Nabriva Therapeutics Public Limited Company
Directors' Report and Financial Statements
Financial Year Ended December 31, 2017
Dated: 02 July 2018
Nabriva Therapeutics Public Limited Company
Directors' Report and Financial Statements 2017
CONTENTS
DIRECTORS' REPORT
INDEPENDENT AUDITORS' REPORT
Page
2 - 53
54 - 59
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
60
CONSOLIDATED BALANCE SHEET
61 - 62
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT)
63
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
COMPANY BALANCE SHEET
COMPANY STATEMENT OF CHANGES IN EQUITY
64 - 65
66 - 90
91
92
NOTES TO THE COMPANY FINANCIAL STATEMENTS
93 - 100
1
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT
The directors present their report together with the financial statements of the Company (as defined below) for
the financial period ended December 31, 2017.
Note on redomicilation
On March 1, 2017, Nabriva Therapeutics plc (“Nabriva Ireland”), was incorporated in Ireland under the name
Hyacintho 2 plc, and was renamed to Nabriva Therapeutics plc on April 10, 2017. On June 23, 2017, Nabriva
Therapeutics plc, a public limited company organized under the laws of Ireland, or Nabriva Ireland, became
the successor issuer to Nabriva Therapeutics AG, a stock corporation (Aktiengesellschaft) organized under
the laws of Austria, or Nabriva Austria, for certain purposes under both the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such succession
occurred following the conclusion of a tender offer related to the exchange of American Depositary Shares
and common shares of Nabriva Austria for ordinary shares of Nabriva Ireland, which resulted in Nabriva
Ireland, a new Irish holding company, becoming the ultimate holding company of Nabriva Austria (the
predecessor registrant and former ultimate holding company) and its subsidiaries, which we refer to as the
Redomiciliation Transaction. On October 19, 2017, Nabriva Austria was converted into a limited liability
company under Austrian law and renamed Nabriva Therapeutics GmbH.
Unless the context requires otherwise, all references in this Annual Report to "Nabriva," "the Nabriva Group,"
"the Company," "we," "ours," "us," or similar terms refer to Nabriva Ireland together with its subsidiaries and
on or prior to June 23, 2017 (the effective date of the Redomiciliation Transaction), refer to our predecessor,
Nabriva Therapeutics AG, together with its subsidiaries.
Basis of presentation
The directors have elected to prepare the consolidated financial statements in accordance with Section 279 of
the Companies Act 2014, which provides that a true and fair view of the assets and liabilities, financial position
and profit or loss may be given by preparing the financial statements in accordance with United States (U.S.)
accounting standards (U.S. GAAP), as defined in that section to the extent that the use of those principles in
the preparation of the consolidated financial statements does not contravene any provision of Part 6 of the
Companies Act 2014.
Principal activities
We are a clinical stage biopharmaceutical company engaged in the research and development of novel anti-
infective agents to treat serious infections, with a focus on the pleuromutilin class of antibiotics. We are
developing our lead product candidate, lefamulin, to be the first pleuromutilin antibiotic available for systemic
administration in humans. We are developing both intravenous, or IV, and oral formulations of lefamulin for
the treatment of community-acquired bacterial pneumonia, or CABP and may potentially develop lefamulin for
additional indications other than CABP.
Statement of directors’ responsibilities in respect of the directors’ report and the financial statements
The directors are responsible for preparing the directors’ report and the financial statements in accordance
with Irish law.
Irish law requires the directors to prepare financial statements for each financial year giving a true and fair
view of the consolidated and company’s assets, liabilities and financial position as at the end of the financial
year and of the profit or loss of the group for the financial year. Under that law, the Directors have prepared
the consolidated financial statements in accordance with U.S. accounting standards, as defined in Section
279(1) of the Companies Act 2014, to the extent that the use of those principles in the preparation of the
financial statements does not contravene any provision of the Companies Act or of any regulations made
thereunder, and the Parent Company financial statements in accordance with Generally Accepted Accounting
Practice in Ireland (accounting standards issued by the Financial Reporting Council of the UK, including
Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of
Ireland and Irish law).
Under Irish law, the directors shall not approve the financial statements unless they are satisfied that they give
a true and fair view of the company’s assets, liabilities and financial position as at the end of the financial year
and the profit or loss of the company for the financial year.
2
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Statement of directors’ responsibilities in respect of financial statements – continued
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state that the consolidated financial statements comply with accounting principles generally accepted in
the United States of America (U.S. GAAP) to the extent that it does not contravene Irish Company Law
and that the entity financial statements of the Company comply with accounting standards issued by the
Financial Reporting Council and Irish law; and
assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern; and
use the going concern basis of accounting unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records which disclose with reasonable
accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and enable
them to ensure that the financial statements comply with the Companies Act 2014. They are responsible for
such internal controls as they determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and
detect fraud and other irregularities. The directors are also responsible for preparing a directors’ report that
complies with the requirements of the Companies Act 2014.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the company’s website (www.nabriva.com). Legislation in Ireland governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Accounting records
The directors believe that they have complied with the requirements of sections 281 to 285 of the Companies
Act 2014 with regard to adequate accounting records by employing accounting personnel with appropriate
expertise and by providing adequate resources to the financial function. The accounting records of the
Company are maintained at Leberstrasse 20, 1110 Vienna, Austria.
Directors’ compliance statement
The directors, in accordance with Section 225(2) of the Companies Act 2014, acknowledge that they are
responsible for securing the Company’s compliance with certain obligations specified in that section arising
from the Companies Act 2014, and Tax laws (‘relevant obligations’). The directors confirm that:
a compliance policy statement has been drawn up setting out the Company’s policies with regard to such
compliance;
appropriate arrangements and structures that, in their opinion, are designed to secure material
compliance with the Company’s relevant obligations, have been put in place; and
a review has been conducted, during the financial year, of the arrangements and structures that have
been put in place to secure the Company’s compliance with its relevant obligations.
In discharging their responsibilities under Section 225 of the Companies Act 2014, the directors relied on the
advice of persons who the directors believe have the requisite knowledge and experience to advise the
Company on compliance with its relevant obligations.
Audit committee
In accordance with Section 167 of the Companies Act 2014, the Company has an audit committee, which
meets the requirements of the Companies Act.
Dividends
No dividends were paid or proposed during the year.
3
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Events since the end of the financial year
The Company evaluated all events or transactions that occurred subsequent to December 31, 2017 through
the date of the approval of the directors’ report, and have identified the following events.
In March 2018, the Company entered into a sales agreement with Cantor Fitzgerald & Co., or Cantor,
pursuant to which, from time to time, the Company may offer and sell its ordinary shares having an aggregate
offering price of up to $50.0 million through Cantor pursuant to an effective universal shelf registration
statement. Sales of ordinary shares, if any, under the agreement with Cantor may be made in sales deemed
to be an “at-the-market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended.
During the first quarter of 2018, the Company issued and sold 3,517,511 ordinary shares for gross proceeds
of $19.4 million, and net proceeds of $18.5 million, after deducting commissions and other issuance costs.
On March 26, 2018, the Company entered into a license agreement with Sinovant Sciences (“Sinovant”) to
develop and commercialize lefamulin in greater China. As part of the license agreement, the Company has
granted Sinovant, a Roivant Sciences, LTD. subsidiary, an exclusive license to develop and commercialize
lefamulin in the greater China region, specifically the People’s Republic of China, Hong Kong, Macau, and
Taiwan. The companies will establish a joint development committee to review and oversee all development
and commercialization plans. Nabriva received a $5 million upfront payment and will be eligible for up to
approximately $90 million in additional payments tied to the successful completion of certain regulatory and
commercial milestones related to lefamulin for CABP. In addition, Nabriva will be eligible to receive low
double-digit royalties on sales upon approval in the covered territories. Roivant’s affiliate will be solely
responsible for all clinical development and regulatory filings necessary to secure approval in the covered
territories.
Research and development
We initiated the first of two pivotal, international Phase 3 clinical trials of lefamulin, which we refer to as
Lefamulin Evaluation against Pneumonia 1, or LEAP 1, in September 2015 and initiated the second trial,
which we refer to as LEAP 2, in April 2016. On September 18, 2017, we announced positive top-line results
for LEAP 1. In LEAP 1, which enrolled 551 patients, lefamulin met all of the primary endpoints of non-
inferiority compared to moxifloxacin with or without linezolid as required by the U.S. Food and Drug
Administration, or FDA, and European Medicines Agency, or EMA. Lefamulin also showed a favorable
tolerability profile in the LEAP 1 trial, with no unexpected safety signals or evidence of off-target activity. We
completed patient enrollment of 738 adult patients in LEAP 2 in December 2017 and expect to have top-line
data available from LEAP 2 in the spring of 2018. If the results of LEAP 2 are also favorable, including
achievement of the primary efficacy endpoints of the trial, we expect to submit a new drug application, or
NDA, for marketing approval of lefamulin for the treatment of CABP in adults in the United States in the
second half of 2018. We also expect to submit a marketing authorization application, or MAA, for lefamulin for
the treatment of CABP in adults in Europe a few months after our NDA filing.
We believe that pleuromutilin antibiotics can help address the major public health threat posed by bacterial
resistance, which the World Health Organization, or WHO, characterized in 2017 as one of the biggest threats
to human health. Increasing resistance to antibiotics used to treat CABP is a growing concern and has
become an issue in selecting the appropriate initial antibiotic treatment prior to determining the specific
microbiological cause of the infection, referred to as empiric treatment. For example, the U.S. Centers for
Disease Control and Prevention, or CDC, has classified Streptococcus pneumonia, the most common
respiratory pathogen, as a serious threat to human health as a result of increasing resistance to currently
available antibiotics. In addition, the CDC recently reported on the growing evidence of widespread resistance
to macrolides, widely used antibiotics that disrupt bacterial protein synthesis, in Mycoplasma pneumonia, a
common cause of CABP that is associated with significant morbidity and mortality. Furthermore,
Staphylococcus aureus, including methicillin-resistant S. aureus, or MRSA, which has also been designated
as a serious threat to human health by the CDC, has emerged as a more common cause of CABP in some
regions of the world, and a possible pathogen to be covered with empiric therapy.
4
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Research and development - continued
As a result of increasing resistance to antibiotics and the wide array of potential pathogens that cause CABP,
the current standard of care for hospitalized patients with CABP whose treatment is initiated in the hospital
usually involves first-line empiric treatment with a combination of antibiotics (beta-lactams and macrolides) to
address all likely bacterial pathogens or monotherapy with a fluoroquinolone. Combination therapy presents
the logistical challenge of administering multiple drugs with different dosing regimens, with some drugs
available only as IV, and increases the risk of drug-drug interactions and the potential for serious side effects.
Fluoroquinolones are associated with safety and tolerability concerns, including a relatively high risk for
developing Clostridium difficile infection and increasing rates of resistance for uropathogens. We believe
these concerns have resulted in a decreasing use of flouroquinolones and restriction of their use within a
growing number of hospitals. In addition, in May 2016, the FDA announced that an FDA safety review has
shown that fluoroquinolones, when used systemically, in the form of tablets, capsules and injectable, are
associated with disabling and potentially permanent serious side effects that can occur together. These side
effects can involve the tendons, muscles, joints, nerves, and central nervous system. Fluoroquinolones are
typically administered in combination with other antibiotics, if community-acquired MRSA is suspected. In
addition, many currently available antibiotic therapies are only available for IV administration and are
prescribed for seven to fourteen days, meaning continued treatment requires prolonged hospitalization or a
switch to a different antibiotic administered orally, with the attendant risk that the patient might respond
differently.
Effective January 1, 2017, the Joint Commission & Center for Medicare and Medicaid Services, or CMS,
began requiring all U.S. hospitals to have Antibiotic Management guidelines, also known as "Stewardship"
Committees, in place to identify antibiotics most appropriate and targeted to each individual patient's infection.
Past efforts to "cast the widest net possible" with broad-spectrum antibiotics that affect many types of bacteria
have caused problems, such as C. difficile infections, by killing good bacteria or increased antibiotic
resistance in other bacteria in different areas of the body. Additionally, in 2016, the Infectious Diseases
Society of America and the Society for Healthcare Epidemiology of America, or IDSA/SHEA, updated their
Antibiotic Stewardship guidelines for antibiotic use. We believe that three key goals from these guidelines are
applicable to the treatment of CABP:
Reduce the risk of antibiotics associated with a high risk of C.difficile infections;
Reduce antibiotic therapy to the shortest effective duration.
Increase use of oral antibiotics as a strategy to improve outcomes or decrease costs; and
Consistent with the Antimicrobial Stewardship principles, we believe that lefamulin could be well suited as
either a first-line or second-line empiric monotherapy for the treatment of CABP patients in the hospital
setting, outpatient-transition of care or in the community setting, because of its novel mechanism of action,
complete spectrum of activity for CABP pathogens, including against multidrug resistant strains, achievement
of substantial drug concentrations in lung fluids and lung immune cells, and flexibility as step down oral agent
with both the IV and oral formulations and favorable safety and tolerability profile.
In recognition of the growing need for the development of new antibiotics, recent regulatory changes,
including priority review and regulatory guidance enabling smaller clinical trials, have led to renewed interest
from the pharmaceutical industry in anti-infective development. For example, the Food and Drug
Administration Safety and Innovation Act became law in 2012 and included the Generating Antibiotic
Incentives Now Act, or the GAIN Act, which provides incentives, including access to expedited FDA review for
approval, fast track designation and five years of potential data exclusivity extension for the development of
new Qualified Infectious Disease Products (“QIDP”).
Branches
The company does not operate any branches outside of the state.
Political donations
No political contributions that require disclosure under Irish law were made during the financial year.
5
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Business review
Revenue
To date we have not generated any revenues from product sales and we do not expect to generate any
revenue from the sale of products in the near future. We do not expect to generate significant revenue unless
and until we obtain marketing approval for, and commercialize, lefamulin. We do not expect to obtain
marketing approval before 2019, if at all. If our development efforts result in clinical success and regulatory
approval we may also enter into collaboration agreements with third parties and we may generate revenue
from those agreements.
Our revenue consists principally of governmental research premiums, non-refundable government grants and
the benefit of government loans at below-market interest rates, which are more fully described below under
"Critical Accounting Policies."
Research and development expenses
Research and development expenses represented 78.0% and 62.7% of our total operating expenses for the
years ended December 31, 2016 and 2017, respectively.
For each of our research and development programs, we incur both direct and indirect expenses. Direct
expenses include third party expenses related to these programs such as expenses for manufacturing
services, non-clinical and clinical studies and other third party development services. Indirect expenses
include salaries and related costs, including stock-based compensation, for personnel in research and
development functions, infrastructure costs allocated to research and development operations, costs
associated with obtaining and maintaining intellectual property associated with our research and development
operations, laboratory consumables, consulting fees related to research and development activities and other
overhead costs. We utilize our research and development staff and infrastructure resources across multiple
programs, and many of our indirect costs historically have not been specifically attributable to a single
program. Accordingly, we cannot state precisely our total indirect costs incurred on a program-by-program
basis.
The following table summarizes our direct research and development expenses by program and our indirect
costs:
(in thousands)
Direct costs
Lefamulin
Other programs and initiatives
Indirect costs
Total
Year ended December 31,
2016
$
2017
$
34,538
223
14,854
49,615
36,003
71
11,920
47,994
We expect to continue to incur research and development expenses in connection with our activities related to
our ongoing LEAP 2 clinical trial of lefamulin for the treatment of CABP, our subsequent NDA and MAA filings
and the pursuit of the clinical development of lefamulin for additional indications and engage in earlier stage
research and development activities. It is difficult to estimate the duration and completion costs of our
research and development programs.
6
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Business review – continued
Research and development expenses - continued
The successful development and commercialization of our product candidates is highly uncertain. This is due
to the numerous risks and uncertainties associated with product development and commercialization,
including the uncertainty of:
the scope, progress, costs and results of clinical trials and other research and development activities;
the costs, timing and outcome of regulatory review of our product candidates;
the efficacy and potential advantages of our product candidates compared to alternative treatments,
including any standard of care, and our ability to achieve market acceptance for any of our product
candidates that receive marketing approval;
the costs and timing of commercialization activities, including product sales, marketing, distribution and
manufacturing, for any of our product candidates that receive marketing approval; and
the costs and timing of preparing, filing and prosecuting patent applications, maintaining, enforcing and
protecting our intellectual property rights and defending against any intellectual property-related claims.
A change in the outcome of any of these variables with respect to the development of our product candidates
could result in a significant change in the costs and timing associated with the development of that product
candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials
or other testing beyond those that we have completed or currently contemplate will be required for the
completion of clinical development of any product candidate, or if we experience significant delays in
enrollment in any of our clinical trials, we could be required to expend significant additional resources and time
on the completion of clinical development of that product candidate.
General and administrative expenses
General and administrative expenses represented 22.0% and 37.3% of our total operating expenses for the
years ended December 31, 2016 and 2017, respectively.
General and administrative expenses consist primarily of salaries and related costs, including share-based
compensation not related to research and development activities for personnel in our finance, information
technology, commercial, medical affairs and administrative functions. General and administrative expenses
also include costs related to professional fees for auditors, lawyers and tax advisors and consulting fees not
related to research and development operations, as well as functions that are partly or fully outsourced by us,
such as accounting, payroll processing and information technology.
