in multiple-deliverable arrangements: (i) establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis; (ii) eliminating the residual method of allocation — requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method,

F-18

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES  – (continued)

which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price and (iii) requiring expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance. The mandatory adoption is on January 1, 2011. The Company may elect to adopt the provisions prospectively to new or materially modified arrangements beginning on the effective date or retrospectively for all periods presented. The provision of the standard state that if the Company will adopt the standard in 2010, it will have to retroactively adjust prior interim financial statements in 2010. The Company is currently assessing the early adoption provisions in the standard. The Company does not expect the adoption to have material impact on its historical consolidated financial statements.

In March 2010, the FASB issued an additional update to ASC 605 (ASU 2010-17, “Revenue Recognition-Milestone Method”), which provides guidance related to revenue recognition that applies to arrangements with milestones relating to research or development deliverables. ASU 2010-17 provides criteria that must be met to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. ASU 2010-17 is effective for interim and annual periods beginning on or after June 15, 2010. Early adoption is permitted. The Company adopted ASU 2010-17 on August 1, 2010. The adoption of ASU 2010-17 did not have any material impact on the Company’s financial position, results of operations or cash flows.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. ASU 2010-20 is an update of Accounting ASC 310, “Receivables”. This update requires enhanced disclosures on a disaggregated basis about:

• The nature of the credit risk inherent in the portfolio of financing receivables;

• How that risk is analyzed and assessed in arriving at the allowance for credit losses;

• The changes and reasons for those changes in the allowance for credit losses.

The disclosures required under ASU 2010-20 as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. Disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company is currently evaluating the impact of ASU 2010-20 on the consolidated financial statements.

NOTE 3:- MAJOR RESEARCH AND DEVELOPMENT COLLABORATIONS

a. In September 2006, the Company entered into a license agreement with Pfizer Inc. (“Pfizer”) whereby it licensed Pfizer, under its specific patent rights and technologies, the exclusive worldwide rights to develop and commercialize the RNAi technology based molecules derived from and inhibiting its proprietary target gene RTP801 for ophthalmic indications and non-ophthalmic indications.

Pursuant to the agreement, Pfizer is responsible for all preclinical and clinical development costs of the licensed products, as well as all regulatory filings and approvals. The parties will share oversight of development through product-specific committees, but ultimately Pfizer has decision-making authority. According to the agreement, during a transition period the Company is continuing to conduct preclinical and clinical development of certain product candidates for ophthalmic and non-ophthalmic indications, with funding by Pfizer.

Pfizer will be responsible for manufacturing all product candidates for preclinical and clinical development and for commercial supply. Pfizer is also responsible for commercializing all product candidates licensed under the agreement, but has agreed to appoint the Company as exclusive distributor in Israel of products developed under the agreement.

F-19

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 3:- MAJOR RESEARCH AND DEVELOPMENT COLLABORATIONS  – (continued)

In connection with the agreement, Pfizer paid the Company during 2006 approximately $14,860 in upfront fees and reimbursement of on-going research and development expenses that were incurred after effectiveness of the agreement. As described in Note 2, the Company recognized revenue from upfront fees on a straight-line basis over the period the Company expects to complete its performance obligations, which was the transition period. The transition period, under the original agreement, ended on January 25, 2008.

In 2007, the Company recognized revenues of $10,300 from a milestone payment that is related to the start of Phase I study for the first licensed product for the first ophthalmic use, in addition, the Company recognized $6,376 of revenues related to reimbursement of on-going research and development expenses and $11,162 related to the amortization of the upfront payment that is being deferred.

During the year ended December 31, 2008, the Company recognized revenues of $12,900 from a milestone payment that was received as a result of the second development milestone achievement in the clinical program for its siRNA drug RTP801i-14 in development for the treatment of ocular diseases. In accordance with the Company’s arrangements with Silence Therapeutics (formerly: Atugen AG) and Alnylam (refer to Note 8), the milestone payment received triggered payments of a total of $2,285 (recorded in research and development expenses).

In 2008, as part of the initiation, by the Company’s partner, Pfizer, of patient dosing in a Phase II clinical trial evaluating RTP801i-14 in patients with diabetic macular edema (DME), the Company and Pfizer have amended the License Agreement from September 2006, to clarify certain responsibilities of the Company in connection with the current Phase I/IIa and subsequent Phase II clinical studies commenced by Pfizer. In accordance with the Amendment, the Company will provide Pfizer with various clinical development-related services and assistance in connection with the following Pfizer-sponsored clinical trials for RTP801i-14: (i) Phase I stratum I; (ii) Phase I stratum II; (iii) Phase II DME; (iv) Phase II AMD and (v) any other Phase II clinical trials that may be conducted in Israel and in the U.S. Under this amendment, the Company is reimbursed for labor costs at negotiated monthly billing rates per employee as well as being reimbursed for costs paid by the Company to third parties in performing the service.

Pfizer may terminate the agreement without cause at any time upon prior written notice. If not terminated, the agreement will remain in effect in each country at least until the later of expiration of all relevant patents or ten years from the first commercial sale of the licensed product in such country.

In addition to the above mentioned milestone payment, the Company recognized during 2008, revenues of $3,617 related to reimbursement of on-going research and development expenses and $698 related to the amortization of the upfront payment.

During the year ended December 31, 2009, the Company recognized revenue of $2,596 from development services.

During the nine months ended September 30, 2010, the Company recognized revenue of $1,371 (unaudited) from development services.

b. On October 14, 2009, the Company entered into a collaboration agreement with Nitto Denko Corporation (“Nitto Denko”), a Japanese company. The Company generated a total of $260 revenue from this 2009 agreement. During 2009, $65 was record as deferred revenue. The entire $260 was recognized as revenue during the nine months ended September 30, 2010. In July 2010, the Company entered into a new collaboration agreement with Nitto Denko. According to the agreement the Company will use its siRNA technologies and intellectual property to generate, test and bring to an IND in the U.S. a drug candidate based on a Nitto Denko therapeutic concept for the treatment fibrotic disease. Nitto Denko will collaborate with the Company in developing the appropriate delivery method, potentially contributing

F-20

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 3:- MAJOR RESEARCH AND DEVELOPMENT COLLABORATIONS  – (continued)

their delivery technology. On July 29, 2010 the Company received research and development funding of $2,200 from the above mentioned agreement with Nitto Denko.

During the nine months ended September 30, 2010, the Company recognized revenue of $991 (unaudited) from both of the collaboration agreements with Nitto Denko. As of September 30, 2010, $1,469 was record as deferred revenue.

c. In August 2010, the Company signed an Option Agreement with Novartis International Pharmaceuticals Ltd. (“Novartis”) granting to Novartis an option to obtain an exclusive worldwide license to develop and commercialize QPI-1002 for the prevention of acute kidney injury (known also as acute renal failure) and for treatment of delayed graft function in kidney transplant patients. In October, 2010, the Company received initially a non-refundable $10 million option fee. In the event that Novartis exercises the option following certain obligations to be completed by the Company, the Company would receive option exercise fees and payments upon the achievement of successful development, regulatory and commercial milestones as well as royalties on sales of the licensed products.

The Company recognize revenue from the $10 million non-refundable up-front option payment on a straight-line basis over the estimated term of performance under the agreement, which is the completion of Phase II for the two therapeutic indications that are mentioned in the agreement. Since August 2010, the option under the agreement, is in effect and the Company has started performing the development services. During the nine months ended September 30, 2010, the Company recognized revenue of $420 (unaudited) related to this arrangement.

Since the performance period is not specifically stated in the agreement, the Company estimates the performance period based upon provisions contained within the agreement and previous experience of achieving similar milestones. The Company will periodically review the expected performance period under the agreement and will adjust the amortization periods when appropriate to reflect changes in assumptions relating to the duration of expected performance period.

Silence advised the Company that it believed the option agreement with Novartis should be treated as a sublicense, which triggers a payment obligation to Silence. The Company disputed Silence’s interpretation of the agreement. However, following negotiations, subsequent to the balance sheet date, the parties have agreed in principle on a sharing ratio for the upfront payment and subsequent payments the Company may receive (refer to note 8).

Upon receipt of advance payment in October 2010 the Company will record the unrecognized portion as deferred revenue.

NOTE 4:- OTHER RECEIVABLES AND PREPAID EXPENSES

	September 30, 2010		December 31
			2009		2008
	Unaudited
Prepaid expenses	$	671	$	337	$	360
Government authorities		309		170		37
Deferred tax assets		135		187		904
Employees		22		18		21
Others		16		10		58
	$	1,153	$	722	$	1,380

F-21

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 5:- RELATED PARTIES

a. In 1997, the Company granted a loan to its CEO. As of January 1, 2007, the balance of the loan was $560. According to the previous terms of the loan, the entire amount of principal plus any accrued interest shall be forgiven in certain events as described in the agreement, including: (i) an IPO of the Company’s Common stock with aggregate proceeds of at least $75,000; (ii) if the Company will enter into significant collaboration agreement with a major U.S. or European based pharmaceutical company, as defined in the agreement; (iii) the CEO’s death during the term of the loan, or (iv) the CEO becomes “permanently disabled” during the term of the loan.

The annual interest rate was 4.38%. The principal amount increased to include all accrued and unpaid interest at the date of the amendment. The maturity date of the loan was January 2007, however, in November 2006, the Company’s Board decided to amend the second criterion for forgiveness of the loan to say that 50% of the loan principal and the accrued interest will be waived effective upon and subject to the actual cash receipt by the Company of the Pfizer Phase I milestone payment. In addition, upon a waiver, the Company decided to pay on behalf of the CEO any additional amount necessary in order to cover the taxes owed by the CEO on such forgiveness of 50% of the loan. All other terms of the loan have not been changed.

In March 2007, the Company received the above milestone payment and consequently 50% of the outstanding amount was waived. In addition, it was resolved to waive the remaining 50% of the loan. For the second portion of the loan waiver, the Company did not take upon itself to pay income tax on behalf of the CEO. As a result of these waivers, the Company recorded $823 as general and administrative expenses during 2007.

b. In January 2008, the Company granted a new loan in the amount of $150 (principal amount) to its CEO. The loan bears annual interest at the rate of 3.18% on the principal amount. The principal plus the accrued interest on this loan is due on January 8, 2011.

During the first quarter of 2009, the Company’s Board decided to decrease the annual interest rate to 0.81%, that represents market interest rate.

In September 2010, the Company’s Board decided to forgive the CEO the entire loan, including the accrued interest.

NOTE 6:- PROPERTY AND EQUIPMENT

	September 30, 2010		December 31
			2009		2008
	Unaudited
Cost:
Machinery and equipment	$	5,878	$	5,818	$	5,836
Office furniture and equipment		849		851		858
Motor vehicles		3		3		3
Leasehold improvements		635		631		618
		7,365		7,303		7,315
Accumulated depreciation:
Machinery and equipment		5,589		5,533		5,434
Office furniture and equipment		663		634		612
Motor vehicles		3		3		3
Leasehold improvements		624		615		583
		6,879		6,785		6,632
Depreciated cost	$	486	$	518	$	683

F-22

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 6:- PROPERTY AND EQUIPMENT  – (continued)

Depreciation expenses were $485, $330 and $233 for the years ended December 31, 2007, 2008 and 2009, respectively. As of September 30, 2010, depreciation expenses were $136 (unaudited).

NOTE 7:- OTHER PAYABLES AND ACCRUED EXPENSES

	September 30, 2010		December 31
			2009		2008
	Unaudited
Employees and payroll accruals	$	1,133	$	1,014	$	1,111
Accrued expenses		1,331		390		527
	$	2,464	$	1,404	$	1,638

NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES

a. The facilities of the Company and its Israeli subsidiary are leased under various operating lease agreements for periods ending no later than 2011. The Company also leases motor vehicles under various operating leases, which expire on various dates, the latest of which is in 2013.

Future minimum lease payments under non-cancelable operating leases as of December 31, 2009, are as follows:

As of December 31,
2010	$	495
2011		85
2012		6
2013		1
	$	587

Rent expenses for the years ended December 31, 2007, 2008 and 2009 were $583, $720 and $708, respectively. For the nine months ended September 30, 2010, rent expenses were $495 (unaudited).

As of September 30, 2010, the Israeli subsidiary has provided guarantees for the fulfillment of the lease commitments in the approximate amount of $281. The Company pledged a bank deposit in the same amount to secure the guarantees.

b. In December 2004, the Company and Silence Therapeutics (formerly: Atugen AG) entered into a collaboration agreement related to the RTP-801 gene discovered by the Company. This agreement grants the Company an exclusive, royalty-bearing, worldwide license to develop, manufacture and commercialize products inhibiting this gene, based on Silence Therapeutics’ proprietary RNA interference technology.

This agreement was amended in September 2006, in connection with the Pfizer license agreement (see Note 3a) under which the Company sublicensed to Pfizer its rights under the license from Silence Therapeutics. This amendment clarified the payments arrangement among the parties, terminated a license granted to Silence Therapeutics in 2004 for oncology applications, and provided for a direct license from Silence Therapeutics to Pfizer in the event of termination of the Pfizer agreement. Under the amended Silence Therapeutics collaboration agreement, the Company will pay Silence Therapeutics a percentage in the mid teens range of the receipts from Pfizer under the Pfizer agreement, including milestone and royalty payments, but excluding payments specifically committed to cover research and development costs.

F-23

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES  – (continued)

In April 2005, the Company entered into a second agreement with Silence Therapeutics, pursuant to which Silence Therapeutics granted to the Company the right to receive options to non-exclusive licenses to Silence Therapeutics’ RNAi-related intellectual property to develop and commercialize siRNA product candidates based on a specified number of target genes as defined in the agreement. The Company can purchase an option for a target gene upon payment of an option fee. Thereafter, the Company may exercise each option within certain time limits upon payment of an additional fee to license Silence Therapeutics RNAi-related intellectual property for use with the specific target gene. According to the agreement, if the Company exercises any of its options, and commercializes by itself a licensed product based on the target gene for which the option was exercised, it will be required to make development milestone payments based on the progress of clinical trials and regulatory approval of licensed products in the U.S., Japan and Europe. In addition, the Company is required to pay royalties on sales of licensed products for which the Company has exercised an option. In the event that the Company sublicenses its right under the Silence Therapeutics 2005 Agreement, the Company is required to pay a percentage of any sublicensing revenues, the percentage being dependent on the clinical stage of the drug at the time of sublicense. We have not granted any sublicenses at this time but in August 2010 we granted an option to Novartis to obtain a sublicense under our rights under this Silence agreement.

As of December 31, 2009, the Company had purchased and exercised an option for one target gene (the p53). During the years ended December 31, 2007, 2008 and 2009, the Company paid or accrued $2,305, $1,935 and $0, respectively with respect to these agreements. The related charges were recorded as research and development expenses. During the nine months ended September 30, 2010, the Company paid or accrued $625 (unaudited), with respect to these agreements.

c. In conjunction with the Pfizer license agreement in September 2006, the Company entered into a set of license agreements with Alnylam Pharmaceuticals, Inc. (“Alnylam”). Pursuant to these agreements, Alnylam granted the Company non-exclusive worldwide licenses under three families of patents and patent applications owned or controlled by Alnylam. Each agreement is specific to one of the Company’s target genes p53 and RTP-801 and to certain therapeutic fields, including all indications contemplated for these target genes. The Company sublicensed its rights under the RTP801 Alnylam agreements to Pfizer in the September 2006 license agreement with Pfizer. The Company has not granted any sublicenses at this time under the p53 Alnylam agreements, but in August 2010 it granted an option to Novartis to obtain a sublicense under our rights under these agreement.

Pursuant to the terms of the license agreements, through December 31, 2006, the Company paid Alnylam upfront fees totaling $800. The agreements provide for annual maintenance fees in the amount of $72 and up to $7,300 in additional development and product development milestone payments. The Company is also required to pay low single digit royalties on sales. The royalty rates vary based on which patent families cover the products sold. In the years ended in December 31, 2007, 2008 and 2009, the Company paid or accrued $272, $422 and $72, respectively. For the nine months ended September 30, 2010, the Company paid or accrued $54 (unaudited).

d. In September 1999, the Company and the University of Illinois at Chicago (“UIC”) entered into an exclusive worldwide license under certain UIC patents and patent applications related to a target gene of the Company and small molecule inhibitors thereof, for all uses and indications. Under the agreement, as amended in March 2007 and again in December 2009, the Company may be required to pay UIC a future royalty calculated as a low single digit royalty on sales of licensed products by the Company and a percentage share in the low teens range of any sublicensing revenues as defined in the agreement. Payments to the University of Illinois at Chicago may be reduced in the event the Company is required to pay additional royalties to third parties for licenses of intellectual property required to develop, manufacture, or commercialize the licensed products. As of September 30, 2010, the Company has not granted any sublicenses under this license agreement.

F-24

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES  – (continued)

e. In January 2010, the Company and Dharmacon, Inc., a wholly owned subsidiary of Thermo Fisher Scientific Inc. (“Dharmacon”), entered into an exclusive worldwide license under certain Dharmacon patents and patent applications, related to certain siRNA molecules and their use for the inhibition of a specific target gene, for all uses and indications. Under the agreement, the Company is required to pay certain milestone payments upon achievement of development and commercialization milestones as well as single digit royalties on sales of licensed products by the Company and a low single digit share of any sublicensing revenues as defined in the agreement. As of September 30, 2010, the Company has not granted any sublicenses under this license agreement (unaudited) but has granted an option to Novartis for an exclusive sublicense of the rights under this agreement. For the nine months ended September 30, 2010, the Company paid or accrued $450 (unaudited).

f. In addition to the agreements above, the Company is a party to a number of research agreements with institutions and companies for the license and use of their know-how. Such agreements may obligate the Company in the future to pay royalties and/or milestone payments on future products it may develop. The Company’s obligations are contingent upon the potential success of certain current research activities and they are contingent upon developing drugs candidates based on such intellectual property for the Company’s pipeline. As of September 30, 2010, none of the above projects has reached the stage where royalties and/or milestone payments should have been paid or accrued.

g. The Israeli subsidiary is obligated to pay royalties to the Israel-United-States Bi-National Industrial Research and Development Foundation (“BIRD-F”), of 3% to 7% of sales proceeds from products arising from research and development funded by grants in accordance with the terms of the respective agreement. The maximum amount of royalties payable to BIRD-F is limited to 150% of the grants received, adjusted based on the U.S. Consumer Price Index.

As of September 30, 2010, the subsidiary’s contingent royalties obligation to BIRD-F could reach up to an amount of $1,556, which stand for the total indexed BIRD-F participation in the research and development project.

Successful development of the funded projects was not assured at the time the funds were received. Furthermore, the Company’s obligation to pay royalties is contingent on actual sales of the products and is not required in the absence of such sales

As of September 30, 2010, the Company did not accrue or pay any royalties to BIRD-F since there have been no actual sales of the products.

h. Royalty commitments to the Chief Scientist:

The Israeli subsidiary participates in programs sponsored by the Chief Scientist of the Government of Israel, for the support of research and development projects. In exchange for the Chief Scientist’s participation in the programs, the subsidiary is required to pay royalties of 3% to 5% of any sales that are generated from sale of products or by using the know-how that resulted from a project developed with funds provided by the Chief Scientist, up to a dollar-linked amount equal to 100% of the Chief Scientist’s research and development grants related to such projects. The subsidiary’s obligation to pay royalties is contingent on actual sales that are generated from sale of products or by using the know-how that resulted from a project and is not required in the absence of such sales.

Royalty expenses were immaterial for each of the three years in the period ended December 31, 2009 and for the nine months ended September 30, 2010.

As of December 31, 2009 and September 30, 2010 (unaudited), the subsidiary had a remaining contingent obligation to pay royalties in the amount of approximately $1,023 (excluding accrued interest) upon the successful sale of products derived from such research and development.

F-25

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 8:- COMMITMENTS AND CONTINGENT LIABILITIES  – (continued)

i. On August 16, 2009, the Company’s Board decided to adopt cost reduction plan that includes reduction of certain percentage of each employee’s salary up to 20%, starting September 1, 2009 for a limited period of six months. The overall reduction of compensation in that period amounted to $595. The Board further approved that in certain future events such as proceeds, from the Company’s qualified initial public offering, the employees will be compensated up to the full amount of such reduction.

The Company paid during the nine months ended September 30, 2010, $150 with respect to the cost reduction plan. As of September 30, 2010 (unaudited), there is no accrual for such compensation payment.

NOTE 9:- INCOME TAXES

The Company and its Israeli subsidiary are separately taxed under the domestic tax laws of the state of incorporation of each entity. QMI is included in the Company’s consolidated tax returns.

a. Israeli subsidiary:

1. Measurement of taxable income under the Income Tax (Inflationary Adjustments) Law, 1985:

Through 2007, results for tax purposes of the Israeli subsidiary were measured in terms of earnings in New Israeli Shekels after certain adjustments for increases in the Israeli CPI. As explained in Note 2c, the financial statements are measured in U.S. dollars. The difference between the annual change in the Israeli CPI and in the New Israeli Shekels/dollar exchange rate causes a further difference between taxable income and the income before taxes shown in the financial statements. In accordance with ASC 740-10-25-3(f), the Company has not provided deferred income taxes on the difference between the functional currency and the tax bases of assets and liabilities.

In February 2008, the Knesset passed an amendment to the Income Tax (Inflationary Adjustment) Law, 1985, which limits the scope of the law starting in 2008 and thereafter. Beginning in 2008, the results for tax purposes are measured in nominal values, excluding certain adjustments for changes in the Consumer Price Index carried out in the period up to December 31, 2007. The amended law includes, inter alia, the elimination of the inflationary additions and deductions and the additional deduction for depreciation starting in 2008.

2. Tax benefits under the Israeli Law for the Encouragement of Capital Investments, 1959 (“the Law”):

According to the Law, the companies are entitled to various tax benefits by virtue of the “beneficiary enterprise” status granted to part of their enterprises, as implied by this Law.

On April 1, 2005, an amendment to the Law came into effect (“the Amendment”) and has significantly changed the provisions of the Law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the approval of a facility as a beneficiary enterprise, such as provisions generally requiring that at least 25% of the beneficiary enterprise’s income will be derived from export. Additionally, the Amendment enacted major changes in the manner in which tax benefits are awarded under the Law so that companies no longer require Investment Center approval in order to qualify for tax benefits.

a) According to the Law, the Israeli subsidiary is entitled to various tax benefits by virtue of the “beneficiary enterprise” status granted to part of its enterprises, as implied by this Law. The principal benefits by virtue of the Law are:

According to the provisions of the Law and the Amendment, the Israeli subsidiary has chosen to enjoy the “alternative benefits” track. Under this track, the subsidiary is tax exempt in the first two years of the benefit period and subject to tax at the reduced rate of 10% for a period several years in the remaining benefit period.

F-26

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 9:- INCOME TAXES  – (continued)

b) Another condition for receiving the benefits under the alternative track is a minimum qualifying investment. This condition requires an investment in the acquisition of productive assets such as machinery and equipment, which must be carried out within three years. The minimum qualifying investment required for setting up a plant is NIS 300 thousand. As for plant expansions, the minimum qualifying investment is the higher of NIS 300 thousand and an amount equivalent to the “qualifying percentage” of the value of the productive assets. Productive assets that are used by the plant but not owned by it will also be viewed as productive assets. The subsidiary was eligible under the terms of minimum qualifying investment and elected 2008 as its “year of election”.

c) The qualifying percentage of the value of the productive assets is as follows:

The value of productive assets before the expansion (NIS in millions)	The new proportion that the required investment bears to the value of productive assets
Up to NIS 140		12	%
NIS 140 – NIS 500		7	%
More than NIS 500		5	%

The income qualifying for tax benefits under the alternative track is the taxable income of a company that has met certain conditions as determined by the Law (“a beneficiary company”), and which is derived from an industrial enterprise. The Law specifies the types of qualifying income that is entitled to tax benefits under the alternative track with respect of an industrial enterprise, whereby income from an industrial enterprise includes, among others, revenues from the production and development of software products and revenues from industrial research and development activities performed for a foreign resident (and approved by the Head of the Administration of Industrial Research and Development).

The benefit period starts with the first year the beneficiary enterprise earns taxable income, provided that 14 years have not passed since the approval was granted and 12 years have not passed since the enterprise began operating. In respect of expansion programs pursuant to Amendment No. 60 to the Law, the benefit period starts at the later of the year elected and the first year a company earns taxable income provided that 12 years have not passed since the beginning of the year of election. The respective benefit period has not yet begun.

The above benefits are conditional upon the fulfillment of the conditions stipulated by the Law, regulations published thereunder and the letters of approval for the investments in the approved enterprises, as above. Non-compliance with the conditions may cancel all or part of the benefits and refund of the amount of the benefits, including interest. The management believes that the subsidiary is meeting the aforementioned conditions.

3. Tax benefit under the Law for the Encouragement of Industry (Taxation), 1969:

Management believes that the subsidiary is currently qualified as an “industrial company” under the above law and as such, enjoys tax benefits, including:

(a) Deduction of purchase of know-how and patents and/or right to use a patent over an eight-year period;

(b) The right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli industrial companies and an industrial holding company;

(c) Accelerated depreciation rates on equipment and buildings; and

F-27

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 9:- INCOME TAXES  – (continued)

(d) Expenses related to a public offering on the Tel-Aviv Stock Exchange and as of January 1, 2003 on recognized stock markets outside of Israel, are deductible in equal amounts over three years.

b. Tax rates applicable to the income of the Company:

The rate of the United States corporate tax is as follows: Federal income tax 35%, State income tax 4.63% – 10%.

The rate of the Israeli corporate tax that is applicable to the Israeli subsidiary is as follows: 2007 — 29%, 2008 — 27%, 2009 — 26%, 2010 — 25%. Tax at a reduced rate of 25% applies to capital gains arising after January 1, 2003, instead of the regular tax rate. In July 2009, the “Knesset” (Israeli Parliament) passed the Law for Economic Efficiency (Amended Legislation for Implementing the Economic Plan for 2009 and 2010), 2009, which prescribes, among others, an additional gradual reduction in the rates of the Israeli corporate tax and real capital gains tax starting 2011 to the following tax rates: 2011 — 24%, 2012 — 23%, 2013 — 22%, 2014 — 21%, 2015 — 20%, 2016 and thereafter — 18%.

c. Income (loss) before income taxes consists of the following:

	Nine month ended September 30						Year ended December 31
	2010			2009			2009			2008			2007
	Unaudited
U.S.	$	(17,636	)	$	(16,488	)	$	(20,202	)	$	(8,329	)	$	2,157
Israel		560			428			401			864			(1,168	)
	$	(17,076	)	$	(16,060	)	$	(19,801	)	$	(7,465	)	$	989

d. Income taxes are comprised as follows:

	Year ended December 31,
	2009			2008			2007
Current taxes and reserves	$	(73	)	$	2,576		$	—
Deferred taxes		(87	)		(909	)		—
	$	(160	)	$	1,667		$	—

F-28

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 9:- INCOME TAXES  – (continued)

e. Reconciliation between the Company’s effective tax rate and the U.S. statutory rate:

	Year ended December 31,
	2009			2008			2007
Income (loss) before taxes on income	$	(19,801	)	$	(7,465	)	$	989
Statutory tax rate		35	%		35	%		35	%
Tax computed at the statutory tax rate	$	(6,930	)	$	(2,613	)	$	346
Deferred tax in respect of losses for which valuation allowance was provided		6,629			2,628			324
Deferred tax in respect of losses		(117	)		—			—
Reversal of valuation allowance		—			(775	)		—
Tax reserves for uncertain tax positions		—			2,308			—
Effect of different tax rates in other countries		(36	)		(69	)		70
Non-deductible expenses		308			313			355
Tax benefits in respect of research and development expenses		—			(338	)		—
Deferred tax assets on temporary different for which valuation allowance was provided		(22	)		27			(1,045	)
Other differences, net		8			186			(50	)
Taxes on income	$	(160	)	$	1,667		$	—

f. Deferred income taxes:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

	December 31,
	2009			2008
Deferred tax assets:
Loss carryforward	$	32,839		$	25,326
Temporary differences – accrued vacation pay and severance pay and other reserves		6,860			5,293
Deferred tax assets before valuation allowance		39,699			30,619
Valuation allowance		(39,477	)		(29,710	)
Deferred tax asset	$	222		$	909

The Company has provided a valuation allowance in respect of deferred tax assets resulting from the tax loss carryforward. Management currently believes that it is more likely than not that the deferred tax regarding these tax loss carryforward and other temporary differences will not be realized.

The Israeli subsidiary recorded deferred tax assets in the amount of approximately $0, $909, $222 and $122 (unaudited), for the years ended December 31, 2007, 2008 and 2009 and for the nine months ended September 30, 2010, respectively, since it is more likely than not those tax assets will be realized.

F-29

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 9:- INCOME TAXES  – (continued)

g. Accounting for uncertainty in income taxes (“ASC 740”):

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year ended December 31,
	2009			2008
Balance at the beginning of the year	$	2,396		$	88
Additions based on tax positions taken during a prior period(1)		—			2,308
Reduction related to tax positions taken during a prior period		(88	)		—
Reductions related to settlement of tax matters(1)		(2,012	)		—
Balance at the end of the year	$	296		$	2,396

(1) The Israeli subsidiary was under a tax audit by the Israeli Tax Authority for the 2002 through 2006 tax years. The primary tax position under assessment was the nature of the Israeli subsidiary operations and the compensation of the Israeli subsidiary for its research and development services to the Company. In that regard, while the Company viewed part of the subsidiary’s operations as independent operations and therefore the costs that were associated with such activities were not reimbursed by the parent company, the ITA viewed the subsidiary to be a direct, integral extension of the parent company’s operations and therefore, the ITA imputed additional taxable income.

In the periods prior to 2008, the Company evaluated the position taken with respect to the compensation of the Israeli subsidiary for its research and development services under the guidance of ASC 740-10-25 and 740-10-30. In those periods, the Company concluded that no accrual is required, based on all facts and circumstances available. At that time the Company concluded that the Israeli subsidiary had valid positions, that would be sustained upon examination, with respect to the existence of local independent research and development activities.

In December 2008, following the receipt of the first written demand for additional tax payment, the Company revisited its estimates for the above tax position given the new facts, circumstances, and the new information available at the reporting date. The Company concluded that in prior periods all the available facts and data were evaluated and therefore, the change should be accounted for as a change in accounting estimate described in ASC 250-10, and that the required adjustment should be recorded in the current period.

Consequently the Company changed its estimates and increased the reserves by $2,308. Out of this amount $774, relates to offset of prior years net operating loss carryforward. In December 2008, the Company received the initial demand for additional tax payment.

In June 2009, the Company and the Tax Authorities reached an agreement under which (a) the Company will pay NIS 4,900 thousand (that is $1,237), plus interest and linkage of approximately NIS 397 thousand (that is $100) in 30 monthly installments and (b) the total of accumulated losses for tax purposes as of December 31, 2006 have been fully deducted.

No audits are currently in process by either the Internal Revenue Service or any state revenue authority and, as of this date, the Company has not been contacted as to any proposed audits of its prior income tax returns. In the U.S., all prior years remain open for audits subject to

F-30

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 9:- INCOME TAXES  – (continued)

applicable statutes of limitation which, for federal purposes, is usually three years from the filing date of the return, plus one additional year for state. Due to the Company’s losses, generally all years remain open.

h. Losses for tax purposes:

Net operating loss carryforward as of December 31, 2009 is as follows:

US	$	129,230
Israel	$	472

As of December 31, 2009, the Company had a loss carryforward for federal income tax purposes of $89,254. If not utilized, the loss carryforward will expire in the years 2010 through 2015 and federal research and development tax credits of approximately $2,772 which expire in the years 2011 through 2029.

As of December 31, 2009, the Company had a loss carryforward for state income tax purposes of approximately $37,000. If not utilized, the loss carryforward will expire in the years 2010 through 2015 and state research and development tax credits of approximately $204 do not expire.

Utilization of U.S. loss carryforward may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of losses before utilization.

Net operating losses in Israel may be carried forward indefinitely.

The Company has not, as yet, conducted a study of its research and development credit carryforward. This study may result in an adjustment to the Company’s research and development credit carryforward, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under ASC 740. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, and since the amounts of research and development credit, are immaterial, there would be no impact on the consolidated balance sheets or statements of operations if an adjustment is required.

NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK

a. From March to November 2001, the Company issued 1,143,764 shares of series F Redeemable Preferred stock, for total consideration of $13,725, net of issuance expenses of $70.

Except for the redemption rights, refer to the description of the rights, preferences and restrictions of series F Redeemable Preferred stock in Note 11.

Redemption rights — according to the terms of the series F Preferred stock effective March 23, 2006, any holder of series F Preferred stock may request redemption. The redemption price for each share shall be equal to the amount derived by dividing the net book asset value of the Company at the redemption date by the total number of shares of capital stock of the Company on a fully diluted basis.

In accordance with ASC 480-10-S99, “Distinguishing Liabilities from Equity” and ASR 268 the Redeemable Preferred stock were classified outside of equity. Changes in the redemption value are recognized immediately as they occur as changes of redemption value of series F Preferred stock and the carrying value of the security is adjusted to be equal to the redemption amount at the end of each reporting period.

F-31

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK  – (continued)

Under the Company’s articles of incorporation, the redemption rights terminate following a filing of a registration statement for the IPO of the Company’s securities. Consequently, upon filing of Form S-1 on March 30, 2007 with the SEC such rights were terminated and the balance of the series F Preferred stock was reclassified to equity.

Changes to the redemption value of the series F Preferred stock during the first quarter of 2007 (until the termination date) were recorded under the net income (loss) line item in statement of operations and deducted from income available to Common stockholders.

b. On March 19, 2008, the Company signed a stock purchase agreement with new and existing investors. According to the stock purchase agreement, the Company issued to the investors 5,400,000 shares of series H Convertible Preferred stock at a purchase price of $5 per share in an aggregate amount of $27,000.

The rights, preferences and restrictions of series H Redeemable Preferred stock are as follows:

Dividends — series H Redeemable Preferred stockholders shall be entitled to receive dividends, when and if declared by the Company’s Board, at the rate of $0.5 per share per annum. The right to such dividends shall not be cumulative and no right shall accrue to Preferred stockholders by reason of the fact that dividends on such shares are not declared in any prior year.

Liquidation preference — series H Redeemable Preferred stockholders shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the Company to other Preferred and Common stockholders by reason of their ownership of series H Redeemable Preferred stock, the amount equal to the sum of $6 per share for each share of series H Redeemable Preferred stock.

Voting rights — each holder of a share of series H Redeemable Preferred stock shall be entitled to one vote.

Conversion — each share of series H Redeemable Preferred stock is convertible, at the holder’s option, or automatically upon a qualified Initial Public Offering (“IPO”) of the Company as defined in the Company’ articles of incorporation. Each share of series H Redeemable Preferred stock is convertible on a one-for-one basis.

Redemption rights — at any time following the date that is 30 months after the Series H original issue date, the holders of at least 75% of the series H Preferred stock may request redemption. The shares are redeemable at $5 per share. The redemption rights will terminate upon the earlier of (i) the conversion of all of the series H Redeemable Preferred stock and (ii) the closing of a qualified IPO as defined in the agreement. The Company shall redeem the series H designated shares within 30 days from the date of the redemption notice through cash payment of the series H redemption price in two equal annual installments.

Anti-dilution — the series H Redeemable Preferred stock is subject to certain anti-dilution provisions as outlined in the Company’s articles of incorporation.

In accordance with ASC 480-10-S99, “Distinguishing Liabilities from Equity” and ASR 268 the Redeemable Preferred stock were classified outside of equity. Changes in the redemption value are recognized immediately as they occur as changes of redemption value of series H Preferred stock and the carrying value of the security is adjusted to equal the redemption amount at the end of each reporting period. Series H Convertible Preferred stock are presented at their redemption value.

F-32

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK  – (continued)

On May 17, 2010, the Company raised $10,000 from certain former investors of the series H Convertible Preferred stock through the issuance of 2,000,000 additional shares of series H Convertible Preferred stock and warrants to purchase 300,000 shares of series H Convertible Preferred stock. The exercise price for the warrants is $5 per share and they will expire five years after the date of their issuance. The series H Convertible Preferred stock issued in 2010 has the same rights as determined for the original Series H Convertible Preferred stock. See also Note 15.a.

As part of above investment round, the redemption date of the original series H Convertible Preferred stock was extended to August 31, 2011.

In accordance with ASC 480-10, the warrants convertible to Series H redeemable preferred stock were classified as liability. The warrants fair value was estimated to be $335 and it was valued using a lattice valuation technique (binomial model) and they are marked to fair value at each reporting date. On September 30, 2010 the fair value of the warrants was estimated taking into consideration both (a) the possibility of a successful initial public offering and (b) the possibility the Company will continue operating as a private company. The fair value of the warrants was estimated as the probability weighted average, utilizing the Black Scholes model for options pricing in scenario (a) and a lattice valuation technique (binomial model) in scenario (b). In estimating the warrants fair value, the Company used the following assumptions:

	Issuance date			September 30, 2010
Risk-free interest rate(2)		0.46% – 1.10	%		0.14% – 0.5	%
Expected volatility(3)		75	%		75	%
Expected life (in years)(4)		1.7			0.13 – 1.25
Expected dividend yield(5)		0			0
Fair value:
Warrants	$	335		$	900

(1) Expected deemed liquidation date — December 31, 2011.

(2) Risk-free interest rate — based on yields of the U.S. Government Treasury bonds with different periods to maturity (according to different projection periods).

(3) Expected volatility — since the Company has different classes of shares and its Preferred stock are not publicly traded, the Company used the volatility of comparable publicly traded companies.

(4) Expected life — the expected life of the conversion feature was based on the term of the loan and the expected life of the warrants was determined by the expected deemed liquidation date.

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

As a result of the re-measurement, of the warrants as of September 30, 2010, the Company recorded $565 during the nine month period ended September 30, 2010 as finance expenses.

The remaining proceeds from May 2010 financing were allocated to the redeemable preferred stocks that was classified outside of equity. Under ASC topic 480-10-s99 the Company adjusted the carrying value of the redeemable preferred stocks to their redemption amount. This change amounted to $335 accounted for as a deemed dividend under ASC 260-10.

In addition, as stated above, as part of may 2010 investment round, the redemption date of the original series H convertible preferred stock was extended to August 31, 2011.

F-33

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 10:- REDEEMABLE CONVERTIBLE PREFERRED STOCK  – (continued)

Consequently, the Company determined whether any incremental value was contributed by the stock holders to the Company as a result of the deferral of redemption date. For that purpose the Company measured the excess of the fair value of the series H convertible preferred stock with the original redemption date over the fair value of series H convertible preferred stock with the extended redemption date. The fair value of the series H convertible preferred stock was estimated based on the May 2010 financing, option pricing method by applying the binomial model to value the call option. The option-pricing method treats common stock and preferred stock as call options on the enterprise’s value, with exercise prices based on the liquidation preference of the preferred stock. In estimating the preferred stock fair value, the Company used the same assumptions used to value the warrants that described above. The excess of fair value amounted to $1,033 was recorded as contribution to the Company’s equity, as additional paid-in capital. That above mentioned assumptions used in the fair value computations.

Contemporaneously, and consistent with the presentation of the redeemable preferred stock, they were adjusted to their redemption amount on the balance sheet. This adjustment amounted to $1,033 accounted for as a deemed dividend under ASC 260-10. This amount is subsumed in the total change of the redemption value of Series H convertible preferred stock of $1,368.

