UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
☐
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
For the fiscal year ended December 31, 2019
OR
Date of event requiring this shell company report
Commission File Number 001-38281
ERYTECH Pharma S.A.
(Exact name of registrant as specified in its charter and translation of registrant’s name into English)
France
(Jurisdiction of incorporation or organization)
60 Avenue Rockefeller
69008 Lyon France
(Address of principal executive offices)
Gil Beyen
Chief Executive Officer
ERYTECH Pharma S.A.
60 Avenue Rockefeller
69008 Lyon France
Tel: +33 4 78 74 44 38 Fax: +33 4 78 75 56 29 E-mail: investors@erytech.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
American Depositary Shares, each representing one
ordinary share, nominal value €0.10 per share
Ordinary shares, nominal value €0.10 per share*
Trading Symbol
ERYP
Name of each exchange on which registered
The Nasdaq Global Select Market
*
The Nasdaq Global Select Market*
*
Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Ordinary shares, nominal value €0.10 per share: 17,940,035 as of December 31, 2019
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
Accelerated filer
Emerging growth company
☐
☐
☒
☒
U.S. GAAP ☐
International Financial Reporting Standards as issued
by the International Accounting Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
INTRODUCTION
TABLE OF CONTENTS
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
A. Selected Financial Data
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Information on the Company
A. History and Development of the Company
B. Business Overview
C. Organizational Structure
D. Property, Plants and Equipment
Unresolved Staff Comments
Operating and Financial Review and Prospects
A. Operating Results
B. Liquidity and Capital Resources
C. Research and Development, Patents and Licenses
D. Trend Information
E. Off-Balance Sheet Arrangements
F. Tabular Disclosure of Contractual Obligations
G. Safe Harbor
Directors, Senior Management and Employees
A. Directors and Senior Management
B. Compensation
C. Board Practices
D. Employees
E. Share Ownership
Major Shareholders and Related Party Transactions
A. Major Shareholders
B. Related Party Transactions
C. Interests of Experts and Counsel
Financial Information
A. Consolidated Statements and Other Financial Information
B. Significant Changes
The Offer and Listing
A. Offer and Listing Details
B. Plan of Distribution
C. Markets
D. Selling Shareholders
E. Dilution
F. Expenses of the Issue
Additional Information
A. Share Capital
B. Memorandum and Articles of Association
C. Material Contracts
PAGE
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129
D. Exchange Controls
E. Taxation
F. Dividends and Paying Agents
G. Statement by Experts
H. Documents on Display
I. Subsidiary Information
Quantitative and Qualitative Disclosures About Market Risk
Description of Securities Other than Equity Securities
A. Debt Securities
B. Warrants and Rights
C. Other Securities
D. American Depositary Shares
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Audit Committee Financial Expert
Code of Ethics
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant’s Certifying Accountant
Corporate Governance
Mine Safety Disclosure
Financial Statements
Financial Statements
Exhibits
Item 11.
Item 12.
PART II
Item 13.
Item 14.
Item 15.
Item 16A.
Item 16B.
Item 16C.
Item 16D.
Item 16E.
Item 16F.
Item 16G.
Item 16H.
PART III
Item 17.
Item 18.
Item 19.
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INTRODUCTION
Unless otherwise indicated in this Annual Report, “ERYTECH,” “the company,” “our company,” “we,” “us” and “our” refer to ERYTECH Pharma S.A. and its consolidated subsidiary.
“ERYTECH Pharma,” “ERYCAPS,” “GRASPA,” the ERYTECH logo and other trademarks or service marks of ERYTECH Pharma S.A. appearing in this Annual Report on Form 20-F
for the year ended December 31, 2019, or the Annual Report, are the property of ERYTECH Pharma S.A. or its subsidiary, ERYTECH Pharma, Inc. Solely for convenience, the
trademarks, service marks and trade names referred to in this Annual Report are listed without the ® and ™ symbols, but such references should not be construed as any indicator that their
respective owners will not assert, to the fullest extent under applicable law, their right thereto. All other trademarks, trade names and service marks appearing in this Annual Report are the
property of their respective owners. We do not intend to use or display other companies’ trademarks and trade names to imply any relationship with, or endorsement or sponsorship of us
by, any other companies.
Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting
Standards Board, or IASB. Our consolidated financial statements are presented in euros, and unless otherwise specified, all monetary amounts are in euros. All references in this Annual
Report to “$,” “US$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” mean U.S. dollars and all references to “€” and “euros” mean euros, unless otherwise noted. Throughout this Annual
Report, references to ADSs mean American Depositary Shares or ordinary shares represented by such ADSs, as the case may be.
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than present and
historical facts and conditions contained in this Annual Report, including statements regarding our future results of operations and financial positions, business strategy, plans and our
objectives for future operations, are forward-looking statements. When used in this Annual Report, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is
designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking
statements include, but are not limited to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the development of our lead product candidate, eryaspase, which is also known under the trade name GRASPA in Europe and Israel,
our ability to obtain and maintain regulatory approval of eryaspase in the indications for which we plan to develop, and any related restrictions, limitations or warnings in
the label of an approved drug or therapy;
the initiation, timing, progress and results of our pre-clinical studies and clinical trials of eryaspase and any other product candidates we may develop;
our ability to successfully develop our ERYCAPS platform and advance our pipeline of product candidates;
the size and growth potential of the markets for our product candidates, if approved, and the rate and degree of market acceptance of our product candidates, including
reimbursement that may be received from payors;
the timing of our regulatory filings for our product candidates, along with regulatory developments in the United States, European Union and other foreign countries;
our ability to maintain and enter into and successfully complete collaborations, licensing arrangements or in-license or acquire rights to other products, product candidates or
technologies;
our reliance on third parties to manufacture and conduct the clinical trials of eryaspase, and any other product candidates we may develop, which could limit our
commercialization efforts or delay or limit their future development or regulatory approval;
our ability to develop sales, commercialization, marketing and manufacturing capabilities and strategy, including future hiring plans;
our ability to produce adequate supplies of our product candidates for preclinical and clinical testing and to fulfill our contractual obligations to third-party distributors;
the effects of increased competition as well as innovations by new and existing competitors in our industry;
our ability to obtain additional funding for our operations;
our ability to maintain, protect and enhance our intellectual property rights and propriety technologies and to operate our business without infringing the intellectual
property rights and proprietary technology of third parties;
regulatory developments in the United States, Europe and other foreign countries;
our ability to attract and retain qualified employees and key personnel
our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
our planned level of capital expenditures and our belief that our existing cash will be sufficient to fund our operating expenses and capital expenditure requirements until
February 2021;
the uncertainty of economic conditions in certain countries in Europe and Asia, such as those related to the United Kingdom’s withdrawal from the European Union,
commonly referred to as “Brexit,” and general economic conditions;
whether we are classified as a passive foreign investment company, or PFIC, for current and future periods; and
other risks and uncertainties, including those listed in the section of this Annual Report titled “Item 3.D—Risk Factors.”
You should refer to the section of this Annual Report titled “Item 3.D—Risk Factors” for a discussion of 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 Annual Report 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. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this Annual Report and the documents that we reference in this Annual Report and have filed as exhibits to this Annual Report completely and with the understanding that
our actual future results, levels of activity, performance and events and
2
circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of
the date of this Annual Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should
not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and
investors are cautioned not to unduly rely upon these statements.
Unless otherwise indicated, information contained in this Annual Report concerning our industry and the markets in which we operate, including our general expectations and market
position, market opportunity and market size estimates, is based on information from independent industry analysts, third-party sources and management estimates. Management estimates
are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions
made by us based on such data and our knowledge of such industry and market, which we believe to be reasonable. In addition, while we believe the market opportunity information
included in this Annual Report is generally reliable and is based on reasonable assumptions, such data involve risks and uncertainties and are subject to change based on various factors,
including those discussed under the section of this Annual Report titled “Item 3.D—Risk Factors.”
3
Item 1.
Identity of Directors, Senior Management and Advisers.
Not applicable.
PART I
Item 2.
Offer Statistics and Expected Timetable.
Not applicable.
Item 3.
Key Information.
A. Selected Financial Data
Our consolidated audited financial statements have been prepared in accordance with IFRS, as issued by the IASB. We derived the selected consolidated statement of income (loss) data
for the years ended December 31, 2017, 2018 and 2019 and selected consolidated statement of financial position data as of December 31, 2017, 2018 and 2019 from our consolidated
audited financial statements included elsewhere in this Annual Report. The selected consolidated statement of income data for the years ended December 31, 2015 and 2016 and the
selected consolidated financial position data as of December 31, 2015 and 2016 have been derived from our audited consolidated financial statements and notes thereto which are not
included in this Annual Report. This data should be read together with, and is qualified in its entirety by reference to, Item 5. “Operating and Financial Review and Prospects” as well as
our financial statements and notes thereto appearing elsewhere in this Annual Report. Our historical results are not necessarily indicative of the results to be expected in the future.
Selected Consolidated Statement of Income (Loss) Data (in thousands, except share and per share data):
Revenues
Other income
Operating income
Research and development
General and administrative
Operating expenses
Operating loss
Financial income (loss)
Income tax
Net loss
Basic and diluted loss per share (2)
Weighted number of shares used for computing basic and diluted loss per
share
2015
Euros
2016
Euros
Year Ended December 31,
2018
2017
2019
Euros
Euros
Euros
US$(1)
€
€
—
2,929
2,929
(10,776)
(7,736)
(18,512)
(15,583)
567
3
(15,013)
€
—
4,138
4,138
(19,720)
(6,808)
(26,528)
(22,390)
488
(10)
(21,913)
€
—
3,364
3,364
(25,463)
(8,791)
(34,254)
(30,889)
(2,644)
€
—
4,447
4,447
(33,468)
(14,600)
(48,068)
(43,621)
5,399
3
(33,530)
(2)
(38,224)
$
—
5,283
5,283
(52,193)
(17,164)
(69,357)
(64,074)
1,414
1
(62,659)
€
(2.16) €
(2.74) €
(2.95) €
(2.13) €
(3.49) $
—
5,931
5,931
(58,597)
(19,270)
(77,867)
(71,936)
1,588
1
(70,347)
(3.92)
6,957,654
7,983,642
11,370,557
17,937,481
17,937,535
17,937,535
(1)
(2)
Translated solely for convenience into dollars at the noon buying rate of the Federal Reserve Bank of New York of €1.00 = $1.1227 at December 31, 2019.
See Note 3.7 to our consolidated financial statements for further details on the calculation of basic and diluted loss per ordinary share.
4
Selected Consolidated Statement of Financial Position Data (in thousands, except share data):
Cash and cash equivalents
Total assets
Total shareholders’ equity
Total non-current liabilities
Total current liabilities
Total liabilities
Total liabilities and shareholders’ equity
Total capital stock
Total number of shares
2015
Euros
45,634
53,004
47,132
251
5,621
5,872
53,004
792
7,924,611
As of December 31,
2016
Euros
37,646
44,967
35,638
2,982
6,347
9,329
44,967
873
8,732,648
2017
Euros
185,525
195,261
181,419
2,236
11,606
13,842
195,261
1,794
17,937,559
2018
Euros
134,371
167,840
145,602
1,590
20,648
22,238
167,840
1,794
17,940,035
2019
Euros
73,173
118,546
85,560
13,105
19,881
32,986
118,546
1,794
17,940,035
US$(1)
82,152
133,092
96,058
14,713
22,321
37,034
133,092
2,014
17,940,035
(1)
Translated solely for convenience into dollars at the noon buying rate of the Federal Reserve Bank of New York of €1.00 = $1.1227 at December 31, 2019. Note that the European
Central Bank exchange rate of €1.00 = $1.1234 at December 31, 2019 was used to convert the accounts of our U.S. subsidiary, ERYTECH Pharma, Inc., into euros before
incorporation into our consolidated accounts.
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business faces significant risks. You should carefully consider all of the information set forth in this Annual Report and in our other filings with the United States Securities and
Exchange Commission, or the SEC, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could
be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from
those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this Annual Report and our other SEC filings. See
“Special Note Regarding Forward-Looking Statements” above.
Risks Related to our Financial Position and Capital Needs
We will need to raise substantial additional funding to pursue our business objectives, which may not be available on acceptable terms, or at all, and failure to obtain this necessary
capital when needed may force us to delay, limit or terminate our product development efforts, potential commercialization efforts or other operations.
Our net cash flows used in operating activities were €24.7 million, €47.9 million and €43.3 million for the years ended December 31, 2017, 2018 and 2019, respectively. As of
December 31, 2019, our cash and cash equivalents were €73.2 million ($82.2 million) compared to €134.4 million as of December 31, 2018 which represents an annual cash and cash
equivalents use of €61.2 million. We believe that our cash and cash equivalents as of December 31, 2019 will be sufficient to fund our current operations until February 2021. However,
we will need to obtain substantial additional funding in connection with our continuing operations.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we or
any current or future collaborators may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, eryaspase or any of our
product candidates, if approved, may not achieve commercial success. Our commercial revenue, if any, will be derived from the sale of drugs that we do not expect to be commercially
available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. While we are pursuing various financing
strategies, adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we could be forced to
delay, reduce or eliminate our research and development programs or any future commercialization efforts.
5
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our product candidates.
Until such time, if ever, as we can generate substantial revenue from the sale of our drugs, we expect to finance our cash needs through public or private equity or debt financings,
government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these
approaches. In any event, we will require additional capital to pursue preclinical and clinical activities, finance any future acquisitions of complementary product candidates, technologies
or business, obtain regulatory approval for and commercialize our product candidates. Even if we believe we have sufficient funds for our current or future operating plans, we may seek
additional capital if market conditions are favorable or if we have specific strategic considerations.
Fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition,
we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the
holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of the
ADSs or ordinary shares to decline. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable
rights to our research programs or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or
other arrangements with third parties when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to
third parties to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We have incurred significant losses since our inception and expect that we will continue to incur significant losses for the foreseeable future and we may never achieve profitability.
We have not yet generated significant revenues and have incurred significant operating losses since our inception. We incurred net losses of €33.5 million, €38.2 million and €62.7 million
for the years ended December 31, 2017, 2018 and 2019, respectively; these losses have adversely impacted, and will continue to adversely impact, our equity attributable to shareholders
and net assets. These losses are principally the result of our research expenditures and development costs for conducting preclinical studies and clinical trials, as well as general and
administrative expenses associated with our operations. We anticipate that our operating losses will continue for at least the next several years as we continue our research and
development activities and until we generate substantial revenues from any approved product candidates. As of December 31, 2019, we had a consolidated accumulated deficit of
€199.3 million.
We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations
primarily through the sale of equity securities and by obtaining public assistance in support of innovation, such as conditional advances and subsidies from the Banque Publique
d’Investissement, or BPI France, and research tax credits. The amount of our future net losses will depend, in part, on the pace and amount of our future expenditures and our ability to
obtain funding through equity or debt financings, strategic collaborations or additional grants or tax credits until such time, if ever, as we can generate substantial product revenue. We
have not yet received marketing approval for any of our product candidates. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the
size of any markets in which our product candidates have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate
market share for our product candidates in those markets.
We anticipate that our expenses will increase substantially as we:
•
•
•
•
•
•
•
•
continue the preclinical and clinical development of our product candidates;
expand the scope of our current clinical trials for our product candidates;
expand our clinical and commercial manufacturing capabilities for our product candidates;
seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials;
establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval and for which we have not entered
into a third-party collaboration;
seek to identify and validate additional product candidates;
acquire or in-license other product candidates and technologies;
make milestone, royalty or other payments under in-license or collaboration agreements;
6
•
•
•
maintain, protect and expand our intellectual property portfolio;
attract new and retain existing skilled personnel; and
create additional infrastructure to support our operations in the United States.
Our operating results may fluctuate significantly from year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future
performance. In any particular period or periods, our operating results could be below the expectations of securities analysts or investors, which could cause the price of the ordinary
shares and ADSs to decline.
We may be forced to repay conditional advances prematurely if we fail to comply with our contractual obligations under certain innovation grant agreements.
Through December 31, 2019, we have received €2.7 million in non-refundable grants and €2.1 million in conditional advances from BPI France. Since December 31, 2019, we received an
additional amount of €0.3 million in non-refundable grants from BPI France and €3.0 million in conditional advances. To date, TEDAC is the only ongoing program funded by non-
refundable grants and conditional advances. If we fail to comply with our contractual obligations under the applicable innovation grant agreements, including if we lose our exclusive right
to commercially develop our product candidates, we could be forced to repay the conditional advances (amounting to €1.2 million at December 31, 2019 and €4.2 million received in
aggregate to date) ahead of schedule. Such premature repayment could adversely affect our ability to finance our research and development projects, in which case we would need to
locate alternative sources of capital, which may not be available on commercially reasonable terms or at all.
Risks Related to Development of our Product Candidates
We have no approved products, which makes it difficult to assess our future prospects.
A key element of our strategy is to use and expand our proprietary ERYCAPS platform to build a pipeline of innovative product candidates and to progress these drug candidates through
clinical development for the treatment of severe forms of cancer and orphan diseases. The discovery of therapeutic drugs based on encapsulating molecules inside red blood cells is an
emerging field, and the scientific discoveries that form the basis for our efforts to discover and develop drug candidates are relatively new. The scientific evidence to support the feasibility
of developing drug candidates based on these discoveries is both preliminary and limited. Although our research and development efforts to date have resulted in a pipeline of product
candidates, we have not yet obtained approval for any products, we have not yet generated any revenues from the sale of approved products and we may not be able to develop product
candidates that are considered to be safe and effective. Our operations to date have been limited to developing our ERYCAPS platform technology and undertaking preclinical studies and
clinical trials of our product candidates, including our lead product candidate, eryaspase, also known as GRASPA, the approved trade name for eryaspase in Europe. However, we have not
yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical
industry. Consequently, the ability to predict our future operating results or business prospects is more limited than if we had a longer operating history or approved products on the
market.
We are heavily dependent on the success of our most advanced product candidate, eryaspase.
Our business and future success depends on our ability to obtain regulatory approval for and, together with third-party collaborators, to successfully commercialize our lead product
candidate, eryaspase, which is under clinical development for oncology indications. Eryaspase is our only product candidate in late-stage clinical development, and our business currently
depends heavily on its successful development. Eryaspase will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions,
substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. We cannot be
certain eryaspase will receive regulatory approval or be successfully commercialized even if we receive regulatory approval. In addition, because eryaspase is our most advanced product
candidate, and because our other product candidates are based on the same ERYCAPS platform technology, if eryaspase encounters safety or efficacy problems, developmental delays or
regulatory issues or other problems, our development plans and business would be significantly harmed.
We may not be successful in our efforts to use and expand our ERYCAPS platform to develop marketable products.
We believe that our ERYCAPS platform has broad potential application and can be used to encapsulate a wide range of therapeutic agents within red blood cells for which long-circulating
therapeutic activity and rapid and specific targeting is desired. However, we are at an early stage of development and our platform has not yet, and may never, lead to approved or
marketable products. Even if we are successful in continuing to build our product pipeline, the potential product candidates that we identify may not be suitable for clinical development,
including for reasons related to their harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and
achieve market acceptance. Use of red blood cells as the basis for our ERYCAPS platform may result in similar risks that affect the ability of our products to receive marketing approval
and achieve market acceptance. If we do not successfully develop and commercialize product candidates based upon our technological
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approach, we may not be able to obtain product or collaboration revenues in future periods, which would harm our business and our prospects.
We face substantial competition from companies with considerably more resources and experience than we have, which may result in others discovering, developing, receiving
approval for, or commercializing products before or more successfully than us.
The biopharmaceuticals industry is highly competitive. Numerous biopharmaceutical laboratories, biotechnology companies, institutions, universities and other research entities are
actively involved in the discovery, research, development and marketing of therapeutics to treat severe forms of cancer and orphan diseases, making it a highly competitive field. We have
competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we
have.
L-asparaginase is currently available in four forms, and the current market primarily includes several products marketed by large pharmaceutical companies, including Jazz
Pharmaceuticals PLC and Servier. To our knowledge, there is no potential treatment being developed using non encapsulated L-asparaginase for the treatment of pancreatic cancer or other
solid tumor indications, but this may change and current marketed asparaginase products may attempt to broaden their indications. Our products and product candidates may also have to
compete with other products and product candidates in development by established pharmaceutical companies and biotechnology companies.
Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete or uneconomical. Any new product that
competes with an approved product may need to demonstrate compelling advantages in efficacy, convenience, tolerability and safety to be commercially successful. Any of our product
candidates that are approved in the future will also face other competitive factors, including generic competition, which could force us to lower prices or could result in reduced sales. In
addition, new products developed by others could emerge as competitors to our product candidates. If we are not able to compete effectively against our current and future competitors, our
business will not grow and our financial condition and operations will suffer.
Intravenous administration of our product candidates could present risks that exist in relation to blood transfusions.
Our product candidates must be intravenously injected and are therefore subject to risks associated with blood transfusions and the blood type compatibility of the donor. We currently
acquire red blood cells from blood donations prepared and tested by blood banks, notably the Établissement Français du Sang, the New York Blood Center, the American Red Cross and
the German Red Cross Blood Donor Service. However, using donor-derived red blood cells presents risks associated with the potential transmission of infectious agents, such as viruses,
bacteria, prions and parasites, as well as risks associated with the development of allergies or other complications, such as allo-immunization, post-transfusion graft-versus-host disease,
anaphylactic shock or death. Risks associated with the encapsulation of molecules inside red blood cells may vary and will depend on their toxicity. Although the blood banks that supply
our red blood cells follow a strict preparation process, approved by health authorities, to detect and reduce possible risks for contamination by infectious agents, we cannot guarantee that
our product candidates will not be contaminated, which could be detrimental to our product development and commercialization efforts.
Risks Related to the Discovery and Development of and Obtaining Regulatory Approval for our Product Candidates
If our product candidates are not approved for marketing by applicable government authorities, we will be unable to commercialize them.
The European Commission (following review by the European Medicines Agency, or EMA) in Europe, the U.S. Food and Drug Administration, or FDA, in the United States and
comparable regulatory authorities in other jurisdictions must approve new drug or biologic candidates before they can be commercialized, marketed, promoted or sold in those territories.
We must provide these regulatory authorities with data from preclinical studies and clinical trials that demonstrate that our product candidates are safe and effective for a defined indication
before they can be approved for commercial distribution. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to
outcome. We must provide data to ensure the identity, strength, quality and purity of the drug substance and drug product. Also, we must assure the regulatory authorities that the
characteristics and performance of the clinical batches will be replicated consistently in the commercial batches. We have focused our development and planned commercialization efforts
on Europe and the United States.
The processes by which regulatory approvals are obtained from the EMA and FDA to market and sell a new product are complex, require a number of years and involve the expenditure of
substantial resources. We cannot assure you that eryaspase or any of our future product candidates will receive EMA or FDA approval. For example, in September 2015, we submitted a
Marketing Authorization Application, or MAA, to the EMA for the approval of GRASPA as a treatment for acute lymphoblastic leukemia, or ALL. However, in November 2016, we
announced our withdrawal of the MAA for GRASPA. In October 2017, we resubmitted to the EMA our MAA for GRASPA for relapsed or refractory ALL and subsequently announced
our withdrawal of the MAA for GRASPA in June 2018. Even if we obtain marketing approval of any of our product candidates in a major pharmaceutical market such as the
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United States or Europe, we may never obtain approval or commercialize our products in other major markets, due to varying approval procedures or otherwise, which would limit our
ability to realize their full market potential.
Our product candidates will need to undergo clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for which there is a high risk of
failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the EMA, FDA and other regulators, we may incur additional costs or
experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.
Preclinical testing and clinical trials are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical trials will be conducted
as planned or completed on schedule, if at all. It may take several years to complete the preclinical testing and clinical development necessary to commercialize a product candidate, and
delays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in preclinical testing and early clinical trials does not ensure that
later clinical trials will be successful. A number of companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in advanced
clinical trials even after promising results in earlier trials, and we cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results
will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. An unfavorable outcome in one or more trials
would be a major setback for our product candidates and for us. Due to our limited financial resources, an unfavorable outcome in one or more trials may require us to delay, reduce the
scope of, or eliminate one or more product development programs, which could have a material adverse effect on our business and financial condition and on the value of our securities.
In connection with clinical testing and trials, we face a number of risks, including risks that:
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a product candidate is ineffective, inferior to existing approved medicines, unacceptably toxic, or has unacceptable side effects;
patients may die or suffer other adverse effects for reasons that may or may not be related to the product candidate being tested;
extension studies on long-term tolerance could invalidate the use of our product;
the results may not confirm the positive results of earlier testing or trials; and
the results may not meet the level of statistical significance required by the EMA, FDA or other regulatory agencies to establish the safety and efficacy of our product
candidates.
The results of preclinical studies do not necessarily predict clinical success, and larger and later-stage clinical trials may fail to show the desired safety and efficacy results despite having
progressed through preclinical studies and initial clinical trials. Furthermore, there can be no assurance that any of our clinical trials will ultimately be successful or support further clinical
development of any of our product candidates. Our clinical trials of eryaspase conducted to date have generated favorable safety and efficacy data, other than our Phase 2b clinical trial in
acute myeloid leukemia for which we did not achieve the primary endpoint. However, we may have different results in other indications. Differences in enrollment criteria and different
combinations with other treatment modalities may also lead to different outcomes in our future clinical trials. As a result, we may not observe a similarly favorable safety or efficacy
profile as in our prior clinical trials. There is a high failure rate for drugs proceeding through clinical trials. Many companies in the pharmaceutical, biopharmaceutical and biotechnology
industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar
setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical
studies and clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses and many
companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. In addition, we
cannot assure you that in the course of potential widespread use in the future, we will not suffer setbacks in maintaining production quality or stability.
If we do not successfully complete preclinical and clinical development, we will be unable to market and sell our product candidates and generate revenues. Even if we do successfully
complete clinical trials, those results are not necessarily predictive of results of additional trials that may be needed before marketing applications may be submitted to the EMA or FDA,
as applicable. For instance, despite having observed favorable results and safety profile in multiple clinical trials of eryaspase in patients with ALL, based on feedback from the regulatory
agencies requiring additional investment, increasingly competitive landscape and the limited market opportunity for eryaspase with ALL, we decided in June 2018 to cease further clinical
developments efforts in ALL. In addition, our research and development costs amounted to €25.5 million, €33.5 million and €52.2 million during the years ended December 31, 2017,
2018 and 2019, respectively. Although there are a large number of drugs and biologics in development in Europe, the United
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States and other countries, only a small percentage result in the submission of a marketing application, even fewer are approved for commercialization, and only a small number achieve
widespread physician and consumer acceptance following regulatory approval. If our clinical trials are substantially delayed or fail to prove the safety and effectiveness of our product
candidates in development, we may not receive regulatory approval of any of these product candidates and our business and financial condition will be materially harmed.
Delays, suspensions and terminations in our clinical trials could result in increased costs to us and delay or prevent our ability to generate revenues.
Human clinical trials are very expensive, time-consuming, and difficult to design, implement and complete. The completion of trials for eryaspase or our other product candidates may be
delayed for a variety of reasons, including delays in:
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demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;
reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;
validating test methods to support quality testing of the drug substance and drug product;
obtaining sufficient quantities of the drug substance or other materials necessary to conduct clinical trials;
manufacturing sufficient quantities of a product candidate;
obtaining approval of applications from regulatory authorities for the commencement of a clinical trial;
obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective clinical trial site;
determining dosing and clinical trial design; and
patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial sites,
the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial.
For example, in our Phase 1 clinical trial in the United States in adult ALL patients, patient enrollment took longer than expected.
The commencement and completion of clinical trials for our product candidates may be delayed, suspended or terminated due to a number of factors, including:
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lack of effectiveness of product candidates during clinical trials;
adverse events, safety issues or side effects relating to the product candidates or their formulation;
inability to raise additional capital in sufficient amounts to continue clinical trials or development programs, which are very expensive;
the need to sequence clinical trials as opposed to conducting them concomitantly in order to conserve resources;
our inability to maintain or enter into collaborations relating to the development and commercialization of our product candidates;
our failure to conduct clinical trials in accordance with regulatory requirements;
our inability to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials;
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including mandated changes in the scope or design of clinical trials or
requests for supplemental information with respect to clinical trial results;
delays in patient enrollment, variability in the number and types of patients available for clinical trials, and lower-than anticipated retention rates for patients in clinical
trials;
difficulty in patient monitoring and data collection due to failure of patients to maintain contact after treatment; and
varying interpretations of our data, and regulatory commitments and requirements by the EMA, FDA and similar regulatory agencies.
For example, our Investigational New Drug application, or IND, submitted to the FDA for eryaspase was on clinical hold from its original submission in July 2011 until March 21, 2013.
Although we received acceptance from the FDA of our IND to extend our
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pivotal Phase 3 clinical trial of eryaspase for the treatment of second-line pancreatic cancer patients to the United States in May 2019, we cannot assure you that any future IND will not be
subject to clinical holds.
Many of these factors may also ultimately lead to denial of our marketing application for eryaspase or our other product candidates. If we experience delay, suspensions or terminations in
a clinical trial, the commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed or such revenues could be reduced
or fail to materialize.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on our ability to recruit
patients to participate, as well as completion of required follow-up periods. If patients are unwilling to enroll in our clinical trials because of competitive clinical trials for similar patient
populations or for other reasons, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of our product candidates may be delayed. These delays could
result in increased costs, delays in advancing our product candidates, delays in testing the effectiveness of our product candidates or termination of clinical trials altogether.
Some of our current product candidates are being developed to treat severe forms of cancer and other orphan diseases, which are generally defined as having a patient population of fewer
than 200,000 individuals in the United States. For example, 150,000 new cases of pancreatic cancer are diagnosed each year in the United States and Europe. We may not be able to
initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA, EMA or other regulatory authorities.
Also, we may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our clinical trials in a timely manner.
Patient enrollment can be affected by many factors, including:
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size of the patient population and process for identifying patients;
eligibility and exclusion criteria for our clinical trials;
perceived risks and benefits of our product candidates;
severity of the disease under investigation;
proximity and availability of clinical trial sites for prospective patients;
ability to obtain and maintain patient consent;
patient drop-outs prior to completion of clinical trials;
patient referral practices of physicians; and
ability to monitor patients adequately during and after treatment.
Our ability to successfully initiate, enroll and complete clinical trials in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
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difficulty in establishing or managing relationships with CROs and physicians;
different standards for the conduct of clinical trials;
inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and
biotechnology products and treatment.
If we have difficulty enrolling a sufficient number of patients or finding additional clinical trial sites to conduct our clinical trials as planned, we may need to delay, limit or terminate
ongoing or planned clinical trials, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.
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Changes in regulatory requirements, guidance from regulatory authorities or unanticipated events during our clinical trials of our product candidates could necessitate changes to
clinical trial protocols or additional clinical trial requirements, which would result in increased costs to us and could delay our development timeline.
Changes in regulatory requirements, FDA guidance or guidance from the EMA or other European regulatory authorities, or unanticipated events during our clinical trials, may force us to
amend clinical trial protocols. The regulatory authorities could also impose additional clinical trial requirements. Amendments to our clinical trial protocols would require resubmission to
the FDA, EMA, national clinical trial regulators and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of a clinical trial. If we
experience delays completing, or if we terminate, any of our clinical trials, or if we are required to conduct additional clinical trials, the commercial prospects for our product candidates
may be harmed and our ability to generate product revenue will be delayed.
The United States and European formulations of eryaspase differ, and regulatory authorities in each jurisdiction may not accept data from alternative eryaspase formulations in other
jurisdiction(s), which may result in delays and additional costs in order to conduct additional comparability studies or the need to repeat nonclinical and clinical studies in order to
obtain approval in each jurisdiction in which we intend to commercialize eryaspase.
The formulations of eryaspase used to conduct clinical trials in the United States and Europe have differed in composition, manufacturing process and release specifications. After seeking
feedback from regulatory agencies, we have conducted studies to harmonize the formulation of eryaspase, including in vitro comparability studies and stability studies. Even with this
additional data, regulatory authorities may not find it acceptable to support the approval of eryaspase. If regulatory authorities require us to generate additional nonclinical or clinical data,
the generation of additional data could result in submission delays and additional costs in order to obtain marketing approval of eryaspase.
In the United States, our product candidates will be regulated as biological products, or biologics, which may subject them to competition sooner than we currently anticipate.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, was enacted as part of the 2010 enactments of the Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, to establish an abbreviated licensure pathway for biological products shown to be biosimilar to, or
interchangeable with, an FDA-licensed biological reference product. “Biosimilarity” means that the biological product is highly similar to the reference product notwithstanding minor
differences in clinically inactive components and there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and
potency of the product. To meet the higher standard of “interchangeability,” an applicant must provide sufficient information to show biosimilarity and demonstrate that the biological
product can be expected to produce the same clinical result as the reference product in any given patient and, if the biological product is administrated more than once to an individual, the
risk in terms of safety or diminished efficacy of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using the
reference product without such alternation or switch.
Under the BPCIA, an application for a biosimilar or interchangeable product cannot be approved by the FDA until 12 years after the reference product was first licensed, and the FDA will
not even accept an application for review until four years after the date of first licensure. The law is evolving, complex and is still being interpreted and implemented by the FDA. As a
result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the
FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
We believe that any of our product candidates approved as a biological product under a Biologics License Application, or BLA, should qualify for the 12-year period of exclusivity.
However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, potentially creating the opportunity for biosimilar or interchangeable competition
sooner than we currently anticipate. Moreover, the process by which an interchangeable product, once approved, will be substituted for any one of our reference products in a way that is
similar to traditional generic substitution for non-biological products, such as drugs, is not yet clear, and will depend on a number of marketplace and regulatory factors that are still
developing and subject to interpretation.
In the European Union, GRASPA contains a known active substance, which would undermine its data and marketing exclusivities; however, this will not affect GRASPA’s orphan
product exclusivity.
In the European Union, data exclusivity refers to the period of time during which another company cannot refer to our data held in the authority’s files in support of its marketing
authorization. The subsequent market exclusivity refers to the period of time during which another company may use our data in support of its marketing authorization for a generic,
hybrid or biosimilar product, but the product in question may not be placed on the market. For products containing new active substances, this effectively prevents certain products, such
as generics and similar biological products, from being placed on the market during the combined data and marketing
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exclusivity period. This combined period usually lasts for 10 years from the date of approval of the product containing the new active substance.
Because the active ingredient in GRASPA is not a new active substance, the 10-year period of protection against generics and similar biological products is undermined. Competitors
developing such products could receive European Union marketing authorizations and place their products on the European Union market within 10 years of GRASPA’s own marketing
authorization, if obtained.
However, if we still have orphan drug designation for GRASPA in the treatments of pancreatic cancer, ALL and AML in Europe at the time we receive marketing approval from the EMA
in these indications, we would still benefit from the independent period of market exclusivity afforded to orphan products. In the European Union, this is usually a period of 10 years from
the date of marketing approval. The exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable
so that market exclusivity is no longer justified. The exclusivity period may increase to 12 years if, among other things, the MAA includes the results of studies from an agreed pediatric
investigation plan. During the orphan exclusivity period, regulators should not accept or approve applications for the approval of a similar medicine for the same therapeutic indication,
unless the second product is demonstrably safer, more effective or otherwise clinically superior. Regulators may approve different products for the same condition as GRASPA.
We rely on third parties to assist in our discovery and development activities, and the loss of any of our relationships with research institutions could hinder our product development
prospects.
We currently have and expect to continue to depend on collaborations with public and private research institutions to conduct some of our early-stage drug discovery activities. If we are
unable to enter into research collaborations with these institutions, or if any one of these institutions fails to work efficiently with us, the research, development or marketing of our product
candidates planned as part of the research collaboration could be delayed or canceled. In the event a research agreement is terminated or we become no longer in a position to renew the
arrangement under acceptable conditions, our drug discovery and development activities may also be delayed.
We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing
our product candidates.
We rely, and will rely in the future, on medical institutions, clinical investigators, CROs, contract laboratories and collaborators to perform data collection and analysis and to carry out our
clinical trials.
For example, in June 2019, we entered in an exclusive worldwide license agreement with SQZ Biotechnologies pursuant to which we and SQZ Biotechnologies will focus on the
development of novel red blood cell-based therapeutics for the treatment of immuno-oncology and tolerance induction. Our other main subcontractors and key partners include
Etablissement Français du Sang, the American Red Cross, the New York Blood Center and Medac GmbH. We also recently entered into a partnership with the German Red Cross Blood
Donor Service.
Our development activities or clinical trials conducted in reliance on third parties may be delayed, suspended, or terminated if:
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the third parties do not devote a sufficient amount of time or effort to our activities or otherwise fail to successfully carry out their contractual duties or to meet regulatory
obligations or expected deadlines;
we replace a third party; or
the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons.
We generally would not have the ability to control the performance of third parties in their conduct of development activities. In the event of a default, bankruptcy or shutdown of, or a
dispute with, a third party, we may be unable to enter into a new agreement with another third party on commercially acceptable terms. Further, third-party performance failures may
increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product candidates. In addition, our third-party
agreements usually contain a clause limiting such third party’s liability, such that we may not be able to obtain full compensation for any losses we may incur in connection with the third
party’s performance failures. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able
to enter into replacement arrangements without incurring delays or additional costs.
We may enter into collaboration agreements with third parties for the development and commercialization of our product candidates, which may affect our ability to generate
revenues.
We have limited capabilities for product development and may seek to enter into collaborations with third parties for the development and potential commercialization of our product
candidates. For example, in June 2019, we entered into a collaboration with SQZ Biotechnologies to focus on the development of novel red blood-cell based therapeutics for the treatment
of immuno-oncology and
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tolerance induction. Should we seek to collaborate with any additional third parties with respect to a prospective development program, we may not be able to locate a suitable collaborator
and may not be able to enter into an agreement on commercially reasonable terms or at all. Even if we succeed in securing collaborators for the development and commercialization of our
product candidates, we will have limited control over the amount and timing that our collaborators may dedicate to the development or commercialization of our product candidates. These
collaborations pose a number of risks, including the following:
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collaborators may not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as budget limitations, lack of human
resources, or a change in strategic focus;
collaborators may believe our intellectual property is not valid or is unenforceable or the product candidate infringes on the intellectual property rights of others;
collaborators may dispute their responsibility to conduct development and commercialization activities pursuant to the applicable collaboration, including the payment of
related costs or the division of any revenues;
collaborators may decide to pursue a competitive product developed outside of the collaboration arrangement;
collaborators may not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals; or
collaborators may delay the development or commercialization of our product candidates in favor of developing or commercializing another party’s product candidate.
Thus, collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.
Some collaboration agreements are terminable without cause on short notice. Once a collaboration agreement is signed, it may not lead to commercialization of a product candidate. We
also face competition in seeking out collaborators. If we are unable to secure new collaborations that achieve the collaborator’s objectives and meet our expectations, we may be unable to
advance our product candidates and may not generate meaningful revenues.
Due to our limited resources and access to capital, our decisions to prioritize development of certain product candidates may adversely affect our business prospects.
Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. As
such, we are currently primarily focused on the development of eryaspase for the treatment of pancreatic cancer and other solid tumors. Our decisions concerning the allocation of
research, collaboration, management and financial resources toward particular compounds, product candidates or therapeutic areas may not lead to the development of viable commercial
products and may divert resources away from more promising opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties with respect to some of
our product development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we do not accurately evaluate the commercial potential or target
market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other arrangements in cases in which it would
have been more advantageous for us to retain sole development and commercialization rights. If we make incorrect determinations regarding the market potential of our product candidates
or misread trends in the pharmaceutical industry, our business prospects could be harmed.
Risks Related to the Commercialization of Our Product Candidates
Even if we successfully complete clinical trials of our product candidates, those candidates may not be commercialized successfully for other reasons.
Even if we successfully complete clinical trials for one or more of our product candidates and obtain relevant regulatory approvals, those candidates may not be commercialized for other
reasons, including:
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failing to receive regulatory clearances required to market them as drugs;
being subject to proprietary rights held by others;
failing to obtain clearance from regulatory authorities on the manufacturing of our products;
being difficult or expensive to manufacture on a commercial scale;
having adverse side effects that make their use less desirable;
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failing to compete effectively with products or treatments commercialized by competitors; or
failing to show that the long-term benefits of our products exceed their risks.
Even if any of our product candidates are commercialized, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors or the medical
community in general necessary for commercial success.
Even if the medical community accepts a product as safe and efficacious for its indicated use, physicians may choose to restrict the use of the product if we are unable to demonstrate that,
based on experience, clinical data, side-effect profiles and other factors, our product is preferable to any existing drugs or treatments. We cannot predict the degree of market acceptance of
any product candidate that receives marketing approval, which will depend on a number of factors, including, but not limited to:
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the demonstration of the clinical efficacy and safety of the product;
the approved labeling for the product and any required warnings;
the advantages and disadvantages of the product compared to alternative treatments;
our ability to educate the medical community about the safety and effectiveness of the product;
the experience of clinicians with other potential treatments that use red blood cells to deliver therapeutics;
the coverage and reimbursement policies of government and commercial third-party payors pertaining to the product; and
the market price of our product relative to competing treatments.
If we are unable to establish sales, marketing and distribution capabilities for our product candidates, whether it be an internal infrastructure or an arrangement with a third party,
we may not be successful in commercializing those product candidates if and when they are approved.
We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical drugs. To achieve commercial success for eryaspase,
including in the United States, for the treatment of pancreatic cancer, as well as eryaspase for the treatment of other indications and any other product candidates for which we may obtain
marketing approval, we will need to establish a sales and marketing organization to market or co-promote those products. There are risks involved with establishing our own sales,
marketing and distribution capabilities. For example, recruiting and training a sales force in competition with other pharmaceutical or biotechnology companies is expensive and time-
consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does
not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain
or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize products on our own include:
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our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians and educate an adequate number of physicians on the benefits of any future products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more products; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we are unable to establish our own sales, marketing and distribution capabilities and enter into arrangements with third parties to perform these services, our revenue and our
profitability, if any, are likely to be lower than if we were to sell, market and distribute any products that we develop ourselves.
Even though we have obtained orphan drug designation from the FDA and EMA for eryaspase for the treatment of pancreatic cancer, we may not be able to obtain orphan drug
marketing exclusivity for eryaspase or any of our other product candidates for other indications.
Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the
Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than
200,000 individuals annually in the United States. Similarly, in Europe, a medicinal product may receive orphan designation under Article 3 of Regulation (EC) 141/2000, as amended.
This applies to products that are intended for a life-threatening or chronically debilitating condition and either the condition affects no more than five in 10,000 persons in the European
Union when the application is made or the product, without the benefits derived from orphan status, would unlikely generate sufficient return in the European Union to justify the
necessary investment. Moreover, in order to obtain orphan designation in the European Union, it is necessary to demonstrate that there
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exists no satisfactory method of diagnosis, prevention or treatment of the condition authorized for marketing in the European Union, or if such a method exists, that the product will be of
significant benefit to those affected by the condition. The EMA will reassess whether GRASPA continues to meet the criteria for orphan drug designation in the European Union at the
time it reviews a marketing authorization application for the product. If the EMA considers that GRASPA no longer meets these criteria, for example, because it does not offer a significant
benefit over existing therapies, it may revoke GRASPA’s orphan drug designation prior to approval.
The EMA has granted orphan drug designation for GRASPA for the treatment of pancreatic cancer, and the FDA has granted orphan drug designation for eryaspase for the same indication. We
may seek orphan drug designation for our other product candidates, and with respect to other indications. Generally, if a drug with an orphan drug designation subsequently receives the first
marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing
application for the same drug for that time period or the EMA or any other medicines regulator in the European Union from approving a similar medicinal product. The applicable period is
seven years in the United States and usually 10 years in the European Union. The European Union exclusivity period can be reduced to six years if a drug no longer meets the criteria for
orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the
request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the candidate from competition because different drugs can be approved for
the same condition. Even after an orphan drug is approved, the applicable regulatory authority can subsequently approve another drug for the same condition if it concludes that the later
drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. Similarly, if our competitors are able to obtain orphan product
exclusivity for their products in the same indications for which we are developing our product candidates, we may not be able to have our products approved by the applicable regulatory
authority for a significant period of time.
Even if we obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we market our products, which could
materially impair our ability to generate revenues.
Even if we receive regulatory approval for a product candidate, this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage
relative to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we can market a product or the patient population that may utilize the product or
may be required to carry a warning in its labeling and on its packaging. Products with boxed warnings are subject to more restrictive advertising regulations than products without such
warnings. These restrictions could make it more difficult to market any product candidate effectively. Accordingly, assuming we receive marketing approval for one or more of our product
candidates, we will continue to expend time, money and effort in all areas of regulatory compliance.
Government restrictions on pricing and reimbursement, as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate revenues even if
we obtain regulatory approval to market a product.
Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will
be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health
insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Assuming we obtain coverage for a given product by a
third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed
medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription
drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore,
coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when
more established or lower cost therapeutic alternatives are already available or subsequently become available.
Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of
reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices as a condition of
coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes and are challenging the prices charged for medical products. In
addition, in the United States, federal programs impose penalties on drug manufacturers in the form of mandatory additional rebates and/or discounts if commercial prices increase at a rate
greater than the Consumer Price Index-Urban, and these rebates and/or discounts, which can be substantial, may impact our ability to raise commercial prices. Further, no uniform policy
requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ
significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support
for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
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The continuing efforts of governments, insurance companies, managed care organizations and other payors of healthcare costs to contain or reduce costs of healthcare may negatively
affect our commercialization prospects, including:
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our ability to set a price we believe is fair for our products, if approved;
our ability to obtain and maintain market acceptance by the medical community and patients;
our ability to generate revenues and achieve profitability; and
the availability of capital.
We cannot be sure that coverage and reimbursement will be available for any potential product candidate that we may commercialize and, if reimbursement is available, what the level of
reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and
reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing
approval.
In the United States, the ACA is significantly impacting the provision of, and payment for, healthcare. Various provisions of the ACA are designed to expand Medicaid eligibility,
subsidize insurance premiums, provide incentives for businesses to provide healthcare benefits, prohibit denials of coverage due to pre-existing conditions, establish health insurance
exchanges, and provide additional support for medical research. With regard to pharmaceutical products specifically, the ACA, among other things, expanded and increased industry
rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare prescription drug benefit.
Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the
Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the
implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, the U.S. Congress has
considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the
implementation of certain taxes under the ACA have been signed into law. Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, or the Tax Act, included a provision
which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all
or part of a year that is commonly referred to as the “individual mandate.” The 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated
“Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of
2018, or the BBA, among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical
manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On December 14, 2018, a Texas
U.S. District Court Judge ruled that ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December
18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court
to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace
ACA will impact ACA and our business.
In addition, both the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012 have instituted, among other things, mandatory reductions in Medicare payments to
certain providers. Additional legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could
influence the purchase of medicines and reduce reimbursement and/or coverage of our product candidates, if approved.
Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Such scrutiny has resulted in several recent U.S.
Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal
level, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase
competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. Further, the Trump administration released a “Blueprint”,
or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain
federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of
Health and Human Services, or HHS, has solicited feedback on some of these measures and, has implemented others under its existing authority. For example, in May 2019, CMS issued a
final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning on January 1, 2020. The final rule codified a CMS policy change that was
effective January 1. While some of these and other proposed measures may require authorization to become effective, Congress and the Trump administration have each indicated that it
will continue to seek new legislative and/or administrative measures to control drug costs. At the state level,
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legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other
countries and bulk purchasing.
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in
additional downward pressure on the price that we receive for any approved product candidate. Any reduction in reimbursement from Medicare or other government-funded programs may
result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our drugs. Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future.
In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. In addition, in some foreign markets, the pricing of prescription drugs is
subject to government control and reimbursement may in some cases be unavailable. The requirements governing drug pricing vary widely from country to country. For example, the
European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control
the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product, may refuse to reimburse a product at the price set by the
manufacturer or may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that
any country that has price controls or reimbursement limitations for biopharmaceutical products will allow favorable reimbursement and pricing arrangements for eryaspase or any of our
other product candidates that may be approved. Historically, biopharmaceutical products launched in the European Union do not follow price structures of the United States and generally
tend to have significantly lower prices.
We believe that pricing pressures at the federal and state levels in the United States, as well as internationally, will continue and may increase, which may make it difficult for us to sell our
potential product candidates that may be approved in the future at a price acceptable to us or any third parties with whom we may choose to collaborate.
Any of our product candidates for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to
substantial penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products following approval.
Any of our product candidates for which we obtain marketing approval, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional
activities for such products, among other things, will be subject to continual requirements of and review by the EMA, FDA and other regulatory authorities. These requirements include
submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance
and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product
candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the FDA
requirement to implement a REMS to ensure that the benefits of a drug or biological product outweigh its risks.
The EMA and FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product, such as long-term
observational studies on natural exposure. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of
products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The EMA and
FDA impose stringent restrictions on manufacturers’ communications regarding off-label use and if we do not market any of our product candidates for which we receive marketing
approval for only their approved indications, we may be subject to warnings or enforcement action for off-label marketing. Violation of the Federal Food, Drug and Cosmetic Act, or
FDCA, and other statutes, including the civil False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of
federal and state health care fraud and abuse laws and state consumer protection laws.
The EMA, FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of drugs for off-label uses. If we are found to have improperly
promoted off-label use, we may become subject to significant liability.
The EMA, FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription drug products, such as our product candidates, if approved. In
particular, a product may not be promoted for uses that are not approved by the EMA, FDA or such other regulatory agencies as reflected in the product’s approved labeling. However, we
may share truthful and not misleading information that is otherwise consistent with the product’s approved labeling. For example, if we receive marketing approval for eryaspase,
physicians, in their professional medical judgment, may nevertheless prescribe eryaspase to their patients in a manner that is inconsistent with the approved label. If we are found to have
promoted such off-label use, we may become subject to significant liability under the FDCA and other statutory authorities, such as laws prohibiting false claims for reimbursement. The
federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined
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several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our products, if approved, we could become subject to significant liability, which would
harm our reputation and negatively impact our financial condition.
Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability will depend, in part, on our ability to commercialize our product candidates in markets within and without the United States and Europe. If we commercialize our
product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:
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economic weakness, including inflation, or political instability in particular economies and markets;
the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements, many of which vary between countries;
different medical practices and customs in foreign countries affecting acceptance in the marketplace;
tariffs and trade barriers;
other trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or foreign governments;
longer accounts receivable collection times;
longer lead times for shipping;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
workforce uncertainty in countries where labor unrest is common;
language barriers for technical training;
reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics;
foreign currency exchange rate fluctuations and currency controls;
differing foreign reimbursement landscapes;
uncertain and potentially inadequate reimbursement of our products; and
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
Foreign sales of our products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.
Adverse market and economic conditions may exacerbate certain risks associated with commercializing our product candidates.
Future sales of our product candidates, it they are approved, will be dependent on purchasing decisions of and reimbursement from government health administration authorities,
distributors and other organizations. As a result of adverse conditions affecting the global economy and credit and financial markets, including disruptions due to political instability or
otherwise, these organizations may defer purchases, may be unable to satisfy their purchasing or reimbursement obligations, or may delay payment for eryaspase or any of our product
candidates that are approved for commercialization in the future. In addition, there have been concerns for the overall stability and suitability of the euro as a single currency given the
economic and political challenges facing individual Eurozone countries. Continuing deterioration in the creditworthiness of Eurozone countries, the withdrawal of one or more member
countries from the European Union, or the failure of the euro as a common European currency or an otherwise diminished value of the euro could materially and adversely affect our
future product revenue from European sales of our products.
Risks Related to the Production and Manufacturing of our Product Candidates and Future Products, if Any
Our production capacity could prove insufficient for our needs.
Our production capacity may prove insufficient in the future to meet the growth of our business, including producing sufficient quantities of product candidates for preclinical studies,
clinical trials and, ultimately, our customers and distributors. For instance, we have initiated a Phase 3 clinical trial in Europe and the United States in patients with second-line metastatic
pancreatic cancer.
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Although we have extended our production capacity for our current clinical trials and a potential commercial launch, if approved, with the construction of a manufacturing facility in
Princeton, New Jersey and the extension of our manufacturing facility in Lyon, France, there is no guarantee that we will or have properly estimated our required manufacturing capacities
in or outside of the United States and Europe or that the third parties we rely on to provide required machinery and materials for the manufacturing process will be able to perform on our
proposed timelines or meet our manufacturing demands, if at all. Also, if we must increase production capacity for any reason, we may need to make considerable investments that could
lead to significant financing needs or require us to enter into subcontracting agreements in order to outsource part of the production.
We may not have access to the raw materials and other components, including asparaginase and red blood cells, necessary for the manufacturing of our product candidates.
We are dependent on third parties for the supply of various materials that are necessary to produce our product candidates for clinical trials.
With respect to eryaspase, we rely on Medac GmbH, or Medac, for the supply of asparaginase. Since we rely on a single-source supplier for asparaginase, if our agreement with Medac
GmbH were to be terminated or if this supplier is unable to meet our demands for asparaginase, we could experience delays in our research or planned clinical trials or commercialization.
We could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes and at an acceptable cost.
With regard to the supply of red blood cells, we rely on the New York Blood Center and the American Red Cross in the United States and the French Blood Agency (Établissement
Français du Sang) and the German Red Cross Blood Donor Service in Europe. The French Blood Agency (Établissement Français du Sang) is the sole operator in its territory for blood
transfusions and is in charge of satisfying national needs for blood products. Although we have entered into agreements with the New York Blood Center, the American Red Cross, the
French Blood Agency (Établissement Français du Sang) and the German Red Cross Blood Donor Service related to the supply of those materials, the supply could be reduced or
interrupted at any time. In such case, we may not be able to find other suppliers of acceptable materials in appropriate quantities at an acceptable cost. If we lose key suppliers or the
supply of materials is diminished or discontinued, or in the event of a major or international crisis impacting blood banks and the practice of blood donation, we may not be able to
continue to develop, manufacture and market our product candidates or products in a timely and competitive manner.
In addition, these materials are subject to stringent manufacturing processes and rigorous testing. Delays in the completion and validation of facilities and manufacturing processes of these
materials could adversely affect our ability to complete trials and commercialize our products in a cost-effective and timely manner. If we encounter difficulties in the supply of these
materials, chemicals or biological products, or if we were not able to maintain our supply agreements or establish new supply agreements in the future, our product development and our
business prospects could be significantly compromised.
Our manufacturing facilities are subject to significant government regulations and approvals. If we or our third-party manufacturers fail to comply with these regulations or
maintain these approvals, our business will be materially harmed.
We currently manufacture our product candidates for use in Europe in our facility in Lyon, France. In addition, we have entered into agreements with the American Red Cross, the French
Blood Agency (Établissement Français du Sang), the German Red Cross Blood Donor Service and the New York Blood Center to produce eryaspase for use in our clinical trials in Europe
and in the United States and we built a U.S. manufacturing facility in Princeton, New Jersey, which began producing eryaspase for use in our U.S clinical trials in the fourth quarter of
2019. We also have an agreement with Medac to provide us with L-asparaginase for use in our production of eryaspase. We and our third-party manufacturers are subject to ongoing
regulation and periodic inspection by the EMA, FDA and other regulatory bodies to ensure compliance with current Good Manufacturing Practices, or cGMP, as part of our clinical trials.
Any failure to follow and document our or their adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of products for
commercial sale or clinical trials, may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for our products.
Failure to comply with applicable regulations could also result in the EMA, FDA or other applicable regulatory authorities taking various actions, including:
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levying fines and other civil penalties;
imposing consent decrees or injunctions;
requiring us to suspend or put on hold one or more of our clinical trials;
suspending or withdrawing regulatory approvals;
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delaying or refusing to approve pending applications or supplements to approved applications;
requiring us to suspend manufacturing activities or product sales, imports or exports;
requiring us to communicate with physicians and other customers about concerns related to actual or potential safety, efficacy, and other issues involving our products;
mandating product recalls or seizing products;
imposing operating restrictions; and
seeking criminal prosecutions.
Any of the foregoing actions could be detrimental to our reputation, business, financial condition or operating results. Furthermore, our key suppliers may not continue to be in compliance
with all applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all. In addition, before any
additional products would be considered for marketing approval in the United States, Europe or elsewhere, our suppliers will have to pass an audit by the applicable regulatory agencies.
We are dependent on our suppliers’ cooperation and ability to pass such audits, and the audits and any audit remediation may be costly. Failure to pass such audits by us or any of our
suppliers would affect our ability to commercialize our product candidates in the United States, Europe or elsewhere.
Our production costs may be higher than we currently estimate.
We manufacture our product candidates according to manufacturing best practices applicable to drugs for clinical trials and to specifications approved by the applicable regulatory
authorities. If any of our products are found to be non-compliant, we would be required to manufacture the product again, which would entail additional costs and may prevent delivery of
the product to patients on time.
Other risks inherent in the production process may have the same effect, such as:
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contamination of the controlled atmosphere area;
unusable premises and equipment;
new regulatory requirements requiring a partial and/or extended stop to the production unit to meet the requirements;
unavailable qualified personnel;
power failure of extended duration;
logistical error; and
rupture in the cold chain, which is a system for storing and transporting blood and blood products within the correct temperature range and conditions.
In addition, a rise in direct or indirect energy rates may increase product manufacturing and logistical costs. Any of these risks, should they occur, could disrupt our activities and
compromise our financial position, results, reputation or growth.
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Risks Related to Our Employees and Business
We may encounter difficulties in managing our growth, which could disrupt our operations.
As of December 31, 2019, we had 214 full-time equivalent employees, and we expect to increase our number of employees and the scope of our operations. To manage our development
and expansion, including the potential commercialization of our product candidates in Europe and the United States, we will need to implement and improve our managerial, operational
and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its
attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to
effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes,
loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may
divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and
expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy.
Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage
the future development and expansion of our company.
We depend on qualified management personnel and our business could be harmed if we lose key personnel and cannot attract new personnel.
Our success depends to a significant degree upon the technical and management skills of our senior management team. The loss of the services of any of these individuals could have a material
adverse effect on our ability to achieve our corporate objectives and successfully execute our business plan. Although we have implemented an executive compensation policy that includes variable
compensation based on performance as well as share-based compensation plans for the benefit of our key employees, we cannot guarantee that this policy will be sufficient to retain these key
employees. Our success also will depend upon our ability to attract and retain additional qualified management, marketing, technical, and sales executives and personnel. We compete for key
personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess. There can be no assurance that we will be
successful in attracting or retaining such personnel, and the failure to do so, could harm our operations and our growth prospects.
Our failure to maintain certain tax benefits applicable to French biopharmaceutical companies may adversely affect our results of operations, our cash flows and our financial
condition.
As a French biopharmaceutical company, we have benefited from certain tax advantages, including, for example, the CIR, which is a French tax credit aimed at stimulating research and
development. The CIR can be offset against French corporate income tax due and the portion in excess, if any, may be refunded. The CIR is calculated based on our claimed amount of
eligible research and development expenditures in France and amounted to €3.2 million, €4.4 million and €3.9 million for the years ended December 31, 2017, 2018 and 2019,
respectively. The French tax authorities, with the assistance of the Research and Higher Education Ministry, may audit each research and development program in respect of which a CIR
benefit has been claimed and assess whether such program qualifies in its view for the CIR benefit. The French tax authorities may challenge our eligibility for, or our calculation of,
certain tax reductions or deductions in respect of our research and development activities. Should the French tax authorities be successful, the CIR representing the majority of the our
operating revenues (74% of revenues for the year ended December 31, 2019 and more than 90% for the years ended December 31, 2017 and December 31, 2018), our credits may be
reduced, which would have a negative impact on our results of operations and future cash flows. We believe, due to the nature of our business operations, that we will continue to be
eligible to receive the CIR tax credit. However, if the French Parliament decides to eliminate, or to reduce the scope or the rate of, the CIR benefit, either of which it could decide to do at
any time, our results of operations could be adversely affected.