We expect general and administrative expenses to increase with the expansion of our staff and management
team in anticipation of the commercialization of lefamulin particularly commercial, medical affairs, technical
operations and business development functions.
Additionally, we expect to incur significant marketing, commercial and manufacturing supply chain costs if
LEAP 2 data is positive.
Critical accounting policies
Our management's business review is based on our consolidated financial statements, which we have
prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP to
the extent that the use of these principles does not contravene any provision of part 6 of the Republic of
Ireland’s Companies Act 2014. The preparation of our consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the end of the reporting period, as well as the reported revenues and
expenses during the reporting periods. We base our estimates on our limited historical experience, known
trends and events and various other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Our significant accounting policies are described in more detail in the notes to our consolidated financial
statements. However, we believe that the following accounting policies are the most critical to aid you in fully
understanding and evaluating our financial condition and results of operations.
7
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Research premium and grant revenue
As a company that carries out extensive research and development activities, we benefit from the Austrian
research and development support regime, under which we are eligible to receive a research premium from
the Austrian government equal to 12% (10%, in the case of fiscal years prior to 2016) of a specified research
and development cost base. Qualifying expenditures largely comprise research and development activities
conducted in Austria, however, the research premium is also available for certain related third-party expenses
with additional limitations. We received research premiums of $5.9 million for the year ended December 31,
2016. We have not received any research premium for our qualified 2017 expenditures as of December 31,
2017. We recognize the research premium, as long as we have incurred research and development
expenses. Significant judgment is required in determining which expenditures are eligible to be included in the
research and development costs base and such costs are subject to review by the Austrian government.
Research and development expenses
Research expenses are defined as costs incurred for current or planned investigations undertaken with the
prospect of gaining new scientific or technical knowledge and understanding. Development expenses are
defined as costs incurred for the application of research findings or specialist knowledge to production,
production methods, services or goods prior to the commencement of commercial production or use. We
expense all research and development costs as incurred.
As part of the process of preparing our consolidated financial statements, we are required to estimate our
accrued research and development expenses. This process involves reviewing open contracts and purchase
orders, communicating with our applicable personnel to identify services that have been performed on our
behalf and estimating the level of service performed and the associated cost incurred for the service when we
have not yet been invoiced or otherwise notified of actual costs. We make estimates of our accrued expenses
as of each balance sheet date in the consolidated financial statements based on facts and circumstances
known to us at that time. Examples of estimated accrued research and development expenses include fees
paid to:
vendors in connection with preclinical development activities;
the production of preclinical and clinical trial materials;
CROs in connection with clinical trials; and,
investigative sites in connection with clinical trials.
Results of operations
Comparison of Years Ended December 31, 2017 and 2016
(in thousands)
Consolidated operations data:
Revenues
Costs and expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Other income (expense), net
Interest income (expense), net
Loss before income taxes
Income tax (expense) benefit
Net loss
Year ended December 31,
2017
$
2016
$
Change
$
5,319
6,482
(1,163)
(49,615)
(29,472)
(47,994)
(13,535)
(79,087)
(61,529)
(1,621)
(15,937)
(17,558)
(73,768)
(55,047)
(18,721)
492
275
(783)
268
1,275
7
(73,001)
(1,355)
(55,562)
672
(74,356)
(54,890)
(17,439)
(2,027)
(19,466)
8
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Results of operations - continued
Revenues
Revenues, consisting primarily of research premium and grant revenue, decreased by $1.2 million from $6.5
million for the year ended December 31, 2016 to $5.3 million for the year ended December 31, 2017. The
change was primarily due to a $1.4 million decrease in grant revenue from research premiums provided to us
by the Austrian government as a result of lower applicable research and development expenses, which was
offset by a $0.2 million increase in grant income.
Research and development expenses
Research and development expenses increased by $1.6 million from $48.0 million for the year ended
December 31, 2016 to $49.6 million for the year ended December 31, 2017. The increase was primarily due
to a $2.1 million increase in staff costs due to the addition of employees and a $1.2 million increase in share-
based compensation expense also due to the inclusion of additional employees in our share-based
compensation plan, partially offset by a $1.5 million decrease in direct costs for purchased services related to
the development of lefamulin and a $0.2 million decrease of advisory and external consultancy, travel and
other expenses.
General and administrative expenses
General and administrative expense increased by $16.0 million from $13.5 million for the year ended
December 31, 2016 to $29.5 million for the year ended December 31, 2017. The increase was primarily due
to a $4.1 million increase in legal fees mainly related to the redomiciliation of our parent company from Austria
to Ireland, a $6.1 million increase of advisory and external consultancy expenses primarily related to pre-
commercialization activities and professional service fees, a $2.0 million increase in share-based
compensation expense due to the inclusion of additional employees in our share-based compensation plan, a
$2.8 million increase in staff costs due to the addition of employees, a $0.7 million increase in VAT tax
expenses, and a $0.3 million increase in support, infrastructure and other corporate costs.
Other income (expense)
Other income (expense) decreased by $1.3 million from a net expense of $0.8 million for the year ended
December 31, 2016 to net income of $0.5 million for the year ended December 31, 2017. The increase was
primarily due to re-measurements of our foreign currency account balances.
Interest income
During the year ended December 31, 2017, net interest income was relatively flat compared to the same
period in 2016.
Income tax (expense) benefit
Our income tax expense was $1.4 million for the year ended December 31, 2017 compared to an income tax
benefit of $0.7 million for the year ended December 31, 2016. The year over year change was primarily due to
the recognition of a valuation allowance against deferred tax assets in our foreign subsidiaries. Our income
tax (expense) benefit includes Irish, Austrian and U.S. income taxes at statutory rates and the effects of
various permanent differences.
9
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Principal risks and uncertainties
The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect our business, financial
condition, results of operations and/or prospects.
Risks related to our financial position and need for additional capital
We have incurred significant losses since our inception. We expect to incur losses for at least the next
several years and may never generate profits from operations or maintain profitability.
Since inception, we have incurred significant operating losses. Our net losses were $13.3 million for the three
months ended March 31, 2018, $74.4 million for the year ended December 31, 2017, $54.9 million for the year
ended December 31, 2016. As of March 31, 2018, we had an accumulated deficit of $292.5 million. To date,
we have financed our operations primarily through the sale of our equity securities, convertible loans and
research and development support from governmental grants and loans. We have devoted substantially all of
our efforts to research and development, including clinical trials. We have not completed development of any
drugs. We expect to continue to incur significant expenses and increasing operating losses for at least the
next several years. The net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-
year.
We have re-evaluated the need for the previously planned expansion of our commercial organization, medical
education, and supply chain activities and we now anticipate that our expenses for 2018 will decrease as
compared to our expenses for 2017 as we wind down our Phase 3 clinical trial program for lefamulin for the
treatment of community-acquired bacterial pneumonia, or CABP. We expect to continue to invest in critical
pre-commercialization activities prior to receiving marketing approval and making lefamulin available to
patients. We initiated the first of our Phase 3 clinical trials, which we refer to as LEAP 1, in September 2015
and initiated the second trial, which we refer to as LEAP 2, in April 2016. In September 2017, we announced
positive top-line results for LEAP 1. In December 2017, we announced completion of enrollment for LEAP 2.
If the results of LEAP 2 are also favorable, including achievement of the primary efficacy endpoints of the
trials, we expect to submit a new drug application, or NDA, for marketing approval of lefamulin for the
treatment of CABP in adults in the United States in the fourth quarter of 2018. We also expect to submit a
marketing authorization application, or MAA, for lefamulin for the treatment of CABP in adults in Europe a few
months after our NDA filing. We also continue to characterize the clinical pharmacology of lefamulin. If we
obtain marketing approval of lefamulin for CABP or another indication, we also expect to incur significant
additional sales, marketing, distribution and manufacturing expenses.
In addition, our expenses will increase if and as we:
initiate or continue the research and development of lefamulin for additional indications and of our other
product candidates;
seek to discover and develop additional product candidates;
seek marketing approval for any product candidates that successfully complete clinical development;
continue to establish a medical affairs, sales, marketing and distribution infrastructure and scale up
manufacturing capabilities to commercialize any product candidates for which we receive marketing
approval;
in-license or acquire other products, product candidates or technologies;
maintain, expand and protect our intellectual property portfolio;
expand our physical presence in the United States and Ireland;
establish and expand manufacturing arrangements with third parties; and
add operational, financial and management information systems and personnel, including personnel to
support our product development, our operations as a public company and our planned future
commercialization efforts.
10
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our financial position and need for additional capital - continued
Our ability to generate profits from operations and remain profitable depends on our ability to successfully
develop and commercialize drugs that generate significant revenue. Based on our current plans, we do not
expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize,
lefamulin. We do not expect to obtain marketing approval before 2019, if at all. This will require us to be
successful in a range of challenging activities, including:
obtaining favorable results from our LEAP 2 clinical trial of lefamulin for the treatment of CABP;
subject to obtaining favorable results from our LEAP 2 clinical trial, applying for and obtaining marketing
approval for lefamulin;
expanding medical affairs, sales, marketing and distribution capabilities to effectively market and sell
lefamulin in the United States;
establishing and maintaining collaboration, distribution or other marketing arrangements with third parties
to commercialize lefamulin in markets outside the United States;
protecting our rights to our intellectual property portfolio related to lefamulin;
contracting for the manufacture of and obtaining commercial quantities of lefamulin; and
negotiating and securing adequate reimbursement from third-party payors for lefamulin.
We may never succeed in these activities and, even if we do, may never generate revenues that are
significant enough to generate profits from operations. Even if we do generate profits from operations, we may
not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits
from operations and remain profitable would decrease the value of our company and could impair our ability to
raise capital, expand our business, maintain our research and development efforts, diversify our product
offerings or continue our operations. A decline in the value of our company could also cause our shareholders
to lose all or part of their investment.
We will need substantial additional funding. If we are unable to raise capital when needed or on
acceptable terms, we could be forced to delay, reduce or eliminate our product development
programs or future commercialization efforts.
We expect to continue to incur substantial costs in connection with our ongoing activities, particularly as we
potentially seek marketing approval for lefamulin and, possibly, other product candidates and continue our
research activities. Our expenses will increase if we suffer any delays in our Phase 3 clinical program for
lefamulin for CABP, including regulatory delays or are required to conduct additional clinical trials to satisfy
regulatory requirements. If we obtain marketing approval for lefamulin or any other product candidate that we
develop, in-license or acquire, we expect to incur significant commercialization expenses related to product
sales, marketing, distribution and manufacturing.
Furthermore, we expect to continue to incur additional costs associated with operating as a public company.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.
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.
We expect that our existing cash, cash equivalents and short-term investments will be sufficient to fund our
operating expenses and capital expenditures into the first quarter of 2020. 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. This estimate assume, among other things, that we do not obtain any additional funding through
grants and clinical trial support, collaboration agreements, equity or debt financings.
We expect to seek additional funding in future periods for purposes of investment in our commercial and
medical affairs organization, including the expansion of a targeted hospital based sales force and related
infrastructure, as well as investing in our supply chain in an effort to enhance the potential commercial launch
of lefamulin.
11
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our financial position and need for additional capital - continued
Our future capital requirements will depend on many factors, including:
the progress, costs and results of our clinical trials for lefamulin, including our LEAP 2 trial;
the costs and timing of process development and manufacturing scale-up activities associated with
lefamulin;
the costs, timing and outcome of regulatory review of lefamulin;
the costs of commercialization activities for lefamulin if we receive, or expect to receive, marketing
approval, including the costs and timing of establishing product sales, marketing, distribution and
outsourced manufacturing capabilities, including the costs of building finished product inventory and its
components in preparation of initial marketing of lefamulin;
subject to receipt of marketing approval, revenue received from commercial sales of lefamulin;
the costs of developing lefamulin for the treatment of additional indications;
our ability to establish collaborations on favorable terms, if at all;
the scope, progress, results and costs of product development of any other product candidates that we
may develop;
the extent to which we in-license or acquire rights to other products, product candidates or technologies;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our
intellectual property rights and defending against intellectual property-related claims;
the continued availability of Austrian governmental grants;
the rate of the expansion of our physical presence in the United States and Ireland; and
the costs of operating as a public company in the United States.
Conducting clinical trials is a time consuming, expensive and uncertain process that takes years to complete,
and we may never generate the necessary data or results required to obtain marketing approval and achieve
product sales. Our commercial revenues, if any, will be derived from sales of lefamulin or any other products
that we successfully develop, in-license or acquire, none of which we expect to be commercially available for
more than a year, if at all. In addition, if approved, lefamulin or any other product candidate that we develop,
in-license or acquire may not achieve commercial success. Accordingly, we will need to obtain substantial
additional financing to achieve our business objectives.
Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may
seek additional capital due to favorable market conditions or strategic considerations, even if we believe that
we have sufficient funds for our current or future operating plans.
Raising additional capital may cause dilution to our security holders, restrict our operations or require
us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash
needs through a combination of equity offerings, debt financings, collaborations, and funding from local and
international government entities and non-government organizations in the disease areas addressed by our
product candidates and marketing, distribution or licensing arrangements. To the extent that we raise
additional capital through the sale of equity or convertible debt securities, your ownership interest will be
diluted, and the terms of these securities may include liquidation or other preferences that adversely affect
your rights as a security holder. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. In addition, debt service obligations under any debt financings may limit
the availability of our cash for other purposes, and we may be unable to make interest payments or repay the
principal of such debt financings when due.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing
arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates or to grant licenses on terms that may not be favorable to
us. If we are unable to raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or future commercialization efforts or
grant rights to develop and market product candidates that we would otherwise prefer to develop and market
ourselves.
12
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our financial position and need for additional capital - continued
Our limited operating history may make it difficult for you to evaluate the success of our business to
date and to assess our future viability.
Our operations to date have been limited to organizing and staffing our company, developing and securing our
technology, raising capital and undertaking preclinical studies and clinical trials of our product candidates. We
have not yet demonstrated our ability to successfully complete development of any product candidates, obtain
marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our
behalf, or conduct sales and marketing activities necessary for successful product commercialization.
Consequently, any predictions you make about our future success or viability may not be as accurate as they
could be if we had a longer operating history.
In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays
and other known and unknown factors. We will need to transition from a company with a research and
development focus to a company capable of supporting commercial activities. We may not be successful in
such a transition.
We have relied on, and expect to continue to rely on, certain government grants and funding from the
Austrian government. Should these funds cease to be available, or our eligibility be reduced, or if we
are required to repay any of these funds, this could impact our ongoing need for funding and the
timeframes within which we currently expect additional funding will be required.
As a company that carries out extensive research and development activities, we benefit from the Austrian
research and development support regime, under which we are eligible to receive a research premium from
the Austrian government equal to 14% (12% for the fiscal years 2016 and 2017 and 10%, in the case of fiscal
years prior to 2016) of a specified research and development cost base. Qualifying expenditures largely
comprise research and development activities conducted in Austria, however, the research premium is also
available for certain related third-party expenses with additional limitations. We received research premiums of
$5.9 million for the year ended December 31, 2016. We have not received any research premium for our
qualified 2017 expenditures as of March 31, 2018. As we increase our personnel and expand our business
outside of Austria, we may not be able to continue to claim research premiums to the same extent as we have
in previous years, as some research and development activities may no longer be considered to occur in
Austria. As research premiums that have been paid out already may be audited by the tax authorities, there is
a risk that parts of the submitted cost base may not be considered as eligible and therefore repayments may
have to be made.
The intended efficiency of our corporate structure depends on the application of the tax laws and
regulations in the countries where we operate, and we may have exposure to additional tax liabilities
or our effective tax rate could change, which could have a material impact on our results of operations
and financial position.
As a company with international operations, we are subject to income taxes, as well as non-income based
taxes, in both the United States and various foreign jurisdictions. We have designed our corporate structure,
the manner in which we develop and use our intellectual property, and our intercompany transactions
between our subsidiaries in a way that is intended to enhance our operational and financial efficiency. The
application of the tax laws and regulations of various countries in which we operate and to our global
operations is subject to interpretation. We also must operate our business in a manner consistent with our
corporate structure to realize such efficiencies. The tax authorities of the countries in which we operate may
challenge our methodologies for valuing developed technology or for transfer pricing. If, for one or more of
these reasons, tax authorities determine that the manner in which we operate results in our business not
achieving the intended tax consequences, our effective tax rate could increase and harm our financial position
and results of operations.
13
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our financial position and need for additional capital - continued
A change in the tax law in the jurisdictions in which we do business, including an increase in tax rates, an
adverse change in the treatment of an item of income or expense, a decrease in tax rates in a jurisdiction in
which we have significant deferred tax assets, or a new or different interpretation of applicable tax law, could
result in a material increase in tax expense.
Risks related to product development and commercialization
We depend heavily on the success of our lead product candidate, lefamulin, which we are developing
for CABP and other indications. If we are unable to complete our Phase 3 clinical program for
lefamulin for CABP as and when expected and obtain marketing approvals for lefamulin, or if
thereafter we fail to commercialize lefamulin or experience significant delays in doing so, our
business will be materially harmed.