NOTE 11:- SHARE CAPITAL

Share capital is composed as follows:

	September 30, 2010				December 31, 2009				December 31, 2008
	Authorized		Issued and outstanding		Authorized		Issued and outstanding		Authorized		Issued and outstanding
	Number of shares
Common stock of $0.001 par value		74,800,000		3,388,530		72,500,000		3,388,530		72,500,000		3,387,330
Series A Preferred stock of $0.001 par value		967,497		967,497		967,497		967,497		967,497		967,497
Series B Preferred stock of $0.001 par value		4,219,914		4,219,914		4,219,914		4,219,914		4,219,914		4,219,914
Series C Preferred stock of $0.001 par value		1,568,692		1,568,692		1,568,692		1,568,692		1,568,692		1,568,692
Series D Preferred stock of $0.001 par value		5,442,212		5,439,413		5,442,212		5,439,413		5,442,212		5,439,413
Series E Preferred stock of $0.001 par value		2,050,820		2,050,820		2,050,820		2,050,820		2,050,820		2,050,820
Series F Preferred stock of $0.001 par value		1,143,764		1,143,764		1,143,764		1,143,764		1,143,764		1,143,764
Series G Preferred stock of $0.001 par value		10,489,511		10,489,511		10,489,511		10,489,511		10,489,511		10,489,511
		25,882,410		25,879,611		25,882,410		25,879,611		25,882,410		25,879,611
Total		100,682,410		29,268,141		98,382,410		29,268,141		98,382,410		29,266,941

a. The rights, preferences and restrictions of series A-G Preferred and Common stock are as follows:

Dividends — 

1. The holders of the series A, B, C, D, E, F and G Preferred stock shall be entitled to receive dividends, when and if declared by the Company’s Board, at the rate of $0.08, $0.08, $0.26,

F-34

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHARE CAPITAL  – (continued)

$0.26, $0.64, $0.78 and $0.093 per share, respectively per annum. The right to such dividends shall not be cumulative and no right shall accrue to Preferred stockholders by reason of the fact that dividends on such stock are not declared in any prior year.

2. No dividends shall be paid for the Common stock until dividends have been paid for the Preferred stock. After payment of dividends to Preferred stockholders, Preferred stockholders and Common stockholders shall be entitled to receive any additional dividends as declared by the Company.

Liquidation preference — the holders of series A, B, C, D, E, F and G have a liquidation preference equal to $1.25, $1.25, $4, $4, $9.83 $12 and $1.72, per share, respectively and any declared but unpaid dividends.

Preferred stockholders will be entitled to their liquidation preferences based on their seniority. Series G Preferred stockholders shall be the first to receive their liquidation preferences and they will be followed by the holders of series F, E, D, C, B and A.

Voting rights — each holder of Common stock, series A, B, C, D, E, F and G Preferred stock shall be entitled to one vote.

Conversion — each share of each series of Preferred stock is convertible, at the holder’s option, or automatically upon a qualified Initial Public Offering (“IPO”) of the Company. Originally each share of Preferred stock was convertible on a 2.9-for-1 basis. Pursuant to the series G Convertible Preferred stock investment round and according to anti-dilution protection rights, the holders of series C, D, E and F Preferred stock are entitled to receive additional shares of Common stock upon conversion (see also b below).

b. Series G Convertible Preferred stock investment round:

In December 2005, the Company entered into the series G Convertible Preferred stock investment agreement with new investors. According to the agreement, the Company issued to the investors in 2005 and 2006 10,489,511 shares of series G Convertible Preferred stock at $1.43 per share. In addition, the investors received warrants, see c below.

The series G Convertible Preferred stock investment round triggered certain anti-dilution protection rights of previous investors. Accordingly, the holders of series C, D, E and F Preferred stock are entitled to receive 148,154, 513,716, 283,066 and 164,369 additional shares of Common stock upon conversion, respectively.

In addition to the above anti-dilution adjustments and in connection with the series G Convertible Preferred stock investment, series C and D Preferred stockholders agreed to waive warrants to purchase 4,533,141 shares of series C and Convertible Preferred stock that they received as part of their original investments.

In consideration for this waiver, the series C and D Preferred stockholders received additional conversion rights, entitling the holders thereof to receive an additional 58,831 and 204,017 shares of Common stock, respectively, in addition to the number of shares that they should have received under their original anti-dilution adjustment provisions.

The waiver of these warrants and the corresponding adjustment to the conversion ratios were made following negotiation between the Company, series C and D Preferred stockholders and the prospective purchasers of the series G Preferred stock in order to induce the prospective purchasers of the series G Preferred stock to invest in the Company by reducing the potential dilutive effect of the outstanding warrants.

F-35

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHARE CAPITAL  – (continued)

Consequently, the Company determined whether any incremental value transferred to the warrants holders as a result of the waiver of the warrants in consideration for the enhanced conversion rights. For that purpose the Company measured the excess of the fair value of the modified series C and D Convertible Preferred stock over the fair value of the series C and D Convertible Preferred stock immediately before the modification. The Company compared this incremental value to the fair value of the warrants that were waived by each warrant holder. According to the Company’s analysis, the fair value of the warrants waived substantially exceeded the value of the enhanced conversion rights and, therefore, no charge was recorded as a deemed dividend.

The fair value assigned to the series C and D Convertible Preferred stock and to the warrants was determined primarily by management and the Company’s Board. In determining fair value, management has considered a number of factors, including valuations and appraisals. The fair value was primarily determined by using a discounted future cash flow method and option pricing model.

c. Warrants:

In December 2005, as part of the series G Convertible Preferred stock investment agreement, the series G investors received warrants to purchase up to 723,409 shares of Common stock of the Company at $4.147 per share.

As of December 31, 2008, 687,288 of series G warrants were exercised into Common stock. The remaining warrants expired during 2008 and 2009.

The Company accounted for these warrants as equity instruments based on the guidance of ASC 815, “Derivatives and Hedging”, ASC 480-10, “Distinguishing Liabilities from Equity”, its related FASB staff positions, ASC 815-40 and the AICPA Technical Practice Aid for accounting for Preferred stock and warrants including the roadmap for accounting for freestanding financial instruments indexed to, and potentially settled in, a company own stock.

In March 2007, the Company extended by six months the exercise period of the series G warrants. The Company recorded $117 for the incremental value that was transferred to the warrants holders as a result of the modification as deemed dividend that is deducted from the income available to Common stockholders.

The Company used the Black-Scholes option-pricing model with the following weighted average assumptions (before/after) at the modification date: risk-free interest rates of 4.75% – 4.8%/4.66% – 4.69, dividend yield of 0%, volatility factors of the expected market price of the Company’s Common stock of approximately 46.21%/46.26% and expected life of the options of 1 – 1.33/1.5 – 1.83 years.

The fair value assigned to the Common stock in order to calculate the deemed dividend, was determined primarily by management and the Company’s Board. In determining fair value, management has considered a number of factors, including valuations and appraisals.

d. Stock Option Plans:

The Company has authorized through its 1997, 2003 and 2007 Equity Incentive Share Option Plans and further increases by the Company’s Board, the grant of options to officers, directors, advisors, management and other key employees of up to 1,950,019 shares of the Company’s Common stock. The options granted generally have a four-year vesting period and expire 10 years after the date of grant.

F-36

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHARE CAPITAL  – (continued)

During the period through December 31, 2009, the Company’s Board approved an increase in shares reserved under the Incentive Plan to an aggregate total reserve of 3,135,530 shares of Common stock. As of December 31, 2009, an aggregate of 561,237 options of the Company are still available for future grant.

The fair value of stock-based awards was estimated using the Black-Scholes option-pricing model for all grants starting January 1, 2007, with the following assumptions for the year ended December 31, 2008, 2009 and for the nine month ended September 30, 2010:

	Nine month ended September 30, 2010			Year ended December 31,
				2009			2008
	Unaudited
Exercise price		4.55			1.1			1.1
Expected term (years)		5.24 – 10			6.1			6.1
Volatility		56.5% – 65.6	%		65	%		64	%
Risk-free interest rate		1.4% – 2.6	%		1.6 – 2.8	%		1.6	%
Dividend yield		0	%		0	%		0	%

The Company measures the compensation cost of employee options based on the fair value method as stated in ASC 718-10 “Compensation — Stock Compensation”. The computation of expected volatility is based on realized historical stock price volatility of certain public biotechnology companies that the Company considered to be comparable based on market capitalization, drug development phase and type of technology platforms. The Company used the simplified method to establish the expected term of the awards as allowed under SAB 110. The interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The Company recognizes stock compensation costs net of forfeiture rate for only those shares expected to vest on a straight-line basis over the requisite service period of the award, which is the option vesting term of four years. ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

As of December 31, 2009 and September 30, 2010, there was an unrecognized compensation cost of $1,655 and $1,400 (unaudited), respectively, related to stock options that is expected to be recognized in future periods.

During 2007, the Company cancelled and re-granted 126,385 options in order to benefit the employees with certain tax benefits according to the Israeli tax reform from 2003. The Company applied for a ruling from the Israeli Tax Authorities and received the formal approval. The Company did not change any of a option terms as part of this arrangement, as such, no incremental value was recorded.

On March 24, 2008, the Company repriced options to purchase 463,079 shares of its Common stock. The incremental fair value for these options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions: risk-free interest rate of 4.51%, dividend yield of 0%, volatility factors of the expected market price of the Company’s Common stock of 57.25%, and contractual life of ten years. The new exercise price is $1.10 per share. Consequently, the Company recorded expenses of $16, $68, $47 and $47 for the years ended December 31, 2008, 2009 and the nine month periods ended September 30, 2009 and 2010, respectively.

On January 12, 2009, the Company granted options to purchase 50,000 shares of its Common stock to two former Board members as part of their termination arrangements. The options granted have

F-37

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHARE CAPITAL  – (continued)

three year exercise terms starting March 2009. The options are fully vested. These options have an exercise price of $1.10 which is based on the fair value of the Company’s Common stock on the date of grant, as determined by the Company’s Board. The fair value of stock-based awards to employees was estimated using the Black-Scholes option-pricing model with the same assumptions used at the December 29, 2008 grant.

On March 30, 2009, the Company repriced an option to purchase 68,965 shares of its Common stock previously granted to its CEO. The Incremental fair value for these options was estimated using a Black-Scholes options-pricing model with the following assumptions: risk-free interest rate of 2.02%, dividend yield of 0%, volatility factors of the expected market price of the Company’s Common stock of 65%, and contractual life of six years. The new exercise price is $1.10 per share. As a result, the Company has recognized an additional stock compensation expense of $26.

On May 13, 2009, the Company’s Board granted total options to purchase 239,750 shares of its Common stock to its directors. The exercise price for the options granted was of $1.10 per share. The vesting periods are determined as follows: (a) 40,000 shares — 25% vested on April 16, 2009 and the remaining vest on a monthly basis over the next three years; (b) 130,000 shares — 50% vested on May 13, 2009 and the remaining vest on a monthly basis over the next year; (c) 49,750 shares — 25% vested on August 8, 2009 and the remaining vest on a monthly basis over the next three years and (d) 20,000 shares — 25% vested on May 13, 2010 and the remaining vest on a monthly basis over the next three years.

On May 13, 2009, the Company’s Board decided that options to purchase an additional 22,500 shares of the Company’s Common stock would be granted to three of its directors. 15,000 options will be granted at the first Board meeting after April 16 of each year and 7,500 options will be granted at the first Board meeting after August 8 of each year, so long as they continue to serve as directors of the Company. Such options will have vesting period of 12 months after the date of grant, and will carry an exercise price equal to the then-current fair market value of the Common stock. For accounting purposes, the date of grant for these awards will be at the fulfillment of the above mentioned terms. As of September 30, 2010, no grants were made (see Note 15).

On September 1, 2010, the Company’s Board granted total options to purchase 232,000 shares of the Company’s common stock. 184,500, 40,000 and 7,500 options were granted to employees, consultant and director, respectively. The exercise price for the options granted was $4.55 per share. The vesting periods were determined as follows (a)139,500 options — 25% will vest on the first anniversary of the vesting commencement date, and the remaining will vest on a monthly baseis over the following 3 years; (b) 35,000 options — 50% vested on September 30, 2010 and the remaining will vest on a monthly basis over the following year. (c) 7,500 options will vest on a monthly basis over 12 month period, commencing August 8, 2010; (d) 40,000 options — 25% vested on July 12, 2010 and the remaining will vest on a monthly basis over the following 3 years. (e) 10,000 options — will vest on a monthly basis over 48 months period commencing August 1, 2010.

F-38

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHARE CAPITAL  – (continued)

The following is a summary of the status of the Company’s stock option grants to its employees:

	Nine month ended September 30, 2010 (unaudited)					Year ended December 31, 2009
	Number of options			Weighted average exercise price		Number of options			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Outstanding at beginning of period		2,503,177			1.61		1,692,324		$	1.93		8.67		—
Granted		192,000			4.55		1,049,715		$	1.1
Exercised		—					(1,200	)	$	1.1
Forfeited and cancelled		(130,282	)		2.21		(237,662	)	$	1.7
Outstanding at end of period		2,564,895			1.82		2,503,177			1.61		8.28		—
Exercisable options		1,358,075			2.01		895,982			2.51		6.70		—

The amount and the weighted average exercise price of options vested and expected to be vest as of December 31, 2009 are 2,262,710 and $1.67, respectively.

The weighted average exercise prices and fair values of the options granted during 2009 were as follows:

	Nine month ended September 30, 2010				Year ended December 31, 2009
	Weighted average fair value		Weighted average exercise price		Weighted average fair value		Weighted average exercise price
Exercise price greater than fair value at date of grant	$	2.60	$	4.55	$	0.67	$	1.1

The options outstanding as of December 31, 2009, have been separated into ranges of exercise prices, as follows:

Exercise price	Options outstanding as of December 31, 2009		Weighted average remaining contractual life		Weighted average exercise price		Options exercisable as of December 31, 2009		Weighted average exercise price of options exercisable
			(years)
$1.1		2,290,926		8.70	$	1.1		689,407	$	1.1
$5.8		187,343		3.88	$	5.8		181,667	$	5.8
$17.4		24,908		2.04	$	17.4		24,908	$	17.4
		2,503,177						895,982

F-39

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 11:- SHARE CAPITAL  – (continued)

Since January 1, 2007, the Company granted stock options to its employees under its plans with exercise prices as follows:

Grants made during the years ended December 31, 2007, 2008, 2009 and for the nine months ended September 30, 2010 (Unaudited)	Number of options granted		Weighted average exercise price		Weighted average fair value per share
March, 2007		1,032,346	$	5.25	$	7.98
March, 2008		142,000	$	1.1	$	1.1
December, 2008		856,250	$	1.1	$	1.1
January, 2009		50,000	$	1.1	$	1.1
March, 2009		157,965	$	1.1	$	1.1
May, 2009		239,750	$	1.1	$	1.1
September, 2009		622,000	$	1.1	$	1.1
September, 2010		192,000	$	4.55	$	4.55

The fair value assigned to the Common stock in order to calculate the compensation resulting from employee options, was determined primarily by management and the Company’s Board. In determining fair value, management has considered a number of factors, including third party valuations.

Compensation expenses recognized by the Company related to its consultants’ compensation awards were $2, $14, $0 and $5 (unaudited) for the years ended December 31, 2007, 2008 and 2009 and for the nine month ended September 30, 2010, respectively.

The Company’s outstanding options to consultants as of September 30, 2010 (unaudited), are as follows:

Issuance date	Options for Common stock		Exercise price per share		Options exercisable		Exercisable through
November 2000		1,724	$	2		1,724		November 2010
March 2001		6,896	$	6		6,896		March 2011
March 2005		10,344	$	2		10,344		March 2015
December 2005		17,240	$	2		17,240		December 2015
March 2007		8,620	$	1.1		5,926		March 2017
March 2008		2,500	$	1.1		2,500		March 2018
December 2008		15,172	$	1.1		15,172		December 2018
September 2010		40,000	$	4.55		1,667		September 2020
		102,496				61,469

F-40

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 12:- FINANCIAL INCOME (EXPENSES), NET

	Nine month ended September 30					Year ended December 31
	2010			2009		2009		2008		2007
	Unaudited
Financial expenses:
Foreign currency transaction losses	$	55		$	115	$	133	$	55	$	89
Fair value of warrants to Preferred H stock		565			—		—		—
Others		15			4		16		8		9
		635			119		149		63		98
Financial income:
Interest from money market funds		26			145		171		744		987
Foreign currency transaction gains		71			35		65		41		51
		97			180		236		785		1,038
	$	(538	)	$	61	$	87	$	722	$	940

NOTE 13:- EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of the basic and diluted net loss per share:

Numerator:

	Nine month ended September 30						Year ended December 31
	2010			2009			2009			2008			2007
	Unaudited
Net loss available to Common stockholders used for basic and diluted loss per share(1)	$	(18,654	)	$	(15,998	)	$	(19,641	)	$	(9,132	)	$	—

(1) After allocating income to Preferred stockholders, income attributable to Preferred stockholders was calculated assuming the net income would be distributed as dividend in accordance with the Company’s articles of incorporation. Pursuant to the articles, Preferred stockholders are entitled to receive dividends at a stipulated rate per share prior to payment of any dividends to Common stockholders. After the assumed distribution of net income as preferred dividends, remaining additional net income was attributed to Preferred stockholders in an amount equal to assumed dividends paid on the number of shares of Common stock into which such shares of Preferred stock are convertible, in accordance with the terms of the articles (see Note 11a1-2).

Denominator:

	Nine month ended September 30				Year ended December 31
	2010		2009		2009		2008		2007
	Unaudited
Weighted average number of shares of Common stock:		3,388,530		3,387,988		3,388,119		3,307,871		2,970,351
Preferred stock as converted		—				—		—		261,460
Denominator for diluted net loss per share of Common stock		3,388,530		3,387,988		3,388,119		3,307,871		3,231,811

F-41

QUARK PHARMACEUTICALS, INC.
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 14:- MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

a. Summary information about geographic areas:

The Company operates in one reportable segment (see Note 1 for a brief description of the Company’s business). The following data is presented in accordance with ASC 280, “Segment Reporting”.

The following presents total revenues and long-lived assets by geographic area as of and for the nine months ended September 30, 2010 and for the years ended December 31, 2009, 2008 and 2007:

	September 30, 2010				December 31
					2009				2008				2007
	Total revenues		Long-lived assets		Total revenues		Long-lived assets		Total revenues		Long-lived assets		Total revenues		Long-lived assets
	Unaudited
Japan	$	991	$	—	$	—	$	—	$	30	$	—	$	115	$	—
U.S.		1,371		144		2,655		127		17,246		186		27,760		171
Europe		420		—
Israel		28		342		—		391		—		497		3		339
	$	2,810	$	486	$	2,655	$	518	$	17,276	$	683	$	27,878	$	510

b. Revenue breakdown:

	Nine month ended September 30				Year ended December 31
	2010		2009		2009		2008		2007
	Unaudited
Option fee	$	420	$	—	$	—	$	—	$	—
Upfront and milestone payments		—		—		—		12,900		21,462
Research and Development services		2,362		2,031		2,596		2,777		—
Reimbursements of costs		—		—		—		1,538		6,376
Other		28		34		59		61		40
	$	2,810	$	2,065	$	2,655	$	17,276	$	27,878

c. Major customer data as a percentage of total revenues:

	Nine month ended September 30						Year ended December 31
	2010			2009			2009			2008			2007
	Unaudited
Customer A		49	%		99	%		99	%		99	%		99	%
Customer B		35	%		—			—			—			—
Customer C		15	%		—			—			—			—

NOTE 15:- SUBSEQUENT EVENTS

a. On October 18, 2010, 300,000 warrants were exercised into 300,000 Redeemable preferred H stock, in consideration of $1,500.

b. On November 1, 2010 the Company received an approval for a grant in the amount of $734 for the support of certain development projects, from the United State Department of Treasury.

F-42

Units

QUARK PHARMACEUTICALS, INC.

Each Unit consisting of      Shares of Common Stock and      Warrants

PROSPECTUS

PART II
  
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee.

	Amount to be Paid
SEC Registration Fee	$	1,426
Blue Sky Qualification Fees And Expenses		*
Israel Securities Authority fee		*
Tel Aviv Stock Exchange fee		*
Printing and Engraving Expenses		*
Legal Fees and Expenses		*
Accounting Fees and Expenses		*
Transfer Agent and Registrar Fees and Expenses		*
Miscellaneous Expenses		*
Total		*

* To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

We are incorporated under the laws of the State of California. Section 317 of the California Corporations Code authorizes a court to award, or a corporation’s Board of Directors to grant, indemnity to directors and officers who are parties or are threatened to be made parties to any proceeding (with certain exceptions) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation. Section 204 of the California Corporations Code provides that this limitation on liability has no effect on a director’s liability (a) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (b) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (c) for any transaction from which a director derived an improper personal benefit, (d) for acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of a serious injury to the corporation or its shareholders, (e) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, (f) under Section 310 of the law (concerning contracts or transactions between the corporation and a director), or (g) under Section 316 of the law (directors’ liability for improper dividends, loans and guarantees). Section 317 does not extend to acts or omissions of a director in his capacity as an officer. Further, Section 317 has no effect on claims arising under federal or state securities laws and does not affect the availability of injunctions and other equitable remedies available to our shareholders for any violation of a director’s fiduciary duty to us or our shareholders. Although the validity and scope of the legislation underlying Section 317 have not yet been interpreted to any significant extent by the California courts, Section 317 may relieve directors of monetary liability to us for grossly negligent conduct, including conduct in situations involving attempted takeovers of Quark.

In accordance with Section 317, our articles of incorporation eliminate the liability of each of our directors for monetary damages to the fullest extent permissible under California law. Our articles of incorporation further authorize us to provide indemnification to our agents (including our officers and directors), subject to the limitations set forth above. The articles of incorporation and our amended and restated bylaws further provide for indemnification of our officers and directors to the maximum extent

II-1

permitted by California law, and also permit the indemnification of other corporate agents to the maximum extent permitted by California law at the discretion of our Board of Directors. Additionally, we maintain insurance policies which insure our officers and directors against certain liabilities.

The foregoing summaries are necessarily subject to the complete text of the California Corporations Code, our articles of incorporation, our amended and restated bylaws and the agreements referred to above and are qualified in their entirety by reference thereto.

As permitted by the California Corporations Code, we have entered into indemnity agreements with each of our directors and executive officers, that require us to indemnify such persons against any and all expenses (including attorneys’ fees), witness fees, damages, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any action, suit or proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of Quark or any of its affiliated enterprises, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

ITEM 15. Recent Sales of Unregistered Securities.

The following list sets forth information regarding all unregistered securities sold by us since our inception through October 31, 2010 and gives effect to a 2.9-for-1 reverse split of our outstanding shares of common stock which became effective June 4, 2007. The shares of preferred stock described below were not recombined under the reverse stock split. However, the conversion ratios of the preferred shares will adjust automatically under provisions contained in our amended and restated articles of incorporation and will give effect to the reverse split upon the conversion of the preferred shares into common shares at the completion of this offering.

(1) We have granted options under our 1994 Stock Option Plan, to purchase 389,644 post-split shares of common stock to our employees, directors, and consultants, having exercise prices ranging from $0.00029 to $1.16 per share. Of these, options to purchase 336,199 shares of common stock have been exercised for aggregate consideration of $162,072.50, at exercise prices ranging from $0.00029 to $1.16 per share.

(2) We have granted options under our 1997 Stock Plan, to purchase 1,237,760 post-split shares of common stock to our employees, directors, and consultants, having exercise prices ranging from $1.16 to $17.40 per share. Of these, options to purchase 47,595 shares of common stock have been exercised for aggregate consideration of $92,300.74, at exercise prices ranging from $1.16 to $17.40 per share.

(3) We have granted options under our 2003 Israeli Stock Plan, to purchase 168,644 post-split shares of common stock to our Israeli employees, directors, and consultants, with an exercise price of $5.80 per share. Of these, options to purchase 1,724 shares of common stock have been exercised for aggregate consideration of $10,000.00.

(4) We have granted options under our 2007 Equity Incentive Plan, to purchase 3,464,961 post-split shares of common stock to our employees and consultants, at exercise prices ranging from $1.10 to $17.40. Of these, options to purchase 57,181 shares of common stock have been exercised for aggregate consideration of $89,586.92, at exercise prices ranging from $1.10 to $7.975 per share.

(5) On January 14, 1994, we issued and sold 1,724,137 post-split shares of our common stock to one of our founders and executive officers for $500.00.

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(6) On January 14, 1994, we issued and sold 206,896 post-split shares of our common stock to one of our founders and executive officers for $60.00.

(7) On January 14, 1994, we issued and sold 112,068 post-split shares of our common stock to one of our founders and executive officers for $32.50.

(8) On January 14, 1994, we issued and sold 232,758 post-split shares of our common stock to one of our founders and executive officers for $67.50.

(9) On January 14, 1994, we issued and sold 344 post-split shares of our common stock to one of our executive officers for $0.10.

(10) On February 18, 1994, we issued and sold an aggregate of 645,000 shares of our Series A preferred stock (222,409 shares of common stock on an as-converted, post-split basis) to a total of 11 accredited investors for aggregate consideration of $806,250.00.

(11) On March 14, 1994, we issued and sold an aggregate of 543,000 shares of our Series A preferred stock (166,547 shares of common stock on an as-converted, post-split basis) to a total of 14 accredited investors for aggregate consideration of $678,750.00.

(12) On March 31, 1994, we issued and sold an aggregate of 132,000 shares of our Series A preferred stock (45,514 shares of common stock on an as-converted, post-split basis) to a total of 6 accredited investors for aggregate consideration of $165,000.00.

(13) On May 3, 1994, we issued and sold 40,000 shares of our Series A preferred stock (13,793 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $50,000.00.

(14) On June 1, 1995, we issued and sold 4,000,000 shares of our Series B preferred stock (1,379,310 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $5,000,000.00.

(15) On August 30, 1995, we issued and sold an aggregate of 266,824 shares of our Series B preferred stock (75,829 shares of common stock on an as-converted, post-split basis) to a total of 8 accredited investors for aggregate consideration of $333,530.00.

(16) On October 3, 1996, we issued and sold 1,375,000 shares of our Series C preferred stock (474,137 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $5,500,000.00.

(17) On December 31, 1996, we issued and sold an aggregate of 68,692 shares of our Series C preferred stock (23,683 shares of common stock on an as-converted, post-split basis) to a total of 7 accredited investors for aggregate consideration of $274,768.00.

(18) On May 30, 1997, we issued and sold 125,000 shares of our Series C preferred stock (43,103 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $500,000.00.

(19) On August 28, 1997, we issued and sold 5,000,000 shares of our Series D preferred stock (1,724,137 shares of common stock on an as-converted, post-split basis) and issued a warrant to purchase up to 4,125,000 shares of our Series D preferred stock (1,422,413 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $20,000,000.00.

(20) On September 9, 1997, we issued and sold 439,413 shares of our Series D preferred stock (151,521 shares of common stock on an as-converted, post-split basis) and issued a warrant to purchase up to 410,940 shares of our Series D preferred stock (141,703 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $1,757,652.00.

(21) On December 17,1999, we issued and sold 2,034,588 shares of our Series E preferred stock (701,582 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $20,000,000.00.

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(22) On May 26, 2000, we issued and sold an aggregate of 16,232 shares of our Series E preferred stock (5,594 shares of common stock on an as-converted, post-split basis) to a total of 6 accredited investors for aggregate consideration of $159,569.56.

(23) On March 27, 2001 we issued and sold an aggregate of 458,333 shares of our Series F preferred stock (158,044 shares of common stock on an as-converted, post-split basis) to a total of 2 accredited investors for aggregate consideration of $5,499,996.00.

(24) On April 12, 2001 we issued and sold an aggregate of 335,434 shares of our Series F preferred stock (115,666 shares of common stock on an as-converted, post-split basis) to a total of 2 accredited investors for aggregate consideration of $4,025,208.00.

(25) On June 25, 2001 we issued and sold 250,000 shares of our Series F preferred stock (86,206 shares of common stock on an as-converted, post-split basis) to 1 accredited investor for $3,000,000.00.

(26) On September 30, 2001 we issued and sold an aggregate of 99,997 shares of our Series F preferred stock (34,977 shares of common stock on an as-converted, post-split basis) to a total of 7 accredited investors for aggregate consideration of $1,199,964.00.

(27) On December 27, 2005, we issued and sold an aggregate of 7,342,646 shares of our Series G preferred stock (2,531,945 shares of common stock on an as-converted, post-split basis) and issued warrants to purchase up to 1,468,528 shares of our common stock (506,388 shares of common stock on a post-split basis) to a total of 4 accredited investors for aggregate consideration of $10,499,983.78.

(28) On February 24, 2006, we issued and sold an aggregate of 1,923,086 shares of our Series G preferred stock (663,132 shares of common stock on an as-converted, post-split basis) and issued warrants to purchase up to 384,617 shares of our common stock (132,625 shares of common stock on a post-split basis) to a total of 3 accredited investors for aggregate consideration of $2,750,012.98.

(29) On May 1, 2006, we issued and sold an aggregate of 1,223,779 shares of our Series G preferred stock (421,991 shares of common stock on an as-converted, post-split basis) and issued warrants to purchase up to 244,755 shares of our common stock (84,396 shares of common stock on a post-split basis) to a total of 3 accredited investors for aggregate consideration of $1,750,003.97.

(30) On March 19, 2008, we issued and sold an aggregate of 2,780,000 shares of our Series H preferred stock (2,780,000 shares of common stock on an as-converted, post-split basis) to a total of 3 accredited investors for aggregate consideration of $13,900,000.

(31) On April 7, 2008, we issued and sold an aggregate of 2,620,000 shares of our Series H preferred stock (2,620,000 shares of common stock on an as-converted, post-split basis) to a total of 11 accredited investors for aggregate consideration of $13,100,000.

(32) On May 17, 2010, we issued and sold an aggregate of 2,000,000 shares of our Series H preferred stock (2,000,000 shares of common stock on an as-converted, post-split basis) and issued warrants to purchase up to 300,000 shares of our Series H preferred stock to a total of 9 accredited investors for aggregate consideration of $10,000,000. The warrants issued in this transaction were subsequently exercised on October 18, 2010 for aggregate consideration of $1,500,000.

The offers, sales and issuances of the securities described in Item 15(1) through 15(4) were exempt from registration under the Securities Act under Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or consultants and received the securities under our 2007 Equity Incentive Plan, 1997 Stock Plan, 2003 Israeli Stock Option Plan or 1994 Stock Option Plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment or business relationships, to information about us.

II-4

The offers, sales, and issuances of the securities described in Items 15(5) through 15(32) were exempt from registration under the Securities Act under Section 4(2) of the Securities Act and Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited or sophisticated person and had adequate access, through employment, business or other relationships, to information about us.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

Exhibit Number	Description of Document
3.1*	Amended and Restated Articles of Incorporation of the Registrant, effective March 11, 2008.
3.2*	Certificate of Amendment of Amended and Restated Articles of Incorporation of the Registrant, effective May 17, 2010.
3.3*	Amended and Restated Bylaws of the Registrant, as currently in effect.
4.1	Reference is made to exhibits 3.1 and 3.2.
4.2*	Specimen Common Stock Certificate.
4.3*	Fourth Amended and Restated Investor Rights Agreement, dated as of March 19, 2008, by and between the Registrant and the persons and entities named therein.
4.4*	Form of Series H Preferred Stock Purchase Warrant of Registrant.
4.5†	Form of Warrant to Purchase Common Stock of Registrant.
5.1†	Opinion of Cooley LLP.
10.1*#	Form of Indemnitee Agreement between the Registrant and its officers and directors.
10.2*#	Employment Agreement, dated as of January 1, 2008, by and between the Registrant and Daniel Zurr.
10.3	Reserved.
10.4*#	Employment Agreement, dated as of September 14, 1997, by and between QBI Enterprises, Ltd. and Smadar Samira Shakked.
10.5	Reserved.
10.6*#	Employment Agreement, dated as of May 10, 2007, by and between QBI Enterprises, Ltd. and Rami Skaliter.
10.7*#	Employment Agreement, dated as of May 10, 2007, by and between QBI Enterprises, Ltd. and Juliana Friedmann.
10.8*#	Employment Agreement, dated as of March 9, 2003, by and between Registrant and Shai Erlich.
10.9*#	Employment Agreement, dated as of June 28, 2007, by and between QBI Enterprises, Ltd. and Elena Feinstein, M.D., Ph.D.
10.10*#	Employment Agreement, dated as of August 1, 2010, by and between QBI Enterprises, Ltd. and Sagit Reich.
10.11*#	1997 Stock Plan.
10.12*#	1997 Stock Plan for Israeli Employees.
10.13*#	Form of Option Agreement and Form of Option Grant Notice under the 1997 Stock Plan.
10.14*#	Form of Option Agreement and Form of Option Grant Notice under the 1997 Stock Plan for Israeli Employees.
10.15*#	2003 Stock Option Plan for Israeli Employees.
10.16*#	Form of Option Agreement and Form of Option Grant Notice under the 2003 Israeli Stock Option Plan.
10.17*#	2007 Equity Incentive Plan.
10.18*#	Form of Stock Option Agreement and Form of Option Grant Notice under the 2007 Equity Incentive Plan.
10.19*	Lease Agreement, dated September 8, 2006, by and between the Registrant and John Arrillaga, Trustee and Richard T. Peery, Trustee.
10.20*	Lease Contract, dated December 15, 1995, by and between the Registrant and Kiryat Weizmann Science Park Ltd.
10.21*+	Exclusive License Agreement, dated September 3, 1999, by and between the Registrant and The Board of Trustees of The University of Illinois.

II-5

Exhibit Number	Description of Document
10.22*+	Collaboration Agreement, dated as of December 6, 2004, by and among the Registrant, QBI Enterprises, Ltd., and Atugen AG (currently Silence Therapeutics).
10.23*+	Option and License Agreement, dated as of April 19, 2005, by and among the Registrant, QBI Enterprises, Ltd., and Atugen AG (currently Silence Therapeutics).
10.24*+	Amendment to Collaboration Agreement, dated as of May 25, 2006, by and among the Registrant, QBI Enterprises, Ltd., and Atugen AG (currently Silence Therapeutics).
10.25*+	Deed of Amendment and Option, dated as of September 25, 2006, by and among the Registrant, Atugen AG, QBI Enterprises, Ltd., and Pfizer Inc.
10.26*+	License Agreement, dated as of September 25, 2006, by and between Registrant and Pfizer Inc.
10.27*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.28*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.29*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.30*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.31+	First Amendment to the License Agreement between the Board of Trustees of The University of Illinois and the Registrant, dated March 23, 2007.
10.32*+	Amendment Number Two to the License Agreement between the Board of Trustees of The University of Illinois and the Registrant, dated December 22, 2009
10.33*+	Patent License Agreement dated January 29, 2010 with Dharmacon, Inc for the exclusive license of Dharmacon pending patent application covering certain sequences of the p53 gene.
10.34+	License And Collaboration Agreement between Nitto Denko Corporation and the Registrant, dated June 30, 2010
10.35+	Option Agreement between Novartis International Pharmaceutical Limited and the Registrant, dated August 17, 2010
10.36†#	2010 Employee Stock Purchase Plan.
10.37*+	Addendum No. 1 to Option and License Agreement, dated as of July 30, 2007, by and between Registrant and Silence Therapeutics AG.
10.38*+	Amendment to License Agreement, dated as of May 19, 2008, by and between Registrant and Pfizer Inc.
10.39*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
10.40*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
10.41*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
10.42*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
21.1*	List of Subsidiaries of the Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
23.2†	Consent of Cooley LLP (included in Exhibit 5.1).
23.3†	Consent of Independent Valuation Consultant
24.1*	Power of Attorney (included in signature page).

* Previously filed.

† To be filed by amendment.

# Indicates management contract or compensatory plan.

+ The Company has requested confidential treatment with respect to certain portions of this exhibit, which have been separately filed with the Securities and Exchange Commission.

(b) Financial Statement Schedules.

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

II-6

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on the 17^th day of December, 2010.

	QUARK PHARMACEUTICALS, INC.
	By: /s/ Daniel Zurr, Ph.D. President and Chief Executive Officer

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Daniel Zurr, Ph.D. Daniel Zurr, Ph.D.	President, Chief Executive Officer and Director (Principal Executive Officer)	December 17, 2010
/s/ Sagit Reich Sagit Reich	Chief Financial Officer (Principal Financial and Accounting Officer)	December 17, 2010
* Philip B. Simon	Chairman of the Board	December 17, 2010
* Philip M. Hahn	Vice-Chairman of the Board	December 17, 2010
* Yoshitaka Kitao	Director	December 17, 2010
Toshihiro Toyoshima	Director
* Robert Takeuchi	Director	December 17, 2010
*By: /s/ Daniel Zurr, Ph.D. Daniel Zurr, Ph.D. Attorney-in-Fact

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EXHIBIT INDEX

Exhibit Number	Description of Document
3.1*	Amended and Restated Articles of Incorporation of the Registrant, effective March 11, 2008.
3.2*	Certificate of Amendment of Amended and Restated Articles of Incorporation of the Registrant, effective May 17, 2010.
3.3*	Amended and Restated Bylaws of the Registrant, as currently in effect.
4.1	Reference is made to exhibits 3.1 and 3.2.
4.2*	Specimen Common Stock Certificate.
4.3*	Fourth Amended and Restated Investor Rights Agreement, dated as of March 19, 2008, by and between the Registrant and the persons and entities named therein.
4.4*	Form of Series H Preferred Stock Purchase Warrant of Registrant.
4.5†	Form of Warrant to Purchase Common Stock of Registrant.
5.1†	Opinion of Cooley LLP.
10.1*#	Form of Indemnitee Agreement between the Registrant and its officers and directors.
10.2*#	Employment Agreement, dated as of January 1, 2008, by and between the Registrant and Daniel Zurr.
10.3	Reserved.
10.4*#	Employment Agreement, dated as of September 14, 1997, by and between QBI Enterprises, Ltd. and Smadar Samira Shakked.
10.5	Reserved
10.6*#	Employment Agreement, dated as of May 10, 2007, by and between QBI Enterprises, Ltd. and Rami Skaliter.
10.7*#	Employment Agreement, dated as of May 10, 2007, by and between QBI Enterprises, Ltd. and Juliana Friedmann.
10.8*#	Employment Agreement, dated as of March 9, 2003, by and between Registrant and Shai Erlich.
10.9*#	Employment Agreement, dated as of June 28, 2007, by and between QBI Enterprises, Ltd. and Elena Feinstein, M.D., Ph.D.
10.10*#	Employment Agreement, dated as of August 1, 2010, by and between QBI Enterprises, Ltd. and Sagit Reich.
10.11*#	1997 Stock Plan.
10.12*#	1997 Stock Option Plan for Israeli Employees.
10.13*#	Form of Option Agreement and Form of Option Grant Notice under the 1997 Stock Plan.
10.14*#	Form of Option Agreement and Form of Option Grant Notice under the 1997 Stock Plan for Israeli Employees.
10.15*#	2003 Stock Plan for Israeli Employees.
10.16*#	Form of Option Agreement and Form of Option Grant Notice under the 2003 Israeli Stock Option Plan.
10.17*#	2007 Equity Incentive Plan.
10.18*#	Form of Stock Option Agreement and Form of Option Grant Notice under the 2007 Equity Incentive Plan.
10.19*	Lease Agreement, dated September 8, 2006, by and between the Registrant and John Arrillaga, Trustee and Richard T. Peery, Trustee.
10.20*	Lease Contract, dated December 15, 1995, by and between the Registrant and Kiryat Weizmann Science Park Ltd.