The COVID-19 coronavirus could adversely impact our business, including our clinical trials.
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread to multiple countries,
including France and the United States, including countries in which we have planned or ongoing clinical trials. If the COVID-19 coronavirus continues to spread in France and the United
States, we may experience disruptions that could severely impact our business and clinical trials, including:
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delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
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diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the
conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments,
employers and others; and
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the
desire of employees to avoid contact with large groups of people.
For our clinical trials that are being conducted in countries which are experiencing heightened impact from the COVID-19 coronavirus, in addition to the risks listed above, we may also
experience the following adverse impacts:
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delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product and comparator drugs used in our clinical trials;
changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in which our clinical trials are conducted,
which may result in unexpected costs, or to discontinue the clinical trials altogether;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced
furlough of government employees; and
refusal of the EMA or the FDA to accept data from clinical trials in these affected geographies.
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our business and clinical trials will depend on
future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel
restrictions and social distancing in the European Union, the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the
European Union, the United States and other countries to contain and treat the disease. Further, the adverse effect on the financial markets, on the market price of our ADSs and/or
ordinary shares, is unknown. To date, the global economy remains heavily impacted by the outbreak of the COVID-19 coronavirus.
Our business may become subject to economic, political, regulatory and other risks associated with international operations.
We are a company based in France with international operations, including in the United States. A significant portion of our suppliers and collaborative and clinical trial relationships are
located outside the United States. Accordingly, our future results could be harmed by a variety of factors, including:
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economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;
differing regulatory requirements for drug approvals in non-U.S. countries;
differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;
potentially reduced protection for intellectual property rights;
difficulties in compliance with non-U.S. laws and regulations;
changes in non-U.S. regulations and customs, tariffs and trade barriers;
changes in non-U.S. currency exchange rates of the euro and currency controls;
changes in a specific country's or region's political or economic environment, including the withdrawal of the United Kingdom from the EU;
trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or non-U.S. governments;
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differing reimbursement regimes and price controls in certain non-U.S. markets;
negative consequences from changes in tax laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
workforce uncertainty in countries where labor unrest is more common than in the United States;
difficulties associated with staffing and managing international operations, including differing labor relations;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires, or public
health emergencies, such as the novel COVID-19 coronavirus.
Recent developments relating to the United Kingdom's withdrawal from the European Union could adversely affect us.
The United Kingdom held a referendum on June 23, 2016, in which a majority voted for the withdrawal of the United Kingdom from the European Union, or EU, commonly known as
‘Brexit’. As a result of this vote, on March 29, 2017, the United Kingdom officially started the separation process and commenced negotiations to determine the terms of the withdrawal of
the United Kingdom from the EU as well as its relationship with the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU. The United Kingdom and the EU are
currently in a transition period during which the United Kingdom and the EU are negotiating additional arrangements, including their future trading arrangement. The United Kingdom has
stated that it wants the transition period to expire, and the future trading terms to be agreed, by December 31, 2020. During the transition period the existing rules on trade, travel, and
business for the United Kingdom and EU continue to apply.
The effects of Brexit are expected to be far-reaching and will depend on any agreements (or lack thereof) between the United Kingdom and the EU and, in particular, any arrangements for
the United Kingdom to retain access to EU markets after the transitional period expires. Given the level of uncertainty, caused by Brexit, and the perception as to its potential impact,
business activity and economic conditions in the United Kingdom, Europe and globally may be adversely affected, and Brexit could continue to contribute to instability in global financial
and foreign exchange markets, asset valuations and credit ratings. Brexit could also have the effect of disrupting and potentially ending the free movement of goods, services and people
between the United Kingdom and the EU, which may negatively affect our operations together with those of our customers and suppliers, particularly those which are based in the United
Kingdom. For example, we are conducting clinical trials at certain sites in the United Kingdom for which we must supply eryaspase. We may face difficulties in having our clinical supply
for these trials imported into the United Kingdom which could render it unavailable for use in our clinical trials or would force us to set up a new production facility in the United
Kingdom. We could also face difficulties in obtaining a specific MAA in the United Kingdom. This may force us to stop development in the United Kingdom and/or give up our intention
to register any potential product in the United Kingdom.
In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which EU laws to replicate or
replace. If the United Kingdom were to significantly alter its regulations affecting our product candidates, we could face significant new costs. It may also be time-consuming and
expensive for us to alter our internal operations in order to comply with new regulations and our product candidates may need to undergo a registration process in the United Kingdom in
the future. Altered or divergent regulations could also add time and expense to the process by which our product candidates receive and maintain regulatory approval in the United
Kingdom and EU.
Similarly, it is unclear at this time what impact Brexit will have on our intellectual property rights and the process for obtaining, maintaining, defending and enforcing such rights. For
example, whilst current guidance provided by the U.K. government suggests that trademarks granted by the EU, known as EU Trade Marks or EUTMs, will continue to be protected in the
United Kingdom after Brexit, it is unclear whether we will be required to refile our trademarks and other intellectual property applications domestically in the United Kingdom and
whether any other steps will be required for us to protect our trade-marks in the United Kingdom in the future. As a result of Brexit, other European countries may seek to conduct
referenda with respect to their continuing membership in the EU. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, we cannot be
certain of the full extent to which Brexit could adversely affect our business, results of operations and financial condition.
Our business may be exposed to foreign exchange risks.
Owing to the international scope of our operations, fluctuations in exchange rates, particularly between the euro and the U.S. dollar, may adversely affect us. Although we are based in the
France, we source research and development, manufacturing, consulting and other services from the United States as well as other countries outside the European Union. We incur some of
our expenses, and may in the future derive revenues, in currencies other than the euro. In particular, as we expand our operations, our manufacturing and conduct clinical trials in the
United States, we will incur an increased amount of expenses in U.S. dollars. We also received and currently hold a portion of the net proceeds from our 2017 global offering in U.S.
dollars. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. For
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example, an increase in the value of the euro against the U.S. dollar could have a negative impact on our revenue and earnings growth as U.S. dollar revenue and earnings, if any, are
translated into euros at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial
condition, results of operations and cash flows. The ADSs sold in the U.S. portion of our 2017 global offering were quoted in U.S. dollars on the Nasdaq Global Select Market, while our
ordinary shares (including those sold in the European private placement and the underlying ordinary shares of the ADSs sold in the U.S. offering) trade in euros on Euronext Paris. Our
financial statements are prepared in euros. Therefore, fluctuations in the exchange rate between the euro and the U.S. dollar will also affect, among other matters, the value of our ordinary
shares and ADSs.
We may use hazardous chemicals and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time-consuming
and costly.
Our research and development processes involve the controlled use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these
materials, and our liability may exceed any insurance coverage and our total assets. French and U.S. federal, state, local or foreign laws and regulations govern the use, manufacture,
storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters.
Compliance with environmental laws and regulations may be expensive and may impair our research and development efforts. If we fail to comply with these requirements, we could incur
substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain
compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and
regulations are interpreted and enforced.
Product liability and other lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our product candidates.
Although we comply with cGMP, and Good Clinical Practices, or GCPs, the risk that we may be sued on product liability claims is inherent in the development and commercialization of
biopharmaceutical products. Side effects of, or manufacturing defects in, products that we develop could result in the deterioration of a patient’s condition, injury or even death. Our
liability could be sought after by patients participating in the clinical trials in the context of the development of the therapeutic products tested and unexpected side effects resulting from
the administration of these products. For example, we reported adverse events in our Phase 2b clinical trial of second-line treatment of patients with metastatic pancreatic cancer compared
to treatment with chemotherapy alone. The percentage of patients with at least one adverse event reported as grade 3 or 4 (i.e., most commonly, increased gamma glutamyl transferase,
neutropenia, deterioration of general health and anemia) amounted to 79% in the eryaspase treatment arm, versus 86% in the control arm, and the percentage of patients with at least one
reported severe adverse event (i.e., most commonly, deterioration in general health and gastrointestinal hemorrhage) amounted to 45% in the eryaspase treatment arm versus 50% in the
control arm.
Once a product is approved for sale and commercialized, the likelihood of product liability lawsuits increases. Criminal or civil proceedings might be filed against us by patients,
regulatory authorities, biopharmaceutical companies and any other third party using or marketing our products. These actions could include claims resulting from acts by our partners,
licensees and subcontractors, over which we have little or no control. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In
addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of the affected products.
We maintain product liability insurance coverage for our clinical trials at levels which we believe are appropriate for our clinical trials. Nevertheless, our insurance coverage may be
insufficient to reimburse us for any expenses or losses we may suffer. In addition, in the future, we may not be able to obtain or maintain sufficient insurance coverage at an acceptable
cost or to otherwise protect against potential product or other legal or administrative liability claims by us or our collaborators, licensees or subcontractors, which could prevent or inhibit
the commercial production and sale of any of our product candidates that receive regulatory approval. Product liability claims could also harm our reputation, which may adversely affect
our ability to commercialize our products successfully.
Our internal computer systems, or those of our third-party contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product
development programs.
Despite the implementation of security measures, our internal computer systems and those of our third-party contractors and consultants are vulnerable to damage from computer viruses,
unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we do not believe that we have experienced any such system failure, accident or
security breach to date, including cybersecurity incidents, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs.
For example, the loss of clinical trial data for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
lost data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product
candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed. As
these threats continue to evolve, particularly around
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cybersecurity, we may be required to expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, such
events could materially adversely affect our business, financial condition or results of operations.
We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
Our current growth strategy does not involve plans to acquire companies or technologies facilitating or enabling us to access to new medicines, new research projects, or new geographical
areas, or enabling us to express synergies with our existing operations. However, if such acquisitions were to become necessary in the future, we may not be able to identify appropriate
targets or make acquisitions under satisfactory conditions, in particular, satisfactory price conditions. In addition, we may be unable to obtain the financing for these acquisitions on
favorable terms, which could require us to finance these acquisitions using our existing cash resources that could have been allocated to other purposes. If we acquire businesses with
promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and
company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or
prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify
the transaction.
European data processing is governed by restrictive regulations governing the collection, processing, and cross-border transfer of personal data.
The collection and use of personal data in the European Union is governed by the provisions of the General Data Protection Regulation ((EU) 2016/679), or GDPR. This legislation
imposes requirements relating to having legal bases for processing personal data relating to identifiable individuals and transferring such data outside the European Economic Area
including to the United States, providing details to those individuals regarding the processing of their personal data, keeping personal data secure, having data processing agreements with
third parties who process personal data, responding to individuals’ requests to exercise their rights in respect of their personal data, reporting security breaches involving personal data to
the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments and record-keeping. The
GDPR imposes additional responsibilities and liabilities in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance
with the new data protection rules. Furthermore, specific national rules may apply to data processing for medical research purposes, potentially involving formalities by the national Data
Protection Authorities. Failure to comply with the requirements of the GDPR and related national data protection laws of the member states of the European Union may result in
substantial fines, other administrative penalties and civil claims being brought against us, which could have a material adverse effect on our business, results of operations and financial
condition. Moreover, in some European countries, including France, the hosting of personal health data must be carried out by specifically certified hosting service providers. The absence
or suspension of the appropriate certification of such hosting service provider may adversely affect our business, or even lead to penalties related to breach of security of personal data.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with
these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations, which
can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions
regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery
statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we
conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising,
offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties to sell our products sell
our products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect
interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other
illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the
laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments,
breach of contract and fraud litigation, reputational harm, and other consequences.
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Risks Related to Other Legal Compliance Matters
We are subject to anti-bribery, anti-kickback, fraud and abuse and other healthcare laws and regulations which may require substantial compliance efforts and could expose us to
criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings, among other penalties.
Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of our products, if approved. Our business operations in the United States and
our arrangements with clinical investigators, healthcare providers, consultants, third party payors and patients may expose us to broadly applicable federal and state anti-bribery fraud and
abuse and other healthcare laws. These laws may impact, among other things, our research, proposed sales, marketing and education programs of our product candidates that obtain
marketing approval. Restrictions under applicable U.S. federal, state and foreign healthcare laws and regulations include, but are not limited to, the following:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing
remuneration, including any kickback, bribe or rebate, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or
the purchase or lease, order or recommendation of, any item, good, facility or service, for which payment may be made under federal healthcare programs such as Medicare
and Medicaid;
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the U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced by individuals, on behalf of the government,
through civil whistleblower or qui tam actions, and civil monetary penalties laws prohibits individuals or entities from, among other things, knowingly presenting, or
causing to be presented, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the
federal government;
the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal, civil and criminal statutes that impose criminal
and civil liability for, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or knowingly and willingly falsifying,
concealing or covering up a material fact or making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which impose
requirements on certain healthcare providers, health plans and healthcare clearinghouses, known as “covered entities,” and persons or entities that perform functions or
activities that involve individually identifiable health information on behalf of a covered entity, known as “business associates,” including mandatory contractual terms, with
respect to safeguarding the privacy, security and transmission of individually identifiable health information;
U.S. federal transparency requirements under the Physician Payments Sunshine Act, enacted as part of the ACA, that require applicable manufacturers of covered drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to
track and annually report to the CMS payments and other transfers of value provided to physicians, as defined by such law, and teaching hospitals, and certain ownership
and investment interests held by physicians or their immediate family members;
analogous state or foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor,
including commercial insurers, state marketing and/or transparency laws applicable to manufacturers that may be broader in scope than the federal requirements, state laws
that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government, state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and
other healthcare providers, marketing expenditures, or drug pricing, state and local laws that require the registration of pharmaceutical sales representatives, and state laws
governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same
effect as HIPAA, thus complicating compliance efforts;
GDPR, the local EU data protection laws, and other ex-U.S. protections;
the French “transparency” provisions, or “French Sunshine Act” (Articles L. 1453-1 and D. 1453-1 and seq. PHC), which contains provisions regarding transparency of fees
received by some healthcare professionals from industries, such as companies manufacturing or marketing healthcare products (medicinal products, medical devices, etc.) in
France. According to the provisions, these companies shall publicly disclose (on a specific public website available at www.entreprises-transparence.sante.gouv.fr) the
advantages and fees paid to healthcare professionals amounting to €10 or above, as well as the agreements concluded with the latter, along with detailed information about
each agreement (the precise subject matter of the agreement, the date of signature of the agreement, its end date, the total amount paid to the healthcare professional, etc.);
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the French “anti-gift” provisions (Articles L.1453-3 to L.1453-12 PHC), setting out a general prohibition of payments and rewards from industries, i.e. companies
manufacturing or marketing health products, to healthcare professionals, with limited exceptions and strictly defines the conditions under which such payments or awards
are lawful.
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Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. It is possible that governmental authorities will
conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If
our operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, disgorgement, imprisonment, possible exclusion from government funded healthcare programs, such as Medicare and Medicaid, additional
reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual
damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could substantially disrupt our operations. If the physicians or other
providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to significant criminal, civil or administrative
sanctions, including exclusions from government funded healthcare programs.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect
on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal
of hazardous materials and wastes. Our research and development activities involve the use of biological and hazardous materials and produce hazardous waste products. We generally
contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption of
our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and
regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party
manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or
eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our
resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and
regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Although we maintain professional liability insurance which cover for costs and expenses we may incur due to environmental liability that may be asserted against us or due to injuries to
our employees resulting from the use of hazardous materials, may not provide adequate coverage against potential liabilities.
Our employees may engage in misconduct or other improper activities, including violating applicable regulatory standards and requirements or engaging in insider trading, which
could significantly harm our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with legal requirements or the requirements of
CMS, EMA, FDA and other government regulators, provide accurate information to applicable government authorities, comply with fraud and abuse and other healthcare laws and
regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws
and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.
Employee misconduct could also involve the improper use of, including trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we
take to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or
lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, fines, disgorgement,
imprisonment, possible exclusion from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to
a corporate integrity agreement or similar agreement to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and
curtailment of our operations.
Future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders.
Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the
practices of tax authorities in jurisdictions in which we operate, including
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those related to the Organization for Economic Co-Operation and Development’s, or OECD, Base Erosion and Profit Shifting, or BEPS, Project, the European Commission’s state aid
investigations and other initiatives. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of
withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such
changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries
where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.
For example, the Tax Act enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act
may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to the Tax
Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the
deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges,
and could increase our future U.S. tax expense. We urge you to consult with your legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or
holding our common shares.
For U.S. tax purposes, our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-
change net operating loss carryforwards, or NOLs, to offset future taxable income. We have not performed a detailed analysis to determine whether an ownership change under Section
382 of the Code has occurred after each of our previous issuances of ordinary shares. In addition, if we underwent an ownership change in the past, our ability to utilize NOLs could be
limited by Section 382 of the Code. Future changes in our share ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code.
Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. As a result, even if we attain profitability, we may be unable to use a
material portion of our NOLs and other tax attributes, which could negatively impact our future cash flows.
Risks Related to Intellectual Property
Our ability to compete may decline if we do not adequately protect our proprietary rights.
Our commercial success depends on obtaining and maintaining proprietary rights to our product candidates and defending these rights against third-party challenges. We will only be able
to protect our product candidates and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them.
Our ability to obtain patent protection for our product candidates is uncertain due to a number of factors, including:
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we or our licensors may not have been the first to make the inventions covered by pending patent applications or issued patents;
we or our licensors may not have been the first to file patent applications for our product candidates or the compositions we developed or for their uses;
others may independently develop identical, similar or alternative products or compositions and uses thereof;
our or our licensors’ disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
any or all of our or our licensors’ pending patent applications may not result in issued patents;
we or our licensors may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;
any patents issued to us or our licensors may not provide a basis for commercially viable products, may not provide any competitive advantages, or may be successfully
challenged by third parties;
our or our licensors’ compositions and methods may not be patentable;
others may design around our patent claims to produce competitive products which fall outside of the scope of our patents; or
others may identify prior art or other bases which could invalidate our or our licensors’ patents.
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Even if we have or obtain patents covering our product candidates or compositions, we may still be barred from making, using and selling our product candidates or technologies because
of the patent rights of others. Others may have filed, and in the future, may file, patent applications covering compositions or products that are similar or identical to ours. There are many
issued U.S. and foreign patents relating to chemical compounds and therapeutic products, and some of these relate to compounds we intend to commercialize. Numerous U.S. and foreign
issued patents and pending patent applications owned by others exist in the cancer treatment field in which we are developing products. These could materially affect our ability to develop
our product candidates or sell our products if approved. Because patent applications can take many years to issue, there may be currently pending applications unknown to us that may
later result in issued patents that our product candidates or compositions may infringe. These patent applications may have priority over patent applications filed by us.
Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, various other
governmental fees on patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the cost associated with complying with numerous
procedural provisions during the patent application process. We may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure
to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our
competitive position could suffer.
Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also
result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or other actions against those that have infringed on our patents,
or used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights
successfully, our competitive position could suffer, which could harm our results of operations.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If we initiate legal proceedings against a third party to enforce a patent covering our product candidate or technology, the defendant could counterclaim that the patent covering our product
candidate or technology is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and unenforceability are commonplace. Grounds
for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability
assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution.
Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination,
post-grant review and/or inter partes review and equivalent proceedings in foreign jurisdictions, and opposition proceedings. Such proceedings could result in revocation or amendment of
our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is
unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a
defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates.
Biopharmaceutical patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent
position.
The patent positions of biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions. The interpretation and breadth of claims allowed in some
patents covering biopharmaceutical compositions may be uncertain and difficult to determine and are often affected materially by the facts and circumstances that pertain to the patented
compositions and the related patent claims. The standards of the U.S. Patent and Trademark Office, or USPTO, are evolving and could change in the future. Consequently, we cannot
predict the issuance and scope of patents with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to
interference proceedings, and U.S. patents may be subject to reexamination proceedings, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject also to
opposition or comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent application or loss or reduction in the
scope of one or more of the claims of the patent or patent application. In addition, such interference, reexamination, post-grant review, inter partes review and opposition proceedings may
be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.
In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our or our licensors’ discoveries or to develop and
commercialize our technology and products without providing any compensation to us, or may limit the number of patents or claims we can obtain. The laws of some countries do not
protect intellectual property rights
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to the same extent as U.S. laws and those countries may lack adequate rules and procedures for defending our intellectual property rights.
If we fail to obtain and maintain patent protection and trade secret protection for our product candidates, we could lose our competitive advantage and competition we face would increase,
reducing any potential revenues and adversely affecting our ability to attain or maintain profitability.
Developments in patent law could have a negative impact on our business.
From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress, the USPTO or similar foreign authorities may change the standards of patentability and any such
changes could have a negative impact on our business. In addition, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a
number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are
challenged, and changes to the way patent applications are disputed during the examination process. These changes may favor larger and more established companies that have greater
resources to devote to patent application filing and prosecution. The USPTO has developed new regulations and procedures to govern the full implementation of the America Invents Act,
and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions, became effective on March 16, 2013. Substantive
changes to patent law associated with the America Invents Act, or any subsequent U.S. legislation regarding patents, may affect our ability to obtain patents, and if obtained, to enforce or
defend them. Accordingly, it is not clear what, if any, impact the America Invents Act will have on the cost of prosecuting our U.S. patent applications, our ability to obtain U.S. patents
based on our discoveries and our ability to enforce or defend any patents that may issue from our patent applications, all of which could have a material adverse effect on our business.
If we do not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for extending the term of patents covering each of our product candidates, our
business may be materially harmed.
Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term
extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the European Union. The
Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product
development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant
patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term
of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to
market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to patent protection, because we operate in the highly technical field of development of therapies, we rely in part on trade secret protection in order to protect our proprietary
technology and processes. However, trade secrets are difficult to protect. We have entered into confidentiality and intellectual property assignment agreements with our employees,
consultants, outside scientific collaborators, sponsored researchers, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third
parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide
that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively
assign intellectual property rights to us.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for
example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security
measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not
provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-
consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Trade secrets may be independently developed by
others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any
such information was independently developed by a competitor, our competitive position could be harmed.
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We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even
in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on our product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property
rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. Competitors may use our
technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing products to territories where
we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights
may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property
rights may not be effective or sufficient to prevent third parties from so competing.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the federal and state laws in the United States. Many companies have
encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing
countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biopharmaceuticals or biotechnologies. This could make it difficult
for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing
laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or
government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive
and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection
in such countries.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents
at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in
any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, changes in the law and legal decisions by courts in the
United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Third parties may assert ownership to inventions we develop.
Collaborators or third party partners may in the future make claims challenging the inventorship or ownership of our intellectual property developed in the context of their collaboration
with us. We have written agreements with collaborators and third party partners that provide us the ownership of intellectual property or provide that we must negotiate certain intellectual
property rights with collaborators and third party partners with respect to joint inventions or inventions made by them that arise from the results of the collaboration. In some instances,
written provisions or conditions may be challenged or may not be adequate to address clearly the resolution of intellectual property rights that may arise from a collaboration. If we cannot
successfully negotiate ownership of intellectual property to the inventions that result from our use of a third-party partner or collaborator’s materials where required, or if disputes
otherwise arise with respect to the intellectual property developed with the use of a third-party partner or collaborator’s samples, we may be limited in our ability to capitalize on the
market potential of these inventions. In addition, we may face claims by third parties that our agreements with employees, contractors, or consultants obligating them to assign intellectual
property to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have
developed or will develop and interfere with our ability to capture the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are not
successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property. Either outcome could have an adverse impact on our
business.
If we fail to comply with our obligations under license or technology agreements with third parties, we could lose license rights that are critical to our business.
We license intellectual property that is critical to our business, including licenses underlying the technology in our diagnostic tests, and in the future, we may enter into additional
agreements that provide us with licenses to valuable intellectual property or technology. These licenses impose various royalty payments, milestones, and other obligations on us. If we fail
to comply with any of these obligations, the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us
from distributing our current tests, or inhibit our ability to commercialize future test candidates. Our business would suffer if any current or future licenses terminate, if the licensors fail to
abide by the terms of the license, if the licensors fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are
unable to enter into necessary licenses on acceptable terms.
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Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although
we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, and no such claims against us are currently pending,
we may be subject to claims that we or our employees, consultants or independent contractors have used or disclosed intellectual property, including trade secrets or other proprietary
information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a
distraction to management and other employees.
A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time-consuming and costly, and an unfavorable
outcome could harm our business.
There is significant litigation in the biopharmaceutical industry regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual
property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our product candidates, technologies or
activities infringe the intellectual property rights of others. If our development activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to
such patents. A patentee could prevent us from using the patented drugs or compositions. We may need to resort to litigation to enforce a patent issued to us, to protect our trade secrets, or
to determine the scope and validity of third-party proprietary rights. From time to time, we may hire scientific personnel or consultants formerly employed by other companies involved in
one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result
of prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We may
not be able to afford the costs of litigation. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a negative impact on our cash
position. Any legal action against us or our collaborators could lead to:
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payment of damages, potentially treble damages, if we are found to have willfully infringed a party’s patent rights;
injunctive or other equitable relief that may effectively block our ability to further develop, commercialize, and sell products; or
us or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all.
Any of these outcomes could hurt our cash position and financial condition and our ability to develop and commercialize our product candidates.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be
able to protect our rights to these trademarks and trade names, which we will need to build name recognition by potential partners or customers in our markets of interest. Over the long
term, if we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively.
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Risks Related to Ownership of our Securities and our Status as a Non-U.S. Company with Foreign Private Issuer Status
The market price of our equity securities may be volatile or may decline regardless of our operating performance.
The market price for our ADSs and ordinary shares has fluctuated and is likely to continue to fluctuate, substantially. The stock market in general and the market for biopharmaceutical
companies in particular have experienced extreme volatility that in some instances is unrelated to the operating performance of particular companies. For example, on the day we
announced our positive Phase 2b clinical trial results evaluating eryaspase in metastatic pancreatic cancer in March 2017, the closing price per ordinary share on Euronext Paris increased
by 71% compared to the average of the closing price per ordinary share for the previous 20 trading days. Conversely, on the day we announced the discontinuation of our developments in
AML in June 2018, the closing price per ordinary share on Euronext Paris decreased by 31% compared to the average of the closing price per ordinary share for the previous 20 trading
days. A significant decrease in our share price could have a significant adverse effect on our financial condition, reputation and prospects.
As a result of this volatility in our market and industry, holders of our equity securities may not be able to sell their ADSs or ordinary shares at or above the price originally paid for the
security. The market price for our ADSs and ordinary shares may be influenced by numerous factors, some of which are beyond our control, including:
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actual or anticipated fluctuations in our financial condition and operating results;
actual or anticipated changes in our growth rate relative to our competitors;
competition from existing products or new products that may emerge;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or capital commitments;
failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;
issuance of new or updated research or reports by securities analysts;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
share and ADS price and volume fluctuations attributable to inconsistent trading volume levels of our shares and ADSs;
additions or departures of key management or scientific personnel;
lawsuits threatened or filed against us, disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent
protection for our technologies;
changes to coverage policies or reimbursement levels by commercial third-party payors and government payors and any announcements relating to coverage policies or
reimbursement levels;
announcement or expectation of additional debt or equity financing efforts;
adverse regulatory decisions, including failure to receive regulatory approval for any of our product candidates;
the termination of a strategic alliance or the inability to establish additional strategic alliances;
sales of our ordinary shares or ADSs by us, our insiders or our other shareholders; and
general economic and market conditions.
These and other market and industry factors may cause the market price and demand for our ordinary shares and ADSs to fluctuate substantially, regardless of our actual operating
performance, which may limit or prevent holders of our equity securities from readily selling their ordinary shares or ADSs and may otherwise negatively affect the liquidity of the trading
market for the ordinary shares and ADSs.
In addition, in the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnology companies following periods of volatility in the market prices of these
companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources from our business.
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The dual listing of our ordinary shares and our ADSs may adversely affect the liquidity and value of our ordinary shares and ADSs.
Our ADSs are listed on Nasdaq, and our ordinary shares are admitted to trading on Euronext Paris. We cannot predict the effect of this dual listing on the value of our ADSs and ordinary
shares. However, the dual listing of our ADSs and ordinary shares may dilute the liquidity of these securities in one or both markets and may adversely affect the trading market or price
for our ADSs or ordinary shares.
If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, our business will be harmed and the price of our securities
could decline as a result.
We sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may
include our expectations regarding the commencement or completion of scientific studies, clinical trials, the submission of regulatory filings, or commercialization objectives. From time
to time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of
marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of
assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:
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our available capital resources or capital constraints we experience;
the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians
and collaborators, and our ability to identify and enroll patients who meet clinical trial eligibility criteria;
our receipt of approvals by the EMA, FDA and other regulatory agencies and the timing thereof;
other actions, decisions or rules issued by regulators;
our ability to access sufficient, reliable and affordable supplies of compounds and raw materials used in the manufacture of our product candidates;
the efforts of our collaborators with respect to the commercialization of our products; and
the securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities.
If we fail to achieve announced milestones in the timeframes we expect, the commercialization of our product candidates may be delayed, our business and results of operations may be
harmed, and the trading price of the ordinary shares and ADSs may decline as a result.
Our ownership is concentrated in the hands of our principal shareholders and ADS holders and management, who continue to be able to exercise a direct or indirect controlling
influence on us.
As of December 31, 2019, our executive officers, directors, current 5% or greater shareholders and their respective affiliated entities, including BVF Partners L.P, RA Capital Management
LLC and Auriga Ventures III FCPR, together beneficially owned approximately 45% of our ordinary shares (including ordinary shares in the form of ADSs). As a result, these
shareholders, acting together, will have significant influence over all matters that require approval by our shareholders, including the election of directors and approval of significant
corporate transactions. Corporate action might be taken even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a
change of control of our company that other shareholders may view as beneficial.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the price of the ordinary shares and ADSs and their
trading volume could decline.
The trading market for the ADSs and ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities
or industry analysts cover our company, the trading price for the ADSs and ordinary shares would be negatively impacted. If one or more of the analysts who covers us downgrades our
equity securities or publishes incorrect or unfavorable research about our business, the price of the ordinary shares and ADSs would likely decline. If one or more of these analysts ceases
coverage of our company or fails to publish reports on us regularly, or downgrades our securities, demand for the ordinary shares and ADSs could decrease, which could cause the price of
the ordinary shares and ADSs or their trading volume to decline.
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We do not currently intend to pay dividends on our securities and, consequently, the ability of our shareholders and ADS holders to achieve a return on investment will depend on
appreciation in the price of the ordinary shares and ADSs. In addition, French law may limit the amount of dividends we are able to distribute.
We have never declared or paid any cash dividends on our share capital and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if
any, to fund our growth. Therefore, our shareholders and ADS holders are not likely to receive any dividends for the foreseeable future and any increase in value will depend solely upon
future appreciation. Consequently, holders of our equity securities may need to sell all or part of their holdings of ordinary shares or ADSs after price appreciation, which may never occur,
as the only way to realize any future gains.
Further, under French law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared and
presented in accordance with accounting standards applicable in France. In addition, payment of dividends may subject us to additional taxes under French law. Please see the section of
this Annual Report titled “Item 10.B—Memorandum and Articles of Association” for further details on the limitations on our ability to declare and pay dividends and the taxes that may
become payable by us if we elect to pay a dividend. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France.
In addition, exchange rate fluctuations may affect the amount of euros that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon the payment of cash
dividends or other distributions we declare and pay in euros, if any. These factors could harm the value of our equity securities, and, in turn, the U.S. dollar proceeds that holders receive
from the sale of ADSs.
Future sales, or the possibility of future sales, of a substantial number of our ADSs or ordinary shares could adversely affect the market price of our ADSs and ordinary shares.
Future sales of a substantial number of our ADSs or ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our ADSs and/or ordinary
shares. Sales in the United States of our ADSs and ordinary shares held by our directors, officers and affiliated shareholders or ADS holders are subject to restrictions. If these
shareholders or ADS holders sell substantial amounts of ordinary shares or ADSs in the public market, or the market perceives that such sales may occur, the market price of our ADSs or
ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.
The rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.
We are a French company with limited liability. Our corporate affairs are governed by our bylaws and by the laws governing companies incorporated in France. The rights of shareholders
and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders in companies governed by the laws of U.S.
jurisdictions. For example, in the performance of its duties, our board of directors is required by French law to consider the interests of our company, its shareholders, its employees and
other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of
our shareholders or holders of our ADSs. See the sections of this Annual Report titled “Item 10. B—Memorandum and Articles of Association” and “Item 16.G—Corporate Governance.”
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U.S. holders of our equity securities may have difficulty enforcing civil liabilities against our company and directors and senior management and experts named herein.
Certain members of our board of directors and senior management and certain experts named herein are non-residents of the United States, and all or a substantial portion of our assets and
the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments
obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. Additionally, it may be difficult to assert U.S. securities law claims
in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in
which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is
applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and
certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. In particular, there is some doubt as to whether French courts would
recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of
punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. An award for monetary damages under the U.S. securities laws would be
considered punitive if it does not seek to compensate the claimant for loss or damage suffered but is intended to punish the defendant. French law provides that a shareholder, or a group of
shareholders, may initiate a legal action to seek indemnification from the directors of a corporation in the corporation’s interest if it fails to bring such legal action itself. If so, any damages
awarded by the court are paid to the corporation and any legal fees relating to such action may be borne by the relevant shareholder or the group of shareholders.
The enforceability of any judgment in France will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and France do not
currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters.
Our bylaws and French corporate law contain provisions that may delay or discourage a takeover attempt.
Provisions contained in our bylaws and French corporate law could make it more difficult for a third-party to acquire us, even if doing so might be beneficial to our shareholders. In
addition, provisions of our bylaws impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These
provisions include the following:
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under French law, the owner of 90% of the share capital or voting rights of a public company listed on a regulated market in a Member State of the European Union or in a
state party to the European Economic Area, or EEA, Agreement, including France, has the right to force out minority shareholders following a tender offer made to all
shareholders;
under French law, a non-resident of France as well as any French entity controlled by non-residents of France may have to file a declaration for statistical purposes with the
Bank of France (Banque de France) within 20 working days following the date of certain direct foreign investments in us, including any purchase of our ADSs. In
particular, such filings are required in connection with investments exceeding €15,000,000 that lead to the acquisition of at least 10% of our share capital or voting rights or
cross such 10% threshold. See “Item 10.B - Limitations Affecting Shareholders of a French Company;”
under French law, certain investments in a French company relating to certain strategic industries by individuals or entities not residents in a Member State of the European
Union are subject to prior authorization of the Ministry of Economy pursuant to Law n°2019-486 (and as from April 1, 2020 pursuant to the decree n°2019-1590). See “Item
10.B - Limitations Affecting Shareholders of a French Company;”
a merger (i.e., in a French law context, a stock for stock exchange following which our company would be dissolved without being liquidated into the acquiring entity and
our shareholders would become shareholders of the acquiring entity) of our company into a company incorporated in the European Union would require the approval of our
board of directors as well as a two-thirds majority of the votes held (of the votes cast, as from our general meeting of shareholders' convened to vote on the financial
statements for the year ended December 31, 2019) by the shareholders present, represented by proxy or voting by mail at the relevant meeting;
a merger of our company into a company incorporated outside of the European Union would require the unanimous approval of our shareholders;
under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;
our shareholders have granted and may grant in the future our board of directors broad authorizations to increase our share capital or to issue additional ordinary shares or
other securities, such as warrants, to our shareholders, the public or qualified investors, including as a possible defense following the launching of a tender offer for our
shares;
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our shareholders have preferential subscription rights on a pro rata basis on the future issuance by us of any additional securities for cash or a set-off of cash debts, which
rights may only be waived by the extraordinary general shareholders’ meeting (by a two-thirds majority vote) of our shareholders or on an individual basis by each
shareholder;
our board of directors has the right to appoint directors to fill a vacancy created by the resignation or death of a director, for the remaining duration of such director’s term of
office and subject to the approval by the shareholders of such appointment at the next shareholders’ meeting, which prevents shareholders from having the sole right to fill
vacancies on our board of directors;
our board of directors can be convened by our chairman or our managing director, if any, or, when no board meeting has been held for more than two consecutive months,
by directors representing at least one third of the total number of directors;
our board of directors meetings can only be regularly held if at least half of the directors attend either physically or by way of videoconference or teleconference enabling
the directors’ identification and ensuring their effective participation in the board’s decisions;
our shares are nominative or bearer, if the legislation so permits, according to the shareholder’s choice;
approval of at least a majority of the votes held (of the votes cast, as from our general shareholders' meeting convened to vote on the financial statements for the year ended
December 31, 2019) by shareholders present, represented by a proxy, or voting by mail at the relevant ordinary shareholders’ general meeting is required to remove directors
with or without cause;
advance notice is required for nominations to the board of directors or for proposing matters to be acted upon at a shareholders’ meeting, except that a vote to remove and
replace a director can be proposed at any shareholders’ meeting without notice;
our bylaws can be changed in accordance with applicable laws;
the crossing of certain thresholds has to be disclosed and can impose certain obligations; see the section of this Annual Report titled “Item 10.B—Memorandum and Articles
of Association”;
transfers of shares shall comply with applicable insider trading rules and regulations and, in particular, with the Market Abuse Directive and Regulation dated April 16,
2014; and
pursuant to French law, the sections of our bylaws relating to the number of directors and election and removal of a director from office, may only be modified by a
resolution adopted by two-thirds of the votes held (of the votes cast, as from our general shareholders' meeting convened to vote on the financial statements for the year
ended December 31, 2019) by our shareholders present, represented by a proxy or voting by mail at the meeting.
Holders of our ADSs may not be able to exercise their right to vote the ordinary shares underlying such ADSs.
Holders of our ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the amended and restated deposit
agreement. The amended and restated deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the
determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall
distribute to the holders as of the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us and (2) a statement as to the manner in which instructions may be
given by the holders.
Holders of our ADSs may instruct the depositary of their ADSs to vote the ordinary shares underlying such ADSs. Otherwise, holders of our ADSs will not be able to exercise voting
rights unless they withdraw the ordinary shares underlying the ADSs they hold. However, a holder of our ADSs may not know about the meeting far enough in advance to withdraw those
ordinary shares. If we ask for a holder of our ADSs’ instructions, the depositary, upon timely notice from us, will notify him or her of the upcoming vote and arrange to deliver our voting
materials to him or her. We cannot guarantee to any holder of ADSs that he or she will receive the voting materials in time to ensure that he or she can instruct the depositary to vote his or
her ordinary shares or to withdraw his or her ordinary shares so that he or she can vote them directly. Pursuant to the terms of our amended deposit agreement, in certain situations if, in the
opinion of our management, the matter is not materially adverse to the interests of our shareholders, we may request that if the depositary does not receive timely voting instructions from
a holder of ADSs, the depositary may give a proxy to a person designated by us to vote, in its discretion, the ordinary shares underlying the unvoted ADSs, as long as the matter is
endorsed by our board. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This
means that a holder of ADSs may not be able to exercise his or her right to vote, and there may be nothing he or she can do if the ordinary shares underlying his or her ADSs are not voted
as he or she requested.
38
The right as a holder of ADSs to participate in any future preferential subscription rights or to elect to receive dividends in shares may be limited, which may cause dilution to the
holders of our ADSs.
Under French law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these securities on a pro rata basis unless they waive those
rights at an extraordinary meeting of our shareholders (by a two-thirds majority vote) or individually by each shareholder. However, our ADS holders in the United States will not be
entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements
is available. In addition, the amended and restated deposit agreement provides that the depositary will not make rights available to holders of our ADSs unless the distribution to ADS
holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. Further, if we offer holders of our
ordinary shares the option to receive dividends in either cash or shares, under the amended and restated deposit agreement the depositary may require satisfactory assurances from us that
extending the offer to holders of our ADSs does not require registration of any securities under the Securities Act before making the option available to holders of our ADSs. We are under
no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may
not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive
dividends in shares and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or
reasonably practicable, it will allow the rights to lapse, in which case holders of our ADSs will receive no value for these rights.
Holders of our ADSs may be subject to limitations on the transfer of such ADSs and the withdrawal of the underlying ordinary shares.
ADSs, which may be evidenced by ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems
expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the
depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of
the amended and restated deposit agreement, or for any other reason subject to an ADS holder’s right to cancel such ADSs and withdraw the underlying ordinary shares. Temporary delays
in the cancellation of such ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the
transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, a holder of ADSs may not be able to
cancel his or her ADSs and withdraw the underlying ordinary shares when he or she owes money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in
order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.
As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company. This
may limit the information available to holders of our ADSs or ordinary shares.
We are a foreign private issuer, as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to public companies
organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate
disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including
the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16
of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently make annual and semi-annual filings with respect to our
listing on Euronext Paris and expect to continue to file such reports, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S.
public companies and we are not required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there is less publicly available
information concerning our company than there would be if we were a U.S. domestic issuer.
As a foreign private issuer, we are permitted and we follow certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq’s
corporate governance standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance standards of the
Nasdaq Global Select Market.
As a foreign private issuer listed on the Nasdaq Global Select Market, we are subject to Nasdaq’s corporate governance standards. However, Nasdaq rules provide that foreign private
issuers are permitted to follow home country corporate governance practices in lieu of Nasdaq’s corporate governance standards as long as notification is provided to Nasdaq of the
intention to take advantage of such exemptions. We currently rely on exemptions for foreign private issuers and follow French corporate governance practices in lieu of Nasdaq’s corporate
governance standards, to the extent possible. Certain corporate governance practices in France, which is our home country, may differ significantly from Nasdaq corporate governance
standards. For example, as a French company, neither the corporate laws of France nor our bylaws require a majority of our directors to be independent and we can include non-
independent
39
directors as members of our remuneration committee, and our independent directors are not required to hold regularly scheduled meetings at which only independent directors are present.
We are also exempt from provisions set forth in Nasdaq rules which require an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than
one-third of the outstanding voting stock. Consistent with French law, our bylaws provide that a quorum requires the presence of shareholders having at least (1) 20% of the shares entitled
to vote in the case of an ordinary shareholders’ general meeting or at an extraordinary shareholders’ general meeting where shareholders are voting on a capital increase by capitalization
of reserves, profits or share premium, or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general meeting.
As a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Under French law, the audit
committee may only have an advisory role and appointment of our statutory auditors, in particular, must be decided by the shareholders at our annual meeting.
Therefore, our shareholders may be afforded less protection than they otherwise would have under Nasdaq’s corporate governance standards applicable to U.S. domestic issuers.
We are an “emerging growth company” under the JOBS Act and are able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which
could make our ADSs less attractive to investors.
We are an “emerging growth company,” as defined in the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the U.S. Securities Act of 1933, as amended, or the Securities Act, for complying with new
or revised accounting standards. We have elected not to take advantage of the extended transition period provided under Section 7(a)(2)(B) of the Securities Act for complying with new or
revised accounting standards. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the
requirements for our compliance as a private company and as a public company are the same.
We cannot predict if holders of our ADSs will find the ADSs less attractive because we may rely on these exemptions. If some holders find the ADSs less attractive as a result, there may
be a less active trading market for the ADSs and the price of the ADSs may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging
growth company. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more;
(ii) December 31, 2022, which is the last day of our fiscal year following the fifth anniversary of the date of the completion of our November 2017 global offering; (iii) the date on which
we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under the rules of the
SEC.
We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.
While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of our most recently completed second
fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2020. In the future, we would lose our foreign private issuer status if we fail to meet the
requirements necessary to maintain our foreign private issuer status as of the relevant determination date. We will remain a foreign private issuer until such time that more than 50% of our
outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (i) the majority of our executive officers or directors are U.S. citizens or
residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States.
The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer would likely be significantly more than costs we incur as a foreign private issuer. If we lost
our foreign private issuer status, we would be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and
extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S.
GAAP, rather than IFRS, and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial
statements to U.S. GAAP would involve significant time and cost. In addition, we would lose our ability to rely upon exemptions from certain corporate governance requirements on U.S.
stock exchanges that are available to foreign private issuers such as the ones described herein and exemptions from procedural requirements related to the solicitation of proxies.
40
U.S. holders of our ADSs or ordinary shares may suffer adverse tax consequences if we are characterized as a passive foreign investment company.
Based on the composition of our gross income and assets in 2018, the nature of our business and due to fluctuations in our stock price, we believe that we were characterized as a passive
foreign investment company, or PFIC, for our taxable year ending December 31, 2018. Based on the expected nature and composition of our gross income, assets, activities and market
capitalization for our taxable year ended December 31, 2019, we expect that we will be characterized as a PFIC for the taxable year ended December 31, 2019. There can be no assurance
that we will not be considered a PFIC for the current year or any future taxable year. A separate determination must be made after the close of each taxable year as to whether we are a
PFIC for that year. As a result, our PFIC status may change from year to year and we have not yet made any determination as to our expected PFIC status for the current year; however, if
the facts underlying our 2020 PFIC determination are similar to those for 2019, we could be a PFIC for our taxable year ending December 31, 2020. Our status as a PFIC will depend on
the composition of our income (including whether we receive certain non-refundable grants or subsidies and whether such amounts and reimbursements of certain refundable research tax
credits will constitute gross income for purposes of the PFIC income test) and the composition and value of our assets, which may be determined in large part by reference to the market
value of the ADSs and our ordinary shares, which may be volatile, from time to time. Our status may also depend, in part, on how quickly we utilize the cash proceeds from our global
offerings in our business. Our U.S. counsel expresses no opinion regarding our conclusions or our expectations regarding our PFIC status.
Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are
held for the production of passive income, including cash, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For
purposes of these tests, passive income includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which
are received from unrelated parties in connection with the active conduct of a trade or business. If we are characterized as a PFIC, U.S. holders of the ADSs may suffer adverse tax
consequences, including having gains realized on the sale of the ADSs treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received
on the ADSs by individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of sales of the ADSs. See “Item 10. E. Taxation—Material U.S.
Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”
If a U.S. holder is treated as owning at least 10% of our ADSs or ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. holder (as defined below under “Item 10. E. Taxation—Material U.S. Federal Income Tax Considerations”) is treated as owning (directly, indirectly or constructively) at least
10% of the value or voting power of our ADSs or ordinary shares, such U.S. holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation”
in our group (if any). Because our group includes at least one U.S. subsidiary (ERYTECH Pharma, Inc.), if we were to form or acquire any non-U.S. subsidiaries in the future, they may be
treated as controlled foreign corporations (regardless of whether ERYTECH Pharma, Inc. is treated as a controlled foreign corporation). A U.S. shareholder of a controlled foreign
corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in
U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a U.S. shareholder with respect to a controlled foreign corporation
generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. shareholder that is a U.S. corporation. We cannot provide any assurances that
we will assist investors in determining whether any non-U.S. subsidiaries that we may form or acquire in the future would be treated as a controlled foreign corporation or whether such
investor would be treated as a U.S. shareholder with respect to any of such controlled foreign corporations. Further, we cannot provide any assurances that we will furnish to any U.S.
shareholder the information that may be necessary to comply with the reporting and tax paying obligations discussed above. Failure to comply with these reporting and tax paying
obligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting
was due from starting. U.S. holders should consult their tax advisors regarding the potential application of these rules to their investment in our ordinary shares.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we experience additional
material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or
results of operations, which may adversely affect investor confidence in us and, as a result, the trading price of our ADSs or ordinary shares.
We have identified three material weaknesses in our internal control over financial reporting as of December 31, 2018, two of which have not been remediated as of December 31, 2019. A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our
financial statements will not be prevented or detected on a timely basis.
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If we are unable to remediate these material weaknesses, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal
controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value
of our securities.
In connection with the preparation of our financial results for the year ended December 31, 2018, our management concluded that, as of December 31, 2018, our internal control over
financial reporting was not effective as a result of three material weaknesses in our internal control over financial reporting related to: (i) the closing and consolidation process due to (a)
an inadequate segregation of duties and a lack of resources, which did not allow some tasks to be adequately reviewed and (b) a lack of a consolidation tool, which led to difficulties in
documenting an appropriate audit trail of entries made; (ii) the monitoring of research and development projects, as controls designed to track actual costs incurred against invoices
received were not operating at a sufficient level of precision due to insufficient personnel with an appropriate level of knowledge and training in internal control over complex processes;
and (iii) the lack of sufficiently developed and documented internal controls for our U.S. subsidiary.
We believe that the material weakness concerning the closing and consolidation process was fully remediated as of December 31, 2019 and that the remaining two material weaknesses
concerning (i) the monitoring of research and development projects and (ii) the lack of sufficiently developed and documented internal controls for our U.S. subsidiary were not fully
remediated as of December 31, 2019.
We plan to initiate the following remediation efforts focused on improving our internal control over financial reporting and to specifically address the control deficiencies that led to our
material weaknesses.
At the end of 2019, we hired a new staff accountant to ensure that the defined segregation of duties is also designed, implemented and maintained at an operational level.
These efforts we have and plan to continue to employ to remediate the weaknesses include the following:
•
•
•
•
reinforcement of our team dedicated to the monitoring of research and development projects for which process level control have not been considered as effective;
defining the segregation of duties that we wish to implement in our U.S. subsidiary;
strengthening the controls over our research and development financial information to detect and correct errors; and
designing, implementing and maintaining effective controls over certain information technology (“IT”) systems that are relevant to the preparation of the consolidated
financial statements, and in particular user access controls, to ensure that the defined segregation of duties is reflected in our IT systems used by our U.S. subsidiary.
We believe that these activities will further support the remediation of these material weaknesses. However, we cannot assure you that the measures we have taken to date, and actions we
may take in the future, will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or
avoid potential future material weaknesses. In addition, our independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting
in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had our independent registered public accounting firm performed an
evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we are
unable to successfully remediate our existing or any future material weaknesses in our internal control over financial reporting, or identify any additional material weaknesses, the
accuracy and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding timely filing of reports in
addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and the trading price of our ADSs or ordinary shares may decline as a
result.
If we fail to establish and maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
We are required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, or Section 404(a), to furnish a report by management on, among other things the effectiveness of our internal
control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial
reporting. In connection with the preparation of our financial results for the year ended December 31, 2019, we identified two material weaknesses in our internal control over financial
reporting. Our Management’s Report on Internal Control over Financial Reporting included in this Annual Report describes these material weaknesses and includes our conclusion that our
internal controls were not effective as of the end of the period covered by this Annual Report. While we have established certain procedures and control over our financial reporting
processes, including initiating remediation efforts with respect to the material weaknesses, we cannot assure you that these efforts will prevent restatements of our financial statements in
the future. Although Section 404(b) of the Sarbanes-Oxley Act, or Section 404(b), requires our independent registered public accounting firm to issue an annual report that addresses the
effectiveness of
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our internal control over financial reporting, we have opted to rely on the exemptions provided in the JOBS Act, and consequently will not be required to comply with SEC rules that
implement Section 404(b) until such time as we are no longer an EGC.
The presence of material weaknesses could result in financial statement errors which, in turn, could lead to errors in our financial reports, delays in our financial reporting, which could
require us to restate our operating results or our auditors may be required to issue a qualified audit report. We might not identify one or more material weaknesses in our internal controls in
connection with evaluating our compliance with Section 404(a). In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over
financial reporting, we will need to expend significant resources and provide significant management oversight. Implementing any appropriate changes to our internal control may require
specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and
divert management’s attention from other business concerns. These changes may not, however, be effective in achieving and maintaining the adequacy of our internal control.
If either we are unable to conclude that we have effective internal control over financial reporting, as is the case currently, or, at the appropriate time, our independent auditors are
unwilling or unable to provide us with an unqualified report on the effectiveness of our internal control over financial reporting as required by Section 404(b), investors may lose
confidence in the accuracy or completeness of our financial reports, the price of our ADSs or ordinary shares could decline and we may be subject to litigation, sanctions or investigations
by regulatory authorities, including the SEC and Nasdaq. Failure to remediate any material weakness in our internal control over financial reporting, or to maintain other effective control
systems required of public companies, could also restrict our future access to the capital markets. In addition, if we are unable to meet the requirements of Section 404, we may not be able
to remain listed on Nasdaq.
Item 4.
Information on the Company.
A. History and Development of the Company
Our legal and commercial name is ERYTECH Pharma S.A. We were incorporated as a société par actions simplifiée, or S.A.S., under the laws of the French Republic on October 26, 2004
and became a société anonyme, or S.A., on September 29, 2005. We are registered at the Register of Commerce and Companies of Lyon (Registre du commerce et des sociétés) under the
number 479 560 013. In April 2014, we incorporated our wholly-owned U.S. subsidiary, ERYTECH Pharma, Inc. In February 2016, we opened our U.S. office in Cambridge,
Massachusetts and in 2018, we entered into a lease agreement for a U.S. manufacturing facility in Princeton, New Jersey, United States, which has been operational since the fourth quarter
of 2019.
Our principal executive offices are located at 60 Avenue Rockefeller, 69008 Lyon, France. Our telephone number at our principal executive offices is +33 4 78 74 44 38. Our agent for
service of process in the United States is ERYTECH Pharma, Inc. Our website address is www.erytech.com. The reference to our website is an inactive textual reference only and
information contained in, or that can be accessed through, our website or any other website cited herein is not part of this Annual Report. The U.S. Securities and Exchange Commission
maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as ERYTECH, that file electronically with the
SEC. We expect our capital expenditures to increase in absolute terms in the near term as we continue to advance our research and development programs, prepare for commercialization,
if approved, and grow our operations. For the near future, these investments will be located in France where our corporate headquarters and our primary production facility are currently
located, and in the United States for our secondary production facility.
Our actual capital expenditures for the years ended December 31, 2017, 2018 and 2019 amounted to €1.7 million, €14.2 million and €12.1 million, respectively. These capital expenditures
were related primarily to the buildup of our fixed assets for our pharmaceutical facility and laboratory and to a lesser extent to the purchase of office and computer equipment. We do not
capitalize clinical research and development costs until we obtain marketing authorization for a product candidate.
B. Business Overview
We are a clinical-stage biopharmaceutical company developing innovative therapies for severe forms of cancer and orphan diseases. Leveraging our proprietary ERYCAPS platform,
which uses a novel technology to encapsulate therapeutic drug substances inside erythrocytes, or red blood cells, we are developing a pipeline of product candidates for patients with high
unmet medical needs. Our lead product candidate eryaspase, which we also refer to as GRASPA, targets the metabolism of cancer cells by depriving the cells of asparagine, an amino acid
necessary for their survival and critical in maintaining the cells’ rapid growth rate. We are currently developing eryaspase for the treatment of severe forms of cancer, including pancreatic
cancer and triple negative breast cancer, or TNBC.
In 2018, we initiated a pivotal Phase 3 clinical trial of eryaspase for the treatment of second-line pancreatic cancer patients. Patient enrollment in this trial, which we refer to as the
TRYbeCA-1 trial, began in September 2018 in Europe. The U.S. Food and Drug Administration, or FDA, approved our Investigational New Drug, or IND, application in May 2019, and
the TRYbeCA-1 trial opened for patient enrollment in the United States in October 2019. We plan to enroll approximately 500 patients at approximately 100
43
clinical sites in Europe and the United States (including approximately 20 sites in the United States). To date, we have obtained clinical trial authorizations in the United States and from
11 European countries and we are actively recruiting and open for patient enrollment at more than 65 clinical sites in Europe and in the United States. As of the end of February 2020,
more than two-thirds of the approximately 500 patients to be enrolled in the trial have been randomized.
We expect to report interim data from the TRYbeCA-1 trial in the third quarter of 2020. The trial will either continue toward a final analysis, expected in the first half of 2021 or will be
stopped for superiority if the primary endpoint is met by demonstrating a significant improvement in overall survival (OS). In the event the primary endpoint is met at the time of the
interim analysis, we intend to complete the full analysis of the trial results and proceed toward preparing both a Marketing Authorization Application, or MAA, and a Biologics License
Application, or BLA, for eryaspase in Europe and the United States, respectively.
We are supporting a proof-of-concept investigator-sponsored Phase 1 clinical trial evaluating the safety of eryaspase in combination with FOLFIRINOX for the treatment of first-line
pancreatic cancer patients in the second half of 2020, as well as in other indications of pancreatic cancer. Georgetown Lombardi Comprehensive Cancer Center, the sponsor of the trial, has
submitted an IND to the FDA.
We launched a proof-of-concept Phase 2 clinical trial in TNBC in Europe, which we refer to as the TRYbeCA-2 trial, in the fourth quarter of 2018. The trial is now open for enrollment in
four European countries and we announced enrollment of the first patient in June 2019. The primary endpoint is objective response rate. We expect to report final data from the TRYbeCA-
2 trial in 2021.
We are also supporting a Phase 2 clinical trial initiated and sponsored by investigators of the Nordic Society of Pediatric Hematology and Oncology, or NOPHO. This trial is evaluating
eryaspase in patients with acute lymphoblastic leukemia, or ALL, who experienced hypersensitivity reactions to pegylated L-asparaginase. We expect interim data from the NOPHO trial
to be available in the first half of 2020 and final results in the second half of 2020.
In addition to the encapsulation of L-asparaginase, we believe that our ERYCAPS platform has broad potential application and can be used to encapsulate a wide range of therapeutic
agents for which long-circulating therapeutic activity or rapid and specific targeting is desired. For example, we developed erymethionase, a preclinical product candidate which
encapsulates methionine-γ-lyase in red blood cells and is designed to target the amino acid metabolism of cancer cells and induce tumor starvation. We intend to continue to work on the
development of erymethionase as well as potential other therapeutic strategies based on methionine depletion, depending on financial resources and business strategy.
We have also developed two preclinical programs aimed at maximizing the value creation potential of our ERYCAPS program, which we believe may result in attractive partnering
opportunities: enzyme replacement (ERYZYME) and immune modulation (ERYMMUNE). As part of our value creation strategy, in June 2019, we entered into a collaboration with SQZ
Biotechnologies, a cell therapy company developing novel treatments in multiple therapeutic areas, to focus on the development of novel red blood cell-based therapeutics for the
treatment of immuno-oncology and tolerance induction.
Eryaspase—Our Lead Cancer Metabolism-Targeting Product Candidate
Eryaspase consists of the enzyme L-asparaginase encapsulated in red blood cells. L-asparaginase degrades asparagine, a naturally occurring amino acid. All cells in the body need
asparagine for their protein synthesis and growth. Normal cells are able to produce most of their asparagine requirements internally. Tumor cells, to ensure their aggressive growth, are
highly dependent on asparagine and often lack the enzymes necessary to produce sufficient asparagine internally. They therefore must obtain this nutrient from the asparagine that is
present in the circulation. While L-asparaginase has been used for decades as a cancer metabolism treatment in ALL, the toxicity profiles of current commercially available forms of non-
encapsulated, or free-form, L-asparaginases have generally limited their use to patients with good performance status, such as pediatric ALL patients. Encapsulation of L-asparaginase,
utilizing our proprietary ERYCAPS platform, is designed to prolong the activity and reduce the side effects of L-asparaginase, which we believe broadens the potential use of L-
asparaginase outside the pediatric ALL setting, including for the treatment of aggressive solid and liquid tumors. Eryaspase has been administered to more than 460 patients in clinical
trials and compassionate use programs to date. In our clinical trials for the treatment of pancreatic cancer and ALL, patients treated with eryaspase in combination with chemotherapy
achieved improvements in efficacy endpoints compared to standard of care chemotherapy or combinations of chemotherapy with native L-asparaginase. The treatment has generally been
well tolerated in these clinical trials.
We are currently developing eryaspase for the treatment of the following types of cancer:
Pancreatic Cancer – Ongoing TRYbeCA-1 Trial
Pancreatic cancer is a disease in which solid tumors form in the tissues of the pancreas. We estimate there are approximately 150,000 new cases of pancreatic cancer diagnosed each year
in the United States and Europe. Pancreatic cancer is a particularly aggressive cancer, with a five-year survival rate of less than 10%, and is one of the fastest growing cancer indications.