We have invested a significant portion of our efforts and financial resources in the development of lefamulin.
There remains a significant risk that we will fail to successfully develop lefamulin for CABP or any other
indication. In September 2017, we announced positive top-line results for LEAP 1, the first of our two pivotal,
international Phase 3 clinical trials of lefamulin for the treatment of CABP. Patient enrollment for our second
Phase 3 clinical trial of lefamulin for the treatment of CABP was completed in December 2017. We currently
expect availability of top-line data for LEAP 2 in the spring of 2018. Our ability to meet our target timing will
depend on data analysis for LEAP 2. A significant delay in data analysis would result in delays to our
development timelines and additional development costs beyond what we have budgeted. If we ultimately
obtain favorable results from LEAP 2, we expect to submit an NDA for marketing approval for lefamulin for the
treatment of CABP in adults in the United States in the fourth quarter of 2018. We also expect to submit an
MAA for lefamulin for the treatment of CABP in adults in Europe a few months after our NDA filing.
Our ability to generate product revenues, which may not occur for several years, if ever, will depend heavily
on our obtaining marketing approval for and commercializing lefamulin. The success of lefamulin will depend
on a number of factors, including the following:
obtaining favorable safety and efficacy results from clinical trials, particularly LEAP 2;
making arrangements with third-party manufacturers for commercial supply and receiving regulatory
approval of our manufacturing processes and our third-party manufacturers' facilities from applicable
regulatory authorities;
receipt of marketing approvals from applicable regulatory authorities for lefamulin for the treatment of
CABP;
launching commercial sales of lefamulin, if and when approved, in collaboration with third parties;
acceptance of lefamulin, if and when approved, by patients, the medical community and third-party
payors;
effectively competing with other therapies;
maintaining a continued acceptable safety profile of lefamulin following approval;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity; and
protecting our rights in our intellectual property portfolio.
Successful development of lefamulin for the treatment of additional indications, if any, or for use in other
patient populations and our ability, if it is approved, to broaden the label for lefamulin will depend on similar
factors.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant
delays or an inability to successfully commercialize lefamulin for CABP or for any additional indications, which
would materially harm our business.
14
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
If clinical trials of lefamulin or any of our other product candidates fail to demonstrate safety and
efficacy to the satisfaction of the U.S. Food and Drug Administration, or FDA, regulatory authorities in
the European Union, or other regulatory authorities or do not otherwise produce favorable results, we
may incur additional costs or experience delays in completing, or ultimately be unable to complete,
the development and commercialization of lefamulin or any other product candidate.
Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must
complete preclinical development and early clinical trials, including Phase 1 clinical trials, in addition to
extensive later-stage Phase 3 clinical trials, to demonstrate the safety and efficacy of our product candidates
in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete
and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The
outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials,
and interim results of a clinical trial do not necessarily predict final results. 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 or completed. Moreover, preclinical and clinical
data are often susceptible to varying interpretations and analyses, and many companies that have believed
their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless
failed to obtain marketing approval of their products.
LEAP 2 and other clinical trials we conduct may not be successful, and the results of our completed clinical
trials may not predict success in LEAP 2 or any other clinical trials. Notably, the LEAP 1 and LEAP 2 trial
designs are not the same, as the LEAP 2 trial is evaluating a patient population with CABP that is less severe
than those patients evaluated in LEAP 1, and LEAP 2 is only investigating oral lefamulin, among other
differences. Positive results from LEAP 1 do not guarantee favorable results from LEAP 2. Although we
believe that the collective data from prior trials and our preclinical studies provide support for concluding that
lefamulin is well suited for treatment of CABP, we may fail to obtain favorable results in our LEAP 2 clinical
trial of lefamulin for CABP or regulatory authorities could disagree with our interpretations or analyses of our
clinical data. If the results of our LEAP 2 clinical trial are not favorable, including failure to achieve the primary
efficacy endpoints of the trial, or regulatory authorities disagree with our interpretations or analyses of our
clinical data, we may need to conduct additional clinical trials at significant cost or altogether abandon
development of lefamulin for CABP.
If we are required to conduct additional clinical trials or other testing of lefamulin or any other product
candidate that we develop beyond those that we contemplate, if we are unable to successfully complete our
clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive
or if there are safety concerns, we may:
be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings,
including boxed warnings;
be subject to additional post-marketing testing requirements or restrictions; or
have the product removed from the market after obtaining marketing approval.
The occurrence of any of the developments listed above could materially harm our business, financial
condition, results of operations and prospects.
15
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
If we experience any of a number of possible unforeseen events in connection with our LEAP 2
clinical trial of lefamulin for CABP or other clinical trials, the potential marketing approval or
commercialization of lefamulin or other product candidates could be delayed or prevented.
We may experience numerous unforeseen events during, or as a result of, our LEAP 2 clinical trial of
lefamulin for CABP or other clinical trials we conduct that could delay or prevent our ability to receive
marketing approval or commercialize lefamulin or our other product candidates, including:
clinical trials of lefamulin or our other product candidates may produce negative or inconclusive results,
and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product
development programs;
the number of patients required for lefamulin for other indications or our other product candidates may be
larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or
participants may drop out of these clinical trials at a higher rate than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual
obligations to us in a timely manner, or at all;
regulators, institutional review boards or independent ethics committees may not authorize us or our
investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site or may require
that we or our investigators suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements or a finding that the participants are being exposed to
unacceptable health risks;
we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or
clinical trial protocols with prospective trial sites;
we may have to suspend or terminate clinical trials of our product candidates for various reasons,
including a finding that the participants are being exposed to unacceptable health or safety risks;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our
product candidates may be insufficient or inadequate; and
our product candidates may have undesirable side effects or other unexpected characteristics, causing us
or our investigators, regulators, institutional review boards or independent ethics committees to suspend
or terminate the trials.
Our product development costs will increase if we experience delays in enrollment in our clinical development
program or our non-clinical development program or in obtaining marketing approvals. We do not know
whether any additional non-clinical tests or clinical trials will be required, or if they will begin as planned, or if
they will need to be restructured or will be completed on schedule, or at all. Significant non-clinical
development program delays, including chemistry, manufacturing and control activities, or clinical trial delays
also could shorten any periods during which we may have the exclusive right to commercialize our product
candidates or allow our competitors to bring products to market before we do and impair our ability to
successfully commercialize our product candidates and may harm our business and results of operations.
If we experience delays or difficulties in the enrollment of patients in our clinical trials, our receipt of
necessary marketing approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials of lefamulin or any other product candidate that we
develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these
clinical trials. Some of our competitors have ongoing clinical trials for product candidates that could be
competitive with lefamulin, and patients who would otherwise be eligible for our clinical trials may instead
enroll in clinical trials of our competitors' product candidates.
16
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
Patient enrollment is affected by other factors including:
severity of the disease under investigation;
eligibility criteria for the clinical trial in question;
perceived risks and benefits of the product candidate under study;
approval of other therapies to treat the disease under investigation;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
the time of year in which the trial is initiated or conducted;
the geographic distribution of global trial sites, given the timing of pneumonia season globally, and the
seasonal variation in the number of patients suffering from pneumonia, including a decline in the number
of patients with CABP during the summer months;
the ability to monitor patients adequately during and after treatment;
proximity and availability of clinical trial sites for prospective patients;
delays in the receipt of required regulatory approvals, or the failure to receive required regulatory
approvals, in the jurisdictions in which clinical trials are expected to be conducted; and
delays in the receipt of approvals, or the failure to receive approvals, from the relevant institutional review
board or ethics committee at clinical trial sites.
Enrollment delays in our clinical trials may result in increased development costs for our product candidates,
which would cause the value of the company to decline and limit our ability to obtain additional financing. Our
inability to enroll a sufficient number of patients in any of our clinical trials would result in significant delays or
may require us to abandon one or more clinical trials altogether.
If serious adverse or undesirable side effects are identified during the development of lefamulin or any
other product candidate that we develop, we may need to abandon or limit our development of that
product candidate.
All of our product candidates are in clinical or preclinical development and their risk of failure is high. It is
impossible to predict when or if any of our product candidates will prove effective or safe in humans or will
receive marketing approval. If our product candidates are associated with undesirable side effects or have
characteristics that are unexpected, we may need to abandon their development or limit development to
certain uses or subpopulations in which the undesirable side effects or other characteristics are less
prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially
showed promise in clinical or earlier stage testing have later been found to cause side effects or other safety
issues that prevented further development of the compound.
In LEAP 1, lefamulin was generally well tolerated and exhibited a similar rate of treatment-emergent adverse
events to the comparator drug. However, 104 patients in the lefamulin arm of the trial reported at least one
treatment-emergent adverse event and eight patients withdrew from the trial following an adverse event.
Furthermore, at least 2.0% of patients in LEAP 1 who were dosed with lefamulin reported the following
adverse events: hypokalemia, nausea, insomnia, infusion site pain and infusion site phlebitis. Fewer than
2.0% of trial patients dosed with lefamulin also experienced hypertension and an increase in alanine
aminotransaminase, although no patients met Hy's Law criteria, which is an indicator for severe liver damage.
In addition, lefamulin was well tolerated in our Phase 2 clinical trial for ABSSSI. No patient in the trial suffered
any serious adverse events that were found to be related to lefamulin, and no patient in the trial died. Some
patients experienced adverse events that were assessed by the investigator as possibly or probably related to
study medication. The majority of their symptoms were mild in severity. Four patients discontinued study
medication following a drug-related event, three of whom were in a lefamulin treatment group: one patient
experienced events of hyperhidrosis, vomiting and headache; one patient experienced infusion site pain; and
one patient experienced dyspnea.
17
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
Because the potential for mild effect on electrocardiogram, or ECG, measurements was observed in
preclinical studies, we have continued to assess this potential in all human clinical trials we have conducted.
In the Phase 2 clinical trial, no change in ECG measurements was considered to be of clinical significance,
and no drug-related cardiovascular adverse event was reported. Both lefamulin and vancomycin treatment
were associated with a small increase in the QT interval. The QT interval is a measure of the heart's electrical
cycle, and a prolonged QT interval is a risk factor for a potential ventricular arrhythmia. In LEAP 1, while
changes in QT that were of potential clinical concern were uncommon, one patient treated with lefamulin had
an increase in absolute QT interval to greater than 500 msec. We are continuing to evaluate the effect of
lefamulin on the QT interval in LEAP 2.
There were no systemic adverse events of clinical concern and no drug-related serious adverse events
observed in any of our completed Phase 1 clinical trials of lefamulin. In these trials, the most commonly
observed adverse effects with oral administration of lefamulin were related to the gastrointestinal tract,
including nausea and abdominal discomfort, while the most commonly observed adverse effects related to IV
administration were related to irritation at the infusion site. In addition, lefamulin produced a transient,
predictable and reproducible prolongation of the QT interval based on the maximum concentration of the drug
in the blood plasma. At the doses administered in the Phase 3 clinical trials for lefamulin for CABP, we expect
that the drug will not produce large effects on the QT interval that would be of clinical relevance. We did not
observe any drug-related cardiac adverse events, such as increase in ectopic ventricular activity or other
cardiac arrhythmia, or clinically relevant ECG findings during the conduct of any of our completed Phase 1
clinical trials. If we observe clinically relevant effects on the QT interval in our Phase 3 clinical trials of
lefamulin for CABP or in any other clinical trial of lefamulin, our ability to successfully develop lefamulin for
CABP or any other indication may be significantly delayed or prevented.
If we elect or are forced to suspend or terminate any clinical trial of lefamulin or any other product candidates
that we are developing, the commercial prospects of lefamulin or such other product candidates will be
harmed and our ability to generate product revenues, if at all, from lefamulin or any of these other product
candidates will be delayed or eliminated. Any of these occurrences could materially harm our business,
financial condition, results of operations and prospects.
Even if lefamulin or any other product candidate receives marketing approval, it may fail to achieve
the degree of market acceptance by physicians, patients, third-party payors and others in the medical
community necessary for commercial success and the market opportunity for lefamulin may be
smaller than we estimate.
If lefamulin or any of our other product candidates receive marketing approval, it or they may nonetheless fail
to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical
community. For example, current treatments for pneumonia, including generic options, are well established in
the medical community, and doctors may continue to rely on these treatments without lefamulin. In addition,
our efforts to effectively communicate lefamulin's differentiating characteristics and key attributes to clinicians
and hospital pharmacies with the goal of establishing favorable formulary status for lefamulin may fail or may
be less successful than we expect. If lefamulin does not achieve an adequate level of acceptance, we may not
generate significant product revenues or any profits from operations. The degree of market acceptance of our
product candidates, if approved for commercial sale, will depend on a number of factors, including:
the efficacy and potential advantages compared to alternative treatments;
lefamulin's ability to limit the development of bacterial resistance in the pathogens it targets;
the prevalence and severity of any side effects;
the ability to offer our product candidates for sale at competitive prices, including in comparison to generic
competition;
convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies, physicians to prescribe these
therapies and hospitals to approve the cost and use by their physicians of these therapies;
our investment in and the strength of marketing and distribution support;
the availability of third-party coverage and adequate reimbursement; and
the timing of any marketing approval in relation to other product approvals.
18
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
Although we believe that the mechanism of action for pleuromutilin antibiotics may result in a low propensity
for development of bacterial resistance to lefamulin or our other pleuromutilin product candidates, bacteria
might nevertheless develop resistance to lefamulin or our other pleuromutilin product candidates more rapidly
or to a greater degree than we anticipate. If bacteria develop such resistance or if lefamulin is not effective
against drug-resistant bacteria, the efficacy of these product candidates would decline, which would
negatively affect our potential to generate revenues from these product candidates.
Our ability to negotiate, secure and maintain third-party coverage and reimbursement may be affected by
political, economic and regulatory developments in the United States, the European Union and other
jurisdictions. Governments continue to impose cost containment measures, and third-party payors are
increasingly challenging prices charged for medicines and examining their cost effectiveness, in addition to
their safety and efficacy. If the level of reimbursement is below our expectations, our revenue and gross
margins would be adversely affected. Obtaining formulary approval from third-party payors can be an
expensive and time-consuming process. We cannot be certain if and when we will obtain formulary approval
to allow us to sell lefamulin or any future product candidates into our target markets. Even if we do obtain
formulary approval, third-party payors, such as government or private health care insurers, carefully review
and increasingly question the coverage of, and challenge the prices charged for, drugs. These and other
similar developments could significantly limit the degree of market acceptance of lefamulin or any of our other
product candidates that receive marketing approval.
If we are unable to establish sales, marketing and distribution capabilities or enter into sales,
marketing and distribution agreements with third parties, we may not be successful
in
commercializing lefamulin or any other product candidate if and when they are approved.
We have only a very limited sales, marketing and distribution infrastructure, and as a company we have no
experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success
for any approved product, we must either establish an adequate sales, marketing and distribution organization
or outsource these functions to third parties. If lefamulin receives marketing approval, we plan to
commercialize it in the United States with our own targeted hospital sales and marketing organization that we
plan to expand, subject to our ability to raise additional capital. In addition, we expect to utilize a variety of
types of collaboration, distribution and other marketing arrangements with one or more third parties to
commercialize lefamulin in markets outside the United States.
There are risks involved with establishing our own sales, marketing and distribution capabilities and entering
into arrangements with third parties to perform these services. If we do not establish adequate sales,
marketing and distribution capabilities prior to or in connection with the commercial launch of any of our
products, such products may fail to gain sufficient market acceptance by physicians, patients, third-party
payors and others in the medical community and may fail commercially or be less successful than we expect.
If the commercial launch of a product candidate for which we establish marketing and distribution 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 our products on our own include:
our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to
prescribe any future products;
the lack of complementary products to be offered by sales personnel, which may put our sales
representatives at a competitive disadvantage relative to sales representatives from companies with more
extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales, marketing and distribution
organization.
19
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
If we enter into arrangements with third parties to perform sales, marketing and distribution services, our
product revenues or the profitability of these product revenues to us are likely to be lower than if we were to
market, sell and distribute ourselves any products that we develop. In addition, we may not be successful in
entering into arrangements with third parties to sell, market and distribute our product candidates or may be
unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and
any of them may fail to devote the necessary resources and attention to sell and market our products
effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own
or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result
commercializing products before or more successfully than we do.
in others discovering, developing or
The development and commercialization of new drug products is highly competitive. We face competition with
respect to lefamulin and any other products we may seek to develop or commercialize in the future from major
pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.
Potential competitors also include academic institutions, government agencies and other public and private
research organizations
that conduct research, seek patent protection and establish collaborative
arrangements for research, development, manufacturing and commercialization.
There are a variety of available therapies marketed for the treatment of CABP. Currently the treatment of
CABP is dominated by generic products. For hospitalized patients, combination therapy is frequently used.
Many currently approved drugs are well-established therapies and are widely accepted by physicians, patients
and third-party payors. We also are aware of various drugs under development for the treatment of CABP,
including omadacycline (under Phase 3 clinical development by Paratek Pharmaceuticals Inc.), delafloxacin
(under Phase 3 clinical development by Melinta Therapeutics Inc.) and oral nafithromycin (under Phase 2
clinical development by Wockhardt Ltd.).