Exhibit Number	Description of Document
10.21*+	Exclusive License Agreement, dated September 3, 1999, by and between the Registrant and The Board of Trustees of The University of Illinois.
10.22*+	Collaboration Agreement, dated as of December 6, 2004, by and among the Registrant, QBI Enterprises, Ltd., and Atugen AG (currently Silence Therapeutics).
10.23*+	Option and License Agreement, dated as of April 19, 2005, by and among the Registrant, QBI Enterprises, Ltd., and Atugen AG (currently Silence Therapeutics).
10.24*+	Amendment to Collaboration Agreement, dated as of May 25, 2006, by and among the Registrant, QBI Enterprises, Ltd., and Atugen AG (currently Silence Therapeutics).
10.25*+	Deed of Amendment and Option, dated as of September 25, 2006, by and among the Registrant, Atugen AG, QBI Enterprises, Ltd., and Pfizer Inc.
10.26*+	License Agreement, dated as of September 25, 2006, by and between Registrant and Pfizer Inc.
10.27*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.28*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.29*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.30*+	License Agreement, dated as of September 26, 2006, by and between the Registrant and Alnylam Pharmaceuticals, Inc.
10.31+	First Amendment to the License Agreement between the Board of Trustees of The University of Illinois and the Registrant, dated March 23, 2007.
10.32*+	Amendment Number Two to the License Agreement between the Board of Trustees of The University of Illinois and the Registrant, dated December 22, 2009.
10.33*+	Patent License Agreement dated January 29, 2010 with Dharmacon, Inc. for the exclusive license of Dharmacon pending patent application covering certain sequences of the p53 gene.
10.34+	License And Collaboration Agreement between Nitto Denko Corporation and the Registrant, dated June 30, 2010
10.35+	Option Agreement between Novartis International Pharmaceutical Limited and the Registrant, dated August 17, 2010
10.36†#	2010 Employee Stock Purchase Plan.
10.37*+	Addendum No. 1 to Option and License Agreement, dated as of July 30, 2007, by and between Registrant and Silence Therapeutics AG.
10.38*+	Amendment to License Agreement, dated as of May 19, 2008, by and between Registrant and Pfizer Inc.
10.39*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
10.40*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
10.41*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
10.42*+	Amendment No. 1 to License Agreement, dated as of July 30, 2007, by and between Registrant and Alnylam Pharmaceuticals, Inc.
21.1*	List of Subsidiaries of the Registrant.
23.1	Consent of Independent Registered Public Accounting Firm.
23.2†	Consent of Cooley LLP (included in Exhibit 5.1).

Exhibit Number	Description of Document
23.3†	Consent of Independent Valuation Consultant
24.1*	Power of Attorney (included in signature page).

* Previously filed.

† To be filed by amendment.

# Indicates management contract or compensatory plan.

+ The Company has requested confidential treatment with respect to certain portions of this exhibit, which have been separately filed with the Securities and Exchange Commission.

EX-10.31

Exhibit 10.31

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

FIRST AMENDMENT TO THE LICENSE AGREEMENT BETWEEN THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS AND QUARK BIOTECHNOLOGY, INC.

THIS FIRST AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT (the “First Amendment”) is made and entered into as of March 23, 2007 (“Amendment Date”) by and between THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS, a body corporate and politic of the State of Illinois, 1737 W. Polk St., Chicago, IL 60612 (“UNIVERSITY”) and QUARK BIOTECH, INC a California corporation, with a principal place of business at 6536 Kaiser Drive, Fremont, CA 94555 (“LICENSEE”).

WHEREAS, UNIVERSITY and LICENSEE entered into an EXCLUSIVE LICENSE AGREEMENT effective September 3, 1999 dated (“Agreement”) to license certain technology;

WHEREAS, UNIVERSITY and LICENSEE wish to amend the Agreement in the manner set forth in this First Amendment;

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree to amend the Agreement as follows:

Amendments:

I.   ARTICLE IV- PAYMENTS - - Sections 4.1 and 4.6 of the Agreement shall be deleted and replaced with the following:

4.1 For the rights, privileges and licenses granted hereunder, LICENSEE shall pay to the UNIVERSITY, in the manner hereinafter provided, on a country by country basis, until the end of the last to expire patent of the Patent Rights in such country, or until this Agreement shall be terminated, as hereinafter provided, whichever occurs first:

a) in the event of sales of Licensed Products or Licensed Processes by LICENSEE or any Affiliate -a royalty in an amount equal to [ * ] of the aggregate Net Sales by LICENSEE or any Affiliate, of the Licensed Products or Licensed Processes.

b) in the event of a Sublicense -

(i) a [ * ] share of all lump-sum payments received from sublicensees, including but not limited to upfront fees and milestone payments, and a pass-through royalty in an amount equal to [ * ] of the royalty payments received by LICENSEE from sublicensees, based on sales of Licensed Products or Licensed Processes by sublicensees, exclusive of income or transfer interests for value covered by Section 4.1(b)(ii) below; and amounts received by

LICENSEE as reimbursement of costs and expenses related to research or development of Licensed Products;

(ii) a [ * ] share of all equity received from sublicensees that are attributable to this License.  No payments will be made under this Section 4.1(b)(ii) to the extent already covered under Section 4.1(b)(i); and

(iii) a [ * ] license fee payment due within [ * ] of execution of a sublicense agreement granting a third party an exclusive Sublicense for [ * ].

c) a [ * ] license fee to be payable within [ * ] of execution of this First Amendment.

d) a [ * ] license fee payment due within [ * ] of [ * ].

It is clarified that the above milestone payments will be due [ * ] Licensed Product to achieve the relevant milestone event, and [ * ] shall be due hereunder with respect to each milestone events [ * ] such Licensed Products that achieve such milestone [ * ] countries in which they are achieved.

4.6 In the event that the LICENSEE’s, the Affiliate’s or its Sublicensee’s development, manufacture, use or sale of a Licensed Product or Licensed Process would constitute an infringement of patent right or intellectual property right of any third party, the Parties shall together use their reasonable endeavors to obtain an appropriate license from such third party. If such license requires LICENSEE to pay royalties to such third party, the royalty due and payable to UNIVERSITY under Sections 4.1(a) and (b) of this Agreement for sale of the Licensed Product or Licensed Process shall be reduced by [ * ] the amount which the LICENSEE is required to pay to said third party, provided that the royalty due to the UNIVERSITY hereunder shall not be reduced by more than [ * ]. The UNIVERSITY acknowledges for the purposes of this section 4.6, that the LICENSEE has obtained from Atugen AG and Alnylam Pharmaceuticals Inc. licenses for RNAi technology and relevant intellectual property.

II.   ARTICLE XIII- TERMINATION - Section 13.4 shall be added to Article XIII:

13.4         Upon termination of this Agreement for any reason, all Sublicenses shall terminate.  Provided that a Sublicensee is in compliance in all material respects with the terms of its Sublicense in effect on the date of termination, the UNIVERSITY will grant such Sublicensee that so requests, a license with royalty terms and such use rights and other terms as are substantially similar to this Agreement.  In no event shall UNIVERSITY have any obligations of any nature whatsoever with respect to (i) any past, current or future obligations that LICENSEE may have had, or may in the future have, for the payment of any obligations owing to Sublicensee pursuant to such Sublicense, (ii) any past obligations whatsoever, and (iii) any future obligations to Sublicensee beyond

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

those to LICENSEE as set forth herein.

All other terms set forth in the Agreement shall remain unchanged.

IN WITNESS WHEREOF, the parties have executed this First Amendment effective as of March 23, 2007.

THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS

By	/s/ Walter K. Knorr	Date:	4/9/07
	Walter K. Knorr, Comptroller
By	/s/ Michele M. Thompson	Date:	4/9/07
	Michele M. Thompson, Secretary

QUARK BIOTECH, INC.

By	/s/ D. Zurr	Date:	4/10/07
Printed Name:	Daniel Zurr, Ph.D.
Title:	President & CEO

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

EX-10.34

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

Exhibit 10.34

LICENSE AND COLLABORATION AGREEMENT

June 30, 2010 (the “Effective Date”)

In the interest of commencing the Project, the Parties have executed this Agreement in short form, recognizing that they are legally bound to the following terms and conditions. At the request of either Party, the Parties will promptly negotiate in good faith an expanded version of this Agreement containing additions terms and conditions customary to agreements of this nature and mutually agreed by the Parties.

1.  PARTIES	Nitto Denko Corporation (“Nitto”), whose address is HERBIS OSAKA, 2-5-25, Umeda, Kita-ku, Japan; and Quark Pharmaceuticals, Inc. (“Quark”), whose address is 6501 Dumbarton Circle, Fremont, CA 94555, USA.
2.  OBJECTIVES	As more fully described below, Nitto is interested in developing siRNA product(s) based on the suppression of the “Nitto Target Genes” (as defined below) alone or in combination with each other and/or with other genes (the “Products” as defined below). Quark has the know-how and the relevant intellectual property to generate and develop such products and has been performing a feasibility study for Nitto in this respect under the Collaborative Research Agreement dated the [*] as ammended between the Parties (the “Prior Agreement”).
	Therefore, Nitto and Quark hereby enter into a License and Collaboration Agreement (the “Agreement”), pursuant to which the parties will collaborate to develop the Product(s) for commercialization by Nitto. The Agreement covers all stages of Product discovery and development activities as will be defined more in detail below until the first IND is approved for the first Product in the name of Nitto (the “Project”). Nitto, at its sole discretion, shall have the right to decide at each stage whether it wishes to proceed to the following stage or terminate the Agreement at the conditions set forth in Section 7.
3.  DEFINITIONS
3.1  “Background IP”	The patents and patent applications and all other proprietary information, and know-how owned or controlled (including but not limited to IP jointly owned by a Party with a third party) by a Party or its affiliates and, in the case of patents and patent applications, filed before the execution date of the Agreement, that are reasonably necessary or useful for the execution of the Project, except any Jointly Owned IP (as defined below) under the Prior Agreement.
3.2  “Change of Control”	(1) An acquisition of Quark by another entity by means of merger, consolidation, or a purchase of all or substantially all of its assets, or (2) an acquisition of a majority of the outstanding voting stock of Quark by a single entity acting alone or together with its affiliates (excluding, however, any current stockholder of Quark or affiliates of a current stockholder).

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3.3  “Compound”	Any siRNA compound directed to one or more Nitto Target Genes (as defined below), generated during or as a result of the Prior Agreement or this Agreement or through the use of any know how and intellectual property generated under this Agreement or the Prior Agreement.
3.4  “Conjugated Compound”	A Compound conjugated with [*].
3.5  “Field”	Treatment, prevention and diagnosis of [*].
3.6  “First Commercial Sale”	The first commercial sale in an arms-length transaction of the first Product in a country after receipt by Nitto or any of its affiliates or sublicensees of regulatory approval in such country.
3.7  “Formulation”	A Compound formulated together with a [*] owned or controlled by Nitto (such [*]), together with [*].
3.8  “Jointly Owned IP”	Patents and patent applications and all other proprietary information owned jointly by the Parties as a result of the Prior Agreement or this Agreement.
3.9  “Net Sales”	The gross amount invoiced by Nitto or its affiliates or sublicensees on sales or other dispositions of Products to third parties which are not affiliates in those countries, less customary deductions (such as actual bad debts, sales returns quantity and cash discounts, rejected goods, recalls, returns, rebates, chargebacks, reimbursements or similar payments granted or given to wholesalers or other distributors, customs or excise duties, sales and use taxes included within the gross amount invoiced, and charges for freight and insurance].
3.10  “Nitto Target Genes”	·      [*] Additional Nitto Target Genes may be nominated by either Party and added by mutual agreement.
3.11  “Product”	Any product in pharmaceutical dosage form, containing one or more Compounds alone or in any combinations thereof that is being developed for potential commercialization in the Field. Products shall include the Formulation and the Conjugated Compound if these are elements of the pharmaceutical dosage form.
3.12  “Project”	The aggregate of research and development tasks in stages as detailed below for the development of a Product in the Field. The detailed research and development plan shall be attached to the Agreement as Appendix A and includes the followings:

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	Stage 1. All necessary tasks needed to [*] including [*] as well as [*]; Quark’s last task in this Stage 1 is [*] for [*] for [*] that is scheduled at the latest by [*]. Stage 1 is scheduled to end on [*], 2011; and
	Stage 2. All necessary tasks needed to [*]. Stage 2 is scheduled to end on [*]; and
	Stage 3. All necessary tasks needed to complete all IND-enabling activities, including [*], and obtaining the legal right to commence human clinical trials of Product under the IND, in the name of Nitto. Stage 3 - that is submission of IND application in the name of Nitto - is scheduled to end on [*], 2012.
	Appendix A also specifies which tasks will be performed by Quark and which will be performed by Nitto as well as the timelines of all tasks and deliverables.
	Appendix B attached to this Agreement is the Budget of Quark tasks according to Appendix A.
3.13  “Quark Licensed IP”	The patents and patent applications identified on the attached Exhibit 1, that are part of Quark Background IP, and all other proprietary information, and know-how owned or controlled by Quark or its affiliates as of the execution date of the Agreement or thereafter during the term of the Agreement that are reasonably necessary or useful for the research, development, manufacture, use, importation or sale of Compound, Formulation or Product in the Field, excluding, however, Jointly Owned IP.
3.14  “Territory”	Worldwide.
4.  GENERAL TERMS FOR PERFORMANCE OF R&D ACTIVITIES
4.1  Governance of Research and Development	Nitto and Quark will form a Joint Development Committee (“JDC”) composed of members of both Parties and chaired by a Nitto representative, to review and discuss all development and intellectual property protection activities including but not limited to achievement of the Project aims set forth at each stage of this Project (the “Project Goals”) and changes to be implemented in the program (thus changing the Appendix A attached hereto) as well as changes to the Budget, if necessary, to reflect changes in the Project program. It is agreed between the Parties, however, that changes to the Budget will have to be approved by each Party’s management. The JDC will meet once every [*] or as otherwise determined by its members, at times and locations to be determined. Each Party will bear its own expenses associated with the preparation and meetings of the JDC meetings. If the Parties are unable to agree, [*] provided that [*], and provided further that the JDC shall not have authority to [*] assigned to [*] in the Project to any material degree without the consent of [*].

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	The JDC shall not have any authority to amend the terms of the Agreement. Following the completion of Stage 3, the JDC shall continue to meet periodically solely for advisory purposes, and Quark shall have the right to discontinue its participation upon written notice, in which case the JDC shall disband.
4.2  Performance of the R&D, Quark Undertakings	Quark will use diligent efforts to carry out all of its tasks in the Project in a timely and effective manner. If the Project will contemplate tasks to be performed by Nitto, Nitto will make a similar undertaking.
	Quark will nominate the key personnel to implement the Project (the “Project Team”), which will include a Project Manager and liaison manager (window person) for the communication between Nitto and Quark. The organization of the Project Team is attached to this Agreement as Appendix C. Nitto will also nominate a Project Manager and a window person for the smooth communication between the Parties.
	Both Parties may change Project Manager and window person according to the Project stage being performed.
4.3  Reporting	During the Agreement, Quark shall keep Nitto informed of, and promptly provide, all data and information relating to the Compounds, Formulation, Products and Conjugated Compound that Quark generates. If the Project will contemplate tasks to be performed by Nitto, Nitto shall keep Quark informed of, and promptly provide, all data and information relating to the specific tasks that Nitto will perform. Nitto will also provide to Quark any other data, information and materials controlled by Nitto that are reasonably necessary for Quark to carry out its tasks under the Project.
	For such purpose, the window persons of the Parties shall be in close contact with each other at all times and communicate with each other’s representatives by email or telephone frequently (daily if required). Absent unusual developments, written summary progress reports shall be provided by both Parties through the mechanism of JDC meetings ([*]).
	Quark will submit detailed reports as follows:
	Upon the end of the task [*], as stated in section 3.12, Quark shall submit to Nitto a detailed report (the “[*] Report”). Upon the end of Stage 1 Quark shall submit a detailed Stage 1 report (the “Stage 1 Final Report”) to the JDC. This Stage 1 Final Report together with the [*] shall be the basis for Nitto decision whether to move forward to Stage 2 as provided in paragraph 7.2.(iii).(a).

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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	In the event that Nitto decides to continue to Stage 2, at the end of Stage 2 Quark will submit a second detailed final report (the “Stage 2 Final Report”) to the JDC. This Stage 2 Final Report shall be the basis for Nitto decision whether to move forward to Stage 3 as provided in paragraph 7.2.(iii).(b).
	In the event that Nitto decides to continue to Stage 3, at the end of Stage 3, a third detailed final report (the “Stage 3 Final Report”) will be submitted to the JDC. Upon submission of the IND for a Product Quark shall provide to Nitto the full IND documentation(s). The Stage 3 Final Report shall be a basis for Nitto decisions provided in paragraph 7.2.(iii).(c).
4.4  Intellectual Property	Each Party will own and continue to maintain its Background IP at its own expense.
	With respect to new intellectual property (including patents), arising out of the performance of this Agreement (a) inventorship will be determined according to the US laws and regulations relating to patents; and (b) such new intellectual property will be jointly owned by Nitto and Quark on an equal basis. The Jointly Owned IP patents and patent applications will be filed by Quark in the name of both Nitto and Quark, and maintained by Quark in close consultation with Nitto. Quark shall have primary rights to enforce the Joint IP and handle litigation in close consultation with Nitto and shall have the primary rights to defend third party claims against the foregoing. Nitto and Quark shall share all expenses related to intellectual property protection on an equal basis, including filing, maintaining patent applications and patents and all costs associated with litigation related to Jointly Owned IP, including interferences and other administrative proceedings.
4.5  Quark’s Warranty/ Covenant	As of the Effective Date, Quark represents and warrants to Nitto that:
	1)    Quark has neither contracts nor obligation with any third party, which would conflict with, result in any violation of, or give rise to an adverse effect on, this Agreement, and will not enter into or establish any such contract or obligation during the term of this Agreement.
	2)    Quark understands Nitto’s purpose to develop a new drug for humans using the results of the Project, and therefore Quark shall conduct, and shall use reasonable efforts to cause its contractors and consultants to conduct, all its activities contemplated under this Agreement in accordance with (i) all applicable Laws of the country in which such activities are conducted, and (ii) known or published standards of the applicable Governmental Authority of such country.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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	3)    The composition of the Compound selected by Quark for development under the IND will not infringe any third party IP. With respect to the Product, the Parties recognize that (i) the Formulation has been developed by Nitto and (ii) the elements of the Conjugated Compound, Formulation and Product have not yet been determined. However, to the best knowledge of Quark, in reliance on the assumption that [*] does not [*], Quark will be able to select a Conjugated Compound and Product that does not infringe any third party IP. [*] shall [*] and report the result of [*] to [*] as rapidly as possible.
4.6  Clinical Development	After the IND, Nitto will be responsible for diligently conducting, at its sole expense, the remaining clinical and other development of the Product. Nitto shall report [*] to Quark the development progress and future development and commercialization plans. Nitto may request Quark to perform for Nitto part or all of such clinical trial. In such case, if Quark will accept Nitto’s offer, the Parties shall agree on the cost and other terms of Quark’s participation in the clinical development. It is clarified that the terms of the license granted to Nitto in this Agreement shall remain the same even if Quark performs part or all of the clinical development.
4.7 Commercialization	Nitto will be solely responsible for the commercialization of the Product in the Field and Territory, including regulatory, manufacturing, marketing and sales activities, subject only to the terms of this Agreement.
4.8  Exclusivity of Research	During the term of this Agreement, and thereafter if Nitto purchases the share of Quark’s ownership of the jointly Owned IP and the grant of non-exclusive license of Quark Licensed IP in accordance with subsections 7.2 (iii)(a) through (d) or subsection 7.2 (iv)(c), or if Nitto terminates this Agreement because of Quark’s Change of Control or Quark’s material breach in accordance with subsection 7.2 (i) or 7.2 (ii) respectively, neither Quark nor any of its affiliates shall, directly or indirectly, whether on its own or with a third party, perform any research with respect to, or develop or commercialize, the Nitto Targets, Formulation, Products or Nitto Target-directed siRNA.
5.  LICENSE TO NITTO
5.1  Licenses	Subject to the terms and conditions of the Agreement: (i)   Quark hereby grants Nitto, as of the Effective Date, an exclusive worldwide, royalty-bearing license, with the right to sublicense, under any Jointly Owned IP, to develop, make, have made, use, sell, have sold, offer for sale and import such Products in the Field in the Territory. This is license is subject to Quark’s use of Jointly Owned IP for internal research purposes and for other purposes outside of the scope of the foregoing license.

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	(ii)  Furthermore, Quark hereby grants, Nitto, as of the Effective Date, a non-exclusive worldwide, royalty-bearing license under Quark Licensed IP, for the sole and exclusive purposes to develop, make, have made, use, sell, have sold, offer for sale and import such Products in the Field in the Territory. Such license is granted with the limited right to sublicense only in conjunction with the sublicensing under (i) above. It is clarified that during the term of this Agreement, Quark undertakes that it shall not grant similar license to any third party for research, development and commercialization of siRNA compounds directed to Nitto Targets in the Field in the Territory. Except as specifically indicated in this subsection, Quark shall remain fully free to use, transfer rights and exploit the Quark Licensed IP without accounting to Nitto.
6.  FINANCIAL PROVISIONS
6.1  Research Funding	As partial compensation for performing the Project by Quark, according to Appendix A but not including [*], Nitto shall pay to Quark the total sum of United States Dollars [*] (the “Initial Research Funding”) provided that if and when the [*], then additional United States Dollars [*] shall be added to the Initial Research Funding for a total sum of United States Dollars [*] for the full Project in Appendix A (the “Full Research Funding”), such additional [*] shall be paid to Quark within [*] after such JDC approval. The Initial Research Funding shall be paid by Nitto in installments as follows :
	(i)   United States Dollars two million, two hundred thousand only (US$2,200,000) upon receipt of Nitto of Quark’s invoice containing its designated bank account information within [*] from the Effective Date.
	(ii)  United States Dollars [*], upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the date of [*].
	(iii)  United States Dollars [*], upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the date of [*].
	(iv)  United States Dollars [*] upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the date of [*].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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	(v)     United States Dollars [*] upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the date of [*].
	(vi)     United States Dollars [*] upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the date of [*].
	(vii)    United States Dollars [*] upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the [*].
	(viii)   United States Dollars [*] upon receipt by Nitto of Quark’s invoice containing its designated bank account information, within [*] from the date [*].
	The JDC shall [*].
6.2  Milestone Payments	If Nitto has not elected to purchase the ownership interest of Quark in the Jointly Owned IP and to obtain the non-exclusive license under the Quark Licensed IP, by payment of any of the lump sums provided in subsection 7.2.(iii)(a) or (b) within [ * ], Nitto and Quark will discuss in good faith and determine the details of the milestone payments with respect to the Product (the “Milestone Payment”) [ * ]. In the event that the Parties are unable to achieve agreement on the Milestone Payments [ * ], the Parties shall engage an arbitrator under Section 8.1.
6.3  Payments in case of sublicensing	If Nitto has not elected to purchase the ownership interest of Quark in the Jointly Owned IP and to obtain the non-exclusive license under the Quark Licensed IP, by payment of any of the lump sums provided in subsection 7.2.(iii) (a) or (b) within [ * ], Nitto and Quark will discuss in good faith and determine the details of the sublicensing payments with respect to the Product (the “Sublicensing Payment”), in case of sublicensing by Nitto of the Product to a third party, [ * ]. In the event that the Parties are unable to achieve agreement on the Sublicensing Payments [ * ], the Parties shall engage an arbitrator under Section 8.1.
6.4  Royalties	Nitto will pay a royalty on annual Net Sales (by Nitto or its affiliates or sublicensees) of the Products at the rate of [*] on a country-by-country basis.
	Royalties will be payable for the period from the First Commercial Sale of the Product until the later of (a) 10 years and (b) the last to expire patent of the Jointly Owned IP.
6.5  Royalty Reductions	The royalties will be reduced to [*] of the royalty rate in Section 6.4 above on a country-by-country basis if there is no patent issued within the Jointly Owned IP or the Quark Licensed IP in a country, or there is generic competition in a country, with respect to the Products. However, such royalty reduction shall not apply if there is [*] (which has been [*] for not more than [*]) and there is no generic competition.
	If Nitto determines that it must acquire rights of third party IP in order to research, develop, manufacture, use, import, sell or otherwise commercialize the Product (for reasons other than IP covering the [*]), Nitto shall have the right to acquire such rights through a license or otherwise and deduct from the payments due to Quark [*] of the amounts paid by Nitto to such third party, subject to a maximum reduction limit so that royalties payable to Quark are not reduced by more than [*].

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6.6  Reporting and Audit Rights	Nitto shall submit reports of Net Sales and make royalty payments on a quarterly basis within [*] after the end of each calendar quarter. Quark shall have the right to audit the Net Sales of Nitto and its sublicensees at its own expense, provided that Nitto shall bear the expenses of any audit that establishes an underpayment of more than [*].
7.  TERM AND TERMINATION
7.1  Term	The term of the Agreement will commence upon execution and continue until the expiration of the royalty obligations of Nitto, unless earlier terminated as permitted by the Agreement.
7.2  Termination	(i) Termination for Change of Control: In the event of a Change of Control of Quark prior to the completion of Stage 3, Quark shall notify Nitto of such event in writing immediately and cause such third party acquiring the control of Quark to deliver to Nitto a written commitment to comply with this Agreement. If Quark fails to do so, Nitto shall have the right to terminate promptly the Agreement. In case of termination, all Jointly Owned IP shall be completely assigned to Nitto for the development, commercialization and sale of Products in the Field, unconditionally and without any fee and compensation. Quark undertakes to process such assignment of its share in the Jointly Owned IP expeditiously and to provide to Nitto rights and title to all the results, documents, etc. related to the Product in the Field. In addition Quark shall provide a non-exclusive worldwide, royalty-free license of any Quark Licensed IP that may be necessary for development, commercialization and sale of the Product in the Field.
	(ii) Termination for Cause (Material Breach): Either Party will have customary rights to terminate the Agreement in the event of material breach of the other Party (subject to a [*] cure period). Either Party terminated by the other Party under this subsection shall transfer or assign its share of the Jointly Owned IP to the other Party unconditionally and without any fee and compensation. In case of the termination by Nitto of this Agreement due to Quark’s material breach, including but not limited to a material violation of Quark’s warranty and covenant set forth in Section 4.5, Quark shall provide to Nitto a non-exclusive worldwide, royalty-free license of any Quark Licensed IP that may be necessary for development, commercialization and sale of the Product. The scope of material breach if any and its damages shall be settled by mutual consultation of both Parties, and if not settled, by an arbitration set forth in Section 8.1, in addition to any other remedies provided under New York law.

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In the event of a dispute about whether a material breach has occurred, termination of this Agreement shall not be effective until after an arbitration under Section 8.1 has determined that a material breach occurred and was not cured on a timely basis.

(iii) Termination by Nitto Without Cause: Nitto may terminate this Agreement and the Licenses herein without cause, entirely at the following times (at the end of each Stage) and conditions.

(a) After completion of Stage 1 but before completion of Stage 2: Within [*] after [*] at the end of Stage 1 or [*] after the receipt by Nitto of the Stage 1 Final Report, whichever comes first, Nitto will inform Quark in writing if Nitto wishes to proceed on to Stage 2. It is clarified that during this [*] period, Quark will continue the research and development of the Project according to Appendix A. In the event that Nitto decides to not to continue to Stage 2, this Agreement shall automatically terminate. Nitto may purchase the share of the ownership of Quark of the Jointly Owned IP and, furthermore, Quark will grant Nitto a non-exclusive license under the Quark Licensed IP for researching, developing, commercializing, and sale of Products in the Field in the Territory, all provided that Nitto shall pay an irrevocable amount of United States Dollars [*]. Nitto shall advise Quark of its election to purchase such IP and license rights, and make the related payment (if it elects to purchase such IP and license rights) within [*] following termination of this Agreement. Even after such purchasing, the Quark’s obligation for the maintenance, enforcement and handling litigation relating to such IP shall remain in effect, provided however that Nitto shall bear all expenses related to the above intellectual property protection. For the avoidance of doubt, if Nitto purchases such IP, Nitto shall evade paying royalty, Sublicensing Payment and Milestone Payment hereunder to Quark. If Nitto decides not to proceed to Stage 2 or does not purchase the Quark’s share of the Jointly Owned IP, [*] and the non-exclusive license of Quark Licensed IP to Nitto under subsection 5.1(ii) shall automatically terminate.

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(b) After completion of Stage 2 but before completion of Stage 3: Within [*] after the receipt by Nitto of the Stage 2 Final Report, Nitto will inform Quark in writing if Nitto wishes to proceed to Stage 3. In the event that Nitto decides not to continue to Stage 3, this Agreement shall automatically terminate. Nitto may purchase the share of the ownership of Quark of the Jointly Owned IP and, furthermore, Quark will grant Nitto a non-exclusive license under the Quark Licensed IP for researching, developing, commercializing and sale of Products in the Field in the Territory, all provided that Nitto shall pay an irrevocable amount of United States Dollars [*]. Nitto shall advise Quark of its election to purchase such IP and license rights, and make the related payment (if it elects to purchase such IP and license rights) within [*] following termination of this Agreement. Even after such purchasing, the Quark’s obligation for the maintenance, enforcement and handling litigation relating to such IP shall remain in effect, provided however that Nitto shall bear all expenses related to the above intellectual property protection. For the avoidance of doubt, if Nitto purchases such IP, Nitto shall evade paying royalty, Sublicensing Payment and Milestone Payment hereunder to Quark If Nitto decides not to proceed to Stage 3 or does not purchase the Quark’s share of the Jointly Owned IP, [*] and the non-exclusive license of Quark Licensed IP to Nitto under subsection 5.1(ii) shall automatically terminate.

(c) After completion of Stage 3 and submission of IND in the name of Nitto. Nitto may terminate the Agreement on [*] prior written notice at any time after the submission of the IND. In such case Nitto may purchase the share of the ownership of Quark of the Jointly Owned IP and, furthermore, Quark will grant Nitto a non-exclusive license under the Quark Licensed IP for researching, developing, commercializing, and sale of Products in the Field in the Territory, all provided that Nitto shall pay an irrevocable amount of United States Dollars [*]. Nitto shall advise Quark of its election to purchase such IP and license rights, and make the related payment (if it elects to purchase such IP and license rights) within [*] following termination of this Agreement. Even after such purchasing, the Quark’s obligation for the maintenance, enforcement and handling litigation relating to such IP shall remain in effect, provided however that Nitto shall bear all expenses related to the above intellectual property protection. For the avoidance of doubt, if Nitto purchases such IP, Nitto shall evade paying royalty, Sublicensing Payment and Milestone Payment hereunder to Quark. If Nitto decides not to purchase the Quark’ share of the Jointly Owned IP and license for the price indicated in this sub-section, then the provisions of section 7.2(iii)(e) below shall apply.

(d) Quark Bankruptcy or Insolvency. In the event of the bankruptcy or insolvency of Quark prior to the completion of Stage 3, Nitto shall have the right to immediately terminate this Agreement. If Nitto elects to purchase the ownership interest of Quark in the Jointly Owned IP and obtain the non-exclusive license under the Quark Licensed IP for researching, developing, commercializing, and sale of Products in the Field in the Territory, Nitto shall pay Quark [*] the amount applicable under the provisions of section 7.2(iii)(a) above (if Stage 1 has been completed but not Stage 2) or the provisions of section 7.2(iii)(b) above (if Stage 2 has been completed). The bankruptcy or insolvency of Quark after the completion of Stage 3 (or the bankruptcy or insolvency of Nitto at any time) shall have no effect under this Agreement.

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(e)  Consequences of Termination without Cause under subsection (c )above if Nitto does not purchase the Jointly Owned IP

e.1 Any licenses and other rights granted by either Party to the other will terminate and revert to the granting Party; and except as set forth in this Section, the rights and obligations of the Parties hereunder shall terminate as of the date of such termination.

e.2 Nitto hereby grants Quark, effective as of the date of such termination, a non-exclusive worldwide, royalty-bearing license, with the right to sublicense, under any Nitto Background IP (if necessary to practice the rights of this sub-Section) and agrees to assign to Quark Nitto’s interest in the Jointly Owned IP, to develop, make, have made, use, sell, have sold, offer for sale and import such Products as then being marketed or developed by Nitto subject only to commercially reasonable royalty and assignment price terms to be negotiated in good faith by the Parties;

e.3 Any license granted to Quark as described in the preceding subsection (e.2) will include the right to use clinical and regulatory data and information generated by Nitto for regulatory purposes relating to the applicable Products; It will also include assignment to Quark of all of its right, title and interest in and to all US and foreign regulatory submissions and Regulatory Approvals with respect to the applicable Products and all drug master files and drug dossiers with respect to the applicable Products.

(iv) Termination In The Event of Project Failure: The Parties recognize that pharmaceutical product development is inherently uncertain and that there is no assurance of success. In the event there is a material failure to achieve the Project Goals at any stage of this Project, Nitto shall have the right to terminate this Agreement as follows:

(a) Any licenses and other rights granted by either Party to the other will terminate and revert to the granting Party; and the rights and obligations of the Parties hereunder shall terminate as of the date of such termination; and

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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	(b) Even after such termination, Quark’s obligation for the maintenance, enforcement and handling litigation relating to the Jointly Owned IP shall remain in effect, and Nitto and Quark shall share all expenses related to intellectual property protection on an equal basis; and
	(c) If Nitto elects to purchase the ownership interest of Quark in the Jointly Owned IP and obtain the non-exclusive license under the Quark Licensed IP for researching, developing, commercializing, and sale of Products in the Field in the Territory, Nitto shall pay Quark [*] the amount applicable under the provisions of section 7.2(iii)(a) above (if Stage 1 has been completed but not Stage 2) or the provisions of section 7.2(iii)(b) above (if Stage 2 has been completed), provided however that if and when Nitto is able to [*] of [*] arising from the Project [*], then Nitto shall notify Quark in writing and shall pay Quark [*].
	(v) Consequences of Termination. In the event of termination, the provisions of this Agreement which by their terms would survive shall continue in effect, as well as the rights and remedies of the Parties accruing prior to termination.
8.  MISCELLANEOUS
8.1  Governing Law and Disputes	The laws of the State of New York, USA and Commercial Arbitration in accordance with ICC rules. Such arbitration shall be conducted in the English language and shall be held in New York, USA.
8.2  Compliance With Laws	In carrying out activities under this Agreement, each Party shall comply with all applicable laws.
8.3  Press Release	The Parties will issue a mutually agreed form of press release regarding the signing of the Agreement within 15 days from signature. In addition, in the event that public announcement to stockholders or others relating to this Agreement or the Project is required by any law or regulation, the Party making any such announcement shall give the other Party an opportunity to review in advance the manner or form of the announcement.
8.4  Confidentiality	The Parties will keep confidential the terms of this Agreement, except as required by law or by confidential due diligence by potential investors or acquirors. Prior to the commencement of work under this Agreement, the Parties shall execute a Confidentiality Agreement which shall provide for the non-disclosure and non-use of data, information and materials exchanged between the Parties, except for use and disclosure as reasonably required to perform work or exercise rights under this Agreement. Such obligation of confidentiality shall extend for the term of the Agreement plus [*].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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8.5  Relationship With Previous Agreements	This Agreement will terminate and supersede the Prior Agreement, and the joint Patent Application Agreement and the Memorandum of Understanding if entered into prior to execution of this Agreement, provided, however, that intellectual property created under such prior agreements shall continue to be owned in accordance with the provisions of such agreements (subject to the provisions related to Jointly Owned IP provided for in this Agreement). The Non-Disclosure Agreements of the Parties dated [*] and [*] shall remain in effect and shall apply to information exchanged pursuant to this Agreement, until the Parties replace those agreements with a new Confidentiality Agreement.
8.6  No Assignment	Neither this Agreement nor any of the one Party’s rights and obligations thereunder shall be assignable without prior written consent of the other Party.
8.7  Tax Matter	The Parties shall take all necessary measures to avoid double taxation on payments to be made under this Agreement.

[Remainder of page intentionally left blank - Signatures found on next page]

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in duplicate, signed and sealed by both Parties, and each original copy to be retained by each Party.

Signed for and behalf of:			Signed for and behalf of:
Nitto Denko Corporation			Quark Pharmaceuticals, Inc.
By	/s/ Kageshi Maruyama		By	/s/ D. Zurr
Name:	Kageshi Maruyama		Name:	Daniel Zurr
	Officer, General Manager of Corporate		Title:	President & CEO
Title:	Business Development Dept.
Date:	July 1st, 2010	in Japan	Date:	July 4, 2010	in USA

List of Appendices and Exhibits:

Appendix A- Project Description (Tasks, Project Goals, Timelines and Deliverables)

Appendix B- Budget

Appendix C- Initial Project Team

Exhibit 1- Patents and Patent Applications Included Within Quark Licensed IP

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Appendix A – Project Description (Tasks, Project Goals, Timelines and Deliverables)

[*]

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Appendix B – Budget

[*]

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Appendix C

[*]

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EXHIBIT 1 Patents and Patent Applications Included Within Quark Licensed IP

Quark Ref. No./ Pending Patent family members	Title	Priority Application(s) No. Priority Filing date (s)	International Appl. No. Application Filing date Publication No. Publication filing date
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

EX-10.35

Execution Copy

CONFIDENTIAL

 [ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Exhibit 10.35

Option Agreement

By And Between

Novartis International Pharmaceutical Limited

And

Quark Pharmaceuticals, Inc.

1.	DEFINITIONS AND INTERPRETATION	2
2.	OPTION GRANT	9
3.	GOVERNANCE AND DEVELOPMENT DURING OPTION PERIOD	9
4.	EXERCISE OF OPTION AND GRANT OF LICENSE	15
5.	CONFIDENTIALITY	19
6.	INTELLECTUAL PROPERTY	20
7.	TERM AND TERMINATION	22
8.	REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITIES	23
9.	PUBLICATIONS AND PUBLICITY	27
10.	GENERAL PROVISIONS	28

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

OPTION AGREEMENT

This OPTION AGREEMENT (“Option Agreement”) is made as of this 17th day of August, 2010 (“Option Agreement Effective Date”), by and between Novartis International Pharmaceutical Limited, located at 131 Front Street, Hamilton, Bermuda, a corporation organized and existing under the laws of Bermuda (“Novartis”) and Quark Pharmaceuticals, Inc., located at 6501 Dumbarton Circle, Fremont, CA 94555, U.S.A., a corporation organized and existing under the laws of California, U.S.A. (“Quark”).  Novartis and Quark are each referred to individually as a “Party” and together as the “Parties.”

RECITALS

WHEREAS, Quark owns or controls the Quark Patents and Quark Know-How (each as defined below) relating to the Quark Compounds (as defined below);

WHEREAS, Novartis wishes to obtain, and Quark wishes to grant to Novartis, an exclusive option to obtain exclusive rights to the Quark Compounds in the Field (as defined below).

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Parties agree as follows.

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions.  Unless the context otherwise requires, the terms in this Option Agreement with initial letters capitalized, shall have the meanings set forth below, or the meaning as designated in the indicated places throughout this Option Agreement.

“Affiliate” has the meaning set forth on Exhibit A.

 “AKI Final Report” means the complete, signed, detailed, data cleaned, statistically analyzed, unbiased, unblinded, unblended and cGCP audited and compliant final report(s) of the AKI Phase II Trial setting forth patient outcomes for [*] following dosing based on a fully monitored, cleaned, QA/QC assessed and locked database, the format and content of which shall be in accordance with the ICH E3 Guidelines, and which shall include all available raw data in a user-friendly electronic format, as well as primary and secondary efficacy endpoint data, all material efficacy, safety, clinical and medical data, and any other information related thereto.

“AKI First Interpretable Results” means an interim report of the AKI Phase II Trial setting forth patient outcomes for [*] following dosing based on cleaned, unbiased, unblinded data, the format and content of which shall be in accordance with the template attached as Exhibit J, and which shall include all available raw data in a user-friendly electronic format on a fully monitored, cleaned QA/QC assessed and locked database, as well as primary and secondary efficacy endpoint data, all material efficacy, safety, clinical and medical data, and any other information related thereto.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“AKI Indication” has the meaning set forth on Exhibit A.

“AKI Phase II Trial” means the Phase II Clinical Trial for use of a Product for the AKI Indication to be conducted by Quark in accordance with the AKI Phase II Trial Protocol.

“AKI Phase II Trial Protocol” means the draft protocol for the AKI Phase II Trial attached as Exhibit C, as such protocol may be amended by Quark from time to time prior to the Option Exercise Date.

“AKI Phase II Trial [*] Criteria” means the [*] criteria for the AKI Phase II Trial set forth on Exhibit D.

“Business Day” has the meaning set forth on Exhibit A.

“Calendar Quarter” has the meaning set forth on Exhibit A.

“Calendar Year” has the meaning set forth on Exhibit A.