According to estimates published by the American Cancer Society, pancreatic cancer is currently the fourth largest cause of cancer deaths in the United
44
States. According to an article published in the scientific journal Cancer Research in 2014, pancreatic cancer is projected to surpass colon and breast cancer to become the second largest
cause of cancer deaths by 2030.
In September 2017, we announced the full results from our Phase 2b clinical trial of eryaspase combined with chemotherapy in 141 patients suffering from second-line metastatic
pancreatic cancer. Data demonstrated improvements in both overall survival (OS) and progression-free survival (PFS). The hazard ratio for OS in the entire patient population was 0.60
(nominal p-value = 0.008), meaning that treatment with eryaspase reduced the risk of death rate by 40% compared to treatment with chemotherapy alone. The PFS hazard ratio was 0.56
(nominal p-value = 0.011). We believe this clinical trial represents the first time an asparaginase-based therapy has been reported to have a survival benefit in a solid tumor indication. We
presented these results at the European Society for Medical Oncology, or ESMO, Congress in Madrid, Spain in September 2017 and the results from the trial were published in the
European Journal of Cancer in 2020.
Based on the feedback on trial design that we received from the FDA at our pre-IND meeting in October 2017 and from the CHMP in February 2018, we launched a pivotal Phase 3 clinical
trial of eryaspase for second-line metastatic pancreatic cancer in Europe in September 2018, which we refer to as the TRYbeCA-1 trial. Patient enrollment in this trial began in September 2018
in Europe and we received approval from the FDA of our IND application to extend the trial to the United States in May 2019. We plan to enroll approximately 500 patients at approximately
100 clinical sites in Europe and the United States (including approximately 20 sites in the United States). To date, we have obtained clinical trial authorizations in the United States and from 11
European countries and we are actively recruiting and open for patient enrollment at more than 65 clinical sites in Europe and in the United States. As of the end of February 2020, more than
two-thirds of the approximately 500 patients to be enrolled in the trial have been randomized.
In the TRYbeCA-1 trial, eligible patients are randomized 1-to-1 to receive eryaspase in combination with standard chemotherapy (gemcitabine/nab-paclitaxel or an irinotecan-based
regimen) or chemotherapy alone. The primary endpoint of the trial is overall survival. An interim efficacy analysis is planned for when approximately two-thirds of survival events have
occurred. The independent data monitoring committee, or IDMC, reviewed the safety data of the first 150 patients enrolled and treated in the TRYbeCA-1 trial. No safety issues were
identified and the IDMC recommended that we continue the trial as planned. We expect to report interim data from the TRYbeCA-1 trial in the third quarter of 2020. The trial will either
continue toward a final analysis, expected in the first half of 2021 or will be stopped for superiority if the primary endpoint is met by demonstrating a significant improvement in overall
survival (OS). In the event the primary endpoint is met at the time of the interim analysis, we intend to complete the full analysis of the trial results and proceed toward preparing both a
MAA and a BLA for eryaspase in Europe and the United States, respectively.
Also in pancreatic cancer, we are supporting a proof-of-concept investigator-sponsored Phase 1 clinical trial evaluating the safety of eryaspase in combination with FOLFIRINOX for the
treatment of first-line pancreatic cancer patients in the second half of 2020, as well as in other indications of pancreatic cancer. Georgetown Lombardi Comprehensive Cancer Center, the
sponsor of the trial, has submitted an IND to the FDA.
With this in mind, we have also initiated further preclinical work to assess the combinability of eryaspase with other compounds used in the treatment of first-line pancreatic cancer
patients. We retain worldwide rights to commercialize eryaspase for the pancreatic cancer indication.
Triple Negative Breast Cancer – Planned TRYbeCA-2 Trial
Following the results with eryaspase in the proposed treatment of second-line metastatic pancreatic cancer, we conducted a comprehensive evaluation to determine other potential solid
tumor indications for developing eryaspase and selected metastatic TNBC to evaluate as the next indication to potentially expand the use of eryaspase. TNBC is an aggressive and
metabolically active form of breast cancer with high rates of symptomatic metastases. TNBC cells lack expression of estrogen receptor, progesterone receptor and do not overexpress a
protein called human epidermal growth factor receptor 2 (HER2). The authors of a September 2017 article in the scientific journal The Oncologist estimate that approximately 10% to 20%
of the 600,000 breast cancers that are diagnosed each year in the United States and Europe in aggregate are classified as TNBC. As commonly utilized hormone therapy and HER2
targeting agents are not treatment options for women with TNBC, there is significant unmet need for novel therapeutic approaches in this subtype of breast cancer. At the end of 2018, we
launched a proof-of-concept Phase 2 clinical trial in TNBC in Europe, which we refer to as the TRYbeCA-2 trial. We will evaluate eryaspase in combination with gemcitabine and
carboplatine chemotherapy, compared to chemotherapy alone, in approximately 64 patients, with previously untreated metastatic TNBC. The trial is now open for enrollment in four
European countries and we announced enrollment of the first patient in June 2019 in Spain. As of December 31, 2019, 11 patients were enrolled in Europe for the TRYbeCA-2 trial. The
primary endpoint is objective response rate. The main secondary endpoints include progression-free survival, metabolic response, safety and biomarkers. We expect to report final data
from the TRYbeCA-2 trial in 2021.
45
Other Oncology Indications
In addition to the ongoing clinical developments in pancreatic cancer and TNBC, we are evaluating opportunities to potentially broaden the scope of eryaspase to other oncology
indications.
Acute Lymphoblastic Leukemia
We started the development of eryaspase in acute lymphoblastic leukemia, or ALL, in 2005 with a Phase 1 clinical trial in patients with relapsed and refractory ALL. The clinical trial was
completed in 2009. We also completed a Phase 2 study in elderly patients with ALL in 2010. In 2014, we completed a multi-center, open-label pivotal Phase 2/3 clinical trial in 80 children
and adults with relapsed or refractory ALL in which we evaluated the safety and efficacy of GRASPA compared to free-form L-asparaginase derived from the bacteria E. coli, also known
as native L-asparaginase. In this European trial, patients without a history of allergies to native L-asparaginase treatments were randomized to receive standard chemotherapy plus either
GRASPA or native L-asparaginase. Patients with a known allergy to native L-asparaginase treatments were treated with standard chemotherapy plus GRASPA. The patients treated with
GRASPA experienced a mean duration of L-asparaginase activity that was more than twice as long as for patients receiving native L-asparaginase. None of the non-allergic patients who
received GRASPA experienced an allergic reaction, compared to 46% of non-allergic patients who received native L-asparaginase. Only 11.5% of patients with a prior L-asparaginase
allergy experienced a new allergic reaction after receiving GRASPA, with no patients in the trial experiencing a severe allergic reaction. Patients in the GRASPA treatment arm also had
overall higher complete remission rates during induction, and GRASPA was also associated with fewer drug-related adverse events. After three years of follow-up, a nominal improvement
in overall survival rates was observed.
In the United States, we have completed a Phase 1 dose escalation trial of eryaspase as a potential first-line treatment for adult ALL patients and have determined a recommended dose of
eryaspase (100 U per kilogram) for evaluation in Phase 3 clinical trials in September 2017.
Although we ceased clinical development efforts in ALL in 2018, an investigator-sponsored trial, initiated in 2017 by NOPHO is still ongoing. The Phase 2 clinical trial was expected to
enroll approximately 30 patients at 22 sites across seven Nordic and Baltic countries. The clinical trial protocol was amended in 2019 to increase the number of patients to be recruited up
to 50 patients. The main objectives of this trial are to evaluate the pharmacokinetic and pharmacodynamic activity, safety and immunogenicity profile of eryaspase in combination with
NOPHO’s multi-agent chemotherapy protocol for ALL, administered as second-intention treatment for children or adult ALL patients, one year to 45 years of age, who experience
hypersensitivity reactions to PEG-asparaginase or silent inactivation. We expect interim data from the NOPHO trial to be available in the first half of 2020 and final results in the second
half of 2020.
Our Additional ERYCAPS Product Candidates
In addition to eryaspase, our product candidate based on L-asparaginase treatment, we believe that our ERYCAPS platform has broad potential application and can be used to encapsulate
within red blood cells a wide range of therapeutic agents for which long-circulating therapeutic activity or rapid and specific targeting is desired.
•
•
•
Cancer Metabolism. In addition to the development of eryaspase, we developed erymethionase, a preclinical product candidate which encapsulates methionine-γ-lyase in
red blood cells and is designed to target the amino acid metabolism of cancer cells and induce tumor starvation. We intend to continue to work on the development of
erymethionase as well as potential other therapeutic strategies based on methionine depletion, depending on financial resources and business strategy.
Enzyme Replacement. Outside of the oncology field, we also are studying the use of our ERYCAPS platform to promote long-acting enzyme activity, which we believe
may result in attractive partnering opportunities for the development of enzyme therapies in the field of metabolic diseases. We refer to this program under the name
ERYZYME. We believe that encapsulation of the therapeutic enzymes may reduce the potential for allergic reactions and allow the therapeutic substance to remain in the
body longer when compared to non-encapsulated enzymes.
Immunotherapy. We have also initiated ERYMMUNE, a preclinical development program designed to explore the use of our ERYCAPS platform to encapsulate tumor
antigens or adjuvants within red blood cells as an innovative approach to cancer immunotherapy. Based on our preclinical research, we believe that encapsulated tumor
antigens can be targeted to key organs, such as the spleen, in order to induce an immune response, resulting in sustained activation of the body’s immune system to fight
cancers. Preclinical proof-of-concept studies of ERYMMUNE are ongoing. As part of our value creation strategy, in June 2019, we entered into a collaboration with SQZ
Biotechnologies, a cell therapy company developing novel treatments in multiple therapeutic areas, to focus on the development of novel red blood cell-based therapeutics
for the treatment of immuno-oncology and tolerance induction.
46
Corporate Information
We were incorporated in 2004. In May 2013, we completed the initial public offering of our ordinary shares on Euronext Paris. In November 2017, we completed a global public offering,
consisting of a U.S. initial public offering of American Depositary Shares, or ADSs, each representing one ordinary share, and a concurrent private placement in Europe and other
countries outside of the United States and Canada of our ordinary shares. Our ordinary shares are listed on Euronext Paris under the ticker symbol “ERYP” and our ADSs are listed on the
Nasdaq Global Select Market under the symbol “ERYP.”
Our Strategy
Our mission is to help patients live better, longer. Our vision is to be the leader in red blood-cell based therapeutics to treat severe forms of cancer and orphan diseases. The key elements
of our strategy to achieve this goal include the following:
•
•
•
•
Rapidly advance the clinical development of eryaspase for the treatment of pancreatic cancer. Following positive Phase 2b clinical trial results with eryaspase in second-
line treatment of metastatic pancreatic cancer, we launched the TRYbeCA-1 trial, a pivotal Phase 3 clinical trial of eryaspase for second-line metastatic pancreatic cancer in
Europe and in the United States. Patient enrollment began in Europe in September 2018 and we extended the trial to the United States in May 2019 where the first sites are
opened to allow for patient recruitment. The Phase 3 clinical trial aims to evaluate eryaspase in combination with standard chemotherapy, compared to standard
chemotherapy alone, in approximately 500 patients at approximately 100 clinical sites in Europe and the United States (including approximately 20 sites in the United
States). The primary endpoint is overall survival.
Develop eryaspase for the treatment of other solid tumor indications, including triple negative breast cancer. Based on the results of scientific publications and preclinical
studies as well as our clinical trials to date, we believe that targeting the asparagine metabolism of cancer cells could potentially slow down or halt the growth of different
tumor types. Based on these results, we are planning to conduct other clinical trials and to seek regulatory authorizations for eryaspase for the treatment of selected solid
tumor indications beyond pancreatic cancer. In February 2018, we announced the selection of TNBC as the next target indication for expanding the potential treatment scope
of eryaspase. We launched a Phase 2 proof-of-concept clinical trial for this indication in the fourth quarter of 2018 in Europe. The trial is now open for enrollment in four
European countries. The primary endpoint is objective response rate.
Leverage our ERYCAPS platform to develop additional innovative and novel red blood-cell based therapeutics targeting cancer and orphan diseases. In addition to
encapsulating L-asparaginase, the active ingredient in eryaspase, we plan to leverage the broad applicability of our ERYCAPS platform to develop additional product
candidates that use other therapeutic drug substances. We developed at a preclinical stage erymethionase, methionine-γ-lyase, or MGL, encapsulated in red blood cells, to
target the amino acid metabolism of cancer cells and induce tumor starvation. We also intend to continue to work on the development of potential other therapeutic strategies
based on our methionine depletion program in the future, subject to future financial resources and business strategy but are not currently devoting significant financial
resources due to other strategic priorities.
We are also evaluating other cancer metabolism targeting enzymes such as arginine-deiminase. In addition to our developments in cancer metabolism, we also plan to
expand our product pipeline to include other therapeutic approaches such as cancer immunotherapy (ERYMMUNE) and enzyme replacement therapies (ERYZYME) for
metabolic diseases in view of potentially establishing partnering options. To support this strategy, we intend to continue to seek robust worldwide intellectual property
protection for our ERYCAPS platform and our resulting product candidates.
Execute on research and development and commercialization opportunities that maximize the value of our proprietary ERYCAPS platform. We seek to maximize
shareholder value from our proprietary platform technology through a combination of in-house development and well-selected partnering opportunities. In some instances,
we may elect to continue development and commercialization activities through the expansion of our in-house capabilities, but we will also evaluate and pursue
collaborative arrangements with third parties for the development and distribution of our product candidates for specified indications and in specified territories where
appropriate. For example, in June 2019, we entered into a collaboration with SQZ Biotechnologies for the ERYMMUNE program.
We may also explore co-development or out-licenses of our platform technology to third parties and the creation of spin-out companies. As we move our product candidates
through development toward regulatory approval in the United States and Europe, we will evaluate several options for each product candidate’s commercialization strategy.
These options include building our own internal sales force and distribution units or entering into collaborations with third parties for the distribution and marketing of any
approved products.
47
Our ERYCAPS Platform Technology
Our ERYCAPS platform uses our proprietary technology to entrap active drug substances inside red blood cells using reversible hypotonic and hypertonic osmotic stress. Our platform
technology uses transfusion-grade, standard packed red blood cells of all four blood groups (O, A, B and AB) from blood donors with a specific blood type which we obtain from blood
banks. We match the red blood cells used to the blood type of the patient receiving treatment. To allow the therapeutic compounds to enter into the red blood cells, we subject the red blood
cells to a hypotonic solution. This causes swelling of cells and opening of pores in the cellular membrane. At this time, therapeutic molecules can enter the red blood cells. Once the
desired concentration of molecules is reached inside the red blood cells, we subject the red blood cells to a hypertonic solution to restore the osmotic pressure to normal. This step causes
water to flow out of the cell and the pores to close, rendering the cellular membrane impermeable to molecules above a specific size, including the molecules that have been trapped inside
the cell.
The extent to which a red blood cell can swell, known as osmotic fragility, is not uniform and varies between packages of red blood cells. When we obtain a package of red blood cells
from a blood bank, we measure a number of key hematological parameters, including the osmotic fragility of the particular sample. Based on the level of osmotic fragility measured, we
are able to calculate the specific amount of osmotic pressure to apply in order to achieve the desired concentration of drug substance in each production batch. This patent-protected
process allows us to reduce variations in the amount of drug substance to be encapsulated, which ensures that quantifiable amounts of drug substance can be captured in each batch. Our
expertise in understanding osmotic fragility and optimizing the red blood cell encapsulation parameters is the cornerstone of our proprietary ERYCAPS platform.
We believe that our ERYCAPS platform technology is an innovative approach that offers several key potential benefits:
•
•
•
•
•
Prolonged duration of activity. Red blood cells are biocompatible carriers that have a half-life of approximately one month in the body, and this duration of activity appears
not to be significantly affected by our proprietary encapsulation process. This long half-life, coupled with the protection from the cellular membrane, allows encapsulated
therapeutic drug substances to remain in the body longer, thereby increasing the duration of their therapeutic activity and their potential efficacy with lower dosages and
fewer injections. In the case of L-asparaginase, encapsulation of red blood cells has been shown in our clinical trials to extend the half-life of free-form L-asparaginase from
one day to approximately two to three weeks.
Decreased risk of side effects. The red blood cell membrane protects the body from toxicities associated with the trapped drug substance, which reduces the potential for
adverse side effects from the drug.
High reproducibility with rapid turnaround on commercial scale. Our encapsulation process is automated and is designed to produce batches of loaded red blood cells in a
highly reproducible, reliable and rapid manner. At our cGMP-certified production facilities, the process for delivering eryaspase to patients typically takes approximately 24
hours from the start of production to delivery of the product candidate to the hospital. We have produced over 3,350 bags of eryaspase to date for use in clinical trials, and
we estimate our current production facilities, including our expanded Lyon facilities and our newly constructed U.S. facility in Princeton, New Jersey, which has been
operational since the fourth quarter of 2019 will be sufficient to establish supply for our ongoing Phase 2 and Phase 3 clinical trials, as well as anticipated initial commercial
needs of eryaspase, if we receive the appropriate marketing authorizations.
Stability and ease of administration. After manufacturing and release of the product, eryaspase has shown to remain stable for five days in refrigeration followed by six
hours at room temperature. This allows efficient transportation to the hospitals where the patients are treated, as well as flexibility in the timing of the administration to the
patients.
Broad applicability. Our initial efforts have focused on encapsulating enzymes, such as L-asparaginase, that deplete nutrients necessary for the growth and proliferation of
tumor cells, resulting in their starvation and death. Based on our preclinical studies and clinical experience to date, we believe that a variety of additional therapeutic
molecules can be encapsulated within red blood cells to induce tumor starvation, both for blood cancers and solid tumors, and to develop cancer immunotherapies and
enzyme replacement therapies.
Our intellectual property portfolio contains issued patents and patent applications in the United States and foreign countries, including 15 patent families directed to our production
process, our ERYCAPS® platform, our product candidates, methods of use and/or treatment, and related diagnostic tests. Our core patent covers eryaspase in the United States until the
end of 2029, with potential extension to the end of 2034, and in Europe until 2025, with a potential extension to 2030. We have exclusively in-licensed one patent family from Radboud
University in the Netherlands relating to synergistic combinations of amino acid depletion agents.
We maintain a cGMP-certified production facility in Lyon, France that we believe will be sufficient to supply our ongoing clinical trials and initial commercial requirements in Europe. In
the fourth quarter of 2019, we started manufacturing GMP-compliant batches out of our manufacturing facility in Princeton, New Jersey. This manufacturing facility was designed with the
ability to scale
48
production to supply eryaspase to meet our anticipated clinical trial needs, including for supply requirements for U.S. patients in the TRYbeCA-1 trial, and for our anticipated initial
commercial needs in the United States if eryaspase is approved. In connection with the transition to our Princeton facility, we closed our small production facility in Philadelphia,
Pennsylvania in January 2020. We believe our production facilities will be sufficient to supply eryaspase for our ongoing Phase 2 and Phase 3 clinical trials and for our anticipated initial
commercial needs of eryaspase, if we receive the appropriate marketing authorizations.
Our Pipeline
Our Lead Product Candidate Eryaspase—A Unique Approach to Cancer Treatment
Eryaspase, our first product candidate developed using our proprietary ERYCAPS platform consists of the enzyme L-asparaginase encapsulated inside erythrocytes, or red blood cells. L-
asparaginase breaks down asparagine, a naturally occurring amino acid, into L-aspartic acid and ammonia. Asparagine is produced by healthy cells in the body for their own use in protein
synthesis. Cancer cells also need asparagine to grow and proliferate, even more than normal cells, but most cancer cells cannot produce enough asparagine and must rely on circulating
asparagine to survive. Injection of L-asparaginase, either by intravenous or intramuscular modes of administration, can lower asparagine levels throughout the body, thereby depriving
cancer cells of a key nutrient and causing them to starve and ultimately die. The use of L-asparaginase to deplete asparagine is a well-established treatment for ALL patients, and in
particular, pediatric ALL patients. However, important side effects including allergies, coagulation disorders, pancreatic and hepatic toxicities can limit treatment compliance, particularly
in adults, limiting the potential use of current, non-encapsulated L-asparaginases beyond ALL. We believe that encapsulating L-asparaginase in red blood cells holds the potential to
expand the population of cancer patients that may be treated with L-asparaginase, and in particular, to patients suffering from aggressive solid tumors.
49
Eryaspase is administered by intravenous infusion. Once administered, the red blood cells containing L-asparaginase circulate in the bloodstream and remove asparagine mainly through a
mechanism of active transportation of asparagine into the red blood cells. Active transporters for asparagine are present in the membrane of red blood cells. They cause normal red blood
cells to contain two to three times more asparagine within the cell than in the surrounding plasma. When L-asparaginase is encapsulated in the red blood cells, it causes the inner
concentration of asparagine to decrease, which activates the natural mechanism of the red blood cell to draw asparagine circulating in the blood plasma into the red blood cell. This
asparagine is rapidly degraded inside the red blood cells as well. When maintained long enough, this pumping and degradation activity leads to a systemic depletion of asparagine levels in
the bloodstream without releasing L-asparaginase into the bloodstream. The red blood cell membrane also protects the encapsulated L-asparaginase from antibodies present in the patient’s
blood that would substantially lessen or neutralize the enzyme’s activity or cause allergic reactions. As a result, the enzyme can remain active and potentially effective in the red blood cell
for a longer period of time, while at the same time reducing the potential for toxicity and related side effects. Our research indicates that the encapsulation process does not significantly
alter the life span of the red blood cell.
The following diagram illustrates the main mode of action of eryaspase:
50
Clinical Development of Eryaspase (GRASPA)
The table below sets forth summary information regarding our clinical trials of eryaspase conducted to date.
COMPLETED CLINICAL TRIALS
TRIAL
REFERENCE
PHASE
Metastatic Pancreatic Cancer
GRASPANC
2b
2013-03
141
18+
Second-line patients
with metastatic
pancreatic
adenocarcinoma
1
GRASPANC 2008-
12
18+
Second-line
02
# OF
PATIENTS*
AGE
INDICATION
PRIMARY
ENDPOINTS
DOSE
REGION
DESIGN
• Efficacy (progression-
free survival or overall
survival) and safety of
eryaspase in
combination with
chemotherapy
• Determination of the
maximum tolerated dose
(MTD) and
recommended Phase 2
dose
100 U/kg
EU
Randomized, open
label, controlled
EU
Non- randomized,
open label
25 /
50 /
100 /
150
U/kg
Acute Lymphoblastic Leukemia
2/3
GRASPALL 2009-
80
06
1 to 55
Relapsed/refractory
• Mean duration (days) of
ASNase activity >100
U/L
150 U/
kg
EU
Randomized,
open label
2a
GRAALL SA2-
30
55+
First-line
2008
• Incidence of allergic
reactions (induction
phase)
• Efficacy and safety of
eryaspase with
combination therapy and
determination of the
MTD in elderly
1/2
GRASPALL 2005-
24
1 to 55
Relapsed/refractory
• Determination of the
01
1/2
GRASPALL 2012-
14
18+
First-line
09
MTD and recommended
Phase 2 dose
• Determination of the
MTD and recommended
Phase 3 dose
EU
Non-randomized,
open label
EU
Randomized, open
label
US
Non-
randomized,
open label
50 /
100 /
150 U/kg
50 /
100 /
150 U/
kg
50 /
100 /
150 /
200 U/
kg
1
GRASPALL 2012-
18
Up to 55
At risk - all lines
• Safety of eryaspase in
combination with
polychemotherapy
150 U/kg
EU
Non-randomized,
open label
10-EAP
Acute Myeloid Leukemia
2b
ENFORCE 1
123
65 to 85
First-line, unfit
• Overall survival
100 U/ kg
EU
Multicenter, open
label, randomized,
controlled
51
ONGOING CLINICAL TRIALS
PHASE
Solid Tumors
3
2
TRYbeCA-1
482
18+
TRYbeCA-2
64
18+
Acute Lymphoblastic Leukemia
2
NOPHO
50
1 to 45
*
Number of patients planned/enrolled.
TRIAL
REFERENCE
# OF
PATIENTS*
AGE
INDICATION
PRIMARY
ENDPOINTS
DOSE
REGION
DESIGN
Second-line patients
with metastatic
pancreatic
adenocarcinoma
Metastatic or locally
recurrent Triple-
Negative Breast Cancer
/ 1st line
• Overall survival
100 U/kg
EU/US
• Objective response rate
100 U/kg
EU
determined by an
independent radiological
review
Second-line post PEG-
asparaginase
• PK / PD, safety and
immunogenicity
150 U/kg
EU
Open label,
randomized
Open label,
randomized 1:1
(chemotherapy ±
eryaspase)
Single arm, open
label
Eryaspase for the Treatment of Pancreatic Cancer and Other Solid Tumors
Researchers have investigated the potential to target asparagine metabolism in solid tumor indications, and based on the observation that many solid tumors, like lymphoblasts, lack the
asparagine synthetase, or ASNS, enzyme, a rationale for the use of asparaginase in solid tumors exists. L-asparaginase has been shown to have growth inhibitory effects in different solid
tumor cell lines and in xenograft models. The toxicity profile of existing asparaginase products has, however, been prohibitive for their use in patients. Historically, Phase 1 clinical trials
conducted by researchers have been modified or halted because of excess toxicity.
We selected pancreatic cancer as the first solid tumor indication for clinical development of eryaspase based on preclinical findings, the metabolic activity of pancreatic cancer cells and
the unmet medical need. After completion of a Phase 1 clinical trial, which we believe is the first Phase 1 clinical trial with an asparaginase-based product candidate to show an acceptable
safety profile, we commenced a Phase 2b clinical trial of eryaspase combined with chemotherapy in 141 patients suffering from second-line metastatic pancreatic cancer in 2014. In March
2017, we reported top-line results of the study showing improvement in overall and progression-free survival rates for patients treated with eryaspase in combination with chemotherapy as
compared to treatment with eryaspase alone. The hazard ratio for overall survival in the entire patient population was 0.60 (nominal p-value = 0.008), meaning that treatment with
eryaspase reduced the risk of death rate by 40% compared to treatment with chemotherapy alone. We presented the full results of this trial at the ESMO Congress in Madrid, Spain in
September 2017. We believe this clinical trial represents the first time an asparaginase-based therapy has been reported to have a survival benefit in a solid tumor indication. This trial
forms the basis for our strategy to explore the further development of eryaspase for the treatment of pancreatic cancer and other solid tumor indications. Subsequently, we launched a
pivotal Phase 3 clinical trial of eryaspase for second-line metastatic pancreatic cancer, which we refer to as the TRYbeCA-1 trial. Patient enrollment for the TRYbeCA-1 trial commenced
in September 2018 in Europe and after receipt of IND approval from the FDA, we have established clinical sites in the United States which are open for patient enrollment. We plan to
enroll approximately 500 patients at approximately 100 clinical sites in Europe and the United States (including approximately 20 sites in the United States). To date, we have obtained
clinical trial authorizations in the United States and from 11 European countries and we are actively recruiting and open for patient enrollment at more than 65 clinical sites in Europe and
in the United States. As of the end of February 2020, more than two-thirds of the approximately 500 patients to be enrolled in the trial have been randomized. We expect to report interim
data from the TRYbeCA-1 trial in the third quarter of 2020. The trial will either continue toward a final analysis, expected in the first half of 2021 or will be stopped for superiority if the
primary endpoint is met by demonstrating a significant improvement in overall survival (OS). In the event the primary endpoint is met at the time of the interim analysis, we intend to
complete the full analysis of the trial results and proceed toward preparing both a MAA and a BLA for eryaspase in Europe and the United States, respectively.
52
Background and Potential for L-asparaginase as a Treatment for Pancreatic Cancer
We estimate there are approximately 150,000 new cases of pancreatic cancer diagnosed each year in Europe and the United States. Pancreatic cancer is a particularly aggressive cancer,
with a five-year survival rate of less than 10%, and is one of the fastest growing cancer indications. According to estimates published by the American Cancer Society, pancreatic cancer is
currently the fourth largest cause of cancer deaths in the United States. According to an article published in the scientific journal Cancer Research in 2014, pancreatic cancer is projected
to surpass colon and breast cancer to become the second largest cause of cancer deaths by 2030. The following table summarizes the number of estimated cases and deaths in the United
States in 2017 and 2030 in various solid tumor indications, as well as the five-year survival rate of each type of cancer for the years 2006 through 2012.
INDICATION
Lung and bronchus
Pancreas
Liver
Colon and rectum
Breast
Prostate
Bladder
Brain and other nervous system
Oesophagus
Kidney
Ovary
(1)
Refers to female survival rate.
CASES (U.S., IN
THOUSANDS)
DEATHS (U.S., IN
THOUSANDS)
2017
2030
2017
2030
223
54
41
135
255
161
79
24
17
64
22
225
88
83
114
294
228
113
N/A
N/A
69
N/A
156
43
29
50
41
27
17
17
16
14
14
5-YEAR
SURVIVAL
RATE
19%
9
18
66
91(1)
99
79
35
21
75
46
156
63
51
47
37
24
22
17
17
16
14
Completed Phase 1 Clinical Trial of Eryaspase for the Treatment of Pancreatic Cancer
In 2011, we completed an open-label Phase 1 clinical trial in 12 patients with pancreatic cancer at four sites in France. The enrolled patients were separated into four cohorts of three
subjects each. Eryaspase was administered as one injection of four different doses, 25 Units, or U, per kilogram, 50 U per kilogram, 100 U per kilogram or 150 U per kilogram. The
primary endpoint of the trial was the determination of the maximum tolerated dose. Secondary endpoints included assessments of safety and exploratory measures of efficacy. No dose-
limiting toxicities were reported, even at the highest dose administered in the trial.
Phase 2b Clinical Trial for Eryaspase for the Treatment of Second-Line Metastatic Pancreatic Cancer
In 2014, we commenced a multi-center, open-label, randomized Phase 2b clinical trial to evaluate the efficacy of eryaspase as a second-line treatment for patients with metastatic
pancreatic cancer. The trial was conducted at 16 sites in France and performed in collaboration with the Groupe Coopérateur Multidisciplinaire en Oncologie. Professor Pascal Hammel, a
gastroenterologist-oncologist at Beaujon Hospital in Paris, was the principal investigator of the trial. The original recruitment objective was 90 patients. In February 2016, we elected to
continue to enroll patients to increase the statistical power of the trial. In September 2016, we completed enrollment of 141 patients in this trial. In March 2017, we reported positive top-
line results from this trial, which also included three data safety monitoring board, or DSMB, safety reviews. In September 2017, we presented the full results of this trial at the ESMO
Congress in Madrid, Spain and the results of the trial were published in the European Journal of Cancer in November 2019.
Trial Design
In this trial, patients in the active arm were treated with eryaspase in addition to the current standard of chemotherapy, consisting of either gemcitabine or FOLFOX, depending on which
treatment the patient had received as first-line therapy. Patients in the control arm were patients treated with chemotherapy alone. Patients were randomized at a 2:1 ratio. Prior to enrolling
each patient in this trial, we used a diagnostic test to assess the level of ASNS expression in such patient’s cancer cells. We included both patients with no or low ASNS expression levels
and patients with normal or high ASNS expression levels in the trial.
53
Endpoints
The co-primary endpoints of the Phase 2b clinical trial were progression-free survival, or PFS, and overall survival, or OS, rates, as measured by the hazard ratio, or HR, for the patients
that were enrolled with no or low ASNS expression levels. The HR represents the chance of events occurring in the treatment arm relative to the chance of events occurring in the control
arm. An HR of one means that there is no difference in survival between the two groups, while an HR of greater than one or less than one means that survival was better in one of the
groups. The outcome of the trial would be considered positive if the HR was below 0.85 for the low or no ASNS expression group, irrespective of statistical significance. The secondary
endpoints of the clinical trial included overall progression-free survival and overall survival rates, as measured by HR, in the entire patient population and for the patients enrolled with
normal or high ASNS expression levels, as well as objective response rates and safety outcomes.
Efficacy Results
The primary objectives of the trial were met, with an overall survival HR of 0.65 and a progression-free survival HR of 0.72 in the patient population with no or low ASNS expression
levels. This sub-group of the patient population constituted approximately 70% of the trial population. There was also an overall survival benefit in the entire patient population, with a
statistically significant overall survival HR of 0.60 (nominal p-value = 0.008), meaning that a reduction in risk of death rate of 40% was observed. The graph below shows the Kaplan-
Meier overall survival curve of the trial in the entire patient population. A Kaplan-Meier plot is a graphical statistical method commonly used to describe survival characteristics. Similar
results were observed for progression-free survival.
The baseline characteristics and demographics in the patient population were balanced, and overall survival and progression-free survival results appeared to be consistent across different
sub-groups, including age, gender and prior treatment.
An unexpected finding from these results was that the ASNS expression level in the patients did not appear to be predictive of treatment efficacy. However, the ASNS expression level
does appear to be a prognostic factor. Patients with high ASNS expression levels appear to have a worse prognosis, and their relative response to eryaspase seems to be relatively higher in
this group than the patients with no, low or normal ASNS expression levels. Based on this finding, we believe future clinical trials may be conducted in the entire patient population,
independent of ASNS expression levels.
Ongoing – TRYbeCA-1 Trial
Following our positive Phase 2b clinical trial results, we launched TRYbeCA-1, a pivotal Phase 3 clinical trial of eryaspase for second-line metastatic pancreatic cancer. The TRYbeCA-1
trial is evaluating eryaspase in combination with standard chemotherapy, compared to standard chemotherapy (gemcitabine/nab-paclitaxel or an irinotecan-based regimen) alone, in
approximately 500 patients at approximately 100 clinical sites in Europe and the United States (including approximately 20 sites in the United States). Patients who meet the eligibility
criteria are randomized 1-to-1 to receive eryaspase in combination with standard chemotherapy (gemcitabine/abraxane or irinotecan-based regimen) or chemotherapy alone until disease
progression. The primary endpoint is overall
54
survival. The main secondary endpoints include progression-free survival, objective response rate, disease control rate, quality of life and safety. Patient enrollment in this trial, which we
refer to as the TRYbeCA-1 trial, began in September 2018 in Europe and we received the acceptance by the FDA of our IND application to extend the trial to the United States in May
2019. To date, we have obtained clinical trial authorizations in the United States and from 11 European countries and we are actively recruiting and open for patient enrollment at more
than 65 clinical sites in Europe and in the United States. As of the end of February 2020, more than two-thirds of the approximately 500 patients to be enrolled in the trial have been
randomized.
We expect to conduct an interim analysis when approximately two-thirds of overall survival events (i.e. two-thirds of the number of deaths required to make the final analysis of the
overall survival in the trial) have occurred. The IDMC reviewed the safety data of the first 150 patients enrolled and treated in the TRYbeCA-1 trial. No safety issues were identified and
the IDMC recommended that we continue the trial as planned. We expect to report interim data from the TRYbeCA-1 trial in the third quarter of 2020. The trial will either continue toward
a final analysis, expected in the first half of 2021 or will be stopped for superiority if the primary endpoint is met by demonstrating a significant improvement in overall survival (OS). In
the event the primary endpoint is met at the time of the interim analysis, we intend to complete the full analysis of the trial results and proceed toward preparing both a MAA and a BLA
for eryaspase in Europe and the United States, respectively.
Next Steps in Pancreatic Cancer
We are supporting a proof-of-concept investigator-sponsored Phase 1 clinical trial evaluating the safety of eryaspase in combination with FOLFIRINOX for the treatment of first-line
pancreatic cancer patients in the second half of 2020, as well as in other indications of pancreatic cancer. Georgetown Lombardi Comprehensive Cancer Center, the sponsor of the trial, has
submitted an IND to the FDA. With this in mind, we have initiated further preclinical work to assess the combinability of eryaspase with other compounds used in the treatment of
pancreatic cancer patients.
Both the FDA and EMA have granted orphan drug designation for eryaspase or GRASPA for the treatment of pancreatic cancer. Orphan drug designation provides manufacturers with
research grants, tax credits and eligibility for marketing exclusivity of up to seven years in the United States and 10 years in Europe.
We retain worldwide rights to commercialize eryaspase for the pancreatic cancer indication.
Ongoing and Planned Clinical Development in Triple Negative Breast Cancer and Other Solid Tumors
Following the results with eryaspase in the proposed treatment of second-line metastatic pancreatic cancer, we conducted a comprehensive evaluation to determine other potential solid
tumor indications and selected metastatic TNBC as the next indication to evaluate in order to expand the potential use of eryaspase in solid tumors. TNBC is an aggressive and
metabolically active form of breast cancer with high rates of symptomatic metastases. TNBC cells lack expression of estrogen and progesterone receptors and do not overexpress HER2.
Scientific literature estimates that approximately 10% to 20% of the 600,000 breast cancers that are diagnosed each year in the United States and Europe in aggregate are classified as
TNBC. As commonly-utilized hormone therapy and HER2 targeting agents are not treatment options for women with TNBC, there is significant unmet need for novel therapeutic
approaches in this subtype of breast cancer. At the end of 2018, we launched a Phase 2 proof-of-concept clinical trial in this indication in Europe, which we refer to as the TRYbeCA-2
trial. The trial is now open for enrollment in four European countries and we announced enrollment of the first patient in June 2019. As of December 31, 2019, 11 patients were enrolled in
Europe for the TRYbeCA-2 trial. The TRYbeCa2 trial, will evaluate eryaspase in combination with chemotherapy, compared to chemotherapy alone in approximately 64 patients. The
primary endpoint of the trial is objective response rate. The main secondary endpoints of the trial include progression free survival, metabolic response, safety and biomarkers. We expect
to report final data from the TRYbeCA-2 trial in 2021.
Planned Clinical Development in Other Solid Tumors
Preclinical work is ongoing to identify other relevant solid tumor indications, including a review of the use of the product candidate in combination with chemotherapy and
immunotherapy compounds.
Eryaspase for the Treatment of Acute Lymphoblastic Leukemia (ALL)
We were previously developing eryaspase, or GRASPA, for the treatment of children and adults with ALL in combination with chemotherapy. We have completed five clinical trials in
ALL in Europe and in the United States in which a total of 166 patients with ALL were enrolled, of which 132 patients were treated with eryaspase.
Different hard-to-treat sub-indications of ALL were targeted in these trials, relapsed and refractory patients, adults and elderly patients and patients who were allergic to other
asparaginases. We believe the results of our trials support our hypothesis that encapsulation
55
could prolong asparaginase activity and reduce its side-effects. We also observed eryaspase to have an improved clinical benefit as compared to native L-asparaginase in our completed
clinical trials, as described below.
A Phase 2/3 clinical trial in 80 children and adults with relapsed ALL, completed in 2014, achieved both of its primary endpoints:
•
•
Lower Incidence of Allergic Reactions. Among the non-allergic patients, none of the 26 patients treated with GRASPA experienced an allergic reaction during the induction
phase, compared to 13 patients out of 28, or 46%, of those treated with native L-asparaginase in the control group.
Superior Duration of L-Asparaginase Activity. Among the non-allergic patients, the patients treated with GRASPA maintained a mean duration of L-asparaginase activity
above 100 U per liter for 18.9 days, with at most two injections during the first month of treatment. This result compared to a mean duration of activity of 8.5 days in the
control group, who received up to eight injections of native L-asparaginase.
Eryaspase or GRASPA was also observed to have an improved clinical benefit as compared to native L-asparaginase based on its achievement of the secondary efficacy endpoints:
•
•
•
Higher Complete Remission Rate. At the end of the induction phase, the non-allergic patients in the GRASPA treatment arm, or 76%, had achieved complete remission, or
the disappearance of all signs of cancer in response to treatment, as compared to 46.4%, in the control arm. Among the allergic patients, 60% achieved complete remission
after treatment with GRASPA.
Improved Minimal Residual Disease Rate. Among the non-allergic patients, nine out of 26, or 35%, achieved low levels of residual leukemic cells classified as minimal
residual disease, or MRD, at the end of the induction phase, as compared to seven out of 28, or 25%, of those in the control group. Among the allergic patients, six out of 26,
or 23%, achieved MRD after treatment with GRASPA.
Improved Overall Survival Rates. 12-month overall survival rates among the non-allergic patients treated with GRASPA were 76.9%, compared to 67.9%, for those in the
control group. 12-month overall survival in the allergic group of patients was 50%. Based on three years of follow-up, a nominal improvement of overall survival was
observed (HR = 0.73).
Treatment with GRASPA was generally well tolerated. Drug-related adverse events generally consisted of allergic reactions, clotting problems, liver toxicities and pancreas disorders.
None of the 52 patients receiving GRASPA during the Phase 2/3 trial had an adverse event leading to discontinuation of the trial, as compared to 13 out of the 28 patients, or 46%, in the
control arm. A total of three patients out of the 52 patients treated with GRASPA during the trial experienced serious adverse events determined to be drug-related.
Based on the positive efficacy and safety results from our Phase 2/3 pivotal trial, we submitted a Marketing Authorization Application, or MAA, to the EMA for GRASPA for the
treatment of relapsed or refractory ALL in September 2015. Following discussions with the EMA, we withdrew the MAA in November 2016. We conducted activities designed to provide
data regarding immunogenicity and pharmacodynamics of eryaspase, as well as comparability of eryaspase produced with native versus recombinant L-asparaginase, and resubmitted an
MAA in October 2017. In June 2018, based on feedback from the EMA and FDA, it appeared that significant additional investment would be required in order to seek regulatory approval
of eryaspase for the treatment of ALL. In the context of the rapidly changing and increasingly competitive landscape with newly-approved treatment options for ALL, the regulatory
feedback and what we observed to be a limited market opportunity for eryaspase in ALL, we elected to cease further clinical development efforts in ALL. Accordingly, we withdrew our
MAA in the second half of 2018.
Despite our ceasing clinical development efforts in this indication, an investigator-sponsored trial, initiated in 2017 by the Nordic Society of Pediatric Haematology and Oncology, or
NOPHO, is still ongoing. The Phase 2 trial was expected to enroll approximately 30 patients at 22 sites across seven Nordic and Baltic countries. The trial protocol was amended in 2019
to increase the number of patients to be recruited up to 50 patients. The main objectives of this trial are to evaluate the pharmacokinetic and pharmacodynamic activity, safety and
immunogenicity profile of eryaspase in combination with NOPHO’s multi-agent chemotherapy protocol for ALL, administered as second-intention treatment for children or adult ALL
patients, one year to 45 years of age, who experience hypersensitivity reactions to PEG-asparaginase or silent inactivation. We expect interim data from the NOPHO trial to be available in
the first half of 2020 and final results in the second half of 2020.
Other ERYCAPS Development Programs
In addition to our product pipeline centered on L-asparaginase treatment, we are using our proprietary patent-protected ERYCAPS platform to identify additional enzymes that could
induce tumor starvation. We have received funding from BPI France for a research program, known as the TEDAC program, intended to identify additional tumor starvation agents and to
identify companion diagnostic tests. In preclinical studies performed under the TEDAC program, we have identified two other amino acids, methionine and arginine, and their respective
enzymes, methionine-γ-lyase, or MGL, and arginine deiminase, or ADI, that we believe may be promising treatments when encapsulated inside red blood cells.
56
In 2017, we presented preclinical data with our product candidate erymethionase, which consists of MGL in red blood cells, at the American Society of Clinical Oncology Gastrointestinal
Cancers Symposium and the American Association for Cancer Research conferences. We intend to continue to work on the development of erymethionase as well as potential other
therapeutic strategies based on methionine depletion, depending on financial resources and business strategy. We are also evaluating eryminase, which consists of ADI encapsulated inside
red blood cells, as a potential product candidate for further clinical development. In 2017, we entered into a research collaboration with the Fox Chase Cancer Center to advance the
preclinical development of erymethionase for the treatment of homocystinuria and with Queen’s University of Canada to advance the preclinical development of eryminase for the
treatment of arginase-1-deficiency. In September 2017, we presented early preclinical data on both programs at the 13th International Congress of Inborn Errors of Metabolism (ICIEM).
In addition, we currently have two other preclinical development programs ongoing. ERYZYME is a preclinical development program designed to use our proprietary ERYCAPS platform
for enzyme-based therapies beyond oncology. We encapsulate therapeutic enzymes inside donor-derived red blood cells using our proprietary ERYCAPS platform in order to create
ERYZYME product candidates to target certain metabolic diseases. We believe that the encapsulation of the therapeutic enzymes in the red blood cells may be able to reduce the potential
for allergic reactions and to allow the therapeutic substance to remain in the body longer as compared to non-encapsulated enzymes.
ERYMMUNE is a preclinical development program exploring the use of our proprietary ERYCAPS platform to encapsulate tumor antigens and/or adjuvants within red blood cells as an
innovative approach to cancer immunotherapy. Based on our preclinical research, we believe that encapsulated tumor antigens can be targeted to the spleen, in order to induce an immune
response, resulting in sustained activation of the body’s immune system to fight cancers. In preclinical studies with three different antigens loaded in red blood cells, we have observed
promising proof-of-concept data in three different tumor models. In these studies, we observed significantly increased antigen-specific CD8+ and CD4+ T-cell responses and delays in
tumor growth when the encapsulated antigens were injected in mice with tumors, as compared to the injection of the unloaded antigens alone. We plan to continue incubating this platform
to confirm our earlier preclinical data and to determine our development strategy for these earlier-stage programs. Proof-of-principle studies of ERYMMUNE are ongoing and will be the
basis on which we will decide on the best way to value creation for this technology.
Manufacturing and Supply
We currently operate two manufacturing facilities to manufacture our product candidates.
Our primary production facility for Europe is based in Lyon, France. This production facility complies with European cGMP. We have extended the capacity of our Lyon facility in July
2019 to ensure supply in our ongoing and future clinical trials, as well as anticipated early commercial needs, if eryaspase is approved for marketing. We believe our current leased space is
sufficient to meet our current needs in Europe.
For our clinical trials in the United States, we started manufacturing GMP-compliant batches out of our manufacturing facility in Princeton, New Jersey in the fourth quarter of 2019. This
manufacturing facility was designed with the ability to scale production
to supply eryaspase to meet our anticipated clinical trial needs, including our supply requirements for U.S. patients in the TRYbeCA-1 trial, and for our anticipated initial commercial
needs in the United States if eryaspase is approved. In connection with the transition to our Princeton facility, we closed our small production facility in Philadelphia, Pennsylvania in
January 2020.
We believe our production facilities will be sufficient to supply eryaspase for our ongoing Phase 2 and Phase 3 clinical trials and for our anticipated initial commercial needs of eryaspase
in Europe and the United States, in the event we receive appropriate marketing authorizations.
In Europe, we purchase packed red blood cells from the French Blood Agency (Ėtablissement Français du Sang) and the German Red Cross Blood Donor Service. In the United States,
we have supply agreements with the American Red Cross and the New York Blood Center.
In the case of eryaspase, we have the manufacturing and logistics in place to deliver eryaspase to patients in approximately 24 hours from the start of production to delivery of the product
candidate to the hospital. Once a prescription is written, we receive an order for eryaspase from the hospital. We then source a pack of red blood cells, compatible with the patient’s blood
type, from one of our partner blood banks. After identification of the key parameters of the red blood cell unit, we encapsulate the L-asparaginase into the red blood cells using an
automated process that takes three to four hours. Before release, the product must meet a number of quality control specifications, including the number of red blood cells in the packed
product, the level of L-asparaginase activity, the amount of extracellular L-asparaginase in the blood and the integrity of the container holding the red blood cells. We then deliver the
product to the hospital using a third-party commercial overnight delivery service. We ship the product at a refrigerated temperature of between two and eight degrees Celsius, or
approximately 36 to 46 degrees Fahrenheit. At this temperature, the product has been shown to remain stable for five days. Once removed and ready for administration, the product
remains stable for six hours at room temperature.
57
In May 2011, we entered into a worldwide supply agreement, as subsequently amended on April 4, 2014 and July 25, 2016, which we refer to as the 2011 Medac Agreement, under which
Medac has agreed to supply us with their new, recombinant free-form L-asparaginase, called Spectrila, for which Medac obtained a European marketing approval in 2016. The 2011
Medac Agreement includes an exclusivity period, starting from the date of commercial authorization of eryaspase/GRASPA for a duration of five years. The term of the 2011 Medac
Agreement is until December 2028, provided, that Medac is entitled, upon expiration of the five-year exclusivity period, to terminate the agreement, upon five years’ notice, in the event
its supplier of the recombinant formulation of L-asparaginase discontinues supplying to Medac. The July 2016 amendment nullified the clauses providing that we could have been forced
to refrain from any form of promotion of eryaspase/GRASPA if such product was produced from a new formulation of asparaginase registered and marketed prior to eryaspase/GRASPA
as a first-line treatment. We are exclusively using this new recombinant formulation of L-asparaginase in eryaspase for new indications, including our ongoing clinical trials for pancreatic
cancer, and no longer intend to use the native form of asparaginase for eryaspase.
Commercialization
As we move our product candidates through development toward regulatory approval in the United States and Europe, we will evaluate several options for each product candidate’s
commercialization strategy. These options include building our own internal sales force and distribution units or entering into collaborations with third parties for the distribution and
marketing of the approved products. We generally expect to retain commercial rights to our product candidates, but we will also evaluate collaborative arrangements with third parties for
the commercialization and distribution of our product candidates for specified indications and in specified territories where appropriate. We previously entered into collaborations with
Teva for the distribution of GRASPA as a treatment of ALL in Israel, and with Orphan Europe, part of the Recordati Group, for the distribution of GRASPA as a treatment of ALL and
AML in Europe. As a consequence of our withdrawal of the MAA for ALL and our decision to focus on solid tumors, our agreement with Orphan Europe was terminated in the first half
of 2019 without financial consequences to us. The agreement with Teva is still in effect, but, at this time, there are no current ongoing obligations under the agreement. With the exception
of Israel, we have retained worldwide rights to commercialize eryaspase for the treatment of all indications, including ALL, pancreatic cancer and TNBC. We have retained worldwide
commercial rights for all of our other product candidates.
Intellectual Property
Our patent portfolio includes pending patent applications and issued patents in the United States and foreign countries. These patents and applications include 15 patent families we own in
our own name with more than 270 granted patents, summarized below:
TECHNOLOGY
RBC Encapsulation Platform
Eryaspase
Other Onco-metabolism
Rare Metabolic Disorders
Immunology
Small Molecule
NUMBER
OF PATENT
FAMILIES
2
3
4
3
2
1
EXPIRATION
YEARS FOR
EACH PATENT
FAMILY *
2024 - 2030
2033 - 2034
2027 - 2029
2032 - 2033
2028 - 2029
2026
2034 - 2035
2035 - 2036
2038
2028
2033 - 2034
2037 - 2038
2030
2027 - 2028
2028 - 2029
COUNTRIES IN WHICH PATENTS ARE ISSUED (OR ALLOWED/ACCEPTED)
Japan, Europe, Australia, China, United States, South Korea, India,
Canada, Russia, Hong Kong, Mexico, GCC, Israel
Europe, United States, Australia, Singapore, Israel, Japan,
South Korea, China, India, United Arab Emirates, GCC, Russia Canada,
Hong Kong
Europe, Japan, China, Canada, South Korea, Australia, United States,
Hong Kong, Israel, Russia, GCC
Europe, Israel
Australia, Singapore, France, China, Israel, South Korea, Europe, United
States, Japan, United Arab Emirates, Canada, Hong Kong
Europe, Israel, China, Australia, Singapore, South Korea, Canada, Hong
Kong
*
This expiration year does not take into account supplementary patent protection that could be obtained for some of our patents in the United States, Europe, Japan and other
countries. Expiration dates for U.S. patents not yet granted may be subject to patent term adjustment (PTA) and/or patent term extension (PTE).
58
Of our 15 patent families, 12 patent families currently include at least one issued patent.
The term of a U.S. patent may be eligible for patent term restoration under the Hatch-Waxman Act to account for at least some of the time the drug or method of manufacture is under
development and regulatory review after the patent is granted. With regard to a drug or method of manufacture for which FDA approval is the first permitted marketing of the active
ingredient, the Hatch-Waxman Act allows for extension of the term of one U.S. patent. The extended patent term cannot exceed the shorter of five years beyond the non-extended
expiration of the patent or 14 years from the date of the FDA approval of the drug or method of manufacture. Some foreign jurisdictions have analogous patent term extension provisions
that allow for extension of the term of a patent that covers a device approved by the applicable foreign regulatory agency. In the future, if and when our product candidates receive FDA
approval, we expect to apply for patent term extensions on the patents that we believe will provide the best exclusivity position if extended.
In addition to patent protection, we have trademark protection in many countries for our name, logo and several product candidates. None of our trademarks are subject to a third-party
license.
Patent License from Radboud University
In 2018, we entered into an exclusive license agreement with Radboud University (the Netherlands), or Radboud, under which Radboud has granted us an exclusive license to a patent
family, including an unpublished U.S. provisional application filed August 31, 2018 and an unpublished PCT application filed December 6, 2018, directed to synergistic combinations of
amino acid depletion agents, or AADA, and amino acid depletion agent sensitizers. We intend to use the patent rights licensed from Radboud to develop product candidates, either alone or
in collaboration with external partners, including product candidates that contain eryaspase as the AADA. Under the terms of the exclusive license agreement, we may also sublicense the
patent rights to external partners to generate sublicense revenue.
Competition
The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop
new technologies and treatments. Significant competitive factors in our industry include product efficacy and safety; quality and breadth of an organization’s technology; skill of an
organization’s employees and its ability to recruit and retain key employees; timing and scope of regulatory approvals; government reimbursement rates for, and the average selling price
of, products; the availability of raw materials and qualified manufacturing capacity; manufacturing costs; intellectual property and patent rights and their protection; and sales and
marketing capabilities. We cannot ensure you that any of our products that we successfully develop will be clinically superior or scientifically preferable to products developed or
introduced by our competitors.
Our competitors may also succeed in obtaining EMA, FDA or other regulatory approvals for their product candidates more rapidly than we are able to do, which could place us at a
significant competitive disadvantage or deny us marketing exclusivity rights.
Market acceptance of our product candidates will depend on a number of factors, including:
•
•
•
•
potential advantages over existing or alternative therapies or tests;
the actual or perceived safety of similar classes of products;
the effectiveness of our sales, marketing, and distribution capabilities; and
the scope of any approval provided by the FDA or foreign regulatory authorities.
Although we believe our product candidates possess attractive attributes, we cannot ensure that our product candidates will achieve regulatory or market acceptance, or that we will be able
to compete effectively in the biopharmaceutical drug markets. If our product candidates fail to gain regulatory approvals and acceptance in their intended markets, we may not generate
meaningful revenues or achieve profitability.
In general, eryaspase will be positioned as an add-on to standard chemotherapeutic regimens. In pancreatic adenocarcinoma, gemcitabine-based (e.g. gemcitabine and nab paclitaxel,
Celgene’s Abraxane) and fluoropyrimidine-based (e.g. FOLFIRINOX, comprised of fluorouracil, leucovorin, irinotecan and oxaliplatin) chemotherapy regimens are standards of care for
the first-line treatment of patients with metastatic disease. Our ongoing TRYbeCA-1 trial in second-line metastatic pancreatic adenocarcinoma is evaluating the addition of eryaspase to
both (i) gemcitabine and Celgene’s Abraxane in patients whose disease has progressed on a prior fluoropyrimidine-based chemotherapy and (ii) an irinotecan-based regimen, including the
approved liposomal formulation of irinotecan, Ipsen/Servier’s Onivyde, in combination with flurouracil and leucovorin in patients whose disease has progressed on a prior gemcitabine-
based regimen. If approved, we anticipate that eryaspase will be used in combination with gemcitabine-based and irinotecan-based regimens.
59
Depending on the results of the TRYbeCA-1 trial, we believe eryaspase has the potential to be seen as competitive to or as a combination partner for many of these agents. Eryaspase
could potentially face competition from several investigational agents currently being evaluated in metastatic patients who have progressed on previous first-line chemotherapy. These
include, but are not limited to, Eleison Pharmaceuticals’ glufosfamide, SynCore Biotechnology’s EndoTAG-1, BMS/Five Prime Therapeutics’ cabiralizumab, Tyme Technologies’ SM-88
and BioLineRx’ BL-8040. Eryaspase could also potentially compete with agents being evaluated in combination with standard chemotherapy regimens for the first-line treatment of
metastatic disease. These include, but are not limited to, Rafael Pharmaceuticals’ CPI-613, Apexigen’ APX005M and Astellas’ zolbetuximad.
In TNBC, we expect eryaspase to be used in combination with various chemotherapy agents that are used to treat metastatic triple negative disease, including taxanes (paclitaxel, docetaxel
and Celgene’s Abraxane), capecitabine, and Eisai’s Halaven. Eryaspase could potentially face competition from small molecule poly-ADP ribose polymerase (PARP) inhibitors, including,
but not limited to, AstraZeneca/Merck’s Lynparza and Pfizer’s Talzenna, which received FDA approval for the treatment of germline BRCA mutant metastatic breast cancer in 2018; PD-
1/PD-L1 antibodies, including, but not limited to, Roche’s Tecentriq which was approved in 2019 by the FDA for metastatic TNBC; and other molecules in development, including, but
not limited to, Immunomedics’ sacituzumab govitecan, Roche’s ipatasertib, Astrazeneca’ capivasertib and Seattle Genetics’ ladiratuzumab vedotin.
Though there are several L-asparaginase based products approved for use in ALL, we do not believe that these products are being evaluated in the solid tumor indications we are pursuing
with eryaspase at this time.
Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the
pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may
also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and
retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to,
or necessary for, our programs.
Government Regulation
Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing,
manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export
and import of drug and biological products, or biologics, such as our product candidates. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its
quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.
U.S. Biological Product Development
In the United States, the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHSA, and their implementing
regulations. Biologics are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S.
requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions
could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or
withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement,
reputational harm, and/or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Our product candidates must be approved by the FDA through the Biologics License Application, or BLA, process before they may be legally marketed in the United States. The process
required by the FDA before a biologic may be marketed in the United States generally involves the following:
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completion of extensive nonclinical, sometimes referred to as preclinical laboratory tests, preclinical animal studies and formulation studies in accordance with applicable
regulations, including the FDA’s Good Laboratory Practice, or GLP, regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-related regulations, sometimes referred to as
Good Clinical Practices, or GCPs, to establish the safety and efficacy of the proposed product candidate for its proposed indication;
submission to the FDA of a BLA;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the product is produced to assess compliance with the FDA’s
cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality, purity and potency;
potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the BLA; and
FDA review and approval of the BLA prior to any commercial marketing or sale of the product in the United States.
The data required to support a BLA is generated in two distinct development stages: preclinical and clinical. The preclinical development stage generally involves laboratory evaluations
of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The conduct of the preclinical studies must comply
with federal regulations, including GLPs. The sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical
data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to
humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND
sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a product candidate at any time before or
during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that,
once begun, issues will not arise that could cause the trial to be suspended or terminated.
The clinical stage of development involves the administration of the product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally
physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their
participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and
exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the
FDA as part of the IND. 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. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in
the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject
or his or her legal representative and must monitor the clinical trial until completed.
There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products,
including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient
population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss
the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.
Clinical trials are generally conducted in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials. Phase 1 clinical trials generally involve a small
number of healthy volunteers who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the
metabolism, pharmacologic action, side effect tolerability and safety of the product candidate and, if possible, to gain early evidence on effectiveness. Phase 2 clinical trials typically
involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic
information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. Phase 3 clinical trials generally involve large numbers
of patients at multiple sites, in multiple countries, from several hundred to several thousand subjects, and are designed to provide the data necessary to demonstrate the efficacy of the
product for its intended use and its safety in use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase 3 clinical
trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.
Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of a BLA.
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Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the
treatment of patients in the intended therapeutic indication. In some instances, FDA may condition approval of a BLA on the sponsor’s agreement to conduct additional clinical trials to
further assess the biologic’s safety and effectiveness after BLA approval.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators
for serious and unexpected suspected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3
clinical trials may not be completed successfully within any specified period, if at all. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various
grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at
its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee.
This group provides authorization for whether or not a trial may move forward at designated intervals based on access to certain data from the trial. We may also suspend or terminate a
clinical trial based on evolving business objectives and/or competitive climate. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop
additional information about the chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in
accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must
develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be
conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
BLA and FDA Review Process
Following trial completion, trial data is analyzed to assess safety and efficacy. The results of preclinical studies and clinical trials are then submitted to the FDA as part of a BLA, along
with proposed labeling for the product and information about the manufacturing process and facilities that will be used to ensure product quality, results of analytical testing conducted on
the chemistry of the product candidate, and other relevant information. The BLA is a request for approval to market the biologic for one or more specified indications and must contain
proof of safety, purity, potency and efficacy, which is demonstrated by extensive preclinical and clinical testing. The application includes both negative or ambiguous results of preclinical
and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a product, or from a number of
alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and
efficacy of the investigational product to the satisfaction of the FDA. FDA approval of a BLA must be obtained before a biologic may be offered for sale in the United States.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee, which is adjusted on an annual basis. PDUFA also imposes
an annual product fee for human drugs and an annual establishment fee on facilities used to manufacture prescription drugs. Fee waivers or reductions are available in certain
circumstances, including a waiver of the application fee for the first application filed by a small business.
Once a BLA has been accepted for filing, which occurs, if at all, 60 days after the BLA’s submission, the FDA’s goal is to review BLAs within 10 months of the filing date for standard
review or six months of the filing date for priority review, if the application is for a product intended for a serious or life-threatening disease or condition and the product, if approved,
would provide a significant improvement in safety or effectiveness. The review process is often significantly extended by FDA requests for additional information or clarification.
After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product candidate is safe and effective for its intended
use, and whether the product candidate is being manufactured in accordance with cGMP to assure and preserve the product candidate’s identity, strength, quality, purity and potency. The
FDA may refer applications for novel drug product candidates or drug product candidates which present difficult questions of safety or efficacy to an advisory committee, typically a panel
that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound
by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA will likely re-analyze the clinical trial data, which
could result in extensive discussions between the FDA and us during the review process.
The review and evaluation of a BLA by the FDA is extensive and time consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if
at all.
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Before approving a BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP. The FDA will
not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the
product within required specifications. In addition, before approving a BLA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. After the FDA
evaluates the application, manufacturing process and manufacturing facilities, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial
marketing of the product with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the
application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in the BLA identified by the FDA. The Complete Response Letter may
require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or
manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application.
Even if such data and information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always
conclusive and the FDA may interpret data differently than we interpret the same data.
There is no assurance that the FDA will ultimately approve a product for marketing in the United States, and we may encounter significant difficulties or costs during the review process.
If a product receives marketing approval, the approval may be significantly limited to specific populations, severities of allergies, and dosages or the indications for use may otherwise be
limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling
or may condition the approval of the BLA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing
or clinical trials and surveillance to monitor the effects of approved products. For example, the FDA may require Phase 4 testing, which involves clinical trials designed to further assess
the product’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also
place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the product. If the FDA concludes a
REMS is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication
guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations
on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with
regulatory standards or if problems occur following initial marketing.
Other U.S. Regulatory Matters
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the
United States, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, or HHS, the Drug Enforcement Administration,
the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local
governments. In the United States, sales, marketing and scientific or educational programs must comply with state and federal fraud and abuse laws, data privacy and security laws,
transparency laws, and pricing and reimbursement requirements in connection with governmental payor programs, among others. The handling of any controlled substances must comply
with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison
Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer protection and unfair competition laws. The
distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to
prevent the unauthorized sale of pharmaceutical products.
The failure to comply with regulatory requirements subjects’ entities to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory
requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product
approvals, or refusal to allow an entity to enter into supply contracts, including government contracts. In addition, even if an entity complies with FDA and other regulatory requirements,
new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future
products marketed by us could materially affect our business in an adverse way.
Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing
arrangements, and/or our commercial operations; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping
and/or documentation requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
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U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the
Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration
term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the
remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an
IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved drug is eligible
for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews
and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add
patent life beyond their current expiration dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA.
An abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product was created by the Biologics Price
Competition and Innovation Act of 2009. Biosimilarity, which requires that the biological product is highly similar to the reference product notwithstanding minor differences in clinically
inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety, purity, and potency, can be shown through
analytical studies, animal studies, and a clinical trial or trials. Interchangeability requires that a biological product is biosimilar to the reference product and the product can be expected to
produce the same clinical results as the reference product and, for products administered multiple times, the product and the reference product may be switched after one has been
previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product. However, complexities associated with
the larger, and often more complex, structure of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation that are
still being worked out by the FDA.
A reference biological product is granted 12 years of exclusivity from the time of first licensure of the reference product. The first biological product submitted under the abbreviated
approval pathway that is determined to be interchangeable with the reference product has exclusivity against other biologics submitting applications under the abbreviated approval
pathway for the lesser of one year after the first commercial marketing, 18 months after approval if there is no legal challenge, 18 months after the resolution in the applicant’s favor of a
lawsuit challenging the biologic’s patents if an application has been submitted, or 42 months after the application has been approved if a lawsuit is ongoing within the 42-month period.
Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms.
This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with
an FDA-issued “Written Request” for such a trial.
European Union Drug Development
In the European Union, our product candidates may also be subject to extensive regulatory requirements. Medicinal products can only be marketed if a marketing authorization from the
competent regulatory agencies has been obtained.
The various phases of preclinical and clinical research in the European Union are subject to significant regulatory controls. Clinical trials of medicinal products in the European Union
must be conducted in accordance with European Union and national regulations and the International Conference on Harmonization, or ICH, guidelines on Good Clinical Practices, or
GCP. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the European Union clinical trials regulatory framework, setting out common rules for the control
and authorization of clinical trials in the European Union, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant
variations in the Member State regimes. To improve the current system, Regulation (EU) No 536/2014 on clinical trials on medicinal products for human use, which repealed Directive
2001/20/EC, was adopted on April 16, 2014 and published in the European Official Journal on May 27, 2014. The Regulation aims at harmonizing and streamlining the clinical trials
authorization process, simplifying adverse event reporting procedures, improving the supervision of clinical trials, and increasing their transparency. Although the Regulation entered into
force on June 16, 2014, it has not yet become applicable. The entry into application of the Regulation is expected to occur at some point in 2020 (its enactment will occur six months after
the publication of a notice delivered by the European Commission on the European Union clinical trial portal and database). Until then the Clinical Trials Directive 2001/20/EC will still
apply. In addition, the transitory provisions of the new Regulation offer the sponsors the possibility to choose between the requirements of the Directive and the Regulation for one year
from the entry into application of the Regulation.
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Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU Member States where the trial is to be conducted by two distinct bodies: the National
Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions, or SUSARs, to the investigated
drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.
European Union Marketing Authorizations
In the European Economic Area, or EEA (which is comprised of the 27 Member States of the European Union plus Norway, Iceland and Liechtenstein),medicinal products can only be
commercialized after obtaining a Marketing Authorization, or MA. Marketing Authorizations may be granted either centrally (Community MA) or nationally (National MA).
The Community MA is issued centrally by the European Commission through the Centralized Procedure, based on the opinion of the CHMP of the EMA and is valid throughout the entire
territory of the EEA.
Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2014 provides for the Centralized authorization procedure. The centralized procedure results in
a single marketing authorization, or MA, granted by the European Commission that is valid across the EEA. The centralized procedure is compulsory for human drugs that are: (i) derived
from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes,
neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated orphan medicines and (iv) advanced-therapy medicines, or ATMPs,
such as gene therapy, somatic cell therapy or tissue-engineered medicines.
Under Article 3 of the Regulation (EC) No 726/2004, the Centralized procedure is optional for any medicinal product not appearing in the Annex if: (1) the medicinal product contains a
new active substance which, on the date of entry into force of this Regulation, was not authorized in the Community; or (2) the applicant shows that the medicinal product constitutes a
significant therapeutic, scientific or technical innovation or that the granting of authorization in accordance with this Regulation is in the interests of patients or animal health at
Community level.
National MAs are issued nationally by the competent authorities of the Member States of the EEA and only cover their respective territory. National MAs are available for products not
falling within the mandatory scope of the Centralized Procedure. National MAs may be applied for through the Mutual Recognition Procedure or Decentralized Procedure in order that
multiple competent authorities in different member states of the EEA may each issue a national MA in their territory for the same product on the back of the same application. We do not
foresee that any of our current product candidates will be suitable for a National MA as they fall within the mandatory criteria for the Centralized Procedure. Therefore, our product
candidates will be approved through Community MAs.
Under the above-described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of
the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Market exclusivities
The European Union also provides opportunities for market exclusivity. For example, under Article 14(11) of the Regulation (EC) No 726/2004, without prejudice to the law on the
protection of industrial and commercial property, medicinal products for human use which have been authorized in accordance with the provisions of this Regulation shall benefit from an
eight-year period of data protection and an additional two-year period of marketing protection, which may be extended further one year period, taking the total regulatory exclusivity
period to a maximum of 11 years if, during the first eight years of regulatory exclusivity, the MA holder obtains an authorization for one or more new therapeutic indications which, during
the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
If granted, data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic or biosimilar application. During the additional
two-year period of market exclusivity, a generic or biosimilar marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product
can be marketed until the expiration of the market exclusivity.
Pediatric clinical trials
Under European law, medicinal products for use in the pediatric population are eligible for rewards and incentives. Under Regulation No 1901/2006, when the intention is to apply for an
MA in accordance with Article 7(1) (a) or (d), Article 8 or Article 30, a Paediatric
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Investigation Plan, or PIP, must be drawn up and submitted to the EMA with a request for agreement, unless a deferral or waiver applies (e.g., because the relevant disease or condition
occurs only in adults) (Article 7).
Pursuant to Regulation (EC) No. 1901/2006, all applications for MA for new medicines must include, in addition to the particulars and documents referred to in Directive 2001/83/EC, the
results of all studies performed and details of all information collected in compliance with a PIP, agreed between regulatory authorities and the applicant, unless the medicine is exempt
because of a deferral or waiver of the EMA. Before the EMA is able to begin its assessment of a Community MA application, it will validate that the applicant has complied with the
agreed PIP. The applicant and the EMA may, where such a step is adequately justified, agree to modify a PIP to assist validation. Modifications are not always possible; may take longer to
agree than the period of validation permits; and may still require the applicant to withdraw its marketing authorization application and to conduct additional non-clinical and clinical
studies.
Products that are granted a MA on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six-month extension of the protection under a
supplementary protection certificate (if any is in effect at the time of approval) (Regulation No 1901/2006) or, in the case of orphan medicinal products, a two-year extension of the orphan
market exclusivity (Regulation (EC) No 1901/2006, see above). This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the
PIP are developed and submitted.
We do not currently know whether our product candidates will need to be covered by a PIP.
Orphan designation
Under Article 8 of the Regulation (EC) No 141/2000, products receiving orphan designation in the European Union can receive ten years of market exclusivity, during which time no
similar medicinal product may be placed on the market for the same therapeutic indication. Under Article 37 of the Regulation (EC) No 1901/2006, an orphan product can also obtain an
additional two years of market exclusivity in the European Union for pediatric studies (in this case for orphan medicinal product no extension to any supplementary protection certificate
can be granted, see further detail below).
Under Article 3 of the Regulation (EC) No 141/2000, a medicinal product may be designated as orphan if: (1) (a) it is intended for the diagnosis, prevention or treatment of a life-
threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or (b) it is intended for the
diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the
marketing of the medicinal product in the European Union would generate sufficient return to justify the necessary investment; and (2) that there exists no satisfactory method of
diagnosis, prevention or treatment of the condition in question that has been authorized in the European Union or, if such method exists, that the medicinal product will be of significant
benefit to those affected by that condition, as defined in Regulation (EC) 847/2000.
Pursuant to Regulation (EC) No. 847/2000 of April 27, 2000 laying down the provisions for implementation of the criteria for designation of a medicinal product as an orphan medicinal
product and definitions of the concepts “similar medicinal product” and “clinical superiority”, an application for the designation of a medicinal product as an orphan drug may be
submitted at any stage of development of the medicinal product before filing of an MA application.
Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and scientific assistance for study proposals (Articles 6 and 9). The application for
orphan medicinal product designation must be submitted before the application for marketing authorization (Article 5). The applicant will receive a fee reduction for the marketing
authorization application if the orphan medicinal product designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted.
Orphan medicinal product designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established, in respect of the medicinal product concerned, that the above-mentioned criteria
for orphan medicinal product designation are no longer met, in other words, when it is shown on the basis of available evidence that the product is sufficiently profitable not to justify
maintenance of market exclusivity (Article 8).
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Notwithstanding the foregoing, an MA may be granted, for the same therapeutic indication, to a similar medicinal product if:
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the holder of the MA for the original orphan medicinal product has given its consent to the second applicant;
the holder of the MA for the original orphan drug is unable to supply sufficient quantities of the medicinal product; or
the second applicant can establish in the application that the second medicinal product, although similar to the orphan medicinal product already authorized, is safer, more
effective or otherwise clinically superior.
Pharmacovigilance system
The holder of an MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, or QPPV, who is responsible for
oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new MAAs must include a risk management plan, or RMP, describing the risk management system that the company will put in place and documenting measures to prevent or
minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-
authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies.
RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions.
Advertising
All advertising and promotional activities for the product must be consistent with the approved summary of product characteristics, and therefore all off-label promotion is prohibited.
Direct-to-consumer advertising of prescription medicines is also prohibited in the European Union. Although general requirements for advertising and promotion of medicinal products are
established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country to another.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls,
seizure of products, operating restrictions and criminal prosecution.
Other European Regulatory Matters
French Regulatory Framework
France: Clinical trials
General framework: In the European Union, pending the entry into force of Regulation No. 536/2014, the regulation governing clinical trials is currently based on European Directive
No. 2001/20/EC of April 4, 2001 relative to the implementation of good clinical practices in the conduct of clinical trials on medicinal products for human use. Each Member State of the
European Union had to transpose this Directive into national law, which resulted in Member States adapting it to their own regulatory framework.
In France, for example, Directive No. 2001/20/EC has been implemented by Law 2004-806 of August 9, 2004 regarding the public health policy and Decree 2006-477 of April 26, 2006,
modifying the section of the Public Health Code, or PHC, on biomedical research. The Act of August 9, 2004 was notably amended by Law No. 2012-300 of March 5, 2012, or the “Loi
Jardé,” related to biomedical research involving human subjects, and French Order No. 2016-800 of June 16, 2016 related to clinical trials of medicinal products for human use, which has
recently adapted French law to the new provisions of Regulation No. 536/2014 of the European Parliament and of the Council of April 16, 2014 related to clinical trials of medicinal
products for human use, which repealed Directive 2001/20/EC. The Jardé Act was inapplicable for a long time, and applicable since November 18, 2016, date of its enforcement decree.
Applicable provisions: French Act No. 2012-300 of March 5, 2012, or the “Loi Jardé,” related to research involving the human person, and French Order No. 2016-800 of 16 June 2016
related to research involving the human person have adapted French law to the new provisions of Regulation No. 536/2014. Article L. 1121-4 and L. 1123-8 PHC currently in force (as
amended by Law 2004-806, Law 2012-300 Order 2016-800), establishes a system of prior authorization for interventional clinical trials only. This authorization is granted by the French
Medicines Agency, or ANSM. The conduct of all clinical trials (interventional or not) also requires a favorable opinion of the competent Ethics Committee (Comité de protection des
personnes – CPP).
Ethics Committee assessment: Under Article L. 1123-7 of the PHC, the competent Ethics Committee—selected randomly by drawing lots under Article L. 1123-6 of the PHC—shall
notably assess whether the conditions in which the trial will be conducted are valid. This assessment should be based on whether: adequate protection is offered to individuals, in particular
to participants; adequate
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information is provided to the participants and appropriate procedure is in place to obtain their informed consent; the project is relevant; the benefits/risks assessment is satisfactory; the
objectives of the trial are adequate to the means implemented; the qualification of the investigator(s) is satisfactory; the conditions and amount of patients’ remuneration is compliant; and
the method for recruiting participants is adequate.
ANSM authorization: The ANSM, after submission of the complete file containing not only information on the clinical protocol, but also specific product data and its quality control, as
well as results of preclinical studies, may inform the sponsor that it objects to the implementation of the research. The sponsor can then modify the contents of its research project and
submit this amended or supplemented request to the ANSM. If the sponsor does not alter the content of its request, the request is considered rejected. Under Article R. 1123-38 of the
PHC, the time limit for the examination of a request for authorization cannot exceed 60 days from the receipt of the complete file. Under Article L. 1123-11 of the PHC, in the event of
risk to public health or if the ANSM considers that the conditions in which the research is implemented no longer correspond to the conditions indicated in the request for authorization or
does not comply with the provisions of the Public Health Code, it may at any time request changes to procedures for the realization of research, and suspend or ban this research.
The decision of the ANSM of November 24, 2006 sets the rules for Good Clinical Practice, or GCPs, for clinical trials on medicines for human use as referred to in Article L. 1121-3 of
the PHC. GCPs aim to ensure both the reliability of data arising from clinical trials and the protection of the persons participating in these clinical trials. GCPs apply to all clinical trials,
including pharmacokinetics, bioavailability and bioequivalence studies in healthy volunteers as well as Phase 2 to Phase 4 clinical trials.
Depending of the type of personal data processing carried out during clinical trials and the nature of such trials, it might be necessary to carry out formalities by the French Data Protection
Authority, or the CNIL. The sponsor of the trial might have to file with the CNIL a compliance undertaking with one of CNIL's reference methodologies through a simplified notification
procedure or file for a request of authorization. Patients then always shall have a right to access and correct their personal data, and to object to their processing/withdraw their consent,
require their deletion or a limitation of the processing pursuant to the GDPR.
The main French legislative and regulatory texts relating to the conduct of clinical trials are as follows (which are mainly codified in the French Public Health Code (Articles L. 1121-1 to
L. 1126-12 and Articles R. 1121-1 to R. 1125-26)):
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Regulation No. 536/2014, of the European Parliament and of the Council of April 16, 2014 related to clinical trials of medicinal products for human use, which repealed
Directive No. 2001/20/EC;
Decree No. 2017/884 of May 9, 2017 modifying regulatory provisions related to research involving human subjects;
Decree No. 2016-1538 of November 16, 2016 on the Unique Agreement for the implementation of commercial clinical trials involving human beings in health care
institutions;
Decree No. 2016-1537 of November 16, 2016 related to research involving human beings;
Order No. 2016-800 of June 16, 2016 related to research involving human beings;
Loi Jardé, Law No. 2012-300 of March 5, 2012, related to biomedical research involving human subjects;
Law 2004-806 of August 9, 2004 related to the public health policy;
Decision of December 29, 2015 establishing the rules of Good Manufacturing Practice;
Law 78-17 of January 6, 1978, as amended, on data protection and its implementing decrees;
Law 2002-303 of March 4, 2002 and its implementing decrees regarding patient’s rights and the quality of the healthcare system;
Deliberation No. 2018-153 of May 3, 2018 approving a reference methodology relating to the processing of personal data implemented in the context of research in the field
of health with the consent of the person concerned (MR -001);
Decision No. 2016-262 of July 21, 2016 concerning the standard methodology for the processing of personal data carried out within the context of clinical trials (standard
methodology MR-001);
Deliberation No. 2015-256 of July 16, 2015 approving a reference methodology relating to the processing of personal data implemented in the context of non-interventional
performance studies on in vitro diagnostic medical devices (MR- 002);
Decision No. 2016-263 of July 21, 2016 concerning the approval of a standard methodology for processing personal data in the context of research in the field of health,
which does not require the express consent of the person involved (methodology MR-003);
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Deliberation No 2018-154 of May 3, 2018 approving the reference methodology relating to the processing of personal data implemented in the context of research in the
field of health that does not require the collection of the consent of the person concerned (MR-003);
Deliberation No 2018-155 of May 3, 2018 approving the reference methodology relating to the processing of personal data implemented in the framework of research not
involving the human person, studies and evaluations in the field of health (MR-004);
Deliberation No. 2018-256 of June 7, 2018 approving a reference methodology relating to data processing requiring access by health institutions and federations to PMSI
data and centralized emergency passage summaries (ERs) and made available on the secure platform of the ATIH (MR-005);
Deliberation No. 2018-257 of June 7, 2018 approving a reference methodology relating to the processing of data requiring access on behalf of persons producing or
marketing products mentioned in II of Article L. 5311-1 of the public health code to centralized PMSI data and made available by ATIH through a secure solution (MR-
006);
Law 2011-2012 of December 29, 2011 strengthening the safety of medicines and health products;
Law 2000-230 of March 13, 2000, Decree 2001-272 of March 30, 2001 as amended, and Decree 2002-535 of April 18, 2002, relating to electronic signatures;
Decree No. 2016-1871 of December 28, 2016 concerning the processing of personal data on the new “National Health Data System” of France;
Decision of November 24, 2006 establishing the rules for Good Clinical Practice;
Law of January 6, 1978 on Information Technology, Data Files and Civil Liberties as amended; and
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal
data and on the free movement of such data.
Protection of Clinical Trial Subjects
Under French law (Article L. 1121-2 PHC), a clinical trial may be undertaken only if (i) it is based on the latest stage of scientific knowledge and on sufficient preclinical testing, (ii) the
foreseeable risk incurred by the subjects is outweighed by the benefit expected for these persons or the interest of the research, (iii) it aims at expanding scientific knowledge and the
means possible to improve the human condition and (iv) the research was designed to reduce the pain, inconveniences, fear and other predictable inconvenience connected to the disease or
to the research, by taking into account in particular the degree of maturity of minors and the capacity of understanding of adults unable to express an informed consent. All these
conditions must be fulfilled in order to start a clinical trial.
A clinical trial (Article L. 1121-3 PHC) may be undertaken under the following technical conditions: (a) under the direction and the supervision of a qualified physician and (b) under
adapted material and technical conditions, compatible with the rigorous imperatives of science and the safety of the clinical trial subjects.
Two documents must be provided to clinical trial subjects before the conduct of the trial. First, the patient must receive a patient information sheet which must contain in particular a
description of the objective, the methodology and the time period of the research, as well as a description of the alternative treatments, the number of subjects expected to take part in the
study, the anticipated benefits, the constraints and the foreseeable risks resulting from the administration of the products that are the object of the clinical trials but also the favorable
opinion of the ethics committee and the authorization of the ANSM, and information on processing of personal data. The information communicated must be summarized in a written
document delivered to the patient prior to any administration of products by the investigator or a physician (Article L. 1122-1 PHC).
Second, the patient must confirm his or her agreement to participate in the clinical study by signing an informed consent form (Article L. 1122-1-1 PHC). For each study, patient
information must include a right to refuse to participate and to withdraw consent at any time and by any means without further consequences or prejudice. A clinical trial on a minor may
be undertaken only if, in particular, the informed consent of the parents or legal representative has been obtained. Furthermore, a clinical trial on adults under guardianship requires the
informed consent of the adult’s legal representative.
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Responsibility of the sponsor and insurance obligation of the sponsor
The sponsor shall indemnify the subject of the trial in case of damage arising as a consequence of the research, unless he proves that the damage does not result from his fault or the fault
of any other person intervening in the trial (Article L.1121-10 PHC). The sponsor must have an insurance covering its civil liability and the liability of any person intervening in the
research, for any damage arising from the trial for a minimum of 10 years as of the end of the trial (Article L.1121-10 PHC).
France: Post-marketing requirements
Any pharmaceutical product distributed in France will be subject to pervasive and continuing regulation by the ANSM, including, among other things, record-keeping requirements,
reporting of adverse experiences with the product, providing updated safety and efficacy information, distribution requirements, complying with promotion and advertising requirements.
French law strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market and imposes requirements and restrictions on drug
manufacturers, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s
approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities.
Failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible
administrative or criminal sanctions.
France: Declaration of Financial Interests
“Transparency” or “French Sunshine Act”: The French Public Health Code (PHC) contains certain provisions regarding transparency of fees and rewards received by some healthcare
professionals from industries, i.e. companies manufacturing or marketing health products, resulting from an Act No. 2011-2012 of December 29, 2011, amended by an Act No. 2016-41 of
26 January 2016, and corresponding implementing decrees. It results from these provisions (Article L.1453-1 and D. 1453-1 and seq. PHC) that companies manufacturing or marketing
healthcare products (medicinal products, medical devices, etc.) in France shall publicly disclose (on a specific public website available at: https://www.entreprises-
transparence.sante.gouv.fr) the advantages and fees paid to healthcare professionals amounting to 10 euros or above, as well as the agreements concluded with the latter, along with
detailed information about each agreement (the precise subject matter of the agreement, the date of signature of the agreement, its end date, the total amount paid to the healthcare
professional, etc.).
“Anti-gift”: The French Public Health Code also contains “anti-gift” provisions setting out a general prohibition of payments and rewards from industries, i.e. companies manufacturing
or marketing health products, to healthcare professionals, with limited exceptions and strictly defines the conditions under which such payments or rewards are lawful. The provisions
resulting from an Act No. 2011-2012 were amended by an Order No. 2017-49 of January 19, 2017 ratified by the Law 2019-774 of July 24, 2019 which notably extended their application
to a broader range of legal and physical persons - including social media influencers, specified the scope of the operations excluded from the prohibition and those authorized under some
conditions, and provided for a new authorization process. The changes of the “anti-gift” rules were aimed to enter into force on a date provided by decree or, at the latest, on July 1, 2018.
In the absence of implementing texts to date, the new provisions (Articles L. 1453-3 to L. 1453-12 PHC) entered into force on July 1, 2018. Some of the implementing texts are still
missing. In the meantime, since the former implementing provisions (article R. 4113-104 and seq. PHC) have not been abrogated they remain applicable to the extent that they are accurate
and not in contradiction with the new enacted rules. Some of the new legal provisions can already be applied without awaiting the new implementing provisions.
French Pharmaceutical Company Status
We have the regulated status of pharmaceutical establishment and operating company, which allows us to manufacture and market our product candidates. Obtaining a pharmaceutical
establishment license, either as a distributor or as a manufacturer requires the submission of an application dossier to the ANSM. The application package will vary depending on the type
of application (distribution license or manufacturing license). The ANSM grants such license after verifying that the company has adequate premises, the necessary personnel and adequate
procedures to carry out the proposed pharmaceutical activities.
Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the case of GRASPA, we have entered
into distribution arrangements with Orphan Europe and Teva for marketing in Europe and Israel, respectively, and those third parties will be responsible for obtaining coverage and
reimbursement for GRASPA in those territories if it is approved. Our agreement with Orphan Europe was terminated in the first half of 2019 without financial consequences to us. The
agreement with Teva is still in effect, but, at this time, there are no current ongoing obligations under the agreement. Sales of our products will depend, in part, on the extent to which our
products, once approved, will be covered and reimbursed by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations.
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These third-party payors are increasingly reducing reimbursement levels for medical products and services. The process for determining whether a third-party payor will provide coverage
for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that a payor will pay for the drug product once
coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the approved drugs
for a particular indication.
To secure coverage and reimbursement for any product candidate that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the medical necessity and cost-effectiveness of the product candidate, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Whether or not we conduct
such studies, our product candidates may not be considered medically necessary or cost-effective. A third-party payor’s decision to provide coverage for a drug product does not imply that
an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage, and
adequate reimbursement, for the product. Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our
investment in product development.
The containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures
and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, utilization management and
requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing
controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover
our product candidates could reduce physician usage of the product candidates and could have a material adverse effect on our sales, results of operations and financial condition.
For example, the ACA has already had, and is expected to continue to have, a significant impact on the health care industry. The ACA has expanded coverage for the uninsured while at
the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates for drugs covered under
Medicaid programs and made changes to the coverage requirements under the Medicare Part D program. Some of the provisions of the ACA have yet to be implemented, and there have
been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since
January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some
of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While
Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The Tax Act included a
provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health
coverage for all or part of a year that is commonly referred to as the “individual mandate.” The 2020 federal spending package permanently eliminated, effective January 1, 2020, the
PPACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. Further,
the BBA, among other things, amended the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical
manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” On December 14, 2018, a Texas
U.S. District Court Judge ruled that ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December
18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court
to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace
ACA will impact ACA.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, on August 2, 2011, the Budget Control Act of 2011
among other things, created measures for spending reductions by Congress. Specifically, the Joint Select Committee on Deficit Reduction was created to recommend to Congress
proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021,
thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year,
started in April 2013 and which, due to subsequent legislative amendments, including the BBA, will stay in effect through 2029 unless additional Congressional action is taken.
Additionally, on January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several
providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from
three to five years.
Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Such scrutiny has resulted in several recent U.S.
Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform government program reimbursement
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methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals
seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. Further, the Trump
administration released a “Blueprint”, or plan, to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition,
increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug
products paid by consumers. HHS has solicited feedback on some of these measures andhas implemented others under its existing authority. For example, in May 2019, CMS issued a
final rule to allow Medicare Advantage Plans the option of using step therapy for Part B drugs beginning on January 1, 2020. The final rule codified a CMS policy change that was
effective January 1, 2019. While some of these and other proposed measures may require authorization to become effective, Congress and the Trump administration have each indicated
that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented
regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and
marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare
products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from
country to country. For example, the European Union provides options for its Member States to restrict the range of medicinal products for which their national health insurance systems
provide reimbursement and to control the prices of medicinal products for human use. A Member State may approve a specific price for the medicinal product or it may instead adopt a
system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. For example, in France, effective market access will be supported by
agreements with hospitals and products may be reimbursed by the Social Security Fund. The price of medicines is negotiated with the Economic Committee for Health Products, or CEPS.
There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements
for any of our product candidates. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly
lower.
Other Healthcare Laws and Compliance Requirements
Our business operations in the United States and our arrangements with clinical investigators, healthcare providers, consultants, third party payors and patients may expose us to broadly
applicable federal and state fraud and abuse and other healthcare laws. These laws may impact, among other things, our research, proposed sales, marketing and education programs of our
product candidates that obtain marketing approval. The laws that may affect our ability to operate include, among others:
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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying
remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for,
or the purchase, lease, order, or recommendation of, an item, good, facility or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid
programs;
the U.S. federal civil and criminal false claims laws, including the civil False Claims Act, which can be enforced by individuals, on behalf of the government through civil
whistleblower or qui tam actions, and civil monetary penalty lawsprohibits individuals and entities from, among other things, knowingly presenting, or causing to be
presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, or making a false statement or record material to payment of a
false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government, including for example, providing inaccurate billing or coding
information to customers or promoting a product off-label;
HIPAA, which created additional federal, civil and criminal statutes that prohibit knowingly and willfully executing or attempting to execute a scheme to defraud any
healthcare benefit program, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare
offense, and knowingly and willingly falsifying, concealing or covering up a material fact or making materially false statements, fictitious, or fraudulent statements in
connection with the delivery of or payment for healthcare benefits, items, or services;
the federal Physician Payments Sunshine Act, enacted as part of the ACA, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for
which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to track and annually report to CMS payments
and other transfers of value provided to physicians, as defined by such law, and teaching hospitals and certain ownership and investment interests held by physicians or their
immediate family members;
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HIPAA, as amended by HITECH, and their implementing regulations, which imposes certain requirements on covered entities, and their business associates that perform
functions or activities that involve individually identifiable health information on their behalf, relating to the privacy, security and transmission of individually identifiable
health information; and
State and/or foreign equivalents of each of the above federal laws and regulations, such as: state anti-kickback and false claims laws which may apply to items or services
reimbursed by any third-party payor, including commercial insurers; state marketing and/or transparency laws applicable to manufacturers that may be broader in scope than
the federal requirements; state laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government; state laws that require drug manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers, marketing expenditures, or drug pricing; state and local laws that require the registration of pharmaceutical
sales representatives; and state and/or foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other
in significant ways and may not have the same effect as HIPAA, thus complicating compliance efforts.
The ACA broadened the reach of the federal fraud and abuse laws by, among other things, amending the intent requirement of the U.S. federal Anti-Kickback Statute and certain federal
criminal healthcare fraud statutes. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of those statutes or specific intent to violate them in
order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the U.S. federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act or the civil monetary penalties statute.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws will involve substantial costs. It is possible that governmental authorities
will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our
operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to, for example, significant administrative, civil,
and criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, imprisonment, exclusion from government funded
healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to
resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If the physicians or other healthcare providers or entities with whom we
expect to do business are found to be not in compliance with applicable laws, they may be subject to significant administrative, civil, and criminal sanctions, including exclusions from
government funded healthcare programs.
C. Organizational Structure.
The following diagram illustrates our corporate structure:
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D. Property, Plants and Equipment.
Our principal executive offices are located at 60 Avenue Rockefeller, 69008 Lyon, France. We lease office and laboratory space, which together consist of approximately 1,400 square
meters, in Lyon, France. The lease for this facility expires in June 2024, and we have the ability to terminate the lease early in June 2021. In July 2019, we entered into another lease in
Lyon, France for additional offices and laboratory space, which together will consist of approximately 3,000 square meters. The lease for this facility expires in June 2029, and we will
have the ability to terminate the lease either in June 2025 or June 2028. We believe our current leased space is sufficient to meet our current needs in Europe.
In February 2016, we opened our U.S. office in Cambridge, Massachusetts. We currently lease 6,289 square feet of office space in Cambridge, Massachusetts under a lease that expires in
June 2029. In 2018, we entered into a lease for 3,000 square meters of manufacturing and office space in Princeton, New Jersey, under a lease that expires in June 2029. Our Princeton
manufacturing facility in Princeton has been able to produce GMP-compliant batches since the fourth quarter of 2019. Additionally, our Princeton manufacturing facility was designed
with the ability to scale production to supply eryaspase to meet our anticipated clinical trial needs, including for supply requirements for U.S. patients in the TRYbeCA-1 trial, and for our
anticipated initial commercial needs in the United States, if eryaspase receives approval. Following the opening of our Princeton manufacturing facility, we terminated our agreement with
the American Red Cross for the use of a manufacturing facility in Philadelphia, Pennsylvania in January 2020.
We believe our production facilities will be sufficient to supply eryaspase for our ongoing Phase 2 and Phase 3 clinical trials and to meet our anticipated initial commercial needs for
eryaspase in Europe and United States, if approved.
Item 4A.
Unresolved Staff Comments.
Not applicable.
Item 5.
Operating and Financial Review and Prospects.
You should read the following discussion of our operating and financial review and prospects in conjunction with our audited consolidated financial statements and the related notes
thereto included elsewhere in this Annual Report. In addition to historical information, the following discussion and analysis contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to
these differences include those discussed below and elsewhere in this Annual Report, particularly in sections titled “Risk Factors” and “Special Note Regarding Forward-Looking
Statements.”
Overview
We are a clinical-stage biopharmaceutical company developing innovative red blood cell-based therapeutics for cancer and orphan diseases. Leveraging our proprietary ERYCAPS
platform, a novel technology to encapsulate drug substances inside red blood cells, we are developing a pipeline of product candidates to address markets with high unmet medical need.
Our primary focus is on the development of product candidates that target the altered metabolism of cancer cells by depriving them of amino acids necessary for their growth and survival.
Our lead product candidate, eryaspase, which consists of L-asparaginase encapsulated inside donor-derived red blood cells, targets the cancer cell’s altered asparagine and glutamine
metabolism. Eryaspase is in Phase 3 clinical development for the treatment of second-line pancreatic cancer and in Phase 2 clinical development for the treatment of triple-negative breast
cancer. We have also developed erymethionase, a preclinical product candidate, which consists of methionine-gamma-lyase encapsulated in red blood cells to target methionine-dependent
cancers. We intend to continue to work on the development of erymethionase as well as potential other therapeutic strategies based on methionine depletion, depending on financial
resources and business strategy.
We are also exploring the use of our ERYCAPS platform for developing cancer immunotherapies (ERYMMUNE) and enzyme therapies (ERYZYME).
We produce product candidates at our GMP-approved manufacturing sites in Lyon, France and in Princeton, New Jersey, United States.
We have never generated any revenues from product sales. We do not expect to generate material revenue from product sales unless and until we successfully complete development of,
obtain marketing approval for and commercialize our product candidates. Clinical development, regulatory approval and commercial launch of a product candidate can take several years
and are subject to significant uncertainty. Historically, we have financed our operations and growth through issuances of share capital and convertible bonds (converted into shares in
2013) and through conditional advances and subsidies from Bpifrance Financement (formerly Oséo), part of
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BPI France, a French public investment bank and from research tax credits. In May 2013, we completed the initial public offering of our ordinary shares on Euronext Paris, from which we
raised €17.7 million in gross proceeds, and in October 2014, we raised an additional €30 million in gross proceeds from the issuance of additional ordinary shares. We also conducted three
private placements with institutional investors in the United States and in Europe in December 2015, December 2016 and April 2017, raising €25.4 million, €9.9 million and €70.5 million
in gross proceeds, respectively.
In November 2017, we completed a global offering of an aggregate of 6,180,137 ordinary shares, including the full exercise of the underwriters’ options to purchase additional shares, for
gross proceeds of $143.7 million. The global offering consisted of a U.S. initial public offering of 5,389,021 American Depositary Shares, or ADSs, where each ADS represents one
ordinary share, and a concurrent private placement in Europe and other countries outside of the United States and Canada of 791,116 ordinary shares. Our net proceeds from the global
offering were approximately €112.1 million ($130.4 million). In connection with our 2017 global offering, our share capital increased by €618,013.70 with a corresponding increase of
€122,984,726 in our share premium.
Since our inception in 2004, we have incurred significant operating losses. Our net loss was €33.5 million, €38.2 million and €62.6 million for the years ended December 31, 2017, 2018
and 2019, respectively. We had a consolidated accumulated deficit of €199.3 million as of December 31, 2019, and we expect to incur significant expenses and substantial operating losses
over the next several years as we continue our research and development efforts and advance our clinical development programs in Europe and the United States. Our net losses may
fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, the receipt of milestone payments, if any, and our expenditures on other
research and development activities. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:
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initiate and conduct our ongoing and planned clinical trials of eryaspase in Europe and in the United States;
continue the research and development of our other product candidates, including planned and future clinical trials;
seek to discover and develop additional product candidates;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
scale-up our manufacturing capabilities to support the launch of additional clinical studies and the commercialization of our product candidates, if approved;
establish a sales and marketing infrastructure for the commercialization of our product candidates, if approved;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, medical, regulatory, quality control and scientific personnel; and
add operational, financial and management information systems and personnel, including personnel to support our product development, manufacturing and
commercialization efforts and our operations as a public company listed in the United States.
Until such time that we can generate substantial revenue from product sales, we expect to finance these expenses and our operating activities through our existing cash and cash
equivalents. If we are unable to obtain required marketing approvals and generate revenue from product sales, we will need to raise additional capital through the issuance of our shares,
through other equity or debt financings or through collaborations or partnerships with other companies. However, we may be unable to raise additional funds or enter into other funding
arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our
development programs or commercialization efforts or grant rights to third parties to develop or market product candidates that we would otherwise prefer to develop and market
ourselves.
Although it is difficult to predict future liquidity requirements, we believe that our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our
operations until February 2021. We may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding,
marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, no assurance can be
given at this time as to whether we will be able to achieve these financing objectives. Our ability to successfully transition to profitability will be dependent upon achieving a level of
revenues adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.
Due to the listing of our ordinary shares on Euronext Paris and in accordance with the European Union’s regulation No. 1606/2002 of July 19, 2002 as amended, statutory consolidated
financial statements were prepared in accordance with IFRS, as adopted by the European Union for the years ended December 31, 2017, 2018 and 2019 and were approved and authorized
for issuance by our board of directors on March 9, 2018, March 8, 2019 and March 12, 2020, respectively.
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The consolidated financial statements as of and for the years ended December 31, 2017, 2018 and 2019 included in this Annual Report have been prepared in accordance with IFRS as
issued by the IASB with no difference with the statutory consolidated financial statements and were approved and authorized for issuance by our board of directors on March 12, 2020.
Financial Operations Overview
Operating Income
Our operating income consists of other income.
Revenues
To date, we have not generated any revenue from the sale of products. Our ability to generate product revenue and to become profitable will depend upon our ability to successfully
develop and commercialize eryaspase and our other product candidates. Because of the numerous risks and uncertainties associated with product development and regulatory approval, we
are unable to predict the amount or timing of product revenue.
Other Income
Our other income consists of research tax credits and revenues from licenses or other contracts, and in particular, our agreements with SQZ Biotechnologies and Orphan Europe. Our
agreement with Orphan Europe was terminated in the first half of 2019 without financial consequences to us.
Research Tax Credit
The research tax credit (crédit d’impôt recherche), or CIR, is granted to companies by the French tax authorities in order to encourage them to conduct technical and scientific research.
Companies demonstrating that they have expenses that meet the required criteria, including research expenses located in France or, since January 1, 2005, within the European Union or in
another state that is a party to the agreement in the European Economic Area that has concluded a tax treaty with France that contains an administrative assistance clause, receive a tax
credit which can be used against the payment of the corporate tax due the fiscal year in which the expenses were incurred and during the next three fiscal years, or, as applicable, can be
reimbursed for the excess portion. The expenses taken into account for the calculation of the CIR only involve research expenses.
The main characteristics of the CIR are the following:
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the CIR results in a cash inflow from the tax authorities paid directly to us as we are not subject to corporate income tax;
a company’s corporate income tax liability does not limit the amount of the CIR -a company that does not pay any corporate income tax can request direct cash payment of
the research tax credit; and
the CIR is not included in the determination of the corporate income tax.
As a result, we have concluded that the CIR meets the definition of a government grant as defined in IAS 20, Accounting for Government Grants and Disclosure of Government
Assistance, and, as a result, it has been classified as other income within operating income in our statement of income (loss).
We will request the reimbursement of the CIR receivable under the community tax rules for small and medium firms in compliance with the current regulations.
Subsidies
We have received financial assistance from BPI France and other governmental organizations in connection with the development of our product candidates. BPI France’s mission is to
provide assistance and support to emerging French enterprises to facilitate the development and commercialization of innovative technologies. Such funding is intended to finance our
research and development efforts and the recruitment of specific personnel.
We account for non-refundable subsidies as other income ratably over the duration of the funded project. Funds are recognized in other income in our consolidated statement of income
(loss) for the fiscal year in which the financed expenses were recorded. Through December 31, 2019, we received €2,738 thousand in non-refundable subsidies, mainly from BPI France.
For the year ended
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December 31, 2019, we recognized an income of €294 thousand in accordance with the TEDAC agreement signed with BPI France. This amount was received in 2020.
Revenue from Licenses or Other Contracts
Partnership with Orphan Europe on Acute Myeloid Leukemia
In November 2012, we entered into a marketing agreement with Orphan Europe, a subsidiary of the Recordati group, to market and distribute GRASPA® for the treatment of ALL and
AML in 38 countries in Europe, including all of the countries in the European Union. Because of the withdrawal of the MAA for ALL and the Company’s strategic re-focus on solid
tumors, our agreement with Orphan Europe was terminated in the first half of 2019 without financial consequences to us.
Partnership with Orphan Europe for NOPHO clinical trial
Pursuant to the terms of our distribution agreement, Orphan Europe agreed to finance the NOPHO trial for a total amount of €600 thousand. We recognized revenues related to this
partnership under “other income” in our statement of income (loss).
License agreement with SQZ Biotechnologies
Pursuant to the terms of our license agreement with SQZ Biotechnologies, we granted to SQZ Biotechnologies an exclusive worldwide license to develop antigen specific immune
modulating therapies employing red blood cell-based approaches. In accordance with IFRS 15, this agreement grants to SQZ Biotechnologies a right to use the underlying intellectual
property. Consequently, the income is recognized when SQZ Biotechnologies can begin to use the licensed intellectual property. We recognized the upfront payment of $1 million under
“other income” in our statement of income (loss) for 2019.
Operating Expenses
Our operating expenses consist primarily of research and development activities and general and administrative costs.
Research and Development
We engage in substantial research and development efforts to develop innovative pharmaceutical product candidates. Research and development expenses consist primarily of:
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sub-contracting, collaboration and consultant expenses, that primarily include the cost of third-party contractors such as contract research organizations, or CROs, who
conduct our non-clinical studies and clinical trials;
personnel costs, including salaries, related benefits and share-based compensation, for our employees engaged in scientific research and development functions;
licensing and intellectual property costs;
purchases, real-estate leasing costs as well as conferences and travel costs; and
depreciation and amortization.
Since 2015, our research and development efforts have been related primarily to our completed and ongoing clinical trials of eryaspase for the treatment of pancreatic cancer, ALL and
AML. In June 2018, we ceased the development program for eryaspase in ALL and are focusing our development efforts on eryaspase for the treatment of selected solid tumors. The
resources that became available as a result of this strategic decision were allocated to what we estimate is a significantly larger unmet medical need and market opportunity for the
potential treatment of solid tumors, including pancreatic cancer and TNBC. This decision did not have a significant impact on our consolidated financial statements.
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Our direct research and development expenses consist principally of external costs, such as manufacturing expenses, non-clinical studies, fees paid to consultants, laboratories and CROs
in connection with our clinical trials, and costs related to our collaborations, which we allocate to our specific research programs. We also allocate some personnel-related costs,
depreciation and other indirect costs to specific programs, although costs for some scientific personnel associated with the development of our ERYCAPS platform generally are not
allocated to specific programs.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in
earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to
increase in the foreseeable future as we initiate clinical trials for certain product candidates and pursue later stages of clinical development of other product candidates.
We cannot determine with certainty the duration or costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the
commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.
The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
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the scope, rate of progress and expense of our ongoing, as well as any additional, non-clinical studies, clinical trials and other research and development activities;
clinical trial and early-stage results;
the terms and timing of regulatory approvals;
the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and
the ability to market, commercialize and achieve market acceptance for eryaspase or any other product candidate that we may develop in the future.
A change in the outcome of any of these variables with respect to the development of product candidates that we are developing could mean a significant change in the costs and timing
associated with the development of such product candidates. For example, if the FDA, the EMA or other regulatory authority were to require us to conduct non-clinical and clinical studies
beyond those which we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in enrollment in any clinical trials, we could
be required to spend significant additional financial resources and time on the completion of clinical development.
Under our license and distribution agreement with Orphan Europe related to the development of eryaspase for the treatment of AML, , which has been subsequently terminated, we re-
invoiced, with no margin, some of the clinical costs that we incurred from external providers. In application of IAS 18 Revenue in 2017 and IFRS 15 Revenue from contracts with
customers in 2018 and 2019, we considered that, within the context of our agreement with Orphan Europe, we acted as agent regarding these re-invoiced external costs, as:
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We did not have primary responsibility for provision of the goods or services, and the majority of services were provided by third parties. Costs of CROs were the most
significant external costs, and such costs were directly invoiced to Orphan Europe. We were directly invoiced only for secondary services.
We did not bear any inventory risk.
We had no capacity to determine prices, as all of the external costs were re-invoiced for the exact amount of the initial invoice, with no margin, and we were not affected by
any price changes applied by the suppliers.
We bore a credit risk that we did not consider to be significant.
Consequently, the re-invoicing of these external costs to Orphan Europe was presented as a decrease in corresponding research and development expenses incurred by us.
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General and Administrative
General and administrative expense consists primarily of personnel costs including share-based compensation for personnel other than employees engaged in scientific research and
development functions. General and administrative expense also consists of fees for professional services, mainly related to audit, IT, accounting, recruitment and legal services,
communication and travel costs, real-estate leasing costs, office furniture and equipment costs, allowance for amortization and depreciation, directors’ remuneration, insurance costs and
overhead costs, such as postal and telecommunications expenses.
We anticipate that our general and administrative expenses will increase in the future as we grow our support functions for the expected increase in our research and development activities
and the potential commercialization of our product candidates.
Financial Income (Expense)
Financial income (expense) relates primarily to interest and other expense for loans and other financial debts, including leases, offset by income received from cash and cash equivalents,
as well as foreign exchange gains and losses related to exchange rate differences on cash held in U.S. dollars as of December 31, 2019 and our purchases of services in U.S. dollars.
Our cash and cash equivalents have been deposited primarily in cash accounts, money market funds and term deposit accounts with short maturities and therefore generate only a modest
amount of interest income. We expect to continue this investment philosophy in the future.
A. Operating Results
Comparison of the Years Ended December 31, 2018 and 2019
Operating Income
We generated operating income of €4,447 thousand in 2018 and €5,283 thousand in 2019. The components of our operating income are set forth in the table below.
Revenues
Other income
Research Tax Credit
Subsidies
Revenues from licenses or other contracts
Total operating income
FOR THE YEAR ENDED
DECEMBER 31,
2018
2019
(in thousands of €)
—
4,375
—
72
4,447
—
3,915
294
1,074
5,283
As no research and development expenditure is capitalized before obtaining a marketing authorization, the CIR related to a research program is entirely recognized as operating income.
The CIR recognized for the year ended December 31, 2019 was received in cash in 2020.
Revenues from licenses or other contracts are primarily associated with our partnership with Orphan Europe in 2018 and with our license agreement with SQZ Biotechnologies in 2019.
Research and Development Expenses
In 2019, our research and development expenses increased from €33,468 thousand to €52,193 thousand, an increase of 55.9% compared to 2018.
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Our research and development expenses are broken down in the table below. Our research and development expenses consist principally of external costs, such as startup fees paid to
investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not
allocate personnel-related costs, costs associated with our general platform improvements, depreciation or other indirect costs to specific projects, as they are deployed across multiple
projects under development.
ERYASPASE
ERYMETHIONASE / ERYMINASE
ERYMMUNE
ERYZYME
Total direct research and development expenses
Consumables
Rental and maintenance
Services, subcontracting and consulting fees
Personnel expenses (1)
Depreciation and amortization expense
Other
Total indirect research and development expenses
Total research and development expenses (2)
FOR THE YEAR ENDED
DECEMBER 31,
2018
2019
(in thousands of €)
12,883
2,472
389
256
16,000
938
793
4,532
10,914
233
58
17,468
33,468
22,740
2,027
275
7
25,049
2,917
1,292
4,413
14,967
3,508
47
27,144
52,193
% CHANGE
77%
(18%)
(29%)
(97%)
57%
211%
63%
(3%)
37%
1,407%
(19%)
55%
56%
(1)
(2)
Includes €1,158 thousand and €688 thousand related to share-based compensation expense for 2018 and 2019, respectively.
€23,965 thousand and €44,398 thousand of this amount are related to clinical trials for 2018 and 2019, respectively.
The increase of research and development expenses of €18,725 thousand from 2018 to 2019 was mainly due to:
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A €9,857 thousand increase in costs related to eryaspase because of (i) our decision to cease development programs related to ALL and to shift our focus to the treatment of
solid tumors and (ii) the initiation of our TRYbeCA-1 trial, which began in September 2018; and
A €4,053 thousand increase in personnel expenses, mainly related to an increase in headcount of our research and development workforce, especially in manufacturing and
supply, in connection with our ongoing clinical trials and particularly, the launch of the TRYbeCA-1 trial in September 2018. The average number of full-time employees
allocated to our research and development workforce was 99 in 2018 and 156 in 2019.
A €3,275 thousand increase in depreciation and amortization expenses, mainly related to our commissioning of the new manufacturing facility in Princeton, New Jersey in
2019 and the recognition of an impairment on a production process recognized in intangible assets.
General and Administrative Expenses
In 2019, our general and administrative expenses increased from €14,600 thousand to €17,164 thousand, an increase of 18% compared to 2018.
Our general and administrative expenses are broken down as follows:
Consumables
Rental and maintenance
Services, subcontracting, and consulting fees
Personnel expenses (1)
Depreciation and amortization expense
Other (2)
Total general and administrative expenses
(1)
(2)
Includes €849 thousand and €522 thousand related to share-based compensation expense for 2018 and 2019, respectively.
Includes €442 thousand and €149 thousand related to share-based compensation expense (warrants allocated to directors and to the chairman of the board) for 2018 and 2019,
respectively.
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FOR THE YEAR ENDED
DECEMBER 31,
2018
2019
(in thousands of €)
% CHANGE
33
1,584
5,409
5,925
529
1,122
14,600
527
1,117
7,964
6,331
751
474
17,164
15%
(29)%
47%
7%
42%
(58)%
18%
The increase of general and administrative expenses of €2,564 thousand from 2018 to 2019 was mainly due to a €2,555 thousand increase in service and consulting fees, mainly related to
costs linked to the establishment of our Princeton, New Jersey manufacturing facility.
Financial Income (Loss)
Our financial income resulted in a profit of €1,414 thousand in 2019, as compared to a profit of €5,399 thousand in 2018 and is broken down as follows:
Financial income
Financial expenses
Financial income
The financial income related mainly to:
FOR THE YEAR ENDED
DECEMBER 31,
2018
2019
(in thousands of €)
5,427
(29)
5,399
2,947
(1,533)
1,414
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Foreign currency gains generated by the conversion into euros of our U.S. dollar bank account of €1,815 thousand in 2019 as compared to €3,993 thousand in 2018;
A gain on investment currency transactions on swaps of €1,124 thousand in 2019 compared to €1,254 thousand in 2018; and
Foreign currency loss on the loan in U.S. dollars from us to our U.S. subsidiary in the amount of €1,035 thousand (no corresponding charge during the comparative period);
Comparison of the Years Ended December 31, 2017 and 2018
Operating Income
We generated operating income of €3,364 thousand in 2017 and €4,447 thousand in 2018, an increase of 32.2%. The components of our operating income are set forth in the table below.
Other income was primarily generated by the CIR and re-invoicing of clinical trials co-financed by Orphan Europe.
Revenues
Other income
Research Tax Credit
Subsidies
Other income
Total operating income
FOR THE YEAR ENDED
DECEMBER 31,
2017
2018
(in thousands of €)
—
3,187
—
178
3,364
—
4,375
—
72
4,447
As no research and development expenditure is capitalized before obtaining a marketing authorization, the CIR related to a research program is entirely recognized as operating income.
The CIR recognized for each of the years ended December 31, 2017 and 2018 was received in cash in 2019.
Other income totaled €178 thousand and €72 thousand in 2017 and 2018, respectively. These amounts represent the sum of internal costs incurred by us within the context of the AML and
the NOPHO studies, which were re-invoiced to Orphan Europe.
Research and Development Expenses
In 2018, our research and development expenses increased from €25,463 thousand to €33,468 thousand, an increase of 31.4% compared to 2017.
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Our research and development expenses are broken down in the table below. Our research and development expenses consist principally of external costs, such as startup fees paid to
investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not
allocate personnel-related costs, costs associated with our general platform improvements, depreciation or other indirect costs to specific projects, as they are deployed across multiple
projects under development.
ERYASPASE
ERYMETHIONASE / ERYMINASE
ERYMMUNE
ERYZYME
Total direct research and development expenses
Consumables
Rental and maintenance
Services, subcontracting and consulting fees
Personnel expenses (1)
Depreciation and amortization expense
Other
Total indirect research and development expenses
Total research and development expenses (2)
FOR THE YEAR ENDED
DECEMBER 31,
2017
2018
(in thousands of €)
10,264
2,378
146
99
12,887
663
628
3,028
7,916
259
81
12,575
25,463
12,883
2,472
389
256
16,000
938
793
4,532
10,914
233
58
17,468
33,468
% CHANGE
26%
4%
167%
158%
24%
42%
26%
50%
38%
(10%)
(28%)
39%
31%
(1)
(2)
Includes €833 thousand and €1,158 thousand related to share-based compensation expense for 2017 and 2018, respectively.
€19,476 thousand and €23,965 thousand are related specifically to clinical studies for 2017 and 2018, respectively.
The increase of research and development expenses of €8,004 thousand from 2017 to 2018 was mainly due to:
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A €2,619 thousand increase in costs related to eryaspase due to (i) our decision to cease development programs related to ALL and to shift our focus to solid tumors. and (ii)
the initiation of our TRYbeCA-1 trial in September 2018; and
A €2,998 thousand increase in personnel expenses, mainly related to an increase in headcount of our research and development workforce, especially in pharmaceutical
operations and preclinical departments. This increase was directly linked to our ongoing preclinical and clinical trials and particularly, the launch of the TRYbeCA-1 trial in
September 2018. The average number of full-time employees allocated to our research and development workforce was 71 in 2017 and 99 in 2018.
General and Administrative Expenses
In 2018, our general and administrative expenses increased from €8,791 thousand to €14,600 thousand, an increase of 66% compared to 2017.
Our general and administrative expenses are broken down as follows:
Consumables
Rental and maintenance
Services, subcontracting, and consulting fees
Personnel expenses (1)
Depreciation and amortization expense
Other (2)
Total general and administrative expenses
FOR THE YEAR ENDED
DECEMBER 31,
2017
2018
(in thousands of €)
% CHANGE
148
894
2,867
3,688
266
927
8,791
33
1,584
5,409
5,925
529
1,122
14,600
(78%)
77%
89%
61%
99%
21%
66%
(1)
(2)
Includes €936 thousand and €849 thousand related to share-based compensation expense for 2017 and 2018, respectively.
Includes €300 thousand and €442 thousand related to share-based compensation expense (warrants allocated to directors) for 2017 and 2018, respectively.
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The increase of general and administrative expenses of €5,809 thousand from 2017 to 2018 was mainly due to:
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A €2,237 thousand increase in personnel expenses, mainly related to the increase of the average number of full-time employees. The average number of full-time employees
allocated to our general and administrative workforce was 25 in 2017 and 39 in 2018; and
A €2,542 thousand increase in service and consulting fees, mainly related to an increase of legal and internal control fees as a result of our status as a U.S. public company
since November 2017.
Financial Income (Loss)
Our financial income resulted in a profit of €5,399 thousand in 2018, as compared to a loss of €2,644 thousand in 2017 and is broken down as follows:
Financial income
Financial expenses
Financial income (loss)
The financial income (loss) related mainly to:
FOR THE YEAR ENDED
DECEMBER 31,
2017
2018
(in thousands of €)
539
(3,183)
(2,644)
5,427
(29)
5,399
•
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foreign currency exchange gains and losses:
o
o
In 2017, we recognized a loss of €3,026 thousand (of which €3,159 was generated by the conversion into euros of our U.S. dollar bank accounts); and
In 2018, we recognized a foreign currency gain of €3,993 thousand (of which €3,981 thousand was generated by the conversion into euros of our U.S. dollar bank
account) and a gain on cross-currency swap transaction of €1,254 thousand; and
interest income from short-term deposits (€539 thousand in 2017 and €163 thousand in 2018).
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with IFRS. Some of the accounting methods and policies used in preparing our consolidated financial statements under
IFRS are based on complex and subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the
circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our earnings could differ from the value derived from these estimates if conditions
change and these changes had an impact on the assumptions adopted. We believe that the most significant management judgments and assumptions in the preparation of our consolidated
financial statements are described below. See Note 3 and Note 4 to our consolidated financial statements for a description of our other significant accounting policies.
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Share-Based Compensation
We have six share-based compensation plans for employees and non-employees, the 2012 Plan, the 2014 Plan, the 2016 Plan, the 2017 Plan, the 2018 Plan and the 2019 Plan.