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize
products that are safer, more effective, have fewer or less severe side effects, are approved for broader
indications or patient populations, are more convenient or are less expensive than any products that we may
develop. Our competitors may also obtain marketing approvals for their products more rapidly than we may
obtain approval for ours, which could result in our competitors establishing a strong market position before we
are able to enter the market. In addition, our ability to compete may be affected because in some cases
insurers or other third-party payors seek to encourage the use of generic products. This may have the effect
of making branded products less attractive, from a cost perspective, to buyers. We expect that if lefamulin is
approved for CABP, it will be priced at a significant premium over competitive generic products. This may
make it difficult for us to replace existing therapies with lefamulin. The key competitive factors affecting the
success of our product candidates are likely to be their efficacy, safety, convenience, price and the availability
of coverage and reimbursement from government and other third-party payors.
Many of our competitors may have significantly greater financial resources and expertise in research and
development, manufacturing, preclinical testing, conducting clinical trials, obtaining approvals from regulatory
authorities and marketing approved products 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 and other early stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established companies. These third parties
compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to or
necessary for our programs.
20
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
Even if we are able to commercialize lefamulin or any other product candidate that we develop, the
product may become subject to unfavorable pricing regulations, third-party reimbursement practices
or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products
vary widely from country to country. Current and future legislation may significantly change the approval
requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some
countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing
review period begins after marketing or product licensing approval is granted. In some foreign markets,
prescription pharmaceutical pricing remains subject to continuing governmental control even after initial
approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but
then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time
periods, and negatively impact the revenues we are able to generate from the sale of the product in that
country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product
candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize lefamulin or any other product candidate 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, decide which medications they will pay for and establish reimbursement levels. A major trend in
the healthcare industries in the European Union and the United States and elsewhere is cost containment.
Government authorities and other third-party payors have attempted to control costs by limiting coverage and
the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that
drug companies provide them with predetermined discounts from list prices and are challenging the prices
charged for medical products. We cannot be sure that coverage and reimbursement will be available for
lefamulin or any other product that we commercialize and, if coverage and reimbursement are available, the
level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for
which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for lefamulin may
be particularly difficult because of the number of generic drugs, which are typically available at lower prices,
that are available to treat CABP. In addition, third-party payors are likely to impose strict requirements for
reimbursement of a higher priced drug, such as lefamulin. If reimbursement is not available or is available only
to limited levels, we may not be able to successfully commercialize lefamulin or other product candidates for
which we obtain marketing approval.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and
coverage may be more limited than the purposes for which the drug is approved by the applicable regulatory
authority. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in
all cases or at a rate that covers our costs, including research, development, manufacture, sale and
distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our
costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and
the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs,
and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by
mandatory discounts or rebates required by government healthcare programs or private payors and by any
future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at
lower prices than in the United States. In the United States, third-party payors often rely upon Medicare
coverage policy and payment limitations in setting their own reimbursement policies. In the European Union,
reference pricing systems and other measures may lead to cost containment and reduced prices. Our inability
to promptly obtain coverage and adequate reimbursement rates from both government-funded and private
payors for any approved products that we develop could have a material adverse effect on our operating
results, our ability to raise capital needed to commercialize products and our overall financial condition.
21
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to product development and commercialization - continued
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities
and to limit commercialization of any products that we may develop or in-license.
We face an inherent risk of product liability exposure related to the testing of lefamulin and any other product
candidate that we develop in human clinical trials and will face an even greater risk if we commercially sell any
products that we may develop or in-license. If we cannot successfully defend ourselves against claims that
our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or
eventual outcome, liability claims may result in:
injury to our reputation and significant negative media attention;
reduced resources of our management to pursue our business strategy;
decreased demand for any product candidates or products that we may develop;
withdrawal of clinical trial participants;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any products that we may develop.
We maintain clinical trial liability insurance that covers bodily injury to patients participating in our clinical trials
up to a $10.0 million annual aggregate limit and subject to a per event deductible. This amount of insurance
may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance
coverage when and if we begin commercializing lefamulin or any other product candidate that receives
marketing approval. Insurance coverage is increasingly expensive. We may not be able to maintain insurance
coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Risks related to our dependence on third parties
Use of third parties to manufacture our product candidates may increase the risk that we will not have
sufficient quantities of our product candidates or products or such quantities at an acceptable quality
or cost, which could delay, prevent or impair our development or commercialization efforts.
We do not own or operate manufacturing facilities for the production of lefamulin that could be used in product
candidate development, including clinical trial supply, or for commercial supply, or for the supply of any other
compound that we are developing or evaluating in our research program. We have limited personnel with
experience in drug manufacturing and lack the resources and the capabilities to manufacture any of our
product candidates on a clinical or commercial scale. We currently rely on third parties for supply of lefamulin,
and our strategy is to outsource all manufacturing, packaging, testing, serialization and distribution of our
product candidates and products to third parties.
We have entered into agreements, and expect to enter into additional agreements, with third-party
manufacturers for the long-term commercial supply of lefamulin. We obtained the pleuromutilin starting
material for the clinical trial supply of lefamulin from a single third-party manufacturer, Sandoz GmbH, or
Sandoz, a division of Novartis AG, or Novartis. Novartis stopped manufacturing pleuromutilin for us in June
2015 and will not be a commercial supplier of pleuromutilin for us. We have identified an alternative supplier
that we believe will be able to provide pleuromutilin starting material for the commercial supply of lefamulin.
However, our current operating plans do not include engaging an alternative supplier unless we obtain
additional funding. Another third-party manufacturer synthesizes lefamulin from the pleuromutilin starting
material and provides our supply of the active pharmaceutical ingredient. We engage separate manufacturers
to provide tablets, sterile vials, and sterile diluent that we are using in our clinical trials of lefamulin. We may
be unable to conclude agreements for commercial supply with additional third-party manufacturers, or may be
unable to do so on acceptable terms.
22
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our dependence on third parties - continued
Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-
party manufacturers entails additional risks, including:
reliance on the third-party for regulatory compliance and quality assurance;
an event at one of our manufacturers or suppliers causing an unforeseen disruption of the manufacture or
supply of our product candidates;
the possible breach of the manufacturing agreement by the third party;
the possible misappropriation of our proprietary information, including our trade secrets and know-how;
and
the possible termination or nonrenewal of the agreement by the third-party at a time that is costly or
inconvenient for us.
Third-party manufacturers may not be able to comply with current good manufacturing practice, or cGMP,
regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-
party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of
which could significantly and adversely affect supplies of our product candidates and products.
Our product candidates and any products that we may develop may compete with other product candidates
and products for access to manufacturing facilities. There are a limited number of manufacturers that operate
under cGMP regulations and that might be capable of manufacturing for us.
If the third parties that we engage to supply any materials or manufacture product for our non-clinical testing
and clinical trials should cease to continue to do so for any reason, we likely would experience delays in
advancing these trials while we identify and qualify replacement suppliers and we may be unable to obtain
replacement supplies on terms that are favorable to us. For example, there are only a limited number of
known manufacturers that produce the pleuromutilin starting material used in the synthesis of lefamulin. In
early 2015, Novartis completed the sale of its animal health division, including its veterinary products, to a
third party. As a result, we have identified an alternative supplier that currently manufactures pleuromutilin
starting material for veterinary products, that we believe will be able to provide pleuromutilin starting material
for the commercial scale manufacture of lefamulin. However, our current operating plans do not include
engaging an alternative supplier unless we obtain additional funding. In addition, if we are not able to obtain
adequate supplies of our product candidates or the drug substances used to manufacture them, it will be more
difficult for us to develop our product candidates and compete effectively.
Our current and anticipated future dependence upon others for the manufacture of our product candidates
may adversely affect our future profit margins and our ability to develop product candidates and
commercialize any products that receive marketing approval on a timely and competitive basis.
We rely on third parties to conduct our clinical trials and those third parties may not perform
satisfactorily, including failing to meet deadlines for the completion of such trials.
We do not independently conduct clinical trials for our product candidates. We rely on third parties, such as
contract research organizations, clinical data management organizations, medical institutions and clinical
investigators, to perform this function. We expect to continue to rely on such third parties in conducting our
clinical trials of lefamulin, and expect to rely on these third parties to conduct clinical trials of any other product
candidate that we develop. Any of these third parties may terminate their engagements with us at any time. If
we need to enter into alternative arrangements, it would delay our product development activities.
23
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our dependence on third parties - continued
Our reliance on these third parties for clinical development activities reduces our control over these activities
but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of
our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial.
Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, or
GCP, for conducting, recording and reporting the results of clinical trials to assure that data and reported
results are credible and accurate and that the rights, integrity and confidentiality of trial participants are
protected. We also are required to register ongoing clinical trials and post the results of completed clinical
trials on a U.S. government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so
can result in fines, adverse publicity and civil and criminal sanctions. Similar GCP and transparency
requirements apply in the European Union. Failure to comply with such requirements, including with respect to
clinical trials conducted outside the European Union, can also lead regulatory authorities to refuse to take into
account clinical trial data submitted as part of an MAA.
Furthermore, third parties that we rely on for our clinical development activities may also have relationships
with other entities, some of which may be our competitors. If these third parties do not successfully carry out
their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory
requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing
approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully
commercialize our product candidates. Our product development costs will increase if we experience delays
in testing or obtaining marketing approvals.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance
failure on the part of our distributors could delay clinical development or marketing approval of our product
candidates or commercialization of our products, producing additional losses and depriving us of potential
product revenue.
We have entered into and may enter into additional collaborations with third parties for the
development or commercialization of lefamulin and our other product candidates. If those
collaborations are not successful, we may not be able to capitalize on the market potential of these
product candidates
If lefamulin receives marketing approval, we plan to commercialize it in the United States with our own
targeted hospital sales and marketing organization. Outside the United States, we expect to utilize a variety of
types of collaboration, distribution and other marketing arrangements with one or more third parties to
commercialize lefamulin. For example, we have entered into a license agreement with Sinovant pursuant to
which we granted Sinovant certain rights to manufacture and commercialize lefamulin in the People’s
Republic of China, Hong Kong, Macau and Taiwan. We also may seek third-party collaborators for
development and commercialization of other product candidates or for lefamulin for indications other than
CABP.
Our likely future collaborators for any sales, marketing, distribution, development, licensing or broader
collaboration arrangements include large and mid-size pharmaceutical companies, regional and national
pharmaceutical companies and biotechnology companies. Under our license agreement with Sinovant we
have, and under any such arrangements we enter into with any third parties in the future we will likely have,
limited control over the amount and timing of resources that our collaborators dedicate to the development or
commercialization of our product candidates. Our ability to generate revenues from these arrangements will
depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in
these arrangements.
Our current collaborations involving our product candidates pose, and any future collaborations likely will
pose, numerous risks to us, including the following:
24
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our dependence on third parties - continued
collaborators have significant discretion in determining the efforts and resources that they will apply to
these collaborations and may not perform their obligations as expected;
collaborators may deemphasize or not pursue development and commercialization of our product
candidates or may elect not to continue or renew development or commercialization programs based on
clinical trial results, changes in the collaborators' strategic focus, product and product candidate priorities,
available funding, or external factors such as an acquisition that diverts resources or creates competing
priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical
trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a
product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or
indirectly with our products or product candidates if the collaborators believe that competitive products are
more likely to be successfully developed or can be commercialized under terms that are more
economically attractive than ours;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient
resources to the marketing and distribution of such product or products;
collaborators may not properly maintain or defend our intellectual property rights or may use our
proprietary information in such a way as to invite litigation that could jeopardize or invalidate our
intellectual property or proprietary information or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation
and potential liability;
disputes may arise between the collaborator and us as to the ownership of intellectual property arising
during the collaboration;
we may grant exclusive rights to our collaborators, which would prevent us from collaborating with others;
collaborators may be unable to enforce our intellectual property rights in territories where we have
licensed, or may license, them such rights, which may expose us to material adverse tax and other
consequences;
disputes may arise between the collaborators and us that result in the delay or termination of the
research, development or commercialization of our products or product candidates or that result in costly
litigation or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue
further development or commercialization of the applicable product candidates.
For example, under our license agreement with Sinovant, if any court, tribunal or governmental agency in the
People’s Republic of China, Hong Kong, Macau or Taiwan determines that the exclusive license granted to
Sinovant pursuant to the license agreement is not sufficiently exclusive such that Sinovant does not have
sufficient rights to enforce the licensed patent rights in such territories, we and our subsidiary, Nabriva
Therapeutics GmbH, have agreed to take such commercially reasonable steps as Sinovant reasonably
requests to grant Sinovant such rights. If a court in such jurisdictions were to determine that our license to
Sinovant was not sufficiently exclusive and that Sinovant did not have the rights to enforce the licensed patent
rights in the licensed territories, Sinovant may require us to take such actions that it deems reasonable but
that we do not and which may have a material adverse effect on our business, including requiring us to make
changes to our organizational structure that may result in adverse tax and other consequences, or to conduct
other activities that may cause us to incur significant expenses.
Collaboration agreements may not lead to development or commercialization of product candidates in the
most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the
continued pursuit and emphasis on our product development or commercialization program could be delayed,
diminished or terminated.
25
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our dependence on third parties - continued
If we are not able to establish additional collaborations, we may have to alter our development and
commercialization plans.
The potential commercialization of lefamulin and the development and potential commercialization of other
product candidates will require substantial additional cash to fund expenses. For some of our product
candidates, we may decide to further collaborate with pharmaceutical and biotechnology companies for the
development and potential commercialization of those product candidates. For example, we intend to seek to
commercialize lefamulin through a variety of types of additional collaboration arrangements outside the United
States.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement
for additional collaborations outside greater China will depend, among other things, upon our assessment of
the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the
proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of
clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States,
the potential market for the subject product candidate, the costs and complexities of manufacturing and
delivering such product candidate to patients, the potential of competing products, the existence of uncertainty
with respect to our ownership of technology, which can exist if there is a challenge to such ownership without
regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also
consider alternative product candidates or technologies for similar indications that may be available to
collaborate on and whether such a collaboration could be more attractive than the one with us for our product
candidate. We may also be restricted under future license agreements from entering into agreements on
certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and
document. In addition, there have been a significant number of recent business combinations among large
pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at
all, we may have to curtail the development of a product candidate, reduce or delay its development program
or one or more of our other development programs, delay its potential commercialization or reduce the scope
of any sales or marketing activities, or increase our expenditures and undertake development or
commercialization activities at our own expense. If we elect to fund and undertake development or
commercialization activities on our own, we may need to obtain additional expertise and additional capital,
which may not be available to us on acceptable terms or at all. If we fail to enter into additional collaborations
and do not have sufficient funds or expertise to undertake the necessary development and commercialization
activities, we may not be able to further develop our product candidates or bring them to market and generate
product revenue.
Risks related to our intellectual property
If we are unable to obtain and maintain patent protection for our technology and products, or if the
scope of the patent protection is not sufficiently broad, our competitors could develop and
commercialize technology and products similar or identical to ours, and our ability to successfully
commercialize our technology and products may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States
and other countries with respect to our proprietary technology and products. We seek to protect our
proprietary position by filing patent applications in the United States, Europe and in certain additional foreign
jurisdictions related to our novel technologies and product candidates that are important to our business. This
process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or
desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to
identify patentable aspects of our research and development output before it is too late to obtain patent
protection. Moreover, if we license technology or product candidates from third parties in the future, these
license agreements may not permit us to control the preparation, filing and prosecution of patent applications,
or to maintain or enforce the patents, covering this intellectual property. These agreements could also give our
licensors the right to enforce the licensed patents without our involvement, or to decide not to enforce the
patents at all. Therefore, in these circumstances, these patents and applications may not be prosecuted and
enforced in a manner consistent with the best interests of our business.
26
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our intellectual property - continued
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves
complex legal and factual questions and has in recent years been the subject of much litigation. As a result,
the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
Our pending and future patent applications may not result in patents being issued which protect our
technology or products, in whole or in part, or which effectively prevent others from commercializing
competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws
in the United States and other countries may diminish the value of our patents or narrow the scope of our
patent protection.
The laws of foreign countries may not protect our rights to the same extent as the laws of the United States.
For example, European patent law restricts the patentability of methods of treatment of the human body more
than U.S. law does. We also may not pursue or obtain patent protection in all major markets or may not obtain
protection that enables us to prevent the entry of third parties onto the market. Assuming the other
requirements for patentability are met, currently, the first to file a patent application is generally entitled to the
patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent
applications in the United States and other jurisdictions are typically not published until 18 months after filing,
or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the
inventions claimed in our U.S. patents or pending U.S. patent applications, or that we were the first to file for
patent protection of such inventions.
Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and
Trademark Office, or USPTO, or become involved in opposition, derivation, reexamination, inter partes review,
post grant review, interference proceedings or other patent office proceedings or litigation, in the United
States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in
any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow
third parties to commercialize our technology or products and compete directly with us, without payment to us,
or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In
addition, if the breadth or strength of protection provided by our patents and patent applications is threatened,
it could dissuade companies from collaborating with us to license, develop or commercialize current or future
product candidates.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any
meaningful protection, prevent competitors from competing with us or otherwise provide us with any
competitive advantage. Our competitors may be able to circumvent our owned or any future licensed patents
by developing similar or alternative technologies or products in a non-infringing manner. In addition, other
companies may attempt to circumvent any regulatory data protection or market exclusivity that we obtain
under applicable legislation, which may require us to allocate significant resources to preventing such
circumvention. Legal and regulatory developments in the European Union and elsewhere may also result in
clinical trial data submitted as part of an MAA becoming publicly available. Such developments could enable
other companies to circumvent our intellectual property rights and use our clinical trial data to obtain
marketing authorizations in the European Union and in other jurisdictions. Such developments may also
require us to allocate significant resources to prevent other companies from circumventing or violating our
intellectual property rights. Our attempts to prevent third parties from circumventing our intellectual property
and other rights may ultimately be unsuccessful. We may also fail to take the required actions or pay the
necessary fees to maintain our patents.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our
owned and licensed patents may be challenged in the courts or patent offices in the United States and
abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being
narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others
from using or commercializing similar or identical technology and products, or limit the duration of the patent
protection of our technology and products. Given the amount of time required for the development, testing and
regulatory review of new product candidates, patents protecting such candidates might expire before or
shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with
sufficient rights to exclude others from commercializing products similar or identical to ours.
27
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our intellectual property - continued
We may become involved in lawsuits to protect or enforce our patents or other intellectual property,
which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter such
infringement or unauthorized use, we may be required to file claims, which can be expensive and time
consuming. Any claims we assert against perceived infringers could provoke these parties to assert
counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent
infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in
part, construe the patent's claims narrowly or may refuse to stop the other party from using the technology at
issue on the grounds that our patents do not cover the technology in question.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property
rights, the outcome of which would be uncertain and could have a material adverse effect on the
success of our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture,
market and sell our product candidates and use our proprietary technologies without infringing the intellectual
property and other proprietary rights of third parties. There is considerable intellectual property litigation in the
biotechnology and pharmaceutical industries, and we may become party to, or threatened with, future
adversarial proceedings or litigation regarding intellectual property rights with respect to our products and
technology, including interference, derivation, inter partes review or post-grant review proceedings before the
USPTO. The risks of being involved in such litigation and proceedings may increase as our product
candidates approach commercialization, and as we gain greater visibility as a public company. Third parties
may assert infringement claims against us based on existing or future intellectual property rights. We may not
be aware of all such intellectual property rights potentially relating to our product candidates. Any freedom-to-
operate search or analysis previously conducted may not have uncovered all relevant patents and patent
applications, and there may be pending or future patent applications that, if issued, would block us from
commercializing lefamulin. Thus, we do not know with certainty whether lefamulin, any other product
candidate, or our commercialization thereof, does not and will not infringe any third party's intellectual
property.
If we are found to infringe a third party's intellectual property rights, or to avoid or settle litigation, we could be
required to obtain a license to continue developing and marketing our products and technology. However, we
may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were
able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same
technologies licensed to us, and could require us to make substantial payments. We could be forced,
including by court order, to cease commercializing the infringing technology or product. In addition, we could
be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have
willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from
commercializing our product candidates or force us to cease some of our business operations, which could
materially harm our business. Claims that we have misappropriated the confidential information or trade
secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that we or our employees have
misappropriated their intellectual property, or claiming ownership of what we regard as our own
intellectual property.
Many of our employees 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
do not use the proprietary information or know-how of others in their work for us, we may be subject to claims
that we or these employees have used or disclosed intellectual property, including trade secrets or other
proprietary information, of any such employee's former employer. Litigation may be necessary to defend
against these claims.
28
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our intellectual property - continued
In addition, while we typically require our employees and contractors who may be involved in the development
of intellectual property to execute agreements assigning such intellectual property to us, we may be
unsuccessful in executing such an agreement with each party who in fact develops intellectual property that
we regard as our own. Our business was founded as a spin-off from Sandoz. Although all patent applications
are fully owned by us and were either filed by Sandoz with all rights fully transferred to us, or filed in our sole
name, because we acquired certain of our patents from Sandoz, we must rely on their prior practices, with
regard to the assignment of such intellectual property. Our and their assignment agreements may not be self-
executing or may be breached, and we may be forced to bring claims against third parties, or defend claims
they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or 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 prosecuting or defending
against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property litigation could cause us to spend substantial resources and could distract our
personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may
cause us to incur significant expenses, and could distract our technical and management personnel from their
normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or
other interim proceedings or developments. If securities analysts or investors perceive these results to be
negative, it could have a substantial adverse effect on the price of our ordinary shares. Such litigation or
proceedings could substantially increase our operating losses and reduce the resources available for
development, sales, marketing or distribution activities. We may not have sufficient financial or other
resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more effectively than we can because of their greater
financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other
proceedings could have a material adverse effect on our ability to compete in the marketplace.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive
position would be harmed.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets,
including unpatented know-how, technology and other proprietary information, to maintain our competitive
position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality
agreements with parties who have access to them, such as our employees, corporate collaborators, outside
scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter
into confidentiality and invention or patent assignment agreements with our employees and consultants.
However, we cannot guarantee that we have executed these agreements with each party that may have or
have had access to our trade secrets or that the agreements we have executed will provide adequate
protection. Any party with whom we have executed such an agreement may breach that agreement and
disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade
secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts
inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade
secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to
prevent them, or those to whom they communicate it, from using that technology or information to compete
with us. If any of our trade secrets were to be obtained or independently developed by a competitor, our
competitive position would be harmed.
29
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to our intellectual property - continued
We have not yet registered our trademarks in all of our potential markets, and failure to secure those
registrations could adversely affect our business.
Our trademark applications may not be allowed for registration, and our registered trademarks may not be
maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we
are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In
addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an
opportunity to oppose pending trademark applications and to seek to cancel registered trademarks.
Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not
survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more
difficulty in enforcing them against third parties than we otherwise would.
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters
Even if we complete the necessary non-clinical studies and clinical trials, the marketing approval
process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for
the commercialization of some or all of our product candidates. If we are not able to obtain, or if there
are delays in obtaining, required regulatory approvals, in particular in the United States or the
European Union, we will not be able to commercialize our product candidates in those markets, and
our ability to generate revenue will be materially impaired.
Our product candidates, including lefamulin, and the activities associated with their development and
commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling,
storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by
the FDA and by comparable authorities in other countries. Failure to obtain marketing approval for a product
candidate will prevent us from commercializing the product candidate. We have not received approval to
market lefamulin or any of our other product candidates from regulatory authorities in any jurisdiction.
We have no experience in filing and supporting the applications necessary to obtain marketing approvals for
product candidates and expect to rely on third-parties to assist us in this process. Securing marketing
approval requires the submission of extensive non-clinical and clinical data and supporting information to
various regulatory authorities for each therapeutic indication to establish the product candidate's safety and
efficacy. Securing marketing approval also requires the submission of information about the product
manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Regulatory
authorities may determine that lefamulin or any of our other product candidates are not effective or only
moderately effective, or have undesirable or unintended side effects, toxicities, safety profiles or other
characteristics that preclude us from obtaining marketing approval or that prevent or limit commercial use.
The process of obtaining marketing approvals is expensive, may take many years, if approval is obtained at
all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of
the product candidates involved. Changes in marketing approval policies during the development period,
changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each
submitted product application, may cause delays in the approval or rejection of an application. For example,
on June 23, 2016, eligible members of the electorate in the United Kingdom decided by referendum to leave
the European Union, commonly referred to as “Brexit”. On March 29, 2017, the United Kingdom formally
notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. Because a
significant proportion of the regulatory framework in the United Kingdom is derived from European Union
directives and regulations, the referendum could materially change the regulatory regime applicable to the
approval of any of our product candidates in the United Kingdom. In addition, because the European
Medicines Agency, or EMA, is currently located in the United Kingdom but expected to move to the
Netherlands as a result of the Brexit, the implications for the regulatory review process in the European Union
has not been fully clarified and could result in disruption to the EMA review process.
The FDA and comparable regulatory authorities in other countries have substantial discretion in the approval
process and may refuse to accept any application or may decide that our data are insufficient for approval and
require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained
from non-clinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.
Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval
commitments that render the approved product not commercially viable.
30
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
Accordingly, if we or our collaborators experience delays in obtaining approval or if we or they fail to obtain
approval of our product candidates, the commercial prospects for our product candidates may be harmed and
our ability to generate revenues will be materially impaired.
Our failure to obtain marketing approval in jurisdictions other than the United States and Europe
would prevent our product candidates from being marketed in these other jurisdictions, and any
approval we are granted for our product candidates in the United States and Europe would not assure
approval of product candidates in other jurisdictions.
In order to market and sell lefamulin and our other product candidates in jurisdictions other than the United
States and Europe, we must obtain separate marketing approvals and comply with numerous and varying
regulatory requirements. The approval process varies among countries and can involve additional testing. The
time required to obtain approval may differ from that required to obtain FDA approval or approvals from
regulatory authorities in the European Union. The regulatory approval process outside the United States and
Europe generally includes all of the risks associated with obtaining FDA approval or approvals from regulatory
authorities in the European Union. In addition, some countries outside the United States and Europe require
approval of the sales price of a drug before it can be marketed. In many countries, separate procedures must
be followed to obtain reimbursement and a product may not be approved for sale in the country until it is also
approved for reimbursement. We may not obtain marketing, pricing or reimbursement approvals outside the
United States and Europe on a timely basis, if at all. Approval by the FDA or regulatory authorities in the
European Union does not ensure approval by regulatory authorities in other countries or jurisdictions, and
approval by one regulatory authority outside the United States and Europe does not ensure approval by
regulatory authorities in other countries or jurisdictions or by the FDA or regulatory authorities in the European
Union. We may not be able to file for marketing approvals and may not receive necessary approvals to
commercialize our products in any market. Marketing approvals in countries outside the United States and
Europe do not ensure pricing approvals in those countries or in any other countries, and marketing approvals
and pricing approvals do not ensure that reimbursement will be obtained.
Even if we obtain marketing approvals for our product candidates, the terms of approvals and
ongoing regulation of our products may limit how we manufacture and market our products and
compliance with such requirements may involve substantial resources, which could materially impair
our ability to generate revenue.
Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and
marketer are subject to ongoing review and extensive regulation, including the potential requirements to
implement a risk evaluation and mitigation strategy or to conduct costly post-marketing studies or clinical trials
and surveillance to monitor the safety or efficacy of the product. We must also comply with requirements
concerning advertising and promotion for any of our product candidates for which we obtain marketing
approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and
regulatory restrictions and must be consistent with the information in the product's approved labeling. Thus,
we will not be able to promote any products we develop for indications or uses for which they are not
approved. In addition, manufacturers of approved products and those manufacturers' facilities are required to
comply with extensive FDA requirements including ensuring that quality control and manufacturing procedures
conform to cGMP, which include requirements relating to quality control and quality assurance as well as the
corresponding maintenance of records and documentation and reporting requirements. We and our contract
manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure
compliance with cGMP.
Accordingly, assuming we receive marketing approval for one or more of our product candidates, we and our
contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance,
including manufacturing, production, product surveillance and quality control. If we are not able to comply with
post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by
regulatory authorities and our ability to market any future products could be limited, which could adversely
affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations
may have a negative effect on our operating results and financial condition.
31
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
Any product candidate for which we obtain marketing approval will be subject to strict enforcement of
post-marketing requirements and we could be subject to substantial penalties, including withdrawal of
our product from the market, if we fail to comply with all regulatory requirements or if we experience
unanticipated problems with our product candidates, when and if any of them are approved.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-
approval clinical data, labeling, advertising and promotional activities for such product, will be subject to
continual requirements of and review by the FDA and other regulatory authorities. These requirements
include, but are not limited to, restrictions governing promotion of an approved product, submissions of safety
and other post-marketing information and reports, registration and listing requirements, cGMP requirements
relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and
documents, and requirements regarding the distribution of samples to physicians and recordkeeping. In
addition, 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.
The FDA and other federal and state agencies, including the U.S. Department of Justice, or DOJ, closely
regulate compliance with all requirements governing prescription drug products, including requirements
pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and
manufacturing of products in accordance with cGMP requirements.
The FDA and DOJ impose stringent restrictions on manufacturers' communications regarding off-label use
and if we do not market our products for their approved indications, we may be subject to enforcement action
for off-label marketing. Violations of such requirements may lead to investigations alleging violations of the
Food, Drug and Cosmetic Act and other statutes, including the False Claims Act and other federal and state
health care fraud and abuse laws as well as state consumer protection laws.
Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse
events or other problems with our products, manufacturers or manufacturing processes, may yield various
results, including:
litigation involving patients taking our products;
restrictions on such products, manufacturers or manufacturing processes;
restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning or untitled letters;
withdrawal of the products from the market;
damage to relationships with any potential collaborators;
unfavorable press coverage and damage to our reputation;
refusal to permit the import or export of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
Non-compliance by us or any future collaborator with regulatory requirements regarding safety monitoring or
pharmacovigilance, and with requirements related to the development of products for the pediatric population,
can also result in significant financial penalties. Similarly, failure to comply with regulatory requirements
regarding the protection of personal information can also lead to significant penalties and sanctions.
Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and
with requirements related to the development of products for the pediatric population, also can result in
significant financial penalties. Similarly, failure to comply with the European Union's requirements regarding
the protection of personal information can also lead to significant penalties and sanctions.
32
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
Governments outside the United States tend to impose strict price controls, which may adversely
affect our revenues, if any.
In some countries, particularly the member states of the European Union, the pricing of prescription
pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental
authorities can take considerable time after the receipt of marketing approval for a product. Also, there can be
considerable pressure by governments and other stakeholders on prices and reimbursement levels, including
as part of cost containment measures. Political, economic and regulatory developments may further
complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been
obtained. Reference pricing used by various European Union member states and parallel distribution, or
arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries,
we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our
product candidate to other available therapies to obtain or maintain reimbursement or pricing approval.
Publication of discounts by third-party payors or authorities may lead to further pressure on prices or
reimbursement levels within the country of publication and other countries. If reimbursement of our products is
unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be
adversely affected.
The FDA's agreement to a Special Protocol Assessment, or SPA, with respect to the study design of
our first Phase 3 clinical trial of lefamulin for CABP does not guarantee any particular outcome from
regulatory review, including ultimate approval, and may not lead to a faster development or regulatory
review or approval process.
We reached agreement with the FDA in September 2015 on a SPA, which was later amended in April 2016,
regarding the study design of our first Phase 3 clinical trial of lefamulin for the treatment of CABP. The SPA
process is designed to facilitate the FDA's review and approval of drugs by allowing the FDA to evaluate the
proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining
a product candidate's efficacy and safety. Upon specific request by a clinical trial sponsor, the FDA will
evaluate the protocol and respond to a sponsor's questions regarding, among other things, primary efficacy
endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately
assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory
approval of the product candidate with respect to the effectiveness in the indication studied.
Our agreement with the FDA regarding the SPA may not lead to faster development, regulatory review or
approval for lefamulin. Once the FDA and an applicant reach an agreement under the special protocol
assessment process regarding the design and size of a clinical trial, the agreement generally cannot be
changed after the clinical trial begins. Nevertheless, the FDA may revoke or alter a SPA under defined
circumstances, such as changes in the relevant data or assumptions provided by the sponsor or the
emergence of new public health concerns. A revocation or alteration in our SPA could significantly delay or
prevent approval of any marketing applications we submit for lefamulin.
Fast track designation by the FDA may not actually lead to a faster development or regulatory review
or approval process and does not assure FDA approval of our product candidate.
If a drug is intended for the treatment of a serious or life threatening condition and the drug demonstrates the
potential to address unmet medical need for this condition, the drug sponsor may apply for FDA fast track
designation. The FDA has designated each of the IV and oral formulations of lefamulin as a qualified
infectious disease product, or QIDP, and granted fast track designations to each of these formulations of
lefamulin. However, neither the QIDP nor the fast track designation ensures that lefamulin will receive
marketing approval or that approval will be granted within any particular timeframe. We may also seek fast
track designation for our other product candidates. We may not experience a faster development process,
review or approval compared to conventional FDA procedures. In addition, the FDA may withdraw fast track
designation if it believes that the designation is no longer supported by data from our clinical development
program. Fast track designation alone does not guarantee qualification for the FDA's priority review
procedures.
33
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
Priority review designation by the FDA may not lead to a faster regulatory review or approval process
and, in any event, does not assure FDA approval of our product candidate.
If the FDA determines that a product candidate offers major advances in treatment or provides a treatment
where no adequate therapy exists, the FDA may designate the product candidate for priority review. A priority
review designation means that the FDA's goal to review an application is six months, rather than the standard
review period of ten months. Because the FDA designated each of the IV and oral formulations of lefamulin as
a QIDP, lefamulin also will receive priority review. We may also request priority review for other product
candidates. The FDA has broad discretion with respect to whether or not to grant priority review status to a
product candidate, so even if we believe a particular product candidate is eligible for such designation or
status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily mean
a faster regulatory review process or necessarily confer any advantage with respect to approval compared to
conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the
six-month review cycle or thereafter.
Designation of our product candidate, lefamulin, as a Qualified Infectious Disease Product does not
assure FDA approval of this product candidate.