“cGCP” means current good clinical practice as required by the FDA and all applicable FDA rules, regulations, orders and guidances, and the requirements with respect to current good clinical practices prescribed by the European Community and the ICH.

“cGLP” means current good laboratory practice as required by the FDA and all applicable FDA rules, regulations, orders and guidances, and the requirements with respect to current good clinical practices prescribed by the European Community and the ICH.

“cGMP” means current good manufacturing practices as required by the FDA under provisions of 21 C.F.R. parts 210 and 211 (as the same may be amended) and all applicable FDA rules, regulations, orders and guidances, and the requirements with respect to current good manufacturing practices prescribed by the European Community under provisions of “The Rules Governing Medicinal Products in the European Community, Volume 4, Good Manufacturing Practices, Annex 13, Manufacture of investigational medicinal products, July 2003,” as each may, from time to time, be amended, and the ICH.

“Claims” means all Third Party demands, claims, actions, proceedings and liability (whether criminal or civil, in contract, tort or otherwise) for losses, damages, reasonable legal costs and other reasonable expenses of any nature whatsoever.

“Commercialize” and “Commercialization” have the meaning set forth on Exhibit A.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“Commercially Reasonable Efforts” means the expenditure of those efforts and resources used [*] in pursuing development or commercialization of [*], or where [*] does not [*], the expenditure of such efforts and use of such resources [*].  For clarity, “Commercially Reasonable Efforts” shall be [*], accordingly, [*] with respect to [*] may [*] with respect to [*].

“Confidential Information” means all Know-How and other proprietary information and data of a financial, commercial or technical nature which the disclosing Party or any of its Affiliates has supplied or otherwise made available to the other Party or its Affiliates, whether made available orally, in writing or in electronic form, including information comprising or relating to concepts, discoveries, inventions, data, designs or formulae in relation to this Option Agreement.

“Damaged Party” has the meaning set forth in Section 8.6.

“Develop” and “Development” have the meaning set forth on Exhibit A.

“Development Costs” means expenses incurred by Quark in carrying out the remaining work under the Quark Development Plan, as agreed by the Parties in accordance with Section 3.2(e), calculated as the sum of the following:

(a) all [*] incurred by Quark with respect to the activities outlined in the Quark Development Plan, [*]; and

(b) the [*] in carrying out the activities outlined in the Quark Development Plan [*].

“Development Cost Budget” has the meaning set forth in Section 3.2(e).

“DGF DMC Top Line Interim Report” means an interim report(s) of DGF Phase II Trial (after each interim analysis) setting forth patient outcomes for [*] following dosing based on a partially monitored and source-verified data, provided however that all data fields relating to the analysis of the efficacy success criteria are [*].  All other data fields will be consistent with industry practices for interim review in an on-going blinded trial.  All data will be collected in a 21 C.F.R. 11 validated database with full audit trail.  All the DMC recommendations [*] as based on their review of un-blinded data, will be provided verbatim to Quark and Novartis.  Interim blinded data will also be provided in a user-friendly electronic format to Novartis.  Such blinded data shall include all material efficacy, safety, clinical and medical data, and any other information related thereto, including data relating to patient and graft survival.  Serious Adverse Event (SAE) listings and adverse events (AE) listings are based on the unlocked database.

“DGF Final Report” means the complete, signed, detailed, data cleaned, statistically analyzed, unbiased, unblinded, unblended and cGCP audited and compliant final report(s) of the DGF Phase II Trial setting forth patient outcomes for [*] following dosing based on a fully monitored, cleaned, QA/QC assessed and locked database, the format and content of which shall be in accordance with the ICH E3 Guidelines, and which shall include all available raw data in a user-friendly electronic format, as well as primary and secondary efficacy endpoint data, all material efficacy, safety, clinical and medical data, and any other information related thereto.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“DGF Indication” has the meaning set forth on Exhibit A.

“DGF Phase II Trial” means the Phase II Clinical Trial for use of a Product for the DGF Indication to be conducted by Quark in accordance with the DGF Phase II Trial Protocol.

“DGF Phase II Trial Protocol” means the protocol for the DGF Phase II Trial attached as Exhibit E, as such protocol may be amended by Quark from time to time.

“DGF Phase II Trial [*] Criteria” means the [*] criteria for the DGF Phase II Trial set forth on Exhibit F.

“DGF [*] Report” means the complete, signed, detailed, data cleaned, statistically analyzed, unbiased, unblinded and cGCP audited and compliant interim report(s) of the DGF Phase II Trial setting forth patient outcomes for [*] following dosing based on a fully monitored, cleaned, QA/QC assessed and locked database, the format and content of which shall be in accordance with the ICH E3 Guidelines, and which shall include all available raw data in a user-friendly electronic format, as well as primary and secondary efficacy endpoint data, all efficacy, safety, clinical and medical data, and any other information related thereto, including all available top line data relating to patient and graft survival, Serious Adverse Event (SAE) listings (including biopsy proven acute rejections) and adverse events (AE) listings based on the unlocked database for the period beyond the [*] locked data.

“DMC” means the Independent Data Monitoring Committee, consisting of external experts to the applicable Phase II Clinical Trial, to assess the progress, safety data and endpoint adjudication following a harmonized and standardized endpoint assessment and to perform pre-defined, semi-blended interim analyses.

“Draft Phase II Trial Report” has the meaning set forth in Section 3.5(a).

“Expiration Date” has the meaning set forth in Section 4.1(b)(v).

“Field” has the meaning set forth in Exhibit A.

“FTE Rate” means a rate of [*] US Dollars ($[*]) per Calendar Year based on the yearly time of an employee for a full-time equivalent scientific person year (consisting of a total of [*] hours per Calendar Year) of work, to be pro-rated on a daily basis if necessary (per Calendar Year amount to be divided by [*] to produce the rate per whole day consisting of eight (8) hours); such rate to [*] and [*]. For the avoidance of doubt, such rate includes [*] for which [*].  The FTE Rate shall be [*] to [*] in the [*] from the Option Agreement Effective Date.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder.

“HSR Filing Date” shall have the meaning set forth in Section 4.2.

“Insolvency Event” has the meaning set forth in Exhibit A.

“Joint Development Technology” means all Know-How and Patent Rights created, conceived, reduced to practice or invented jointly by (a) Quark, its Affiliates, agents or Third Parties acting on its behalf and (b) Novartis, its Affiliates, agents or Third Parties acting on its behalf, under this Option Agreement.

“Joint Discussion Committee”or “JDC” means the committee established as set forth inSection 3.1.

“Know-How” has the meaning set forth on Exhibit A.

“License” has the meaning set forth in Section 4.1(c).

“License Effective Date” means the later of (i) the Option Exercise Date or (ii) the date on which the waiting period provided by the HSR Act shall have terminated or expired without any action by any government agency or challenge to the License (or any other timeline required by another relevant agency or authority).

“Novartis Development Technology” means all Know-How and Patent Rights (if any) created, conceived, reduced to practice or invented solely by Novartis, its Affiliates, agents or by Third Parties acting on its behalf, in connection with the Quark Program during the term of this Option Agreement.

“Novartis Success Criteria Notice” has the meaning set forth in Section 4.1(a)(i)

“Option” has the meaning set forth in Section 2.1.

“Option Agreement Effective Date” shall have the meaning set forth in the first paragraph of this Option Agreement.

“Option Exercise Date” means the date (if any) on which Novartis exercises the Option in accordance with Section 4.1(a) (or Section 3.4(b), if applicable).

“Option Grant Fee” has the meaning set forth in Section 2.2.

“Option Period” means the period of time commencing on the Option Agreement Effective Date and ending on the earlier of (a) the Option Exercise Date; (b) the date on which the Option expires in its entirety pursuant to Section 4.1(b).

“Out-of-Pocket Cost” means direct project related expenses paid or payable to Third Parties and specifically identifiable and incurred in accordance with the Quark Development Plan; such expenses shall have been recorded [*] in accordance with Quark’s Accounting Standards and for the avoidance of doubt, [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“Patent Rights” has the meaning set forth in Exhibit A.

“Person”means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization or other entity.

 “Phase II Clinical Trial” has the meaning set forth in Exhibit A.

“Phase II Trial Reports” means, collectively, the DGF DMC Top Line Interim Report, the DGF [*] Report, the DGF Final Report, the AKI First Interpretable Results, and the AKI Final Report.

“Product” has the meaning set forth in Exhibit A.

“Quark Compounds” has the meaning set forth in Exhibit A.  

“Quark Development Plan” means Quark’s plan for the development of the Products through to completion of the AKI Phase II Trial and the DGF Phase II Trial, as set forth on Exhibit G, as such development plan may be amended by Quark from time to time prior to the Option Exercise Date.

“Quark Development Technology” means all Know-How and Patent Rights created, conceived, reduced to practice or invented solely by Quark, its Affiliates, agents or by Third Parties acting on its behalf, in connection with the Quark Program during the term of this Option Agreement.

“Quark Know-How” has the meaning set forth in Exhibit A.

“Quark Notice of [*]” has the meaning set forth in Section [*]

“Quark Patents” has the meaning set forth in Exhibit A.  

“Quark Program” means Quark’s program relating to the research and development of the Quark Compounds and the Products, including the AKI Phase II Trial and the DGF Phase II Trial.

“Quark Program Confidential Information” means information and data relating to the Quark Compounds, Product and/or Quark Program and the Quark Know-How, Quark Patents (to the extent not published) and other non-public Quark Technology, in each case, to the extent that such information and data is of a type and character which is, consistent with industry practice, kept confidential.

“Quark Technology” has the meaning set forth in Exhibit A, and shall include, for the avoidance of doubt, all Quark Development Technology.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“Regulatory Authority” has the meaning set forth in Exhibit A.

“Regulatory Filings” has the meaning set forth in Exhibit A.

“Section 8.1(a) Decision Period” has the meaning set forth in Section 4.1(a)(i).

“Senior Officers” means, for Novartis, the Head of Development (for Development matters) and Head of Business Development and Licensing (for all other matters) of Novartis Pharma AG, and for Quark, the Chief Executive Officer (for all matters).

“Territory” has the meaning ascribed to such term in Exhibit A.

“Third Party” means any Person other than a Party or an Affiliate of a Party.

“United States”or “US” means the United States of America, its territories and possessions.

“USD” or “US$” means the lawful currency of the United States.

1.2 Interpretation.  In this Option Agreement unless otherwise specified:

(a) “includes” and “including” shall mean respectively includes and including without limitation;

(b) a statute or statutory instrument or any of their provisions is to be construed as a reference to that statute or statutory instrument or such provision as the same may have been or may from time to time hereafter be amended or re-enacted;

(c) words denoting the singular shall include the plural and vice versa and words denoting any gender shall include all genders;

(d) the Exhibits and other attachments form part of the operative provision of this Option Agreement and references to this Option Agreement shall, unless the context otherwise requires, include references to the Exhibits and attachments;

(e) the headings in this Option Agreement are for information only and shall not be considered in the interpretation of this Option Agreement;

(f) general words shall not be given a restrictive interpretation by reason of their being preceded or followed by words indicating a particular class of acts, matters or things; and

(g) the Parties agree that the terms and conditions of this Option Agreement are the result of negotiations between the Parties and that this Option Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party participated in the preparation of this Option Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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2. OPTION GRANT

2.1 Option Grant. Subject to the terms and conditions of this Option Agreement, Quark hereby grants to Novartis an exclusive option to obtain the License (“Option”). Novartis may exercise its rights and perform its obligations under this Option Agreement itself or through any of its Affiliates; provided that Novartis shall remain primarily liable for any acts or omissions of its Affiliates under this Option Agreement or the License Agreement.

2.2 Option Grant Fee.  In consideration of the Option granted to Novartis hereunder, Novartis shall pay to Quark a one-time, non-refundable, non-creditable payment of ten million USD (US$ 10,000,000) (“Option Grant Fee”) within [*] days after receipt by Novartis of an original invoice for such amount from Quark in the form attached hereto as Exhibit H, which invoice shall be issued no earlier than the Option Agreement Effective Date.

2.3 Exclusivity During Option Period.  Throughout the Option Period Quark shall not initiate, solicit, discuss, negotiate or enter into any agreement or arrangement with any Third Party regarding any:

(a) license, assignment or other disposition of any of its rights (also by way of granting an option similar to the Option) in any Quark Compound, Product or [*] Quark Technology to any Third Party; or

(b) collaboration or license agreement with any Third Party in connection with the development and/or commercialization of any [*].

3. GOVERNANCE AND DEVELOPMENT DURING OPTION PERIOD

3.1 Joint Discussion Committee.

(a) The Parties will establish a Joint Discussion Committee, composed of [*] senior personnel of Quark and [*] senior personnel of Novartis (one (1) of which will be the Party’s Alliance Manager and which personnel for each Party, collectively, shall have a general understanding of drug manufacturing, development and commercialization issues).  Within [*] following the Option Agreement Effective Date, each Party will designate its initial members to serve on the JDC and notify the other Party of the dates of availability for the first meeting of the JDC.  Each Party may replace its representatives on the JDC on written notice to the other Party.

(b) At meetings of the JDC, Quark will update Novartis on, and the Parties will review and discuss, the status of Quark’s Development activities with respect to the Quark Compounds and the Product and any key issues encountered in the Development of the Quark Compounds and the Product.  Without limiting Quark’s obligations under Section 3.3(a), Quark shall deliver any data and/or information required to be delivered under Section 3.3(a) that has not yet been delivered within a reasonable period of time prior to the next JDC meeting.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(c) The JDC shall meet at least [*] per Calendar Year during the Option Period and at such other times as the JDC or the Parties may agree.  The first meeting of the JDC shall be held as soon as reasonably practicable, but in no event later than [*] following the Option Agreement Effective Date.  Meetings shall be held at such place or places as are mutually agreed or by teleconference or videoconference.  Each Party may from time to time invite a reasonable number of participants who are under obligations of confidentiality consistent with this Option Agreement, in addition to its representatives, to attend JDC meetings in a non-voting capacity, with the consent of the other Party (which shall not be unreasonably withheld).

(d) The Parties agree that the costs incurred by each Party in connection with its participation at any meetings under this Section 3.1 shall be borne solely by such Party.

(e) For avoidance of doubt, during the Option Period, Quark retains all decision making rights regarding Development of the Quark Compounds and the Product.  Quark will consider in good faith Novartis’ opinions as discussed during the JDC meetings but may amend the DGF Phase II Trial Protocol and the AKI Phase II Trial Protocol without Novartis’ consent.

3.2 Development During the Option Period.

(a) During the Option Period, Quark will have the sole right to conduct and will be responsible for conducting, at its sole expense, and shall use Commercially Reasonable Efforts to carry out, all research and preclinical, clinical and other development of the Quark Compounds and/or Product; provided that Novartis will provide, though its participation in the JDC, a reasonable degree of know-how and technical advice with respect to such activities; provided further that Quark shall not be obligated to conduct any research and preclinical, clinical and other development of the Quark Compounds and/or Product except as set forth below in Section 3.2(b).

(b) Without limiting Section 3.2(a) above, Quark will be responsible for completing, and shall use Commercially Reasonable Efforts to complete, at its sole cost and expense (except as provided below) and in accordance with the Quark Development Plan, the DGF Phase II Trial and the AKI Phase II Trial, including the Phase II Trial Reports and the AKI [*] and [*] safety follow-up reports.  The DGF Phase II Trial shall be completed in accordance with the DGF Phase II Trial Protocol and the AKI Phase II Trial shall be completed in accordance with the AKI Phase II Trial Protocol.  Notwithstanding the foregoing, if [*] as specified in the [*], as applicable, after [*] specified therein by [*], Quark shall not be obligated to complete the applicable trial, and the Parties [*].  For clarity, in no event shall Quark be obligated to implement any changes to the Quark Development Plan, the DGF Phase II Trial Protocol, or the AKI Phase II Trial Protocol that would have the effect of [*] of the DGF Phase II Trial and/or the AKI Phase II Trial.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(c) Quark covenants that in performing all such development (i) it shall comply with all applicable current international regulatory standards, including cGMP, cGLP, cGCP and other rules, regulations and requirements and (ii) it will not employ or use any person that has been debarred under Section 306(a) or 306(b) of the U.S. Federal Food, Drug and Cosmetic Act.

(d) Subject to the foregoing, during the Option Period, Quark shall retain decision making authority on all matters in connection with the Development (including all agreements with Third Parties) of the Quark Compounds and/or Product and shall reasonably keep Novartis updated with respect to any material decisions, data, results and draft agreements related thereto.

(e) Notwithstanding anything to the contrary in this Option Agreement, if [*] do not [*] and the [*] do not [*], and the [*], Quark may [*] and shall [*], provided, however, that [*]. For a period of [*] after [*] and the [*], the Parties shall [*]. If the Parties [*], such [*] will [*] and [*], Quark will [*], and Novartis [*], and Quark shall [*], provided, however, that Novartis [*]. Quark shall [*] after the Parties [*].  Novartis shall [*].  Such [*] will be [*].

3.3 Covenants Prior to Option Exercise.

(a) Information relating to Quark Compounds and/or Product.  During the Option Period, Quark shall promptly notify Novartis of, and promptly provide to Novartis, all data and/or information relating to the Quark Compounds and/or Product that Quark generates during the Option Period which, in Quark’s reasonable judgment, would be relevant for Novartis’ decision concerning the exercise of the Option, whether or not such data or information is specifically requested by Novartis.

(b) Regulatory Developments.  During the Option Period, Quark will provide to Novartis copies of all substantive written communications between Quark (or its Affiliates) and Regulatory Authorities related to any Quark Compound or Product.  Novartis shall have the right to have representatives of Novartis attend (as observers) all meetings between Quark (or its Affiliates) and any Regulatory Authority relating to the DGF Phase II Trial and/or the AKI Phase II Trial, except to the extent prohibited by applicable law or regulation.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(c) Due Diligence.  During the Option Period, Quark shall permit Novartis to conduct a reasonable due diligence investigation to enable Novartis to make an informed decision on whether or not to exercise the Option and its other rights hereunder.  The key due diligence items shall include: (i) discussions with Quark on interactions with the Regulatory Authorities relating to the Quark Compounds and/or the Product and all past, current, and planned related clinical trials relating to Quark Compounds and/or Product, and review of all filings and correspondence with Regulatory Authorities relating to the Quark Compounds and/or the Product, including minutes of meetings and telephone calls with such Regulatory Authorities regarding such matters; (ii) review of all pre-clinical and clinical data, and of the formulation composition and CMC sections of Regulatory Filings, in each case, related to Quark Compounds and/or Product; (iii) review of all contracts related to the Development, manufacturing or Commercialization of the Quark Compounds or the Products, including all agreements entered into by Quark during the Option Period; (iv) review of all intellectual property relating to Quark Compounds and/or Product; (v) access to any contract research organization(s) and contract manufacturer(s) of the Quark Compounds of Product, including for purposes of conducting quality audits if requested by Novartis; and (vi) any other items reasonably related to Quark Compounds and/or Product or the License, as the case may be.  Such due diligence items shall be provided by Quark promptly upon reasonable request by Novartis from time to time, but shall be subject to Third Party confidentiality obligations of Quark which will be clearly identified and listed before entering due diligence (provided that if information material to Novartis’s decision about exercising its Option is subject to a Third Party confidentiality obligation, Quark shall so advise Novartis and work with Novartis to enable Novartis to make its decision about Option exercise in an informed manner).

(d) Financial Disclosures.  During the Option Exercise Period, Quark shall promptly notify Novartis:

(i) of the occurrence of the following:

(A) Quark’s [*] fall below US$[*];

(B) Quark’s [*] (excluding [*]) exceed US$[*], and any increase in Quark’s [*] of more than US$[*]; or

(C) any increase of more than US$[*] in Quark’s [*] as compared to [*],

it being agreed that, if any of the foregoing occurs, the Parties shall discuss possible alternatives which may include (but are not limited to) [*], provided that, for the sake of clarity, the occurrence of an event described in this Section 3.3(d)(i), in the absence of other circumstances, shall not be considered [*] and such notification thereof by Quark shall not be considered [*] by Quark which would give rise to [*] in accordance with [*];

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(ii)         if and when Quark first becomes aware of any proceedings, or the likely occurrence of any proceedings, in connection with an Insolvency Event or other similar arrangement or proceeding in regard to Quark (such notice, an “Insolvency Event Notice by Quark”).

3.4 Option Acceleration.

(a) In the event that Novartis reasonably determines, during the Option Exercise Period, that an Insolvency Event has or is likely to occur in connection with Quark it may issue written notice to Quark of such determination (such notice, an “Insolvency Event Notice by Novartis”).

(b) Within [*] of any Insolvency Event Notice by Quark or any Insolvency Event Notice by Novartis, Novartis may exercise the Option by notice in writing to Quark, which will have the effect described in Section 8.3 of Exhibit A hereto.

(c) Nothing in this Section 3.4 shall limit any other rights of Novartis under this Option Agreement, and for clarity, nothing in this Section 3.4 shall preclude Novartis from exercising the Option at any later time during the Option Period in the event that it does not exercise the Option under this Section 3.4.

3.5 Delivery of Study Reports.

(a) Quark shall deliver to Novartis a draft of each of the Phase II Trial Reports except the DGF DMC Top Line Interim Report and the AKI First Interpretable Results, which will each only be delivered in a final form (all reports shall, in each case, include all available raw data in a user-friendly electronic format, as well as primary and secondary efficacy endpoint data, all material efficacy, safety, clinical and medical data, and any other information related thereto and shall be produced in a substantially similar form as the report template provided by Novartis from time to time) (each, a “Draft Phase II Trial Report”) no more than [*] following the date on which the applicable Draft Phase II Trial Report becomes available to Quark in essentially complete form.

(b) Each Draft Phase II Trial Report shall be accompanied by a report setting forth all other material efficacy, safety, clinical and medical data, manufacturing data and a summary of the data generated from the pre-clinical and clinical studies in sufficient detail so as to reasonably demonstrate whether efficacy has been achieved in accordance with defined endpoints and whether any unexpected or untoward effects resulted from such studies which would limit further development of the Product.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(c) For a period of [*] from and after the delivery of each Draft Phase II Trial Report, Novartis shall have the right to request from Quark such additional information then in the possession of or readily available to Quark as Novartis may reasonably require in order to make a scientific, legal and business evaluation of the development and commercialization potential of the Product.  Quark shall promptly respond in writing to any questions Novartis may have regarding the applicable Draft Phase II Trial Report and the report provided under Section 3.5(b), and shall promptly provide or make available any additional information relating thereto requested by Novartis, in any case, within [*] following any such questions and/or request.

(d) Novartis will within [*] of receiving a Draft Phase II Trial Report issue a written notice to Quark either confirming or disputing whether such Draft Phase II Trial Report meets the requirements set forth in the relevant Phase II Trial Report definition under this Option Agreement, such confirmation not to be unreasonably withheld.  In the event such written notice disputes whether such Draft Phase II Trial Report meets the requirements set forth in the relevant Phase II Trial Report definition under this Option Agreement, such written notice shall include a list of specific deficiencies to be corrected in the final version of the applicable Phase II Trial Report.

(e) Quark will provide Novartis with the final version of the following Phase II Trial Reports:

(i) The DGF DMC Top Line Interim Report within [*] of the final dosing of the last patient for each interim analysis in the DGF Phase II Trial;

(ii) The DGF [*] Report within [*] of the final dosing of the last patient for the DGF Phase II Trial;

(iii) The DGF Final Report within [*] of the final dosing of the last patient for the DGF Phase II Trial;

(iv) The AKI First Interpretable Results within [*] of the final dosing of the last patient in the AKI Phase II Trial; and

(v) The AKI Final Report within [*] of the final dosing of the last patient for the AKI Phase II Trial.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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Each such Phase II Trial Report shall be deemed to have been accepted by Novartis [*] after it was first made available to Novartis in final and complete form, provided that such report reasonably addresses any deficiencies in the corresponding Draft Phase II Trial Report that were identified by Novartis under Section 3.5(d) above.  If Novartis believes the report, as submitted by Quark in final and complete form, did not reasonably address such deficiencies, it shall promptly advise Quark and the Parties shall seek to resolve such dispute.  If the Parties do not reach agreement on such matter, either Party may submit the issue to an arbitration under Section 10.5.  If the arbitration rules [*] the applicable [*] shall be [*] but the [*] with respect to [*] shall be [*] following receipt of the written decision of arbitration. If the arbitration rules [*], then [*] in accordance with the ruling of the arbitrator and shall [*], and the [*].

(f) For a period of [*] from and after the delivery of the DGF DMC Top Line Interim Report, the AKI First Interpretable Results, the DGF [*] Report and the AKI Final Report, Novartis shall have the right to request from Quark such further additional information then in the possession of or readily available to Quark as Novartis may reasonably require in order to make a scientific, legal and business evaluation of the Development and Commercialization potential of the Product.  Quark shall promptly respond in writing to any questions Novartis may have regarding the DGF DMC Top Line Interim Report, the AKI First Interpretable Results, the DGF [*] Report or the AKI Final Report, as applicable, and the report provided under Section 3.5(b), and shall promptly provide or make available any additional information relating thereto requested by Novartis, in any case, within [*] following any such questions and/or request.

4. EXERCISE OF OPTION AND GRANT OF LICENSE

4.1 Exercise of Option and Grant of License.

(a) Subject to Sections 4.1(a)(i) and 4.1(a)(ii) below, Novartis may exercise the Option by written notice to Quark (“Novartis Option Exercise Notice”) during the Option Period pursuant to Section 8.1(a), 8.1(b),8.1(c) or 8.1(d) of Exhibit A.

(i)           Within [*] of  the [*] of (A) the date on which [*] or (B) the date on which [*], Novartis shall provide written notice to Quark [*]. [*], within [*] of [*], [*] by written notice that [*]. If Novartis [*] during such [*] to provide [*] to exercise the Option pursuant to [*]. The [*] shall not exceed [*]. The [*] to provide [*].  If [*] within such [*], Novartis shall [*] and [*] shall, [*] to exercise the Option [*].

(ii)           The Novartis Option Exercise Notice shall set forth which provision in Sections 8.1(a) through (d) in Exhibit A shall apply.  For clarity, except as provided in Section 3.4 above, the Option may only be exercised by Novartis pursuant to one of the provisions set forth in Sections 8.1(a) through (d) of Exhibit A.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) Unless exercised by Novartis, the Option shall expire in its entirety as follows:

(i)           Except as provided in Sections 4.1(b)(ii), 4.1(b)(iii), 4.1(b)(iv) or 4.1(b)(v), the Option shall expire in its entirety [*] after the [*] of (A) [*] or (B) [*].

(ii)          In the event either [*] or [*], and [*], the Option shall expire in its entirety upon the expiry of [*].

(iii)         In the event that (A) both [*] and [*], or [*], and (B) either [*] or [*], the Option shall expire in its entirety on the date that is [*] after the earlier of (X) the date on which the [*] that [*] was accepted by Novartis as set forth [*] or (Y) the date on which the [*] that [*] was accepted by Novartis as set forth [*].

(iv)         In the event Quark [*] as set forth[*]and the Parties [*] the Parties shall [*], the Option shall expire in its entirety [*].

(v)          In the event that (A) both [*] and [*] and (B) neither [*] nor [*] and Novartis does not exercise the Option pursuant to Section 4.1(b)(iv), the Option shall expire in its entirety on the date that is [*] after the later of (X) the date on which the [*] was accepted by Novartis [*] or (Y) the date on which the [*] was accepted by Novartis [*]. If, after expiration of the Option pursuant to this Section 4.1(b)(v), Quark [*] or otherwise [*] with respect to [*] or [*], Quark [*]. Novartis will [*]. If Novartis [*], or if [*] during such [*], then Quark [*].

(vi)         In the event Quark believes the Option is about the expire under the provisions of any of paragraphs (i)-(v) above, Quark shall give written notice to Novartis not less than [*] and nor more than [*] prior to the date on which Quark believes such expiration would occur.

(c) Quark hereby grants to Novartis, effective as of the License Effective Date, an exclusive (even as to Quark), royalty-bearing, sub-licensable license under the Quark Technology and Quark’s interest in any Joint Development Technology to research, Develop, make, have made, use, import, export, offer for sale, sell and otherwise Commercialize the Quark Compounds and the Product in the Field in the Territory and to have the foregoing done on its behalf (the “License”) on the terms and conditions set forth in Exhibit A.  The Parties acknowledge and agree that Exhibit A sets forth all the material terms and conditions of the License.  Such License (and the Parties’ rights and obligations thereunder) shall automatically become effective on the License Effective Date without the need for further action by the Parties.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) If Novartis does not exercise the Option within the Option Period, then: (i) the Option shall no longer be exercisable and the License granted under Section 4.1(c) shall be of no force or effect; and (ii) Quark will be free to initiate, solicit, discuss, negotiate or enter into any agreement or arrangement with any Third Party regarding licensing or other disposition of any rights to the Quark Technology, the Quark Compounds or the Product, without further obligation to Novartis.

(e) Attached hereto as Exhibit B is a decision tree illustrating the option exercise mechanism set forth in this Section 4.1 and in Sections 8.1 and 8.2 of Exhibit A.  Such decision tree is included herein solely for illustrative purposes.  To the extent there exists any inconsistencies between Exhibit B and the language in the body of this Option Agreement or between Exhibit B and the language in Exhibit A, the language in the body of this Option Agreement and/or the language in Exhibit A (as applicable) shall control.

4.2 Antitrust Filings.  Upon request by Novartis (whether during the Option Period or following exercise of the Option by Novartis), Quark agrees to cooperate with Novartis and to prepare and make appropriate filings under the HSR Act and other antitrust requirements relating to the License as soon as reasonably practicable after the Option Exercise Date (“HSR Filing Date”).  The Parties agree to cooperate in the antitrust clearance process and to furnish promptly to the Federal Trade Commission (FTC), the Antitrust Division of the Department of Justice and any other agency or authority, any information reasonably requested by them in connection with such filings.  In the event a provision of the License needs to be deleted or substantially revised in order to obtain regulatory clearance of this transaction, the Parties will negotiate in good faith in accordance with Section 10.3.  Each Party shall bear its own expenses in connection with the Parties’ cooperation under this Section 4.2, except that Novartis shall pay all filing fees due with respect to any filings under the HSR Act.

4.3 Cooperation and Transfer of Technology

(a) Within [*] of the License Effective Date (or such longer period as may be agreed between the Parties), Quark, without additional consideration, shall disclose to Novartis or its designated Affiliate all Quark Know-How in existence at the License Effective Date.  Such disclosures shall include all such Quark Know-How pertaining to the formulation, manufacture and Development of the Quark Compounds and/or Product and any other data, information and documents known to Quark which may be necessary or useful to Novartis to research, Develop, manufacture, register, use or Commercialize the Quark Compounds and/or Product and practice the License efficiently.  Quark will also provide reasonable assistance to Novartis or its designated Affiliate in connection with understanding and using the Quark Know-How within the scope of the License.  In providing Know-How under this paragraph (a), Quark shall deliver written and electronic materials to Novartis, during the period of [*] from the License Effective Date, such assistance from its professional staff for meetings (including travel to sites other than Quark facilities) telephone calls, studies, reports and other assistance as may reasonably required by Novartis to enable it to understand and use the Quark Know-How, shall be provided without charge to Novartis. After such [*] period and during the term of the License Agreement, Quark shall ensure that its professional staff shall continue to be available as reasonably required at Quark facilities and by telephone, without charge to Novartis, provided that [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) Within [*] following the License Effective Date (or such longer period as may be agreed between the Parties), Quark or its Affiliates shall, provide to Novartis or its designated Affiliate such quantities of the Quark Compounds and/or Product in Quark’s possession as may be reasonably requested by Novartis, which supplies shall be provided to Novartis at [*].

(c) During the term of the License, Quark shall fully cooperate with and provide reasonable assistance to Novartis or its designee, through documentation, consultation and face-to-face meetings, to enable Novartis or its designee in an efficient and timely manner to proceed with Development and manufacturing of the Quark Compounds and/or Product and to obtain all appropriate regulatory approvals for manufacturing (including qualification by the applicable Regulatory Authority of manufacturing sites), provided that during the period of [*] from the License Effective Date, such assistance (including travel to sites other than Quark facilities) shall be provided without charge to Novartis. After such [*] period such assistance shall, where provided at Quark facilities or by telephone, continue to be provided without charge, provided that [*].

(d) During the period from the License Effective Date until the First Commercial Sale of the Quark Compounds and/or Product under the License, Quark shall make appropriate personnel available to assist Novartis or its designee from time to time as reasonably requested by Novartis, and shall provide the appropriate personnel of Novartis or its designee with access to the personnel and manufacturing and other operations of Quark for such periods of time and in such manner as is reasonable in order to familiarize the personnel of Novartis or its designee with Quark Know-How relating to the Development and manufacture of the Quark Compounds and/or Product and the application of the same, provided that during the period of [*] from the License Effective Date, such assistance (including travel to sites other than Quark facilities) shall be provided without charge to Novartis. After such [*] period such assistance shall, where provided at Quark facilities or by telephone, continue to be provided without charge, provided that [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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4.4 Transition Plan.  Within [*] of the License Effective Date, the Parties shall agree to a plan (“Transition Plan”) for the transfer to Novartis of all Development and manufacturing activities then being undertaken by Quark, taking into account Quark’s obligations to complete the DGF Phase II Trial and/or the AKI Phase II Trial, and any other ongoing clinical or pre-clinical studies, as set forth in Section 5.1(a) of Exhibit A.  Quark shall, without additional consideration, transition all such activities to Novartis in accordance with the Transition Plan.

5. CONFIDENTIALITY

5.1 Duty of Confidence.

(a) Subject to the other provisions of this Article 5, all Confidential Information disclosed by a Party or its Affiliates under this Option Agreement will be maintained in confidence and otherwise safeguarded by the recipient Party.  The recipient Party may only use the Confidential Information for the purposes of this Option Agreement (including the License granted hereunder).  Subject to the other provisions of this Article 5, each Party shall hold as confidential such Confidential Information of the other Party or its Affiliates in the same manner and with the same protection (in no case less than reasonable care) as such recipient Party maintains its own confidential information.  Subject to the other provisions of this Article 5, a recipient Party may only disclose Confidential Information of the other Party to employees, agents, contractors, consultants and advisers of the Party and its Affiliates and sublicensees to the extent reasonably necessary for the purposes of, and for those matters undertaken pursuant to, this Option Agreement; provided that such Persons are bound to maintain the confidentiality of the Confidential Information in a manner consistent with the confidentiality provisions of this Option Agreement.

(b) During the term of this Option Agreement Quark shall take all commercially reasonable precautions to protect the confidentiality of the Quark Program Confidential Information.

5.2 Exceptions.  The obligations under this Article 5 shall not apply to any information to the extent the recipient Party can demonstrate by competent evidence that such information:

(a) is (at the time of disclosure) or becomes (after the time of disclosure) known to the public or part of the public domain through no breach of this Option Agreement by the recipient Party or its Affiliates;

(b) was known to, or was otherwise in the possession of, the recipient Party or its Affiliates prior to the time of disclosure by the disclosing Party or any of its Affiliates;

(c) is disclosed to the recipient Party or an Affiliate on a non-confidential basis by a Third Party who is entitled to disclose it without breaching any confidentiality obligation to the disclosing Party or any of its Affiliates; or

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) is independently developed by or on behalf of the recipient Party or its Affiliates, as evidenced by its written records, without access or reference to the Confidential Information disclosed by the disclosing Party or its Affiliates under this Option Agreement.

Specific aspects or details of Confidential Information shall not be deemed to be within the public domain or in the possession of the recipient Party merely because the Confidential Information is embraced by more general information in the public domain or in the possession of the recipient Party.  Further, any combination of Confidential Information shall not be considered in the public domain or in the possession of the recipient Party merely because individual elements of such Confidential Information are in the public domain or in the possession of the recipient Party unless the combination and its principles are in the public domain or in the possession of the recipient Party.

5.3 Authorized Disclosures.  In the event the recipient Party is required to disclose Confidential Information of the disclosing Party by law or regulation or in connection with bona fide legal process, such disclosure shall not be a breach of this Option Agreement; provided that the recipient Party (i) informs the disclosing Party as soon as reasonably practicable of the required disclosure; (ii) limits the disclosure to the required purpose; and (iii) at the disclosing Party’s reasonable request and expense, assists in an attempt to object to or limit the required disclosure.

5.4 Ongoing Obligation for Confidentiality.  In the event that Novartis does not exercise the Option before the end of the Option Period, each Party and its Affiliates shall immediately return to the other Party or destroy any Confidential Information disclosed by the other Party during the Option Period, except for one copy which may be retained in its confidential files for archive purposes.

5.5 Confidentiality Obligations Under License.  For clarity, in the event that Novartis exercises the Option, the provisions of Article 11 of Exhibit A shall apply with respect to all Confidential Information disclosed by a Party to the other Party under this Option Agreement, and the provisions of this Article 5 shall be of no further force or effect with respect to such Confidential Information.

6. INTELLECTUAL PROPERTY

6.1 Ownership of Development Technology.  Each Party agrees promptly to disclose to the other Party all Know-How and Patent Rights created, conceived, reduced to practice or invented by either Party, its Affiliates, agents or by Third Parties acting on its behalf, as a direct result of a Party performing activities under this Option Agreement.  As between the Parties, (a) title to all Quark Development Technology shall be owned by Quark, (b) title to all Novartis Development Technology shall be owned by Novartis, and (c) title to all Joint Development Technology shall be jointly owned by Quark and Novartis as contemplated under US patent laws, including 35 U.S.C. § 262.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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6.2 Joint Development Technology.  Subject to the rights herein including the Option, and if the Option is exercised, the License, each Party shall have the right to practice and exploit Joint Development Technology, without any obligation to account to the other for profits, or to obtain any approval of the other Party to license, assign or otherwise exploit Joint Development Technology, by reason of joint ownership thereof, and each Party hereby waives any right it may have under the laws of any jurisdiction to require any such approval or accounting; and to the extent there are any applicable laws that prohibit such a waiver, each Party will be deemed to so consent.  Should one or both Parties decide to file a patent application related to or claiming Joint Development Technology the Parties shall refer the preparation and filing of such application(s) to a mutually agreed-upon outside intellectual property counsel, the expenses of which shall be borne equally by the Parties.  Either Party may determine that it is no longer interested in supporting the continued prosecution or maintenance of a particular patent or patent application claiming Joint Development Technology in a particular country or jurisdiction, in which case:  (i) the disclaiming Party shall, if requested by the other Party, assigns its ownership interest in such patent or patent applications in such country or jurisdiction to the other Party for no additional consideration; and (ii) if such assignment is effected, the disclaiming Party and any Affiliates thereof would have immunity from suit under such patent or patent application in the applicable country or jurisdiction.  In the event of an infringement anywhere in the world of any Patent Rights which comprise Joint Development Technology, the Parties shall jointly decide how to proceed.  If one Party brings any action to enforce Patent Rights that has been agreed upon by the Parties, the other Party agrees to be joined as a party if necessary to prosecute the action and to give the first Party reasonable assistance and authority to file and prosecute the action.

6.3 Data.  All data generated by Quark in the course of the Development of the Quark Compounds and/or the Product during the term of the Option Agreement shall be owned by Quark and included in the Quark Know-How.  All data generated by Novartis in the course of the Development of the Quark Compounds and/or the Product during the term of the Option Agreement shall be owned by Novartis.

6.4 Disputes as to Inventorship.  Should the Parties fail to agree regarding inventorship of any invention made in the conduct of activities under this Option Agreement, the Parties shall refer the matter to a mutually agreed-upon outside counsel, with expertise in intellectual property, for resolution, the expenses of which shall be borne equally by the Parties.  All determinations of inventive contribution for inventions arising hereunder shall be determined under United States patent law.