As of December 31, 2019, we have granted share-based compensation under these plans to certain employees as well as to members of our board of directors in the form of free shares
(Actions gratuites, or AGA), stock options, or SOs, share warrants (Bons de Souscription d’Actions, or BSA) and founder’s share warrants (Bons de Souscription de Parts de Créateur
d’Entreprise, or BSPCE) with the following exercise prices and on each of the grant dates reflected below.
AWARDS
BSA 2012
BSPCE 2012
BSA 2012
BSA 2012
BSPCE 2012
BSPCE 2014
BSA 2012
BSPCE 2012
BSA 2012
BSPCE 2014
BSA 2014
BSA 2012
BSPCE 2014
AGA 2016
SOP 2016
BSA 2016
AGA 2016
BSA 2016
SOP 2016
AGA 2016
SOP 2016
AGA 2017
SOP 2017
BSA 2017
AGA 2016
SOP 2016
AGA 2016
AGA 2017
SOP 2017
BSA 2017
SOP 2018
AGA 2018
SOP 2018
AGA 2018
BSA 2018
SOP 2018
SOP 2019
GRANT DATE
NUMBER
OF
AWARDS
GRANTED
EXERCISE
PRICE
PER
SHARE
ORDINARY
SHARE
FAIR
MARKET
VALUE
PER
SHARE
AT GRANT
DATE
May 31, 2012
May 31,2012
August 3, 2012
July 18, 2013
July 18, 2013
January 22, 2014
July 17, 2014
July 17, 2014
April 29, 2015
June 23, 2015
June 23, 2015
August 31, 2015
May 6, 2016
October 3, 2016
October 3, 2016
October 3, 2016
January 8, 2017
January 8, 2017
January 8, 2017
June 27, 2017
June 27, 2017
June 27, 2017
June 27, 2017
June 27, 2017
October 3, 2017
October 3, 2017
January 7, 2018
January 7, 2018
January 7, 2018
January 7, 2018
September 7, 2018
January 6, 2019
January 6, 2019
April 12, 2019
April 12, 2019
April 12, 2019
July 31, 2019
84
2,027
7,434
1,539
459
13,177
12,000
1,000
13,176
2,150
2,500
3,000
3,585
5,000
111,261
44,499
45,000
15,000
15,000
3,000
8,652
18,000
74,475
22,200
55,000
16,650
30,000
40,500
113,940
97,203
40,500
24,000
36,150
38,025
94,200
25,998
76,905
59,123
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
7.362
7.362
7.362
7.362
7.362
12.250
7.362
7.362
7.362
12.250
12.250
7.362
12.250
—
18.520
18.520
—
13.60
15.65
—
26.47
—
26.47
26.47
—
23.59
—
—
18.00
18.00
9.26
—
6.38
—
6.82
7.20
5.78
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
—
—
—
10.27
10.27
12.77
14.90
14.90
31.19
32.75
32.75
37.52
24.75
18.52
18.52
18.52
13.60
13.60
15.65
26.47
26.47
26.47
26.47
26.47
24.48
23.59
18.00
18.00
18.00
18.00
8.75
6.38
6.38
7.20
7.20
7.20
5.81
NUMBER
OF
AWARDS
GRANTED
EXERCISE
PRICE
PER
SHARE
ORDINARY
SHARE
FAIR
MARKET
VALUE
PER
SHARE
AT GRANT
DATE
AWARDS
AGA 2019
BSA 2019
SOP 2019
The share-based compensation granted under the 2016 Plan, 2017 Plan, 2018 Plan and 2019 Plan by our board of directors at meetings or by decisions made by our Chief Executive
Officer, as applicable, dated October 3, 2016, January 8, 2017, June 27, 2017, October 3, 2017, January 7, 2018,September 7, 2018, January 6, 2019, April 12, 2019, July 31, 2019 and
October 9, 2019 was valued using Monte Carlo, Black-Scholes and Cox-Ross-Rubinstein methods. Assumptions were set at the grant date.
October 9, 2019
October 9, 2019
October 9, 2019
300,941
75,000
347,250
—
3.71
4.25
3.78
3.78
3.78
GRANT DATE
€
€
€
€
€
€
Following the resignation of our former Chief Scientific Officer in January 2016, 1,000 BSPCE2014 of the 3,000 BSPCE2014 initially allocated on January 22, 2014 will not be granted.
Following the resignation of certain other employees, our Chief Executive Officer acknowledged on October 3, 2017 that 1,017 AGA 2016 shares allocated on October 3, 2016 would not
be granted to these employees and would be forfeited.
Following the resignation of certain other employees, our Chief Executive Officer acknowledged on June 27, 2018 that the following awards would not be granted to these terminated
employees and would be forfeited: (i) 7,238 AGA 2016 shares allocated on October 3, 2016; (ii) 750 AGA 2016 shares allocated on October 3, 2017; (iii) 1,302 AGA 2016 shares allocated on
June 27, 2017; (iv) 3,975 AGA 2017 shares allocated on June 27, 2017; (v) 5,400 AGA 2017 shares allocated on January 7, 2018; (vi) 12,000 SOP 2016 options allocated on October 3, 2016;
(vii) 3,000 SOP 2016 options allocated on January 8, 2017; (viii) 3,000 SOP 2016 options allocated on October 3, 2017; (ix) 6,000 SOP 2017 options allocated on June 27, 2017; and (x)
12,150 SOP 2017 options allocated on January 7, 2018.
Following the resignation of certain other employees, our Chief Executive Officer acknowledged on October 3, 2018 that the following awards would not be granted to these terminated
employees and would be forfeited: (i) 1,500 AGA 2016 shares allocated on October 3, 2016; (ii) 750 AGA 2017 shares allocated on June 27, 2017; (iii) 1,350 AGA 2017 shares allocated
on January 7, 2018; and (iv) 1,500 SOP 2016 options allocated on October 3, 2016.
Following the resignation of certain other employees, our Chief Executive Officer acknowledged on January 7, 2019 that the following awards would not be granted to these terminated
employees and would be forfeited: (i) 2,048 AGA 2016 shares allocated on October 3, 2016; (ii) 1,500 AGA 2017 shares allocated on June 27, 2017; and (iii) 2,700 AGA 2017 shares
allocated on January 7, 2018.
Following the resignation of certain other employees, our Chief Executive Officer acknowledged on June 27, 2019 that the following awards would not be granted to these terminated
employees and would be forfeited: (i) 3,768 AGA 2016 shares allocated on October 3, 2016; (ii) 4,500 AGA 2016 shares allocated on October 3, 2017; (iii) 2,325 AGA 2017 shares
allocated on June 27, 2017; (iv) 14 310 AGA 2017 shares allocated on January 7, 2018; (v) 1,650 AGA 2018 shares allocated on January 6, 2019; (vi) 24,000 SOP 2018 options allocated
on 7 September 2018; and (vii) 195 SOP 2018 options allocated on April 12, 2019.
Following the resignation of certain other employees, our Chief Executive Officer acknowledged on October 3, 2019 that the following awards would not be granted to these terminated
employees and would be forfeited: (i) 1,722 AGA 2016 shares allocated on October 3, 2016; (ii) 450 AGA 2016 shares allocated on June 27, 2017; (iii) 1,125 AGA 2017 shares allocated
on 27 June 2017; (iv) 2,700 AGA 2017 shares allocated on January 7, 2018; (v) 2,400 AGA 2018 shares allocated on January 6, 2019; (vi) 2,500 AGA 2018 shares allocated on April 12,
2019; (vii) 1,950 SOP 2018 options allocated on 6 January 2019; and (viii) 975 SOP 2018 options allocated on April 12, 2019.
Following the expiry of the three-year vesting period for the AGA 2016 allocated on October 3, 2016, our Chief Executive officer acknowledged on October 3, 2019 that the 87,516
remaining AGA 2016 shares allocated on October 3, 2016 would be forfeited.
The board of directors acknowledged on October 9, 2019, that 25,998 BSA2018 would be forfeited and that the BSA 2017 granted to our former director, Allene Diaz, would be forfeited
following her resignation.
We account for share-based compensation in accordance with the authoritative guidance on share-based compensation, IFRS 2 Share-based payment, or IFRS 2. Under the fair value
recognition provisions of IFRS 2, share-based compensation is measured at the grant
85
date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the
respective award.
Determining the fair value of share-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of certain warrants and
for our stock options. We use the Monte-Carlo and Cox-Ross-Rubinstein option-pricing models to determine the fair value of free shares and certain warrants, respectively. The
determination of the grant date fair value of warrants using an option-pricing model is affected by assumptions regarding a number of complex and subjective variables. These variables
include the fair value of our ordinary shares on the date of grant, the expected term of the awards, our share price volatility, risk-free interest rates and expected dividends. We estimate
these items as follows:
Fair Value of Our Ordinary Shares. As our ordinary shares are publicly traded on Euronext Paris, for purposes of determining the fair value of our ordinary shares we have established a
policy of using the closing sales price per ordinary share as quoted on Euronext Paris on the date of the grant by the Conseil d’Administration or the shareholders’ meeting.
Expected Term. The expected term represents the period that our share-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the
expected term of the warrant awards granted, we have based our expected term on the simplified method, which represents the average period from vesting to the expiration of the award.
Expected Volatility. We use the historical volatility of the Next Biotech index observed on Euronext Paris for the 2014 Plan and the historical volatility of our ordinary shares on Euronext
Paris for the 2016 Plan, the 2017 Plan,the 2018 Plan and the 2019 Plan.
Risk-Free Interest Rate. The risk-free interest rate is based on the yields of French government bonds with maturities similar to the expected term of the warrants for each warrant group.
Dividend Yield. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we have used an expected
dividend yield of zero.
If any of the assumptions used in the Black-Scholes, Monte-Carlo and Cox-Ross-Rubinstein models change significantly, share-based compensation for future awards may differ
materially compared with the awards granted previously.
The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:
Warrants
Volatility
Expected life (in years)
Dividend yield
January 2018
43.94%
5.5 - 6.5
0%
January 2017
48.00%
3
0%
June 2017
48.00%
3
0%
April 2019
38.91%
3 - 4
0%
October 2019
33.41%
2.5
0%
Stock options
Volatility
Expected life (in years)
Dividend yield
January 2017
48.00%
June 2017
48.00%
October 2017
48.00%
3
0%
3
0%
3
0%
January 2018
43.94%
5.5 - 6.5
0%
September 2018
41.59%
6 - 6.5
0%
January 2019
41.88%
6 - 6.5
0%
April 2019
41.65%
6 - 6.5
0%
July 2019
41.00%
6 - 6.5
0%
October 2019
40.69%
6 - 6.5
0%
For the years ended December 31, 2017, 2018 and 2019, we recorded share-based compensation expense of €1,769 thousand, €2,449 thousand and €1,359 thousand, respectively.
Since December 31, 2019, our Chief Executive Officer allocated on February 25, 2020:
•
•
41,950 SOP 2019 to certain employees; and
50,037 AGA 2019 to certain employees.
B. Liquidity and Capital Resources
We have financed our operations since our inception through several rounds of public and private financings. Through 2012, we raised an aggregate of €17.7 million from the issuance of
ordinary and preference shares and an additional €9.0 million from the issuance of convertible bonds. In 2013, we issued ordinary shares in our initial public offering on Euronext Paris,
raising net proceeds of €14.7 million and in 2014, we issued additional ordinary shares, raising net proceeds of €28.4 million. In 2015, we raised €23.5 million of net proceeds through the
issuance of ordinary shares in our December 2015 offering. In December 2016, we raised an additional €9.2 million of net proceeds through the issuance of ordinary shares. In April 2017,
we raised an additional €65.2 million of net proceeds through the issuance of ordinary shares. In November 2017, we completed a global offering of an aggregate of 6,180,137
86
ordinary shares, including the full exercise of the underwriters’ options to purchase additional shares, for net proceeds of €112.1 million ($130.4 million). The global offering consisted of
a U.S. initial public offering of ADSs and a concurrent private placement of ordinary shares in Europe and other countries outside of the United States and Canada.
We have also financed our operations through:
an aggregate amount of €2.7 million in non-refundable grants from BPI France and €2.1 million in conditional advances received from BPI France since our inception in
2004 through December 31, 2019. Since December 31, 2019, we received an additional amount of €0.3 million in non-refundable grants from BPI France and €3.0 million
in conditional advances.
research tax credits since our inception in 2014. The research tax credit recognized for the years ended December 31, 2017, 2018 and 2019 amounted to €11.6 million, of
which €7.7 million are received as of the date of this Annual Report. The remaining balance is expected to be received in 2020.
an unsecured bank loan with Société Générale subscribed in 2016 for a total amount of €1.9 million. The outstanding amount drawn at December 31, 2019 was €0.1 million.
•
•
•
Cash Flows
The table below summarizes our sources and uses of cash for the years ended December 31, 2017, 2018 and 2019.
Net cash flows used in operating activities
Net cash flows used in investing activities
Net cash flows from (used in) financing activities
Exchange rate effect on cash in foreign currency
Net increase (decrease) in cash and cash equivalents
2017
December 31,
2018
(in thousands of €)
2019
(24,702)
(1,791)
177,545
(3,183)
147,869
(47,857)
(6,450)
(818)
3,981
(51,144)
(43,310)
(19,838)
40
1,910
(61,198)
Our net cash flows used in operating activities were €24,702 thousand, €47,857 thousand and €43,310 for the years ended December 31, 2017, 2018 and 2019, respectively. From 2017 to
2018, our net cash flows used in operating activities increased due to the launch of TRYbeCA-1 trial in September 2018 and the triggering of advances payments to certain suppliers. From
2018 to 2019, our net cash flows used in operating activities decreased due to the collection of the CIR 2017 and CIR 2018 in 2019.
Our net cash flows used in investing activities were €1,791 thousand, €6,450 thousand and €19,838 in the years ended December 31, 2017, 2018 and 2019, respectively. Cash flows used
in investing activities in 2018 and 2019 related mainly to the establishment of our manufacturing facility in Princeton, New Jersey, United States (€3.3 million in 2018 and €18.5 million in
2019) and the expansion of our manufacturing facility in Lyon, France (€1.2 million in 2018 and €0.7 million in 2019).
Our net cash flows from financing activities were €177.5 million in 2017, €(0.8) million in 2018 and €40 thousand in 2019. Net cash flows from financing activities of €177.5 million in
2017 were primarily the result of our fundraising efforts in April 2017 and our global offering in November 2017, which included the issuance of ordinary shares and ADSs. Cash flows
used in financing activities in 2018 and 2019 related mainly to the reimbursement of a portion of our outstanding loan with Société Générale.
Non-refundable Subsidies and Conditional Advances from BPI France
Since our inception in 2004 through December 31, 2019, we have received non-refundable subsidies from BPI France in the amount of €2.7 million in connection with our preclinical
research programs. Since December 31, 2019, we received an additional amount of €0.3 million in non-refundable grants from BPI France and €3.0 million in conditional advances.
Since our inception in 2004 through December 31, 2019, we have also received three conditional advances from BPI France in relation to the development of our encapsulation platform
technology. These conditional advances are recorded under the “proceeds from borrowings” line item in our consolidated statements of cash flows. We recognize advances as current or
non-current liabilities, as applicable, in the statement of financial position, based on the repayment schedule. No repayment were made during the years ended December 31, 2017, 2018
and 2019.
The TEDAC research program, which is funded by non-refundable subsidies and conditional advances from BPI, will be funded according to a specified schedule set forth in the contract,
subject to completion of milestones. As the program advances, we will
87
provide BPI France with interim progress reports and a final report when the funded project ends. Based on these reports, we are entitled to conditional advances and non-refundable
subsidies, each award being made to help fund a specific development milestone. The total amount of the subsidies to be granted is €2,058 thousand, of which we have received an
aggregate amount of €1,455 thousand through December 31, 2019. The total amount of conditional advances to be granted is €4,895 thousand, of which we have received an aggregate
amount of €1,182 thousand through December 31, 2019. Since December 31, 2019, we received an additional amount of €0.3 million in non-refundable grants from BPI France and
€3.0 million in conditional advances.
The remaining milestones that we may achieve generally relate to development of product candidates such as erymethionase and eryminase under the TEDAC research program. If and to
the extent that we earn these conditional advances, we will be obligated to make repayments based on the achievement of specified sales levels as well as a percentage of sales.
Operating Capital Requirements
We believe our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements until February 2021. We have based this estimate on
assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Until we can generate a sufficient amount of revenue from our product
candidates, if ever, we expect to finance our operating activities through our existing cash and cash equivalents.
Our present and future funding requirements will depend on many factors, including, among other things:
•
•
•
•
•
•
the size, progress, timing and completion of our clinical trials for eryaspase and any other current or future product candidates;
the number of potential new product candidates we identify and decide to develop;
the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims of infringement raised by third parties;
the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or
adverse results with respect to any of these product candidates;
selling and marketing activities undertaken in connection with the anticipated commercialization of eryaspase and any other current or future product candidates, including
other product candidates in preclinical development, together with the costs involved in the creation of an effective sales and marketing organization; and
the amount of revenues, if any, we may derive either directly, or in the form of royalty payments from any future potential collaboration agreements, from our ERYCAPS
platform or relating to our other product candidates.
For more information as to the risks associated with our future funding needs, see the section entitled “Item 3.D—Risk Factors.”
Capital Expenditures
Our main capital expenditures in the years ended December 31, 2017, 2018 and 2019 were related primarily to the buildup of our fixed assets for our pharmaceutical manufacturing
facilities and laboratories and to a lesser extent to the purchase of office and computer equipment. We do not capitalize clinical research and development costs until we obtain marketing
authorization for a product candidate.
Our non-current assets are broken down as follows:
Intangible assets
Property, plant and equipment
Right of use
Other non-current financial assets
Total
2017
December 31,
2018
(in thousands of €)
2019
53
3,406
—
234
3,693
1,613
15,274
—
1,046
17,933
603
25,632
10,009
718
36,963
88
For the year ended December 31, 2017:
•
•
we capitalized costs related to our Princeton manufacturing facility in the amount of €868 thousand, which have been recognized as tangible assets in progress as of
December 31, 2017, general equipment and computer equipment in the amount of €407 thousand and building improvements in the amount of €389 thousand; and
non-current financial assets related to deposits paid on bank collateral and operating leases for our premises in Lyon, France and in Cambridge, Massachusetts.
For the year ended December 31, 2018:
•
•
•
we recognized in intangible assets expenses incurred as part of a new production process in the amount of €1,596 thousand, which was recognized in assets in progress as of
December 31, 2017;
we capitalized costs related to the establishment of our Princeton manufacturing facility in the amount of €11.9 million and the expansion of our manufacturing capacity in
Lyon, France in the amount of €1.2 million, which amounts were recognized in assets under construction as of December 31, 2018; and
non-current financial assets related mainly to deposits paid on bank collateral and commercial leases in the amount of €446 thousand and advance payments to suppliers in
the amount of €511 thousand.
For the year ended December 31, 2019:
•
•
•
•
we recognized an impairment in the amount of €1,036 thousand on the new production process asset considering that this amount will no longer be used in the intended
production process following clarification at the end of the year 2019;
we capitalized costs related to the establishment of our Princeton manufacturing facility in the amount of €10.6 million and the expansion of the manufacturing capacity in
France (Lyon) in the amount of €0.7 million;
we recognized a right-of-use in the amount of €10 million following the first application of IFRS 16 (see note 2.6 of our audited consolidated financial statements),this
right-of-use related mainly to the operating leases for our premises in Princeton, New Jersey and Cambridge, Massachusetts in the amount of €4.9 million and in Lyon,
France in the amount of €5.1 million; and
non-current financial assets related mainly to deposits paid on bank collateral and commercial leases in the amount of €475 thousand and advance payments to suppliers in
the amount of €226 thousand.
C. Research and Development
For a discussion of our research and development activities, see “Item 4.B—Business Overview” and “Item 5.A—Operating Results.”
D. Trend Information
For a discussion of trends, see “Item 5.A—Operating Results” and “Item 5.B—Liquidity and Capital Resources.”
E. Off-Balance Sheet Arrangements
During the periods presented, we did not and do not currently have any off-balance sheet arrangements as defined under Securities and Exchange Commission rules, such as relationships
with other entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions
that are not required to be reflected on our balance sheet.
89
F. Tabular Disclosure of Contractual Obligations
The following table discloses aggregate information about our material contractual obligations and the periods in which payments were due as of December 31, 2019. Future events could
cause actual payments and timing of payments to differ from the contractual cash flows set forth below.
Lease liabilities
Conditional advances
Bank loans
Other financial liabilities
Trade and fixed assets payables
Total
LESS
THAN
1 YEAR
1,425
—
62
—
5,800
7,286
1 TO 3
YEARS
3 TO 5
YEARS
(in thousands of €)
MORE
THAN
5 YEARS
TOTAL
3,411
—
—
—
—
3,411
2,525
—
—
38
—
2,562
5,342
1,321
—
—
—
6,663
12,703
1,321
62
38
5,800
19,923
The amounts of contractual obligations set forth in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, fixed or
minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under
agreements that we can cancel without a significant penalty.
G. Safe Harbor.
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act and as defined in the Private
Securities Litigation Reform Act of 1995. See “Special Note Regarding Forward-Looking Statements.”
Item 6.
Directors, Senior Management and Employees.
A. Directors and Senior Management.
The following table sets forth information concerning our executive officers and directors as of March 16, 2020.
NAME
Executive Officers
Gil Beyen
Eric Soyer
Jean-Sébastien Cleiftie (1)
Iman El-Hariry, M.D., Ph.D. (1)
Alexander Scheer, Ph.D(2).
Jérôme Bailly, Pharm.D.
Non-Employee Directors
Jean-Paul Kress, M.D. (4)
Sven Andréasson (3)(4)(5)
Philippe Archinard, Ph.D. (3)(4)(6)
Luc Dochez, Pharm.D. (6)
Martine Ortin George, M.D. (6)
Mélanie Rolli, M.D.(7)
Hilde Windels (3)(8)
AGE
POSITION(S)
58
53
46
59
57
41
54
67
60
45
71
47
54
Chief Executive Officer and Director
Deputy General Manager, Chief Financial Officer and Chief Operating Officer
Chief Business Officer
Chief Medical Officer
Chief Scientific Officer
Deputy General Manager, Vice President and Director of Pharmaceutical Operations and
Qualified Person
Chairman of the Board
Director
Director
Director
Director
Director
Director
90
Employee of our wholly-owned U.S. subsidiary, ERYTECH Pharma, Inc.
(1)
(2) Alexander Scheer notified us that he will be resigning from the position of Chief Scientific Officer effective April 30, 2020.
(3)
(3)
(5)
Member of the audit committee.
Member of the remunerations and appointment committee.
As representative of Galenos SPRL, the legal entity that holds this board seat.
Member of the clinical strategy committee.
(6)
(7) On March 12, 2020, Dr. Melanie Rolli was appointed to the board of directors. The board of directors will propose the ratification of her appointment at our next General Meeting
(8)
of Shareholders.
As representative of Hilde Windels BV, the legal entity that holds this board seat.
Executive Officers
Gil Beyen has served as our Chief Executive Officer since May 2013 and as a member of our board of directors since August 2013. Mr. Beyen served as Chairman of our board of
directors from August 2013 to June 2019. Prior to his appointment as Chief Executive Officer, he assisted our company in a consulting role as of 2012 and also served as Chairman of our
supervisory board from August 2012 until May 2013. Between 2000 and 2013, Mr. Beyen was Chief Executive Officer and director of TiGenix, a company he co-founded. He previously
served as the head of the Life Sciences division of Arthur D. Little, an international management consulting firm, in Brussels. Mr. Beyen received an M.S. in Bioengineering from the
University of Leuven (Belgium) and an M.B.A. from the University of Chicago.
Eric Soyer has served as our Chief Financial Officer and Chief Operating Officer since September 2015 and as our Directeur Général Délégué, or Deputy General Manager, since January
2019. Prior to his appointment as our Chief Financial Officer, he served for eight years as Chief Financial Officer of EDAP TMS S.A., a French therapeutic ultrasound company. He also
was Managing Director of the French affiliate of EDAP TMS from May 2012 to August 2015, and previously was EDAP TMS’s Executive Vice President of Finance, Human Resources
and Administration from December 2006 to May 2012. From 2005 to 2006, he served as Chief Financial Officer for Medica, a company operating nursing homes and post-care clinics
throughout France and Italy. From 1999 to 2005, he served in various positions of increasing responsibility for April Group, an insurance services company. He has international
experience as a controller and cost accountant for Michelin Group in France, the United States and Africa. Mr. Soyer graduated from the ESC Clermont School of Management (France)
and holds an M.B.A. from the University of Kansas and an Executive M.B.A. from the HEC Paris School of Management (France).
Jean-Sébastien Cleiftie has served as our Chief Business Officer since October 2016. Prior to joining us, he served as Associate Vice-President, Global Business Development & Licensing
at Sanofi in Paris, France from October 2010 to August 2016. Prior to joining Sanofi, Mr. Cleiftie served as a principal at Innoven Partners, a European venture capital firm focused on
investments in the healthcare and information technology industries in Europe and the United States, from February 2004 to October 2010. From 1997 to 1999, Mr. Cleiftie was a research
scientist with Aventis (now Sanofi) in the fields of immunotherapy and gene therapy for cancer. Mr. Cleiftie holds an M.S. in Biological & Medical Sciences and an M.S. in Immunology
from the University of Paris V, and received his M.B.A from Cornell University.
Iman El-Hariry, M.D., Ph.D. has served as our Chief Medical Officer and employee of our wholly-owned U.S. subsidiary, ERYTECH Pharma, Inc., since June 2015. Prior to her
appointment as Chief Medical Officer, she served as President of Azure Oncology Consulting from July 2014 to June 2015 and also assisted us in a consulting role from November 2014
to June 2015. Dr. El-Hariry served as Vice President of Clinical Research at Synta Pharmaceuticals from November 2010 to July 2014 and as Global Head of Oncology at Astellas
Pharma, Inc. from June 2009 to July 2010. From 2001 to 2009, she served as Director of Clinical Development, Oncology at Glaxo Smith Kline. Dr. El-Hariry is a licensed oncologist
with an M.D. from Alexandria Medical School (Egypt) and a Ph.D. in Cancer Research from Imperial College of Science and Medicine (United Kingdom).
Alexander Scheer, Ph.D. has served as our Chief Scientific Officer since October 2016. Prior to joining us, he served as the Head of Research at Pierre Fabre Laboratories, a
pharmaceutical company, in France from 2014 to 2016, and also served as a Deputy Head of Research at Pierre Fabre from 2012 to 2014. Prior to joining Pierre Fabre, Dr. Scheer served
as a Director, Global Research Informatics & Knowledge Management R&D and Project Leader, Neglected Diseases at Merck Serono in Switzerland from 2007 to 2012. From 2001 to
2007, Dr. Scheer served as Head of Molecular Screening and Cellular Pharmacology Department, Group Leader of Biochemical Pharmacology and Research Scientist at Merck Serono.
Dr. Scheer holds a B.Sc. in Natural Sciences and M.Sc. in Chemistry, both from the University of Gottingen (Germany), and a Ph.D. in Chemistry and Biochemistry from the German
Cancer Research Center.
Jérôme Bailly, Pharm.D. has served as our Qualified Person since December 2011, as our Director of Pharmaceutical Operations since 2007 and as a Vice President and Directeur Général
Délégué, or Deputy General Manager, since 2017. Prior to 2007, he was the Director of QA/Production at Skyepharma and Laboratoire Aguettant. Dr. Bailly holds a Pharm.D. and a
degree in Chemical Engineering, specializing in Biopharmaceutical Engineering and Cellular Production from École Polytechnique de Montréal (Canada).
91
Non-Employee Directors
Jean-Paul Kress, M.D. has served as Chairman of our board of directors since June 2019. Dr. Kress has served as the Chief Executive Officer of MorphoSys AG since September 2019. He
previously served as President and Chief Executive Officer of Syntimmune Inc. from January 2018 to November 2018. Prior to joining Syntimmune, Dr. Kress served as Executive Vice
President, President of International and Head of Global Therapeutic Operations at Biogen Inc from June 2017 to January 2018. From September 2015 to June 2017, Dr. Kress served as
Senior Vice President, Head of North America at Sanofi Genzyme. From July 2011 to September 2015, Dr. Kress served as President and Chief Executive Officer of Sanofi Pasteur MSD,
a European vaccine company. Prior to then, Dr. Kress worked at Gilead, Abbvie and Eli Lilly in senior commercial and business development roles in the United States and in Europe. Dr.
Kress holds an M.D. degree from Faculté Necker-Enfants Malades in Paris, and graduate and post-graduate degrees in pharmacology and immunology from École Normale Supérieure in
Paris.
Sven Andréasson (acting as legal representative of Galenos Sprl) has served as a member of our board of directors since 2013 and has served as representative of Galenos SPRL, the legal
entity that holds this board seat, since 2014. He also served as a member of our supervisory board from 2009 to May 2013. Mr. Andréasson has served as Senior Vice President, Corporate
Development for Novavax, Inc. (United States), a pharmaceutical company, since June 2014. From 2012 to 2013, he served as Chief Executive Officer of Isconova AB (Uppsala,
Sweden), a leading international vaccine adjuvant company acquired by Novavax in 2013, currently operating as Novavax AB. Prior to his role at Novavax AB, he served as Chief
Executive Officer of Beta-Cell N.V. (Brussels, Belgium) from 2008 to 2012 and as Chief Executive Officer of Active Biotech AB (Lund, Sweden) from 1999 to 2008. Mr. Andréasson
spent a number of years in roles at Pharmacia Corporation (merged with Pfizer Inc.), including President of Pharmacia SA, France, President of KabiPharmacia International and President
of Pharmacia Arzneimittel GmbH. He has extensive experience in international biotechnology companies and in the pharmaceutical industry. Mr. Andréasson received his B.S. in Business
Administration and Economics from the Stockholm School of Economics (Sweden).
Philippe Archinard, Ph.D. has served as a member of our board of directors since 2013 and was previously a member of our supervisory board from 2007 to May 2013. Dr. Archinard was
appointed General Manager, Chief Executive Officer and director of Transgene S.A. in December 2004 and its chairman of the board of directors in June 2010. Prior to joining Transgene,
he served as chief executive officer of Innogenetics N.V., from 2000 to December 2004. Dr. Archinard previously spent 15 years in various positions of increasing responsibility at
bioMérieux, a multinational biotechnology company, including serving as chief executive officer of its U.S. subsidiary. He has served as a member of bioMérieux’s board of directors
since 2005. Dr. Archinard is a chemical engineer, holds a Ph.D. in biochemistry from the University of Lyon (France), and completed Harvard Business School’s Program for Management
Development (PMD).
Luc Dochez, Pharm.D. has served as a member of our board of directors since 2015. Mr. Dochez is currently a venture partner at DROIA N.V., a position he has held since October 2018.
Prior to then, he served as Chief Executive Officer of Tusk Therapeutics Ltd., a private company focused on developing novel immuno-oncology products, from March 2015 until its
acquisition by Roche in September 2018. Mr. Dochez has over 15 years of experience in the biotechnology industry. He served as the Chief Business Officer and Senior Vice President of
Business Development of Prosensa Holding N.V., a biotechnology company, from November 2008 until its acquisition by BioMarin Pharmaceutical Inc. in January 2015. Before joining
Prosensa, he served as Vice President of Business Development at TiGenix, Director Business Development at Methexis Genomics, and a consultant at Arthur D. Little. Mr. Dochez is a
board member of Pharvaris BV, a Dutch company focused on rare diseases, as well as Bioncotech Therapeutics SL, a Spanish oncology company. He serves as an advisor to EverImmune
S.A., a French microbiome company, and is an expert member of the Investment Committee of QBIC II, a Belgian seed investment fund. Mr. Dochez holds a Pharm.D. degree and a
postgraduate degree in business economics from the University of Leuven (Belgium) and an M.B.A. degree from Vlerick Management School (Belgium).
Martine Ortin George, M.D. has served as a member of our board of directors since 2014. She has extensive experience in the United States in clinical research, medical affairs and
regulatory issues, acquired in small and large companies specialized in oncology. She currently serves as principal and senior executive consultant-life sciences for Global Development
Inc. Dr. George held the position of Vice President in charge of Global Medical Affairs for Oncology at Pfizer Inc., New York from 2010 to 2015. Previously, Dr. George held the positions
of Senior Vice President and Chief Medical Officer at GPC Biotech, Princeton and Senior Vice President, Head of the Oncology Department at Johnson &Johnson, New Jersey. She is a
qualified gynecologist and oncologist, trained in France and in Montreal. Dr. George began her career as Chief of Service at the Institut Gustave Roussy (France), was a visiting professor
at the Memorial Sloan Kettering Cancer Center, New York, and then held positions of increasing responsibility at Lederle Laboratories (a predecessor company to Pfizer Inc.), Sandoz
(now a division of Novartis AG) and Rhône-Poulenc Rorer (today part of Sanofi).
Mélanie Rolli, M.D. was appointed to our board of directors effective March 12, 2020. Dr. Rolli currently serves as the Chief Executive Officer of PIQUR Therapeutics AG, a Basel,
Switzerland-based clinical stage biotechnology company dedicated to drug development of targeted therapies in various oncological and dermatological indications, a position she has held
since May 2019. She joined PIQUR in 2017 as Chief Medical Officer and took on additional responsibilities as Chief Operating Officer in 2018. Prior to joining PIQUR, she was at
Novartis Pharmaceuticals AG from 2003 to 2017, where she held positions of increasing responsibility across the drug development, safety, and medical affairs functions. Prior to joining
Novartis, she worked as a post-doctoral cancer
92
research physician at SCRIPPS Research Institute for Molecular and Experimental Medicine in La Jolla, California, and as a clinical researcher in Germany. Dr. Rolli graduated from the
University of Heidelberg with a doctorate in medicine and pharmacology.
Hilde Windels (acting as legal representative of Hilde Windels BV) has served as a member of our board of directors since 2014 and has served as the representative of Hilde Windels BV,
the legal entity that holds this seat, since 2017. She has over 20 years of experience in corporate finance, capital markets and strategic initiatives. She currently serves as an executive
chairman of the board of directors and co-Chief Executive Officer of Mycartis NV, a private immune diagnostics company in Belgium and a spin-out of Biocartis Group NV. Ms. Windels
initially joined Biocartis in August 2011 as its Chief Financial Officer, a position she held until September 2015 when she was appointed co-Chief Executive Officer, a position she held
until early 2017, when she became interim Chief Executive Officer of Biocartis until September 2017. From early 2009 to mid-2011, she worked as an independent chief financial officer
for several private biotechnology companies. Ms. Windels served as Chief Financial Officer of Devgen from 1999 to 2008 and as a member of its board of directors from 2001 to 2008.
Ms. Windels also currently serves on the board of directors of Ablynx, MDx Health NV, Celyad NV and VIB in Belgium. Ms. Windels holds a Masters in Economics from the University
of Leuven (Belgium).
Family Relationships
There are no family relationships among any of our executive officers or directors.
B. Compensation.
The aggregate compensation paid and benefits in kind granted by us to our current executive officers and directors, including share-based compensation, for the year ended December 31,
2019 was €3.4 million. The total amount set aside or accrued to provide pension, retirement or similar benefits for our executive officers was €199 thousand. We did not set aside any
similar pension or retirement benefits for the benefit of our directors.
Director Compensation
At our combined general meetings of shareholders held on June 27, 2017, June 28, 2018 and June 21, 2019, shareholders set the total annual amount of the remuneration to be distributed
among non-employee directors at €280 thousand for 2017 and 2018 and €400 thousand for 2019. The following table sets forth information regarding the compensation earned by our non-
employee directors for service on our board of directors during the year ended December 31, 2019. Gil Beyen, our Chief Executive Officer, is a director but does not receive any additional
compensation for his services as a director. On March 12, 2020, Dr. Melanie Rolli was appointed to our board of directors so is not included in the table below as she was not a director
during the year ended December 31, 2019.
NAME
Jean Paul Kress
Philippe Archinard
Allene Diaz(2)
Luc Dochez
Galenos SPRL
Martine Ortin George
Hilde Windels BV
FEES EARNED
(€)
WARRANTS (1)
(€)
TOTAL
(€)
39,175
65,500
46,000
46,500
59,000
54,500
49,500
130,911
-
-
-
-
-
-
170,086
65,500
46,000
46,500
59,000
54,500
49,500
(1)
(2)
As required by SEC rules governing disclosures in this Annual Report, our equity grants (e.g., options, warrants or free shares) are required to be disclosed at their fair value on
the date of grant and do not have any intrinsic value to their recipients if the strike price of the warrants is higher than the underlying share price. During the year ended December
31, 2019, Board members paid to us the fair value of the warrants received. Therefore, their compensation is zero because they received no corresponding benefit on the date of
grant. The assumptions we used in valuing these awards are described in Note 3.3.3 to our consolidated financial statements and do not necessarily correspond to the actual value
recognized or that may be recognized by our directors. Any intrinsic value would only be recognized for tax purposes upon exercise of the equity grants and/or sale of the shares
pursuant to applicable tax laws.
Allene Diaz resigned from our board of directors, effective September 30, 2019.
93
Executive Committee Compensation
Our executive committee currently consists of (i) our Chief Executive Officer, (ii) our Chief Financial Officer, Chief Operating Officer and Deputy General Manager, (iii) our Chief
Business Officer, (iv) our Chief Medical Officer, and (v) our Vice President and Director of Pharmaceutical Operations and Qualified Person. The executive committee discusses and
consults with the board and advises the board on our day-to-day management. The following table sets forth information regarding compensation earned during the year ended
December 31, 2019 by:
•
•
•
Gil Beyen, our Chief Executive Officer;
Eric Soyer, our Chief Financial Officer, Chief Operating Officer and Deputy General Manager; and
Jérôme Bailly, our Vice President and Director of Pharmaceutical Operations and Qualified Person and Deputy General Manager.
EQUITY
AWARDS
ALL OTHER
COMPENSATION
SALARY
NAME AND PRINCIPAL POSITION
Gil Beyen
Chief Executive Officer
Jérôme Bailly
Deputy General Manager, Director of Pharmaceutical
Operations and Qualified Person
Eric Soyer
Deputy General Manager, Chief Financial Officer and Chief Operating
Officer
All other executive committee members
(1) Of which $255,972 (€228,628) are paid by our U.S. subsidiary, Erytech Pharma Inc., for Mr. Beyen’s position as President of Erytech Pharma Inc.
(2)
253,580 (4)
172,704 (2)
111,838 (9)
70,171 (6)
36,210 (3)
1,075,667
399,403
129,805
288,331
214,319
265,201
59,150
BONUS
(1)
(2)
(3)
(8)
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
€
7,923 (5)
8,576 (7)
€
€
TOTAL
790,712
287,661
17,438 (10)
€
453,627
13,704
€ 1,592,020
(5)
(4)
(3)
Reflects gross remuneration before taxes.
Reflects compensation received for achievement of strategic goals related to (i) the advancement of clinical trials with eryaspase, (ii) the advancement of other development
programs and (iii) building the organization and securing additional financing.
Reflects the valuation of 40,615 free shares and 123,200 stock options granted during the year ended December 31, 2019.
Reflects benefits in kind related to vehicle rentals.
Reflects the valuation of 38,846 free shares granted during the year ended December 31, 2019.
Reflects (i) €3,834 for benefits in kind related to vehicle rentals and (ii) €4,742 for retirement benefits.
(8)
Subject to approval of our shareholders at the next Annual General Meeting of Shareholders.
(9) Reflects the valuation of 67,692 free shares granted during the year ended December 31, 2019.
(10)
Reflects (i) €5,797 for benefits in kind related to vehicle rentals and (ii) €11,641 for retirement benefits.
(7)
(6)
Executive Compensation Arrangements
For a discussion of our employment arrangements with our executive officers, see “Item 7.B.—Related Party Transactions—Arrangements with Our Directors and Executive Officers.” Except
the arrangements described in “Item 7.B.—Related Party Transactions—Agreements with Our Directors and Executive Officers,” there are no arrangements or understanding between us and
any of our other executive officers providing for benefits upon termination of their employment, other than as required by applicable law.
Limitations on Liability and Indemnification Matters
Under French law, provisions of bylaws that limit the liability of directors are prohibited. However, French law allows sociétés anonymes to contract for and maintain liability insurance
against civil liabilities incurred by any of their directors and officers involved in a third-party action, provided that they acted in good faith and within their capacities as directors or
officers of the company. Criminal liability cannot be indemnified under French law, whether directly by the company or through liability insurance.
We have obtained directors’ and officers’ liability insurance for our directors and officers, which includes coverage against liability under the Securities Act. We have entered into
agreements with our directors and executive officers to provide contractual indemnification. With certain exceptions and subject to limitations on indemnification under French law, these
agreements provide for indemnification for damages and expenses including, among other things, attorneys’ fees, judgments and settlement amounts incurred by any of these individuals
in any action or proceeding arising out of his or her actions in that capacity.
These agreements may discourage shareholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duty. These provisions also may have the
effect of reducing the likelihood of derivative litigation against directors and
94
executive officers, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment in our equity securities may be
adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these insurance agreements.
Equity Incentives
We believe our ability to grant equity incentives is a valuable and necessary compensation tool that allows us to attract and retain the best available personnel for positions of substantial
responsibility, provides additional incentives to employees and promotes the success of our business. Due to French corporate law and tax considerations, we have historically granted
several different equity incentive instruments to our directors, executive officers, employees and other service providers, including:
•
•
•
•
founder’s share warrants (otherwise known as bons de souscription de parts de créateurs d’entreprise, or BSPCE), which are granted to our officers and employees;
share warrants (otherwise known as bons de souscription d’actions, or BSA), which have historically only been granted to non-employee directors;
restricted, or free, shares (otherwise known as actions gratuites); and
stock options (otherwise known as options de souscription et/ou d’achat d’actions).
Our board of directors’ authority to grant these equity incentive instruments and the aggregate amount authorized to be granted under these instruments must be approved by a two-thirds
majority of the votes held by our shareholders present, represented or voting by authorized means, at the relevant extraordinary shareholders’ meeting. Once approved by our shareholders,
our board of directors can grant share warrants (BSA) for up to 18 months, and restricted (free) shares and stock options for up to 38 months from the date of the applicable shareholders’
approval. The authority of our board of directors to grant equity incentives may be extended or increased only by extraordinary shareholders’ meetings. As a result, we typically request
that our shareholders authorize new pools of equity incentive instruments at every annual shareholders’ meeting.
We have six share-based compensation plans for our executive officers, non-employee directors and employees: the 2012 Plan, the 2014 Plan, the 2016 Plan, the 2017 Plan, the 2018 Plan
and the 2019 Plan, or the Plans. In general, founder’s share warrants and share warrants no longer continue to vest following termination of the employment, office or service of the holder
and all vested shares must be exercised within post-termination exercise periods set forth in the grant documents. In the event of certain changes in our share capital structure, such as a
consolidation or share split or dividend, French law and applicable grant documentation provides for appropriate adjustments of the numbers of shares issuable and/or the exercise price of
the outstanding warrants.
As of December 31, 2019, employee warrants, non-employee warrants, employee stock options and free shares were outstanding allowing for the purchase of an aggregate of 1,953,631
ordinary shares at a weighted average exercise price of €10.09 ($11.33) per ordinary share based on the exchange rate in effect as of such date (this weighted average exercise price does
not include 648,345 ordinary shares issuable upon the vesting of outstanding free shares that may be issued for free with no exercise price being paid).
Founder’s Share Warrants (BSPCE)
Founder’s share warrants have traditionally been granted to certain of our employees who were French tax residents because the warrants carry favorable tax and social security treatment
for French tax residents. Similar to options, founder’s share warrants entitle a holder to exercise the warrant for the underlying vested shares at an exercise price per share determined by
our board of directors and at least equal to the fair market value of an ordinary share on the date of grant. However, unlike options, the exercise price per share is fixed as of the date of
implementation of the plans pursuant to which the warrants may be granted, rather than as of the date of grant of the individual warrants.
95
We have issued two types of founder’s share warrants as follows:
Plan Title
Meeting date
Dates of allocation
Total number of BSPCEs authorized
Total number of BSPCEs granted
Start date for the exercise of the BSPCEs
BSPCE expiry date
BSPCE exercise price per share
Number of shares subscribed as of
December 31, 2019
Total number of BSPCEs granted but not
exercised as of December 31, 2019
Total number of shares available for
subscription as of December 31, 2019
Maximum number of new shares that can be
issued
BSPCE 2014
April 2, 2013
January 22, 2014
June 23, 2015
May 6, 2016
19,500 (1)
18,410 (2)
For senior management, one-third was
vested in 2015 and two-thirds were
vested in 2016; for other employees,
immediately upon each grant except for
6,500 BSPCE2014 which could not be
exercised before July 1, 2017
January 22, 2024
€12.250
15,000
16,910
169,100
169,100
BSPCE 2012
May 21, 2012
May 31, 2012
July 18, 2013
July 17, 2014
33,787
33,787
From May to July 2012, 2013 and 2014
May 20, 2020
€7.362
168,110
16,976
169,760
169,760
(1)
(2)
22,500 BSPCE2014 were originally allocated by the board of directors on January 22, 2014. On December 4, 2014, the board of directors approved the conversion of 3,000
BSPCE2014 into 3,000 BSA2014.
Excludes 1,000 BSPCE initially allocated to a former officer which were forfeited following his resignation in January 2016 and 90 BSPCE allocated to a former employee which
were forfeited.
Our shareholders, or pursuant to delegations granted by our shareholders, our board of directors, determines the recipients of the warrants, the dates of grant, the number and exercise price
of the founder’s share warrants to be granted, the number of shares issuable upon exercise and certain other terms and conditions of the founder’s share warrants, including the period of
their exercisability and their vesting schedule. However, notwithstanding any shareholder authorization, under applicable law, we are no longer eligible to issue any further founders’ share
warrants (BSPCE).
Share Warrants (BSA)
Share warrants have historically only been granted to our non-employee directors. Similar to options, share warrants entitle a holder to exercise the warrant for the underlying vested
shares at an exercise price per share determined by our board of directors and at least equal to the fair market value of an ordinary share on the date of grant. However, unlike options, the
exercise price per share is fixed as of the date of implementation of the plans pursuant to which the warrants may be granted, rather than as of the date of grant of the individual warrants.
96
As of December 31, 2019, we have issued six types of share warrants as follows:
Plan title
Meeting date
Dates of allocation
BSA 2018
June 28, 2018
BSA 2019
June 21, 2019
BSA 2017
June 27, 2017
BSA 2016
June 24, 2016
BSA 2014
April 2, 2013
October 9, 2019
April 12, 2019
June 27, 2017
January 7, 2018
October 3, 2016
January 8, 2017
June 23, 2015
BSA 2012
May 21, 2012
May 31, 2012
August 3, 2012
July 18, 2013
July 17, 2014
April 29, 2015
August 31, 2015
Total number of BSAs
authorized
Total number of BSAs
granted
Start date for the exercise of
the BSAs
BSA expiry date
BSA exercise price per share
Number of shares subscribed
as of December 31, 2019
Total number of BSAs
granted but not exercised
as of December 31, 2019
Total number of shares
available for subscription
as of December 31, 2019
Maximum number of new
shares that can be issued
BSA Expired (caducity)
200,000
75,000
October 9,2021
October 9, 2022
3.71
0
75,000
0
75,000
0
50,000
25,998
One third as
from 12 April
2020, one third
as from 12
April 2021 and
one third as
from 12 April
2022
25 998
BSA2018 have
been declared
lapsed on
October 9,
2019 by the
Board of
Directors
6.82
0
0
0
0
25,998
100,000
95,500
60,000
60,000
3,000(1)
3,000
11,263
10,760
(5)
(2)
One-third vested in
2015 and two-thirds
vested in 2016 for
senior management
From May to July
2012,
2013, 2014 and
2015
(6)
(7)
0
(3)
(4)
0
88,500
55,000
53,500
88,500
7,000
55,000
55,000
5,000
January 22, 2024
May 20, 2020
12.25
1,000
2,900
29,000
29,000
0
7.36
67,420
4,018
40,180
40,180
0
(1)
(2)
Reflects conversion of 3,000 BSPCE2014 into 3,000 BSA2014 pursuant to a decision of the board of directors on December 4, 2014.
For the 45,000 BSA2016 granted on October 3, 2016, half can be exercised as from October 4, 2017. The remainder can be exercised as from October 4, 2018. For the 15,000
BSA2016 granted on January 8, 2017, one-third can be exercised as from January 8, 2018, one-third as from January 8, 2019 and the remainder as from January 8, 2020.
97
(3)
(4)
(5)
(6)
(7)
October 3, 2021 for the 45,000 BSA granted on October 3, 2016. January 8, 2022 for the 15,000 BSA granted on January 8, 2017.
€18.52 for the 45,000 BSA granted on October 3, 2016. €13.60 for the 15,000 BSA granted on January 8, 2017.
For the 55,000 BSA granted on June 27, 2017, approximately one-third of the award can be exercised as from June 27, 2018, approximately one-third can be exercised as from
June 27, 2019 and the remainder can be exercised as from June 27, 2020 and for the 45,000 BSA granted on January 7, 2018, one-third can be exercised as from January 7, 2019,
one-third can be exercised as from January 7, 2020 and the remainder can be exercised as from January 7, 2021.
June 27, 2022 for the 55,000 BSA granted on June 27, 2017. January 7, 2023 for the 40,500 BSA granted on January 7, 2018.
€26.47 for the 55,000 BSA granted on June 27, 2017. €18.00 for the 40,500 BSA granted on January 7, 2018.
Our shareholders, or pursuant to delegations granted by our shareholders, our board of directors, determines the recipients of the warrants, the dates of grant, the number and exercise price
of the share warrants to be granted, the number of shares issuable upon exercise and certain other terms and conditions of the share warrants, including the period of their exercisability
and their vesting schedule.
Free Shares (AGA)
Under our Free Share Plans, we have granted free shares to certain of our employees and officers.
Free shares may be granted to any individual employed by us or by any affiliated company. Free shares may also be granted to our Chairman, to our Chief Executive Officer and to our
Deputy General Managers. However, no free share may be granted to a beneficiary holding more than 10% of our share capital or to a beneficiary who would hold more than 10% of our
share capital as a result of such grant. The maximum number of shares that may be granted or issued is 250,000 under the 2016 Free Share Plan, 300,000 under the 2017 Free Share Plan,
150,000 under the 2018 Free Share Plan and 400,000 under the 2019 Free Share Plan. In addition, under French law, the maximum number of shares that may be granted shall not exceed
10% of the share capital as at the date of grant of the free shares (30% if the allocation benefits all employees).
Our board of directors has the authority to administer 2016 Free Share Plan, 2017 Free Share Plan, 2018 Free Share Plan and 2019 Free Share Plan, or the Free Share Plans. Subject to the
terms of the Free Share Plans, our board of directors determines the recipients, the dates of grant, the number of free shares to be granted and the terms and conditions of the free shares,
including the length of their vesting period (starting on the grant date, during which the beneficiary holds a right to acquire shares for free but has not yet acquired any shares) and holding
period (starting when the shares are issued and definitively acquired but may not be transferred by the recipient) within the limits determined by the shareholders. Our shareholders have
determined that the vesting period should be set by the board of directors and should not be less than one year from the date of grant and that the optimal holding period should be set by
the board of directors. From the beginning of the vesting period, the cumulated vesting and holding period should not be less than two years.
The board of directors has the authority to modify awards outstanding under our Free Share Plans, subject to the consent of the beneficiary for any modification adverse to such
beneficiary. For example, the board has the authority to release a beneficiary from the continued service condition during the vesting period after the termination of the employment.
The free shares granted under our Free Share Plans will be definitively acquired at the end of the vesting period as set by our board of directors subject to continued service during the
vesting period, except if the board releases a given beneficiary from this condition upon termination of his or her employment contract, or pursuant to the achievement of the performance
conditions set out in the Free Share Plans.
The vesting of the free shares granted under the 2016 Free Share Plan, 2017 Free Share Plan and 2018 Free Share Plan is divided in three equal shares (33.33%), respectively following the
first, second and third year following the date of grant. The vesting of the free shares granted under the 2019 Free Share Plan is in five tranches: the first (32%) one year following the date
of grant, the second (32%) following the date of grant, the third (2%) following the fourth year of grant and the fifth (2%) following the fifth year of grant.
At the end of the vesting period, the beneficiary will be the owner of the shares. However, the shares may not be sold, transferred or pledged during the holding period. In the event of
disability before the end of the vesting period, the free shares shall be definitively acquired by the beneficiary on the date of disability. In the event the beneficiary dies during the vesting
period, the free shares shall be definitively acquired at the date of the request of allocation made by his or her beneficiaries in the framework of the inheritance provided that such request
is made within six months from the date of death.
98
As of December 31, 2019, the following free shares have been granted:
Date of grant
October 3, 2016
October 3, 2016
January 8, 2017
June 27, 2017
October 3, 2017
January 7, 2018
June 27, 2017
June 27, 2017
January 7, 2018
January 7, 2018
January 6, 2019
April 12, 2019
April 12, 2019
October 9, 2019
October 9, 2019
Denomination of the free
shares
Competent body that
granted the AGA
Beneficiaries
Number of AGA granted
Number of shares that can be
subscribed as of December 31, 2019
AGA 2016 (under the 2016 Free Share Plan)
AGA2016-03102016
AGA2016-03102016
AGA2016-08012017
AGA2016-27062017
AGA2016-03102017
AGA2016-07012018
Board of Directors
Chief Executive Officer
Board of Directors
Chief Executive Officer
Chief Executive Officer
Board of Directors
Executive Officers
Employees
Executive Officers
Employees
Employees
Executive Officers
AGA 2017 (under the 2017 Free Share Plan)
AGA2017-27062017
AGA2017-27062017
AGA2017-07012018
AGA2017-07012018
Board of Directors
Chief Executive Officer
Board of Directors
Chief Executive Officer
Executive Officers
Employees
Executive Officers
Employees
AGA 2018 (under the 2018 Free Share Plan)
AGA2018-06012019
AGA2018-12042019
AGA2018-12042019
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Employees
Executive Officers
Employees
AGA 2019 (under the 2019 Free Share Plan)
AGA2019-09102019
AGA2019-09102019
Board of Directors
Board of Directors
Executive Officers
Employees
59,001
52,260
15,000
8,652
16,650
40,500
45,000
29,475
27,000
86,940
36,150
36,000
58,200
149,999
150,942
0
0
12,524
6,900
11,400
40,500
45,000
19,800
27,000
60,480
32,100
36,000
55,700
149,999
150,942
Some free shares have lapsed following the departure of certain employees.
Our Chief Executive Officer granted 50,057 free shares under the 2019 Free Share Plan on February 25, 2020.
Stock Options (SO)
Stock options issued pursuant to our Stock Option Plans provide the holder with the right to purchase a specified number of ordinary shares from us at a fixed exercise price payable at the
time the stock option is exercised, as determined by our board of directors. Our Stock Option Plans generally provide that the exercise price for any stock option will be no less than 95%
of the average of the closing sales prices per ordinary share during the 20 market trading days prior to the day of the board of directors’ decision to grant the options. The maximum
number of ordinary shares subject to stock options issued is 250,000 ordinary shares under the 2016 Stock Option Plan, 300,000 under the 2017 Stock Option Plan, 300,000 under the
2018 Stock Option Plan and 700,000 under the 2019 Stock Option Plan. Incentive stock options and non-statutory stock options may be granted under our Stock Option Plan.
Stock options may be granted to any individual employed by us or by any affiliated company. Stock options may also be granted to our Chairman, our General Manager and to our Deputy
General Managers. In addition, incentive stock options may not be granted to owners of shares possessing 10% or more of the share capital of the company.
Our board of directors has the authority to administer and interpret the 2016 Stock Option Plan, 2017 Stock Option Plan, 2018 Stock Option Plan, 2019 Stock Option Plan, or the Stock
Option Plans. Subject to the terms and conditions of our Stock Option Plans, our board of directors determines the recipients, dates of grant, exercise price, number of stock options to be
granted and the terms and conditions of the stock options, including the length of their vesting schedules. Our board of directors is not required to grant stock options with vesting and
exercise terms that are the same for every participant. The term of each stock option granted under our Stock Option Plan will generally be 10 years from the date of grant. Further, stock
options will generally terminate on the earlier of when the beneficiary ceases to be an employee of our company or upon certain transactions involving our company.
The board of directors has the authority to modify awards outstanding under our Stock Option Plans, subject to the written consent of the beneficiary for any modification adverse to such
beneficiary. For example, the board of directors has the authority to extend a post-termination exercise period.
99
Stock options granted under our Stock Option Plans generally may not be sold, transferred or pledged in any manner other than by will or by the laws of descent or distribution. In the
event of disability, unless otherwise resolved by our board of directors, the beneficiary’s right to exercise the vested portion of his or her stock option generally terminates six months after
the last day of such beneficiary’s service, but in any event no later than the expiration of the maximum term of the applicable stock options. In the event the beneficiary dies during the
vesting period, then, unless otherwise resolved by our board of directors, the beneficiary’s estate or any recipient by inheritance or bequest may exercise any portion of the stock option
vested at the time of the beneficiary’s death within the six months following the date of death, but in any event no later than the expiration of the maximum term of the applicable stock
options.
As of December 31, 2019, the following options have been granted:
Date of grant
Denomination of the SOP
Competent body that granted
the SOP
Beneficiaries
Number of SOP granted
Exercise Price
Number of shares that
can be subscribed as of
December 31, 2019
October 3, 2016
October 3, 2016
January 8, 2017
June 27, 2017
October 3, 2017
June 27, 2017
June 27, 2017
January 7, 2018
January 7, 2018
September 7, 2018
January 6, 2019
April 12, 2019
SOP2016-03102016
SOP2016-03102016
SOP2016-08012017
SOP2016-27062017
SOP2016-03102017
SOP2017-27062017
SOP2017-27062017
SOP2017-07012018
SOP2017-07012018
SOP2018-07092018
SOP2018-06012019
SOP 2016 (under the 2016 Stock Option Plan)
Board of Directors
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Chief Executive Officer
Employees
Employees
Employees
Employees
Employees
SOP 2017 (under the 2017 Stock Option Plan)
Board of Directors
Chief Executive Officer
Board of Directors
Chief Executive Officer
Employees
Employees
Employees
Employees
SOP 2018 (under the 2018 Stock Option Plan)
Board of Directors
Chief Executive Officer
Employees
Employees
Executive Officer (Gil
Beyen)
Employees
SOP2018-12042019
Chief Executive Officer
April 12, 2019
SOP2018-12042019
Chief Executive Officer
July 31, 2019
October 9, 2019
SOP2019-31072019
Board of Directors
SOP2019-09102019
Board of Directors
(1) Which were declared forfeited on June 27, 2019 following employee departure
Some stock options have lapsed following the departure of certain employees.
Executive Officer (J.P
Kress)
Executive Officers (Gil
Beyen)
Employees
SOP 2019 (under the 2019 Stock Option Plan)
Our Chief Executive Officer granted 41,950 stock options from the 2019 Stock Option Plan on February 25, 2020.
21,999
22,500
3,000
18,000
30,000
12,000
10,200
40,500
56,703
24,000(1)
38,025
18,200
58,705
59,123
105,000
242,250
€ 18.52
€ 18.52
€ 15.65
€ 26.47
€ 23.59
€ 26.47
€ 26.47
€ 18.00
€ 18.00
€ 9.26
€ 6.38
€ 7.20
€ 7.20
€ 5.78
€ 4.25
€ 4.25
21,999
9,000
0
18,000
18,000
12,000
3,600
40,500
37,464
0(1)
36,075
18,200
57,535
59,123
105,000
242,250
C. Board Practices.
Until May 2013, our company had a two-tier corporate governance system: an executive board was responsible for managing the company and a supervisory board oversaw and advised
the executive board. We have now established a board of directors. Our board of directors currently consists of seven members, less than a majority of whom are citizens or residents of the
United States. As permitted by French law, two of our directors, Galenos SPRL and Hilde Windels BV, are legal entities. Each of these entities has designated an individual, Sven
Andréasson and Hilde Windels, respectively, to represent it and to act on its behalf at meetings of our board of directors. These representatives have the same responsibilities to us and to
our shareholders as he or she would have if he or she had been elected to our board of directors in his or her individual capacity.