A QIDP is an antibacterial or antifungal drug intended to treat serious or life-threatening infections, including
those caused by an antibacterial or antifungal resistant pathogen, including novel or emerging infectious
pathogens or certain "qualifying pathogens." Upon the approval of an NDA for a drug product designated by
the FDA as a QIDP, the product is granted an additional period of five years of regulatory exclusivity. Even
though we have received QIDP designation for the IV and oral formulations of lefamulin, there is no assurance
that this product candidate will be approved by the FDA.
Under the CURES Act and the Trump Administration's regulatory reform initiatives, the FDA's policies,
regulations and guidance may be revised or revoked and that could prevent, limit or delay regulatory
approval of our product candidates, which would impact our ability to generate revenue.
In December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among
other things, is intended to modernize the regulation of drugs and spur innovation, but its ultimate
implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the
adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose
any marketing approval that we may have obtained and we may not achieve or sustain profitability, which
would adversely affect our business, prospects, financial condition and results of operations.
34
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative or executive action, either in the United States or abroad. For example, certain
policies of the Trump administration may impact our business and industry. Namely, the Trump administration
has taken several executive actions, including the issuance of a number of Executive Orders, that could
impose significant burdens on, or otherwise materially delay, the FDA's ability to engage in routine regulatory
and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review
and approval of marketing applications. An under-staffed FDA could result in delays in the FDA's
responsiveness or in its ability to review submissions or applications, issue regulations or guidance, or
implement or enforce regulatory requirements in a timely fashion or at all. Moreover, on January 30, 2017,
President Trump issued an Executive Order, applicable to all executive agencies, including the FDA, which
requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the
agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These
requirements are referred to as the "two-for-one" provisions. This Executive Order includes a budget neutrality
provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including
repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and
beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new
regulation and approximate the total costs or savings associated with each new regulation or repealed
regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within the Office of
Management and Budget on February 2, 2017, the administration indicates that the "two-for-one" provisions
may apply not only to agency regulations, but also to significant agency guidance documents. In addition, on
February 24, 2017, President Trump issued an executive order directing each affected agency to designate
an agency official as a "Regulatory Reform Officer" and establish a "Regulatory Reform Task Force" to
implement the two-for-one provisions and other previously issued executive orders relating to the review of
federal regulations, however it is difficult to predict how these requirements will be implemented, and the
extent to which they will impact the FDA's ability to exercise its regulatory authority. If these executive actions
impose constraints on the FDA's ability to engage in oversight and implementation activities in the normal
course, our business may be negatively impacted.
Our relationships with healthcare providers, physicians and third-party payors will be subject to
applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which in the
event of a violation could expose us to criminal sanctions, civil penalties, contractual damages,
reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and
prescription of any product candidates, including lefamulin, for which we obtain marketing approval. Our future
arrangements with healthcare providers, physicians and third-party payors may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or
financial arrangements and relationships through which we market, sell and distribute any products for which
we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and
regulations, include the following:
the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, 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, order or recommendation or
arranging of, any good or service, for which payment may be made under a federal healthcare program
such as Medicare and Medicaid;
the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or
qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to
be presented, false or fraudulent claims for payment by a federal healthcare program 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, with potential liability including mandatory treble
damages and significant per-claim penalties, currently set at $5,500 to $11,000 per false claim;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and
civil liability for executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its
implementing regulations, also imposes obligations, including mandatory contractual terms, with respect
to safeguarding the privacy, security and transmission of individually identifiable health information;
35
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
the federal Physician Payments Sunshine Act requires applicable manufacturers of covered products to
report payments and other transfers of value to physicians and teaching hospitals, with data collection
beginning in August 2013; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and
transparency statutes, may apply to sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non-governmental third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government and
may require product manufacturers to report information related to payments and other transfers of value to
physicians and other healthcare providers or marketing expenditures. State and foreign laws also govern the
privacy and security of health information in some circumstances, many of which differ from each other in
significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any governmental
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages,
fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or
restructuring of our operations could adversely affect our financial results. We are developing and
implementing a corporate compliance program designed to ensure that we will market and sell any future
products that we successfully develop from our product candidates in compliance with all applicable laws and
regulations, but we cannot guarantee that this program will protect us from governmental investigations or
other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any
such actions are instituted against us and we are not successful in defending ourselves or asserting our
rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws
and regulations 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 and regulations. 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 significant
civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from
government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or
restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we
expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal,
civil or administrative sanctions, including exclusions from government funded healthcare programs.
Current and future legislation may increase the difficulty and cost for us and any future collaborators
to obtain marketing approval of and commercialize our product candidates and affect the prices we, or
they, may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory
changes and proposed changes regarding the healthcare system that could, among other things, prevent or
delay marketing approval of lefamulin or any of our other product candidates, restrict or regulate post-approval
activities and affect our ability, or the ability of any collaborators, to profitably sell any product candidates,
including lefamulin, for which we, or they, obtain marketing approval. We expect that current laws, as well as
other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for
any approved products.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended
by the Health Care and Education Reconciliation Act, or collectively the ACA. Among the provisions of the
ACA of potential importance to our business and our product candidates are the following:
an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription
products and biologic agents;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program;
36
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-
Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale discounts (and 70% starting January 1, 2019) off negotiated prices;
extension of manufacturers' Medicaid rebate liability;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing
program;
new requirements to report certain financial arrangements with physicians and teaching hospitals;
a new requirement to annually report product samples that manufacturers and distributors provide to
physicians; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct
comparative clinical effectiveness research, along with funding for such research.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These
changes include the Budget Control Act of 2011, which among other things, led to aggregate reductions to
Medicare payments to providers of up to 2% per fiscal year that started in April 2013 and, due to subsequent
legislative amendments to the statutes, will stay in effect through 2027 unless additional Congressional action
is taken, and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare
payments to several types of providers and increased the statute of limitations period for the government to
recover overpayments to providers from three to five years. These new laws may result in additional
reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of
our product candidates for which we may obtain regulatory approval or the frequency with which any such
product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries
and proposed state and federal 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.
We expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted
in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous
coverage criteria, new payment methodologies and additional downward pressure on the price that we receive
for any approved product and/or the level of reimbursement physicians receive for administering any
approved product we might bring to market. Reductions in reimbursement levels may negatively impact the
prices we receive or the frequency with which our products are prescribed or administered. Any reduction in
reimbursement from Medicare or other government programs may result in a similar reduction in payments
from private payors. Since enactment of the ACA, there have been numerous legal challenges and
Congressional actions to repeal and replace provisions of the law. In May 2017, the U.S. House of
Representatives passed legislation known as the American Health Care Act of 2017. Thereafter, the Senate
Republicans introduced and then updated a bill to replace the ACA known as the Better Care Reconciliation
Act of 2017. The Senate Republicans also introduced legislation to repeal the ACA without companion
legislation to replace it, and a "skinny" version of the Better Care Reconciliation Act of 2017. In addition, the
Senate considered proposed healthcare reform legislation known as the Graham-Cassidy bill. None of these
measures was passed by the United States Senate.
37
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
With enactment of the legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, which was
signed by the President on December 22, 2017, Congress repealed the “individual mandate.” The repeal of
this provision, which requires most Americans to carry a minimal level of health insurance, will become
effective in 2019. According to the Congressional Budget Office, the repeal of the individual mandate will
cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise.
Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal
year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac”
tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health
insurance providers based on market share, and the medical device excise tax on non-exempt medical
devices. Further, the Bipartisan Budget Act of 2018, among other things, amends 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.” Further, each chamber of the Congress has put forth multiple
bills designed to repeal or repeal and replace portions of the ACA. Although none of these measures has
been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements
of the ACA.
The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA.
In January 2017, President Trump signed an Executive Order directing federal agencies with authorities and
responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any
provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, the
President signed a second Executive Order allowing for the use of association health plans and short-term
health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges. At
the same time, the Administration announced that it will discontinue the payment of cost-sharing reduction
(CSR) payments to insurance companies until Congress approves the appropriation of funds for such CSR
payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by
qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSR payments was introduced
in the Senate, but the future of that bill is uncertain.
We will continue to evaluate the effect that the ACA and its possible repeal and replacement could have on
our business. It is possible that repeal and replacement initiatives, if enacted into law, could ultimately result in
fewer individuals having health insurance coverage or in individuals having insurance coverage with less
generous benefits. While the timing and scope of any potential future legislation to repeal and replace ACA
provisions is highly uncertain in many respects, it is also possible that some of the ACA provisions that
generally are not favorable for the research-based pharmaceutical industry could also be repealed along with
ACA coverage expansion provisions. Accordingly, such reforms, if enacted, could have an adverse effect on
anticipated revenue from product candidates that we may successfully develop and for which we may obtain
marketing approval and may affect our overall financial condition and ability to develop commercialize product
candidates.
38
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
Further, there have been 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 2019 contains further drug price control measures that
could be enacted during the 2019 budget process or in other future legislation, including, for example,
measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to
allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for
low-income patients. While any proposed measures will require authorization through additional legislation 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, individual states are
increasingly aggressive
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. In addition,
regional health care authorities and individual hospitals are increasingly using bidding procedures to
determine what pharmaceutical products and which suppliers will be included in their prescription drug and
other health care programs. These measures could reduce the ultimate demand for our products, once
approved, or put pressure on our product pricing.
regulations designed
legislation and
implementing
in passing
Moreover, legislative and regulatory proposals have also been made to expand post-approval requirements
and restrict sales and promotional activities for pharmaceutical drugs. We cannot be sure whether additional
legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be
changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may
be. In addition, increased scrutiny by the United States Congress of the FDA's approval process may
significantly delay or prevent marketing approval, as well as subject us and any future collaborators to more
stringent drug labeling and post-marketing testing and other requirements.
We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws
and other laws governing our operations. If we fail to comply with these laws, we could be subject to
civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect
our business, results of operations and financial condition.
Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA,
and other anti-corruption laws that apply in countries where we do business and may do business in the
future. The FCPA and these other laws generally prohibit us, our officers, and our employees and
intermediaries from bribing, being bribed or making other prohibited payments to government officials or other
persons to obtain or retain business or gain some other business advantage. We may in the future operate in
jurisdictions that pose a high risk of potential FCPA violations, and we may participate in collaborations and
relationships with third parties whose actions could potentially subject us to liability under the FCPA or local
anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory
requirements to which our international operations might be subject or the manner in that existing laws might
be administered or interpreted.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a
recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry,
because, in many countries, hospitals are operated by the government, and doctors and other hospital
employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and
other work have been deemed to be improper payments to government officials and have led to FCPA
enforcement actions.
39
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
We are also subject to other laws and regulations governing our international operations, including regulations
administered by the governments of the United States, and authorities in the European Union, including
applicable export control regulations, economic sanctions on countries and persons, customs requirements
and currency exchange regulations, collectively referred to as the trade control laws.
There is no assurance that we will be effective in ensuring our compliance with all applicable anti-corruption
laws, including the FCPA or other legal requirements, including trade control laws. If we are not in compliance
with the FCPA and other anti-corruption laws or trade control laws, we may be subject to criminal and civil
penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have
an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any
investigation of any potential violations of the FCPA, other anti-corruption laws or trade control laws by U.S. or
other authorities could also have an adverse impact on our reputation, our business, results of operations and
financial condition.
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 operations currently, and may in the future, involve the use of hazardous and flammable
materials, including chemicals and medical and biological materials, and produce hazardous waste products.
Even if we contract with third parties for the disposal of these materials and wastes, we cannot eliminate the
risk of contamination or injury from these materials. In the event of contamination or injury resulting from our
use of hazardous materials or disposal of hazardous wastes, we could be held liable for any resulting
damages, and any liability could exceed our resources.
Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due
to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide
adequate coverage against potential liabilities. We also maintain a general liability program for some of the
risks, but our insurance program includes limited environmental damage coverage, which has an annual
aggregate coverage limit of $2.0 million. Although we maintain an umbrella policy with an annual aggregate
coverage limit of $10.0 million, which may provide some environmental coverage, we do not maintain a
separate policy covering environmental damages.
In addition, we may incur substantial costs 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.
Our employees may engage in misconduct or other improper activities, including non-compliance
with regulatory standards and requirements, which could cause significant liability for us and harm
our reputation.
We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with
FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, provide accurate
information to the FDA or comparable non-U.S. regulatory authorities, comply with manufacturing standards
we have established, comply with federal and state healthcare fraud and abuse laws and regulations and
similar laws and regulations established and enforced by comparable non-U.S. regulatory authorities, 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, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer
incentive programs and other business arrangements.
40
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
Employee misconduct could also involve the improper use of information obtained during clinical trials, which
could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and
deter employee misconduct, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws,
standards 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 and results of
operations, including the imposition of significant fines or other sanctions.
We rely significantly on information technology and any failure, inadequacy, interruption or security
lapse of that technology, including any cyber security incidents, could harm our ability to operate our
business effectively.
Despite the implementation of security measures, our internal computer systems and those of third parties
with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access,
natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or
security breaches could cause interruptions in our operations, and could result in a material disruption of our
drug development programs and commercialization activities and business operations, in addition to possibly
requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays
in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the
extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications,
or inappropriate disclosure of confidential or proprietary information, we could incur liability and our product
research, development and commercialization efforts could be delayed.
We are subject to various laws protecting the confidentiality of certain patient health information, and
our failure to comply could result in penalties and reputational damage.
Certain countries in which we operate have, or are developing, laws protecting the confidentiality of certain
patient health information. European Union, or EU, member states and other jurisdictions have adopted data
protection laws and regulations, which impose significant compliance obligations.
41
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to regulatory approval and marketing of our product candidates and other legal
compliance matters - continued
For example, the EU Data Protection Directive, as implemented into national laws by the EU member states,
imposes strict obligations and restrictions on the ability to collect, analyze and transfer personal data,
including health data from clinical trials and adverse event reporting. Data protection authorities from different
EU member states may interpret the EU Data Protection Directive and national laws differently, which adds to
the complexity of processing personal data in the EU, and guidance on implementation and compliance
practices are often updated or otherwise revised. The EU Data Protection Directive prohibits the transfer of
personal data to countries outside of the EU member states that are not considered by the European
Commission to provide an adequate level of data protection, and transfers of personal data to such countries
can only be made in certain circumstances—for example, where the transfer is required by law or the data
subject (i.e. the individual to whom the personal data relates) has given his or her consent to the transfer.
Nevertheless, any failure to comply with the rules arising from the EU Data Protection Directive and related
national laws of EU member states, as well as privacy laws in other countries in which we operate, could lead
to government enforcement actions and significant sanctions or penalties against us, adversely impact our
results of operations and subject us to negative publicity.
The EU Data Protection Regulation, which will replace the current EU Data Protection Directive, was adopted
in 2016 and will become enforceable on May 25, 2018. The EU Data Protection Regulation will introduce new
data protection requirements in the EU and substantial fines for breaches of the data protection rules, may
increase our responsibility and liability in relation to personal data that we process and may require us to put
in place additional mechanisms to ensure compliance with the new EU data protection rules.
Risks related to employee matters and managing growth
Our future success depends on our ability to retain our chief executive officer and other key
executives and to attract, retain and motivate qualified personnel.
We are highly dependent on Dr. Colin Broom, our Chief Executive Officer, and the other principal members of
our management and scientific teams. Although we have formal employment agreements with each of our
executive officers, these agreements do not prevent our executives from terminating their employment with us
at any time. We do not maintain "key person" insurance on any of our executive officers. The unplanned loss
of the services of any of these persons might impede the achievement of our research, development and
commercialization objectives.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel,
including in the United States and Ireland where we plan to expand our physical presence, will also be critical
to our success. We may not be able to attract and retain these personnel on acceptable terms given the
competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also
experience competition for the hiring of scientific and clinical personnel from universities and research
institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist
us in formulating our research and development and commercialization strategy. Our consultants and
advisors may be employed by employers other than us and may have commitments under consulting or
advisory contracts with other entities that may limit their availability to us. If we cannot recruit and retain
qualified personnel, we may be unable to successfully develop our product candidates, conduct our clinical
trials and commercialize our product candidates.
42
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to employee matters and managing growth - continued
We expect to expand our development, regulatory and sales and marketing capabilities, and, subject
to obtaining marketing approval of lefamulin, as a result, we may encounter difficulties in managing
our growth, which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations,
particularly in the areas of drug development, regulatory affairs technical operations, supply chain, medical
affairs and, subject to obtaining marketing approval of lefamulin, sales and marketing. To manage our
anticipated future growth, we must continue to implement and improve our managerial, operational and
financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to
our limited financial resources and the limited experience of our management team in managing a company
with such anticipated growth, we may not be able to effectively manage the expansion of our operations or
recruit and train additional qualified personnel. The physical expansion of our operations may lead to
significant costs and may divert our management and business development resources. Any inability to
manage growth could delay the execution of our business plans or disrupt our operations.
Risks related to ownership of our ordinary shares
An active trading market for our ordinary shares may not be sustained.