6.5 No Implied Rights.  No license or other right is or shall be created or granted hereunder by implication, estoppel or otherwise, except as expressly provided for herein.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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6.6 Infringement of Third Party Rights.  If Quark identifies any Third Party intellectual property rights that it believes would be relevant to the Development, manufacture, use or Commercialization of the Quark Compounds and/or the Product, Quark will so notify Novartis and the Parties shall confer to discuss the scope and relevance of such intellectual property rights and shall discuss whether and on what terms Quark should attempt to obtain rights to such intellectual property rights.  In the event that Quark wishes to enter into any agreement under which Quark would assign or grant to Novartis a sublicense if Novartis exercises the Option, Quark shall use Commercially Reasonable Efforts to negotiate and execute a license (or similar) agreement (each such agreement an “Option Term Agreement”) to acquire rights to such intellectual property rights that is (i) [*], and (ii) is [*].  Quark shall submit to the JDC a draft of such agreement for Novartis to review and Quark shall consider any comments Novartis may have in good faith.  Further, Quark shall send a copy of any such agreement entered into with a Third Party to Novartis within [*] following execution of any such agreement.

6.7 Patent Filings.  Prior to filing any patent application in Quark Patents or any amendment thereto, and prior to any decision not to file any patent application in Quark Patents or amendment thereto or to allow any patent or patent application in Quark Patents to lapse or become abandoned, or prior to any submission to the U.S. Patent and Trademark Office or similar foreign office, Quark shall provide to Novartis a written draft of any such filing or submission or written notice of any decision to not file such application, abandon an application or to allow any patent or patent application to lapse, as the case may be, in accordance with the notice provisions set forth in Section 10.9 within a reasonable time prior to such filing, submission or decision for Novartis to review and comment, in good faith, on such filing, submission or decision, provided, that Quark shall consider such comments in good faith but Quark retains final decision-making authority as to all such filings, submissions and decisions.

6.8 Requested Divisionals.  Quark has identified to Novartis, as of the Option Agreement Effective Date, those Quark Patents which have apparent utility with respect to Quark activities both within and outside the scope of this Option Agreement or the License Agreement (Table 6 of draft Exhibit A to Exhibit A).  Within [*] following the Option Agreement Effective Date, Novartis shall identify to Quark those divisional patent applications that Novartis would like to have filed specific to [*] of such Quark Patent, and Quark shall thereafter [*] such divisional patent applications and patents issuing therefrom.  The Parties shall cooperate to make such process practical and efficient.

7. TERM AND TERMINATION

7.1 Term.  Unless earlier terminated as set forth in this Article 7, the term of this Option Agreement will commence upon the Option Agreement Effective Date and continue until the end of the Option Period.  

7.2 Termination by Novartis Without Cause.  Novartis may terminate this Option Agreement without cause at any time after the Option Agreement Effective Date by [*] prior written notice to Quark.  If this Option Agreement is terminated by Novartis pursuant to this Section 7.2, then, except as set forth in Section 7.4, neither Novartis nor Quark shall have any further obligations or liabilities under this Option Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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7.3 Termination by Quark for Cause.  If Novartis commits a material breach of this Option Agreement, Quark may give written notice to Novartis specifying the claimed particulars of such material breach, and in the event such material breach is not cured within [*] after such notice, Quark shall have the right thereafter to terminate this Option Agreement immediately by giving written notice to Novartis to such effect.  Any such termination shall be without prejudice to any damages or other legal or equitable remedies to which Quark may be entitled from Novartis.

7.4 Survival.  Expiration or termination of this Option Agreement or the License shall not relieve the Parties of any obligation accruing prior to such expiration or termination.  The provisions of [*], and the provisions of Article 5 (Confidentiality) shall survive the termination or expiration of this Option Agreement for a period of [*], and the provisions of Article 6 (Intellectual Property, except for Sections 6.6, 6.7 and 6.8) shall survive the termination or expiration of this Option Agreement indefinitely.  Notwithstanding the foregoing, in the event that Novartis exercises the Option before the end of the Option Period, to the extent that any surviving provision of this Option Agreement is inconsistent with the provisions of the License, it shall be superseded and replaced by the provisions of the License.

8. REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNITIES

8.1 Representations, Warranties and Covenants by Each Party.  Each Party represents, warrants, covenants and/or agrees (as applicable) to the other as of the Option Agreement Effective Date that:

(a) it is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation;

(b) it has all requisite corporate power and authority to execute, deliver, and perform this Option Agreement, and has taken all corporate action required by law and its organizational documents to authorize the execution and delivery of this Option Agreement and the consummation of the transactions contemplated by this Option Agreement;

(c) the execution and delivery of this Option Agreement by such Party and the performance by it of its obligations hereunder have been duly and validly authorized by all necessary corporate action on the part of such Party;

(d) this Option Agreement has been duly executed and delivered by such Party;

(e) this Option Agreement constitutes a valid and binding agreement enforceable against it in accordance with its terms;

(f) it will use all reasonable precaution to preserve the confidentiality of this Option Agreement (including any exhibits attached hereto) and the terms hereof;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(g) except for any HSR or other merger clearance filings that may be required, all consents, approvals and authorizations from all governmental authorities or other Third Parties required to be obtained by such Party in connection with this Option Agreement, and the transactions contemplated hereby, have been obtained;

(h) the execution and delivery of this Option Agreement and all other instruments and documents required to be executed pursuant to this Option Agreement, and the consummation of the transactions contemplated hereby, do not and shall not (i) conflict with or result in a breach of any provision of its organizational documents, (ii) result in a breach of any other agreement to which it is a party; or (iii) violate any law; and

(i) neither it nor its respective stockholders, directors, officers or employees have retained any broker, finder, or investment banker in connection with this Option Agreement or the transactions contemplated hereby, nor, in the case of Quark, does or will it, or any of its directors, officers or employees owe any fee or other amount to any broker, finder, or investment banker in connection with the Option Agreement or the transactions contemplated hereby.

8.2 Representations and Warranties by Each Party Regarding License Agreement.  Each Party represents and warrants to the other that, upon exercise by Novartis of the Option before the end of the Option Period, the terms and conditions set forth on Exhibit A to this Option Agreement shall constitute a complete, valid and binding agreement enforceable against it in accordance with such terms.

8.3 Representations and Warranties by Quark.  Quark represents and warrants to Novartis as of the Option Agreement Effective Date that:

(a) Quark has the right to grant to Novartis the rights that Quark purports to grant Novartis hereunder, including the right to grant exclusive licenses to the Quark Compounds and the Product under the Quark Patents and Quark Know-How;

(b) Quark has not granted to any Third Party, including any academic organization or agency, any rights to the Quark Compounds or Product;

(c) all of its employees, officers, and consultants involved or to be involved in the research or Development of the Quark Compound or Product have executed agreements or have existing obligations under applicable laws requiring assignment to Quark of all inventions made during the course of and as the result of their association with Quark and obligating the individual to maintain as confidential Quark’s Confidential Information as well as confidential information of other parties (including Novartis and its Affiliates) which such individual may receive;

(d) Quark has not granted any Third Party rights that would otherwise interfere or be inconsistent with Novartis’ rights hereunder in a material manner, and there are no license or option agreements or other arrangements to which Quark or any of its Affiliates is a party relating to the Product, Quark Compounds, Quark Patents, Quark Know-How or otherwise that would limit the rights granted to Novartis under this Option Agreement or that restrict or will result in a restriction on Novartis’ ability to research, Develop, manufacture, register, use or Commercialize the Quark Compounds and the Product in the Territory;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(e) [*] the research, Development, use and manufacture of the Quark Compounds and Products has been conducted by Quark without infringing or misappropriating the intellectual property rights of any Third Party;

(f) [*] neither Quark nor any of its Affiliate has committed any act which amounts to a material breach of any of Quark’s obligations under any agreement under which it obtains rights to any of the Quark Technology;

(g) (i) neither Quark nor any employee, agent or subcontractor of Quark involved or to be involved in the research or Development of the Quark Compounds or the Product has been debarred under Subsection (a) or (b) of Section 306 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 335a); (ii) no Person who is debarred under Subsection (a) or (b) of Section 306 of said Act will be employed by Quark in the performance of any activities hereunder; and (iii) no Person on any of the FDA Clinical Investigator Enforcement Lists (including, but not limited to, the (1) Disqualified/Totally Restricted List, (2) Restricted List and (3) Adequate Assurances List) will participate in the performance of any activities hereunder.

(h) Notwithstanding anything to the contrary contained in this Option Agreement, Quark has [*] and [*] that would be [*] to [*] in connection with this Option Agreement. [*], the [*] provided to Novartis regarding the Quark Compounds and the Products are true and complete in all material respects.

8.4 Covenants of Quark.  Quark covenants and agrees that during the term of this Option Agreement:

(a) neither it, nor any of its Affiliates, will grant any interest in the Quark Patents or Quark Know-How which is inconsistent with the terms and conditions of this Option Agreement, nor shall Quark assign its right, title or interest in or to the Quark Patents or Quark Know-How to any Third Party and will use all reasonable precautions to preserve the confidentiality of the Quark Know-How;

(b) neither it nor any of its Affiliates shall grant to any Third Party, including any academic organization or agency, any rights to the Quark Compounds or Product;

(c) it will not amend or modify the terms of any agreement under which it obtains rights to any of the Quark Technology in a way that materially affects Novartis’ rights under this Option Agreement or the License without the prior written consent of Novartis;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) it will not exercise any right to terminate any agreement under which it obtains rights to any of the Quark Technology without the prior written consent of Novartis;

(e) Quark and its Affiliates will comply with, perform and observe in all material respects all obligations under each agreement under which it obtains rights to any of the Quark Technology, and will not commit any act or fail to perform any obligation which would amount to a default or event of default or which, with the giving of notice, the lapse of time or the happening of any other event or condition would become a default or event of default thereunder or give rise to any right of the applicable counterparty to terminate any such agreement or any part thereof;

(f) it will use all reasonable precautions to preserve the confidentiality of this Option Agreement (including any exhibits attached hereto) and the terms hereof;

(g) if, at any time after execution of this Option Agreement, it, or any of its Affiliates, becomes aware that it or any of its Affiliates, or its or their employees, agents or subcontractors who participated, or is participating, in the performance of any activities hereunder is on, or is being added to the FDA Debarment List or any of the three (3) FDA Clinical Investigator Restriction Lists referenced in Section 8.3(g), it will provide written notice of this to Novartis within two (2) Business Days of its becoming aware of this fact; and

(h) it shall maintain insurance with respect to its activities and obligations under this Option Agreement in such amounts as are commercially reasonable in the industry for companies conducting similar business and shall require any of its Affiliates undertaking any activities under this Option Agreement to do the same.

8.5 No Other Warranties.  EXCEPT AS EXPRESSLY STATED IN SECTIONS 8.1 – 8.4 OR IN EXHIBIT A, (A) NO REPRESENTATION, CONDITION OR WARRANTY WHATSOEVER IS MADE OR GIVEN BY OR ON BEHALF OF NOVARTIS OR QUARK; AND (B) ALL OTHER CONDITIONS AND WARRANTIES WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE ARE HEREBY EXPRESSLY EXCLUDED, INCLUDING ANY CONDITIONS AND WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.

8.6 Special, Indirect and Other Losses.  NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE IN CONTRACT, TORT, NEGLIGENCE BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR ANY ECONOMIC LOSS OR LOSS OF PROFITS SUFFERED BY THE OTHER PARTY [*].

8.7 No Exclusion.  Neither Party excludes [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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9. PUBLICATIONS AND PUBLICITY

9.1 Publications.If Quark intends making any public disclosure relating to any Quark Compounds or Products, including in any scientific journals, publications or scientific presentations or otherwise, Quark shall provide Novartis with an advance copy of any such proposed publication or summary of any such proposed oral presentation prior to its submission for publication or disclosure in sufficient time to allow Novartis a reasonable opportunity to review and comment upon such publication or summary.  Quark shall consider in good faith any such comments from Novartis.   

9.2 Publicity.

(a) Neither Party shall use the name, symbol, trademark, trade name or logo of the other Party or its Affiliates in any press release, publication or other form of public disclosure without the prior written consent of the other Party in each instance (such consent not to be unreasonably withheld or delayed), except for (i) a press release in the form attached as Exhibit I and further disclosures of substantially the same information included therein and (ii) those disclosures for which consent has already been obtained.

(b) Except as permitted under Section 9.2(a), each Party agrees not to issue any press release or other public statement, whether oral or written, disclosing the existence of this Option Agreement, the terms hereof or any information relating to this Option Agreement without the prior written consent of the other Party.  When seeking the consent of Novartis, Quark agrees to provide Novartis with at least [*] within which to grant or withhold its consent.

(c) Notwithstanding the foregoing, each Party may make any disclosures required of it to comply with any duty of disclosure it may have pursuant to law or governmental regulation or pursuant to the rules of any recognized stock exchange.  In the event of a disclosure required by law, governmental regulation or the rules of any recognized stock exchange, the Parties shall coordinate with each other with respect to the timing, form and content of such required disclosure.  If so requested by the other Party, the Party subject to such obligation shall use commercially reasonable efforts to obtain an order protecting to the maximum extent possible the confidentiality of such provisions (including, without limitation, financial terms) of this Option Agreement as reasonably requested by the other Party.  If the Parties are unable to agree on the form or content of any required disclosure, such disclosure shall be limited to the minimum required as determined by the disclosing Party in consultation with its legal counsel.  Without limiting the foregoing, each Party shall consult with the other Party on the provisions of this Option Agreement, together with exhibits or other attachments attached hereto, to be redacted in any filings made by Quark or Novartis with the Securities and Exchange Commission (or other regulatory body) or as otherwise required by law.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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10. GENERAL PROVISIONS

10.1 Assignment.  Neither Party may assign its rights and obligations under this Option Agreement [*], except that Novartis may without the consent of Quark (a) assign it rights and obligations under this Option Agreement or any part hereof to one or more of its Affiliates without the consent of Quark provided that Novartis shall remain primarily liable for any acts or omissions of its Affiliates under this Option Agreement; and (b) assign this Option Agreement in its entirety to a successor to all or substantially all of its business or assets to which this Option Agreement relates, and Quark may without the consent of Novartis assign this Option Agreement in its entirety to a successor to all or substantially all of its business or assets.  The assigning Party shall provide the other Party with prompt written notice of any such assignment.  Any permitted assignee shall assume all obligations of its assignor under this Option Agreement (or related to the assigned portion in case of a partial assignment to an Affiliate), and no permitted assignment shall relieve the assignor of liability hereunder.  Any attempted assignment in contravention of the foregoing shall be void.  Subject to the terms of this Option Agreement, this Option Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

10.2 Performance by Affiliates.  Each Party shall have the right to perform its obligations under this Option Agreement through one or more of its Affiliates (provided that in the case of Quark, such Affiliates shall be limited to QBI Enterprises, Ltd., or any future Affiliates as to which Novartis grants its written consent).  All applicable terms and provisions of this Option Agreement shall apply to any such Affiliate that is performing obligations under this Option Agreement to the same extent as such terms and provisions apply to such Party.  Each Party shall remain primarily liable for any acts or omissions of its Affiliates.

10.3 Severability.  Should one or more of the provisions of this Option Agreement become void or unenforceable as a matter of law, then this Option Agreement shall be construed as if such provision were not contained herein and the remainder of this Option Agreement shall be in full force and effect, and the Parties will use their commercially reasonable efforts to substitute for the invalid or unenforceable provision a valid and enforceable provision which conforms as nearly as possible with the original intent of the Parties.

10.4 Governing Law and Jurisdiction.  This Option Agreement shall be governed by and construed under the laws of [*], without giving effect to the conflicts of laws provision thereof.  Subject to Section 10.5, any dispute arising out of or relating to this Option Agreement shall be subject to the exclusive jurisdiction of the courts located in [*].

10.5 Dispute Resolution.

(a) In the event of a dispute under this Option Agreement, either Party may require that the Parties refer the dispute to the Joint Discussion Committee for discussion and resolution and decisions to resolve disputes shall be made by unanimous vote of the Joint Discussion Committee, with each Party’s representative having one (1) vote.  If the Parties are unable, through discussions at the Joint Discussion Committee, to resolve such a dispute within [*] of the dispute being referred to them, either Party may require that the Parties forward the matter to the Senior Officers (or designees with similar authority to resolve such dispute), who shall attempt in good faith to resolve such dispute.  If the Senior Officers cannot resolve such dispute within [*] of the matter being referred to them, either Party shall be free to initiate the arbitration proceedings outlined in sub-Section (b) below.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) Any unresolved disputes between the Parties relating to, arising out of or in any way connected with this Option Agreement or any term or condition hereof, or the performance by either Party of its obligations hereunder, whether before or after termination of this Option Agreement, shall be resolved by final and binding arbitration.  Whenever a Party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other Party.  Arbitration shall be held in New York, New York, according to the Rules of Arbitration of the International Chamber of Commerce (“ICC”).  The arbitration will be conducted in English by a panel of arbitrators appointed in accordance with ICC rules; provided that each Party shall within [*] after the institution of the arbitration proceedings appoint an arbitrator, and such arbitrators shall together, within [*], select a third arbitrator as the chairman of the arbitration panel, each arbitrator shall have significant experience in the pharmaceutical business.  If the two initial arbitrators are unable to select a third arbitrator within such [*] period, the third arbitrator shall be appointed in accordance with ICC rules. Discovery shall be governed by ICC rules, except that discovery shall be limited to: (i) the production of documents in the producing Party’s possession, not otherwise available to the Party seeking the documents, that are [*] to [*] to the [*]; (ii) [*] per side of a maximum of [*] (provided, however, that for good cause shown, the arbitrators may authorize additional [*]); and (iii) [*] per side.  In addition, requests for production of documents shall contain a description of specific documents or classes of documents, along with [*].  The arbitrators may condition any exchange of documents subject to claims of commercial or technical confidentiality on appropriate measures to protect such confidentiality.  When documents to be exchanged are maintained in electronic form, the Party in possession of such documents may make them available in the form (which may be paper copies) most convenient and economical for it, unless the arbitrators determine, on application and for good cause, that there is a compelling need for access to the documents in a different form.  The Party seeking the production of documents shall ensure that [*] for [*] are [*] to make [*] as [*].  The arbitrators shall render their opinion within [*] of the final arbitration hearing.  No arbitrator (nor the panel of arbitrators) shall have the power to award punitive damages under this Option Agreement and such award is expressly prohibited.  Decisions of the panel of arbitrators shall be final and binding on the Parties.  Judgment on the award so rendered may be entered in any court of competent jurisdiction.  The losing Party to the arbitration (if any) as determined by the arbitrator shall pay the fees and costs of arbitration.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

29

10.6 Force Majeure.  Neither Party shall be responsible to the other for any failure or delay in performing any of its obligations under this Option Agreement or for other nonperformance hereunder if such delay or nonperformance is caused by strike, stoppage of labor, lockout or other labor trouble, fire, flood, accident, war, act of terrorism, act of God or of the government of any country or of any local government, or by cause unavoidable or beyond the control of any Party hereto.  In such event, the Party affected will use commercially reasonable efforts to resume performance of its obligations.

10.7 Waivers and Amendments.  The failure of any Party to assert a right hereunder or to insist upon compliance with any term or condition of this Option Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other Party.  No waiver shall be effective unless it has been given in writing and signed by the Party giving such waiver.  No provision of this Option Agreement may be amended or modified other than by a written document signed by authorized representatives of each Party.

10.8 Relationship of the Parties.  Nothing contained in this Option Agreement shall be deemed to constitute a partnership, joint venture, or legal entity of any type between Quark and Novartis, or to constitute one as the agent of the other.  Each Party shall act solely as an independent contractor, and nothing in this Option Agreement shall be construed to give any Party the power or authority to act for, bind, or commit the other.

10.9 Notices.  All notices, consents, waivers, and other communications under this Option Agreement must be in writing and will be deemed to have been duly given when: (a) delivered by hand (with written confirmation of receipt); (b) sent by fax (with written confirmation of receipt), provided that a copy is immediately sent by an internationally recognized overnight delivery service (receipt requested); or (c) when received by the addressee, if sent by an internationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and fax numbers set forth below (or to such other addresses and fax numbers as a Party may designate by notice):

If to Quark:

Quark Pharmaceuticals, Inc.

6501 Dumbarton Circle

Fremont, CA 94555

U.S.A.

Attn: Chief Executive Officer

Fax: (510) 402-4021

With a copy to:

Cooley LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA  94306

U.S.A.

Attention: Robert. L. Jones

Fax: (650) 849-7400

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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If to Novartis:

Novartis International Pharmaceutical Ltd.

131 Front Street

Hamilton

Bermuda HM 12

Attn: General Counsel

Fax: [*]

with a copy to:

Novartis Pharma AG

Lichtstrasse 35

CH - 4002 Basel

Switzerland

Attn:  General Counsel

Fax:  [*]

and

Novartis Pharma AG

Lichtstrasse 35

CH - 4002 Basel

Switzerland

Attn:  Head, Business Development and Licensing

Fax: [*]

10.10 Further Assurances.  Novartis and Quark hereby covenant and agree without the necessity of any further consideration, upon request of the other Party, to execute, acknowledge and deliver any and all such other documents and take any such other action as may be reasonably necessary to carry out the intent and purposes of this Option Agreement.

10.11 Compliance with Law.  Each Party shall perform its obligations under this Option Agreement in accordance with all applicable laws.  No Party shall, or shall be required to, undertake any activity under or in connection with this Option Agreement which violates, or which it believes, in good faith, may violate, any applicable law.

10.12 No Third Party Beneficiary Rights.  Other than as provided in Section 10.2, the provisions of this Option Agreement are for the sole benefit of the Parties and their successors and permitted assigns, and they shall not be construed as conferring any rights to any Third Party (including any Third Party beneficiary rights).

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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10.13 English Language.  This Option Agreement is written and executed in the English language.  Any translation into any other language shall not be an official version of this Option Agreement and in the event of any conflict in interpretation between the English version and such translation, the English version shall prevail.

10.14 Expenses.  Except as otherwise expressly provided in this Option Agreement, each Party shall pay the fees and expenses of its respective lawyers and other experts and all other expenses and costs incurred by such Party incidental to the negotiation, preparation, execution and delivery of this Option Agreement.

10.15 Entire Agreement.  This Option Agreement, together with its Exhibits, sets forth the entire agreement and understanding of the Parties as to the subject matter hereof and supersedes all proposals, oral or written, and all other prior communications between the Parties with respect to such subject matter.

10.16 Counterparts.  This Option Agreement may be executed (a) in one or more partially or fully executed counterparts, each of which shall be deemed an original and shall bind the signatory, but all of which together shall constitute the same instrument, and (b) by facsimile or other electronic means, which facsimile or other electronic signatures shall be deemed an original and shall bind the signatory.  The execution and delivery of a signature page in the form attached to this Option Agreement by any Party hereto who shall have been furnished the final form of this Option Agreement shall constitute the execution and delivery of this Option Agreement by such Party.

10.17 Cumulative Remedies.  No remedy referred to in this Option Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Option Agreement or otherwise available under law.

IN WITNESS WHEREOF, the Parties intending to be bound have caused this Option Agreement to be executed by their duly authorized representatives.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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NOVARTIS INTERNATIONAL		QUARK PHARMACEUTICALS, INC.
PHARMACEUTICAL LIMITED
By:	/s/ H. S. Zivi	By:	/s/ D. Zurr
Name:	H.S. Zivi	Name:	Daniel Zurr
Title:	Director	Title:	President & CEO
Date:		Date:	August 17, 2010
By:	/s/ Robert L. Thompson
Name:	Robert L. Thompson
Title:	Director
Date:	August 17th, 2010

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

33

EXHIBIT A

LICENSE AGREEMENT

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

34

Execution Copy

CONFIDENTIAL

License Agreement

By And Between

Novartis International Pharmaceutical Ltd.

And

Quark Pharmaceuticals, Inc.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

1.	DEFINITIONS AND INTERPRETATION	2
2.	LICENSE	13
3.	GOVERNANCE	14
4.	DISCLOSURE OF QUARK KNOW-HOW & COOPERATION	16
5.	DEVELOPMENT	17
6.	MANUFACTURING	22
7.	COMMERCIALIZATION	23
8.	FINANCIAL PROVISIONS	24
9.	REPORTS AND PAYMENT TERMS	36
10.	INTELLECTUAL PROPERTY RIGHTS	40
11.	CONFIDENTIALITY	44
12.	TERM AND TERMINATION	46
13.	EFFECT OF TERMINATION	48
14.	REPRESENTATIONS, WARRANTIES AND COVENANTS	51
15.	INDEMNIFICATION; LIABILITY	55
16.	PUBLICATIONS AND PUBLICITY	57
17.	GENERAL PROVISIONS	59

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

LICENSE AGREEMENT

This LICENSE AGREEMENT (“Agreement”) is made as of this __ day of ________, 20__ (“Execution Date”), by and between Novartis International Pharmaceutical Ltd., a limited company organized and existing under the laws of Bermuda (“Novartis”) and Quark Pharmaceuticals, Inc., a corporation company organized and existing under the laws of California, U.S.A. (“Quark”).  Novartis and Quark are each referred to individually as a “Party” and together as the “Parties.”

RECITALS

WHEREAS, Quark owns or controls the Quark Patents and Quark Know-How (each as defined below) relating to the Quark Compounds (as defined below);

WHEREAS, the Parties entered into an Option Agreement dated August 17, 2010 (“Option Agreement”) under which Quark granted Novartis an Option (as defined in the Option Agreement) to obtain rights to the Quark Compounds in the Field (as defined below);

WHEREAS, Novartis has exercised the Option; and

WHEREAS, Novartis now has the right to develop and commercialize Products (as defined below) on a worldwide basis in the Field, subject to paying Quark the royalty and milestone payments set out herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Parties agree as follows.

1.         DEFINITIONS AND INTERPRETATION

1.1 Definitions.  Unless the context otherwise requires, the terms in this Agreement with initial letters capitalized, shall have the meanings set forth below, or the meaning as designated in the indicated places throughout this Agreement.

“Accounting Standards” means, with respect to Quark, US GAAP (United States Generally Accepted Accounting Principles) and means, with respect to Novartis, the IFRS (International Financial Reporting Standards), in each case, as generally and consistently applied throughout the Party’s organization.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

2

“Affiliate” means, with respect to a Party, any Person that controls, is controlled by, or is under common control with that Party.  For the purpose of this definition, “control” shall mean, direct or indirect, ownership of fifty percent (50%) or more of the shares of stock entitled to vote for the election of directors, in the case of a corporation, or fifty percent (50%) or more of the equity interest in the case of any other type of legal entity, status as a general partner in any partnership, or any other arrangement whereby the entity or person controls or has the right to control the board of directors or equivalent governing body of a corporation or other entity, or the ability to cause the direction of the management or policies of a corporation or other entity.  In the case of entities organized under the laws of certain countries, the maximum percentage ownership permitted by law for a foreign investor may be less than fifty percent (50%), and in such case such lower percentage shall be substituted in the preceding sentence, provided that such foreign investor has the power to direct the management and policies of such entity.

“AKI Final Report” has the meaning set forth in the Option Agreement.

“AKI First Interpretable Results” has the meaning set forth in the Option Agreement.

“AKI Indication” means the treatment and/or prevention of acute kidney injury following cardiac surgery.

“AKI Phase II Trial” has the meaning set forth in the Option Agreement.

“AKI Phase II Trial Protocol” has the meaning set forth in the Option Agreement; provided that, following the License Effective Date, any changes to the AKI Phase II Trial Protocol (as it exists at the License Effective Date) must be mutually agreed between the Parties.

“AKI Phase II Trial [*] Criteria” has the meaning set forth in the Option Agreement.

“Alliance Manager” shall have the meaning set forth in Section 3.1.

“Alnylam License” means each (or, as the context requires, both) of the two (2) License Agreements between Quark and Alnylam Pharmaceuticals, Inc., both dated September 26, 2006.

“Business Day” means any day other than a Saturday, a Sunday or a day on which commercial banks located in Basel, Switzerland, Hamilton, Bermuda or California, USA, are authorized or required by law to remain closed.

“Calendar Quarter” means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31.

“Calendar Year” means a period of twelve (12) consecutive calendar months ending on December 31.

“cGCP” has the meaning set forth in the Option Agreement.

“cGLP” has the meaning set forth in the Option Agreement.

“cGMP” has the meaning set forth in the Option Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“Change of Control” means any of the following events with respect to either Party: (a) any Third Party (or group of Third Parties acting in concert) becomes the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the total voting power of the stock then outstanding of such Party normally entitled to vote in elections of directors; (b) such Party consolidates with or merges into another corporation or entity, or any corporation or entity consolidates with or merges into such Party, in either event pursuant to a transaction in which more than fifty percent (50%) of the total voting power of the stock outstanding of the surviving entity normally entitled to vote in elections of directors is not held by the parties holding at least fifty percent (50%) of the outstanding shares of such Party preceding such consolidation or merger; or (c) such Party conveys, transfers or leases all or substantially all of its assets to any Third Party.

“Claims” means all Third Party demands, claims, actions, proceedings and liability (whether criminal or civil, in contract, tort or otherwise) for losses, damages, reasonable legal costs and other reasonable expenses of any nature whatsoever.

“Combination Products” mean any pharmaceutical product (in any formulation) containing one or more active pharmaceutical ingredients in addition to the Quark Compound.

“Commencement of First Phase III Clinical Trial” means with respect to any indication, the first dosing of the first patient with Product in the first Phase III Clinical Trial of the first Product to be developed for such indication.

“Commercialize” means to market, promote, distribute, import, export, offer to sell and/or sell Product and/or conduct other Commercialization, and “Commercialization” means commercialization activities relating to Product, including activities relating to marketing, promoting, distributing, importing, exporting, offering for sale and/or selling Product.

“Commercially Reasonable Efforts” means the expenditure of those efforts and resources used [*] pursuing the development or commercialization of [*], or  where [*] does not [*], the expenditure of such efforts and use of such resources [*].  For clarity, “Commercially Reasonable Efforts” shall be [*], accordingly, [*] with respect to [*] may [*] with respect to [*].

“Competing Product” means any product, other than any Product, comprising or including [*].

“Confidential Information” means all Know-How and other proprietary information and data of a financial, commercial or technical nature which the disclosing Party or any of its Affiliates has supplied or otherwise made available to the other Party or its Affiliates, whether made available orally, in writing or in electronic form, including information comprising or relating to concepts, discoveries, inventions, data, designs or formulae in relation to this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

4

“Control” or “Controlled” means, with respect to any Know How, Patent Rights, other intellectual property rights, or any proprietary or trade secret information, the legal authority or right (whether by ownership, license or otherwise) of a Party to grant a license or a sublicense of or under such Know How, Patent Rights, or intellectual property rights to another Person, or to otherwise disclose such proprietary or trade secret information to another Person, without breaching the terms of any agreement with a Third Party, or misappropriating the proprietary or trade secret information of a Third Party.

“Develop” or “Development” means drug development activities, including, without limitation, test method development and stability testing, assay development and audit development, toxicology, formulation, quality assurance/quality control development, statistical analysis, clinical studies, packaging development, regulatory affairs, and the preparation, filing and prosecution of NDAs and MAAs.

“Development Costs” has the meaning set forth in the Option Agreement.

“DGF DMC Top Line Interim Report” has the meaning set forth in the Option Agreement.

“DGF Final Report” has the meaning set forth in the Option Agreement.

“DGF Indication” means the treatment and/or prevention of delayed graft function following renal transplantation.

“DGF Phase II Trial” has the meaning set forth in the Option Agreement.

“DGF Phase II Trial Protocol” has the meaning set forth in the Option Agreement; provided that, following the License Effective Date, any changes to the DGF Phase II Trial Protocol (as it exists at the License Effective Date) must be mutually agreed between the Parties.

“DGF Phase II Trial [*] Criteria” has the meaning set forth in the Option Agreement.

“DGF [*] Report” has the meaning set forth in the Option Agreement.

“Dharmacon License” means the Patent License Agreement between Quark and Dharmacon, Inc., dated January 29, 2010.

“EMA” means the European Medicines Agency or any successor entity thereto.

“Encumbrance” means any claim, charge, equitable interest, hypothecation, lien, mortgage, pledge, option, license, assignment, power of sale, retention of title, right of pre-emption, right of first refusal or security interest of any kind.

“EU Regulatory Approval” means (a) marketing authorization approval from the EMA and pricing and reimbursement approval [*] or (b) marketing authorization approval and pricing and reimbursement approval [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

5

“Execution Date” shall have the meaning set forth in the first paragraph of this Agreement.

“FDA” means the United States Food and Drug Administration or any successor entity thereto.

“Field” means the, diagnosis, prevention or treatment of diseases and other conditions in all indications in humans and animals.

“First Commercial Sale” means, with respect to any Product, the first arm’s length sale to a Third Party for use or consumption of any such Product in a country.

“FTE Rate” means a rate of [*] US Dollars ($[*]) per Calendar Year based on the yearly time for a full-time equivalent scientific person year (consisting of a total of [*] hours per Calendar Year) of work, to be pro-rated on a daily basis if necessary (per Calendar Year amount to be divided by [*] to produce the rate per whole day consisting of eight (8) hours); such rate to [*] and [*]. For the avoidance of doubt, such rate includes [*] for which [*].  The FTE Rate shall be [*] from the Option Agreement Effective Date.

“Fully-Burdened Manufacturing Cost” of Novartis means the cost of all resources and any and all operations (including packaging for shipment) carried out by or on behalf of Novartis or its Affiliates or subcontractors in order to manufacture and supply the Quark Compound and/or Product, established in accordance with Novartis’ accounting procedures and Accounting Standards as consistently applied by Novartis.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder.

“HSR Filing Date” has the meaning set forth in the Option Agreement.

“IND” means an Investigational New Drug application in the US filed with the FDA or the corresponding application for the investigation of Products in any other country or group of countries, as defined in the applicable laws and regulations and filed with the Regulatory Authority of a given country or group of countries.

“Insolvency Event” means, in relation to either Party, any one of the following: (a) that Party becomes insolvent; (b) that Party is the subject of voluntary or involuntary bankruptcy proceedings instituted on behalf of or against such Party (except for involuntary bankruptcy proceedings which are dismissed within [*]); (c) an administrative receiver, receiver and manager, interim receiver, custodian, sequestrator or similar officer is appointed in respect of that Party; (d) a notice shall have been issued to convene a meeting for the purpose of passing a resolution to wind up that Party, or such a resolution shall have been passed other than a resolution for the solvent reconstruction or reorganization of that Party; or (e) a resolution shall have been passed by that Party or that Party’s directors to make an application for an administration order or to appoint an administrator or (f) that Party suspends or threatens to suspend making payments (excluding payments subject to good faith dispute) to all or some of that Party’s creditors or makes a general assignment, composition or arrangement with or for the benefit of all or the majority of that Party’s creditors.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

6

“Joint Know-How” means any Know-How which is jointly owned by Quark (or any of its Affiliates) and Novartis (or any of its Affiliates) as of the Execution Date or thereafter during the Term of this Agreement.

“Joint Patents” means any Patent Rights which are jointly owned by Quark (or any of its Affiliates) and Novartis (or any of its Affiliates) as of the Execution Date or thereafter during the Term of this Agreement.

“Joint Steering Committee”or “JSC” means the committee established as set forth inSection 3.2.

“Joint Technology” means the Joint Know-How and Joint Patents.

“Know-How” means all technical information, know-how and data, including inventions (whether patentable or not), discoveries, trade secrets, specifications, instructions, processes, formulae, materials, expertise and other technology applicable to compounds, formulations, compositions, products or to their manufacture, development, registration, use or commercialization or methods of assaying or testing them or processes for their manufacture, formulations containing them, compositions incorporating or comprising them and including all biological, chemical, pharmacological, biochemical, toxicological, pharmaceutical, physical and analytical, safety, quality control, manufacturing, preclinical and clinical data, instructions, processes, formulae, expertise and information, regulatory filings and copies thereof, relevant to the development, manufacture, use or commercialization of and/or which may be useful in studying, testing, development, production or formulation of products, or intermediates for the synthesis thereof.

“License Effective Date” has the meaning set forth in the Option Agreement.

“Loss of Market Exclusivity” means, with respect to any Product in any country, the following has occurred: (a) a Third Party Competitive Product is being marketed or sold in such country by a Third Party; and (b) the [*] of such Product in [*] in any [*] are [*]of the [*] of such Product in [*] in the [*] of such Third Party Competitive Product.

“MAA” means an application for the authorization to market a Product in any country or group of countries outside the United States, as defined in the applicable laws and regulations and filed with the Regulatory Authority of a given country or group of countries.

“Major Markets” means the [*].

“Milestones” means the milestones relating to the Products as set forth in Section 8.4.

“Milestone Payments” means the payments to be made by Novartis to Quark upon the achievement of the corresponding Milestones as set forth in Section 8.4.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

7

“NDA” means a New Drug Application in the United States for authorization to market a Product, as defined in the applicable laws and regulations and filed with the FDA.

“Net Sales” means the net sales recorded by Novartis or any of its Affiliates or sublicensees (other than distributors or wholesalers) for Product sold to Third Parties other than sublicensees in bona fide, arms-length transactions, [*], less [*].  The deductions [*] by Novartis and its Affiliates [*] to calculate the recorded net sales from gross sales shall be as follows:

(i)  [*];

(ii)  [*];

(iii)  [*];

(iv)  [*];

(v)  [*];

(vi)  [*];

(vii) [*]; and

(viii) [*].

With respect to the calculation of Net Sales:

(i) Net Sales only include [*] and [*] shall be disregarded for purposes of calculating Net Sales;

(ii) If a Product is delivered to a Third Party before being invoiced (or is not invoiced), Net Sales will be calculated at [*]; and

(iii) In the event the Product is sold as a Combination Product, Net Sales of the Product will be calculated by [*].  Regarding [*], if these are available for [*]. If the [*].

“[*] Patents” has the meaning set forth in Section 10.2(d).

“Option” has the meaning set forth in the Option Agreement.

“Option Agreement” has the meaning set forth in the recitals.

“Out-of-Pocket Costs” means direct project related expenses paid or payable to Third Parties and specifically identifiable and incurred to procure supplies of the Product in the Territory;  such expenses to have been recorded [*] in accordance with the Quark’s Accounting Standards and for the avoidance of doubt, [*].

“p-53-directed siRNA” means any small interfering RNA molecule which interferes with the expression of the p53 gene in humans or animals [*].

“Patent Rights” means all patents and patent applications, including all divisionals, continuations, substitutions, continuations-in-part, re-examinations, reissues, additions, renewals, extensions, registrations, and supplemental protection certificates and the like of any of the foregoing.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

8

“Person”means any individual, partnership, limited liability company, firm, corporation, association, trust, unincorporated organization or other entity.

“Phase II Clinical Trial” means a controlled clinical study of a Product in patients designed to establish the dosing range for such Product and the safety and efficacy of such Product.

“Phase II Trial Reports” has the meaning set forth in the Option Agreement.

“Phase II/III Adaptive Design Clinical Study means for the purpose of Section [*]a clinical trial which combines Phase II and Phase III data into one single confirmatory clinical trial, where the selected dose is well established and further investigations in Phase II are performed in the same patient population and the same endpoints as are relevant in Phase III. The study design consists of two stages. The first stage aims [*] (learning stage corresponding to Phase II). An interim analysis is performed at the end of the first stage to select the most suited treatment for the second stage aimed at [*] selected at such interim analysis [*] (confirmatory stage corresponding to Phase III).

 “Phase III Clinical Trial” means a pivotal clinical study of a Product in patients designed to establish efficacy and safety of such Product for the purpose of preparing and submitting a filing for NDA approval in the US or EU Regulatory Approval.  Phase III Clinical Trial also includes any Phase II Clinical Trial that is extended with the intent of establishing efficacy and safety of a Product for the purpose of preparing and submitting a filing for NDA approval in the US or EU Regulatory Approval.

 “Product” means a product developed under this Agreement incorporating or comprising one or more Quark Compounds in finished dosage pharmaceutical form, including, in each case, all formulations and modes of administration thereof, the manufacture, use, Development or Commercialization of which: (a) would, but for the license granted hereunder, infringe a Valid Claim; or (b) incorporates or embodies Quark Know-How or Joint Know-How.

“Quark Compounds” means all p53-directed siRNA owned or controlled by Quark, [*].