Under French law and our bylaws, our board of directors must be comprised of between three and 18 members, without prejudice to the derogation established by law in the event of
merger. Since January 1, 2017, the number of directors of each gender may not be
100
less than 40%. Following the resignation of Allene Diaz effective September 30, 2019, the Board sought a replacement. On March 12, 2020, Dr. Melanie Rolli was appointed to the board.
The board will propose the ratification of her appointment at our next General Meeting of Shareholders. To date, our board is composed of five men and three women. Any appointment
made in violation of this limit that is not remedied within six months of this appointment will be null and void. Within these limits, the number of directors is determined by our
shareholders. Directors are appointed, reappointed to their position, or removed by the company’s ordinary general meeting, and in particular, any appointment which remedies a violation
of the 40% limit must be ratified by our shareholders at the next ordinary general meeting. Their term of office, in accordance with our bylaws, is three years. Directors chosen or
appointed to fill a vacancy must be elected by our board of directors for the remaining duration of the current term of the vacant director. The appointment must then be ratified at the next
shareholders’ general meeting. In the event the board of directors would be comprised of less than three directors as a result of a vacancy, the remaining directors shall immediately
convene a shareholders’ general meeting to elect one or several new directors so there are at least three directors serving on the board of directors, in accordance with French law.
The following table sets forth the names of our directors, the years of their initial appointment as directors of the board and the expiration dates of their current term.
Jean-Paul Kress
Gil Beyen
Galenos SPRL represented by Sven Andréasson (2)
Philippe Archinard
Luc Dochez
Martine Ortin George
Hilde Windels BV represented by Hilde
Windels(3)
CURRENT
POSITION
YEAR OF
INITIAL
APPOINTMENT
TERM
EXPIRATION
YEAR(1)
Chairman
Director
Director
Director
Director
Director
Director
2019
2013
2014
2013
2015
2014
2017
2022
2022
2022
2022
2022
2020
2020
(1)
(2)
(3)
At the end of the ordinary general meeting convened to approve the accounts for the previous financial year during the year in which their term office expires.
Galenos SPRL has designated an individual, Sven Andréasson, to represent it and to act on its behalf at meetings of our board of directors. Mr. Andréasson previously served as a
member of our board from 2013 to 2014. Galenos SPRL is a company controlled by Mr. Andréasson.
Hilde Windels BV was appointed as a director by our shareholders at our combined general meeting in June 2017. Hilde Windels BV has designated an individual, Hilde Windels,
to represent it and to act on its behalf at meetings of our board of directors. She served as a member of the board of directors in her individual capacity from 2014 to 2017. Hilde
Windels BV is a company controlled by Ms. Windels.
Director Independence
As a foreign private issuer, under the listing requirements and rules of the Nasdaq Global Select Market, we are not required to have independent directors on our board of directors, except
to the extent that our audit committee is required to consist of independent directors. Nevertheless, our board of directors has undertaken a review of the independence of the directors and
considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities.
Based upon information requested from, and provided by, each director concerning such director’s background, employment and affiliations, including family relationships, our board of
directors determined that all of our directors, except for Mr. Beyen, qualify as “independent directors” as defined under applicable rules of the Nasdaq Global Select Market and the
independence requirements contemplated by Rule 10A-3 under the Exchange Act. In making these determinations, our board of directors considered the current and prior relationships that
each non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the
beneficial ownership of our securities by each non-employee director and his or her affiliated entities (if any).
101
Role of the Board in Risk Oversight
Our board of directors is primarily responsible for the oversight of our risk management activities and has delegated to the audit committee the responsibility to assist our board in this
task. The audit committee also monitors our system of disclosure controls and procedures and internal control over financial reporting and reviews contingent financial liabilities. The
audit committee, among other things, examines our balance sheet commitments and risks and the relevance of risk monitoring procedures. While our board oversees our risk management,
our management is responsible for day-to-day risk management processes. Our board of directors expects our management to consider risk and risk management in each business decision,
to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the board of
directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face.
Corporate Governance Practices
As a French société anonyme, we are subject to various corporate governance requirements under French law. In addition, as a foreign private issuer listed on the Nasdaq Global Select
Market, we will be subject to Nasdaq corporate governance listing standards. However, the corporate governance standards provide that foreign private issuers are permitted to follow
home country corporate governance practices in lieu of Nasdaq rules, with certain exceptions. We intend to rely on these exemptions for foreign private issuers and follow French
corporate governance practices in lieu of the Nasdaq corporate governance rules, which would otherwise require that (1) a majority of our board of directors consist of independent
directors; (2) we establish a nominating and corporate governance committee; and (3) our remuneration committee be composed entirely of independent directors.
As a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Rule 10A-3 provides that the
audit committee must have direct responsibility for the nomination, compensation and choice of our auditors, as well as control over the performance of their duties, management of
complaints made, and selection of consultants. However, if the laws of a foreign private issuer’s home country require that any such matter be approved by the board of directors or the
shareholders, the audit committee’s responsibilities or powers with respect to such matter may instead be advisory. Under French law, the audit committee may only have an advisory role
and appointment of our statutory auditors, in particular, must be decided by the shareholders at our annual meeting.
In addition, Nasdaq rules require that a listed company specify that the quorum for any meeting of the holders of common stock be at least 33 1/3% of the outstanding shares of the
company’s voting stock. Consistent with French law, our bylaws provide that a quorum requires the presence of shareholders having at least (1) 20% of the shares entitled to vote in the
case of an ordinary shareholders’ general meeting or at an extraordinary shareholders’ general meeting where shareholders are voting on a capital increase by capitalization of reserves,
profits or share premium, or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general meeting. If a quorum is not present, the meeting is
adjourned. There is no quorum requirement when an ordinary general meeting is reconvened, but the reconvened meeting may consider only questions which were on the agenda of the
adjourned meeting. When an extraordinary general meeting is reconvened, the quorum required is 20% of the shares entitled to vote, except where the reconvened meeting is considering
capital increases through capitalization of reserves, profits or share premium. For these matters, no quorum is required at the reconvened meeting. If a quorum is not present at a
reconvened meeting requiring a quorum, then the meeting may be adjourned for a maximum of two months.
Board Committees
The board of directors has established an audit committee and a remuneration and appointments committee, which operate pursuant to rules of procedure adopted by our board of
directors. The board of directors has also established a clinical strategy committee, which is responsible for analyzing and reviewing our clinical and regulatory strategy. Subject to
available exemptions, the composition and functioning of all of our committees (other than the clinical strategy committee) will comply with all applicable requirements of the French
Commercial Code, the Exchange Act, the Nasdaq Global Select Market and SEC rules and regulations.
In accordance with French law, committees of our board of directors will only have an advisory role and can only make recommendations to our board of directors. As a result, decisions
will be made by our board of directors taking into account non-binding recommendations of the relevant board committee.
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Audit Committee. Our audit committee assists our board of directors in its oversight of our corporate accounting and financial reporting and submits the selection of our statutory auditors,
their remuneration and independence for approval. Mr. Andréasson, Dr. Archinard and Ms. Windels currently serve on our audit committee. Ms. Windels is the chairperson of our audit
committee. Our board has determined that each of Mr. Andréasson, Dr. Archinard and Ms. Windels is independent within the meaning of the applicable listing rules and the independence
requirements contemplated by Rule 10A-3 under the Exchange Act. Our board of directors has further determined that Ms. Windels is an “audit committee financial expert” as defined by
SEC rules and regulations and that each of the members qualifies as financially sophisticated under the applicable exchange listing rules. The principal responsibility of our audit
committee is to monitor the existence and efficacy of the company’s financial audit and risk control procedures on an ongoing basis.
Our board of directors has specifically assigned the following duties to the audit committee:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
examining the corporate and consolidated annual and interim financial statements;
validating the relevance of the company’s accounting methods and choices;
verifying the relevance of financial information published by the company;
ensuring the implementation of internal control procedures;
verifying the correct operation of internal controls with the assistance of internal quality audits;
examining the schedule of work for internal and external audits;
examining any subject likely to have a significant financial and accounting impact;
examining the state of significant disputes;
examining off-balance sheet commitments and risks;
examining the relevance of risk monitoring procedures;
establishing and overseeing procedures for the treatment of complaints or submissions identifying concerns regarding accounting, internal accounting controls, or auditing
matters;
examining any regulated agreements as well as monitoring any agreements relating to current operations and entered into under normal conditions;
directing the selection of statutory auditors, their remuneration, and ensuring their independence;
ensuring proper performance of the statutory auditors’ mission; and
establishing the rules for the use of statutory auditors for work other than auditing of the accounts and verifying the correct execution thereof.
Remuneration and Appointments Committee. Mr. Andréasson, Dr. Archinard and Dr. Kress currently serve on our remuneration and appointments committee. Dr. Archinard is the
chairperson of our remuneration and appointments committee.
Our board of directors has specifically assigned the following duties to the remuneration and appointments committee:
•
•
•
•
•
•
•
•
formulating recommendations and proposals concerning (i) the various elements of the remuneration, pension and health insurance plans for executive officers and
directors, (ii) the procedures for establishing the terms and conditions for setting the variable portion of their remunerations, and (iii) a general policy for awarding share
warrants and founder’s warrants;
examining the amount of the annual remuneration of the directors and the system for distributing such amount amongst the directors, taking into account their dedication
and the tasks performed within the board of directors;
advising and assisting the board of directors as necessary in the selection of senior executives and the establishment of their remuneration;
assessing any increases in capital reserved for employees;
assisting the board of directors in the selection and recruitment of new directors;
ensuring the implementation of structures and procedures to allow the application of good governance practices within the company;
preventing conflicts of interest within the board of directors; and
implementing the procedure for evaluating the board of directors.
103
Clinical Strategy Committee. Dr. George, Mr. Dochez and Dr. Archinard currently serve on our clinical strategy committee. Dr. George is the chairperson of our clinical strategy
committee. Our clinical strategy committee is responsible for analyzing and reviewing our clinical and regulatory strategy. It meets, at least once a year, and makes recommendations to
the board of directors regarding our clinical and regulatory development strategy.
Our board of directors has specifically assigned the following duties to the clinical strategy committee:
•
•
analyzing and reviewing our clinical development focus; and
analyzing and reviewing our regulatory approval strategies.
D. Employees.
As of December 31, 2019, we had 217 employees. We consider our labor relations to be positive. At each date shown, we had the following headcount, broken out by department and
geography:
2017
At December 31,
2018
2019
Function:
Research and preclinical development
Clinical, medical and regulatory affairs
Pharmaceutical operations
Manufacturing and supply
Management and administration
Business development and licensing
Total
Geography:
France
United States
Total
E. Share Ownership.
28
24
29
—
28
5
114
100
14
114
35
33
20
41
37
6
172
146
26
172
31
34
26
82
38
6
217
158
59
217
For information regarding the share ownership of our directors and executive officers, see “Item 6.B—Compensation” and “Item 7.A—Major Shareholders.”
Item 7.
Major Shareholders and Related Party Transactions
A. Major Shareholders
The following table and accompanying footnotes set forth, as of December 31, 2019, information regarding beneficial ownership of our ordinary shares by:
•
•
•
•
each person, or group of affiliated persons, known by us to beneficially own more than 5% of our ordinary shares;
each of our executive officers;
each of our directors (other than Dr. Rolli who was appointed to our Board on March 12, 2020); and
all of our executive officers and directors as a group.
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared
voting or investment power of that security, including free shares that vest within 60 days of December 31, 2019 and options and warrants that are currently exercisable or exercisable
within 60 days of December 31, 2019. Shares subject to free shares that vest within 60 days of December 31, 2019 and shares subject to warrants currently exercisable or exercisable
within 60 days of December 31, 2019 are deemed to be outstanding for computing the percentage ownership of the person holding these free shares and warrants and the percentage
ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage of any other person.
Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with
respect to all shares shown that they beneficially own, subject to community
104
property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the
Exchange Act.
Our calculation of the percentage of beneficial ownership is based on 17,940,035 of our ordinary shares (including ordinary shares in the form of ADSs) outstanding as of December 31,
2019. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o ERYTECH Pharma S.A., 60 Avenue Rockefeller, 69008 Lyon, France.
NAME OF BENEFICIAL OWNER
5% Shareholders:
BVF Partners LP (1)
RA Capital Management LLC(2)
Auriga Ventures III FCPR (3)
Directors and Executive Officers:
Gil Beyen (4)
Eric Soyer (5)
Jean-Sébastien Cleiftie(6)
Iman El-Hariry (7)
Alexander Scheer(8)
Jérôme Bailly (9)
Jean-Paul Kress
Galenos SPRL (10)
Philippe Archinard (11)
Luc Dochez (12)
Martine Ortin George (13)
Hilde Windels BV (13)
All directors and executive officers as a group (12 persons) (14)
NUMBER OF
ORDINARY
SHARES
BENEFICIALLY
OWNED
PERCENTAGE
OF ORDINARY
SHARES
BENEFICIALLY
OWNED
4,547,662
2,000,000
1,147,522
140,176
20,773
14,554
72,499
2,476
28,053
—
27,671
30,800
29,170
32,671
32,671
431,514
25.3%
11.1%
6.4%
*
*
*
*
*
*
—
*
*
*
*
*
2.4%
(2)
*
(1)
Represents beneficial ownership of less than 1%.
The address of BVF Partners LP. is One Sansome Street, 30th Floor, San Francisco, California 94104. Mark Lampert is the General Partner of BVF Partners LP and may be
deemed to be beneficial owner of securities of the company directly held by BVF Partners LP., and may be deemed to have the power to vote or direct the vote of and the power to
dispose or direct the disposition of such securities. Mark Lampert disclaims beneficial ownership of the securities held directly by BVF Partners LP., except to the extent of his
pecuniary interest.
The address of RA Capital Management LLC is 20 Park Plaza, Suite 1200, Boston, Massachusetts 02116. Mr. Peter Kolchinsky is the Managing Director and may be deemed to be
beneficial owner of securities of the company directly held by RA Capital Management LLC, and may be deemed to have the power to vote or direct the vote of and the power to
dispose or direct the disposition of such securities. Mr. Peter Kolchinsky disclaims beneficial ownership of the securities held directly by RA Capital Management LLC, except to
the extent of his pecuniary interest.
Jacques Chatain, Bernard Daugeras and Patrick Bamas are managers of Auriga Ventures III FCPR, or Auriga, and exercise voting and investment power with respect to shares
held by Auriga. The managers disclaim beneficial ownership of all shares held by Auriga. The address of Auriga is c/o Auriga Partners, 18 avenue Matignon 75008 Paris, France.
Consists of 1,546 ordinary shares and 138,630 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
(5)
Consists of 773 ordinary shares and 20,000 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
(6) Consists of 1,054 ordinary shares and 13,500 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
(7)
(4)
(3)
Consists of 72,499 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
Consists of 2,476 ordinary shares. Alexander Scheer notified us that he will be resigning from the position of Chief Scientific Officer effective April 30, 2020.
(8)
(9) Consists of 1,053 ordinary shares and 27,000 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
(10)
Consists of one ordinary share and 27,670 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
Consists of 10,300 ordinary shares and 20,500 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
Consists of 29,170 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019
(11)
(12)
105
(13) Consists of one ordinary share and 32,670 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
(14) Consists of 17,205 ordinary shares and 414,309 ordinary shares issuable upon exercise of warrants that are exercisable within 60 days of December 31, 2019.
None of our principal shareholders have voting rights different than our other shareholders.
As of December 31, 2019, we estimate that approximately 40% of our outstanding ordinary shares (including ordinary shares in the form of ADSs) were held in the United States by
approximately 26 holders of record including Bank of New York Mellon, the nominee of the Depositary Trust Company, which held approximately 9.58% of our outstanding ordinary
shares as of said date. The actual number of holders is greater than these numbers of record holders and includes beneficial owners whose ordinary shares or ADSs are held in street name
by brokers and other nominees. This number of holders of record also does not include holders whose shares may be held in trust by other entities.
B. Related Party Transactions.
Since January 1, 2019, we have engaged in the following transactions with our directors, executive officers and holders of more than five percent (5%) of our outstanding voting securities
and their affiliates, which we refer to as our related parties.
Agreements with Our Directors and Executive Officers
Severance Pay
On May 24, 2013, the board of directors approved terms for severance pay to be awarded under certain conditions to our then-executive officers, which included Gil Beyen, our Chief
Executive Officer. The agreement provides that, in the event of expiration of the executive’s term of office (except where renewal is rejected by the executive) or in the event of revocation
(unless the executive has been revoked for gross negligence or willful misconduct as that term is defined by the labor chamber of the French Supreme Court), the executive is entitled to
severance equal to 12 times the average of monthly remuneration (bonuses included) received during the 12 months preceding the revocation decision or the expiration of the executive’s
term of office. The payment of the compensation shall be subject to the performance of the following conditions: (i) respect of our company’s budget and expenditures and (ii) at least one
of the following conditions: (a) an agreement of collaboration or a current license, and (b) one product in an active phase of clinical development by the company. No related expense has
been recorded to date.
Executive Employment Agreement with Gil Beyen
Effective April 1, 2019, our U.S. subsidiary, ERYTECH Pharma, Inc., entered into an executive employment agreement with Mr. Beyen, or the Executive Employment Agreement, that
provides for the terms of his employment and compensation as President of ERYTECH Pharma, Inc., including an annual base salary and variable compensation in an amount up to 50%
of his base salary, based upon achievement of specified performance objectives. The Executive Employment Agreement also provides for severance pay in specified situations. In the
event of Mr. Beyen’s termination without “cause,” he will be entitled to an amount equal to 12 times the average of monthly remuneration (bonuses included) received during the 12
months preceding his termination, subject to certain specified performance conditions. Mr. Beyen will also be entitled to these severance benefits (with no duplication) if Mr. Beyen is
terminated without “cause” or resigns for “good reason” within 12 months following a change of control of our company. Any severance payments paid to Mr. Beyen under the Executive
Employment Agreement are conditioned on Mr. Beyen executing a release. Pursuant to an Employee Confidential Information and Invention Assignment Agreement attached to his
Executive Employment Agreement, upon voluntary termination or termination for ”cause,” for a period of 12 months, Mr. Beyen cannot seek employment in any business in which we are
engaged or plans to be engaged, or service that we provide or have plans to provide.
Employment Agreements with Eric Soyer, Jean-Sebastien Cleiftie and Alexander Scheer
In September 2015, October 2016 and November 2016, respectively, we entered into employment agreements with Messrs. Soyer, Cleiftie and Scheer. Each employment agreement
provides for an annual base salary and variable compensation in amounts ranging from 30% to 35% of the executive’s current base salaries, based upon achievement of specified
performance objectives. These employment agreements also provide for severance pay in specified situations. In the event of the executive’s termination in the absence of gross negligence
or willful misconduct, the executive will be entitled to an amount equal to six months’ base salary, plus an additional three months’ base salary for each full year such executive has
worked for us, up to a maximum of 12 months’ base salary in total, including any additional indemnity as provided for by French law. In connection with a change of control of our
company, if the executive is terminated in the absence of gross negligence or willful misconduct or resigns pursuant to suffering a diminution of the executive’s job duties, or in the event
of a mutually agreed termination (rupture conventionnelle) under French law, such executive will be entitled to an amount equal to 12 times the average of monthly remuneration,
including bonuses, received during the 12 months preceding the termination. If a change of control of our company occurs within 24 months of the granting of bonus shares,
106
such executive will be entitled to an amount intended to compensate for the potential loss of compensation in the event of cancellation of bonus shares granted or for the potential loss of
favorable tax treatment in the event of the sale of such shares, in the context of this change of control. These agreements also provide for a 12-month non-compete clause (18 months in the
case of Mr. Soyer), whereby the executive is entitled to an amount equal to 33% of his average monthly remuneration over the last three months (12 months in the case of Mr. Soyer).
Employment Agreement with Iman El-Hariry
In June 2015, our U.S. subsidiary, ERYTECH Pharma, Inc., entered into an employment agreement with Dr. El-Hariry that provides for an annual base salary and variable compensation in
an amount up to 35% of her base salary, based upon achievement of specified performance objectives. This variable amount was increased from 35% to 40% of her base salary in January
2019. The agreement also provides for severance pay in specified situations. In the event of Dr. El-Hariry’s termination without cause (as defined in Dr. El-Hariry’s employment
agreement), she will be entitled to an amount equal to six months’ base salary, plus an additional three months’ base salary for each full year she has worked for us, up to a maximum of 12
months’ base salary in total. If Dr. El-Hariry resigns as a result of (i) a diminution of her job duties, (ii) a change in reporting or (iii) a relocation, she will be entitled to an amount up to 12
months’ base salary compensation depending upon the length of her employment with us. In connection with a change of control, if Dr. El-Hariry is terminated within 12 months (a) by us,
(b) by mutual agreement or (c) by her decision to resign after receiving an offer that is not at least equivalent to her position prior to the change in control, she will be entitled to a lump
sum payment equal to one year’s salary plus bonus (under the condition that she would not be eligible for the other severance benefits described above). Upon termination for any reason,
our company may request Dr. El-Hariry to execute a non-competition agreement for a period of 12 months, whereby Dr. El-Hariry will be entitled to severance pay.
Employment Agreement with Jérôme Bailly
In January 2007, we entered into an employment agreement with Dr. Bailly, which was amended as of January 2018. He is entitled to an annual base salary set at €170,000, and variable
compensation, in an amount up to 25% of his base salary, upon achievement of specified performance objectives. This variable amount was increased from 25% to 30% of his base salary
in January 2019. If a change of control of our company occurs within 24 months of the granting of bonus shares, Dr. Bailly will be entitled to an amount intended to compensate for the
potential loss of compensation in the event of cancellation of bonus shares granted or for the potential loss of favorable tax treatment in the event of the sale of such shares.
Other Arrangements
We have entered into other compensatory arrangements with our executive officers, which have been ratified by our board of directors. The primary arrangements are summarized in the
table below.
NAME
Gil Beyen
Jérôme Bailly
TAX
ASSISTANCE
X
TRAINING
X
Director and Executive Officer Compensation
See “Item 6.B—Compensation” for information regarding compensation of directors and executive officers.
Equity Awards
Since December 31, 2019, we allocated on February 25, 2020:
•
•
41,950 SOP2019 options under the 2019 Stock Option Plan to certain employees: and
50,037 AGA2019 free shares under the 2019 Free Share Plan to certain of our officers.
See “Item. 7A—Major Shareholders” for information regarding equity awards to our executive officers.
Bonus Plans
All our executive officers are entitled to a bonus ranging between 25% and 50% based on yearly objectives determined by our board of directors upon recommendation of our
remuneration and appointments committee.
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Indemnification Agreements
We have entered into indemnification agreements with each of our directors and executive officers. See “Item. 6B—Limitations on Liability and Indemnification Matters.”
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, 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.
Related-Party Transactions Policy
We comply with French law regarding approval of transactions with related parties. We have adopted a related person transaction policy that sets forth our procedures for the
identification, review, consideration and approval or ratification of related person transactions. The policy became effective in November 2017 upon the closing of our global offering and
was subsequently amended in March 2020 to meet the new French law requirements arising from Law no. 2019-486 of May 22, 2019 (Pacte law) as described below.
For purposes of our policy only, a related person transaction is defined as (i) any transaction, arrangement or relationship (or any series of similar transactions, arrangements or
relationships) in which we and any related person are, were or will be participants in and the amount involved exceeds $120,000, or (ii) any agreement or similar transaction under French
law which falls within the scope of Article L. 225-38 of the French Commercial Code. A related person is any executive officer, director or beneficial owner of more than 5% of any class
of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons. Article L. 225-38 of the French Commercial Code covers
any agreement or similar transaction entered into directly or indirectly between (i) the company and a corporate officer, a director, a shareholder holding more than 10% of the company’s
voting rights or, if such shareholder is a corporate entity, its controlling shareholder within the meaning of Article L. 233-3 of the French Commercial Code or between (ii) the company
and another firm if a corporate officer or director of the company is the owner, a fully liable shareholder, a corporate officer, a director or a member of that other firm’s supervisory board
or, more generally, a person in any way involved in its management.
Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or
any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to
our board of directors for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and
indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an
unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the
extent feasible, significant shareholder to enable us to identify any existing or potential related-person transactions and to effectuate the terms of the policy. Our General Counsel will
conduct an assessment of our related person transactions, notably to determine whether such transactions relate to current operations and entered into under normal conditions (portant sur
des opérations courantes et conclues à des conditions normales), which will be monitored at least annually by our audit committee.
In addition, under our Code of Business Conduct and Ethics, our employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably
could be expected to give rise to a conflict of interest.
In considering related person transactions, our board of directors will take into account the relevant available facts and circumstances including, but not limited to:
•
•
•
•
the risks, costs and benefits to us;
the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is
affiliated;
the availability of other sources for comparable services or products; and
the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.
The policy requires that, in determining whether to approve, ratify or reject a related person transaction, our board of directors must consider, in light of known circumstances, whether the
transaction is in, or is not inconsistent with, our best interests and those of our shareholders, as our board of directors determines in the good faith exercise of its discretion.
C. Interests of Experts and Counsel.
Not applicable.
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Item 8.
Financial Information
A. Consolidated Statements and Other Financial Information.
Consolidated Financial Statements
Our consolidated financial statements are included as part of this Annual Report, starting at page F-1.
Dividend Distribution Policy
We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future and intend to retain
all available funds and any future earnings for use in the operation and expansion of our business, given our state of development.
Subject to the requirements of French law and our bylaws, dividends may only be distributed from our distributable profits, plus any amounts held in our available reserves which are
reserves other than legal and statutory and revaluation surplus. See “Item 10. B—Memorandum and Articles of Association” for further details on the limitations on our ability to declare
and pay dividends. Dividend distributions, if any in the future, will be made in euros and converted into U.S. dollars with respect to the ADSs, as provided in the amended and restated
deposit agreement.
Legal Proceedings
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal
proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows.
Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
B. Significant Changes.
Not applicable.
Item 9.
The Offer and Listing.
A. Offer and Listing Details.
Our ADSs have been listed on the Nasdaq Global Select Market under the symbol “ERYP” since November 10, 2017. Our ordinary shares have been trading on Euronext Paris under the
symbol “ERYP” since May 7, 2013.
B. Plan of Distribution.
Not applicable.
C. Markets.
Our ADSs have been listed on Nasdaq under the symbol “ERYP” since November 10, 2017. Our ordinary shares have been listed on Euronext Paris under the symbol “ERYP” since
May 7, 2013.
D. Selling Shareholders.
Not applicable.
E. Dilution.
Not applicable.
F. Expenses of the Issue.
Not applicable.
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Item 10.
Additional Information.
A. Share Capital.
Not applicable.
B. Memorandum and Articles of Association.
Key Provisions of Our Bylaws and French Law Affecting Our Ordinary Shares
The description below reflects a summary of the key terms of our bylaws and summarizes the material rights of holders of our ordinary shares under French law. Please note that this is
only a summary and is not intended to be exhaustive. For further information, please refer to the full text of our bylaws, a copy of which has been filed as an exhibit to our Annual Report
on Form 20-F.
Corporate Purpose (Article 3 of the Bylaws)
Our corporate purpose in France and abroad includes the research, manufacturing, importation, distribution and marketing of investigational drugs, devices and medical equipment, and the
provision of advisory services associated with these activities. We are authorized to engage in all financial, commercial, industrial, civil, property or security-related transactions that
directly or indirectly relate to accomplishing the purposes stated above.
Our company may act directly or indirectly and do all these operations in all countries, for or on behalf of third parties, either alone or with partnership with third parties, association,
group or creation of new companies, contribution, sponsorship, subscription, purchase of shares or rights, mergers, alliances, undeclared partnership or taking or giving in lease or in
management of all property and rights or otherwise.
Directors (Articles 17-22 of the Bylaws)
Duties of the Board. Except for powers given to our shareholders by law and within the limit of the corporate purpose, our board of directors is responsible for all matters relating to the
successful operations of our company and, through its resolutions, governs matters involving the company.
Appointment and Term. Our board of directors must be composed of at least three members, but may not exceed 18 members, subject to the dispensation established by law in the event of
merger. In appointing and electing directors, we seek a balanced representation of women and men. The term of a director is 3 years, and directors may be re-elected at our annual ordinary
share meetings; however, a director over the age of 75 may not be appointed if such appointment would result in the number of directors over the age of 75 constituting more than one-
third of the board. The number of directors who are also our employees cannot exceed one-third of the board. Directors may be natural persons or legal entities except for the chairman of
the board who must be a natural person. Legal entities appointed to the board must designate a permanent representative. If a director dies or resigns between annual meetings, the board
may appoint a temporary director to fill the vacancy, subject to ratification at the next ordinary general meeting, or, if such vacancy results in a number of directors below three, the board
must call an ordinary general meeting to fill the vacancy. If a director is absent at more than four consecutive meetings, he or she will be deemed to have automatically resigned.
Organization. The board must elect a chairman from among the board members. The chairman must be a natural person, age 75 or younger, and may be removed by the board at any time.
The board may also elect a natural person as vice president to preside in the chairman’s absence and may designate up to two non-voting board observers.
Deliberations. At least half of the number of directors in office must be present to constitute a quorum. Decisions are made by a majority of the directors present or represented and, if
there is a tie, the vote of the chairman will carry the decision. Meetings may be held as often as required; however, the chairman is required to call a meeting with a determined agenda
upon the request of at least one-third of the directors if the board has not met for more than two months. French law and our charter and bylaws allow directors to attend meetings in
person or, to the extent permitted by applicable law and with specified exceptions in our bylaws, by videoconference or other telecommunications arrangements.
Directors’ Voting Powers on Proposal, Arrangement or Contract in which any Director is Materially Interested. Under French law, any agreement entered into, directly or through an
intermediary, between us and any director that is not entered into in the ordinary course of our business and upon standard market terms is subject to the prior authorization of the board of
directors. The interested director cannot vote on such decision. The same provision applies to agreements between us and another company, except where such company is our wholly
owned subsidiary, if one of our directors is the owner or a general partner, manager, director, general manager or member of the executive or supervisory board of the other company, as
well as to agreements in which one of our directors has an indirect interest.
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Directors’ Compensation. Director compensation is determined at the annual ordinary general meeting. The general meeting may allocate an annual fixed sum and the board of directors
allocates this sum among its members as it sees fit. In addition, the Board of directors may allocate exceptional compensation (rémunération exceptionnelle) for missions or mandates
entrusted to its members, for example as member or chair of one or more board committees, this remuneration is subject to the provisions regarding related-parties agreements. At our
combined general meetings of shareholders held on June 27, 2017, June 28, 2018 and June 21, 2019, shareholders set the total annual compensation to be distributed among non-employee
directors at €280 thousand for 2017 and 2018, respectively, and €400 thousand for 2019.
Board of Directors’ Borrowing Powers. There are currently no limits imposed on the amounts of loans or borrowings that the board of directors may approve.
Directors’ Share Ownership Requirements. Our directors are not required to own any of our shares.
Rights, Preferences and Restrictions Attaching to Ordinary Shares (Articles 9, 16, 30, 33 and 34 of the Bylaws)
Dividends. We may only distribute dividends out of our distributable profits, plus any amounts held in our reserves that the shareholders decide to make available for distribution, other
than those reserves that are specifically required by law.
“Distributable Profits” consist of our statutory net profit in each fiscal year, calculated in accordance with accounting standards applicable in France, as increased or reduced by any profit
or loss carried forward from prior years, less any contributions to the reserve accounts pursuant to French law.
Legal Reserve. Pursuant to French law, we must allocate 5% of our statutory net profit for each year to our legal reserve fund before dividends may be paid with respect to that year. Funds
must be allocated until the amount in the legal reserve is equal to 10% of the aggregate par value of the issued and outstanding share capital.
Approval of Dividends. Pursuant to French law, our board of directors may propose a dividend for approval by the shareholders at the annual ordinary general meeting.
Upon recommendation of our board of directors, our shareholders may decide to allocate all or part of any distributable profits to special or general reserves, to carry them forward to the
next fiscal year as retained earnings or to allocate them to the shareholders as dividends. However, dividends may not be distributed when our net assets are or would become as a result of
such distribution lower than the amount of the share capital plus the amount of the legal reserves which, under French law, may not be distributed to shareholders. The amount of our share
capital plus the amount of our legal reserves which may not be distributed was equal to €121,075,399.50 at June 21, 2019.
Our board of directors may distribute interim dividends after the end of the fiscal year but before the approval of the financial statements for the relevant fiscal year when the interim
balance sheet, established during such year and certified by an auditor, reflects that we have earned distributable profits since the close of the last financial year, after recognizing the
necessary depreciation and provisions and after deducting prior losses, if any, and the sums to be allocated to reserves, as required by law or the bylaws, and including any retained
earnings. The amount of such interim dividends may not exceed the amount of the profit so defined.
Pursuant to French legislation, if a dividend is declared we may be required to pay a dividend tax in an amount equal to 3% of the aggregate dividend paid by us. However, the European
Court of Justice, or ECJ, has ruled that the 3% dividend tax may not be applied to redistribution of dividends we receive from our subsidiaries established in another Member State of the
EU, in that it creates double taxation of profits made within the EU as prohibited by Article 9 of the Parent-Subsidiary directive (ECJ, 1st ch. May 17, 2017, case C-365/16 AFEP).
Distribution of Dividends. Dividends are distributed to shareholders pro rata according to their respective holdings of shares. In the case of interim dividends, distributions are made to
shareholders on the date set by our board of directors during the meeting in which the distribution of interim dividends is approved. The actual dividend payment date is decided by the
shareholders at an ordinary general shareholders’ meeting or by our board of directors in the absence of such a decision by the shareholders. Shareholders that own shares on the actual
payment date are entitled to the dividend.
Shareholders may be granted an option to receive dividends in cash or in shares, in accordance with legal conditions. The conditions for payment of dividends in cash shall be set at the
shareholders’ meeting or, failing this, by the board of directors.
Timing of Payment. Pursuant to French law, dividends must be paid within a maximum of nine months after the close of the relevant fiscal year, unless extended by court order. Dividends
not claimed within five years after the payment date shall be deemed to expire and revert to the French state.
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Voting Rights. Each share shall entitle its holder to vote and be represented in the shareholders’ meetings in accordance with the provisions of French law and of our bylaws. Ownership of
one share implies, ipso jure, adherence to our bylaws and the decisions of the shareholders’ meeting.
In general, each shareholder is entitled to one vote per share at any general shareholders’ meeting. Pursuant to our bylaws, however, a double voting right is attached to each registered
share which is held in the name of the same shareholder for at least two years.
Under French law, treasury shares or shares held by entities controlled by us are not entitled to voting rights and do not count for quorum purposes.
Rights to Share in Our Profit. Each share entitles its holder to a portion of the corporate profits and assets proportional to the amount of share capital represented thereby.
Rights to Share in the Surplus in the Event of Liquidation. If we are liquidated, any assets remaining after payment of the debts, liquidation expenses and all of the remaining obligations
will first be used to repay in full the par value of our shares. Any surplus will be distributed pro rata among shareholders in proportion to the number of shares respectively held by them,
taking into account, where applicable, of the rights attached to shares of different classes.
Repurchase and Redemption of Shares. Under French law, we may acquire our own shares. Such acquisition may be challenged on the ground of market abuse regulations. However,
Regulation 596/2014 of April 16, 2014 and its delegated regulations, or MAR, provides for safe harbor exemptions when the acquisition is made (i) under a buy-back program to be
authorized by the shareholders in accordance with the provisions of Article L. 225-209 of the French Commercial Code and with the General Regulations of the French Financial Markets
Authority, or AMF and (ii) for one of the following purposes:
•
•
•
•
to decrease our share capital, provided that such a decision is not driven by losses and that a purchase offer is made to all shareholders on a pro rata basis, with the approval of
the shareholders at an extraordinary general shareholders’ meeting; in this case, the shares repurchased must be cancelled within one month from the expiry of the purchase
offer;
to meet obligations arising from debt securities that are exchangeable into equity instruments;
to provide shares for distribution to employees or managers under a profit-sharing, free share or share option plan; in this case the shares repurchased must be distributed
within 12 months from their repurchase failing which they must be cancelled; or
under a buy-back program to be authorized by the shareholders in strict compliance of market manipulation and insider dealing rules and in accordance with provisions of
Article L. 225-209 of the French Commercial Code and in accordance with the general regulations of, and market practices accepted by the AMF.
Under MAR and in accordance with the General Regulations of the AMF, a corporation shall report to the competent authority of the trading value on which the shares have been admitted
to trading or are traded, no later than by the end of the seventh daily market session following the date of the execution of the transaction, all the transactions relating to the buy-back
program, in a detailed form and in an aggregated form.
No such repurchase of shares may result in us holding, directly or through a person acting on our behalf, more than 10% of our issued share capital. Shares repurchased by us continue to
be deemed “issued” under French law but are not entitled to dividends or voting rights so long as we hold them directly or indirectly, and we may not exercise the preemptive rights
attached to them.
Sinking Fund Provisions. Our bylaws do not provide for any sinking fund provisions.
Liability to Further Capital Calls. Shareholders are liable for corporate liabilities only up to the par value of the shares they hold; they are not liable to further capital calls.
Requirements for Holdings Exceeding Certain Percentages. None, except as described below under the sections of this Annual Report titled “Declaration of Crossing of Ownership
Thresholds (Article 9 of the Bylaws)” and “Form, Holding and Transfer of Shares (Articles 13 and 15 of the Bylaws)—Ownership of Shares by Non-French Persons.”
Actions Necessary to Modify Shareholders’ Rights
Shareholders’ rights may be modified as allowed by French law. Only the extraordinary general shareholders’ meeting is authorized to amend any and all provisions of our bylaws. It may
not, however, increase shareholder commitments without the prior approval of each shareholder.
Special Voting Rights of Warrant Holders
Under French law, the holders of warrants of the same class (i.e., warrants that were issued at the same time and with the same rights), including founder’s warrants, are entitled to vote as
a separate class at a general meeting of that class of warrant holders under certain
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circumstances, principally in connection with any proposed modification of the terms and conditions of the class of warrants or any proposed issuance of preferred shares or any
modification of the rights of any outstanding class or series of preferred shares.
Rules for Admission to and Calling Annual Shareholders’ Meetings and Extraordinary Shareholders’ Meetings (Section IV of the Bylaws)
Access to, Participation in and Voting Rights at Shareholders’ Meetings. Shareholders’ meetings are composed of all shareholders, regardless of the number of shares they hold. Each
shareholder has the right to attend the meetings and participate in the discussions (1) personally; (2) by granting proxy to any individual or legal entity of his choosing; (3) by sending a
proxy to the company without indication of the mandate; (4) by voting by correspondence; or (5) at the option of the board of directors at the time the meeting is called, by
videoconference or another means of telecommunication, including internet, in accordance with applicable laws that allow identification. The board of directors organizes, in accordance
with legal and regulatory requirements, the participation and vote of these shareholders at the meeting, assuring, in particular, the effectiveness of the means of identification.
Participation in shareholders’ general meetings, in any form whatsoever, is subject to registration or registration of shares under the conditions and time limits provided for applicable
laws.
The final date for returning voting ballots by correspondence is set by the board of directors and disclosed in the notice of meeting published in the French Journal of Mandatory Statutory
Notices, or BALO (Bulletin des Annonces Légales Obligatoires). This date cannot be earlier than three days prior to the meeting unless otherwise provided in the bylaws. Our bylaws
provide that the board of directors has the option to accept the voting ballots by correspondence beyond the limit set by applicable laws.
A shareholder who has voted by correspondence will no longer be able to participate directly in the meeting or to be represented. In the case of returning the proxy form and the voting by
correspondence form, the proxy form is taken into account, subject to the votes cast in the voting by correspondence form.
A shareholder may be represented at meetings by any individual or legal entity by means of a proxy form which we send to such shareholder either at the shareholder’s request or at our
initiative. A shareholder’s request for a proxy form must be received at the registered office at least five days before the date of the meeting. The proxy is only valid for a single meeting or
for successive meetings convened with the same agenda. It can also be granted for two meetings, one ordinary, and the other extraordinary, held on the same day or within a period of
fifteen days.
A shareholder may vote by correspondence by means of a voting form, which we send to such shareholder either at the shareholder’s request or at our initiative, or which we include in an
appendix to a proxy voting form under the conditions provided for by current laws and requirements. A shareholder’s request for a voting form must be received at the registered office at
least six days before the date of the meeting. The voting form is also available on our website at least 21 days before the date of the meeting. The voting form must be recorded by us three
days prior to the shareholders’ meeting, in order to be taken into consideration. The voting by correspondence form addressed by a shareholder is only valid for a single meeting or for
successive meetings convened with the same agenda.
To better understand the voting rights of the ADSs, you should carefully read the section in this prospectus titled “Description of American Depositary Shares—Voting Rights.”
Notice of Annual Shareholders’ Meetings. Shareholders’ meetings are convened by our board of directors, or, failing that, by the statutory auditors, or by a court appointed agent or
liquidator in certain circumstances. Meetings are held at our registered offices or at any other location indicated in the meeting announcement (avis de réunion). A meeting announcement
is published in the BALO at least 35 days prior to a meeting, as well as on our website at least 21 days prior to the meeting. In addition to the particulars relative to the company, it
indicates, notably, the meeting’s agenda and the draft resolutions that will be presented. The requests for recording of issues or draft resolutions on the agenda must be addressed to the
company under the conditions provided for in the current legislation.
Subject to special legal provisions, the convening notice (avis de convocation) is sent out at least 15 days prior to the date of the meeting, by means of a notice inserted both in a legal
announcement bulletin of the registered office department and in the BALO. Further, the holders of registered shares for at least a month at the time of the latest of the insertions of the
convening notice shall be summoned individually, by regular letter (or by registered letter if they request it and include an advance of expenses) sent to their last known address. This
notice may also be transmitted by electronic means of telecommunication, in lieu of any such mailing, to any shareholder requesting it beforehand by registered letter with
acknowledgment of receipt in accordance with legal and regulatory requirements, specifying his e-mail address. The latter may at any time expressly request by registered letter to the
Company with acknowledgment of receipt that the aforementioned means of telecommunication should be replaced in the future by a mailing.
The convening notice must also indicate the conditions under which the shareholders may vote by correspondence and the places and conditions in which they can obtain voting forms by
mail.
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The convening notice may be addressed, where appropriate, with a proxy form and a voting by correspondence form, under the conditions specified in our bylaws, or with a voting by
correspondence form alone, under the conditions specified in our bylaws. When the shareholders’ meeting cannot deliberate due to the lack of the required quorum, the second meeting
must be called at least ten days in advance in the same manner as used for the first notice.
Agenda and Conduct of Annual Shareholders’ Meetings. The agenda of the shareholders’ meeting shall appear in the convening notice of the meeting and is set by the author of the notice.
The shareholders’ meeting may only deliberate on the items on the agenda except for the removal of directors and the appointment of their successors which may be put to vote by any
shareholder during any shareholders’ meeting. Pursuant to French law and our current share capital, one or more shareholders representing 5% of our share capital may request the
inclusion of items or proposed resolutions on the agenda. Such request must be received at the latest on the 25th day preceding the date of the shareholders’ meeting, and in any event no
later than the 20th day following the date of the shareholders’ meeting announcement.
Shareholders’ meetings shall be chaired by the Chairman of the board of directors or, in his or her absence, by a Deputy Chairman or by a director elected for this purpose. Failing that, the
meeting itself shall elect a Chairman. Vote counting shall be performed by the two members of the meeting who are present and accept such duties, who represent, either on their own
behalf or as proxies, the greatest number of votes.
Ordinary Shareholders’ Meeting. Ordinary shareholders’ meetings are those meetings called to make any and all decisions that do not amend our bylaws. An ordinary meeting shall be
convened at least once a year within six months of the end of each fiscal year in order to approve the annual and consolidated accounts for the relevant fiscal year or, in case of
postponement, within the period established by court order. Upon first notice, the meeting may validly deliberate only if the shareholders present or represented by proxy or voting by mail
represent at least one-fifth of the shares entitled to vote. Upon second notice, no quorum is required. As the date of the filing of this Annual Report, decisions are made by a majority of the
votes held by the shareholders present, or represented by proxy, or voting by mail. Abstentions will have the same effect of a “no” vote. As from our general shareholders' meeting
convened to vote on the financial statements for the year ended December 31, 2019, decisions will be made by a majority of the votes cast by the shareholders present, represented by
proxy, or voting by mail. The votes cast will not include those attached to shares for which the shareholder did not participate in the vote, abstained or voted blank or void. In addition,
pursuant to a recent AMF recommendation, French listed companies may be required to conduct a consultation of the ordinary shareholders meeting prior to the disposal of the majority of
their assets, under certain circumstances.
Extraordinary Shareholders’ Meeting. Our bylaws may only be amended by approval at an extraordinary general shareholders’ meeting. Our bylaws may not, however, be amended to
increase shareholder commitments without the approval of each shareholder. Subject to the legal provisions governing share capital increases from reserves, profits or share premiums, the
resolutions of the extraordinary general shareholders’ meeting shall be valid only if the shareholders present, represented by proxy or voting by mail represent at least one-fourth of all
shares entitled to vote upon first notice, or one-fifth upon second notice. If the latter quorum is not reached, the second meeting may be postponed to a date no later than two months after
the date for which it was initially called. As the date of the filing of this Annual Report ,decisions are made by a two-thirds majority of the votes held by the shareholders present,
represented by proxy, or voting by mail. Abstentions will have the same effect of a “no” vote. As from our general shareholders' meeting convened to vote on the financial statements for
the year ended December 31, 2019, decisions will be made by a majority of the votes cast by the shareholders present, represented by proxy, or voting by mail. The votes cast will not
include those attached to shares for which the shareholder did not participate in the vote, abstained or voted blank or void.
Provisions Having the Effect of Delaying, Deferring or Preventing a Change in Control of Our Company
Provisions contained in our bylaws and French corporate law could make it more difficult for a third-party to acquire us, even if doing so might be beneficial to our shareholders. These
provisions include the following:
•
•
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under French law, the owner of 90% of the share capital or voting rights of a public company listed on a regulated market in a Member State of the European Union or in a
state party to the EEA Agreement, including from the main French Stock Exchange, has the right to force out minority shareholders following a tender offer made to all
shareholders;
under French law, a non-resident of France as well as any French entity controlled by non-residents of France may have to file a declaration for statistical purposes with the
Bank of France (Banque de France) within 20 working days following the date of certain direct foreign investments in us, including any purchase of our ADSs. In particular,
such filings are required in connection with investments exceeding €15,000,000 that lead to the acquisition of at least 10% of our share capital or voting rights or cross such
10% threshold. See “Limitations Affecting Shareholders of a French Company;”.
under French law, certain investments in a French company relating to certain strategic industries by individuals or entities not residents in a Member State of the European
Union are subject to prior authorization of the Ministry of Economy pursuant to Law n°2019-486 (and as from April 1, 2020 pursuant to the decree n°2019-1590). See
“Limitations Affecting Shareholders of a French Company;”
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a merger (i.e., in a French law context, a share for share exchange following which our company would be dissolved without being liquidated into the acquiring entity and our
shareholders would become shareholders of the acquiring entity) of our company into a company incorporated in the European Union would require the approval of our board
of directors as well as a two-thirds majority of the votes held (of the votes cast, as from our general shareholders' meeting convened to vote on the financial statements for the
year ended December 31, 2019) by the shareholders present, represented by proxy or voting by mail at the relevant meeting;
a merger of our company into a company incorporated outside of the European Union would require the unanimous approval of our shareholders;
under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;
our shareholders have granted and may grant in the future our board of directors broad authorizations to increase our share capital or to issue additional ordinary shares or
other securities, such as warrants, to our shareholders, the public or qualified investors, including as a possible defense following the launching of a tender offer for our shares;
our shareholders have preferential subscription rights on a pro rata basis on the future issuance by us of any additional securities for cash or a set-off of cash debts, which
rights may only be waived by the extraordinary general shareholders’ meeting (by a two-thirds majority vote) of our shareholders or on an individual basis by each
shareholder;
our board of directors has the right to appoint directors to fill a vacancy created by the resignation or death of a director, for the remaining duration of such director's term of
office and subject to the approval by the shareholders of such appointment at the next shareholders’ meeting, which prevents shareholders from having the sole right to fill
vacancies on our board of directors;
our board of directors can be convened by our chairman or our managing director, if any, or, when no board meeting has been held for more than two consecutive months, by
directors representing at least one third of the total number of directors;
our board of directors meetings can only be regularly held if at least half of the directors attend either physically or by way of videoconference or teleconference enabling the
directors’ identification and ensuring their effective participation in the board’s decisions;
our shares are nominative or bearer, if the legislation so permits, according to the shareholder’s choice;
approval of at least a majority of the votes held (of the votes cast, as from our general shareholders' meeting convened to vote on the financial statements for the year ended
December 31, 2019) by shareholders present, represented by a proxy, or voting by mail at the relevant ordinary shareholders’ general meeting is required to remove directors
with or without cause;
advance notice is required for nominations to the board of directors or for proposing matters to be acted upon at a shareholders’ meeting, except that a vote to remove and
replace a director can be proposed at any shareholders’ meeting without notice;
our bylaws can be changed in accordance with applicable laws;
the crossing of certain thresholds has to be disclosed and can impose certain obligations; see the section of this prospectus titled “Declaration of Crossing of Ownership
Thresholds (Article 9 of the Bylaws)”;
transfers of shares shall comply with applicable insider trading rules and regulations, and in particular with the Market Abuse Directive and Regulation dated April 16, 2014;
and
pursuant to French law, the sections of the bylaws relating to the number of directors and election and removal of a director from office may only be modified by a resolution
adopted by two-thirds of the votes held (of the votes cast, as from our general shareholders' meeting convened to vote on the financial statements for the year ended December
31, 2019) by our shareholders present, represented by a proxy or voting by mail at the meeting.
Declaration of Crossing of Ownership Thresholds (Article 9 of the Bylaws)
Set forth below is a summary of certain provisions of the French Commercial Code applicable to us. This summary is not intended to be a complete description of applicable rules under
French law.
Any individual or legal entity referred to in Articles L. 233-7, L. 233-9 and L. 223-10 of the French Commercial Code coming to directly or indirectly own, or cease to own, alone or in
concert, a number of shares representing a fraction of the Company’s capital or voting rights greater or equal to 5%, 10%, 15%, 20%, 25%, 30%, 33.33%, 50%, 66.66%, 90% and 95%
shall inform the Company as well as the French Financial Market Authority (AMF) of the total number of shares and voting rights and of securities giving access to the capital or voting
rights that it owns immediately or over time within a period of four trading days from the crossing of the said holding thresholds.
This obligation applies when crossing each of the above-mentioned thresholds in a downward direction.
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In case of failure to declare shares or voting rights exceeding the fraction that should have been declared, such shares shall be deprived of voting rights at General Meetings of
Shareholders for any meeting that would be held until the expiry of a period of two years from the date of regularization of the notification in accordance with Article L. 233-14 of the
French Commercial Code.
In addition, any shareholder crossing, alone or acting in concert, the 10%, 15%, 20% or 25% threshold shall file a declaration with the AMF pursuant to which it shall expose its intention
over the following 6 months, including notably whether it intends to continue acquiring shares of the company, it intends to acquire control over the company, its intended strategy for the
company.
Further, and subject to certain exemptions, any shareholder crossing, alone or acting in concert, the 30% threshold shall file a mandatory public tender offer with the AMF. Also, any
shareholder holding directly or indirectly a number between 30% and 50% of the capital or voting rights and who, in less than 12 consecutive months, increases his/her/its holding of
capital or voting rights by at least 1% company’s capital or voting rights, shall file a mandatory public tender offer.
Changes in Share Capital
Increases in Share Capital (Article 10 of the Bylaws). Pursuant to French law, our share capital may be increased only with shareholders’ approval at an extraordinary general
shareholders’ meeting following the recommendation of our board of directors. The shareholders may delegate to our board of directors either the authority (délégation de compétence) or
the power (délégation de pouvoir) to carry out any increase in share capital.
Increases in our share capital may be effected by:
issuing additional shares;
increasing the par value of existing shares;
creating a new class of equity securities; and
exercising the rights attached to securities giving access to the share capital.
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Increases in share capital by issuing additional securities may be effected through one or a combination of the following:
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in consideration for cash;
in consideration for assets contributed in kind;
through an exchange offer;
by conversion of previously issued debt instruments;
by capitalization of profits, reserves or share premium; and
subject to certain conditions, by way of offset against debt incurred by us.
Decisions to increase the share capital through the capitalization of reserves, profits and/or share premium require shareholders’ approval at an extraordinary general shareholders’
meeting, acting under the quorum and majority requirements applicable to ordinary shareholders’ meetings. Increases effected by an increase in the par value of shares require unanimous
approval of the shareholders, unless effected by capitalization of reserves, profits or share premium. All other capital increases require shareholders’ approval at an extraordinary general
shareholders’ meeting acting under the regular quorum and majority requirements for such meetings.
Reduction in Share Capital. Pursuant to French law, any reduction in our share capital requires shareholders’ approval at an extraordinary general shareholders’ meeting following the
recommendation of our board of directors. The share capital may be reduced either by decreasing the par value of the outstanding shares or by reducing the number of outstanding shares.
The number of outstanding shares may be reduced by the repurchase and cancellation of shares. Holders of each class of shares must be treated equally unless each affected shareholder
agrees otherwise.
Preferential Subscription Right. According to French law, if we issue additional securities for cash, current shareholders will have preferential subscription rights to these securities on
a pro rata basis. Preferential subscription rights entitle the individual or entity that holds them to subscribe pro rata based on the number of shares held by them to the issuance of any
securities increasing, or that may result in an increase of, our share capital by means of a cash payment or a set-off of cash debts. The preferential subscription rights are transferable
during the subscription period relating to a particular offering. Pursuant to recent legislation that went into effect on October 1, 2016, the preferential subscription rights will be
transferable during a period starting two days prior to the opening of the subscription period and ending two days prior to the closing of the subscription period.
The preferential subscription rights with respect to any particular offering may be waived at an extraordinary general shareholders’ meeting by a two-thirds vote of our shareholders or
individually by each shareholder. Our board of directors and our independent auditors are required by French law to present reports to the shareholders’ meeting that specifically address
any proposal to waive the preferential subscription rights.
Our current shareholders waived their preferential subscription rights with respect to the global offering at our combined general shareholders’ meeting held on June 21, 2019.
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In the future, to the extent permitted under French law, we may seek shareholder approval to waive preferential subscription rights at an extraordinary general shareholders’ meeting in
order to authorize the board of directors to issue additional shares and/or other securities convertible or exchangeable into shares.
Form, Holding and Transfer of Shares (Articles 13 and 15 of the Bylaws)
Form of Shares. The shares are in registered form, until their full payment. When they are fully paid up, they may be in registered form or bearer, at the option of the shareholders.
Further, in accordance with applicable laws, we may request at any time from the central depository responsible for holding our shares, the information referred to in Article L. 228-2 of
the French Commercial Code. Thus, we are, in particular and at any time, entitled to request the name and year of birth or, in the case of a legal entity, the name and the year of
incorporation, nationality and address of holders of securities conferring immediate or long-term voting rights at its general meetings of shareholders and the amount of securities owned
by each of them and, where applicable, the restrictions that the securities could be affected by.
Holding of Shares. In accordance with French law concerning the “dematerialization” of securities, the ownership rights of shareholders are represented by book entries instead of share
certificates. Shares issued are registered in individual accounts opened by us or any authorized intermediary, in the name of each shareholder and kept according to the terms and
conditions laid down by the legal and regulatory provisions.
Ownership of Shares by Non-French Persons. Neither French law nor our bylaws limit the right of non-residents of France or non-French persons to own or, where applicable, to vote our
securities. However, non-residents of France may have to file an administrative notice with the French authorities in connection with certain direct or indirect investments in us, including
through ownership of ADSs. In addition, acquisitions of 10% of the share capital or voting rights of a French resident company or a non-French resident company by a non-French
resident or by a French resident, respectively, are subject to statistical reporting requirements to the French National Bank.
Assignment and Transfer of Shares. Shares are freely negotiable, subject to applicable legal and regulatory provisions. French law notably provides for standstill obligations and
prohibition of insider trading.
Differences in Corporate Law
We are a société anonyme, or S.A., incorporated under the laws of France. The laws applicable to French sociétés anonymes differ from laws applicable to U.S. corporations and their
shareholders. Set forth below is a summary of certain differences between the provisions of the French Commercial Code applicable to us and the Delaware General Corporation Law
relating to shareholders’ rights and protections. This summary is not intended to be a complete discussion of the respective rights and it is qualified in its entirety by reference to Delaware
law and French law.
FRANCE
DELAWARE
Number of Directors
Director Qualifications
Under French law, a société anonyme must have at least three and
may have up to 18 directors. The number of directors is fixed by or
in the manner provided in the bylaws. Since January 1, 2017, the
number of directors of each gender may not be less than 40%. Any
appointment made in violation of this limit that is not remedied will
be null and void.
Under French law, a corporation may prescribe qualifications for
directors under its bylaws. In addition, under French law, members
of a board of directors of a corporation may be legal entities (with
the exception of the chairman of the board) , and such legal entities
may designate an individual to represent them and to act on their
behalf at meetings of the board of directors as well as the
deliberations taken by the board member irregularly appointed.
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Under Delaware law, a corporation must have at least one
director and the number of directors shall be fixed by or in the
manner provided in the bylaws.
Under Delaware law, a corporation may prescribe qualifications
for directors under its certificate of incorporation or bylaws.
Removal of Directors
Under French law, directors may be removed from office, with or
without cause, at any shareholders’ meeting without notice or
justification, by a simple majority vote.
Under Delaware law, unless otherwise provided in the
certificate of incorporation, directors may be removed from
office, with or without cause, by a majority stockholder vote,
though in the case of a corporation whose board is classified,
stockholders may effect such removal only for cause.
FRANCE
DELAWARE
Vacancies on the Board of Directors
Annual General Meeting
General Meeting
Under French law, vacancies on the board of directors resulting from
death or a resignation, provided that at least three directors remain in
office, may be filled by a majority of the remaining directors pending
ratification by the shareholders by the next shareholders’ meeting.
Under Delaware law, vacancies on a corporation’s board of
directors, including those caused by an increase in the number
of directors, may be filled by a majority of the remaining
directors.
Under French law, the annual general meeting of shareholders shall
be held at such place, on such date and at such time as decided each
year by the board of directors and notified to the shareholders in the
convening notice of the annual meeting, within six months after the
close of the relevant fiscal year unless such period is extended by
court order.
Under French law, general meetings of the shareholders may be
called by the board of directors or, failing that, by the statutory
auditors, or by a court appointed agent (mandataire ad hoc) or
liquidator in certain circumstances, or by the majority shareholder in
capital or voting rights following a public tender offer or exchange
offer or the transfer of a controlling block on the date decided by the
board of directors or the relevant person
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Under Delaware law, the annual meeting of stockholders shall
be held at such place, on such date and at such time as may be
designated from time to time by the board of directors or as
provided in the certificate of incorporation or by the bylaws.
Under Delaware law, special meetings of the stockholders may
be called by the board of directors or by such person or persons
as may be authorized by the certificate of incorporation or by
the bylaws.
FRANCE
DELAWARE
Under Delaware law, unless otherwise provided in the
certificate of incorporation or bylaws, written notice of any
meeting of the stockholders must be given to each stockholder
entitled to vote at the meeting not less than 10 nor more than
60 days before the date of the meeting and shall specify the
place,
date, hour, and purpose or purposes of the meeting.