Following the Redomiciliation Transaction, our ordinary shares began trading on the Nasdaq Global Market on
June 26, 2017. Given the limited trading history of our ordinary shares, there is a risk that an active trading
market for our ordinary shares will not be sustained, which could put downward pressure on the market price
of our ordinary shares and thereby affect the ability of our security holders to sell their shares.
The price of our ordinary shares may be volatile and fluctuate substantially.
The trading price of our ordinary shares has been and is likely to continue to be volatile. The stock market in
general and the market for smaller biopharmaceutical companies in particular have experienced significant
volatility that has often been unrelated to the operating performance of particular companies. The market price
for our ordinary shares may be influenced by many factors, including:
the success of competitive products or technologies;
results of clinical trials of our product candidates or those of our competitors;
regulatory delays and greater government regulation of potential products due to adverse events;
regulatory or legal developments in the United States, the European Union and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key scientific or management personnel;
the level of expenses related to any of our product candidates or clinical development programs;
the results of our efforts to discover, develop, acquire or in-license additional product candidates or
products;
one of our manufacturers or suppliers could have an event which causes an unforeseen disruption of the
manufacture or supply of our product candidates;
actual or anticipated changes
in estimates as
to
financial results, development
timelines or
recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this "Risk Factors" section.
43
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
In the past, following periods of volatility in the market price of a company's securities, securities class-action
litigation has often been instituted against that company. We also may face securities class-action litigation if
we cannot obtain regulatory approvals for or if we otherwise fail to commercialize lefamulin or any of our other
product candidates or if our securities experience volatility for any reason. Such litigation, if instituted against
us, could cause us to incur substantial costs to defend such claims and divert management's attention and
resources.
Our executive officers, directors and principal shareholders, if they choose to act together, have the
ability to control most matters submitted to shareholders for approval.
Our executive officers and directors, combined with our shareholders, and their respective affiliates who
owned more than 5% of our outstanding ordinary shares as of March 31, 2018 in the aggregate, beneficially
owned approximately 52.8% of our share capital. As a result, if these shareholders were to choose to act
together, they would be able to control most matters submitted to our shareholders for approval, as well as
our management and affairs. For example, these persons, if they choose to act together, would have
significant influence over the election of directors and approval of any merger, consolidation or sale of all or
substantially all of our assets.
Our ordinary shares do not trade on any exchange outside of the United States.
Our ordinary shares are listed only in the United States on The Nasdaq Global Market, and we have no plans
to list our ordinary shares in any other jurisdiction. As a result, a holder of ordinary shares outside of the
United States may not be able to effect transactions in our ordinary shares as readily as the holder may if our
ordinary shares were listed on an exchange in that holder's home jurisdiction.
The sale of a substantial number of ordinary shares may cause the market price of our ordinary
shares to decline.
Sales of a substantial number of our ordinary shares, or the perception in the market that these sales could
occur, could reduce the market price of our ordinary shares. We had 40,233,867 ordinary shares outstanding
as of March 31, 2018. To the extent any of these shares are sold into the market, particularly in substantial
quantities, the market price of our ordinary shares could decline.
Future issuances of ordinary shares pursuant to our equity incentive plans could also result in a reduction in
the market price of our ordinary shares. We have filed registration statements on Form S-8 registering all of
the ordinary shares that we may issue under our equity compensation plans. These shares can be freely sold
in the public market upon issuance and once vested, subject to volume, notice and manner of sale limitations
applicable to affiliates. The majority of ordinary shares that may be issued under our equity compensation
plans remain subject to vesting in tranches over a four-year period. As of March 31, 2018, an aggregate of
1,337,202 options to purchase our ordinary shares had vested and become exercisable.
44
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
In addition, in March 2018, we entered into a Controlled Equity Offering SM Sales Agreement, or the ATM
Agreement, with Cantor Fitzgerald & Co., or Cantor, pursuant to which, from time to time, we may offer and
sell our ordinary shares having an aggregate offering price of up to $50 million through Cantor. As of March
31, 2018, we issued and sold an aggregate of 3,517,511 ordinary shares under the ATM agreement. From
March 31, 2018 to the date of this filing, we issued and sold an aggregate of 3,590,568 ordinary shares under
the ATM agreement.
If a large number of our ordinary shares are sold in the public market after they become eligible for sale, the
sales could reduce the trading price of our ordinary shares and impede our ability to raise future capital.
We are an "emerging growth company", and the reduced disclosure requirements applicable to
emerging growth companies may make our ordinary shares less attractive to investors.
We are an "emerging growth company," as that term is used in the Jumpstart Our Business Startups Act of
2012, or the JOBS Act, and may remain an emerging growth company until December 31, 2020 or such
earlier time that we are no longer an emerging growth company. For so long as we remain an emerging
growth company, we are permitted and may take advantage of specified reduced reporting and other burdens
that are otherwise applicable generally to public companies. These provisions include:
an exemption from compliance with the auditor attestation requirement of Section 404 of the Sarbanes-
Oxley Act of 2002, or the Sarbanes-Oxley Act, on the design and effectiveness of our internal controls
over financial reporting;
an exemption from compliance with any requirement that the Public Company Accounting Oversight
Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor's report providing
additional information about the audit and the financial statements;
reduced disclosure about the company's executive compensation arrangements; and
exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a
shareholder approval of any golden parachute arrangements.
We may choose to take advantage of some, but not all, of the available exemptions. We may take advantage
of these provisions until December 31, 2020 or such earlier time that we are no longer an emerging growth
company. We would cease to be an emerging growth company upon the earlier to occur of: the last day of the
fiscal year in which we have more than $1 billion (as may be inflation-adjusted by the SEC from time-to-time)
in annual revenues; the date we qualify as a "large accelerated filer," with more than $700 million in market
value of our share capital held by non-affiliates; or the issuance by us of more than $1 billion of non-
convertible debt over a three-year period.
We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We
cannot predict whether investors will find our ordinary shares less attractive if we rely on such exemptions. If
some investors find our ordinary shares less attractive as a result, there may be a less active trading market
for our ordinary shares and the market price of our ordinary shares may be more volatile.
In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. This allows an emerging growth
company to delay the adoption of certain accounting standards until those standards would otherwise apply to
private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we
will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is
required for other public companies that are not emerging growth companies.
We have broad discretion in the use of our funds and may not use them effectively.
We have broad discretion in the application of our available funds and could spend the funds in ways that do
not improve our results of operations or enhance the value of our ordinary shares. Our failure to apply these
funds effectively could result in financial losses that could have a material adverse effect on our business,
cause the price of our ordinary shares to decline and delay the development of our product candidates.
Pending their use, we may invest funds in a manner that does not produce income or that loses value.
45
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
We incur increased costs as a result of operating as a public company, and our management is
required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company we incur, and particularly after we are no longer an emerging growth company, we will
incur significant legal, accounting and other expenses that we did not incur as a private company. In addition,
the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing
requirements of The Nasdaq Global Market and other applicable securities rules and regulations impose
various requirements on public companies, including establishment and maintenance of effective disclosure
and financial controls and corporate governance practices. Our management and other personnel need to
devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations
have increased our legal and financial compliance costs and make some activities more time-consuming and
costly. For example, these rules and regulations have made it more expensive for us to obtain director and
officer liability insurance, and if such insurance becomes prohibitively expensive, this could make it more
difficult for us to attract and retain qualified members of our board.
For as long as we remain an emerging growth company, we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not emerging growth
companies as described elsewhere in this "Risk Factors" section. We may remain an emerging growth
company until December 31, 2020, although if the market value of our share capital that is held by non-
affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1
billion or more in any fiscal year (as may be inflation adjusted by the SEC from time-to-time), we would cease
to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an
emerging growth company if we issue more than $1 billion of non-convertible debt over a three-year period.
If we fail to maintain an effective system of internal control over financial reporting, we may not be
able to accurately report our financial results or prevent fraud. As a result, security holders could lose
confidence in our financial and other public reporting, which would harm our business and the trading
price of our ordinary shares.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and,
together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to
implement required new or improved controls, or difficulties encountered in their implementation could cause
us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in
connection with Section 404 of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our
independent registered public accounting firm, as and when required, may reveal deficiencies in our internal
control over financial reporting that are deemed to be material weaknesses or that may require prospective or
retroactive changes to our financial statements or identify other areas for further attention or improvement.
Inferior internal controls could also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our ordinary shares.
Pursuant to Section 404, we will be required to furnish a report by our management on our internal control
over financial reporting. However, as an emerging growth company, we will not be required to include an
attestation report on internal control over financial reporting issued by our independent registered public
accounting firm until we are no longer an emerging growth company. To achieve compliance with Section 404
within the prescribed period, we are engaged in a process to document and evaluate our internal control over
financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate
internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and
document the adequacy of internal control over financial reporting, continue steps to improve control
processes as appropriate, validate through testing that controls are functioning as documented and implement
a continuous reporting and improvement process for internal control over financial reporting. Despite our
efforts, there is a risk that we will not be able to conclude within the prescribed timeframe that our internal
control over financial reporting is effective as required by Section 404. This could result in an adverse reaction
in the financial markets due to a loss of confidence in the reliability of our financial statements.
46
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
United States investors may have difficulty enforcing judgments against us, our directors and
executive officers.
We are incorporated under the laws of Ireland, and our registered offices and a substantial portion of our
assets are located outside of the United States. In addition, one of our directors is a resident of a jurisdiction
other than the United States. As a result, it may not be possible to effect service of process on such person or
us in the United States or to enforce judgments obtained in courts in the United States against such person or
us based on civil liability provisions of the securities laws of the United States.
There is no treaty between Ireland and the United States providing for the reciprocal enforcement of foreign
judgments. The following requirements must be met before the foreign judgment will be deemed to be
enforceable in Ireland:
the judgment must be for a definite sum;
the judgment must be final and conclusive; and
the judgment must be provided by a court of competent jurisdiction.
An Irish court will also exercise its right to refuse judgment if the foreign judgment (1) was obtained by fraud;
(2) violates Irish public policy; (3) is in breach of natural justice; or (4) is irreconcilable with an earlier
judgment. Further, an Irish court may stay proceedings if concurrent proceedings are being brought
elsewhere. Judgments of U.S. courts of liabilities predicated upon U.S. federal securities laws may not be
enforced by Irish courts if deemed to be contrary to public policy in Ireland.
We do not expect to pay dividends in the foreseeable future.
We have not paid any dividends on our ordinary shares since our incorporation. Even if future operations lead
to significant levels of distributable profits, we currently intend that earnings, if any, will be reinvested in our
business and that dividends will not be paid until we have an established revenue stream to support
continuing dividends. If we propose to pay dividends in the future, we must do so in accordance with Irish law,
which provides that distributions including dividend payments, share repurchases and redemptions be funded
from "distributable reserves." Payment of future dividends to security holders will be at the discretion of our
board, after taking into account various factors including our business prospects, cash requirements, financial
performance, debt covenant limitations and new product development.
We are exposed to risks related to currency exchange rates.
A significant portion of our expenses are denominated in currencies other than the U.S. dollar. Because our
financial statements are presented in U.S. dollars, changes in currency exchange rates have had and could
have a significant effect on our operating results. Exchange rate fluctuations between foreign currencies and
the U.S. dollar create risk in several ways, including the following:
weakening of the U.S. dollar may increase the U.S. dollar cost of overseas research and development
expenses;
strengthening of the U.S. dollar may decrease the value of our revenues denominated in other currencies;
the exchange rates on non-U.S. dollar transactions and cash deposits can distort our financial results; and
commercial pricing and profit margins are affected by currency fluctuations.
As a holding company, our operating results, financial condition and ability to pay dividends or other
distributions are entirely dependent on funding, dividends and other distributions received from our
subsidiaries, which may be subject to restrictions.
Our ability to pay dividends or other distributions and to pay our obligations in the future will depend on the
level of funding, dividends and other distributions, if any, received from our subsidiaries and any new
subsidiaries we establish in the future. The ability of our subsidiaries to make loans or distributions (directly or
indirectly) to us may be restricted as a result of several factors, including restrictions in financing agreements
and the requirements of applicable law and regulatory and fiscal or other restrictions. In particular, our
subsidiaries and any new subsidiaries may be subject to laws that restrict dividend payments, authorize
regulatory bodies to block or reduce the flow of funds from those subsidiaries to us, or limit or prohibit
47
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
transactions with affiliates. Restrictions and regulatory action of this kind could impede access to funds that
we may need to make dividend payments or to fund our own obligations.
Furthermore, we may guarantee some of the payment obligations of certain of our subsidiaries from time to
time. These guarantees may require us to provide substantial funds or assets to our subsidiaries or their
creditors or counterparties at a time when we are in need of liquidity to fund our own obligations.
The ownership percentage of our shareholders may be diluted in the future which could dilute the
voting power or reduce the value our outstanding ordinary shares.
As with any publicly traded company, the ownership percentage of our shareholders may be diluted in the
future because of equity issuances for acquisitions, capital market transactions or otherwise, including equity
awards that we intend to continue to grant to our directors, officers and employees. From time to time, we may
issue additional options or other share awards to our directors, officers and employees under our benefits
plans.
In addition, our articles of association authorize us to issue, without the approval of our shareholders, one or
more classes or series of preferred shares having such designation, powers, preferences and relative,
participating, optional and other special rights, including preferences over our ordinary shares respecting
dividends and distributions, as our board of directors generally may determine. The terms of one or more
classes or series of preferred shares could dilute the voting power or reduce the value of our ordinary shares.
Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of
preferred shares could affect the residual value of the ordinary shares.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S.
corporation. We are incorporated as a public limited company under Irish law.
The rights of our shareholders are governed by our memorandum and articles of association and Irish law.
The rights associated with our ordinary shares are different to the rights generally associated with shares held
in a U.S. corporation. Material differences between the rights of shareholders of a U.S. corporation and the
rights of our shareholders include differences with respect to, among other things, distributions, dividends,
repurchases and redemptions, dividends in shares / bonus issues, the election of directors, the removal of
directors, the fiduciary and statutory duties of directors, conflicts of interests of directors, the indemnification of
directors and officers, limitations on director liability, the convening of annual meetings of shareholders and
special shareholder meetings, notice provisions for meetings, the quorum for shareholder meetings, the
adjournment of shareholder meetings, the exercise of voting rights, shareholder suits, rights of dissenting
shareholders, anti-takeover measures and provisions relating to the ability to amend the articles of
association.
As an Irish public limited company, certain capital structure decisions require shareholder approval,
which may limit our flexibility to manage our capital structure.
Under Irish law, our board of directors may increase our authorized share capital and issue new ordinary or
preferred shares up to a maximum amount equal to the authorized but unissued share capital, without
shareholder approval, once authorized to do so by our articles of association or by an ordinary resolution of
our shareholders. Additionally, subject to specified exceptions, Irish law grants statutory preemption rights to
existing shareholders where shares are being issued for cash consideration but allows shareholders to
disapply such statutory preemption rights either in our articles of association or by way of special resolution.
Such disapplication can either be generally applicable or be in respect of a particular allotment of shares.
Accordingly, our articles of association contain, as permitted by Irish company law, provisions authorizing our
board of directors to issue new shares, and to disapply statutory preemption rights. The authorization of our
board of directors to issue shares and the disapplication of statutory preemption rights must both be renewed
by the shareholders at least every five years, and we cannot provide any assurance that these authorizations
will always be approved, which could limit our ability to issue equity and thereby adversely affect the holders
of our ordinary shares.
48
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
Irish law differs from the laws in effect in the U.S. with respect to defending unwanted takeover
proposals and may give our board less ability to control negotiations with hostile offerors.
We are subject to the Irish Takeover Panel Act, 1997, Takeover Rules, 2013. Under those Irish Takeover
Rules, the board is not permitted to take any action that might frustrate an offer for our ordinary shares once
the board has received an approach that may lead to an offer or has reason to believe that such an offer is or
may be imminent, subject to certain exceptions. Potentially frustrating actions such as (i) the issue of ordinary
shares, options or convertible securities, (ii) material acquisitions or disposals, (iii) entering into contracts other
than in the ordinary course of business or (iv) any action, other than seeking alternative offers, which may
result in frustration of an offer, are prohibited during the course of an offer or at any earlier time during which
the board has reason to believe an offer is or may be imminent. These provisions may give the board less
ability to control negotiations with hostile offerors and protect the interests of holders of ordinary shares than
would be the case for a corporation incorporated in a jurisdiction of the United States.
The operation of the Irish Takeover Rules may affect the ability of certain parties to acquire our
ordinary shares.
Under the Irish Takeover Rules, if an acquisition of ordinary shares were to increase the aggregate holding of
the acquirer and its concert parties to ordinary shares that represent 30% or more of the voting rights of a
company, the acquirer and, in certain circumstances, its concert parties would be required (except with the
consent of the Irish Takeover Panel) to make an offer for the outstanding ordinary shares at a price not less
than the highest price paid for the ordinary shares by the acquirer or its concert parties during the previous 12
months. This requirement would also be triggered by an acquisition of ordinary shares by a person holding
(together with its concert parties) ordinary shares that represent between 30% and 50% of the voting rights in
the company if the effect of such acquisition were to increase that person’s percentage of the voting rights by
0.05% within a 12-month period. The Irish Takeover Rules could therefore discourage an investor from
acquiring 30% or more of our outstanding ordinary shares, unless such investor was prepared to make a bid
to acquire all outstanding ordinary shares.