“Quark Development Plan” has the meaning set forth in the Option Agreement; provided that, following the License Effective Date, any changes to the Quark Development Plan (as it exists at the License Effective Date) [*].

“Quark Know-How” means any Know-How owned (whether solely or jointly with any Third Party) or Controlled by Quark or any of its Affiliates as of the Execution Date or thereafter during the term of this Agreement relating to the Quark Compounds and/or Product that is reasonably necessary or useful for the research, Development, manufacture, preparation, use or Commercialization of the Quark Compounds and/or Product in the Field.  For the avoidance of doubt, “Quark Know-How” shall not include any Joint Know-How.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

9

“Quark Patents” means the Patent Rights identified in Exhibit A, and, any other Patent Rights owned (whether solely or jointly with any Third Party) or Controlled by Quark or any of its Affiliates as of the Execution Date or thereafter during the Term of this Agreement having claims covering the Quark Compounds and/or Product, their use, composition, formulation, preparation or manufacture or having claims that are reasonably necessary or useful for the research, Development, manufacture, preparation, use or Commercialization of the Quark Compounds and/or Product in the Field.  For the avoidance of doubt, “Quark Patents” shall not include any Joint Patents or any [*] Patents.

“Quark Technology” means the Quark Know-How and Quark Patents.

“Regulatory Approval”means, with respect to a Product in any country or jurisdiction, any approval (including where required, pricing and reimbursement approvals), registration, license or authorization from a Regulatory Authority in a country or other jurisdiction that is necessary to market and sell such Product in such country or jurisdiction.

“Regulatory Authority” means any governmental agency or authority responsible for granting Regulatory Approvals for Products, including the FDA, EMA and any corresponding national or regional regulatory authorities.

“Regulatory Exclusivity” means, with respect a given country in the Territory, any regulatoryexclusivity, beyond patent rights, granted by a Regulatory Authority in such country, which confers an exclusive Commercialization period during which: (i) Novartis has the exclusive right to market, price and sell a Product in such country through a regulatory exclusivity right such as a new chemical entity exclusivity, new use or indication exclusivity, new formulation exclusivity, orphan drug exclusivity and pediatric exclusivity, or any equivalent of the foregoing; and (ii) no Third Party Competitive Product is marketed in any such country by any Third Party.

“Regulatory Filings” means, with respect to the Quark Compounds or Product, any submission to a Regulatory Authority of any appropriate regulatory application, and shall include, without limitation, any submission to a regulatory advisory board, marketing authorization application, and any supplement or amendment thereto.  For the avoidance of doubt, Regulatory Filings shall include any IND, NDA or the corresponding application in any other country or group of countries.

“Sales & Royalty Report” means a written report or reports, substantially in the form attached at Exhibit B, showing each of: (a) the Net Sales in US dollars of each Product in the Territory [*] during the reporting period by Novartis and its Affiliates and sublicensees; and (b) the royalties payable, in United States Dollars, which shall have accrued hereunder with respect to such Net Sales.

“Senior Officers” means, for Quark, its Chief Executive Officer, and for Novartis:

(a) [*] related to JSC decisions regarding Commercialization issues, the Global Head of Marketing and Sales, General Medicines, for Novartis Pharma AG;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

10

(b) [*] related to JSC decisions regarding Development issues, the Global Head of Development for Novartis Pharma AG;

(c) [*] related to JSC decisions regarding alliance management issues, the Global Head of Business Development and Licensing for Novartis Pharma AG; and

(d) with respect to any other matter, including any dispute under Section 17.5, the Global Head of Business and Development and Licensing for Novartis Pharma AG.

“Silence License” means the Option and License Agreement between Quark and Silence Therapeutics AG (formerly known as Atugen AG), dated April 19, 2005.

“Territory” means worldwide, subject to Quark’s rights in Israel described Sections 5.4 and 7.2 below.

“Third Party” means any Person other than a Party or an Affiliate of a Party.

“Third Party Competitive Product” means, with respect to any Product being commercialized by or on behalf of Novartis in a particular country in the Field, any preparation in final form being commercialized by a Third Party (other than a sublicensee of Novartis [*] in such country in the Field, which contains either:

(a) any [*]; or

(b) any compound which is [*] to [*], where the [*] is [*] a [*] under [*], and [*].

“Third Qualifying Indication” means the first indication, other than the AKI Indication and the DGF Indication, for which the Product is developed and for which Novartis has, in good faith, [*].

“Transition Plan” has the meaning set forth in Section 4.2.

“Trial [*] Criteria” means the AKI Phase II Trial [*] Criteria and/or the DGF Phase II Trial [*] Criteria, each as defined in the Option Agreement.

“UIC License” means the Option and License Agreement between Quark and the Board of Trustees of the University of Illinois, dated September 3, 1999.

“United States”or “US” means the United States of America, its territories and possessions.

“USD” or “US$” means the lawful currency of the United States.

“US Regulatory Approval” means final Regulatory Approval from the FDA and, if applicable, pricing and reimbursement approval in the US.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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“Valid Claim” means, with respect to any country, a claim of: (i) an issued patent included within the Quark Patents or Joint Patents in such country, which has not expired or been revoked, or held invalid or unenforceable by a patent office, court or other governmental agency of competent jurisdiction in a final and non-appealable judgment (or judgment from which no appeal was taken within the allowable time period), and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise; and (ii) a patent application within the Quark Patents (not including any Joint Patents) which is being prosecuted in good faith, which has not been revoked, cancelled, withdrawn, held invalid or abandoned, and which has not been pending for more than [*] from its first priority filing date.

1.2 Interpretation.  In this agreement unless otherwise specified:

(a) “includes” and “including” shall mean respectively includes and including without limitation;

(b) a Party includes its permitted assignees and/or the respective successors in title to substantially the whole of its undertaking, subject to the provisions of Sections 3.6 and 17.1;

(c) a statute or statutory instrument or any of their provisions is to be construed as a reference to that statute or statutory instrument or such provision as the same may have been or may from time to time hereafter be amended or re-enacted;

(d) words denoting the singular shall include the plural and vice versa and words denoting any gender shall include all genders;

(e) the Exhibits and other attachments form part of the operative provision of this Agreement and references to this Agreement shall, unless the context otherwise requires, include references to the Exhibits and attachments;

(f) the headings in this Agreement are for information only and shall not be considered in the interpretation of this Agreement;

(g) general words shall not be given a restrictive interpretation by reason of their being preceded or followed by words indicating a particular class of acts, matters or things; and

(h) the Parties agree that the terms and conditions of this Agreement are the result of negotiations between the Parties and that this Agreement shall not be construed in favor of or against any Party by reason of the extent to which any Party participated in the preparation of this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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2. LICENSE

2.1 License Grant. Subject to the terms and conditions of this Agreement, Quark hereby grants to Novartis an exclusive (even as to Quark), sub-licensable (pursuant to Section 2.2) license, under the Quark Technology and Quark’s interest in any Joint Technology to research, Develop, make, use, import, offer for sale, sell and otherwise Commercialize, or to have any of the foregoing done on its behalf, the Quark Compounds and Product in the Field in the Territory, subject to Quark’s retained rights in Israel as set forth in Section 5.4 and 7.2 below. For the avoidance of doubt, the foregoing license is exclusive to Novartis and Quark has no retained rights (and will not attempt to license any rights, directly or indirectly, to any Third Party) with respect to the Quark Compounds and Products in the Field in the Territory; except for activities undertaken pursuant to the terms of this Agreement. For further clarity, Quark retains all the rights in Quark Technology and Quark’s interest in any Joint Technology outside the scope of the foregoing license. Exhibit A separately identifies those Quark Patents that also have utility outside of such foregoing license. Novartis acknowledges that Quark’s licenses under the Silence License and the Alnylam License are non-exclusive, and accordingly, that Novartis’ licenses under this Section 2.1 with respect to these two upstream licenses are non-exclusive.

2.2 Sublicense and Subcontract Rights.

(a) Novartis may exercise its rights and perform its obligations under this Agreement itself or through any of its Affiliates; provided that Novartis shall remain primarily liable for any acts or omissions of its Affiliates.

(b) Novartis may sublicense the rights granted to it by Quark under this Agreement to one or more Third Parties at any time at its sole discretion and without reference to Quark, provided that such sublicense shall comply with all applicable provision of this Agreement and [*].  In addition, Novartis may subcontract to Third Parties the performance of tasks and obligations with respect to the Development, manufacture and Commercialization of Products as Novartis deems appropriate.  Novartis shall be responsible for the performance of its sublicensees and subcontractors.

2.3 Exclusivity.

(a) During the term of the Agreement, neither Quark nor any of its Affiliates will, directly or indirectly: (i) license, assign or otherwise dispose of any of its rights (also by way of granting an option similar to the Option) in the Quark Compounds, Product or p53-specific Quark Technology to any Third Party; (ii) enter into any collaboration or license agreement with any Third Party in connection with the development and/or commercialization of any Quark Compound, Product or Competing Product; or (iii) research (except as provided in the last sentence of this Section 2.3(a)) Develop, manufacture or Commercialize any Quark Compound, Product or Competing Product.  Notwithstanding any other provision hereof, this Section shall not apply to activities conducted by Quark or its Affiliates pursuant to and in accordance with this Agreement.For clarity, this Section 2.3(a) shall not prevent Quark from performing [*] research relating to a Quark Compound, Product or Competing Product, provided that [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) For the period from the License Effective Date until [*] after [*] in [*], neither [*] nor any [*] will, directly or indirectly, [*], other than for [*] in [*] in [*].

3. GOVERNANCE

3.1 Alliance Managers.  Within [*] following the License Effective Date, each Party will appoint (and notify the other Party of the identity of) a senior representative having a general understanding of pharmaceutical development and commercialization issues to act as its alliance manager under this Agreement (“Alliance Manager”).  The Alliance Managers will serve as the contact point between the Parties for the purpose of providing Quark with information on the progress of Novartis’ Development and Commercialization of the Product(s) and will be primarily responsible for facilitating the flow of information and otherwise promoting communication, coordination and collaboration between the Parties; providing single point communication for seeking consensus both internally within the respective Party’s organization and together regarding key global strategy and planning issues, as appropriate, including facilitating review of external corporate communications; and raising cross-Party and/or cross-functional disputes in a timely manner.  Each Party may replace its Alliance Manager on written notice to the other Party.

3.2 Joint Steering Committee.

(a) The Parties will establish a Joint Steering Committee, composed of [*] senior personnel of Quark and [*] senior personnel of Novartis (one (1) of which will be the Party’s Alliance Manager and which personnel for each Party, collectively, shall have a general understanding of drug manufacturing, development and commercialization issues).

(b) Within [*] following the License Effective Date, each Party will designate its initial members to serve on the JSC and notify the other Party of the dates of availability for the first meeting of the JSC.  Each Party may replace its representatives on the JSC on written notice to the other Party.

(c) The JSC will:  (i) oversee the Know-How and technology transfers contemplated in Sections 4.1, 4.2, 4.5 and 6.2 of this Agreement; (ii) review and discuss Development activities with respect to the Quark Compounds and the Product, including any activities of Quark in Israel under Section 5.4; (iii) discuss and approve the clinical trial protocols for the Product (other than the DGF Phase II Trial Protocol and the AKI Phase II Trial Protocol), including any material revisions thereto, in each indication; (iv) review and discuss Novartis’ Commercialization strategies with respect to the Product, and, in the event that Quark distributes Products in Israel pursuant to Section 7.2, oversee such distribution activities; and (v) consider and act upon such other matters as specified in this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) The JSC also may, at any time it deems necessary or appropriate, establish additional joint committees and delegate such of its responsibilities as it determines appropriate to such joint committees.

3.3 Meetings of the Joint Steering Committee.

(a) The JSC shall meet [*] per Calendar Year and at such other times as the Parties may agree.  The first meeting of the JSC shall be held as soon as reasonably practicable, but in no event later than [*] following the License Effective Date.  Meetings shall be held at such place or places as are mutually agreed or by teleconference or videoconference; provided, however, that there shall be at least one face-to-face meeting per Calendar Year, unless the Parties otherwise agree.

(b) Each Party may from time to time invite a reasonable number of participants, in addition to its representatives, to attend JSC meetings in a non-voting capacity, with the consent of the other Party (which shall not be unreasonably withheld); provided, that that if Quark intends to have any Third Party (including any consultant) attend such a meeting, such Third Party will be subject to the prior approval of Novartis and must be bound by confidentiality obligations consistent with the terms of this Agreement.

(c) Novartis shall appoint one of its representatives on the JSC to act as chairperson of the JSC.  The chairperson shall set agendas for JSC meetings, provided that the agendas will include any matter requested by either Party.  The chairperson shall be responsible for recording, preparing and, within a reasonable time, issuing (i) draft minutes of each JSC meeting, which draft minutes shall be subject to review and approval by all JSC members, and (ii) final minutes following such approval.

3.4 Decision Making. Decisions of the JSC shall be made by unanimous vote, with each Party’s representatives to the JSC collectively having one vote.  In the event of a disagreement among the JSC with respect to any matter other than a matter related to [*], Novartis shall have a casting vote; provided, however, that, in the event that Novartis exercises such casting vote with respect to any issue which is [*], and in the event that Quark objects to such decision, Quark may, by notice in writing within [*] of Novartis’ exercise of its casting vote, refer the matter to the Senior Officers who shall attempt in good faith to resolve such disagreement.  If they cannot resolve such issue within [*] of the matter being referred to them, then the resolution and/or course of conduct shall be determined by [*].  However, in no event shall [*] have the right:

(a) to modify or amend the terms and conditions of this Agreement; or

(b) to determine any such issue in a manner that would conflict with the express terms and conditions of this Agreement; or

(c) to increase the performance obligations of [*] beyond those set forth herein.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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3.5 Costs of Governance.  The Parties agree that the costs incurred by each Party in connection with its participation at any meetings under this Article 3 shall be borne solely by such Party.

3.6 Change of Control.  In the event of a Change of Control of Quark, Novartis may provide written notice to Quark (or its successor entity) to [*] and upon such notice, [*] shall be [*], and [*] shall thereafter be [*].

3.7 Discontinuance of JSC Participation.  Quark shall have the right to discontinue its participation in the JSC upon written notice to Novartis at any time during the Term.  Once Quark has provided written notice to discontinue its participation in the JSC, [*] shall be deleted from this Agreement, and any decisions otherwise assigned to the JSC shall thereafter be [*].

4. DISCLOSURE OF QUARK KNOW-HOW & COOPERATION

4.1 Disclosure of Quark Know-How.   Following the License Effective Date, Quark shall disclose the Quark Know-How to Novartis in accordance with Section 4.3 of the Option Agreement (without regard to the termination of the Option Agreement).  Thereafter, on a continuing basis during the term of this Agreement, Quark, without additional consideration [*], shall disclose to Novartis or its designated Affiliate all additional Quark Know-How or Joint Know-How of which Quark becomes aware from time to time, to the extent reasonably relevant to Novartis’ practice of the license granted under Section 2.1. Without limiting the foregoing, Quark will deliver to Novartis (or its designee) all manufacturing batch records, Development reports, analytical results, filings and correspondence with any Regulatory Authority (including notes or minutes of any meetings with any Regulatory Authority), raw material and excipient sourcing information, quality audit findings and any other relevant technical information relating to any Quark Compounds and/or Products.

4.2 Transition Plan.  Within [*] of the License Effective Date, the Parties shall agree a plan (“Transition Plan”) for the transfer to Novartis of all Development and manufacturing activities then being undertaken by Quark, taking into account Quark’s obligations to complete the DGF Phase II Trial and/or the AKI Phase II Trial, and any other ongoing clinical or pre-clinical studies, as set forth in Section 5.1(a).  Quark shall, without additional consideration, transition all such activities to Novartis in accordance with the Transition Plan.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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4.3 Assignment of Agreements.  Quark shall cooperate and assist Novartis by assigning to Novartis or its designee any agreements which Quark may have entered into prior to the License Effective Date specifically relating to the development, manufacture or supply of any Quark Compound or Product which Novartis, in its sole discretion, deems useful or necessary to further its obligations under this Agreement, provided however that Quark shall not be obligated to assign to Novartis any intellectual property rights obtained under such agreements and Quark shall not be obligated to assign to Novartis any agreement relating solely to non-clinical research.  If any such assignment requires the consent of the applicable counterparty, Quark shall not be obligated to make such assignment until such consent is obtained; provided, however, that Quark shall use commercially reasonable efforts to obtain such consent (it being understood that Quark shall in no event be obligated to make any payment to a counterparty to secure such consent).  Quark shall stop any work related to Quark Compound or Product under any agreements not assigned to Novartis. In cases where Quark is unable to or elect not to assign such intellectual property rights obtained under such agreements, Quark shall ensure (at a minimum) that Novartis has an exclusive (where possible and if not possible, a non-exclusive), sub-licensable license under such intellectual property rights to research, Develop, make, use, import, export, offer for sale, sell and otherwise Commercialize, or have any of the foregoing done on its behalf, the Quark Compounds and Product in Field in the Territory.

4.4 Compound Transfer.  Within [*] following the License Effective Date, Quark or its Affiliates, shall provide to Novartis or its designated Affiliate such quantities of the Quark Compounds and/or Product in Quark’s possession as may be reasonably requested by Novartis for use by Novartis and its Affiliates in connection with its Development activities under this Agreement, which supplies shall be provided to Novartis at [*].

4.5 Cooperation.  From time to time during the term of this Agreement at the request of Novartis, Quark will provide reasonable assistance to Novartis or its designated Affiliate in connection with understanding and using the Quark Know-How and Joint Know-How for purposes consistent with licenses and rights granted to Novartis hereunder, including by providing information to assist Novartis or its designated Affiliate in developing formulations of any Product and its related activities, provided that during the period of [*] from the License Effective date, such assistance (including travel to sites other than Quark facilities) shall be provided without charge to Novartis. After such [*] period such assistance shall, where provided at Quark facilities or by telephone, continue to be provided without charge, provided [*].

5. DEVELOPMENT

5.1 Completion of DGF Phase II Trial and AKI Phase II Trial.

(a) To the extent that either or both of the DGF Phase II Trial and/or the AKI Phase II Trial have not been completed as of the License Effective Date, Quark will be responsible for completing, and shall use Commercially Reasonable Efforts to complete, at its sole cost and expense and in accordance with the Quark Development Plan, such trial(s), including the preparation and finalization of all Phase II Trial Reports.  The DGF Phase II Trial shall be completed in accordance with the DGF Phase II Trial Protocol and the AKI Phase II Trial shall be completed in accordance with the AKI Phase II Trial Protocol.  Quark shall also be responsible for completing, and shall use Commercially Reasonable Efforts to complete, at its sole cost and expense and in accordance with the Quark Development Plan, any other clinical or pre-clinical studies that are ongoing as of the License Effective Date, including the preparation and finalization of complete, signed, detailed, data cleaned, statistically analyzed, unbiased, unblended, unblinded and cGCP/cGLP audited and compliant final report(s) for any such studies.  Notwithstanding the foregoing, if Quark is unable to [*] as specified in the [*] and/or the [*], as applicable, after [*], Quark [*], and the Parties shall negotiate in good faith as to how to proceed.  Notwithstanding the foregoing, [*].  For clarity, in no event shall Quark be obligated to implement any changes to the Quark Development Plan, the DGF Phase II Trial Protocol, or the AKI Phase II Trial Protocol that would have the effect of increasing the cost of the DGF Phase II Trial and/or the AKI Phase II Trial.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) No less than [*] prior to each scheduled meeting of the JSC, Quark will provide the Novartis members of the JSC with a written report on the status and progress of its activities under Section 5.1(a), which reports shall include information on progress versus plan, protocol deviations, notable safety and efficacy findings (including serious adverse events and events of interest from risk management perspective), audit findings, and summaries of all interactions, and copies of all correspondence, with Regulatory Authorities since the previous such report.

(c) Quark shall make available such information about any ongoing studies under Section 5.1(a) as may be reasonably requested by Novartis from time to time, including such information as may be reasonably required to facilitate scientific/medical publications regarding the Quark Compounds or Products; provided, however, that all such releases of information shall be subject to Novartis’ approval in accordance with Section 16.3(a).  In addition, and without limiting the foregoing, Quark will provide Novartis with (to the extent not previously disclosed under the Option Agreement):

(i) The DGF DMC Top Line Interim Report within [*] of the final dosing of the last patient for each interim analysis in the DGF Phase II Trial;

(ii) The DGF [*] Report within [*] of the final dosing of the last patient for the DGF Phase II Trial;

(iii) The DGF Final Report within [*] of the final dosing of the last patient for the DGF Phase II Trial;

(iv) The AKI First Interpretable Results within [*] of the final dosing of the last patient for the AKI Phase II Trial; and

(v) The AKI Final Report within [*] of the final dosing of the last patient for the AKI Phase II Trial.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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Each such report shall be deemed to have been accepted by Novartis [*] after it was first made available to Novartis in final and complete form; provided, that Novartis has not, during such [*] period, issued notice to Quark reasonably disputing whether the applicable report meets the requirements set forth in the definition of such report under the Option Agreement and stating a list of specific deficiencies that, if corrected, would cause the applicable report to meet such requirements.  If Quark provides a corrected report that reasonably addresses such deficiencies, such report shall be deemed to have been accepted by Novartis [*] after it was first made available to Novartis in such revised final and complete form.  If Novartis believes the report, as submitted by Quark in such revised final and complete form, did not reasonably address such deficiencies, it shall promptly advise Quark and the Parties shall seek to resolve such dispute.  If the Parties do not reach agreement on such matter, either Party may submit the issue to an arbitration under Section 17.5.  If the arbitration rules in favor of Quark, the applicable Phase II Trial Report shall be deemed to have been accepted by Novartis upon the issuance of such ruling but the applicable time period set forth in Section 8.2(a)(ii), 8.2(a)(iii), 8.2(a)(iv), 8.2(a)(v), 8.2(b)(i), 8.2(b)(ii), 8.2(c), 8.2(d)(i), 8.2(d)(ii) or 8.2(e) with respect to the election of discretionary payment after the acceptance of such report shall be [*] following receipt of the written decision of the arbitration.  If the arbitration rules in favor of Novartis, then Quark shall revise the report in accordance with the ruling of the arbitrator and shall resubmit it to Novartis, and the applicable time period set forth in Section 8.2(a)(ii), 8.2(a)(iii), 8.2(a)(iv), 8.2(a)(v), 8.2(b)(i), 8.2(b)(ii), 8.2(c), 8.2(d)(i), 8.2(d)(ii) or 8.2(e) shall then commence.

(d) Until completion of the DGF Phase II Trial and the AKI Phase II Trial:

(i) Quark will be responsible for, and will use diligent efforts in, obtaining and maintaining all Regulatory Approvals necessary for the conduct of the applicable trial;

(ii) Quark will provide to Novartis copies of all substantive written communications received by Quark (or its Affiliates) from any Regulatory Authority related to the applicable trial or otherwise relevant to any Quark Compound or Product;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(iii) While Quark is conducting the DGF Phase II Trial and/or the AKI Phase II Trial, Quark will, where possible, advise Novartis not less than [*] in advance of entering into any correspondence or substantive discussion with any Regulatory Authority related to the applicable trial or otherwise relevant to any Quark Compound or Product, and will provide to Novartis copies of all substantive written communication to and from such Regulatory Authority.  Novartis’ approval shall be required for Quark to enter into such correspondence or discussion, except as may be required by applicable laws or regulations.  After Quark has completed both the DGF Phase II Trial and AKI Phase II Trial, Quark will not enter into any correspondence or discussion with any Regulatory Authority related to the applicable trial or otherwise relevant to any Quark Compound or Product, except as may be required by applicable laws or regulations and except that Quark may send to Regulatory Authorities correspondence which relates to the DGF Phase II Trial or the AKI Phase II Trial (as applicable) and which has been previously approved by Novartis;

(iv) At Novartis’ request, Quark will request and seek to arrange meetings and consultations with Regulatory Authorities to the extent required for the DGF Phase II Trial and/or the AKI Phase II Trial or for any other purpose related to Novartis’ ongoing or planned Development activities with respect to any Product; and

(v) Novartis shall have the right to have representatives of Novartis attend and participate in all meetings between Quark (or its Affiliates) and any Regulatory Authority relating to the DGF Phase II Trial and/or the AKI Phase II Trial, except to the extent prohibited by applicable laws or regulations.

(e) Upon the latter of closure of the [*] database for the DGF Phase II Trial and (ii) closure of the [*] database for the AKI Phase II Trial, all Regulatory Filings with any Regulatory Authority relating to the Quark Compounds and/or the Products which Quark was required to retain in order to complete the DGF Phase II Trial and/or the AKI Phase II Trial, shall be deemed assigned and transferred by Quark to Novartis, and upon request by Novartis, Quark shall deliver notices of such assignment and transfer to applicable Regulatory Authorities.

5.2 Development.  Subject to Sections 5.1, 5.3 and 5.4, with effect from the License Effective Date, Novartis will be responsible for conducting, at its sole expense, such research and preclinical, clinical and other Development of the Quark Compounds and/or Product as it determines appropriate in its sole discretion.

5.3 Development Diligence.  Novartis shall itself, or through its Affiliates or sublicensees, use Commercially Reasonable Efforts to Develop at least one Product in the Field.  Subject to compliance with the foregoing, the Development of the Products shall be in Novartis’ sole discretion.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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5.4 Quark Development Activities In Israel.  Novartis shall notify Quark in writing the planned commencement date for the first Phase III Clinical Trial for the Product.  Quark shall have the right, exercisable by notice in writing to Novartis no later than [*] prior to such planned commencement for the first Phase III Clinical Trial for the Product (or, if later, not more than [*] after receipt of the foregoing Novartis notice), to conduct (itself or through one of its Affiliates) a portion of each Phase III Clinical Trial of any Product in Israel in accordance with the protocols and other governing documents developed by, and under the oversight of, the JSC.  Novartis shall pay a [*] to Quark for any clinical trial activities conducted by Quark in Israel consistent with [*] that [*] for [*] for the [*], and the Parties shall execute a customary agreement covering Quark’s performance of such clinical trials, it being understood and agreed that Quark shall conduct all such activities: (i) at Novartis’ direction and in accordance with Novartis’ development plan and protocols for the applicable trial and the agreed budget; and (ii) in accordance with all applicable laws and regulations regarding the conduct of clinical trials, including but not limited to compliance with cGLP, cGMP, cGCP and if appropriate ICH guidance or if higher, Novartis standards as communicated to Quark.  For each Product, the JSC shall agree [*] in [*] for each [*]; provided however, if Novartis reasonably determines that the indication being studied is [*] in the [*], Quark’s right to [*] in [*] shall not apply to any Product in such indication.  [*]

5.5 Regulatory.

(a) Promptly after the License Effective Date, Quark will assign or transfer to Novartis the ownership of all existing Regulatory Filings for the Products in the Territory, other than any Regulatory Filing which Quark is required to retain in order to complete its activities under Section 5.1(a), which Regulatory Filings shall be assigned or transferred to Novartis as set forth in Section 5.1(e).  Other than as expressly set forth in Section 5.1 above, Novartis will own all Regulatory Filings and Regulatory Approvals for the Product in the Territory, and for clarity, Novartis will (i) determine the regulatory plans and strategies for the Quark Compounds and/or Product, (ii) make all Regulatory Filings with respect to the Product and (iii) will be responsible for obtaining and maintaining Regulatory Approvals throughout the Territory in the name of Novartis or its Affiliates or sublicensees.

(b) Quark shall fully cooperate with and provide assistance to Novartis in connection with filings to any Regulatory Authority relating to the Quark Compounds and/or Product(s), including by executing any required documents, providing access to personnel and providing Novartis with copies of all reasonably required documentation.

(c) To the extent requested by Novartis, Quark shall grant or use commercially reasonable efforts to cause to be granted to Novartis and its Affiliates or sublicensees cross-reference rights to any relevant drug master files and other filings submitted by Quark or its Affiliates with any Regulatory Authority.

(d) Novartis shall have the right to disclose the existence of, and the results from, any clinical trials conducted under this Agreement in accordance with Section 16.3(b) of this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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5.6 Compliance. Each Party agrees that in performing its obligations under this Agreement (a) it shall comply with all applicable current international regulatory standards, including cGMP, cGLP, cGCP and other rules, regulations and requirements and (b) it will not employ or use any person that has been debarred under Section 306(a) or 306(b) of the U.S. Federal Food, Drug and Cosmetic Act.

6. MANUFACTURING

6.1 Manufacturing.

(a) Quark shall be solely responsible for procuring such quantities of any Quark Compounds and Products as may be required to complete the DGF Phase II Trial and the AKI Phase II Trial, and any other pre-clinical and other clinical studies to be completed by Quark under Section 5.1.

(b) Upon request by Novartis in its sole discretion, Quark shall also procure such quantities of any Quark Compounds and Products as may be required by Novartis, its Affiliates or sublicensees for Phase III Clinical Trials for the AKI Indication and the DGF Indication, and any pre-clinical and other clinical studies planned as of the License Effective Date, subject to the terms and conditions of any existing Third Party manufacturing agreement.  Quark shall supply Novartis with all such requirements at a price equal to [*].

(c) Other than as set forth in Sections 6.1(a) and (b), with effect from the License Effective Date, Novartis or its designated sublicensee(s) will be solely responsible for the manufacture and supply of the Quark Compounds and Products being Developed or Commercialized under this Agreement.

6.2 Manufacturing Know-How and Assistance.

(a) Without limiting the provisions of Sections 4.1 and 4.5, during the period from the License Effective Date until the First Commercial Sale of the Quark Compounds and/or Products under this Agreement, Quark shall:

(i) fully cooperate with and provide assistance to Novartis or its designee, through documentation, consultation, training and face-to-face meetings, to enable Novartis or its designee in an efficient and timely manner to proceed with Development and manufacturing of the Quark Compounds and/or Product and to obtain all appropriate Regulatory Approvals for manufacturing (including qualification by the applicable Regulatory Authority of manufacturing sites); and

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(ii) make appropriate personnel available to assist Novartis or its designee at any time and from time to time as reasonably requested by Novartis, and shall provide the appropriate personnel of Novartis or its designee with access to the personnel and manufacturing and other operations of Quark (or its Third Party supplier(s)) for such periods of time and in such manner as is reasonable in order to familiarize the personnel of Novartis or its designee with Quark Know-How and Joint Know-How relating to the Development and manufacture of the Quark Compounds and/or Products and the application of the same.  At Novartis’ request, such assistance shall also be furnished at the manufacturing facilities of Novartis or its designee.

During the period of [*] from the License Effective Date, such assistance (including travel to sites other than Quark facilities) shall be provided without charge to Novartis. After such [*] period such assistance shall, where provided at Quark facilities or by telephone, continue to be provided without charge, provided that [*].

(b) Quark shall fully cooperate with Novartis in complying with requirements of 35 U.S.C. §200 through 212, including requesting waivers where appropriate.

7. COMMERCIALIZATION

7.1 Commercialization. Other than as set forth in Section 7.2, Novartis will be solely responsible for all aspects of Commercialization of the Product in the Territory, including planning and implementation, distribution, booking of sales, pricing and reimbursement.  Novartis shall itself, or through its Affiliates or sublicensees, use Commercially Reasonable Efforts [*].  Notwithstanding the foregoing, Novartis’ application of Commercially Reasonable Efforts shall not require Novartis to commercialize a Product in any country or territory in which Novartis determines it is not commercially reasonable to do so for such Product.  Subject to compliance with the foregoing, the Commercialization of the Products shall be in Novartis’ sole discretion.

7.2 Quark Distribution Activities In Israel.   Quark shall have the right, exercisable by notice in writing to Novartis no later than [*] following the date on which Novartis advises Quark of Novartis’ first submission of an application for Regulatory Approval of a Product anywhere in the Territory, to be appointed (itself or through one of its Affiliates) as the [*] distributor for Products in Israel.  In the event that Quark exercises such right, the Parties shall negotiate in good faith a separate agreement with respect to such distribution arrangement on commercially reasonable terms.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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7.3 Pharmacovigilance.

(a) Until completion of the DGF Phase II Trial and the AKI Phase II Trial, Quark will be responsible for maintaining a unified global adverse event database for the Product and for performing all pharmacovigilance-related activities in accordance with laws (including current Eudralex volume 9A and current ICH E2 guidelines) applicable to a clinical trial sponsor.

(b) Following completion of the DGF Phase II Trial and the AKI Phase II Trial, Novartis will be responsible for maintaining a unified global adverse event database for the Product and for performing all pharmacovigilance-related activities in countries where the Product is being Developed or Commercialized by Novartis, its Affiliates or sublicensees in accordance with laws (including current Eudralex volume 9A and current ICH E2 guidelines) applicable to a marketing authorization holder or to a clinical trial sponsor, as applicable. Such activities for which Novartis will be responsible include in particular the maintenance of a pharmacovigilance system for the timely reporting of product quality complaints, adverse events and product safety data related to the Product to the relevant Regulatory Authorities in the Territory, and for responding to safety issues and to all requests of Regulatory Authorities in the Territory.

(c) Within [*] following the License Effective Date, the Parties shall agree upon and implement a procedure for the mutual exchange of adverse event reports and safety information associated with the Products. Details of the operating procedure respecting such adverse event reports and safety information exchange shall be the subject of a mutually-agreed written pharmacovigilance agreement between the Parties which shall be entered into within such [*] period and in any event entered into prior to transfer of any IND or corresponding application in any other country or group of countries to Novartis.

8. FINANCIAL PROVISIONS

8.1 Upfront Payment.  In partial consideration of the licenses and rights granted to Novartis hereunder, Novartis shall pay to Quark a one-time, non-refundable, non-creditable [*] upfront payment in the amount specified in the applicable subsection below.  For clarity, only a single payment shall be due under this Section 8.1, depending on the circumstances under which Novartis exercises the Option.  However, also depending on the circumstances of the Option exercise and the occurrence of later events, discretionary license fee payments may also arise under Section 8.2, in addition to milestones and royalties.

(a) If either [*] or [*], and the Option is exercised before the termination of the Option pursuant to Section [*] of the Option Agreement, then the upfront payment shall be [*] USD (US$ [*]);

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) If both [*] and [*], or [*] pursuant to Section [*] of the Option Agreement, then, subject to Section 8.1(c) below,

(i)           If [*] and

(A) If [*], and the Option is exercised prior to the termination of the Option pursuant to Section [*] of the Option Agreement, then the upfront payment shall be [*] USD (US$ [*]);

(B) If [*], and if [*], and the Option is exercised prior to the termination of the Option pursuant to Section [*] of the Option Agreement, then the upfront payment shall be [*] USD (US$ [*]);

(ii)          If [*] and

(A) If [*], and the Option is exercised prior to the termination of the Option pursuant to Section [*] of the Option Agreement, then the upfront payment shall be [*] USD (US$ [*]);

(B) If [*], and if [*], and the Option is exercised prior to the termination of the Option pursuant to Section [*] of the Option Agreement, then the upfront payment shall be [*] USD (US$ [*]).

(c) Notwithstanding Section 8.1(b) above, if the Parties agree that Quark continues the DGF Phase II Trial as set forth in [*], and the Option is exercised pursuant to [*], then no upfront payment shall be payable and Novartis shall [*] any discretionary payments which may become payable under the License Agreement in accordance with Section [*];

(d) Notwithstanding Sections 8.1(a), 8.1(b) and 8.1(c) above, Novartis may, at its sole discretion, exercise the Option at any time prior to termination of the Option pursuant to Section 4.1(b) of the Option Agreement and pay Quark an upfront payment of [*] USD (US$ [*]), provided that if the Option is exercised pursuant to this Section 8.1(d), the provisions of Section 8.2 shall not apply.

(e) Any amounts payable under this Section 8.1 shall be made within [*] after receipt by Novartis of an invoice in the form of Exhibit C, which invoice shall be issued no earlier than the License Effective Date.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

25

8.2 Discretionary License Payments.  In order to maintain the licenses and rights granted to it hereunder, Novartis may elect to make certain discretionary payments, as follows:

(a) If Novartis’ exercise of the Option gave rise to a payment under Section [*], then

(i)           Novartis may [*] either a payment made under Section [*], a payment made under Section [*], or a payment made under Section [*], whichever is paid first;

(ii)           If [*], Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable, non-creditable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c);

(iii)           If [*], Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable, non-creditable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c);

(iv)           If Novartis has made the payment set forth in Section [*] above, and [*], Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] have been accepted by Novartis pursuant to Section 5.1(c); and

(v)           If Novartis has made the payment set forth in Section [*] above, and [*], Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] have been accepted by Novartis pursuant to Section 5.1(c).

For clarity, the election by Novartis under each clause above is distinct from (and in addition to) its election under any other clause.

(b) If Novartis’ exercise of the Option gave rise to a payment under Section [*], then

(i)           If [*], then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable, non-creditable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c); and

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

26

(ii)           If [*], then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c).

(c) If Novartis’ exercise of the Option gave rise to a payment under Section [*], then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c).

(d) If Novartis’ exercise of the Option gave rise to a payment under Section [*], then

(i)           If [*], then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable, non-creditable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c); and

(ii)           If [*], then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c).

(e) If Novartis’ exercise of the Option gave rise to a payment under Section [*], then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$ [*]), provided such election is made no later than [*] after the date on which [*] was accepted by Novartis pursuant to Section 5.1(c).

(f) If Novartis exercised the Option (A) pursuant to Section [*] or (B) because either [*] or [*] (as applicable), but [*] or [*] (as applicable), then, subject to [*],  Novartis may make the following discretionary payments-

(i)           Where Novartis [*] for the [*], Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$[*]) provided that such election is made no later than [*] after the date on which [*] by Novartis, or an Affiliate or sublicensee.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

27

(ii)          Where such [*] in Section 8.2(f)(i) above has been [*] and [*] for [*] then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD US$[*] provided that such election is made no later than [*] after the date on which [*] by Novartis or an Affiliate or sublicensee.

(iii)         Where Novartis [*] for the [*], Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD US$([*]) provided that such election is made no later than [*] after the date on which [*] by Novartis, or an Affiliate or sublicensee.

(iv)         Where such [*] in Section 8.2(f)(iii) above has been [*] and [*] for [*] then Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD US$[*] provided that such election is made no later than [*] after the date on which [*] by Novartis or an Affiliate or sublicensee.

(v)          Upon [*] for the [*] by Novartis (and Sections [*] and [*] do not apply), Novartis may elect in its sole discretion, but subject to Section 8.2(h), to make a one-time, non-refundable payment to Quark of [*] USD (US$[*]) provided that such election is made no later than [*] after the date [*] by Novartis, or an Affiliate or sublicensee.

(vi)         Upon [*] for the [*] by Novartis (and Sections [*] and [*] do not apply), Novartis may elect in its sole discretion, but subject to Section 8.2(g), to make a one-time, non-refundable payment to Quark of [*] USD (US$[*]) provided that such election is made no later than [*] after the date [*] by Novartis, or an Affiliate or sublicensee.

(vii)        For clarity, any payment due under this Section 8.2(f) is in addition to the payments due under Section 8.4.

(g) Novartis shall issue written notice to Quark as to whether or not Novartis intends making the applicable discretionary payments under Section 8.2(a)(ii), 8.2(a)(iii), 8.2(a)(iv), 8.2(a)(v), 8.2(b)(i), 8.2(b)(ii), 8.2(c), 8.2(d)(i), 8.2(d)(ii), 8.2(e), 8.2(f)(i), 8.2(f)(ii), 8.2(f)(iii), 8.2(f)(iv), 8.2(f)(v) or 8.2(f)(vi), as applicable, by the deadline set forth therein.  Quark may treat any failure by Novartis to issue written notice to Quark by the applicable deadline as notice that Novartis does not intend to make such discretionary payment (subject to a [*] cure period).  In the event that Novartis issues timely notice that it intends making any such payment, such payment shall be made within [*] after receipt by Novartis of an invoice in the form of Exhibit C (subject to a [*] cure period), which invoice shall be issued no earlier than the date of Novartis’ notice that it intends making the applicable payment.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

28

(h) If Novartis does not elect to make the payments described in Section 8.2(a)(ii), 8.2(a)(iii), 8.2(a)(iv), 8.2(a)(v), 8.2(b)(i), 8.2(b)(ii), 8.2(c), 8.2(d)(i), 8.2(d)(ii),  8.2(e), 8.2(f)(i), 8.2(f)(ii), 8.2(f)(iii), 8.2(f)(iv), 8.2(f)(v)  or 8.2(f)(vi), as applicable, then (subject to a [*] cure period) Quark shall have the right to terminate this Agreement in its entirety, as set forth in Section 12.5.