Notice of General Meetings
A meeting announcement is published in the French Journal of
Mandatory Statutory Notices (BALO) at least 35 days prior to a
meeting and made available on the website of the company at least
21 day prior to the meeting. Subject to limited exceptions provided
by French law, additional convening notice is sent out at least 15
days prior to the date of the meeting, by means of a notice inserted
both in a legal announcement bulletin of the registered office
department and in the French Journal of Mandatory Statutory
Notices (BALO). Further, shareholders holding registered shares for
at least a month at the time latest insertions of the notices shall be
summoned individually, by regular letter (or by registered letter if
they request it and include an advance of expenses) sent to their last
known address. This notice to registered shareholders may also be
transmitted by electronic means of telecommunication, in lieu of any
such mailing, to any shareholder requesting it beforehand by
registered letter with acknowledgment of receipt in accordance with
legal and regulatory requirements, specifying his e-mail address.
When the shareholders’ meeting cannot deliberate due to lack of
required quorum, the second meeting must be called at least ten
calendar days in advance in the same manner as used for the first
notice.
The convening notice shall specify the name of the company, its
legal form, share capital, registered office address, registration
number with the French Registry of Commerce and Companies, the
place, date, hour and agenda of the meeting and its nature (ordinary
and/or extraordinary general shareholders’ meeting). The convening
notice must also indicate the conditions under which the
shareholders may vote by correspondence and the places and
conditions in which they can obtain voting forms by mail.
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FRANCE
DELAWARE
Proxy
Each shareholder has the right to attend the meetings and participate
in the discussions (i) personally, or (ii) by granting proxy to his/her
spouse, his/her partner with whom he/she has entered into a civil
union or to another shareholder or to any individual or legal entity of
his choosing; or (iii) by sending a proxy to the company without
indication of the mandate (in this case, such proxy shall be cast in
favor of the resolutions supported by the board of directors), or (iv)
by voting by correspondence, or (v) by videoconference or another
means of telecommunication in accordance with applicable laws that
allow identification. The proxy is only valid for a single meeting or
for successive meetings convened with the same agenda. It can also
be granted for two meetings, one ordinary, and the other
extraordinary, held on the same day or within a period of fifteen
days.
Under Delaware law, at any meeting of stockholders, a
stockholder may designate another person to act for such
stockholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides
for a longer period.
Shareholder Action by Written Consent
Under French law, shareholders’ action by written consent is not
permitted in a société anonyme.
Under Delaware law, a corporation’s certificate of incorporation
(1) may permit stockholders to act by written consent if such
action is signed by all stockholders, (2) may permit stockholders
to act by written consent signed by stockholders having the
minimum number of votes that would be necessary to take such
action at a meeting or (3) may prohibit actions by written
consent.
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FRANCE
DELAWARE
Under Delaware law, unless otherwise provided in a
corporation’s certificate of incorporation, a stockholder does
not, by operation of law, possess preemptive rights to subscribe
to additional issuances of the corporation’s stock.
Preemptive Rights
Under French law, in case of issuance of additional shares or other
securities for cash or set-off against cash debts, the existing
shareholders have preferential subscription rights to these securities
on a pro rata basis unless such rights are waived by a two-thirds
majority of the votes held (of the votes cast, as from our general
shareholders' meeting convened to vote on the financial statements
for the year ended December 31, 2019) by the shareholders present,
represented by proxy or voting by mail at the extraordinary general
shareholders’ meeting deciding or authorizing the capital increase,
voting in person or represented by proxy or voting by mail. In case
such rights have not been waived by the extraordinary general
shareholders’ meeting, each shareholder may individually either
exercise, assign or not exercise its preferential subscription rights.
Preferential subscription rights may only be assigned two business
days prior to the day on which the subscription is opened until the
second business day prior to its closing. Thus, the preferential
subscription rights are transferable during a period equivalent to the
subscription period relating to a particular offering (such period
starting two business days prior to the opening of the subscription
period and ending two business days prior to the closing of the
subscription period). In accordance with French law, the period of
exercise shall be no less than five trading days.
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Sources of Dividends
FRANCE
DELAWARE
Under Delaware law, dividends may be paid by a Delaware
corporation either out of (1) surplus or (2) in case there is no
surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, except
when the capital is diminished by depreciation in the value of its
property, or by losses, or otherwise, to an amount less than the
aggregate amount of capital represented by issued and
outstanding stock having a preference on the distribution of
assets.
Under French law, dividends may only be paid by a French société
anonyme out of
“distributable profits,” plus any distributable reserves and
“distributable premium” that the shareholders decide to make
available for distribution, other than those reserves that are
specifically required by law.
“Distributable profits” consist of the unconsolidated net profits of
the relevant corporation for each fiscal year, as increased or reduced
by any profit or loss carried forward from prior years.
“Distributable premium” refers to the contribution paid by the
stockholders in addition to the par value of their shares for their
subscription that the stockholders decide to make available for
distribution.
Except in case of a share capital reduction, no distribution can be
made to the stockholders when the net equity is, or would become,
lower than the amount of the share capital plus the reserves which
cannot be distributed in accordance with the law or the bylaws.
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Repurchase of Shares
FRANCE
DELAWARE
Under French law, a corporation may acquire its own shares. Such
acquisition may be challenged on the ground of market abuse
regulations. However, MAR provides for safe harbor exemptions
when the acquisition is made for the following purposes:
Under Delaware law, a corporation may generally redeem or
repurchase shares of its stock unless the capital of the
corporation is impaired or such redemption or repurchase would
impair the capital of the corporation.
•to decrease our share capital, provided that such a decision is
not driven by losses and that a purchase offer is made to all
shareholders on a pro rata basis, with the approval of the
shareholders at an extraordinary general shareholders’
meeting; in this case, the shares repurchased must be
cancelled within one month from the expiry of the purchase
offer;
•to meet obligations arising from debt securities that are
exchangeable into equity instruments;
•to provide shares for distribution to employees or managers
under a profit-sharing, free share or share option plan; in
this case the shares repurchased must be distributed within
12 months from their repurchase failing which they must be
cancelled; or
•under a buy-back program to be authorized by the shareholders
in strict compliance of market manipulation and insider
dealing rules and in accordance with provisions of Article
L. 225-209 of the French Commercial Code and in
accordance with the general regulations of, and market
practices accepted by the AMF.
Under MAR and in accordance with the General Regulations of the
French Financial Markets Authority, a corporation shall report to the
competent authority of the trading venue on which the shares have
been admitted to trading or are traded, no later than by the end of the
seventh daily market session following the date of the execution of
the transaction, all the transactions relating to the buy-back program,
in a detailed form and in an aggregated form.
No such repurchase of ordinary shares may result in the company
holding, directly or through a person acting on its behalf, more than
10% of its issues share capital.
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Liability of Directors and Officers
FRANCE
DELAWARE
Under French law, the bylaws may not include any provisions
limiting the liability of directors. Civil liability of the directors may
be sought for (1) an infringement of laws and regulations applicable
to the company, (2) breach of the bylaws and (3) management
failure.
Under Delaware law, a corporation’s certificate of incorporation
may include a provision eliminating or limiting the personal
liability of a director to the corporation and its stockholders for
damages arising from a breach of fiduciary duty as a director.
However, no provision can limit the liability of a director for:
•any breach of the director’s duty of loyalty to the
corporation or its stockholders;
•acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
•intentional or negligent payment of unlawful dividends or
stock purchases or redemptions; or
•any transaction from which the director derives an
improper personal benefit.
Delaware law provides that, unless otherwise provided in the
certificate of incorporation, each stockholder is entitled to one
vote for each share of capital stock held by such stockholder.
Voting Rights
French law provides that, unless otherwise provided in the bylaws,
each shareholder is entitled to one vote for each share of capital
stock held by such shareholder. As from April 2016, double voting
rights are automatically granted to the shares being registered since
more than two years, unless the bylaws are modified in order to
provide otherwise.
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FRANCE
DELAWARE
Shareholder Vote on Certain
Transactions
Generally, under French law, completion of a merger, dissolution,
sale, lease or exchange of all or substantially all of a corporation’s
assets requires:
•the approval of the board of directors; and
•approval by a two-thirds majority of the votes held (of the votes
cast, as from our general shareholders' meeting convened to
vote on the financial statements for the year ended
December 31, 2019) by the shareholders present,
represented by proxy or voting by mail at the relevant
meeting or, in the case of a merger with a non-EU company,
approval of all shareholders of the corporation (by
exception, the extraordinary general shareholders’ meeting
of the acquiring company may delegate to the board
authority to decide a merger-absorption or to determine the
terms and conditions of the merger plan).
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Generally, under Delaware law, unless the certificate of
incorporation provides for the vote of a larger portion of the
stock, completion of a merger, consolidation, sale, lease or
exchange of all or substantially all of a corporation’s assets or
dissolution requires:
•the approval of the board of directors; and
•approval by the vote of the holders of a majority of the
outstanding stock or, if the certificate of incorporation
provides for more or less than one vote per share, a
majority of the votes of the outstanding stock of a
corporation entitled to vote on the matter.
FRANCE
DELAWARE
Dissent or Dissenters’ Appraisal Rights
French law does not provide for any such right but provides that a
merger is subject to shareholders’ approval by a two-thirds majority
vote as stated above.
Standard of Conduct for Directors
French law does not contain specific provisions setting forth the
standard of conduct of a director. However, directors have a duty to
act without self-interest, on a well-informed basis and they cannot
make any decision against a corporation’s corporate interest (intérêt
social). In addition, directors shall take into account social and
environmental issues arising out of the company’s activity.
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Under Delaware law, a holder of shares of any class or series
has the right, in specified circumstances, to dissent from a
merger or consolidation by demanding payment in cash for the
stockholder’s shares equal to the fair value of those shares, as
determined by the Delaware Chancery Court in an action timely
brought by the corporation or a dissenting stockholder.
Delaware law grants these appraisal rights only in the case of
mergers or consolidations and not in the case of a sale or
transfer of assets or a purchase of assets for stock. Further, no
appraisal rights are available for shares of any class or series
that is listed on a national securities exchange or held of record
by more than 2,000 stockholders, unless the agreement of
merger or consolidation requires the holders to accept for their
shares anything other than:
•shares of stock of the surviving corporation;
•shares of stock of another corporation that are either listed
on a national securities exchange or held of record by
more than 2,000 stockholders;
•cash in lieu of fractional shares of the stock described in
the two preceding bullet points; or
•any combination of the above.
In addition, appraisal rights are not available to holders of
shares of the surviving corporation in specified mergers that do
not require the vote of the stockholders of the surviving
corporation.
Delaware law does not contain specific provisions setting forth
the standard of conduct of a director. The scope of the fiduciary
duties of directors is generally determined by the courts of the
State of Delaware. In general, directors have a duty to act
without self-interest, on a well-informed basis and in a manner
they reasonably believe to be in the best interest of the
stockholders.
Shareholder Suits
Amendment of Bylaws
FRANCE
DELAWARE
French law provides that a shareholder, or a group of shareholders,
may initiate a legal action to seek indemnification from the directors
of a corporation in the corporation’s interest if it fails to bring such
legal action itself. If so, any damages awarded by the court are paid
to the corporation and any legal fees relating to such action may be
borne by the relevant shareholder or the group of shareholders.
The plaintiff must remain a shareholder through the duration of the
legal action.
There is no other case where shareholders may initiate a derivative
action to enforce a right of a corporation.
A shareholder may alternatively or cumulatively bring individual
legal action against the directors, provided he has suffered distinct
damages from those suffered by the corporation. In this case, any
damages awarded by the court are paid to the relevant shareholder.
Under French law, only the extraordinary general shareholders’
meeting is authorized to adopt or amend the bylaws. However, the
board of directors is authorized to (i) modify the bylaws as a result of
a decision to move the company’s registered office and (ii) to bring
to the bylaws any modification rendered necessary by an amendment
to an applicable law or regulation if the board of directors has been
prior authorized by the extraordinary general shareholders' meeting
for this purpose, and subject, in both cases, to ratification by the next
extraordinary general shareholders’ meeting.
Under Delaware law, a stockholder may initiate a derivative
action to enforce a right of a corporation if the corporation fails
to enforce the right itself. The complaint must:
•state that the plaintiff was a stockholder at the time of the
transaction of which the plaintiff complains or that the
plaintiff’s shares thereafter devolved on the plaintiff by
operation of law; and
•allege with particularity the efforts made by the plaintiff to
obtain the action the plaintiff desires from the directors
and the reasons for the plaintiff’s failure to obtain the
action; or
•state the reasons for not making the effort.
Additionally, the plaintiff must remain a stockholder through the
duration of the derivative suit. The action will not be dismissed
or compromised without the approval of the Delaware Court of
Chancery.
Under Delaware law, the stockholders entitled to vote have the
power to adopt, amend or repeal the bylaws of the corporation.
A corporation may also confer, in its certificate of incorporation,
that power upon the board of directors.
Listing
Our ADSs are listed on the Nasdaq Global Select Market under the symbol “ERYP.” Our ordinary shares are listed on Euronext Paris under the symbol “ERYP.”
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Transfer Agent and Registrar
The transfer agent and registrar for our ADSs is The Bank of New York Mellon. Our share register for our ordinary shares is maintained by Société Générale. The share register reflects
only record owners of our ordinary shares. Holders of our ADSs are not treated as our shareholders and their names are therefore not entered in our share register. The depositary, the
custodian or their nominees are the holder of the shares underlying our ADSs. Holders of our ADSs have a right to receive the ordinary shares underlying their ADSs. For discussion on
our ADSs and ADS holder rights, see “Description of American Depositary Shares” in this prospectus.
Ownership of ADSs or Shares by Non-French Residents
LIMITATIONS AFFECTING SHAREHOLDERS OF A FRENCH COMPANY
Neither the French Commercial Code nor our bylaws presently impose any restrictions on the right of non-French residents or non-French shareholders to own and vote shares. However,
non-French residents must file a declaration for statistical purposes with the Bank of France (Banque de France) within twenty working days following the date of certain direct foreign
investments in us, including any purchase of our ADSs. In particular such filings are required in connection with investments exceeding €15,000,000 that lead to the acquisition of at least
10% of the share capital or voting rights or cross such 10% threshold. Violation of this filing requirement may be sanctioned by five years’ imprisonment and a fine up to twice the amount
of the relevant investment. This amount may be increased fivefold if the violation is made by a legal entity. Moreover, certain foreign investments in companies incorporated under French
laws are subject to the prior authorization from the French Minister of the Economy, where all or part of the target’s business and activity relate to a strategic sector, such as energy,
transportation, public health, telecommunications, etc., pursuant to Law n°2019-486 (and as from April 1, 2020 pursuant to the decree n°2019-1590).
Foreign Exchange Controls
Under current French foreign exchange control regulations there are no limitations on the amount of cash payments that we may remit to residents of foreign countries. Laws and
regulations concerning foreign exchange controls do, however, require that all payments or transfers of funds made by a French resident to a non-resident such as dividend payments be
handled by an accredited intermediary. All registered banks and substantially all credit institutions in France are accredited intermediaries.
Availability of Preferential Subscription Rights
Our shareholders will have the preferential subscription rights described under “Description of Share Capital—Key Provisions of Our Bylaws and French Law Affecting Our Ordinary
Shares—Changes in Share Capital—Preferential Subscription Right.” Under French law, shareholders have preferential rights to subscribe for cash issues of new shares or other securities
giving rights to acquire additional shares on a pro rata basis. Holders of our securities in the United States (which may be represented by ADSs) will not be able to exercise preferential
subscription rights for their securities unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration requirements
imposed by the Securities Act is available. We may, from time to time, issue new shares or other securities giving rights to acquire additional shares (such as warrants) at a time when no
registration statement is in effect and no Securities Act exemption is available. If so, holders of our securities in the United States will be unable to exercise any preferential subscription
rights and their interests will be diluted. We are under no obligation to file any registration statement in connection with any issuance of new shares or other securities. We intend to
evaluate at the time of any rights offering the costs and potential liabilities associated with registering the rights, as well as the indirect benefits to us of enabling the exercise by holders of
shares in the United States and ADS holders of the subscription rights, and any other factors we consider appropriate at the time, and then to make a decision as to whether to register the
rights. We cannot assure you that we will file a registration statement.
For holders of our ordinary shares represented by ADSs, the depositary may make these rights or other distributions available to ADS holders. If the depositary does not make the rights
available to ADS holders and determines that it is impractical to sell the rights, it may allow these rights to lapse. In that case, ADS holders will receive no value for them. The section of
this prospectus titled “Description of American Depositary Shares—Dividends and Other Distributions” explains in detail the depositary’s responsibility in connection with a rights
offering. See also “Risk Factors—The right as a holder of ADSs to participate in any future preferential subscription rights or to elect to receive dividends in shares may be limited, which
may cause dilution to the holders of our ADSs”.
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C. Material Contracts.
License and Collaboration Agreement with SQZ Biotechnologies
In June 2019, we entered into a license agreement, or the 2019 license agreement, with SQZ Biotechnologies Company, or SQZ, pursuant to which we granted SQZ a worldwide,
exclusive license under certain of our intellectual property, rights related to encapsulation technology to research, develop, manufacture, commercialize and otherwise exploit products that
modulate an immune response that contain red blood cells and one or more antigens, excluding red blood cell containing products that have a primary mechanism of action that is other
than eliciting an antigen-specific immune response or whose primary purpose is to elicit immune tolerance to certain enzymes that modulate specified metabolites. SQZ is solely
responsible for future development and commercialization of licensed products and is required to use commercially reasonable efforts to develop and commercialize at least one licensed
product throughout the world.
In consideration for entering into the 2019 license agreement, SQZ made an initial upfront payment of $1.0 million. Additionally, we are also entitled to receive $6.0 million in the
aggregate for certain specified development and regulatory milestones, $50.0 million in the aggregate for certain specified commercial milestones, a tiered percentage royalty on annual
net sales ranging in the low-single digits, subject to certain specified reductions, and a tiered percentage royalty on certain sublicensing revenue received by SQZ ranging from low-single
digit to low-second decile. Royalties are payable by SQZ on a licensed product-by-licensed product, indication-by-indication, and country-by-country basis until the expiration of the last
valid claim covering the licensed product in such country.
During the term of the 2019 license agreement we, alone and with third parties, are prohibited from researching, developing, manufacturing, commercializing or otherwise exploiting
products whose primary purpose is to elicit immune tolerance to a therapeutic enzyme, wherein the red blood cells contain a portion or derivative of the therapeutic enzyme that is
sufficient to elicit immune tolerance.
The 2019 license agreement expires on the date of expiration of all royalty obligations. Either party may terminate the 2019 license agreement earlier upon an uncured material breach of
the agreement by the other party or the insolvency of the other party. We may terminate the 2019 license agreement in the event that SQZ initiates an action challenging the validity or
enforceability of the licensed patents. Additionally, SQZ may terminate the 2019 license agreement for any or no reason on country-by-country basis or in its entirety upon specified
written notice.
For additional information on our material contracts, please see “Item 4. Information on the Company,” “Item 6. Directors, Senior Management and Employees,” and “Item 7.B. Related
Party Transactions” of this Annual Report on 20-F.
D. Exchange Controls.
Under current French foreign exchange control regulations there are no limitations on the amount of cash payments that we may remit to residents of foreign countries. Laws and
regulations concerning foreign exchange controls do, however, require that all payments or transfers of funds made by a French resident to a non-resident such as dividend payments be
handled by an accredited intermediary. All registered banks and substantially all credit institutions in France are accredited intermediaries.
E. Taxation.
The following describes material U.S. federal income tax and French tax considerations relating to the acquisition, ownership and disposition of ADSs by a U.S. holder (as defined below).
This summary does not address all U.S. federal income tax and French tax matters that may be relevant to a particular U.S. holder. This summary does not address tax considerations
applicable to a holder of ADSs that may be subject to special tax rules including, without limitation, the following:
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•
•
•
•
banks, financial institutions or insurance companies;
brokers, dealers or traders in securities, currencies, commodities, or notional principal contracts;
tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code (as defined below),
respectively;
real estate investment trusts, regulated investment companies or grantor trusts;
persons that hold the ADSs as part of a “hedging,” “integrated,” “wash sale” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax
purposes;
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•
•
•
•
•
•
•
S corporations;
certain former citizens or long-term residents of the United States;
persons that received ADSs as compensation for the performance of services;
persons acquiring ADSs in connection with a trade or business conducted outside of the United States, including a permanent establishment in France;
persons subject to Section 451(b) of the Code;
holders that own directly, indirectly, or through attribution 10% or more of the voting power or value of our ADSs and shares or, in the case of the discussion of French tax
consequences, 5% or more of the voting stock or our share capital; and
holders that have a “functional currency” other than the U.S. dollar.
For the purposes of this description, a “U.S. holder” is a beneficial owner of ADSs that is (or is treated as), for U.S. federal income tax purposes:
•
•
•
•
an individual who is a citizen or resident of the United States;
a domestic corporation;
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the
substantial decisions of such trust, or if such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds ADSs, the U.S. federal income tax consequences relating to an investment in the
ADSs will depend in part upon the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income
tax considerations of acquiring, owning and disposing of the ADSs in its particular circumstances.
The discussion in this section is based in part upon the representations of the depositary and the assumption that each obligation in the amended and restated deposit agreement and any
related agreement will be performed in accordance with its terms.
Persons considering an investment in the ADSs should consult their own tax advisors as to the particular tax consequences applicable to them relating to the acquisition,
ownership and disposition of the ADSs, including the applicability of U.S. federal, state and local tax laws, French tax laws and other non-U.S. tax laws.
Material French Tax Considerations
The following describes the material French income tax consequences to U.S. holders of purchasing, owning and disposing of our ADSs and, unless otherwise noted, this discussion is the
opinion of Gide Loyrette Nouel A.A.R.P.I, our French tax counsel, insofar as it relates to matters of French tax law and legal conclusions with respect to those matters.
This discussion does not purport to be a complete analysis or listing of all potential tax effects of the acquisition, ownership or disposition of our ADSs to any particular investor, and does
not discuss tax considerations that arise from rules of general application or that are generally assumed to be known by investors. All of the following is subject to change. Such changes
could apply retroactively and could affect the consequences described below.
The description of the French income tax and wealth tax consequences set forth below is based on the Convention Between the Government of the United States of America and the
Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of August 31, 1994, or the
Treaty, which came into force on December 30, 1995 (as amended by any subsequent protocols, including the protocol of January 13, 2009), and the tax guidelines issued by the French
tax authorities in force as of the date of this Annual Report.
This discussion applies only to investors that are entitled to Treaty benefits under the “Limitation on Benefits” provision contained in the Treaty.
France has recently introduced a comprehensive set of new tax rules applicable to French assets that are held by or in foreign trusts. These rules provide inter alia for the inclusion of trust
assets in the settlor’s net assets for the purpose of applying the French real
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estate wealth tax, for the application of French gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of foreign trusts not already subject to
the French real estate wealth tax and for a number of French tax reporting and disclosure obligations. The following discussion does not address the French tax consequences applicable to
securities (including ADSs) held in trusts. If ADSs are held in trust, the grantor, trustee and beneficiary are urged to consult their own tax advisor regarding the specific tax consequences
of acquiring, owning and disposing of securities (including ADSs).
U.S. holders are urged to consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of securities in light of their particular circumstances,
especially with regard to the “Limitations on Benefits” provision.
Estate and Gift Taxes and Transfer Taxes
In general, a transfer of securities by gift or by reason of death of a U.S. holder that would otherwise be subject to French gift or inheritance tax, respectively, will not be subject to such
French tax by reason of the Convention between the Government of the United States of America and the Government of the French Republic for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritances and Gifts, dated November 24, 1978 (as amended by the protocol of December 8, 2004), unless (i) the
donor or the transferor is domiciled in France at the time of making the gift or at the time of his or her death, or (ii) the securities were used in, or held for use in, the conduct of a business
through a permanent establishment or a fixed base in France.
Pursuant to Article 235 ter ZD of the Code général des impôts (French Tax Code, or FTC), purchases of shares or ADSs of a French company listed on a regulated market of the European
Union or on a foreign regulated market formally acknowledged by the French Financial Market Authority (AMF) are subject to a 0.3% French tax on financial transactions provided that
the issuer’s market capitalization exceeds 1 billion euros as of December 1 of the year preceding the taxation year pursuant to Regulations BOI-ANNEX-000467-20191218 issued on
December 18, 2019. The Nasdaq Global Select Market is not currently acknowledged by the French AMF but this may change in the future. A list of French relevant companies whose
market capitalization exceeds 1 billion euros as of December 1 of the year preceding the taxation year is published annually and at least once a year, by the French State. As at
December 1, 2019, our market capitalization did not exceed 1 billion euros.
Following the global offering, purchases of our securities may be subject to such tax provided that its market capitalization exceeds 1 billion euros and that the Nasdaq Global Select
Market is acknowledged by the French AMF.
In the case where Article 235 ter ZD of the FTC is not applicable, transfers of shares issued by a French company, which is listed on a regulated or organized market within the meaning of
the French Financial and Monetary Code, are subject to uncapped registration duties at the rate of 0.1% if the transfer is evidenced by a written statement (“acte”) executed either in France
or outside France. Although there is no case law or official guidelines published by the French tax authorities on this point, transfers of ADSs should remain outside of the scope of the
aforementioned 0.1% registration duties.
Tax on Sale or Other Disposition
As a matter of principle, under French tax law, a U.S. holder should not be subject to any French tax on any capital gain from the sale, exchange, repurchase or redemption by us of
ordinary shares or ADSs, provided such U.S. holder is not a French tax resident for French tax purposes and has not held more than 25% of our dividend rights, known as “droits aux
benefices sociaux,” at any time during the preceding five years, either directly or indirectly, and, as relates to individuals, alone or with relatives (as an exception, a U.S holder resident,
established or incorporated in a non-cooperative State or territory as defined in Article 238-0 A of the FTC should be subject to a 75% withholding tax in France on any such capital gain,
regardless of the fraction of the dividend rights it holds).
Under application of the Treaty, a U.S. holder who is a U.S. resident for purposes of the Treaty and entitled to Treaty benefit will not be subject to French tax on any such capital gain
unless the ordinary shares or the ADSs form part of the business property of a permanent establishment or fixed base that the U.S. holder has in France. U.S. holders who own ordinary
shares or ADSs through U.S. partnerships that are not resident for Treaty purposes are advised to consult their own tax advisors regarding their French tax treatment and their eligibility for
Treaty benefits in light of their own particular circumstances. A U.S. holder that is not a U.S. resident for Treaty purposes or is not entitled to Treaty benefit (and in both cases is not
resident, established or incorporated in a non-cooperative State or territory as defined in Article 238-0 A of the FTC) and has held more than 25% of our dividend rights, known as “droits
aux benefices sociaux,” at any time during the preceding five years, either directly or indirectly, and, as relates to individuals, alone or with relatives will be subject to a levy in France at
the rate of 12.8% if such U.S. holder is an individual or 28% for corporate bodies or other legal entities (as from January 1, 2020, to be progressively reduced to 25% by 2022). Special
rules apply to U.S. holders who are residents of more than one country.
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Taxation of Dividends
Dividends paid by a French corporation to non-residents of France are generally subject to French withholding tax at a rate of 12.8% when the recipient is an individual and 28% otherwise
(the 28% rate for legal entities will be progressively reduced to 25% by 2022). Dividends paid by a French corporation in a non-cooperative State or territory, as defined in Article 238-0 A
of the FTC, will generally be subject to French withholding tax at a rate of 75%. However, eligible U.S. holders, other than individuals subject to the French withholding tax at a rate of
12.8%, entitled to Treaty benefits under the ‘‘Limitation on Benefits’’ provision contained in the Treaty who are U.S. residents, as defined pursuant to the provisions of the Treaty, will not
be subject to this 28% or 75% withholding tax rate, but may be subject to the withholding tax at a reduced rate (as described below).
Under the Treaty, the rate of French withholding tax on dividends paid to an eligible U.S. holder who is a U.S. resident as defined pursuant to the provisions of the Treaty and whose
ownership of the ordinary shares or ADSs is not effectively connected with a permanent establishment or fixed base that such U.S. holder has in France, may be reduced to 15%, or to 5%
if such U.S. holder is a corporation and owns directly or indirectly at least 10% of the share capital of the issuer; such U.S. holder may claim a refund from the French tax authorities of the
amount withheld in excess of the Treaty rates of 15% or 5%, if any.
For U.S. holders that are not individuals but are U.S. residents, as defined pursuant to the provisions of the Treaty, the requirements for eligibility for Treaty benefits, including the reduced
5% or 15% withholding tax rates contained in the ‘‘Limitation on Benefits’’ provision of the Treaty, are complex, and certain technical changes were made to these requirements by the
protocol of January 13, 2009. U.S. holders are advised to consult their own tax advisors regarding their eligibility for Treaty benefits in light of their own particular circumstances.
Dividends paid to an eligible U.S. holder may immediately be subject to the reduced rates of 5% or 15% provided that:
•
•
such holder establishes before the date of payment that it is a U.S. resident under the Treaty by completing and providing the depositary with a treaty form (Form 5000) in
accordance with the French guidelines (BOI-INT-DG-20-20-20-20-20120912); or
the depositary or other financial institution managing the securities account in the U.S. of such holder provides the French paying agent with a document listing certain
information about the U.S. holder and its ordinary shares or ADSs and a certificate whereby the financial institution managing the U.S. holder’s securities account in the
United States takes full responsibility for the accuracy of the information provided in the document.
Otherwise, dividends paid to a U.S. holder, other than individuals subject to the French withholding tax at a rate of 12.8%, will be subject to French withholding tax at the rate of 28%, or
75% if paid in a non-cooperative State or territory (as defined in Article 238-0 A of the FTC), and then reduced at a later date to 5% or 15%, provided that such holder duly completes and
provides the French tax authorities with the treaty forms Form 5000 and Form 5001 before December 31 of the second calendar year following the year during which the dividend is paid.
Certain qualifying pension funds and certain other tax-exempt entities are subject to the same general filing requirements as other U.S. holders except that they may have to supply
additional documentation evidencing their entitlement to these benefits.
Form 5000 and Form 5001, together with instructions, will be provided by the depositary to all U.S. holders registered with the depositary. The depositary will arrange for the filing with
the French tax authorities of all such forms properly completed and executed by U.S. holders of ordinary shares or ADSs and returned to the depositary in sufficient time so that they may
be filed with the French tax authorities before the distribution in order to immediately obtain a reduced withholding tax rate. Otherwise, the depositary must withhold tax at the full rate of
28% or 75% as applicable. In that case, the U.S. holders may claim a refund from the French tax authorities of the excess withholding tax.
Since the withholding tax rate applicable under French domestic law to U.S. holders who are individuals does not exceed the cap provided in the Treaty (i.e. 15%), the 12.8% rate shall
apply, without any reduction provided under the Treaty.
Besides, please note that pursuant to Article 235 quater of the FTC (introduced by the French finance bill n°2019-1479 for 2020) and under certain conditions (in particular reporting
obligations), a corporate U.S. Holder which is in a tax loss position for the fiscal year during which the dividend is received may be entitled to a deferral regime, and obtain a withholding
tax refund. The tax deferral ends in respect of the first financial year during which this U.S. Holder is in a profit making position, as well as in the cases set out in Article 235 quater of the
FTC.
Real Estate Wealth Tax
On January 1, 2018, the French wealth tax was replaced with a real estate wealth tax (impôt sur la fortune immobilière, or IFI). Individuals holding directly or indirectly through one or
more legal entities real estate assets or rights with a value exceeding
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€1,300,000 may fall within the scope of the IFI. A general exclusion applies to real estate assets owned by companies carrying out a commercial or industrial activity when the taxpayer
(together with the members of his/her household) holds directly or indirectly less than 10% of the share capital or voting rights of the company. ADSs owned by a U.S. holder should not
fall within the scope of the IFI provided that such U.S. holder does not own (together with the members of his/her household) directly or indirectly a shareholding exceeding 10% of the
financial rights and voting rights of our share capital. U.S. holders holding directly or indirectly a shareholding exceeding 10% of the financial rights and voting rights of our share capital
should seek additional advice.
Material U.S. Federal Income Tax Considerations
This section discusses the material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of ADSs by a U.S. holder. This description does not
address the U.S. federal estate, gift, or alternative minimum tax considerations, or any U.S. state, local, or non-U.S. tax considerations of the acquisition, ownership and disposition of the
ADSs.
This description is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, existing, proposed and temporary U.S. Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof, in each case as in effect and available on the date hereof. All the foregoing is subject to change, which change could apply retroactively,
and to differing interpretations, all of which could affect the tax considerations described below. There can be no assurances that the U.S. Internal Revenue Service, or the IRS, will not
take a position concerning the tax consequences of the acquisition, ownership and disposition of the ADSs or that such a position would not be sustained by a court. Holders should consult
their own tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of acquiring, owning and disposing of the ADSs in their particular circumstances.
In general, and taking into account the earlier assumptions, for U.S. federal income and French tax purposes, a U.S. holder holding ADRs evidencing ADSs will be treated as the owner of
the shares presented by the ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to U.S. federal income or to French tax.
Passive Foreign Investment Company Considerations. Based on the composition of our gross income and assets in 2018, the nature of our business and due to fluctuations in our stock
price, we believe that we were characterized as a PFIC for our taxable year ending December 31, 2018. Based on the expected nature and composition of our gross income, assets,
activities and market capitalization for our taxable year ending December 31, 2019, we expect that we will be characterized as a PFIC for the taxable year ended December 31, 2019.
There can be no assurance that we will not be considered a PFIC for the current year or any future taxable year. A separate determination must be made after the close of each taxable year
as to whether we are a PFIC for that year. As a result, our PFIC status may change from year to year and we have not yet made any determination as to our expected PFIC status for the
current year; however, if the facts underlying our 2020 PFIC determination are similar to those for 2019, we could be a PFIC for our taxable year ending December 31, 2020. Our U.S.
counsel expresses no opinion regarding our conclusions or our expectations regarding our PFIC status.
If we are classified as a PFIC in any taxable year, a U.S. holder will be subject to special rules discussed below. If we are classified as a PFIC in any year with respect to which a U.S.
holder owns the ADSs, we will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding years during which the U.S. holder owns the ADSs, regardless of
whether we continue to meet the PFIC tests described below.
We will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of our
subsidiaries, either: (i) at least 75% of the gross income is “passive income” or (ii) at least 50% of the average quarterly value of our total gross assets (which would generally be measured
by fair market value of our assets, and for which purpose the total value of our assets may be determined in part by the market value of the ADSs and our ordinary shares, which are
subject to change) is attributable to assets that produce “passive income” or are held for the production of “passive income.”
Passive income for this purpose generally includes dividends, allocations of income with respect to any partnership interest, interest, royalties, rents, gains from commodities and securities
transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of funds
raised in offerings of the ADSs. If a non-U.S. corporation owns directly or indirectly at least 25% by value of the stock of another corporation or the partnership interests in a partnership,
the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation or partnership and as receiving directly its
proportionate share of the other corporation’s or partnership’s income.
The market value of our assets may be determined in large part by reference to the market price of the ADSs and our ordinary shares, which is likely to fluctuate. In addition, the
composition of our income and assets will be affected by how, and how quickly, we use
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the cash proceeds from our global offerings in our business. Whether we are a PFIC for any taxable year will depend on our assets and income (including whether we receive certain non-
refundable grants or subsidies and whether such amounts and reimbursements of certain refundable research tax credits will constitute gross income for purposes of the PFIC income test)
in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC in any taxable
year.
If we are a PFIC, and you are a U.S. holder that does not make one of the elections described below, a special tax regime will apply to both (a) any “excess distribution” by us to you
(generally, your ratable portion of distributions in any year which are greater than 125% of the average annual distribution received by you in the shorter of the three preceding years or
your holding period for the ADSs) and (b) any gain realized on the sale or other disposition of the ADSs. Under this regime, any excess distribution and realized gain will be treated as
ordinary income and will be subject to tax as if (i) the excess distribution or gain had been realized ratably over your holding period, (ii) the amount deemed realized in each year had been
subject to tax in each year of that holding period at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a
PFIC, which would be subject to tax at the U.S. holder’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed below), and (iii) the
interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. In addition, dividend distributions made to you
will not qualify for the lower rates of taxation applicable to qualified dividends discussed above under “Distributions.”
Certain elections may alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment of the ADSs. If a U.S. holder makes a mark-to-market
election, the U.S. holder generally will recognize as ordinary income any excess of the fair market value of the ADSs at the end of each taxable year over their adjusted tax basis, and will
recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount
of income previously included as a result of the mark-to-market election). If a U.S. holder makes the election, the U.S. holder’s tax basis in the ADSs will be adjusted to reflect these
income or loss amounts. Any gain recognized on the sale or other disposition of ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an
ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). The mark-to-market election is available only if we are a
PFIC and the ADSs are “regularly traded” on a “qualified exchange.” The ADSs will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the
ADSs are traded on a qualified exchange on at least 15 days during each calendar quarter (subject to the rule that trades that have as one of their principal purposes the meeting of the
trading requirement as disregarded). The Nasdaq Global Select Market is a qualified exchange for this purpose and, consequently, if the ADSs are regularly traded, the mark-to-market
election will be available to a U.S. holder.
If we are a PFIC, we expect to provide investors, upon request, a “PFIC Annual Information Statement” with the information required to allow investors to make a “qualified electing fund
election” or “QEF Election” for United States federal income tax purposes. U.S. holders should consult their tax advisors to determine whether any of these elections would be available
and if so, what the consequences of the alternative treatments would be in their particular circumstances.
If a U.S. holder makes a QEF Election with respect to a PFIC, in lieu of the tax consequences described below, the U.S. holder will be subject to current taxation on its pro rata share of the
PFIC’s ordinary earnings and net capital gain for each taxable year that the entity is classified as a PFIC. If a U.S. holder makes a QEF Election with respect to us, any distributions paid
by us out of our earnings and profits that were previously included in the U.S. holder’s income under the QEF Election would not be taxable to the holder. A U.S. holder will increase its
tax basis in its ADSs by an amount equal to any income included under the QEF Election and will decrease its tax basis by any amount distributed on the ADSs that is not included in the
holder’s income. In addition, a U.S. holder will recognize capital gain or loss on the disposition of ADSs in an amount equal to the difference between the amount realized and the holder’s
adjusted tax basis in the ADSs. U.S. holders should note that if they make QEF Elections with respect to us and lower-tier PFICs, they may be required to pay U.S. federal income tax with
respect to their ADSs for any taxable year significantly in excess of any cash distributions (which are expected to be zero) received on the ADSs for such taxable year. U.S. holders should
consult their tax advisors regarding making QEF Elections in their particular circumstances. If a U.S. holder does not make and maintain a QEF election for the U.S. holder’s entire
holding period for our ADSs by making the election for the first year in which the U.S. holder owns our ADSs pursuant to this offering, the U.S. holder will be subject to the adverse PFIC
rules discussed above unless the U.S. holder can properly make a “purging election” with respect to our ADSs in connection with the U.S. Shareholder’s QEF Election. A purging election
may require the U.S. holder to recognize taxable gain on the U.S. holder’s ADSs. No purging election is necessary for a U.S. holder that timely makes a QEF election for the first year in
which the U.S. holder acquired our ADSs.
If we are determined to be a PFIC, the general tax treatment for U.S. holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. Holders
in respect of any of our subsidiaries that also may be determined to be PFICs.
If a U.S. holder owns ADSs during any taxable year in which we are a PFIC, the U.S. holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a
Passive Foreign Investment Company or Qualified Electing Fund) with respect to the company, generally with the U.S. holder’s federal income tax return for that year. If our company
were a PFIC for a given taxable year, then you should consult your tax advisor concerning your annual filing requirements.
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The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to consult their own tax advisers with respect to the acquisition,
ownership and disposition of the ADSs, the consequences to them of an investment in a PFIC, any elections available with respect to the ADSs and the IRS information
reporting obligations with respect to the acquisition, ownership and disposition of the ADSs.
U.S. Federal Income Tax Consequences If We Are Not a PFIC. The description of the U.S. federal income tax consequences of the receipt of distributions and the sale or other taxable
exchange of our ADSs, described in the following two sections “—Distributions” and “—Sale, Exchange or Other Taxable Disposition of the ADSs,” apply only if we are not a PFIC in the
relevant year and our stock is not subject to the rules described above under “—Passive Foreign Investment Company Considerations” because we were a PFIC with respect to a U.S.
holder and its ADSs in a prior year.
Distributions. We do not expect to make any distribution in respect of our ADSs. If we are not treated as a PFIC under the rules described above under “—Passive Foreign Investment
Company Considerations” and made any distribution in respect of our ADSs, the gross amount of the distribution (including any amounts withheld in respect of foreign tax) actually or
constructively received by a U.S. holder with respect to ADSs will be taxable to the U.S. holder as a dividend to the extent of the U.S. holder’s pro rata share of our current and
accumulated earnings and profits as determined under U.S. federal income tax principles. Distributions in excess of earnings and profits will be non-taxable to the U.S. holder to the extent
of, and will be applied against and reduce, the U.S. holder’s adjusted tax basis in the ADSs. Distributions in excess of earnings and profits and such adjusted tax basis will generally be
taxable to the U.S. holder as either long-term or short-term capital gain depending upon whether the U.S. holder has held the ADSs for more than one year as of the time such distribution
is received. However, since we do not calculate our earnings and profits under U.S. federal income tax principles, it is expected that any distribution will be reported as a dividend, even if
that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. Non-corporate U.S. holders may qualify for the
preferential rates of taxation with respect to dividends on ADSs applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) applicable to
qualified dividend income (as discussed below) if we are a “qualified foreign corporation” and certain other requirements (discussed below) are met. A non-U.S. corporation (other than a
corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation
(a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this
provision and which includes an exchange of information provision, or (b) with respect to any dividend it pays on ADSs which are readily tradable on an established securities market in
the United States. Our ADSs are currently listed on the Nasdaq Global Select Market, which is an established securities market in the United States, and we expect the ADSs to be readily
tradable on the Nasdaq Global Select Market. However, there can be no assurance that the ADSs will be considered readily tradable on an established securities market in the United States
in later years. The Company, which is incorporated under the laws of France, believes that it qualifies as a resident of France for purposes of, and is eligible for the benefits of, the
Convention between the Government of the United States of America and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital, signed on August 31, 1994, as amended and currently in force, or the U.S.-France Tax Treaty, although there can be no assurance in
this regard. Further, the IRS has determined that the U.S.-France Tax Treaty is satisfactory for purposes of the qualified dividend rules and that it includes an exchange-of-information
program. Therefore, subject to the discussion under “—Passive Foreign Investment Company Considerations,” above, such dividends will generally be “qualified dividend income” in the
hands of individual U.S. holders, provided that a holding period requirement (more than 60 days of ownership, without protection from the risk of loss, during the 121-day period
beginning 60 days before the ex-dividend date) and certain other requirements are met. The dividends will not be eligible for the dividends-received deduction generally allowed to
corporate U.S. holders.
A U.S. holder generally may claim the amount of any French withholding tax as either a deduction from gross income or a credit against its U.S. federal income tax liability. However, the
foreign tax credit is subject to numerous complex limitations that must be determined and applied on an individual basis. Generally, the credit cannot exceed the proportionate share of a
U.S. holder’s U.S. federal income tax liability that such U.S. holder’s taxable income bears to such U.S. holder’s worldwide taxable income. In applying this limitation, a U.S. holder’s
various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect
to specific categories of income. The amount of a distribution with respect to the ADSs that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for
French income tax purposes, potentially resulting in a reduced foreign tax credit for the U.S. holder. Each U.S. holder should consult its own tax advisors regarding the foreign tax credit
rules.
In general, the amount of a distribution paid to a U.S. holder in a foreign currency will be the dollar value of the foreign currency calculated by reference to the spot exchange rate on the
day the Depositary receives the distribution, regardless of whether the foreign currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. holder realizes
on a subsequent conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. If dividends received in a foreign
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currency are converted into U.S. dollars on the day they are received, a U.S. holder should not be required to recognize foreign currency gain or loss in respect of the dividend.
Sale, Exchange or Other Taxable Disposition of the ADSs. A U.S. holder will generally recognize gain or loss for U.S. federal income tax purposes upon the sale, exchange or other
taxable disposition of ADSs in an amount equal to the difference between the U.S. dollar value of the amount realized from such sale or exchange and the U.S. holder’s tax basis in those
ADSs, determined in U.S. dollars. Subject to the discussion under “—Passive Foreign Investment Company Considerations” below, this gain or loss will generally be a capital gain or loss.
The adjusted tax basis in the ADSs generally will be equal to the cost of such ADSs. Capital gain from the sale, exchange or other taxable disposition of ADSs of a non-corporate U.S.
holder is generally eligible for a preferential rate of taxation applicable to capital gains, if the non-corporate U.S. holder’s holding period determined at the time of such sale, exchange or
other taxable disposition for such ADSs exceeds one year (i.e., such gain is long-term taxable gain). The deductibility of capital losses for U.S. federal income tax purposes is subject to
limitations. Any such gain or loss that a U.S. holder recognizes generally will be treated as U.S. source gain or loss for foreign tax credit limitation purposes.
For a cash basis taxpayer, units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the settlement date of the purchase or sale. In that case, no foreign
currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of such a purchase or sale. An accrual basis taxpayer, however, may
elect the same treatment required of cash basis taxpayers with respect to purchases and sales of the ADSs that are traded on an established securities market, provided the election is
applied consistently from year to year. Such election may not be changed without the consent of the IRS. For an accrual basis taxpayer who does not make such election, units of foreign
currency paid or received are translated into U.S. dollars at the spot rate on the trade date of the purchase or sale. Such an accrual basis taxpayer may recognize exchange gain or loss
based on currency fluctuations between the trade date and the settlement date. Any foreign currency gain or loss a U.S. Holder realizes will be U.S. source ordinary income or loss.
Medicare Tax. Certain U.S. holders that are individuals, estates or trusts are subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion
of their dividend income and net gains from the disposition of ADSs. Each U.S. holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of
the Medicare tax to its income and gains in respect of its investment in the ADSs.
Backup Withholding and Information Reporting. U.S. holders generally will be subject to information reporting requirements with respect to dividends on ADSs and on the proceeds
from the sale, exchange or disposition of ADSs that are paid within the United States or through U.S.-related financial intermediaries, unless the U.S. holder is an “exempt recipient.” In
addition, U.S. holders may be subject to backup withholding on such payments, unless the U.S. holder provides a taxpayer identification number and a duly executed IRS Form W-9 or
otherwise establishes an exemption. Backup withholding is not an additional tax, and the amount of any backup withholding will be allowed as a credit against a U.S. holder’s U.S. federal
income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Foreign Asset Reporting. Certain individual U.S. holders are required to report information relating to an interest in the ADSs, subject to certain exceptions (including an exception for
shares held in accounts maintained by U.S. financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S.
holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of the ADSs.
THE DISCUSSION ABOVE IS A SUMMARY OF THE MATERIAL FRENCH AND U.S. FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN OUR
ADSs OR ORDINARY SHARES AND IS BASED UPON LAWS AND RELEVANT INTERPRETATIONS THEREOF IN EFFECT AS OF THE DATE OF THIS ANNUAL
REPORT ON FORM 20-F, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY WITH RETROACTIVE EFFECT. EACH PROSPECTIVE INVESTOR IS URGED
TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF AN INVESTMENT IN ADSs OR ORDINARY SHARES IN LIGHT OF THE
INVESTOR’S OWN CIRCUMSTANCES.
F. Dividends and Paying Agents.
Not applicable.
G. Statement by Experts.
Not applicable.
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H. Documents on Display.
We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers and under those requirements will file reports with the SEC. Those
reports may be inspected without charge at the locations described below. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and
content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the
Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States
companies whose securities are registered under the Exchange Act. Nevertheless, we will file with the SEC an Annual Report on Form 20-F containing financial statements that have been
examined and reported on, with and opinion expressed by an independent registered public accounting firm.
We maintain a corporate website at www.erytech.com. We intend to post our Annual Reports on Form 20-F on our website promptly following it being filed with the SEC. Information
contained on, or that can be accessed through, our website does not constitute a part of this Annual Report. We have included our website address in this Annual Report solely as an
inactive textual reference.
The Securities and Exchange Commission maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as
us, that file electronically with the SEC.
With respect to references made in this Annual Report to any contract or other document of our company, such references are not necessarily complete and you should refer to the exhibits
attached or incorporated by reference to this Annual Report for copies of the actual contract or document.
I. Subsidiary Information.
Not required.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk.
Liquidity Risk
We do not believe that we are exposed to short-term liquidity risk, considering the cash and cash equivalents that we had available as of December 31, 2019, amounting to €73.2 million,
which was primarily cash and term deposits that are convertible into cash in approximately 30 days notice without penalty. Management believes that the amount of cash and cash
equivalents available at December 31, 2019 is sufficient to fund our planned operations until February 2021. We may need to seek additional funds sooner than planned, through public or
private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements
or a combination of these approaches. However, no assurance can be given at this time as to whether we will be able to achieve these financing objectives.
Foreign Currency Exchange Risk
We use the euro as our functional currency for our financial communications. Our operating results and our bank account held in U.S dollars are exposed to changes in foreign currency
exchange rates between the euro and various foreign currencies, including the U.S. dollar. However, a portion of our operating expenses is denominated in U.S. dollars as a result of our
clinical trials performed in the United States at our office based in Cambridge, Massachusetts and our production facility in Princeton, New Jersey. As a result, we are exposed to foreign
exchange risk inherent in operating expenses incurred. We also entered into a license and collaboration agreement with SQZ Biotechnologies in June 2019 and any potential payments
pursuant to this agreement will be made in U.S. dollars.
As of December 31, 2019, management believes that its bank account position held in U.S. dollars is sufficient to cover operating expenses in dollars. As a consequence, we do not believe
we have a significant foreign currency exchange risk as of December 31, 2019. The bank account position held in U.S. dollars amounted to $35,224 thousand as of December 31, 2019.
Change in exchange rate from 1% would have an impact of €310 thousand as of December 31, 2019.
Change in exchange rate from 5% would have an impact of €1,493 thousand as of December 31, 2019.
Change in exchange rate from 10% would have an impact of €2,850 thousand as of December 31, 2019.
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We do not currently engage in hedging transactions or the use of forward contracts but may in the future in order to minimize the impact of uncertainty in future exchange rates on cash
flows.
As we advance our clinical development in the United States and potentially commercialize our product candidates in that market, we expect to face greater exposure to exchange rate risk
and would then consider using exchange rate derivative or hedging techniques at that time. We expect to continue to enter into transactions based in foreign currencies that could be
impacted by changes in exchange rates.
Interest Rate Risk
We believe we have very low exposure to interest rate risk. Such exposure primarily involves our money market funds and time deposit accounts. Changes in interest rates have a direct
impact on the rate of return on these investments and the cash flows generated.
The currently outstanding bank loan with Société Générale bear interest at a fixed rate, and therefore the company is not subject to interest rate risk with respect to this loan.
Credit Risk
We believe that the credit risk related to our cash and cash equivalents is not significant in light of the quality of the financial institutions at which such funds are held.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary
pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of
operations.
Item 12.
Description of Securities Other than Equity Securities.
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
C. Other Securities.
Not applicable.
D. American Depositary Shares.
The Bank of New York Mellon acts as the depositary for the American Depositary Shares. The Bank of New York Mellon’s depositary offices are located at 101 Barclay Street, New York,
N.Y. 10286. American Depositary Shares are frequently referred to as ADSs and represent ownership interests in securities that are on deposit with the depositary. Each ADS represents
one ordinary share, nominal value €0.10 per share (or a right to receives one ordinary share). ADSs may be represented by certificates that are commonly known as American Depositary
Receipts, or ADRs. The depositary typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Société Générale.
We have appointed The Bank of New York Mellon as depositary pursuant to an amended and restated deposit agreement, which sets out the ADS holder rights as well as the rights and
obligations of the depositary. A copy of the amended and restated deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6. You may obtain a copy
of the amended and restated deposit agreement from the SEC’s website (www.sec.gov). Please refer to Registration Number 333-201279 when retrieving such copy.
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You may hold ADSs either (1) directly (a) by having an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (b) by having uncertificated ADSs
registered in your name in the Direct Registration System, or DRS, or (2) indirectly by holding a security entitlement in ADSs through your broker or other financial institution that is a
direct or indirect participant in the Depository Trust Company, or DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description
assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described
in this section. You should consult with your broker or financial institution to find out what those procedures are.
DRS is a system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership is confirmed by periodic statements sent by
the depositary to the registered holders of uncertificated ADSs.
As an ADS holder, you will not be treated as one of our shareholders and you will not have shareholder rights. French law governs shareholder rights. The depositary will be the holder of
the ordinary shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights. An amended and restated deposit agreement among us, the depositary and you, as an
ADS holder, and all other persons directly and indirectly holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the
amended and restated deposit agreement and the ADRs. In the event of any discrepancy between the ADRs and the amended and restated deposit agreement, the amended and restated
deposit agreement governs.
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Fees and Expenses
Pursuant to the terms of the amended and restated deposit agreement, the holders of our ADSs will be required to pay the following fees:
Persons depositing or withdrawing ordinary shares or ADSs must pay:
For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
• Issue of ADSs, including issues resulting from a distribution of ordinary shares or rights
$0.05 (or less) per ADS
• Any cash distribution to you
A fee equivalent to the fee that would be payable if securities distributed to
you had been ordinary shares and the shares had been deposited for issue of
ADSs
• Distribution of securities distributed to holders of deposited securities which are distributed by
the depositary to you
$0.05 (or less) per ADS per calendar year
• Depositary services
• Cancellation of ADSs for the purpose of withdrawal, including if the amended and restated
deposit agreement terminates
Registration or transfer fees
Expenses of the depositary
• Transfer and registration of ordinary shares on our share register to or from the name of the
depositary or its agent when you deposit or withdraw shares
• Cable (including SWIFT) and facsimile transmissions as expressly provided in the amended and
restated deposit agreement
• Converting foreign currency to U.S. dollars
Taxes and other governmental charges the depositary or the custodian have to
pay on any ADS or share underlying an ADS, for example, share transfer
taxes, stamp duty or withholding taxes
• As necessary
Any charges payable by the depositary, custodian or their agents in connection
with the servicing of deposited securities
• As necessary
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from
intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of
distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging
the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are
obligated to pay those fees. The depositary may generally refuse to provide for-fee services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse or share revenue from the fees collected from ADS holders, or waive fees and expenses for services provided,
generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its duties under the amended and restated deposit agreement, the
depositary may use brokers, dealers, foreign currency or other service providers that are affiliates of the depositary and that may earn or share fees, spreads or commissions.
The depositary may convert foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on
behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the
difference between the exchange rate assigned to the currency conversion made under the amended and restated deposit agreement and the rate that the depositary or its affiliate receives
when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the
amended and restated deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the
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most favorable to holders of our ADSs, subject to the depositary’s obligations under the amended and restated deposit agreement. The methodology used to determine exchange rates used
in currency conversions is available upon request.
We may agree with the depositary to amend the amended and restated deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or
charges, except for taxes and other governmental charges, registration fees, facsimile costs, delivery costs or other such expenses, or that would otherwise prejudice a substantial right of
ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective,
ADS holders are considered, by continuing to hold their ADSs, to agree to the amendment and to be bound by the ADRs and the amended and restated deposit agreement as further
amended.
From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the American Depositary
Shares program, waive fees and expenses for services provided by the depositary or share revenue from the fees collected from owners or holders of our ADSs.
Payment of Taxes
ADS holders are responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of their ADSs. The depositary may
refuse to register any transfer of an ADS holder’s ADSs or allow an ADS holder to withdraw the deposited securities represented by an ADS holder’s ADSs until such taxes or other
charges are paid. It may apply payments owed to an ADS holder or sell deposited securities represented by an ADS holder’s ADSs to pay any taxes owed and the ADS holder will remain
liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs registered in such ADS holder’s name to reflect the sale and pay
such ADS holder any net proceeds, or send such ADS holder any property, remaining after it has paid the taxes. Such ADS holder’s obligation to pay taxes and indemnify us and the
depositary against any tax claims will survive the transfer or surrender of such ADS holder’s ADSs, the withdrawal of the deposited ordinary shares as well as the termination of the
amended and restated deposit agreement.
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PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies.
Not applicable.
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds.
Global Offering
In November 2017, we completed a global offering of an aggregate of 6,180,137 ordinary shares, including the full exercise of the underwriters’ option to purchase 806,104 additional
ordinary shares. The global offering consisted of a U.S. initial public offering of 5,389,021 ordinary shares in the form of American Depositary Shares, each representing one ordinary
share, at an offering price of $23.26 per ADS and a concurrent private placement in Europe and other countries outside of the United States and Canada of 791,116 ordinary shares at an
offering price of €20.00 per ordinary share for aggregate gross proceeds to us of approximately $143.7 million. The net offering proceeds to us, after deducting underwriting discounts and
commissions and offering expenses, were approximately €112.1 million ($130.4 million). The offering commenced on November 6, 2017 and did not terminate before all of the securities
registered in the registration statement were sold. The effective date of the registration statement, File No. 333-220867, for our global offering was November 9, 2017.
Jefferies LLC acted as global coordinator and joint book-runner for the global offering. Cowen and Company, LLC acted as joint book-runner and JMP Securities LLC acted as lead
manager for the offering of ADSs in the United States. Oddo BHF SCA acted as joint book-runner for the private placement of ordinary shares in Europe.
The net proceeds from our global offering have been used, and are expected to continue to be used, as described in the final prospectus for the global offering filed with the U.S. Securities
and Exchange Commission on November 13, 2017.
None of the net proceeds of our global offering were paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of
any class of our equity securities, or to any of our affiliates.
Item 15.
Controls and Procedures.
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer (principal executive officer) and our chief financial officer and chief operating officer (principal financial officer),
has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13(a) - 15(e) and 15(d) - 15(e) under the Securities Exchange Act of 1934, as
amended), as of December 31, 2019. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures
were not effective at the reasonable assurance level as of December 31, 2019 as a result of the material weaknesses described below. We are undertaking the remedial steps to address the
material weaknesses in our disclosure controls and procedures as set forth below under “Management’s Plan for Remediation of Current Material Weaknesses.”
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
and for the assessment of the effectiveness of our internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our chief executive officer (principal executive officer) and chief financial officer and chief operating officer (principal financial
officer), management conducted an assessment of our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
In connection with the preparation of our financial results for the year ended December 31, 2018, our management concluded that, as of December 31, 2018, our internal control over
financial reporting was not effective as a result of three material weaknesses in our internal control over financial reporting related to: (i) the closing and consolidation process due to (a)
an inadequate segregation of
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duties and a lack of resources, which did not allow some tasks to be adequately reviewed and (b) a lack of a consolidation tool, which led to difficulties in documenting an appropriate
audit trail of entries made; (ii) the monitoring of research and development projects, as controls designed to track actual costs incurred against invoices received were not operating at a
sufficient level of precision due to insufficient personnel with an appropriate level of knowledge and training in internal control over complex processes; and (iii) the lack of sufficiently
developed and documented internal controls for our U.S. subsidiary.
In connection with our assessment as of December 31, 2019, our management concluded that the following two material weaknesses have not been remediated as of December 31, 2019:
Monitoring of Research and Development Projects.
As of December 31, 2018, we identified a material weakness related to the monitoring of research and development projects, as controls designed to track actual costs incurred compared
to invoices received were not operating at a sufficient level of precision due to insufficient personnel with an appropriate level of knowledge and training in internal control over complex
processes.