8.3 Financial Terms Following Option Acceleration.  Notwithstanding anything to the contrary herein, if the Option is exercised by Novartis pursuant Section 3.4 of the Option Agreement, then the upfront payment and the discretionary license payments set forth above in Sections 8.1 and 8.2 shall be adjusted as follows:

(a) No upfront or discretionary payments contained in Sections 8.1 and 8.2 shall be due;

(b) Novartis shall pay to Quark a one-time, non-refundable payment to Quark of [*] USD (US$[*]), which amount shall be made within [*] after receipt by Novartis of an invoice in the form of Exhibit C.  For clarity, such [*] USD (US$[*]) is in addition to the ten million USD (US$10,000,000) paid under Section 2.2 of the Option Agreement;

(c) The amount of any Milestone Payments shall be reduced by [*];

(d) The amount of any royalties applicable to Net Sales of Product shall be reduced by [*] at each applicable royalty tier; and

(e) If Quark believes that Novartis’ determination that an Insolvency Event has or is likely to occur in connection with Quark was not reasonable, then Quark may submit such dispute to binding arbitration pursuant to Section 17.5(b).  If the arbitration determines that Novartis’s determination that an Insolvency Event has or is likely to occur in connection with Quark was not reasonable, then the following shall apply: (i) Sections 8.3(a), (c) and (d) shall have no effect; (ii) Novartis shall be deemed to have exercised its Option under Section [*] of this Agreement, the [*] USD ($[*]) payment made by Novartis shall remain non-refundable, the [*] USD (US$ [*]) payment under Section [*] shall be deemed to have been paid, and Novartis may credit [*] USD ($[*]) against any discretionary payments under Section 8.2; and (iii) [*].  In any event, if Quark actually experiences an Insolvency Event prior to the fulfillment of its obligations to deliver the DGF Final Report and the AKI Final Report (e.g., actually becomes insolvent), then the Novartis determination shall be deemed to have been reasonable.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

29

8.4 Milestone Payments.

(a) DGF Indication Milestones.  In further consideration of the licenses and rights granted to Novartis hereunder, upon first achievement of each of the Milestones set forth below by Novartis, its Affiliates or sublicensees with respect to the first Product developed for the DGF Indication,

(i)           Novartis shall pay to Quark the corresponding one-time non-refundable non-creditable Milestone Payments set forth below under the column heading “Milestone Payment (USD)”; and

(ii)           If Novartis has made the discretionary payment set forth in Section [*], and Novartis nonetheless continue the Development of Products for the DGF Indication such that one or more Milestones set forth below are achieved, Novartis shall pay to Quark the corresponding one-time non-refundable non-creditable Milestone Payments set forth below under the column heading “Additional Milestone Payment (USD)”, which represents [*] associated with the DGF Indication, provided however, that [*] i.e. [*].

Milestone	Milestone Payment (USD)	Additional Milestone Payment (USD)
[*] Milestones		[*]
[*] for the DGF Indication by Novartis, its Affiliates or sublicensees	US$[*]	US$[*]
[*] Milestones
[*] by Novartis, its Affiliates or sublicensees for the use of the Product for the DGF Indication [*]	US$[*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees for the use of the Product for the DGF Indication [*]	US$[*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees [*] for the use of the Product for the DGF Indication [*]	US[*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees [*] for the use of the Product for the DGF Indication [*]	US$[*]	US$[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

30

(b) AKI Indication Milestones.  In further consideration of the licenses and rights granted to Novartis hereunder, upon first achievement of each of the Milestones set forth below by Novartis, its Affiliates or sublicensees with respect to the first Product developed for the AKI Indication,

(i)           Novartis shall pay to Quark the corresponding one-time non-refundable, non-creditable Milestone Payments set forth below under the column heading “Milestone Payment (USD)”; and

(ii)          If Novartis has made the discretionary payment set forth in Section [*], and Novartis nonetheless continue the Development of Products for the AKI Indication such that one or more Milestones set forth below are achieved, Novartis shall pay to Quark the corresponding one-time non-refundable non-creditable Milestone Payments set forth below under the column heading “Additional Milestone Payment (USD)”, which represents [*], provided however, that [*] i.e. [*].

Milestone	Milestone Payment (USD)	Additional Milestone Payment (USD)
[*] Milestones		[*]
[*] for the AKI Indication by Novartis, its Affiliates or sublicensees	US$[*]	US$[*]
[*] Milestones
[*] by Novartis, its Affiliates or sublicensees for the use of the Product for the AKI Indication [*]	US$[*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees for the use of the Product for the AKI Indication [*]	US$[*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees [*] for the use of the Product for the AKI Indication [*]	US$[*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees [*] for the use of the Product for the AKI Indication [*]	US$[*]	US$[*]

(c) Milestones for Third Qualifying Indication.  In further consideration of the licenses and rights granted to Novartis hereunder, upon first achievement of each of the Milestones set forth below by Novartis, its Affiliates or sublicensees, the corresponding one-time non-refundable non-creditable Milestone Payments shall be payable by Novartis to Quark with respect to the first Product developed for the Third Qualifying Indication:

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

31

Milestone	Milestone Payment (USD)
[*] Milestones
[*] for the Third Qualifying Indication by Novartis, its Affiliates or sublicensees	US$[*]
[*] Milestones
[*] by Novartis, its Affiliates or sublicensees for the use of the Product for the Third Qualifying Indication [*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees for the use of the Product for the Third Qualifying Indication [*]	US$[*]
[*] by Novartis, its Affiliates or sublicensees [*] for the use of the Product for the Third Qualifying Indication [*]	US$[*]
[*]t by Novartis, its Affiliates or sublicensees [*] for the use of the Product for the Third Qualifying Indication [*]	US$[*]

(d) Commercial Milestones.  In further consideration of the licenses and rights granted to Novartis hereunder, upon first achievement of each of the Milestones set forth below by Novartis, its Affiliates or sublicensees, the corresponding one-time non-refundable non-creditable Milestone Payments shall be payable by Novartis to Quark:

Milestone	Milestone Payment (USD)
Commercial Milestones
First Calendar Year in which worldwide annual Net Sales for any given Product exceed US[*]	US$[*]
First Calendar Year in which worldwide annual Net Sales for any given Product exceed US[*]	US$[*]
First Calendar Year in which worldwide annual Net Sales for any given Product exceed US[*]	US$[*]
First Calendar Year in which worldwide annual Net Sales for any given Product exceed US$[*]	US$[*]
First Calendar Year in which worldwide annual Net Sales for any given Product exceed US$[*]	US$[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

32

(e) Each Milestone Payment shall be deemed earned as of the first achievement of the corresponding Milestone by any of the Products, and shall be notified by Novartis to Quark within [*] after achievement of the Milestone, or in the case of the Commercial Milestones, in the Sales and Royalty Report for the Calendar Quarter in which such Commercial Milestone is achieved.  For the avoidance of doubt: (i) each Milestone Payment shall be payable only on the first occurrence of the Milestone; (ii) none of the Milestone Payments shall be payable more than once; and (iii) other than as expressly set forth above, no additional Milestone Payments shall be due for Milestones completed for the Development and Commercialization of additional Products or of Products for any additional indications or for any different Quark Compounds or Combination Products.

8.5 Royalty Payments.

(a) In consideration of the licenses and rights to Novartis hereunder, during the applicable Royalty Term, Novartis will make royalty payments to Quark, on a Product-by-Product basis, based on Net Sales of the applicable Product in the Territory by Novartis, its Affiliates and sublicensees, at the applicable rates set forth below.

Aggregate Net Sales of Applicable Product throughout the Territory in any Calendar Year by Novartis, its Affiliates or Sublicensees	Royalty Rate
Portion of annual Net Sales of the applicable Product which are less than or equal to US$[*]	[*]%
Portion of annual Net Sales of the applicable Product which are greater than US$[*] and less than or equal to US$[*]	[*]%
Portion of annual Net Sales of the applicable Product which are greater than US$[*] and less than or equal to US$[*]	[*]%
Portion of annual Net Sales of the applicable Product which are greater than US$[*] and less than or equal to US$[*]	[*]%
Portion of annual Net Sales of the applicable Product which are greater than US$[*]	[*]%

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

33

(b) For example, if Net Sales of a given Product in a calendar year are $[*], the royalty on such Net Sales shall be equal to $[*]

(c) Notwithstanding the provisions of Section 8.9(a), for each Calendar Quarter in which there has been any sale of a Product by Novartis, its Affiliates or sublicensees, which, but for the licenses granted under the [*] (and the sub-licenses thereto granted under this Agreement) would infringe an issued patent within the [*] Patent Rights which has not expired or been revoked, or held invalid or unenforceable, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise, Novartis shall pay to Quark an additional amount [*] with respect to such sale of such Product under the [*], which shall [*] of Net Sales of such Product in such Calendar Quarter.

(d) Unless otherwise provided in this Agreement, Royalties will be payable on a Product-by-Product and country-by-country basis from First Commercial Sale of such Product in such country until the later of (i) the expiration of the last to expire Valid Claim covering the Compound, claiming the Product or claiming the use for which the Product is being sold in such country; (ii) the expiration of Regulatory Exclusivity for the Product in such country; and (iii) ten (10)years from the First Commercial Sale of such Product in such country (“Royalty Term”).  Following the Royalty Term on a Product-by-Product and country-by-country basis, the licenses granted to Novartis with respect to the Product shall continue in effect, but become fully paid-up, sub-licensable, royalty-free, transferable, perpetual and irrevocable with respect to such Product and such country, [*].

(e) For the avoidance of doubt, royalties shall be payable only once with respect to the same unit of Product.

8.6 Royalty Step-Downs.

(a) On a Product-by-Product and country-by-country basis, for any period during the Royalty Term but after the expiration of:

(i)           the last to expire Valid Claim of a [*] covering the Compound, claiming the Product or claiming the use for which the Product is being sold in such country;

(ii)          the Regulatory Exclusivity for the Product in such country; and

(iii)         ten (10)years from the First Commercial Sale of such Product in such country,

in which the sale of the Product in such country would, but for the license granted hereunder, infringe a Valid Claim of a [*] in such country such that there is no [*] being [*] in such country, the royalty applicable to Net Sales of such Product in such country for the remainder of the Royalty Term shall be equal to [*] of the weighted average royalty rate otherwise applicable to worldwide Net Sales.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

34

(b) On a Product-by-Product and country-by-country basis, for any period during the Royalty Term, but after ten (10) years from the First Commercial Sale of such Product in such country, in which the sale of a Product in any country is covered by a Valid Claim and such Valid Claim is [*] and there is a [*] in such country, then [*] in such country for the remainder for the Royalty Term, except that [*] and the provisions of Section [*] and Section [*] shall not apply.

(c) For any period during the Royalty Term in which the sale of a Product in any country is not covered by a Valid Claim or any Regulatory Exclusivity, the royalty applicable to Net Sales of such Product in such country during such period shall be equal to [*] of the weighted average royalty rate otherwise applicable to worldwide Net Sales. The reduction set forth in this Section 8.6(c) shall be [*] under this Agreement. This Section 8.6(c) shall not apply if Section [*] applies or Section [*] applies.

(d) By way of illustration of the Section 8.6(c) above, if Net Sales in a country not covered by a Valid Claim were $[*] and total Net Sales for that year were $[*], the following will apply. [*]

8.7 Loss of Market Exclusivity. In the event of a Loss of Market Exclusivity in any country, for the remainder of the Royalty Term, the royalty applicable to Net Sales of such Product in such country shall be equal to [*] of the weighted average royalty rate described above on worldwide Net Sales. The reduction set forth in this Section 8.7 shall be [*] under this Agreement. This Section 8.7 shall not apply if Section [*] or Section [*] applies or Section [*] applies.

8.8 No Valid Claim or Regulatory Exclusivity and Loss of Market Exclusivity. For any period during the Royalty Term in which the sale of a Product in any country is not covered by a Valid Claim [*] and there is a Loss of Market Exclusivity in such country, the royalty applicable to Net Sales of such Product in such country during such period shall be equal to [*] of the weighted average royalty rate otherwise applicable to worldwide Net Sales. The reduction set forth in this Section 8.8 shall be [*] under this Agreement. This Section 8.8 shall not apply if Section [*] applies.

8.9 Third Party Obligations.

(a) Notwithstanding the provisions of this Section 8.9, Quark shall remain responsible for the payment of royalty, milestone and other payment obligations, if any, due to Third Parties under any Quark Patents or Quark Know-How which have been licensed to Quark and are sublicensed to Novartis under this Agreement, including under the Alnylam License, the Silence License, the UIC License and the Dharmacon License. All such payments shall be made promptly by Quark in accordance with the terms of the applicable license agreement(s).

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

35

(b) In the event that Novartis reasonably determines that rights to intellectual property related to p53 or siRNA owned or controlled by a Third Party are required to research, Develop, manufacture, use, or Commercialize any Product under this Agreement (in addition to the Quark Technology and outside the intellectual property falling under the scope of sub-Section 8.9(a)), Novartis shall have the right to negotiate to and acquire such rights through a license or otherwise and to deduct from the royalty payments due to Quark [*] of the royalties paid by Novartis to such Third Party; provided, however, that in no event shall the royalty amounts due to Quark from Novartis be reduced by more than [*] in any Calendar Quarter through this sub-Section 8.9(b). [*] Quark agrees to fully cooperate with Novartis to acquire such rights.

8.10 Royalty Floor. Notwithstanding anything to the contrary in this Agreement, the application of Sections [*], individually or in combination, shall not during the Royalty Term reduce the royalty payment due to Quark below, on a country-by-country basis, an amount equal to [*], provided, however, that in any countries in which Loss of Market Exclusivity has occurred or if the sale of a Product is not covered by a Valid Claim, such [*] shall be [*] of the Net Sales. [*]

8.11 No Projections. Quark and Novartis acknowledge and agree that nothing in this Agreement shall be construed as representing an estimate or projection of anticipated sales of any Product, and that the Milestones and Net Sales levels set forth above or elsewhere in this Agreement or that have otherwise been discussed by the Parties are merely intended to define the Milestone Payments and royalty obligations to Quark in the event such Milestones or Net Sales levels are achieved. NEITHER QUARK NOR NOVARTIS MAKES ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, THAT NOVARTIS, ITS AFFILIATES OR SUBLICENSEES WILL BE ABLE TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE ANY PRODUCT OR, IF COMMERCIALIZED, THAT ANY PARTICULAR NET SALES LEVEL OF SUCH PRODUCT WILL BE ACHIEVED.

9. REPORTS AND PAYMENT TERMS

9.1 Payment Terms.

(a) Novartis shall provide Quark with written notice of the achievement of each clinical or regulatory Milestone within [*] after such Milestone is achieved. After receipt of such notice, Quark shall submit an invoice to Novartis substantially in the form of Exhibit C for the corresponding Milestone Payment, provided that no such invoice shall be submitted prior to the License Effective Date. Novartis shall make the corresponding Milestone Payment within [*] after receipt of such invoice. Within [*] after each Calendar Quarter during the term of this Agreement, Quark shall submit an invoice to Novartis substantially in the form of Exhibit C for the costs incurred during such Calendar Quarter providing the assistance under Sections 4.3(a), 4.3(c) and 4.3(d) of the Option Agreement and Sections 4.5 and 6.2(a)(ii) of this Agreement. Novartis shall pay such invoiced amount within [*] after receipt of such invoice.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

36

(b) Within [*] after each Calendar Quarter during the term of this Agreement following the First Commercial Sale of a Product, Novartis will provide to Quark a Sales & Royalty Report in the form of Exhibit B. Such Sales and Royalty Report will also inform Quark of the achievement of any commercial Milestone. If requested by Quark, Novartis shall provide to Quark additional information as reasonably necessary for Quark to fulfill its reporting obligations to its upstream licensors. After receipt of such report, Quark shall submit an invoice to Novartis substantially in the form of Exhibit C with respect to the royalty amount or Milestone Payment shown therein. Novartis shall pay such royalty amount or Milestone Payment within [*] after receipt of such invoice.

(c) All payments from Novartis to Quark shall be made by wire transfer in US Dollars to the credit of such bank account as may be designated by Quark in this Agreement or in writing to Novartis. Any payment which falls due on a date which is not a Business Day may be made on the next succeeding Business Day.

(d) For the avoidance of doubt, no payments shall become due and payable and neither Party will be obligated to reimburse the other Party for any costs incurred by the other Party under or in connection with this Agreement until the License Effective Date.

9.2 Currency. All payments under this Agreement shall be payable in US dollars. When conversion of payments from any foreign currency is required to be undertaken by Novartis, the USD equivalent shall be calculated using Novartis’ then-current standard exchange rate methodology as applied in its external reporting.

9.3 Taxes.

(a) If any taxes are required to be withheld by Novartis from a payment made to Quark pursuant to this Agreement, Novartis will: (i) deduct such taxes from the payment made to Quark; (ii) timely pay the taxes to the proper taxing authority for the account of Quark; (iii) send proof of payment to Quark; and (iv) reasonably assist Quark in its efforts to obtain a credit for such tax payment. Each Party agrees to reasonably assist the other Party in lawfully claiming exemptions from and/or minimizing such deductions or withholdings under an applicable tax treaty and any applicable law.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) If Novartis, its Affiliates, successors or sublicensees make payments under this Agreement that are subject to withholding tax and such withholding tax is in excess of the tax that would have been imposed on or deducted from such payment had it been made by [*] to [*] eligible to claim benefits under [*] between [*] and [*] (if any) in force at the time of the payment, the applicable payor shall increase its payment to the extent necessary so that after the deduction and withholding of the tax, Quark receives the amount that it would have received had such payment been made by [*] to [*] eligible to claim benefits under [*] between [*] and [*]. In the event Novartis exercises its rights or performs its obligations under this Agreement pursuant to the authority granted in Section 2.2 in a manner that would increase the tax burden on Quark in a manner other than withholding taxes provided for in this Section 9.3(b), Novartis shall compensate Quark for such additional tax burden.

9.4 Late Payment. All payments under this Agreement which is not paid on the date due shall bear interest from the date due until paid at a rate equal to [*] per annum, effective for the date that payment was due, as published by [*].

9.5 Records and Audit Rights.

(a) Each Party shall, and Novartis shall ensure that its sublicensees hereunder, keep complete, true and accurate books and records in accordance with its Accounting Standards in relation to this Agreement, including, with respect to Novartis and its sublicensees, in relation to Net Sales and royalties. Each Party will keep such books and records for at least [*] following the Calendar Quarter to which they pertain, provided that if [*] in accordance with Section 9.5(b) below, such [*] retention period for books and records by Novartis shall be [*].

(b) Quark shall have the right for a period of [*] after receiving any Sales & Royalty Report to appoint an internationally-recognized independent accounting firm (which is reasonably acceptable to Novartis) (the “Auditor”) to inspect the relevant records of Novartis or its Affiliates to verify such reports, statements, records or books of accounts, as applicable. In the sole event [*] exercises its rights under the [*] to conduct an audit of Quark, Quark shall have the right, for a period of [*] after receiving any Sales & Royalty Report to appoint an Auditor to inspect the relevant records of Novartis or its Affiliates to the extent required or necessary under the [*]. In the event Novartis exercises the Option, [*]. Before beginning its audit, the Auditor shall execute an undertaking acceptable to Novartis pursuant to which the Auditor shall keep confidential all information reviewed during such audit. The Auditor shall have the right to disclose to Quark only its conclusions regarding any payments owed under this Agreement.

(c) Novartis and its Affiliates shall make their records available for inspection by such Auditor during regular business hours at such place or places where such records are customarily kept, upon receipt of reasonable advance notice from Quark, solely to verify the accuracy of the Sales & Royalty Reports. Such inspection right shall not be exercised more than [*] and not more [*]. Quark agrees to hold in strict confidence all information received and all information learned in the course of any audit or inspection, except to the extent necessary to enforce its rights under this Agreement or if disclosure is required by law, regulation or judicial order.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) The audit report and basis for any determination by an Auditor shall be made available for review and comment by Novartis following Novartis’ request, and Novartis shall have the right, at its expense, to request a further determination by such Auditor as to matters which Novartis disputes within [*] following receipt of such report. Novartis will provide Quark and the Auditor with a reasonably detailed statement of the grounds upon which it disputes any findings in the audit report and the Auditor shall undertake to complete such further determination within [*] after the dispute notice is provided by Novartis, which determination shall be limited to the disputed matters. If the Parties disagree as to results of such further determination, the dispute shall be subject to the dispute resolution procedure specified in Section 17.5.

(e) Unless disputed, if an audit discloses any underpayment by Novartis, Novartis shall promptly pay to Quark the amount of any such underpayment, together with interest calculated pursuant to Section 9.4, within [*] of receiving the final audit report establishing such obligation. Quark shall pay for such audits, as well as its own expenses associated with such audit, except that in the event there is any upward adjustment in aggregate amounts payable for any year shown by such audit of more than [*] of the amount paid, Novartis shall pay for such audit.

(f) If Novartis discovers, whether by audit or otherwise that it has made an overpayment, it will deduct such overpayment in the Sales and Royalty Report for the next Calendar Quarter. To the extent that any overpayment cannot be fully deducted from the royalty payment for such Calendar Quarter, Novartis may deduct such amount from subsequent amounts due to Quark until the full amount that Novartis was entitled to receive is deducted. If the full amount cannot be deducted from subsequent amounts, Quark shall promptly pay to Novartis the amount of any such overpayment within [*] of receiving an invoice from Novartis.

(g) Quark shall keep all books and records relating to any Development Costs required to be reimbursed by Novartis pursuant to the Option Agreement and/or this Agreement. Novartis shall have the right for the period of [*] following the Calendar Quarter to which they pertain to appoint an internationally-recognized independent accounting firm (which is reasonably acceptable to Quark) to inspect the relevant records of Quark or its Affiliates to verify such reports and statements, or books of account, as applicable. Before beginning the audit, the Auditor shall execute an undertaking acceptable to Quark pursuant to which the Auditor will keep confidential all information reviewed during such audit. The Auditor shall have the right to disclose to Novartis only its conclusions regarding any payment owed under this Agreement. Quark and its Affiliates shall make their records available for inspection by such Auditor during regular business hours at such place or places where such records are customarily kept, upon receipt of reasonable advance notice form Novartis. The provisions of Section 9.5(d) and Novartis rights and obligations contained therein shall apply mutatis mutandis to Quark in respect of any such audit report. Unless disputed, if an audit discloses any overpayment by Novartis, Quark shall promptly pay to Novartis the amount of any such overpayment, together with interest calculated pursuant to Section 9.4, within [*] of receiving the final audit report establishing such obligation.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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10. INTELLECTUAL PROPERTY RIGHTS

10.1 Ownership of Inventions.

(a) All Know-How arising from the Parties’ activities under this Agreement, including any Patent Rights covering such inventions, made solely by employees or consultants of a Party shall be owned by such Party.

(b) All such Know-How arising from the Parties’ activities under this Agreement, including any Patent Rights covering such inventions, made jointly by employees or consultants of both Parties shall be owned jointly by the Parties as contemplated under US patent laws, including 35 U.S.C. § 262. Quark acknowledges and agrees that Quark’s rights in any such Know-How and Patent Rights are exclusively licensed to Novartis for the Quark Compounds and Products in the Field. Each Party may use, or license to any Third Party, any Joint Know-How and Joint Patents for any other purpose outside Quark Compounds and Products without accounting to or obtaining the approval of the other Party’s prior written consent. However, neither Party shall assign to any Third Party its interest in any Joint Patent without the other Party’s prior written consent (not to be unreasonably withheld).

(c) Determination of inventorship shall be made in accordance with US patent laws and any Patent Rights with a named inventor that is an employee or consultant of each Party will be jointly owned by the Parties.

10.2 Patent Prosecution.

(a) Quark will be responsible for filing, prosecuting and maintaining the Quark Patents and any Joint Patents at its own cost and expense, through a Third Party law firm mutually agreed between the Parties. Novartis will fully cooperate with Quark in connection with the filing, prosecution and maintenance of the Quark Patents and any Joint Patents, including by providing access to relevant persons and executing all documentation reasonably requested by Quark. Quark will consult with Novartis and keep Novartis reasonably informed of the status of such Quark Patents and Joint Patents, it being understood and agreed that Quark shall make all decisions relating thereto.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) Quark will notify Novartis of its decision as to the countries of the world in which it elects to file, prosecute and maintain each Quark Patent and Joint Patent, and shall notify Novartis as to any decision to cease prosecution and/or maintenance of, or not to continue to pay the expenses of prosecution and/or maintenance of, any such Quark Patent or Joint Patent in any country in which it was filed. Quark will provide such notices at least [*] prior to any filing or payment due date, or any other due date that requires action, in connection with such Patent Right. In the event that Novartis wants to file patent applications in countries beyond those in which Quark decided to seek patent protection, or if Novartis wants to prosecute and maintain such Quark Patents or Joint Patents in countries where Quark has elected not to continue such prosecution or maintenance, Quark shall permit Novartis, at its sole discretion and expense but in the name of Quark (for Quark Patents) and in the name of Quark and Novartis jointly (for Joint Patents), to file or to continue prosecution or maintenance of such Quark Patent or Joint Patent.

(c) In the event that any patent or patent application included in Quark Patents or Joint Patents is challenged by a Third Party, including opposition or reexamination, the Parties agree to cooperate with each other in the defense of such patent or patent application, with each of Quark and Novartis responsible for [*] of the cost associated with such defense. Notwithstanding the foregoing, the defense of any patent challenges filed (e.g. as a counterclaim) in connection with a infringement action brought under Section 10.3 shall be controlled by the Party bringing such infringement action. In the event Novartis is controlling the defense of a challenge to a Quark Patent by reason of this Section 10.2(c), Novartis shall meet and confer with Quark on a periodic basis to discuss such defense and shall consider in good faith any issues raised by Quark.

(d) The Parties acknowledge that Quark shall have the right to separate any claims of a Quark Patent that are specific to the [*] of a Quark Patent and to file such claims in a separate patent application [*], including without limitation through the filing of one or more divisional applications at the request of Novartis pursuant to Section 6.8 of the Option Agreement. For the avoidance of doubt, any patent applications resulting from the foregoing process that do not claim any [*] (“[*] Patents”) shall be excluded from the definition of Quark Patents and Quark Technology for purposes of this Agreement and the Option Agreement. Quark shall keep Novartis reasonably informed of the status of such [*] Patents, it being understood and agreed that Quark shall make all decisions relating thereto.

10.3 Patent Infringement.

(a) Each Party will promptly notify the other of any infringement by a Third Party of any of the Quark Technology or Joint Technology in the Field in the Territory of which it becomes aware, including any “patent certification” filed in the United States under 21 U.S.C. §355(b)(2) or 21 U.S.C. §355(j)(2) or similar provisions in other jurisdictions and of any declaratory judgment, opposition, or similar action alleging the invalidity, unenforceability or non-infringement of any of the Quark Patents or Joint Patents which relates to Products or Competing Products (collectively “Third Party Infringement”).

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) Novartis will have the first right to bring and control any legal action in connection with the Third Party Infringement at its own expense as it reasonably determines appropriate, and Quark shall have the right, at its own expense, to be represented in any such action by counsel of its own choice. If Novartis fails to either (i) bring an action or proceeding with respect to, or (ii) otherwise terminate, infringement of any Quark Patent or Joint Patent (A) within [*] following the notice of alleged infringement or (B) prior to [*]before the time limit, if any, set forth in the appropriate laws and regulations for the filing of such actions, whichever comes first, Quark shall have the right, upon written notice to Novartis, to bring and control any such action at its own expense and by counsel of its own choice, and Novartis shall have the right, at its own expense, to be represented in any such action by counsel of its own choice; provided, however, that if Novartis notifies Quark in writing prior to [*] before such time limit for the filing of any such action that Novartis intends to file such action before the time limit, then Novartis shall be obligated to file such action before the time limit, and Quark will not have the right to bring and control such action.

(c) At the request of the enforcing Party, the other Party shall provide reasonable assistance in connection therewith, including by executing reasonably appropriate documents, cooperating in discovery and joining as a party to the action if required.

(d) In connection with any such proceeding, Novartis shall not enter into any settlement admitting the invalidity of, or otherwise impairing Quark’s rights in, the Quark Patents without the prior written consent of Quark, which will not be unreasonably withheld or delayed.

(e) Any recoveries resulting from such an action relating to a claim of Third Party Infringement shall be first applied against payment of each Party’s costs and expenses in connection therewith. In the event that Novartis brought such action, any remainder will be retained by (or if received by Quark, paid to) Novartis; provided, however, that any portion of such remainder that is attributable to lost profits with respect to the applicable Product(s) shall be [*]. In the event that Quark brought such action, any remainder shall be [*].

(f) Notwithstanding the foregoing, Novartis acknowledges that as the Silence License and the Alnylam License are non-exclusive, Novartis has no right to take actions against Third Party Infringement with respect to the Patent Rights covered by these two upstream licenses.

(g) Quark shall retain the exclusive right, at its own expense, to control the enforcement of Quark Technology for Third Party activities which do not relate to Products or Competing Products, provided, however, that, in the event that not all of the [*] claims in a particular Quark Patent have been separated into new application(s) (as described in Section 10.2(d)), Quark shall [*] in advance of commencing an enforcement action for such Quark Patent for Third Party activities that do not relate to Products or Competing Products, [*]. The parties agree that [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(h) Quark shall also retain the exclusive right, at its own expense, to control the enforcement of the [*] Patents.

10.4 Trademarks. Novartis shall have the right to brand the Products using Novartis related trademarks and any other trademarks and trade names it determines appropriate for the Products, which may vary by country or within a country (“Product Marks”). Novartis shall own all rights in the Product Marks and register and maintain the Product Marks in the countries and regions it determines reasonably necessary.

10.5 Patent extensions.

(a) If requested by Novartis, Quark shall cooperate in obtaining patent term restoration (under but not limited to Drug Price Competition and Patent Term Restoration Act), supplemental protection certificates or their equivalents, and patent term extensions with respect to the Quark Patents and/or Joint Patents in any country and/or region where applicable. Quark shall provide all reasonable assistance requested by Novartis, including permitting Novartis to proceed with applications for such in the name of Quark, if deemed appropriate by Novartis, and executing documents and providing any relevant information to Novartis.

(b) [*] shall in [*] determine which, if any, Quark Patents and/or Joint Patents it will apply to extend.

10.6 [*]. The Parties acknowledge and agree that, for any given Product, [*], depending on a number of factors. As result, Quark may, in its discretion but subject to the remainder of this Section 10.6, decide on a Product-by-Product and country-by-country basis, whether [*] and may, in its discretion but subject to the remainder of this Section 10.6, decide to [*]. In the event that Novartis disagrees with any such decision by Quark in good faith, and the Parties are unable to resolve such dispute within a reasonable time period, then Parties agree to submit to a mutually agreed, independent [*] having relevant experience in the field of siRNA technology the question of whether [*] with respect to the applicable country(-ies) and Product(s). The decision of such [*] shall be binding on the Parties. The Parties shall share equally the fees and costs of such [*].

10.7 UIC License. Novartis acknowledges that the UIC License contains a provision whereby [*].

10.8 Patent Marking. Novartis agrees to mark the Product sold in the US with all applicable United States patent numbers which are required pursuant to the terms of the [*]. All Products shipped or sold in other countries shall be marked in such a manner as to conform with patent laws and practices of the country of manufacture or sale. Immediately after the License Effective Date, Quark [*].

10.9 No Patent Challenge. Quark may [*], to the extent it relates to the Quark Patents in the territory [*], at any time on [*] written notice to Novartis (subject to the [*] cure period in Section 12.2) if Novartis its Affiliates and sublicenses, [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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11. CONFIDENTIALITY

11.1 Duty of Confidence.

(a) Subject to the other provisions of this Article 11, all Confidential Information disclosed by a Party or its Affiliates under this Agreement and/or the Option Agreement will be maintained in confidence and otherwise safeguarded by the recipient Party and its Affiliates. The recipient Party may only use any such Confidential Information for the purposes of this Agreement and pursuant to the rights granted to the recipient Party under this Agreement. Subject to the other provisions of this Article 11, the recipient Party and its Affiliates shall hold as confidential such Confidential Information of the other Party or its Affiliates in the same manner and with the same protection (in no case less than reasonable care) as such recipient Party maintains its own confidential information. Subject to the other provisions of this Article 11, a recipient Party may only disclose Confidential Information of the other Party to: (i) its Affiliates and sublicensees; and (ii) employees, agents, contractors, consultants and advisers of the Party and its Affiliates and sublicensees, in each case to the extent reasonably necessary for the purposes of, and for those matters undertaken pursuant to, this Agreement, and, in the case of Quark, pursuant to Quark’s retained rights hereunder; provided that such Persons are bound to maintain the confidentiality of the Confidential Information in a manner consistent with the confidentiality provisions of this Agreement.

(b) With respect to Quark’s obligations under this Article 11, all Quark Know-How and Joint Know-How shall be considered Confidential Information of Novartis and Quark shall maintain in confidence and otherwise safeguard such Quark Know-How and Joint Know-How as such in accordance with this Article 11 (it being understood that the exceptions in sub-Sections 11.2(b) and (c) shall not apply to Quark with respect to Quark Know-How or Joint Know-How), provided that Quark may use Quark Know-How and Joint Know-How for those matters undertaken pursuant to its retained rights hereunder.

11.2 Exceptions. The obligations under this Article 11 shall not apply to any information to the extent the recipient Party can demonstrate by competent evidence that such information:

(a) is (at the time of disclosure) or becomes (after the time of disclosure) known to the public or part of the public domain through no breach of this Agreement by the recipient Party or its Affiliates;

(b) was known to, or was otherwise in the possession of, the recipient Party or its Affiliates prior to the time of disclosure by the disclosing Party or any of its Affiliates;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(c) is disclosed to the recipient Party or an Affiliate on a non-confidential basis by a Third Party who is entitled to disclose it without breaching any confidentiality obligation to the disclosing Party or any of its Affiliates; or

(d) is independently developed by or on behalf of the recipient Party or its Affiliates, as evidenced by written records, without access or reference to the Confidential Information disclosed by the disclosing Party or its Affiliates under this Agreement.

Specific aspects or details of Confidential Information shall not be deemed to be within the public domain or in the possession of the recipient Party merely because the Confidential Information is embraced by more general information in the public domain or in the possession of the recipient Party. Further, any combination of Confidential Information shall not be considered in the public domain or in the possession of the recipient Party merely because individual elements of such Confidential Information are in the public domain or in the possession of the recipient Party unless the combination and its principles are in the public domain or in the possession of the recipient Party.

11.3 Authorized Disclosures.

(a) In addition to disclosures allowed under Section 11.2, each Party, its Affiliates and sublicensees may disclose the other Party’s Confidential Information to the extent such disclosure is necessary in the following instances: (i) filing or prosecuting Patent Rights as contemplated by this Agreement; (ii) in connection with Regulatory Filings for Products; (iii) prosecuting or defending litigation as contemplated by this Agreement; (iv) complying with applicable court orders or governmental regulations; or (v) to the extent otherwise necessary or appropriate in order to fulfill its obligations or exercise its rights hereunder.

(b) In addition, Novartis and its Affiliates and sublicensees may disclose Confidential Information of Quark to Third Parties as may be necessary or useful in connection with the research, Development, manufacture or Commercialization of the Quark Compounds and/or Product(s) as contemplated by this Agreement, including in connection with sublicensing and subcontracting transactions, provided that such disclosee are bound by obligations of confidentiality and non-use at least as equivalent in scope as those set forth in this Article 11 prior to such disclosure.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(c) (A) Quark and its Affiliates may disclose Confidential Information of Novartis to any bona fide potential or actual investor other than (i) any potential investor that is (or is an Affiliate of) a healthcare company and (ii) any potential investor in which the sole limited partner is a healthcare company, subject to entering into the confidentiality obligations described below. (B) Quark may disclose the terms of this Agreement (excluding financial terms) to potential acquirors, subject to entering into the confidentiality obligations described below provided that (i) any such potential acquirors have been formally accepted by Quark in writing to conduct full due diligence for the purpose of the potential acquisition; (ii) such due diligence in connection with the terms of this Agreement shall be conducted at the offices of an internationally-recognized law firm acceptable to Novartis and (iii) Quark has notified Novartis in writing of the disclosure for the purpose of the conduct of the due diligence by the potential acquiror without obligation to identify such potential acquiror(s). In the case of a potential acquiror and provided Quark has fulfilled the conditions described above under (B)(i), (ii) and (iii) above, Quark may disclose the financial terms of this Agreement to a Third Party advisor to such potential acquiror, subject to entering into the confidentiality obligations described below. Such advisor may not disclose the financial terms of this Agreement to the potential acquiror but shall be permitted to review the valuation assumptions of the potential acquiror and advise the potential acquiror only whether the financial value of this transaction to Quark, taken as a whole, is materially consistent with the assumptions made by the potential acquiror or is materially superior to, or materially inferior to, such assumptions. Any disclosure made by Quark pursuant to this Section 11.3(c) may only be made to persons who have, prior to any disclosure, agreed in writing to be bound by confidentiality obligations no less strict than those set forth herein, including without limitation, obligations to use the confidential information so disclosed for the sole purpose of assessing a potential investment and/or acquisition of Quark as described under this Section 11.3(c).

(d) In the event the recipient Party is required to disclose Confidential Information of the disclosing Party by law or in connection with bona fide legal process, such disclosure shall not be a breach of this Agreement; provided that the recipient Party (i) informs the disclosing Party as soon as reasonably practicable of the required disclosure; (ii) limits the disclosure to the required purpose; and (iii) at the disclosing Party’s request and expense, assists in an attempt to object to or limit the required disclosure.

11.4 Ongoing Obligation for Confidentiality. Upon early termination of this Agreement for any reason, each Party and its Affiliates shall immediately return to the other Party or destroy any Confidential Information disclosed by the other Party, except for one copy which may be retained in its confidential files for archive purposes.

12. TERM AND TERMINATION

12.1 Term. The term of this Agreement will commence upon the License Effective Date and continue, on a Product-by-Product and country-by-country basis, until the expiration of the royalty obligations of Novartis with respect to the applicable Product, unless earlier terminated as permitted by this Agreement. Upon expiration of the term of this Agreement, on a Product-by-Product and country-by-country basis, the licenses granted to Novartis hereunder shall continue in effect, as fully paid-up (except as set forth in the last sentence in Section 8.5(d)), sub-licensable, royalty-free, transferable, perpetual and irrevocable with respect to such Product and such country.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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12.2 Termination for Cause.If either Novartis or Quark is in material breach of any material obligation hereunder, the non-breaching Party may give written notice to the breaching Party specifying the claimed particulars of such breach, and in the event such material breach is not cured within [*] after such notice, the non-breaching Party shall have the right thereafter to terminate this Agreement immediately by giving written notice to the breaching Party to such effect; provided, however, that if such breach is capable of being cured but cannot be cured within such [*] period and the breaching Party initiates actions to cure such breach within such period and thereafter diligently pursues such actions, the breaching Party shall have such additional period as is reasonable in the circumstances to cure such breach. In the event that arbitration is commenced with respect to any alleged breach hereunder, no purported termination of this Agreement pursuant to this Section 12.2 shall take effect until the resolution of such arbitration. Any termination by any Party under this Section 12.2 and the effects of termination provided herein shall be without prejudice to any damages or other legal or equitable remedies to which it may be entitled from the other Party.

12.3 Termination for Insolvency. Either Quark or Novartis may terminate this Agreement without notice if an Insolvency Event occurs in relation to the other Party. In any event when a Party first becomes aware of the likely occurrence of any Insolvency Event in regard to that Party, it shall promptly so notify the other Party in sufficient time to give the other Party sufficient notice to protect its interests under this Agreement.

12.4 Termination by Novartis Without Cause. Novartis may terminate this Agreement without cause at any time after the License Effective Date in its entirety or on a Product-by-Product or country-by-country basis at any time on [*] prior written notice.

12.5 Termination by Quark. In the event that Novartis does not elect to make the payment described in Section 8.2(a)(ii), 8.2(a)(iii), 8.2(a)(iv), 8.2(a)(v), 8.2(b)(i), 8.2(b)(ii), 8.2(c), 8.2(d)(i), 8.2(d)(ii), 8.2(e), 8.2(f)(i), 8.2(f)(ii), 8.2(f)(iii), 8.2(f)(iv), 8.2(f)(v) or 8.2(f)(vi), as applicable, then Quark shall have the right to terminate this Agreement in its entirety, by notice in writing within [*] after the [*] period after the date on which [*] have been accepted by Novartis as set forth in Section 5.1(c).

12.6 Rights in Bankruptcy.

(a) All licenses granted under or pursuant to this Agreement are, and will otherwise be deemed to be, for purposes of Section 365(n) of the US Bankruptcy Code (the “Code”) and any similar laws in any other country in the Territory, licenses of rights to “intellectual property” as defined under Section 101 of the Code. The Parties agree that Novartis, as licensee of such rights under this Agreement, will retain and may fully exercise all of its protections, rights and elections under the Code and any similar laws in any other country in the Territory. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against any Quark under the Code and any similar laws in any other country in the Territory, Novartis will be entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and the same, if not already in its possession, will be promptly delivered to it (i) upon any such commencement of a bankruptcy proceeding upon its written request therefor, unless Quark elects to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon written request therefor by Novartis following the rejection of this Agreement by or on behalf of Quark.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) All rights, powers and remedies of Novartis provided for in this Section 12.6 are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity (including, without limitation, under the Code and any similar laws in any other country in the Territory). In the event of the Bankruptcy of Quark, Novartis, in addition to the rights, power and remedies expressly provided herein, shall be entitled to exercise all other such rights and powers and resort to all other such remedies as may now or hereafter exist at law or in equity (including, without limitation, under the Code and any similar laws in any other country in the Territory). The Parties agree that they intend the following Novartis rights to extend to the maximum extent permitted by law, including, without limitation, for purposes of the Code and any similar laws in any other country in the Territory: (i) the right of access to any intellectual property (including all embodiments thereof) of Quark, or any Third Party with whom Quark contracts to perform an obligation of Quark under this Agreement which is necessary for the Development, registration, manufacture and/or Commercialization of Products in the Territory; (ii) the right to contract directly with any Third Party described in (i) to complete the contracted work, and (iii) the right to cure any breach of or default under any such agreement with a Third Party and set off the costs thereof against amounts payable to Quark under this Agreement.

13. EFFECT OF TERMINATION

13.1 Termination by Novartis for Cause. Upon termination of this Agreement by Novartis pursuant to Sections 12.2 or 12.3:

(a) the licenses and other rights granted by Quark to Novartis under the Quark Technology and Quark’s interest in any Joint Technology will remain in effect in accordance with their respective terms; provided, however, that

(i)            the license granted to Novartis in Section 2.1 shall become a perpetual and irrevocable license;

(ii)           Novartis s shall continue to make all Milestone Payments and royalty payments in accordance with the terms of this Agreement, except that solely with respect to a termination under Section 12.2 for a material breach by Quark that [*], the amount of any future Milestone Payments and royalties applicable to future Net Sales of Product shall be reduced by [*], provided that such reduction in royalties shall in no event reduce the royalty payment due to Quark to an amount less than [*].  Such reduction in Milestone Payments and royalties shall be credited against any monetary damages obtained by Novartis in a final judgment or arbitration award as a result of Quark’s breach. [*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(iii)          Novartis shall have the right to offset the full amount of any remaining monetary damages (i.e. in excess of the reduction set forth in subsection (ii) above) against any Milestone Payments and/or royalties;

(b) Quark and Novartis shall continue to have the right to prosecute, maintain, enforce and defend the Quark Patents and Joint Patents as specified in Section 10.2;

(c) Section 2.3shall survive with respect to Quark in accordance with its terms on a Product-by-Product and country-by-country basis until the expiration of the royalty obligations of Novartis; and

(d) Except as set forth in this Section 13.1 and in Section 13.3, the rights and obligations of the Parties hereunder shall terminate as of the date of such termination.

In the event that this Agreement is terminated with respect to only certain Product(s) or certain country(ies), the provisions of this Section 13.1 shall apply only with respect to the terminated Product(s) or country(ies), as applicable.

13.2 Termination by Quark for Cause or by Novartis Without Cause. Upon termination of this Agreement by Quark pursuant to Sections 12.2, 12.3 or 12.5 or by Novartis pursuant to Section 12.4:

(a) Any licenses and other rights granted by either Party to the other will terminate and revert to the granting Party;

(b) Novartis will grant Quark a right of first negotiation, exercisable by written notice to Novartis at any time within [*] to obtain an exclusive worldwide, royalty-bearing license, with the right to sublicense, under any Patent Rights of Novartis, including Novartis’ interest in Joint Patents, to develop, make, have made, use, sell, have sold, offer for sale and import such Products as are then being marketed or developed by Novartis on commercially reasonable royalty terms to be negotiated in good faith by the Parties for up to an additional [*] following exercise of such right of first negotiation;

(c) any exclusive license granted to Quark as described in the preceding sub-Section (b) will include the right to use clinical and regulatory data and information generated by Novartis for regulatory purposes relating to the applicable Products;

(d) any exclusive license agreement entered into as described in sub-Section (b) will provide for Novartis to transfer and assign to Quark all of its right, title and interest in and to all US and foreign regulatory submissions and Regulatory Approvals with respect to the applicable Products and all drug master files and drug dossiers with respect to the applicable Products (other than those related to Novartis’ manufacturing facilities);

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(e) Quark shall have the right, but not the obligation, to purchase from Novartis some or all of the Quark Compound and/or Product then in Novartis’ inventory at a price equal to [*]. Quark shall notify Novartis whether Quark elects to exercise such purchase right within [*] after the grant of a license to Quark pursuant to Section 13.2(b), or, where no such negotiation takes place within [*] after the date of such termination;

(f) If this Agreement is terminated by Novartis on a country-by-country basis, then Novartis covenants that Novartis shall cease (and not restart) Development and Commercialization of the Quark Compounds and/or Products in any country where this Agreement has been terminated; and

(g) Except as set forth in this Section 13.2 and in Section 13.3, the rights and obligations of the Parties hereunder shall terminate as of the date of such termination.

In the event that this Agreement is terminated with respect to only certain Product(s) or certain country(ies), the provisions of this Section 13.2 shall apply only with respect to the terminated Product(s) or country(ies), as applicable.

13.3 Survival. Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Without limiting the foregoing, the provisions of Sections 1, 9.1 – 9.3 (to the extent that Novartis continues to be obligated to pay Milestone Payments and/or royalties to Quark pursuant to the applicable provisions of Article 13), 9.5, 10.1, 10.3 – 10.5 (to the extent that the licenses granted to Novartis survive pursuant to the applicable provisions of Article 13), 10.8 – 10.9 (to the extent that the licenses granted to Novartis survive pursuant to the applicable provisions of Article 13 and the relevant upstream licenses are still in effect), 11, 13, 15, 16 and 17shall survive expiration or termination of this Agreement; provided, however, that in the event of termination of this Agreement in its entirety by Quark pursuant to Section 12.2, 12.3 or 12.5, or by Novartis in its entirety pursuant to Section 12.4, Sections 11.1(b), 11.3(b) and 16.3, as well as the proviso in the first sentence of Section 16.2 and the entire second sentence of Section 16.2, shall not survive. The provisions of Article 11 (Confidentiality) shall survive the termination or expiration of this Agreement for a period of [*].

13.4 Termination Not Sole Remedy. Termination is not the sole remedy under this Agreement and, whether or not termination is effected and notwithstanding anything contained in this Agreement to the contrary, all other remedies will remain available except as agreed to otherwise herein.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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14. REPRESENTATIONS, WARRANTIES AND COVENANTS

14.1 Representations and Warranties by Each Party.  Each Party represents and warrants to the other as of the Execution Date that:

(a) it is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation;

(b) it has full corporate power and authority to execute, deliver, and perform this Agreement, and has taken all corporate action required by law and its organizational documents to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement;

(c) this Agreement constitutes a valid and binding agreement enforceable against it in accordance with its terms;

(d) other than compliance with the HSR Act, all consents, approvals and authorizations from all governmental authorities or other Third Parties required to be obtained by such Party in connection with this Agreement have been obtained; and

(e) the execution and delivery of this Agreement and all other instruments and documents required to be executed pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby do not and shall not (i) conflict with or result in a breach of any provision of its organizational documents, (ii) result in a breach of any agreement to which it is a party; or (iii) violate any law.

14.2 Representations and Warranties by Quark. Quark represents and warrants to Novartis as of the Execution Date that:

(a) Exhibit A sets forth a complete and accurate list of (i) all Quark Patents in existence as of the Execution Date, indicating the owner, Quark and/or co-owner(s) thereof if any such Quark Patent is not solely owned by Quark and (ii) all agreements that are in force as of the Execution Date under which any of the Quark Patents are licensed to Quark;

(b) Quark is the sole and exclusive owner, or exclusive licensee of all of the Quark Patents (other than the Patent Rights licensed under the Silence License and Alnylam License) existing on the Execution Date free from Encumbrances and is listed in the records of the appropriate governmental agencies as the sole and exclusive owner of record of each registration, grant and application included in the Quark Patents that is owned by Quark;

(c) all of its employees, officers, and consultants involved or to be involved in the research or Development of the Quark Compound or Product have executed agreements or have existing obligations under applicable laws requiring assignment to Quark of all inventions made during the course of and as the result of their association with Quark and obligating the individual to maintain as confidential Quark’s Confidential Information as well as confidential information of other parties (including Novartis and its Affiliates) which such individual may receive, to the extent required to support Quark’s obligations under this Agreement;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) Quark has the right to grant to Novartis the licenses under the Quark Patents and Quark Know-How that it purports to grant hereunder;

(e) Quark has the right to use and disclose and to enable Novartis to use and disclose (in each case under appropriate conditions of confidentiality) the Quark Know-How within the scope of the license(s) granted to Novartis hereunder, free from Encumbrances;

(f) [*], there are no claims, challenges, oppositions, interference or other proceedings pending or threatened against the Quark Patents, and Quark has filed and prosecuted patent applications within the Quark Patents in good faith and complied with all duties of disclosure with respect thereto;

(g) [*], there are no claims, challenges or other proceedings pending or threatened against any of the Quark Know-How;

(h) [*], Quark has not committed any act, or omitted to commit any act, that is reasonably likely to cause the Quark Patents to expire prematurely or be declared invalid or unenforceable;

(i) all application, registration, maintenance and renewal fees in respect of the Quark Patents as of the Execution Date have been paid (to the extent due) and all necessary documents and certificates have been filed with the relevant agencies for the purpose of maintaining the Quark Patents;

(j) Quark has not granted to any Third Party, including any academic organization or agency, any rights to Commercialize the Quark Compounds or Product and has disclosed any agreement with a Third Party pursuant to which such Third Party has been granted rights to research or Develop the Quark Compounds or Product ;

(k) As of the License Effective Date, Quark is not aware, after reasonable inquiry, of any Third Party rights or technology not included in the Quark Technology that is necessary and/or used for the Development of the Quark Compounds and/or Products as they exist as of the License Effective Date;

(l) [*] the research, Development, registration, manufacture, use or Commercialization of the Quark Compounds or Product as they exist as of the License Effective Date do not infringe the Patent rights of any Third Party and the research, Development, use and manufacture of the Quark Compounds and Product has been conducted by Quark without infringing the Patent Rights or misappropriating the Know-How of any Third Party, and Quark has not received any written notice alleging such infringement or misappropriation;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(m) Quark has not initiated or been involved in any proceedings or claims in which it alleges that any Third Party is or was infringing or misappropriating any Quark Technology, nor have any such proceedings been threatened by Quark, nor does Quark know of any valid basis for any such proceedings;

(n) no officer or employee of Quark is subject to any agreement with any other Third Party which requires such officer or employee to assign any interest in any Quark Technology relating to the Quark Compounds or Product to any Third Party;

(o) Quark has taken all reasonable precautions to preserve the confidentiality of the Quark Know-How, to the extent such Quark Know-How is not generally known in the relevant technical field;

(p) Quark has not entered into a government funding relationship that would result in rights to any Quark Compounds or Product residing in the US Government, National Institutes of Health, National Institute for Drug Abuse or other agency, and the licenses granted hereunder are not subject to overriding obligations to the US Government as set forth in Public Law 96-517 (35 U.S.C. 200-204), as amended, or any similar obligations under the laws of any other country;

(q) Quark has not granted any Third Party rights that would otherwise interfere or be inconsistent with Novartis’ rights hereunder in a material manner, and there are no agreements or arrangements to which Quark or any of its Affiliates is a party relating to the Products, Quark Compounds, Quark Patents, or Quark Know-How that limit or are reasonably likely to limit the rights granted to Novartis under this Agreement or that restrict or are reasonably likely to result in a restriction on Novartis’ ability to Develop, manufacture, register, use or Commercialize the Quark Compounds and the Products in the Territory;

(r) Quark has provided Novartis with a redacted copy of each agreement under which it obtains rights to any of the Quark Patents, which copy sets forth all of Quark’s rights and obligations with regard to such agreement;

(s) [*], neither Quark nor any of its Affiliates has committed any act which amounts to a material breach of any of Quark’s obligations under any agreement under which it obtains rights to any of the Quark Technology;

(t) neither Quark nor, to the knowledge of Quark, any employee, agent or subcontractor of Quark involved in the research and Development of the Quark Compounds or the Products has been debarred under Subsection (a) or (b) of Section 306 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 335a); and

(u) Notwithstanding anything to the contrary contained in this Agreement, Quark has [*] and [*] that would be [*] to [*] in connection with this Agreement or the transactions contemplated herein. [*], [*] provided by Quark to Novartis regarding the Quark Compounds and Product as part of Novartis’ due diligence under the Option Agreement are true and complete in all material respects.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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14.3 Covenants.

(a) Quark covenants and agrees that:

(i) it will not grant any interest in the Quark Technology or Joint Technology which is inconsistent with the terms and conditions of this Agreement, nor shall Quark assign its right, title or interest in or to the Quark Technology or Joint Technology to any Third Party and will use all reasonable precautions to preserve the confidentiality of the Quark Know-How and the Joint Know-How;

(ii) it will not grant any Third Party, including any academic organization or agency, any rights to the Quark Compounds or Product (other than research rights with the prior approval of the JSC);

(iii) it will not amend or modify the terms of any agreement under which it obtains rights to any of the Quark Technology in a way that materially affects Novartis’ rights under this Agreement without the prior written consent of Novartis;

(iv) it will not exercise any right to terminate any agreement under which it obtains rights to any of the Quark Technology, provided such rights fall with the scope of the license(s) granted to Novartis hereunder, without the prior written consent of Novartis, except as provided in Section 10.6;

(v) Quark and its Affiliates will comply with, perform and observe in all material respects all obligations under each agreement under which it obtains rights to any of the Quark Technology, and will not commit any act or fail to perform any obligation which would amount to a default or event of default or which, with the giving of notice, the lapse of time or the happening of any other event or condition would become a default or event of default thereunder or give rise to any right of the applicable counterparty to terminate any such agreement or any part thereof;

(vi) if, at any time after execution of this Agreement, it becomes aware that it or any employee, agent or subcontractor of Quark who participated, or is participating, in the performance of any activities hereunder is on, or is being added to the FDA Debarment List or any of the three (3) FDA Clinical Investigator Restriction Lists referenced in Section 14.3(b), it will provide written notice of this to Novartis within two (2) business days of its becoming aware of this fact; and

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(vii) it shall maintain insurance with respect to its activities and obligations under this Agreement in such amounts as are commercially reasonable in the industry for companies conducting similar business and shall require any of its Affiliates undertaking activities under this Agreement to do the same.

(b) Each Party covenants that (i) neither such Party nor, to the actual knowledge of such Party, any employee, agent or subcontractor of such Party to be involved in the Development of the Quark Compounds or the Products, has been debarred under Subsection (a) or (b) of Section 306 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 335a); (ii) no Person who is known by such Party to have been debarred under Subsection (a) or (b) of Section 306 of said Act will be employed by such Party in the performance of any activities hereunder; and (iii) to the actual knowledge of such Party, no Person on any of the FDA clinical investigator enforcement lists (including, but not limited to, the (1) Disqualified/Totally Restricted List, (2) Restricted List and (3) Adequate Assurances List) will participate in the performance of any activities hereunder.

14.4 No Other Warranties. EXCEPT AS EXPRESSLY STATED IN THIS ARTICLE 14, (A) NO REPRESENTATION, CONDITION OR WARRANTY WHATSOEVER IS MADE OR GIVEN BY OR ON BEHALF OF NOVARTIS OR QUARK; AND (B) ALL OTHER CONDITIONS AND WARRANTIES WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE ARE HEREBY EXPRESSLY EXCLUDED, INCLUDING ANY CONDITIONS AND WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.

15. INDEMNIFICATION; LIABILITY

15.1 Indemnification by Quark. Quark shall indemnify and hold Novartis, its Affiliates and sublicensees, and their respective officers, directors and employees (“Novartis Indemnitees”) harmless from and against any Claims against them [*] from:

(a) [*];

(b) [*]; or

(c) [*];

provided, however, that Quark [*].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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15.2 Indemnification by Novartis. Novartis shall indemnify and hold Quark, its Affiliates, and their respective officers, directors and employees (“Quark Indemnitees”) harmless from and against any Claims against them [*] from:

(a) [*];

(b) [*]; or

(c) [*];

provided, however, that Novartis [*].

15.3 Indemnification Procedure.

(a) For the avoidance of doubt, all indemnification claims in respect of a Novartis Indemnitee or Quark Indemnitee shall be made solely by Novartis or Quark, respectively.

(b) A Party seeking indemnification hereunder (“Indemnified Party”) shall notify the other Party (“Indemnifying Party”) in writing reasonably promptly after the assertion against the Indemnified Party of any Claim or fact in respect of which the Indemnified Party intends to base a claim for indemnification hereunder (“Indemnification Claim Notice”), but the failure or delay to so notify the Indemnifying Party shall not relieve the Indemnifying Party of any obligation or liability that it may have to the Indemnified Party, except to the extent that the Indemnifying Party demonstrates that its ability to defend or resolve such Claim is adversely affected thereby. The Indemnification Claim Notice shall contain a description of the claim and the nature and amount of the Claim (to the extent that the nature and amount of such Claim is known at such time). Upon the request of the Indemnifying Party, the Indemnified Party shall furnish promptly to the Indemnifying Party copies of all correspondence, communications and official documents (including court documents) received or sent in respect of such Claim.

(c) Subject to the provisions of sub-Sections (d) and (e) below, the Indemnifying Party shall have the right, upon written notice given to the Indemnified Party within [*] after receipt of the Indemnification Claim Notice to assume the defense and handling of such Claim, at the Indemnifying Party’s sole expense, in which case the provisions of sub-Section (d) below shall govern. The assumption of the defense of a Claim by the Indemnifying Party [*]. In the event that it is [*]. If the Indemnifying Party does not give written notice to the Indemnified Party, within [*] after receipt of the Indemnification Claim Notice, of the Indemnifying Party’s election to assume the defense and handling of such Claim, the provisions of sub-Section (e) below shall govern.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(d) Upon assumption of the defense of a Claim by the Indemnifying Party: (i) the Indemnifying Party shall have the right to and shall assume [*] control and responsibility for dealing with the Claim; (ii) the Indemnifying Party may, at its own cost, appoint as counsel in connection with conducting the defense and handling of such Claim any law firm or counsel reasonably selected by [*]; (iii) the Indemnifying Party shall keep the Indemnified Party informed of the status of such Claim; and (iv) the Indemnifying Party shall have the right to [*]. The Indemnified Party [*] and shall be [*]. In particular, the Indemnified Party shall furnish such records, information and testimony, provide witnesses and attend such conferences, discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall include access during normal business hours by the Indemnifying Party to, and reasonable retention by the Indemnified Party of, records and information that are reasonably relevant to such Claim, and making the Indemnified Party, the indemnitees and its and their employees and agents available on a mutually convenient basis to provide additional information and explanation of any records or information provided.

(e) If the Indemnifying Party does not give written notice to the Indemnified Party as set forth in sub-Section (c) or fails to conduct the defense and handling of any Claim in good faith after having assumed such, the Indemnified Party may, at the Indemnifying Party’s expense, [*]. In such event, the Indemnified Party shall keep the Indemnifying Party timely apprised of the status of such Claim [*]. If the Indemnified Party defends or handles such Claim, the Indemnifying Party [*], and shall be [*].

15.4 Mitigation of Loss. Each Indemnified Party will take and will procure that its Affiliates take all such reasonable steps and action as are necessary or as the Indemnifying Party may reasonably require in order to mitigate any Claims (or potential losses or damages) under this Article 15. Nothing in this Agreement shall or shall be deemed to relieve any Party of any common law or other duty to mitigate any losses incurred by it.

15.5 Special, Indirect and Other Losses. NEITHER PARTY NOR ANY OF ITS AFFILIATES SHALL BE LIABLE IN CONTRACT, TORT, NEGLIGENCE BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR ANY ECONOMIC LOSS OR LOSS OF PROFITS SUFFERED BY THE OTHER PARTY[*].

15.6 No Exclusion. Neither Party excludes any [*].

16. PUBLICATIONS AND PUBLICITY

16.1 Use of Names. Neither Party shall use the name, symbol, trademark, trade name or logo of the other Party or its Affiliates in any press release, publication or other form of public disclosure without the prior written consent of the other Party in each instance (such consent not to be unreasonably withheld or delayed), except for those disclosures for which consent has already been obtained. Notwithstanding the foregoing, Novartis shall be entitled to use the name of Quark to the extent necessary or useful in connection with the Development or Commercialization of Products, including in connection with sublicensing and subcontracting transactions.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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16.2 Press Releases and Publicity Related to this Agreement. Each Party agrees not to issue any press release or other public statement, whether oral or written, disclosing the existence of this Agreement, the terms hereof or any information relating to this Agreement without the prior written consent of the other Party; provided, however, that Novartis may issue press releases and other public statements as it deems appropriate in connection with the Development and Commercialization of Products under this Agreement, and that Quark may (with the prior written consent of Novartis) issue press releases and other public statements upon exercise of the Option by Novartis including the applicable upfront payment described in Section 8.1 (without disclosing any other financial amounts). When seeking the consent of Novartis, Quark agrees to provide Novartis with at least [*] within which to grant or withhold its consent. Novartis agree to consider in good faith Quark’s interest in seeing that significant development or commercial events under this Agreement are promptly disclosed.

16.3 Public Disclosures and Publications Related to Quark Compounds or Products.

(a) Any proposed public disclosure (whether written, electronic, oral or otherwise) by Quark relating to any Quark Compounds or Product shall require the prior written consent of Novartis; provided, that the foregoing shall not apply to information which is in the public domain.

(b) For the avoidance of doubt, Novartis or any of its Affiliates may, without any required consents from Quark (i) issue press releases and other public statements as it deems appropriate in connection with the Development and Commercialization of Products under this Agreement; and (ii) publish or have published information about clinical trials related to any Product, including the results of such clinical trials.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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16.4 Disclosures Required By Law. Notwithstanding the provisions of Sections 16.2 and 16.3, each Party may make any disclosures required of it to comply with any duty of disclosure it may have pursuant to law or governmental regulation or pursuant to the rules of any recognized stock exchange. In the event of a disclosure required by law, governmental regulation or the rules of any recognized stock exchange, the Parties shall coordinate with each other with respect to the timing, form and content of such required disclosure. If so requested by the other Party, the Party subject to such obligation shall use commercially reasonable efforts to obtain an order protecting to the maximum extent possible the confidentiality of such provisions (including, without limitation, financial terms) of this Agreement as reasonably requested by the other Party. If the Parties are unable to agree on the form or content of any required disclosure, such disclosure shall be limited to the minimum required as determined by the disclosing Party in consultation with its legal counsel. Without limiting the foregoing, each Party shall consult with the other Party on the provisions of this Agreement, together with exhibits or other attachments attached hereto, to be redacted in any filings made by Quark or Novartis with the Securities and Exchange Commission (or other regulatory body) or as otherwise required by law.

16.5 No Liability for Public Disclosures by Other Party. Nothing in this Agreement shall be construed to impose upon either Party any liability or other obligation (either to the other Party or to any other Person) with respect to any press release, publication or other form of public disclosure or statement of the other Party.

17. GENERAL PROVISIONS

17.1 Assignment. Neither Party may assign its rights and obligations under this Agreement without the other Party’s [*], except that Novartis may without the consent of Quark (a) assign its rights and obligations under this Agreement or any part thereof to one or more of its Affiliates and (b) assign this Agreement in its entirety to a successor to all or substantially all of its business or assets to which this Agreement relates, and Quark may without the consent of Novartis assign this Agreement in its entirety to a successor to all or substantially all of its business or assets. The assigning Party shall provide the other Party with prompt written notice of any such assignment. Any permitted assignee shall assume all obligations of its assignor under this Agreement (or related to the assigned portion in case of a partial assignment to an Affiliate), and no permitted assignment shall relieve the assignor of liability hereunder. Any attempted assignment in contravention of the foregoing shall be void. Subject to the terms of this Agreement, this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns. Notwithstanding anything to the contrary herein, in the event that Quark is acquired by a Third Party, then the intellectual property held, owned, controlled, or developed by such Third Party prior to or as of such acquisition shall be excluded from Quark Technology.

17.2 Extension to Affiliates. Each Party shall have the right to extend the rights, immunities and obligations granted in this Agreement to one or more of its Affiliates (provided that in the case of Quark, such Affiliates shall be limited to QBI Enterprises, Ltd., or any future Affiliates as to which Novartis grants its written consent). All applicable terms and provisions of this Agreement shall apply to any such Affiliate to which this Agreement has been extended to the same extent as such terms and provisions apply to such Party. Each Party shall remain primarily liable for any acts or omissions of its Affiliates.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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17.3 Severability. Should one or more of the provisions of this Agreement become void or unenforceable as a matter of law, then this Agreement shall be construed as if such provision were not contained herein and the remainder of this Agreement shall continue in full force and effect. The Parties will use their commercially reasonable efforts to substitute for the invalid or unenforceable provision a valid and enforceable provision which conforms as nearly as possible to the original intent of the Parties.

17.4 Governing Law and Jurisdiction. This Agreement shall be governed by and construed under the laws of [*], without giving effect to the conflicts of laws provision thereof. Subject to Section 17.5, any dispute arising out of or relating to this Agreement shall be subject to the exclusive jurisdiction of the courts located in [*].

17.5 Dispute Resolution.

(a) In the event of a dispute under this Agreement, either Party may require that the Parties refer the dispute to the Alliance Managers for discussion and resolution. If the Alliance Managers are unable to resolve any such dispute within [*] of the dispute being referred to them, either Party may require that the Parties forward the matter to the Senior Officers (or designees with similar authority to resolve such dispute), who shall attempt in good faith to resolve such dispute. If the Senior Officers cannot resolve such dispute within [*] of the matter being referred to them, either Party shall be free to initiate the arbitration proceedings outlined in sub-Section (b) below.

(b) Any unresolved disputes between the Parties relating to, arising out of or in any way connected with this Agreement or any term or condition hereof, or the performance by either Party of its obligations hereunder, whether before or after termination of this Agreement, shall be resolved by final and binding arbitration. Whenever a Party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other Party. Arbitration shall be held in New York, New York, according to the Rules of Arbitration of the International Chamber of Commerce (“ICC”). The arbitration will be conducted in English by a panel of three arbitrators appointed in accordance with ICC rules; provided that each Party shall, within [*] after the institution of the arbitration proceedings, appoint an arbitrator, and such arbitrators shall together, within [*], select a third arbitrator as the chairman of the arbitration panel. Each arbitrator shall have significant experience in the pharmaceutical business. If the two initial arbitrators are unable to select a third arbitrator within such [*] period, the third arbitrator shall be appointed in accordance with ICC rules. Discovery shall be governed by ICC rules, except that discovery shall be limited to: (i) the production of documents in the producing Party’s possession, not otherwise available to the Party seeking the documents, that are [*] to [*] to the [*]; (ii) [*] per side of a maximum of [*] (provided, however, that for good cause shown, the arbitrators may authorize additional [*]); and (iii) [*] per side. In addition, requests for production of documents shall contain a description of specific documents or classes of documents, along with [*]. The arbitrators may condition any exchange of documents subject to claims of commercial or technical confidentiality on appropriate measures to protect such confidentiality. When documents to be exchanged are maintained in electronic form, the Party in possession of such documents may make them available in the form (which may be paper copies) most convenient and economical for it, unless the arbitrators determine, on application and for good cause, that there is a compelling need for access to the documents in a different form. The Party seeking the production of documents shall ensure that [*] for [*] are [*] to make [*] as [*]. The Parties shall request that the arbitrators render their opinion within [*] of the final arbitration hearing. No arbitrator (nor the panel of arbitrators) shall have the power to award punitive damages under this Agreement and such award is expressly prohibited. Decisions of the panel of arbitrators shall be final and binding on the Parties. Judgment on the award so rendered may be entered in any court of competent jurisdiction. The losing Party to the arbitration (if any) as determined by the arbitrator shall pay the fees and costs of arbitration.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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17.6 Force Majeure. Neither Party shall be responsible to the other for any failure or delay in performing any of its obligations under this Agreement, or for other nonperformance hereunder, if such delay or nonperformance is caused by strike, stoppage of labor, lockout or other labor trouble, fire, flood, accident, war, act of terrorism, act of God or of the government of any country or of any local government, or by cause unavoidable or beyond the control of any Party hereto. In such event, the Party affected will use commercially reasonable efforts to resume performance of its obligations.

17.7 Waivers and Amendments. The failure of any Party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other Party. No waiver shall be effective unless it has been given in writing and signed by the Party giving such waiver. No provision of this Agreement may be amended or modified other than by a written document signed by authorized representatives of each Party.

17.8 Relationship of the Parties. Nothing contained in this Agreement shall be deemed to constitute a partnership, joint venture, or legal entity of any type between Quark and Novartis, or to constitute one as the agent of the other. Moreover, each Party agrees not to construe this Agreement, or any of the transactions contemplated hereby, as a partnership for any tax purposes. Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give any Party the power or authority to act for, bind, or commit the other.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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17.9 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when: (a) delivered by hand (with written confirmation of receipt); (b) sent by fax (with written confirmation of receipt), provided that a copy is immediately sent by an internationally recognized overnight delivery service (receipt requested); or (c) when received by the addressee, if sent by an internationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and fax numbers set forth below (or to such other addresses and fax numbers as a Party may designate by notice):

If to Quark:

Quark Pharmaceuticals, Inc.

6501 Dumbarton Circle

Fremont, CA 94555

U.S.A.

Attn: Chief Executive Officer

Fax: (510) 402-4021

With a copy to:

Cooley LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, CA 94306

U.S.A.

Attention: Robert. L. Jones

Fax: (650) 849-7400

If to Novartis:

Novartis International Pharmaceutical Ltd.

131 Front Street

Hamilton

Bermuda HM 12

Attn: General Counsel

Fax:  [*]

with a copy to:

Novartis Pharma AG

P.O. Box

CH - 4002 Basel

Switzerland

Attn: Head, Legal Department

Fax:  [*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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and

Novartis Pharma AG

P.O. Box

CH - 4002 Basel

Switzerland

Attn: Head, Business Development and Licensing

Fax: [*]

17.10 Further Assurances. Novartis and Quark hereby covenant and agree without the necessity of any further consideration, to execute, acknowledge and deliver any and all such other documents and take any such other action as may be reasonably necessary to carry out the intent and purposes of this Agreement.

17.11 Compliance with Law. Each Party shall perform its obligations under this Agreement in accordance with all applicable laws. No Party shall, or shall be required to, undertake any activity under or in connection with this Agreement which violates, or which it believes, in good faith, may violate, any applicable law.

17.12 No Third Party Beneficiary Rights. The provisions of this Agreement are for the sole benefit of the Parties and their successors and permitted assigns, and they shall not be construed as conferring any rights to any Third Party (including any third party beneficiary rights).

17.13 English Language. This Agreement is written and executed in the English language. Any translation into any other language shall not be an official version of this Agreement and in the event of any conflict in interpretation between the English version and such translation, the English version shall prevail.

17.14 Expenses. Except as otherwise expressly provided in this Agreement, each Party shall pay the fees and expenses of its respective lawyers and other experts and all other expenses and costs incurred by such Party incidental to the negotiation, preparation, execution and delivery of this Agreement.

17.15 Entire Agreement. This Agreement, together with its Exhibits, sets forth the entire agreement and understanding of the Parties as to the subject matter hereof and supersedes all proposals, oral or written, and all other prior communications between the Parties with respect to such subject matter. In the event of any conflict between a substantive provision of this Agreement and any Exhibit hereto, the substantive provisions of this Agreement shall prevail.

17.16 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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17.17 Antitrust Filings.

(a) The provisions of Section 4.2 of the Option Agreement shall apply to this Agreement as if set forth in full in this Agreement.

(b) Other than the provisions of this Section and Sections 1, 11, 16, 17.4, 17.5, 17.7-17.11, and 17.13-17.16, the rights and obligations of the Parties under this Agreement shall not become effective until the waiting period provided by the HSR Act shall have terminated or expired without any action by any government agency or challenge to the transaction or any other timeline required by another relevant agency or authority (the date of such termination or expiration shall be the “License Effective Date” of this Agreement).  Upon the occurrence of the License Effective Date, all provisions of this Agreement shall become effective automatically without the need for further action by the Parties.

(c) In the event that antitrust clearance from the FTC, Antitrust Division of the Department of Justice or any other required agency or authority is not obtained within [*] after the Execution Date, or such other date as the Parties may mutually agree, this Agreement may be terminated by either Party on written notice to the other.  In the event a provision of this Agreement needs to be deleted or substantially revised in order to obtain regulatory clearance of this transaction, the Parties will negotiate in good faith in accordance with Section 17.3.

17.18 Cumulative Remedies.  No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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IN WITNESS WHEREOF, the Parties intending to be bound have caused this Agreement to be executed by their duly authorized representatives.

NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.	QUARK PHARMACEUTICALS, INC.
By:	By:
Name:	Name:
Title:	Title:
By:	By:
Name:	Name:
Title:	Title:

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

65

EXHIBIT A

QUARK PATENTS

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

66

EXHIBIT B

Form of Sales & Royalty Report

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

67

EXHIBIT C

SAMPLE INVOICE

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

68

EXHIBIT B

DECISION TREE FOR ILLUSTRATIVE PURPOSE ONLY

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

35

EXHIBIT C

AKI PHASE II TRIAL PROTOCOL

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

36

EXHIBIT D

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

37

EXHIBIT E

DGF PHASE II TRIAL PROTOCOL

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

38

EXHIBIT F

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

39

EXHIBIT G

QUARK DEVELOPMENT PLAN

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

40

EXHIBIT H

SAMPLE INVOICE

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

41

EXHIBIT I

PRESS RELEASE

FOR IMMEDIATE RELEASE

Quark Pharmaceuticals, Inc. Juliana Friedman +972 89 30 5111 jfriedman@quarkpharma.com The Ruth Group (investors / media) Sara Pellegrino / Jason Rando (646) 536-7002 / 7025 spellegrino@theruthgroup.com jrando@theruthgroup.com

Quark Pharmaceuticals and Major Pharmaceutical Company Enter into Licensing Option Agreement for the p53 Suppressor Drug QPI-1002, the First siRNA Administered Systemically in Human

Fremont, CA August ____, 2010, — Quark Pharmaceuticals, Inc., a world leader in the discovery and development of RNAi-based therapeutics, today announced that it has granted Novartis an option to obtain an exclusive worldwide license to develop and commercialize its p53 temporary inhibitor siRNA drug QPI-1002, currently the subject of a Phase II clinical trial.

Quark will receive initially a non-refundable fee of 10 million USD. In the event that Novartis exercises the option, Quark would receive option exercise fees and milestone payments that could potentially total 670 million USD. In addition Quark would be entitled to potential royalties on sales of licensed products. Dr. Daniel Zurr, Quark’s Chief Executive Officer, stated, “We are very pleased to have reached this agreement with Novartis. We believe that Novartis represents an outstanding partner for Quark. With its world-leading expertise in transplantation and acute care Novartis will provide invaluable support to the global development of QPI-1002, in development for the prevention of acute kidney injury (AKI) in patients undergoing cardiac surgery and for delayed graft function (DGF) in kidney transplant patients. The gene target of QPI-1002, p53, is a major player in apoptotic cell death; its temporary suppression rescues cells, prevents them from dying in conditions of severe stress such as ischemia, potentially opening opportunities for Novartis to novel treatments in additional indications.”

About QPI-1002

QPI-1002 is designed to temporarily inhibit expression of the stress-response gene, p53 and is the first synthetic siRNA to be administered systemically to humans. QPI-1002 is being developed for the prevention of acute kidney injury (AKI) in patients undergoing major cardiovascular surgery, and for the prophylaxis of delayed graft function (DGF) in patients receiving deceased donor kidney transplants. QPI 1002 completed Phase I studies in these patient populations and an independent Data Safety Monitoring Board recommended continuation of QPI-1002 clinical development in both diseases. QPI-1002 was granted Orphan designation by the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA) for the prophylaxis of delayed graft function in kidney transplant patients.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

42

About Quark Pharmaceuticals, Inc.

Quark Pharmaceuticals, Inc., a world leader in novel RNAi discovery and development, has the largest clinical-stage siRNA pipeline in the industry. The Company’s fully integrated drug development platform spans therapeutic target identification to drug development. Quark’s approach to delivery allows targeting of tissues and organs including the eye, kidney, ear, lung, spinal cord and brain.

In addition to QPI-1002, Quark’s pipeline includes PF-655, currently in two Phase II clinical trials for the treatment of wet age-related macular degeneration (AMD) and diabetic macular edema (DME). The siRNA therapeutic candidate PF-655 is licensed to Pfizer, who is conducting both trials in collaboration with Quark. PF-655 targets Quark’s proprietary gene, RTP801, discovered using its BiFAR™ target discovery platform that identifies clinically relevant critical genes and proteins that reverse the disease phenotype when inhibited. The Company owns a family of patents covering the RTP801 gene, its RNA and protein product sequences, specific antibodies, and gene inhibition across different pathologies. For the structure of these products, Quark has obtained licenses from Silence Therapeutics and from Alnylam Pharmaceuticals.

Quark is currently conducting clinical trials of QPI-1007, its proprietary synthetic siRNA drug candidate for ocular neuroprotection. QPI-1007 utilizes a proprietary structure developed in collaboration with BioSpring GmbH that provides Quark with freedom to operate in the siRNA intellectual property arena and chemical modifications that are designed to preserve RNAi activity while ameliorating potential off-target and immunostimulatory effects of siRNAs.

Quark is also committed to leveraging a broad research pipeline of siRNA drug candidates and novel siRNA structures to develop additional RNAi drug candidates.

Quark is headquartered in Fremont, California and operates research and development facilities in Boulder, Colorado and Ness-Ziona, Israel. Additional information is available at www.quarkpharma.com

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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EXHIBIT J

TEMPLATE FOR AKI FIRST INTERPRETABLE RESULTS

[*]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated September 24, 2010, (except Notes 1 and 15, as to which the date is December 17, 2010) in the Registration Statement (Form S-1 No. 333-169584) and the related Prospectus of Quark Pharmaceuticals, Inc. dated December 17, 2010.

December 17, 2010	/s/ Kost Forer Gabbay & Kasierer
Tel-Aviv, Israel	Kost Forer Gabbay & Kasierer
	A Member of Ernst & Young Global