To remediate this material weakness and enhance our overall control environment during the year ended December 31, 2019, we worked on the reinforcement of internal controls
implemented at the operating level and in particular, controls relating to the tracking of actual costs compared to invoices received, combined with a specific training provided to
employees whose job functions impact our control activities, including members of the research and development department.
We believe the remediation plan described above improved the reliability of financial information related to research and development as the precision of controls relating to the tracking
of actual costs compared to invoiced amounts was improved. Nevertheless, our management identified that the hiring of a financial professional dedicated to monitoring specific research
and development projects was necessary to fully remediate this material weakness. Despite an active search, the position has not been filled as of December 31, 2019.
Internal Control of U.S. Subsidiary.
As of December 31, 2018, we identified a material weakness related to the lack of sufficiently developed and documented internal controls for our U.S. subsidiary, ERYTECH Pharma Inc.
To remediate this material weakness, we took number of actions to improve internal control over financial reporting related to our U.S subsidiary during the year ended December 31,
2019, including the following:
•
•
defining the appropriate organization model and hiring a U.S. Head of Finance and a Financial Controller who have the appropriate experience, certification, education, and
training in financial reporting, accounting and internal control; and
designed and implemented a controls framework for all key processes to ensure that the process-level risks of possible misstatement in our financial reporting are identified
and mitigated.
However, we failed to fully remediate this material weakness since we have not yet designed, implemented and maintained effective controls over certain information technology systems
supporting our U.S operations that are relevant to the preparation of the consolidated financial statements. Specifically, we did not design and maintain user access controls to
appropriately segregate duties and adequately restrict user and privileged access to certain financial applications, data and programs to the appropriate personnel.
As a result of the two material weaknesses described above, management concluded our internal control over financial reporting was not effective as of December 31, 2019 at the
reasonable assurance level.
Remediation of Previously Identified Material Weakness in Internal Control over Financial Reporting
In connection with the preparation of our financial results for the year ended December 31, 2018, our management concluded that, as of December 31, 2018, our internal control over
financial reporting was not effective as a result of three material weaknesses in our internal control over financial reporting. One of these material weaknesses was related to the closing
and consolidation process, due to an inadequate segregation of duties and a lack of resources which did not allow some tasks to be adequately reviewed, as well as a lack of a consolidation
tool that led to difficulties in documenting an appropriate audit trail of entries made. As a result of the remediation activities described below, as of December 31, 2019, management has
concluded that this material weakness has been fully remediated.
143
In response to this material weakness, we took a number of actions to improve our internal control over financial reporting during the year ended December 31, 2019, including the
following:
•
•
the reinforcement of our finance team with the hiring of a Consolidation Manager in February 2019. This employee has assisted our finance team in validating the
consolidation process by ensuring that tasks were adequately reviewed and by ensuring an adequate segregation of duties; and
the implementation of a consolidation software to ensure a proper audit trail.
Management’s Plan for Remediation of Current Material Weaknesses
With the oversight of senior management and our audit committee, we continue to evaluate our internal control over financial reporting and are taking several remediation actions to
address the two material weaknesses that were not remediated as of December 31, 2019:
Monitoring of Research and Development Projects
Going forward, we plan to continue to:
•
•
reinforce our team dedicated to the monitoring of research and development projects for which process level control have not been considered as effective;
strengthen controls over our financial information related to research and development to detect and correct errors.
Lack of Effective Control Over IT System Supporting Financial U.S Activities
At the end of 2019, we hired of a new staff accountant to ensure that the defined segregation of duties is also designed, implemented and maintained at an operational level.
Going forward, we plan to:
•
•
define the segregation of duties that we wish to implement in our U.S. subsidiary; and
design, implement and maintain effective controls over certain information technology systems supporting our U.S operations that are relevant to the preparation of the
consolidated financial statements, and in particular user access controls, to ensure that this defined segregation of duties is reflected in our IT systems.
Notwithstanding the material weaknesses, our management has concluded that the financial statements included elsewhere in this Annual Report present fairly, in all material respects, our
financial position, results of operations and cash flows for the periods presented in conformity with IFRS.
Our independent registered public accounting firm has not assessed the effectiveness of our internal control over financial reporting, which may increase the risk that weaknesses or
deficiencies in our internal control over financial reporting go undetected.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange
Commission for emerging growth companies.
Changes in Internal Control over Financial Reporting
Other than the material weaknesses and the remediation activities described above, there were no changes in our internal control over financial reporting during the year ended
December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16.
Reserved.
Not applicable.
144
Item 16A.
Audit Committees Financial Expert.
Our board of directors has determined that Ms. Windels is an audit committee financial expert as defined by SEC rules and regulations and each of the members of our board of directors
has the requisite financial sophistication under the applicable rules and regulations of the Nasdaq Stock Market. Ms. Windels is independent as such term is defined in Rule 10A-3 under
the Exchange Act and under the listing standards of the Nasdaq Stock Market.
Item 16B.
Code of Business Conduct and Ethics.
We have adopted a Code of Business Conduct and Ethics, or the Code of Ethics, that is applicable to all of our employees, executive officers and directors. A copy of the Code of Ethics is
available on our website at www.erytech.com. The audit committee of our board of directors is responsible for overseeing the Code of Ethics and must approve any waivers of the Code of
Ethics for employees, executive officers and directors. We expect that any amendments to the Code of Ethics, or any waivers of its requirements, will be disclosed on our website.
Item 16C.
Principal Accountant Fees and Services.
KPMG S.A., or KPMG, has served as our independent registered public accounting firm for the years ended December 31, 2018 and 2019. Our accountants billed the following fees to us
for professional services in each of those fiscal years, all of which were approved by our audit committee:
Audit Fees
Audit-Related Fees
All Other Fees
Total
Year Ended December 31,
2018
2019
(in thousands of €)
253
—
—
253
322
74
—
396
“Audit Fees” are the aggregate fees billed for the audit of our annual financial statements. This category also includes services that KPMG provides, such as consents and assistance with
and review of documents filed with the SEC.
“Audit-Related Fees” are the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit and are not reported under Audit Fees.
“All Other Fees” are additional amounts billed for products and services provided by KPMG.
There were no “Tax Fees” billed or paid during 2018 or 2019.
Audit and Non-Audit Services Pre-Approval Policy
The audit committee has responsibility for appointing, setting compensation of and overseeing the work of the independent registered public accounting firm. In recognition of this
responsibility, the audit committee has adopted a policy governing the pre-approval of all audit and permitted non-audit services performed by our independent registered public
accounting firm to ensure that the provision of such services does not impair the independent registered public accounting firm’s independence from us and our management. Unless a type
of service to be provided by our independent registered public accounting firm has received general pre-approval from the audit committee, it requires specific pre-approval by the audit
committee. The payment for any proposed services in excess of pre-approved cost levels requires specific pre-approval by the audit committee.
Pursuant to its pre-approval policy, the audit committee may delegate its authority to pre-approve services to the chairperson of the audit committee. The decisions of the chairperson to
grant pre-approvals must be presented to the full audit committee at its next scheduled meeting. The audit committee may not delegate its responsibilities to pre-approve services to the
management.
The audit committee has considered the non-audit services provided by KPMG as described above and believes that they are compatible with maintaining KPMG’s independence as our
independent registered public accounting firm.
Item 16D.
Exemptions from the Listing Standards for Audit Committees.
Not applicable.
145
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Not applicable.
Item 16F.
Change in Registrant’s Certifying Accountant.
Not applicable.
Item 16G.
Corporate Governance.
As a French société anonyme, we are subject to various corporate governance requirements under French law. In addition, as a foreign private issuer listed on the Nasdaq Global Select
Market, we are subject to Nasdaq corporate governance listing standards. However, the corporate governance standards provide that foreign private issuers are permitted to follow home
country corporate governance practices in lieu of Nasdaq rules, with certain exceptions. We currently rely on these exemptions for foreign private issuers and follow French corporate
governance practices in lieu of the Nasdaq corporate governance rules, which would otherwise require that (1) a majority of our board of directors consist of independent directors; (2) we
establish a nominating and corporate governance committee; and (3) our remuneration committee be composed entirely of independent directors.
The following are the significant ways in which our corporate governance practices differ from those required for U.S. companies listed on Nasdaq:
As a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Rule 10A-3 provides that the
audit committee must have direct responsibility for the nomination, compensation and choice of our auditors, as well as control over the performance of their duties, management of
complaints made, and selection of consultants. However, if the laws of a foreign private issuer’s home country require that any such matter be approved by the board of directors or the
shareholders, the audit committee’s responsibilities or powers with respect to such matter may instead be advisory. Under French law, the audit committee may only have an advisory role
and appointment of our statutory auditors, in particular, must be decided by the shareholders at our annual meeting.
In addition, Nasdaq rules require that a listed company specify that the quorum for any meeting of the holders of common stock be at least 33 1/3% of the outstanding shares of the
company’s voting stock. Consistent with French law, our bylaws provide that a quorum requires the presence of shareholders having at least (1) 20% of the shares entitled to vote in the
case of an ordinary shareholders’ general meeting or at an extraordinary shareholders’ general meeting where shareholders are voting on a capital increase by capitalization of reserves,
profits or share premium, or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general meeting. If a quorum is not present, the meeting is
adjourned. There is no quorum requirement when an ordinary general meeting is reconvened, but the reconvened meeting may consider only questions which were on the agenda of the
adjourned meeting. When an extraordinary general meeting is reconvened, the quorum required is 20% of the shares entitled to vote, except where the reconvened meeting is considering
capital increases through capitalization of reserves, profits or share premium. For these matters, no quorum is required at the reconvened meeting. If a quorum is not present at a
reconvened meeting requiring a quorum, then the meeting may be adjourned for a maximum of two months.
Item 16H.
Mine Safety Disclosure.
Not applicable.
146
PART III
Item 17.
Financial Statements.
See the financial statements beginning on page F-1 of this Annual Report.
Item 18.
Financial Statements.
Not applicable.
Item 19.
Exhibits.
The exhibits listed below are filed as exhibits to this Annual Report.
Exhibit
1.1
2.1
2.2
2.3*
4.1
4.2
4.3
4.4
4.7#
4.8#
4.9#
4.10
4.11#
4.12#
4.13†
4.14†
4.15†
4.16†
4.17†
Bylaws (statuts) of the registrant (English translation)
Amended and Restated Deposit Agreement
Description
Form of American Depositary Receipt (included in Exhibit 2.1)
Description of Securities
Lease Agreement by and between the registrant and PFO2 SCPI (represented by PERIAL
Asset Management SASU), dated June 9, 2015 (English translation)
Addendum #1 to the Lease Agreement by and between the registrant and PF02 SCPI
(represented by PERIAL Asset Management SASU), dated December 30, 2016 (English
translation)
Lease Agreement by and between the registrant and EUROGAL, dated December 6, 2017
(English Translation)
Lease by and between the registrant and 104 Campus Drive LLC, dated April 27, 2018
Exclusive Distribution Agreement by and between the registrant and Abic Marketing
Limited, dated as of March 28, 2011
Exclusive Supply Agreement for L-asparaginase by and between the registrant and medac
GmbH, dated as of December 12, 2008 and Addendum #1 to the Exclusive Supply
Agreement for L-Asparaginase, dated August 19, 2009
Exclusive Supply Agreement for recombinant L-asparaginase by and between the registrant
and medac GmbH, dated as of May 3, 2011 and Addendum #1 to the Exclusive Supply
Agreement for recombinant L-asparaginase, dated April 4, 2014
Addendum #2 to the Exclusive Supply Agreement for L-asparaginase by and between the
registrant and medac GmbH, dated July 25, 2016
Addendum #2 to the Exclusive Supply Agreement for recombinant L-asparaginase by and
between the registrant and medac GmbH, dated July 25, 2016
Patent License Agreement by and between the registrant and the Public Health Service,
dated as of June 19, 2012
Form of indemnification agreement between the registrant and each of its executive officers
and directors
Summary of BSA Plans
Summary of BSPCE Plans
2016 Share Option Plan (English translation)
2016 Free Share Plan (English translation)
147
Incorporated by Reference
Schedule/
Form
20-F
20-F
20-F
F-1
F-1
20-F
20-F
F-1
File
Number
001-38281
001-38281
001-38281
333-220867
333-220867
001-38281
001-38281
333-220867
F-1
333-220867
Exhibit
File
Date
1.1
2.1
2.2
10.1
10.2
4.3
4.4
10.5
10.6
April 24, 2018
April 24, 2018
April 24, 2018
October 6, 2017
October 6, 2017
April 24, 2018
March 29, 2019
October 6, 2017
October 6, 2017
F-1
333-220867
10.7
October 6, 2017
F-1
F-1
F-1
F-1
F-1
F-1
F-1
F-1
333-220867
333-220867
10.8
10.9
October 6, 2017
October 6, 2017
333-220867
10.10
October 6, 2017
333-220867
10.11
October 6, 2017
333-220867
333-220867
333-220867
333-220867
10.12
10.13
10.14
10.15
October 6, 2017
October 6, 2017
October 6, 2017
October 6, 2017
Exhibit
4.18†
4.19†
4.20†
4.21†
4.22†*
4.23†*
4.24^*
4.25†*
8.1
12.1*
12.2*
13.1**
Description
2017 Share Option Plan (English translation)
2017 Free Share Plan (English translation)
2018 Share Option Plan (English translation)
2018 Free Share Plan (English translation)
2019 Share Option Plan (English translation)
2019 Free Share Plan (English translation)
Incorporated by Reference
Schedule/
Form
S-8
S-8
S-8
S-8
File
Number
333-222673
333-222673
333-232670
333-232670
Exhibit
99.5
99.6
99.2
99.3
File
Date
January 24, 2018
January 24, 2018
July 16, 2019
July 16, 2019
License and Collaboration Agreement by and between the registrant and SQZ
Biotechnologies Company, dated June 24, 2019
Executive Employment Agreement by and between the registrant and Gil Beyen, dated as of
April 1, 2019
List of subsidiaries of the registrant
F-1
333-220867
21.1
October 6, 2017
Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification by the Principal Financial Officer pursuant to Securities Exchange Act Rules
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification by the Principal Executive Officer and Principal Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
15.1*
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Consent of KPMG S.A.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
*
**
†
#
^
Filed herewith.
Furnished herewith.
Indicates a management contract or any compensatory plan, contract or arrangement.
Confidential treatment has been granted from the Securities and Exchange Commission as to certain portions of this document.
Portions of this document (indicated by "[***]") have been omitted because they are not material and would likely cause competitive harm to ERYTECH Pharma S.A. if
disclosed.
148
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
SIGNATURES
Date: March 17, 2020
ERYTECH Pharma S.A.
By:
Name:
Title:
/s/ Gil Beyen
Gil Beyen
Chief Executive Officer
149
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements as of and for the Years Ended December 31, 2017, 2018 and 2019
Report of KPMG S.A., Independent Registered Public Accounting Firm
Consolidated Statements of Income (Loss) for the Years Ended December 31, 2017, 2018 and 2019
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2018 and 2019
Consolidated Statements of Financial Position as of December 31, 2017, 2018 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2018 and 2019
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2017, 2018 and 2019
Notes to the Consolidated Financial Statements
Page
F-2
F-3
F-3
F-4
F-5
F-6
F-7
F-1
To the Shareholders and Board of Directors
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated statements of financial position of Erytech Pharma S.A. and subsidiary (the Company) as of December 31, 2019, 2018 and 2017, the
related consolidated statements of income (loss), comprehensive income (loss), change in shareholders’ equity, and cash flows for each of the years in the three‑year period ended
December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2019, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended
December 31, 2019, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Change in Accounting Principle
As discussed in Note 2.6 to the consolidated financial statements, the Company has changed its method of accounting for leases on January 1, 2019, due to the adoption of IFRS 16
“Leases”.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2004.
Lyon, on the 17 March 2020
Sara Righenzi de Villers
Partner
F-2
(Amounts in thousands of euros,
except loss per share)
Revenues
Other income
Operating income
Research and development
General and administrative
Operating expenses
Operating loss
Financial income
Financial expenses
Financial income (loss)
Income tax
Net loss
Basic / Diluted loss per share (€/share)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
Notes
12/31/2017
12/31/2018
12/31/2019
3.1
3.2.1
3.2.2
3.5
3.5
3.6
3.7
—
3,364
3,364
(25,463)
(8,791)
(34,254)
(30,889)
539
(3,183)
(2,644)
3
(33,530)
(2.95)
—
4,447
4,447
(33,468)
(14,600)
(48,068)
(43,621)
5,427
(29)
5,399
(2)
(38,224)
(2.13)
—
5,283
5,283
(52,193)
(17,164)
(69,357)
(64,074)
2,947
(1,533)
1,414
1
(62,659)
(3.49)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands of euros)
Net loss
Elements that may be reclassified subsequently to income (loss)
Foreign subsidiary – Currency translation adjustment
Elements that may not be reclassified subsequently to income (loss)
Actuarial gains or losses on defined benefits liability
Tax effect
Other comprehensive income (loss)
Total comprehensive loss
12/31/2017
12/31/2018
12/31/2019
(33,530)
(38,224)
(62,659)
2.4
(38)
15
1,237
8
(3)
(33)
(33,563)
(60)
3
(42)
(38,266)
(38)
—
1,199
(61,460)
The Company applied IFRS 16 standard for the first time as of January 1, 2019, using the modified retrospective approach. Under this approach, the comparative information is not restated (see note 2.6).
F-3
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Amounts in thousands of euros)
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Right of use
Other non-current financial assets
Total non-current assets
Current assets
Other current financial assets
Inventories
Trade and other receivables
Other current assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
(Amounts in thousands of euros)
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders’ equity
Share capital
Premiums related to share capital
Reserves
Translation reserve
Net loss for the period
Total shareholders’ equity
Non-current liabilities
Provisions - non-current portion
Financial liabilities – non-current portion
Lease liabilities - non-current portion
Deferred tax
Total Non-current liabilities
Current liabilities
Provisions - current portion
Financial liabilities – current portion
Lease liabilities - current portion
Trade and other payables
Other current liabilities
Total current liabilities
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes
4.1.1
4.1.2
4.2
4.3
4.3
4.4
4.5
4.5
4.6
December 31,
2017
As of
December 31,
2018
December 31,
2019
53
3,406
—
234
3,693
—
176
76
5,791
185,525
191,568
195,261
1,613
15,274
—
1,046
17,933
—
1,396
30
14,111
134,371
149,907
167,840
603
25,632
10,009
718
36,963
41
358
36
7,975
73,173
81,583
118,546
Notes
December 31,
2017
As of
December 31,
2018
December 31,
2019
4.7
4.8
4.9
4.10
4.9
4.10
4.11
4.11
1,794
281,745
(68,386)
(203)
(33,530)
181,419
214
2,019
—
3
2,236
—
824
—
8,076
2,706
11,606
195,261
1,794
281,745
(99,524)
(188)
(38,224)
145,602
347
1,243
—
—
1,590
—
776
—
16,655
3,217
20,648
167,840
1,794
281,688
(136,608)
1,344
(62,659)
85,560
506
1,321
11,278
—
13,105
71
99
1,425
13,775
4,510
19,881
118,546
The Company applied IFRS 16 standard for the first time as of January 1, 2019, using the modified retrospective approach. Under this approach, the comparative information is not restated (see note 2.6).
F-4
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands of euros)
Cash flows from operating activities
Net loss
Reconciliation of net loss and the cash used for operating activities
Gain or loss on exchange (calculated)
Amortization and depreciation
Provision
Net booked value of scrapped fixed assets
Expenses related to share-based payments
Interest expense
Income tax expense (income)
Change in assets and liabilities in foreign currency
Operating cash flow before change in working capital
(Increase) decrease in inventories
(Increase) decrease in trade and other receivables
(Increase) decrease in other current assets
Increase (decrease) in trade and other payables
Increase (decrease) in other current liabilities
Change in working capital
Net cash flow used in operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Increase in non-current & current financial assets
Decrease in non-current & current financial assets
Net cash flow used in investing activities
Cash flows from financing activities
Capital increases, net of transaction costs
Subscription of warrants
Proceeds from borrowings
Repayment of borrowings
Allowance received from a lessor
Repayment of lease debt (IFRS 16)
Interests received (paid)
Other change in financial liabilities
Net cash flow from (used in) financing activities
Exchange rate effect on cash in foreign currency
Increase (Decrease) in cash and cash equivalents
Net cash and cash equivalents at the beginning of the period
Net cash and cash equivalents at the closing of the period
Cash paid for interest
Cash paid for income tax
(1) See note 2.8.
Notes
12/31/2017
12/31/2018
(1)
12/31/2019
(33,530)
(38,224)
(62,659)
3.4
3.4
4.1.2
3.3
3.6
4.4
4.5
4.5
4.11
4.11
4.1.1
4.3
4.3
4.3
4.7
4.9
4.9
4.10
4.10
4.9
4.6
4.6
3,159
532
57
—
1,769
23
(3)
(38)
(28,031)
(31)
142
(1,266)
3,243
1,241
3,329
(24,702)
(1,664)
(25)
(102)
—
(1,791)
177,576
—
421
(452)
—
—
—
—
177,545
(3,183)
147,869
37,646
185,514
115
—
(3,981)
797
73
—
2,449
4
2
15
(38,864)
(1,219)
47
(8,321)
(8)
508
(8,994)
(47,857)
(5,635)
(3)
(812)
—
(6,450)
—
—
—
(818)
—
—
—
—
(818)
3,981
(51,144)
185,514
134,371
14
—
(1,816)
4,216
192
42
1,359
484
(1)
1,144
(57,040)
1,038
(7)
6,150
5,993
556
13,730
(43,310)
(20,117)
(16)
(119)
414
(19,838)
—
47
—
(738)
1,866
(978)
(195)
38
40
1,910
(61,198)
134,371
73,173
195
—
The Company applied IFRS 16 standard for the first time as of January 1, 2019, using the modified retrospective approach. Under this approach, the comparative information is not restated (see note 2.6).
F-5
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amount in thousands of euros, except number of shares)
Share capital
Premiums
related to the
share capital
Reserves
Translation
reserve
Net income
(loss)
Total
shareholders’
equity
At December 31, 2016
Net loss for the period
Other comprehensive income
Total comprehensive income (loss)
Allocation of prior period loss
Issue of ordinary shares (1)
Additional paid in capital (1)
Share-based payment
At December 31, 2017
Net loss for the period
Other comprehensive income
Total comprehensive income (loss)
Allocation of prior period loss
Issue of ordinary shares
Share-based payment
At December 31, 2018
Net loss for the period
Other comprehensive income
Total comprehensive income (loss)
Allocation of prior period loss
Issue of warrants
Share-based payment
Reclassification
At December 31, 2019
873
105,090
(48,247)
(165)
—
921
—
176,655
1,794
281,745
—
0
—
(0)
1,794
281,745
—
—
59
0
1,794
(115)
281,688
5
5
(21,913)
1,769
(68,386)
(58)
(58)
(33,530)
2,449
(99,524)
(38)
(38)
(38,224)
1,359
(180)
(136,608)
(38)
(38 )
(203)
15
15
(188)
1,237
1,237
295
1,344
(21,913)
(33,530)
(33,530 )
21,913
(33,530)
(38,224)
(38,224)
33,530
(38,224)
(62,659)
(62,659)
38,224
(62,659)
35,638
(33,530)
(33)
(33,563 )
—
921
176,655
1,769
181,419
(38,224)
(42)
(38,266)
—
0
2,449
145,602
(62,659)
1,199
(61,460)
—
59
1,359
—
85,560
(1)
Fundraising in April 2017 for a total amount (net of transaction costs) of €65 million and global underwritten offering as part of the Company’s U.S. initial public offering in
November 2017 for a total amount (net of transaction costs) of €112 million.
The Company applied IFRS 16 standard for the first time as of January 1, 2019, using the modified retrospective approach. Under this approach, the comparative information is not restated (see note 2.6).
F-6
The notes are an integral part of the accompanying Consolidated Financial Statements. The Consolidated Financial Statements were approved and authorized for issuance by the Board of
Directors on March 12, 2020.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
ERYTECH Pharma S.A. (“ERYTECH,” and together with its subsidiary the “Company”) is incorporated in Lyon, France, and was founded in 2004 to develop and market innovative red
blood cell-based therapeutics for cancer and orphan diseases. The Company’s most advanced product candidates are being developed for the treatment of pancreatic cancer.
The Company completed its initial public offering on Euronext Paris in May 2013, raising €17.7 million and a follow-on offering of €30.0 million (on a gross basis before deducting
offering expenses), in October 2014. The initial public offering triggered the conversion of the totality of the convertible bonds previously issued. Two private placements of respectively
940,000 ordinary and 793,877 ordinary shares for €25.4 million and €9.9 million (on a gross basis before deducting offering expenses) were completed in December 2015 and 2016 with
institutional investors in the United States and in Europe. In April 2017, the Company completed a follow-on offering of €70.5 million (on a gross basis before deducting offering
expenses). The Company completed an initial public offering on the Nasdaq Global Select Market raising €124 million ($144 million on a gross basis before deducting offering expenses).
The Company has incurred losses and negative cash flows from operating activities since its inception and had shareholders’ equity of €85,560 thousand as of December 31, 2019 as a
result of several financing rounds, including an initial public offering. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenue
from its product candidates in development. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates.
The Company’s future operations are highly dependent on a combination of factors, including: (i) the success of its research and development; (ii) regulatory approval and market
acceptance of the Company’s proposed future products; (iii) the timely and successful completion of additional financing; and (iv) the development of competitive therapies by other
biotechnology and pharmaceutical companies. As a result, the Company is and should continue, in the short to mid-term, to be financed through partnership agreements for the
development and commercialization of its drug candidates and through the issuance of new debt or equity instruments.
The accompanying consolidated financial statements and related notes (the “Consolidated Financial Statements”) present the operations of ERYTECH Pharma S.A. and its subsidiary,
ERYTECH Pharma, Inc.
Registered office of ERYTECH Pharma S.A.: 60 avenue Rockefeller, 69008, Lyon, France.
Major events of 2019
Business
May 2019:
•
June 2019:
Acceptance by the U.S. Food and Drug Administration (FDA) of the Company’s Investigational New Drug (IND) application for eryaspase, consisting of the enzyme L-
asparaginase encapsulated inside donor derived red blood cells. The acceptance of the IND will enable ERYTECH to initiate enrollment at U.S. clinical trial sites for its
ongoing pivotal Phase 3 TRYbeCA-1 trial evaluating eryaspase in second-line pancreatic cancer.
•
Opening of a new U.S.-based GMP manufacturing facility in Princeton, New Jersey, United States. The facility will support production capacity needs for eryaspase, the
Company’s lead product candidate, for patients in the United States.
F-7
•
•
The Company signed an agreement with SQZ Biotechnologies (SQZ), a cell therapy company developing novel treatments in multiple therapeutic areas, to collaborate on the
advancement of novel red blood cell-based therapeutics for immune modulation. The Company is eligible to receive up to $57 million in combined upfront and potential
development, regulatory and commercial milestone payments for the first product successfully developed by SQZ under this agreement. The Company will also be eligible to
receive sales royalties.
Enrollment of first patient in the Phase 2 clinical trial, named TRYbeCA-2, evaluating the Company’s lead product candidate, eryaspase, for the treatment of first line triple
negative breast cancer (TNBC).
November 2019:
•
•
The Company achieved two important milestones for the TRYbeCA-1 Phase 3 clinical trial of eryaspase in second line metastatic pancreatic cancer. TRYbeCA-1 was opened
for patient enrollment in the United States and the first site was activated. The Company expects to expand the trial to approximately 100 sites across several European
countries and the United States. The manufacturing of eryaspase for the patients to be treated in the United States will take place at the Company’s newly established
manufacturing facility in Princeton, New Jersey.
Publication of the full results from the Phase 2b trial evaluating eryaspase in metastatic pancreatic in the European Journal of Cancer.
Management
January 2019:
•
•
Grant of 36,150 free shares and 38,025 stock-options to employees.
Eric Soyer was appointed as Deputy General Manager of the Company.
April 2019:
•
Grant of 94,200 free shares (of which 36,000 to executives and 58,200 to employees), 76,905 stock-options (of which 44,200 to executives and 32,705 to employees) and
25,998 warrants to members of the board of directors.
Dr. Jean-Paul Kress was appointed as Chairman of the Board of Directors by the Board of Directors following his appointment as board member at the Company’s Annual
General Meeting of Shareholders held on June 21, 2019. Dr. Kress has over 25 years’ experience as a senior executive officer in international biotechnology and
pharmaceutical groups. He was Chairman and Chief Executive Officer of Syntimmune (Cambridge, MA, US) until the end of 2018, when the company was acquired by
Alexion Pharmaceuticals.
June 2019:
•
July 2019:
•
Grant of 59,123 stock-options to executives.
October 2019:
•
Grant of 300,941 free shares (of which 149,999 to executives and 150,942 to employees), 347,250 stock-options (of which 217,500 to executives and 129,750 to employees)
and 75,000 warrants to members of the board of directors.
Major events of 2018
June 2018:
•
The Company announced that it will focus its development efforts for the product candidate eryaspase on the potential treatment of selected solid tumor indications. The
Company also announced its plans to
F-8
cease the development program for eryaspase in ALL, including the withdrawal of its previously submitted European MAA for eryaspase for the treatment of relapsed and
refractory ALL.
•
The Company signed a lease agreement in order to establish a manufacturing facility in the United States (Princeton, New Jersey).
Major events of 2017
April 2017:
•
The Company completed a private placement of 3,000,000 ordinary shares with investors in the United States and Europe, for total gross proceeds of approximately €70.5
million.
November 2017:
•
The Company completed an underwritten global offering of an aggregate of 6,180,137 ordinary shares, including the full exercise of the underwriters’ options to purchase
additional shares, for gross proceeds of $144 million. The global offering consisted of a U.S. initial public offering of 5,389,021 American Depositary Shares, each representing
one ordinary share and a concurrent private placement in Europe and other countries outside of the United States and Canada of 791,116 ordinary shares. The net proceeds from
the global offering were approximately €112 million ($130 million).
2. ACCOUNTING RULES AND METHODS
The presentation of the notes to the Consolidated Financial Statements has been modified compared to those used for the years ended until December 31, 2018. The changes concerned the
organization and the ranking of the notes. They are designed to increase the readability of the financial statements prepared in IFRS. Most of the accounting rules and methods, previously
in note 4, are now included in each reference note in order to ensure that the reader can more easily understand the financial information presented. The basis of preparation of the
financial statements, the use of estimates and judgments and the changes in accounting policies are still detailed in note 2.
2.1 Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with the underlying assumptions of going concern as the Company’s loss-making situation is explained by the
innovative nature of the products developed, therefore involving a multi-year research and development phase.
The Company has historically financed its growth by strengthening its equity in the form of capital increases and issuance of convertible bonds.
At the approval date of the financial statements, the Board of Directors believes that the Company will be able to fund its operations until February 2021, considering:
•
•
•
•
Cash and cash equivalents held by the Company amounted to 73.2 million euros as of December 31, 2019. They are composed of cash and term deposits readily available
without penalty;
The collection of a subsidy and a reimbursable advance from BPI France in February 2021 (€3.3 million);
The expected receipt of the Research Tax Credit for the 2019 financial year (€3.9 million);
The cash consumption forecasted for 2020 and early 2021.
Considering the above factors and assumptions, the Company believes that it is able to fund its operations during the 12 months after the closing date.
From February 2021, the Company will have to find additional funding. Various financing sources are considered among the issuance of new debt or equity instruments and partnership
agreements.
2.2 Statement of compliance
F-9
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard
Board (“IASB”) and were approved and authorized for issuance by the Board of Directors of the Company on March 12, 2020. They will be subject to the approval of the General
Meeting on June 26, 2020.
Due to the listing of ordinary shares of the Company on Euronext Paris and in accordance with the European Union’s regulation No. 1606/2002 of July 19, 2002, the Consolidated
Financial Statements of the Company are also prepared in accordance with IFRS, as adopted by the European Union (EU).
As of December 31, 2019, all IFRS that the IASB had published and that are mandatory are the same as those endorsed by the EU and mandatory in the EU. As a result, the Consolidated
Financial Statements comply with International Financial Reporting Standards as published by the IASB and as adopted by the EU.
IFRS include International Financial Reporting Standards (“IFRS”), International Accounting Standards (“IAS”), as well as the interpretations issued by the Standing Interpretations
Committee (“SIC”), and the International Financial Reporting Interpretations Committee (“IFRS IC”). The main accounting methods used to prepare the Consolidated Financial
Statements are described below. These methods were used for all periods presented.
The Company adopted the following standards, amendments and interpretations that are applicable as at January 1, 2019:
•
•
•
•
•
•
IFRS 16 - Leases;
IFRIC 23 - Uncertainty over income tax treatments;
Amendments to IFRS 9 - Prepayment features with negative compensation;
Amendments to IAS 28 - Long term Interests in Associates and Joint Ventures;
Amendments to IAS 19 - Plan Amendment, Curtailment or Settlement;
Annual Improvements to IFRS Standards 2015-2017 Cycle.
These new texts did not have any significant impact on the Company’s results or financial position, with the exception of IFRS 16 (see note 2.6).
The standards and interpretations that are optionally applicable to the Company as of December 31, 2019 were not applied in advance.
Recently issued accounting pronouncements that may be relevant to the Company’s operations but have not yet been adopted are as follows:
•
•
•
Amendments to References to the Conceptual Framework in IFRS Standards;
Amendments to IFRS 3 - Business Combinations;
Amendments to IAS 1 and IAS 8: Definition of Material.
2.3 Basis of consolidation
In accordance with IFRS 10 Consolidated Financial Statements (“IFRS 10”), an entity is consolidated when it is controlled by the Company. The Company controls an entity when it is
exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All intra-company balances,
transactions and dividends are eliminated in full. The Company has one subsidiary for which no non-controlling interest is recognized.
Details of the Company’s subsidiary as of December 31, 2019 are as follows:
F-10
ERYTECH Pharma, Inc.
2.4 Foreign currencies
Date of
Incorporation
April 2014
Percent of
Ownership
Interest
100%
Accounting
Method
Fully consolidated
Functional Currency and Translation of Financial Statements into Presentation Currency
The Consolidated Financial Statements are presented in euros, which is also the functional currency of the parent company, ERYTECH Pharma S.A. (the “Parent Company”). The
statement of financial position of the consolidated entity having a functional currency different from the euro are translated into euros at the closing exchange rate (spot exchange rate at
the statement of financial position date) and the statement of income (loss), statement of comprehensive income (loss) and statement of cash flow of such consolidated entity are translated
at the average exchange rate for the period, except if exchanges rates fluctuate significantly. The resulting translation adjustment is included in other comprehensive income (loss) as a
cumulative translation adjustment.
Exchange rate (USD per EUR)
Weighted average rate
Closing rate
Conversion of Foreign Currency Transactions
December 31,
2017
1.1293
1.1993
December 31,
2018
1.1815
1.1450
December 31,
2019
1.1196
1.1234
Foreign currency transactions are converted to functional currency (euros) at the exchange rate applicable on the transaction date. At the closing date, foreign currency monetary assets and
liabilities are converted at the exchange rate prevailing on that date. The resulting exchange gains or losses are recorded in the consolidated statement of income (loss) in “Financial
income (loss)”.
The loan in U.S. dollars from the Parent Company to ERYTECH Pharma, Inc. was considered as part of the net investment in a foreign operation until the end of the third quarter of 2019,
when the loan was partly converted into capital and partly restructured as a medium term loan. As a result of this financial restructuring, the loan is no longer qualified as an investment in
a foreign operation. Exchange rate differences are recognized in the consolidated statement of income (loss) since October 1, 2019 (see note 3.5).
2.5 Use of estimates and judgments
Preparation of the consolidated financial statements in accordance with the rules prescribed by the IFRS requires the use of estimates and the formulation of assumptions having an impact
on the financial statements. These estimates can be revised where the circumstances on which they are based change. The actual results may therefore differ from the estimates initially
formulated. The use of estimates and judgment relate primarily to the measurement of share-based payments (Note 3.3.3) and the new judgments linked to the accounting treatment of the
leases in accordance with IFRS 16(see note 2.6).
2.6 Change in accounting policies
The Company applied IFRS 16 - Leases for the first time as of January 1, 2019.
IFRS 16 eliminates the distinction between operating leases and finance leases and requires all leases to be recognized on the lessee’s balance sheet, in the form of an asset (representing
the right to use the rented asset during the duration of the contract) and of a liability (corresponding to the future lease payments). The standard also impacts the presentation of the income
statement (allocation of expense between operating loss and financial expenses) and the cash flow statement (allocation of cash outflows between cash flow used in operating activities and
cash flow used in financing activities).
F-11
The Company has applied the modified retrospective approach. Under this approach, the cumulative effect of initially applying IFRS 16 is recognized as an adjustment to equity at the
transition date, i.e. January 1, 2019. Consequently, the comparative information disclosed for 2017 and 2018 were not restated. They are disclosed as previously in accordance with IAS 17
standard and its interpretations. The consequences of this change in accounting policies are disclosed in detail below.
Definition of a lease
Until the current period, the Company determined at the signing of the contract whether an agreement constituted or included a lease in accordance with the provisions of IFRIC 4 -
Determining Whether an Arrangement Contains a Lease. As a lessee, the Company previously classified lease agreements as operating or finance leases by assessing whether the contract
transferred substantially all the risks and benefits inherent in the ownership in accordance with IAS 17.
The Company now assesses whether a contract is or contains a lease in accordance with IFRS 16, i.e. whether it grants the right to control the use of an identified asset for a certain period
in exchange for consideration.
At the transition date, the Company chose to apply the simplification measure of keeping past analyses for the identification of leases and applying IFRS 16 only to contracts previously
classified as leases.
Transition information
At the transition date, the lease liability linked to contracts classified as operating leases in accordance with IAS 17 (mainly real estate) was measured at the value of the remaining lease
payments discounted at the marginal borrowing rate as of January 1, 2019. The right of use is measured at an amount equal to the lease liability, corrected with lease payments prior to the
commencement date or remaining due in the statement of financial position.
For contracts previously classified as finance leases, the value of the right of use and the lease liability as of January 1, 2019 were determined as those of the underlying asset and the lease
liability that were calculated in accordance with IAS 17.
The Company has applied exemptions set out in IFRS 16 regarding:
•
•
Contracts with a lease term of 12 months or less at the transition date. These contracts have resulted in an expense of approximately €227 thousand in 2019.
Contracts for low value assets. These contracts have resulted in an expense of approximately €33 thousand in 2019.
As part of the transition to IFRS 16 as of January 1, 2019, the Company recognized in liabilities a lease liability of €7,734 thousand (see note 4.10) and in assets a right of use of €7,443
thousand (see note 4.2) taking into account a liability of €291 thousand recognized in the statement of financial position as of December 31, 2018.
The discount rates applied for contracts previously classified as operating leases are based on the Company's marginal borrowing rate in accordance with the maturity method and
computed on the remaining term of the contracts at the transition date, to which is added a spread which takes into account the total duration of the contract. The average marginal
borrowing rate selected as of January 1, 2019 is 1.4% in France and 3.8% in the United States.
The gap between the off-balance sheet commitments disclosed in note 8 of the consolidated financial statements as of December 31, 2018 and the lease liability recognized as of January 1,
2019 in accordance with IFRS 16 (see note 4.10) can be explained as follows:
(Amounts in thousands of euros)
Operating lease commitment as lessee (December 31, 2018)
Unrecognized contracts in accordance with IFRS 16 exemptions
Differences in the durations used linked to termination and extension options that are reasonably certain to be exercised
Leases signed in 2018 for an asset available after January 1, 2019
Other (including the improvement allowance (Princeton lease) – see note 4.10)
Non-discounted lease liability under IFRS 16 as of January 1, 2019
Discount effect
Discounted lease liability under IFRS 16 as of January 1, 2019
8,268
(142)
5,798
(2,593)
(2,045)
9,285
(1,551)
7,734
F-12
Impact on financial statements of the period
In accordance with IFRS 16, the Company recognized as of December 31, 2019:
•
•
•
•
A right of use (net value) of €10,009 thousand;
A lease liability of €12,703 thousand;
A depreciation expense of €1,366 thousand;
A financial expense of €343 thousand.
2.7 Presentation of the statement of income (loss)
The Company presents its statement of income (loss) by function. As of today, the main activity of the Company is the research and development. Consequently, only “research and
development expenses” and “general administrative expenses” functions are considered to be representative. This distinction reflects the analytical assignment of the personnel, external
expenses and depreciation and amortization. The detail of the expenses by nature is disclosed in Note 3.2.
2.8 Presentation of the statement of cash flows
The consolidated statements of cash flows are prepared using the indirect method and separately present the cash flows associated with operating, investment, and financing activities.
The statement of cash flow for the financial year ended December 31, 2018 has been amended as compared to the information published in the consolidated financial statements as of
December 31, 2018 in order to take into account a classification error considered to be non-significant: the line "acquisition of property, plant and equipment" (investment activities) in the
consolidated statement of cash flow included an amount of fixed assets payables not yet paid of €8,587 thousand, which should not have been included in this line but in "Increase
(decrease) in trade and other payables" (operating activities).
(Amounts in thousands of euros)
Increase (decrease) in trade and other payables
Change in working capital
Net cash flow used in operating activities
Acquisition of property, plant and equipment
Net cash flow used in investing activities
2.9 Segment reporting
2018 published as of 12/31/2018
8,579
(407)
(39,270)
(14,222)
(15,037)
2018 amended as of
12/31/2019
(8)
(8,994)
(47,857)
(5,635)
(6,450)
In accordance with IFRS 8 Operating Segments, reporting by operating segment is derived from the internal organization of the Company’s activities; it reflects management’s viewpoint
and is established based on internal reporting used by the chief operating decision maker (the Chief Executive Officer) to allocate resources and to assess performance.
Information per business segment
The Company operates in a single operating segment: the conducting of research and development of innovative red blood cell-based therapeutics for cancer and orphan diseases in order
to market them in the future.
Information per geographical segment
Revenues from external customers
(amounts in thousands of euros)
France
United States
Total
12/31/2017
12/31/2018
12/31/2019
178
—
178
72
—
72
105
969
1,074
F-13
Non-current assets
(amounts in thousands of euros)
France
United States
Total
2.10 Events after the close of the reporting period
12/31/2017
12/31/2018
12/31/2019
3,332
127
3,459
4,912
11,975
16,887
9,616
26,629
36,245
The consolidated statement of financial position and the consolidated statement of income (loss) of the Company are adjusted to reflect the subsequent events that alter the amounts related
to the situations that exist as of the closing date.
February 2020 :
•
•
The Company received from BPI France a reimbursable advance of €2,979 thousand and a subsidy of €294 thousand under the milestone n°6 of the TEDAC project.
Grant of 50,037 free shares and 41,950 stock-options.
F-14
3. NOTES RELATED TO THE CONSOLIDATED STATEMENT OF INCOME (LOSS)
3.1 Operating income
Accounting policies
Research tax credit
The research tax credit (Crédit d’Impôt Recherche or “CIR”) (the “Research Tax Credit”) is granted to companies by the French tax authorities in order to encourage them to conduct
technical and scientific research. Companies that prove that they have expenditures that meet the required criteria (research expenditures located in France or, since January 1, 2005,
within the European Union or in another State that is a party to the Agreement on the European Economic Area that has concluded a tax treaty with France that contains an
administrative assistance clause) receive a tax credit that (a) can be used for the payment of the corporate tax due for the fiscal year in which the expenditures were made and the next
three fiscal years, or, (b) as applicable, can be reimbursed in cash. The expenses taken into account for the calculation of the Research Tax Credit involve only research expenses.
The Company benefits from the Research Tax Credit since its inception.
The CIR is presented under operating income as it meets the definition of government grant as defined in IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance (“IAS 20”).
Subsidies
Subsidies received that are not repayable by the Company are recognized as operating income where there exists reasonable assurance that the Company will comply with the
conditions attached to the subsidies and the subsidies will be received.
Subsidies that are upfront payments are presented as deferred revenue and recognized ratably through income over the duration of the research program to which the subsidy relates.
A public subsidy that is to be received either as compensation for expenses or for losses already incurred, or for immediate financial support of the Company without associated future
costs, is recognized as operating income when there exists reasonable assurance that the subsidies will be received.
Revenues from licenses or other contracts
The standard IFRS 15 Revenue from contracts with customers (“IFRS 15”) is mandatory since January 1, 2018. This standard replaces IAS 18 Revenue (“IAS 18”) and related
interpretations. The first application of IFRS 15 had not significantly changed the amount or the timing of revenue recognition of the Company.
For each of its partnership agreements, the Company determines if it acts as a principal or as an agent.
Partnership with Orphan Europe AML clinical trial
As a result of its prior partnership agreement with Orphan Europe related to the development of Acute Myeloid Leukemia (“AML”), the Company re-invoiced, with no margin, certain
clinical costs incurred and invoiced to the Company by external providers.
The Company considered that, within the context of this partnership, it acted as agent regarding these reinvoiced external costs, as:
• The Company did not have primary responsibility for provision of the goods or service, the majority of services being provided by third parties, the most significant of which,
the Contract Research Organization (“CRO”), directly invoiced Orphan Europe. The Company was directly invoiced only for the secondary services.
• The Company bore no inventory risk,
• The Company had no capacity to determine prices, all of the external costs being reinvoiced for the exact amount of the initial invoice, with no margin, and it was not affected
by any price changes applied by the suppliers.
F-15
Within the context of this same agreement, the Company also invoiced certain internal clinical costs, such as personnel costs associated with the management of clinical trials, or
personnel involved in the production of batches necessary for the AML clinical trial.
Consequently, for all the years presented:
• The re-invoicing of external costs to Orphan Europe is presented as a decrease in corresponding research and development expenses incurred by the Company;
• The invoicing of internal costs to Orphan Europe is presented in other income.
Partnership with Orphan Europe NOPHO clinical trial
Within the context of this agreement, Orphan Europe agreed to finance the NOPHO study for a total amount of €600 thousand. This revenue is recognized in “other income” in the
statement of income (loss).
License agreement with SQZ Biotechnologies (“SQZ”)
Under the terms of the agreement, the Company has granted to SQZ Biotechnologies an exclusive worldwide license to develop antigen specific immune modulating therapies
employing red blood cell-based approaches. In accordance with IFRS 15, this agreement grants to SQZ Biotechnologies a right to use the underlying intellectual property ("static
license"). Consequently, the income linked to the upfront payment ($1 million) was recognized in June 2019 when SQZ Biotechnologies could begin to use the licensed intellectual
property.
The Company does not generate any revenue from the sale of its products considering its stage of development.
(in thousands of euros)
Research Tax Credit
Subsidies
Other income
Total
Revenues from licenses or other contracts
12/31/2017
12/31/2018
12/31/2019
3,187
—
178
3,364
4,375
—
72
4,447
3,915
294
1,074
5,283
Revenues from licenses or other contracts are linked to partnership with Orphan Europe in 2017 and 2018 and to the license agreement with SQZ Biotechnologies in 2019 (see note 7).
3.2 Operating expenses by nature
3.2.1 Research and development expenses
For the year ended December 31, 2017
(amounts in thousands of euros)
Consumables
Rental and maintenance
Services, subcontracting and fees
Personnel expenses
Depreciation and amortization
Other
Total
R&D
Clinical studies
Total
1,859
140
1,768
2,088
94
37
5,986
532
496
12,407
5,828
169
44
19,476
2,391
636
14,175
7,916
263
81
25,463
F-16
For the year ended December 31, 2018
(amounts in thousands of euros)
Consumables
Rental and maintenance
Services, subcontracting and fees
Personnel expenses
Depreciation and amortization
Other
Total
For the year ended December 31, 2019
(amounts in thousands of euros)
Consumables
Rental and maintenance
Services, subcontracting and fees
Personnel expenses
Depreciation, amortization & provision
Other
Total
R&D
Clinical studies
Total
1,061
279
5,043
3,013
68
38
9,502
728
526
14,589
7,901
192
30
23,965
R&D
Clinical studies
Total
668
171
3,543
3,056
307
50
7,795
6,340
1,125
21,753
11,911
3,229
40
44,398
1,789
805
19,632
10,914
260
67
33,468
7,007
1,296
25,296
14,967
3,536
90
52,193
The increase in research and development expenses for periods presented is mainly due to:
•
•
The increase in external services mainly linked to the ongoing clinical trials of eryaspase for the treatment of solid tumors, particularly with the commencement of the Phase
3 clinical trial for the treatment of pancreatic cancer in September 2018;
The increase in research and development personnel expenses (see note 3.3).
3.2.2 General and administrative expenses
General and administrative expenses
(amounts in thousands of euros)
Consumables
Rental and maintenance
Services, subcontracting and fees
Personnel expenses
Depreciation and amortization
Other
Total
12/31/2017
12/31/2018
12/31/2019
148
894
2,867
3,688
266
927
8,791
33
1,584
5,409
5,925
529
1,122
14,600
527
1,117
7,964
6,331
751
474
17,164
The increase in general and administrative expenses between 2017 and 2018 is mainly due to an increase in services and subcontracting of €2,542 thousand and an increase in personnel
expenses of €2,237 thousand (see note 3.3).
The increase in general and administrative expenses between 2018 and 2019 is mainly due to an increase in services and subcontracting of €2,555 thousand, primarily related to costs
incurred as part of the establishment of the Princeton manufacturing facility.
F-17
3.3 Personnel expenses
3.3.1 Research and development expenses
Research and development expenses
For the year ended December 31, 2017
(amounts in thousands of euros)
Wages and salaries
Share-based payments (employees and executive management)
Social security expenses
Total personnel expenses
Research and development expenses
For the year ended December 31, 2018
(amounts in thousands of euros)
Wages and salaries
Share-based payments (employees and executive management)
Social security expenses
Total personnel expenses
Research and development expenses
For the year ended December 31, 2019
(amounts in thousands of euros)
Wages and salaries
Share-based payments (employees and executive management)
Social security expenses
Total personnel expenses
R&D
Clinical studies
Total
1,200
292
596
2,088
4,028
541
1,259
5,828
R&D
Clinical studies
Total
1,887
334
792
3,013
5,393
824
1,684
7,901
R&D
Clinical studies
Total
2,029
223
804
3,056
8,893
465
2,553
11,911
5,229
833
1,854
7,916
7,279
1,158
2,476
10,914
10,923
688
3,357
14,967
The increase in personnel expenses is mainly due to an increase in research and development employee headcount. The weighted average full-time employees (FTE) was 71 in 2017, 99 in
2018 and 156 in 2019.
3.3.2 General and administrative expenses
General and administrative expenses
(amounts in thousands of euros)
Wages and salaries
Share-based payments (employees and executive management)
Social security expenses
Total personnel expenses
12/31/2017
12/31/2018
12/31/2019
1,990
642
1,057
3,688
3,721
849
1,355
5,925
4,375
522
1,433
6,331
The increase in personnel expenses is mainly due to an increase in general and administrative employee headcount. The weighted average full-time employees (FTE) was 25 in 2017, 39 in
2018 and 41 in 2019.
F-18
3.3.3 Share-based payments (IFRS 2)
Accounting policies
The Company has applied IFRS 2 Share-based payment (“IFRS 2”) to all equity instruments e.g. free shares (“AGA”), stock options (“SO”), share subscription warrants (“BSA”) and
founder subscription warrants (“BSPCE”) granted since inception to its employees, members of the Board of Directors or other individuals. Pursuant to IFRS 2, the cost of the
remuneration paid with equity instruments is recognized as an expense in exchange for an increase in the shareholders’ equity for the vesting period during which the rights to be
enjoyed from the equity instruments are acquired. As such, changes in value subsequent to the grant date have no effect on this initial measurement.
Fair value is estimated using the Black & Scholes valuation model (for BSA, SO and BSPCE valuation), Monte-Carlo valuation model (for AGA valuation) and Cox-Ross-Rubinstein
valuation model (for 2017 BSA valuation). These models allow the Company to take into account the characteristics of the plan (exercise price, vesting period), the market data at the
grant date (volatility, expected dividends, repo margin), possible performance conditions attached to warrants and recipient behavior assumptions.
The Company has no legal or constructive obligation to repurchase or settle any of these equity instruments in cash.
Founder subscription warrants (“BSPCE”) plan
Types of securities
Maturity
Maximum number of new shares that can be issued
BSPCE2012
May 20, 2020
169,760
BSPCE2014
January 22, 2024
169,100
In the event of a beneficiary departure from the Company for any reason whatsoever, this beneficiary shall retain the BSPCE2014 to which he subscribed prior to his departure. However,
in the event of a beneficiary departure from the Company, for any reason whatsoever, prior to subscription of the BSPCE2014 to which the beneficiary has a right, the BSPCE2014 will be
forfeited. In this situation, the BSPCE2014 not subscribed may be re-allocated to other beneficiaries within the same category and/or replacing the person who left the Company.
Share subscription warrants (“BSA”) plan
Types of securities
Vesting period
Maturity
May-2020
January-2024
Maximum number of new shares that can be issued
40,180
29,000
The main assumptions used to determine the fair value of the plans granted in 2017, 2018 and 2019 are:
F-19
BSA2012
BSA2014
BSA2016
NA
NA
Tranche 1: 1 year
Tranche 2: 2 years
Depending of the
grant date
October-2021
January-2022
55,000
BSA2017
Tranche 1: 1 year
Tranche 2: 2 years
Tranche 3: 3 years
Depending of the
grant date
June-2022
January-2023
88,500
BSA2019
2 years
October-2022
75,000
Number of warrants
Exercise price
Price of the underlying share
Expected dividends
Volatility (1)
Repo margin
Expected term
Fair value of the plan (in thousands of euros)
Number of warrants
Exercise price
Price of the underlying share
Expected dividends
Volatility (1)
Expected term
Fair value of the plan (in thousands of euros) (2)
€
€
Grant in January 2017
15,000 BSA2016
13.46
15.51
0.00%
48.00%
5.00%
€
€
Grant in June 2017
55,000 BSA2017
26.47
28.25
0.00%
48.00%
5.00%
€
€
Grant in January 2018
40,500 BSA2017
18.00
18.00
0.00%
43.94%
n/a
T1 : 5.5 years
T2 : 6 years
T3 : 6.5 years
300
3 years
394
3 years
58
€
€
Grant in April 2019
25,998 BSA2018
6.82
7.20
0.00%
38.91%
T1 : 3 years
T2 : 3.5 years
T3 : 4 years
56
€
€
Grant in October 2019
75,000 BSA2019
3.71
3.78
0.00%
33.41%
2.5 years
59
(1)
(2)
based on the historical volatility observed on the ERYP index on Euronext
BSA were granted at fair value (€2.15 in April 2019 and €0.79 in October 2019). Therefore, no expense was recognized under IFRS 2.
F-20
Stock options (“SO”) plan
Types of securities
Vesting period
Maturity
Maximum number of new shares that can be issued
SO2016
Tranche 1: 2 years
Tranche 2: 3 years
Depending of the grant
date
October-2026
January-2027
June-2027
October-2027
66,999
SO2017
Tranche 1: 2 years
Tranche 2: 3 years
Depending of the grant
date
June-2027
January-2028
SO2018
Tranche 1: 2 years
Tranche 2: 3 years
Depending of the grant
date
September-2028
January-2029
April-2029
SO2019
Tranche 1: 2 years
Tranche 2: 3 years
Depending of the grant
date
July-2029
October-2029
93,564
111,810
406,373
The main assumptions used to determine the fair value of the plans granted in 2017, 2018 and 2019 are:
Number of options
Exercise price
Price of the underlying share
Expected dividends
Volatility (1)
Repo margin
Expected term
Fair value of the plan (in thousands of euros)
Number of options
Exercise price
Price of the underlying share
Expected dividends
Volatility (1)
Expected term
Fair value of the plan (in thousands of euros)
Number of options
Exercise price
Price of the underlying share
Expected dividends
Volatility (1)
Expected term
Fair value of the plan (in thousands of euros)
Grant in January 2017
3,000 SO2016
€
€
15.65
15.51
0.00%
48.00%
5.00%
3 years
13
€
€
Grant in June 2017
18,000 SO2016
22,200 SO2017
26.47
28.25
0.00%
48.00%
5.00%
3 years
308
Grant in October 2017
30,000 SO2016
€
€
23.59
24.70
0.00%
48.00%
5.00%
3 years
208
€
€
Grant in January 2018
97,203 SO2017
18.00
18.00
0.00%
43.94%
T1 : 6 years
T2 : 6.5 years
731
€
€
Grant in September 2018
24,000 SO2018
9.26
8.75
0.00%
41.59%
T1 : 6 years
T2 : 6.5 years
80
€
€
Grant in January 2019
38,025 SO2018
6.38
6.38
0.00%
41.88%
T1 : 6 years
T2 : 6.5 years
97
€
€
Grant in April 2019
76,905 SO2018
7.20
7.20
0.00%
41.65%
T1 : 6 years
T2 : 6.5 years
217
€
€
Grant in July 2019
59,123 SO2019
5.78
5.81
0.00%
41.00%
T1 : 6 years
T2 : 6.5 years
131
€
€
Grant in October 2019
347,250 SO2019
4.25
3.78
0.00%
40.69%
T1 : 6 years
T2 : 6.5 years
447
(1)
based on the historical volatility observed on the ERYP index on Euronext
Free shares (“AGA”) plan
F-21
Types of securities
Vesting period
AGA2016
AGA2017
AGA2018
Tranche 1: 1 year
Tranche 2: 2 years
Tranche 3: 3 years
Tranche 1: 1 year
Tranche 2: 2 years
Tranche 3: 3 years
Tranche 1: 1 year
Tranche 2: 2 years
Tranche 3: 3 years
Maximum number of new shares that can be issued
71,324
152,280
123,800
AGA2019
Tranche 1: 1 year
Tranche 2: 2 years
Tranche 3: 3 years
Tranche 4 : 4 years
Tranche 5 : 5 years
300,941
The main assumptions used to determine the fair value of the plans granted in 2017, 2018 and 2019 are:
Number of shares
Price of the underlying share
Expected dividends
Volatility
Repo margin
Maturity
Performance criteria
Fair value of the plan (in thousands of euros)
Number of shares
Price of the underlying share
Expected dividends
Volatility
Repo margin
Maturity
Performance criteria
Fair value of the plan (in thousands of euros)
Grant in January 2017
15,000 AGA2016
15.51
0.00%
48.00%
5.00%
3 years
(2)
115
€
€
€
Grant in January 2018
40,500 AGA2016
113,940 AGA2017
18.00
0.00%
42.17%
5.00%
3 years
(2)
1,145
€
Grant in June 2017
8,652 AGA2016
74,475 AGA2017
28.25
0.00%
48.00%
5.00%
3 years
(2)
1,081
Grant in October 2017
16,650 AGA2016
€
24.70
0.00%
48.00%
5.00%
3 years
(2)
180
Grant in January 2019
Grant in April 2019
Grant in October 2019
36,150 AGA2018
94,200 AGA2018
300,941 AGA2019
6.38
0.00%
38.22%
5.00%
3 years
(2)
102
€
7.20
0.00%
36.32%
5.00%
3 years
(2)
269
€
3.78
0.00%
38.76%
5.00%
5 years
(2)
434
(1)
based on the historical volatility observed on the ERYP index on Euronext
(2)
performance criteria: progression of the quoted market share price between the grant date and the tranche acquisition date
F-22
•
For grants between 2017 and April 2019:
o
o
o
ERYP: average price of the 40-quoted market share price days before the grant date (€13.46 in January 2017, €26.47 in June 2017, €24.48 in October
2017, €20.12 in January 2018, €6.54 in January 2019 and €7.52 in April 2019).
ERYPi: average price of the 40-quoted market share price days before the acquisition date,
Tri: (ERYPi /ERYP) -1
o
o
o
If TRi <=0 % no shares granted are acquired
If Tri>100% all the shares granted are acquired
If 0%100% all the shares granted are acquired
If 0%