We will be exposed to the risk of future changes in law, which could materially adversely affect us.
We are subject to Irish law. As a result, we are subject to the risk of future adverse changes in Irish law
(including Irish corporate and tax law). In addition, we and our subsidiaries are also subject to the risk of future
adverse changes in Austrian and U.S. law, as well as changes of law in other countries in which we and our
subsidiaries operate.
Future adverse changes in law could result in our not being able to maintain a worldwide effective
corporate tax rate that is competitive in our industry.
While we believe that being incorporated in Ireland should not affect our ability to maintain a worldwide
effective corporate tax rate that is competitive in our industry, we cannot give any assurance as to what our
effective tax rate will be because of, among other things, uncertainty regarding the tax policies of the
jurisdictions where we will operate. The tax laws of Ireland, Austria, the United States, and other jurisdictions
could change in the future, and such changes could cause a material change in our worldwide effective
corporate tax rate. In particular, legislative action could be taken by Ireland, Austria, the United States or other
jurisdictions which could override tax treaties upon which we expect to rely and adversely affect our effective
tax rate. As a result, our actual effective tax rate may be materially different from our expectation.
A transfer of our ordinary shares, other than a transfer effected by means of the transfer of book-entry
interests in the Depository Trust Company, may be subject to Irish stamp duty.
Transfers of our ordinary shares effected by means of the transfer of book entry interests in the Depository
Trust Company, or "DTC", will not be subject to Irish stamp duty. However, if you hold our ordinary shares
directly rather than beneficially through DTC, any transfer of your shares could be subject to Irish stamp duty
(currently at the rate of 1% of the higher of the price paid or the market value of the shares acquired).
Payment of Irish stamp duty is generally a legal obligation of the transferee. The potential for stamp duty could
adversely affect the price of our ordinary shares.
49
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Risks related to ownership of our ordinary shares - continued
Our ordinary shares received by means of a gift or inheritance could be subject to Irish Capital
Acquisitions Tax.
Irish Capital Acquisitions Tax, or "CAT" could apply to a gift or inheritance of our ordinary shares irrespective
of the place of residence, ordinary residence or domicile of the parties. This is because our ordinary shares
will be regarded as property situated in Ireland. The person who receives the gift or inheritance has primary
liability for CAT. Gifts and inheritances passing between spouses are exempt from CAT. Children have a tax-
free threshold of €310,000 in respect of taxable gifts or inheritances received from their parents.
We may be classified as a passive foreign investment company for our tax year ending December 31,
2018, which may result in adverse U.S. federal income tax consequence to U.S. holders.
Based on our estimated gross income and average value of our gross assets and the nature of our business,
we do not believe that we were a "passive foreign investment company," or PFIC, for U.S. federal income tax
purposes for our tax years ended December 31, 2016 or 2017. A corporation organized outside the United
States generally will be classified as a PFIC for U.S. federal income tax purposes (1) in any taxable year in
which at least 75% of its gross income is passive income or on average at least 50% of the gross value of its
assets is attributable to assets that produce passive income or are held for the production of passive income
and (2) as to a given holder who was a holder in such year and regardless of such corporation's income or
asset composition, in any subsequent taxable year, unless certain elections are made by that holder that can
discontinue that classification as to that holder, at the risk of imposing substantial tax costs to that holder.
Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from
commodities and securities transactions. Our status in any taxable year will depend on our assets and
activities 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 for the current taxable year or
any future taxable year. The market value of our assets may be determined in large part by reference to the
market price of our ordinary shares, which may fluctuate considerably given that market prices of
biotechnology companies have been especially volatile. If we were to be treated as a PFIC for the tax year
ending December 31, 2018, or any other future taxable year during which a U.S. holder held our ordinary
shares, however, certain adverse U.S. federal income tax consequences could apply to the U.S. holder. We
currently intend to make available the information necessary to permit a U.S. holder to make a valid QEF
election, which may mitigate some of the adverse U.S. federal income tax consequences that could apply to a
U.S. holder of ordinary shares. However, we may choose not to provide such information at a future date.
Financial risk management
We are exposed to a variety of financial risks in the ordinary course of our business: market risk, credit risk
and liquidity risk. Our overall risk management program focuses on preservation of capital given the
unpredictability of financial markets. These market risks are principally limited to interest rate and foreign
currency fluctuations.
Credit risk
We do not have any significant credit risk exposure to any single counterparty or any group of counterparties
having similar characteristics. The credit risk on liquid funds (bank accounts, cash balances, marketable
securities and term deposits) is limited because the counterparties are banks with high credit ratings from
international credit rating agencies. The primary objective of our investment activities is to preserve principal
and liquidity while maximizing income without significantly increasing risk. We do not enter into investments
for trading or speculative purposes.
Market risk
We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to
the euro and the British pound. Our functional currency is the U.S. dollar, but we receive payments and
acquire materials, in each of these other currencies. We have not established any formal practice to manage
the foreign exchange risk against our functional currency. However, we attempt to minimize our net exposure
by buying or selling foreign currencies at spot rates upon receipt of new funds to facilitate committed or
anticipated foreign currency transactions.
50
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Market risk - continued
Interest rate risk may arise from short-term or long-term debt. As of March 31, 2018, we had no debt that
exposed us to interest rate risk. As of March 31, 2018, we had neither significant long-term interest-bearing
assets nor significant long-term interest-bearing liabilities, other than a de minimis government loan we have
received at a below-market rate of interest from the Austrian Research Promotion Agency (Österreichische
Forschungsförderungsgesellschaft, or FFG). Due to the short-term nature of our investment portfolio, we do
not believe an immediate 10% increase in interest rates would have a material effect on the fair market value
of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected
by a sudden change in market interest rates.
Liquidity risk
Since our inception, we have incurred net losses and generated negative cash flows from our operations.
Based on our current operating plans, we believe that our existing cash, cash equivalents and short-term
investments will be sufficient to enable us to fund our operating expenses and capital expenditure
requirements into the first quarter of 2020. 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.
We have re-evaluated the need for the previously planned expansion of our commercial organization, medical
education, and supply chain activities and we anticipate that our expenses for 2018 will decrease as
compared to our expenses for 2017 as we wind down our Phase 3 clinical trial program for lefamulin for the
treatment of CABP. We expect to continue to invest in critical pre-commercialization activities prior to
receiving marketing approval and making lefamulin available to patients. We expect to seek additional funding
in future periods for purposes of investment in our commercial and medical affairs organization, including the
expansion of a targeted hospital based sales force and related infrastructure, as well as investing in our
supply chain in an effort to enhance the potential commercial launch of lefamulin.
If we obtain marketing approval for lefamulin or any other product candidate that we develop, in-license or
acquire, we expect to incur significant additional commercialization expenses related to product sales,
marketing, distribution and manufacturing. Our expenses will increase if we suffer any delays in our Phase 3
clinical program, including regulatory delays, or are required to conduct additional clinical trials to satisfy
regulatory requirements. We have developed plans to mitigate this risk, which primarily consist of raising
additional capital through a combination of equity or debt financings, new collaborations, and reducing cash
expenditures.
However, there can be no assurance that we will be successful in acquiring additional capital at level sufficient
to fund our operations or on terms favorable to us. If we are unable to raise capital when needed or on
attractive terms, we could be forced to delay, reduce to eliminate our research and development programs or
any future commercialization effort.
Acquisition of own shares
On June 23, 2017, 1 Ordinary share of $0.01 and 25,000 Euro Deferred shares of €1.00 each in the issued
share capital of the Company, which were fully paid and held by Canyon Corporate Secretaries Limited, were
fully redeemed for nil consideration and upon redemption such shares were immediately cancelled, in
accordance with the Articles of Association of the Company.
51
Nabriva Therapeutics Public Limited Company
DIRECTORS' REPORT - continued
Directors
The names of the persons who served as directors during the financial year are:
Daniel Burgess
Stephen Webster
George Talbot
Charles Rowland
Mark Corrigan
Axel Bolte
Carrie Bourdow
Colin Broom
Andrew Ryan
Paul Ryan
Gary Sender
Mihovil Spoliaric
Chau Khuong
(resigned June 23, 2017)
(resigned June 23, 2017)
(resigned June 23, 2017)
(resigned June 23, 2017)
(resigned August 11, 2017)
Directors’ and secretary’s interests in shares and debentures
The interests of the directors and the secretary in office as at December 31, 2017 in shares of the Company
were:
December 31, 2017
Number
Date of appointment
Number
Ordinary shares Share options Ordinary shares Share options
Directors:
Daniel Burgess
Stephen Webster
George Talbot
Charles Rowland
Mark Corrigan
Axel Bolte
Carrie Bourdow
Colin Broom
Secretary
Robert Crotty
-
-
33,140
-
-
-
-
160,000
-
-
36,767
-
-
-
-
422,385
-
-
28,490
-
-
-
-
157,412
-
-
32,123
-
-
-
-
277,880
-
-
-
-
The directors and secretary had no other interests in the shares or debentures of the company or any other
group company at December 31, 2017 or on their date of appointment.
52
KPMG
Audit
1 Stokes Place
St. Stephens Green
Dublin 2
D02 DEO3
Ireland
Independent auditor’s report to the members of Nabriva Therapeutics Plc
I Opinion: our opinion is unmodified
We have audited the Group and Parent Company financial statements of Nabriva Therapeutics Plc for the
period ended 31 December 2017 which comprise the Consolidated and Parent Company Balance Sheets, the
Consolidated Statement of Operations and Comprehensive Loss,
the Consolidated and Parent Company
Statements of Changes in Shareholders’ Equity, the Consolidated Statements of Cash Flows and the related
notes, including the accounting policies in note 1.The financial reporting framework that has been applied in
the preparation of the Group financial statements is
Irish law and US Generally Accepted Accounting
Principles (“US GAAP”). The financial reporting framework that has been applied in the preparation of the
Parent Company financial statements is Irish law and FRS 102 The Financial Reporting Standard applicable
in the UK and Republic of Ireland.
In our opinion:
•
•
•
•
•
the Group financial statements give a true and fair view,
in accordance with US GAAP, of the assets,
liabilities and financial position of the Group as at 31 December 2017 and of its loss for the year then
ended;
the Parent Company statement of financial position gives a true and fair view,
102, of the assets, liabilities and financial position of the Parent Company as at 31 December 2017;
the Group financial statements have been properly prepared in accordance with US GAAP, as applied in
accordance with the provisions of the Companies Act 2014;
the Parent Company financial statements have been properly prepared in accordance with FRS 102 The
Financial Reporting Standard applicable in the UK and Republic of Ireland, as applied in accordance with
the provisions of the Companies Act 2014; and
the Group financial statements and Parent Company financial statements have been properly prepared in
accordance with the requirements of the Companies Act 2014.
in accordance with FRS
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (“ISAs (Ireland)”) and
applicable law. Our responsibilities are further described in the Auditor’s Responsibilities section of our report.
We have fulfilled our ethical responsibilities under, and we remained independent of the Group and Parent
Company in accordance with, ethical requirements applicable in Ireland, including the Ethical Standard issued
by the Irish Auditing and Accounting Supervisory Authority (IAASA) as applied to listed entities. We believe
that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that,
in our professional judgment, were of most significance in the audit
of the financial statements and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by us,
the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matter
described in the Material uncertainty related to going concern section, we have determined the matters
described below to be the key audit matters to be communicated in our report.
including those which had the greatest effect on:
KPMG, en Irish partnership and a member firm of the KPMG network
of independent member firms affiliated with KPMG International
Cooperative KPMG International”), a Swits entity
MG
Independent auditor’s report to the members of Nabriva Therapeutics Plc -
continued
In arriving at our audit opinion above, there was one key audit matter identified for the Group as follows:
Existence & Accurary of Research Premium Revenue $5.3mihion (2016: $6.5million)
Refer to page 69 (accounting policy) and pages 72 (financial disclosures)
The key audit matter
How the matter was addressed in our audit
The research premium received from
the Austrian government is calculated
at a 12 percent (2016: 10%) of
specified research and development
cost base. Qualifying expenditures
largely comprise research and
development activities conducted in
Austria, however, the research
premium is also available for certain
related third-party expenses with
additional limitations.
The Company recognizes the research
premium revenue as long as it has
incurred research and development
expenses.
We identified a risk around the
judgements used to determine the
research and development expenses
that qualify for reimbursement by the
Austrian government. Such costs are
subject to review by the Austrian
government.
We obtained an understanding of the process and tested the
design and implementation of key controls over the research
premium and the related financial statement accounts.
We inspected and critically assessed the underlying
supporting documentation of research premium, including the
following documents:
•
the Group’s calculation of related expenditures eligible to
be claimed;
documentation submitted to the relevant government
agency/organization;
a corresponding independent attestation report over the
balance claimed,
other documents as relevant to determine the
completeness, existence, accuracy and presentation of
the research premium.
•
•
•
We tested a sample of major supplier contracts and
evaluated the content in order to find out if the contracts
contained agreements that could challenge the Group’s role
as a researcher in accordance with OECD standard practice.
We tested a sample of clinical trial I and Ill costs.
We agreed post year end cash receipts to evidence such as
bank statement or check copy for balances collected
subsequent to 31 December 2017.
We considered the financial statement disclosures for
completeness and accuracy.
Based on the procedures performed we found the
judgements used to determine the research expenses that
qualify for reimbursement by the Austrian government and
related disclosures to be reasonable.
55
kA
Independent auditor’s report to the members of Nabriva Therapeutics Plc —
continued
In arriving at our Parent Company audit opinion, there was one key audit matter as follows:
Parent Company Key Audit Matter—Valuation of Investment in subsidiaries $289.2 million
Refer to financial statements page 94 (accounting policy) and note 2 to the Parent Company financial
statements
The key audit matter
How the matter was addressed in our audit
We identified a significant risk of error
related to the impairment test for the
Parent Company’s investment in
subsidiaries, as the fair values used for
the impairment calculation information
are dependent on projected financial
information.
We obtained an understanding of the process related to the
development of projected financial information, including the
preparation of the impairment calculation.
We performed audit procedures to evaluate the
appropriateness of the Company’s projected financial
information, including assessment of significant
assumptions against externally derived data and internal
source data.
We considered the financial statement disclosures for
completeness and accuracy.
Based on the evidence obtained we found that the inputs to
the Parent Company investment in subsidiaries impairment
calculation and related disclosures to be reasonable.
56
Independent auditor’s report to the members of Nabriva Therapeutics Plc —
continued
3 Our application of materiality and an overview of the scope of our audit
We determined materiality for the Group based on total expenses for the year. Due to the nature of the Group,
total expenses is the most relevant metric due to the locus of the financial statements users on the Group’s
R&D activities, technological advances, and cash burn.
We set our measure of Group materiality for the financial statements as a whole at 4.7% of total expenses
which is $3.5 million for the year ended 31 December 2017. We report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding $0.2 million, in addition to other misstatements that warrant
reporting on qualitative grounds.
With respect to the Parent Company, we based our calculation of materiality on total assets due to its nature
as a holding company. As the calculated materiality was higher than Group materiality, we restricted our
materiality to $3.5 million.
Our Group audit was conducted over the consolidated results of the Group as a whole and involved a
component auditor in Austria performing specified procedures, resulting in the entirety of the groups revenues,
losses before taxes and total assets being subject to audit. The Group audit team instructed the component
auditor as to the significant areas to be covered, including the relevant risks and the information to be reported
back.
In considering the specific audit procedures to be performed at this component, materiality was set at
$3.2 million, which was below Group materiality but based on the relative size of the component’s % of the
benchmark of Group total expenses for the year.
Our audit of the rest of the Group and the parent Company was undertaken to the materiality level specified
above and was all performed by one engagement team in Dublin.
4 Material uncertainty related to going concern
We draw attention to note 1
to the financial statements which indicates that the Group and Parent Company
has incurred recurring losses and negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management’s plans in regard to these matters are also described in
Note 1. The Group and Parent Company financial statements do not include any adjustments that might result
from the outcome of this uncertainty. These events and conditions, along with the other matters explained in
note 1, constitute a material uncertainty that may cast significant doubt on the groups and the parent
company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
5 We have nothing to report on the other information in the annual report
The directors are responsible for the other information presented in the annual report together with the
financial statements. The other information comprises the information included in the directors’ report other
than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial
statements audit work, the information therein is materially misstated or inconsistent with the financial
statements or our audit knowledge. Based solely on that work we have not identified material misstatements
in the other information.
57
Independent auditor’s report to the members of Nabriva Therapeutics Plc —
continued
Based solely on our work on the other information;
•
•
•
we have not identified material misstatements in the directors’ report;
in our opinion, the information given in the directors’ report is consistent with the financial statements;
and
in our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014.
6 Our opinions on other matters prescribed by the Companies Act 2014 are unmodified
We have obtained all the information and explanations which we consider necessary for the purpose of our
audit.
In our opinion,
the financial
statements to be readily and properly audited and the Parent Company’s statement of financial position is in
agreement with the accounting records.
the accounting records of the Parent Company were sufficient
to permit
7 We have nothing to report on other matters on which we are required to report by exception
The Companies Act 2014 requires us to report
remuneration and transactions required by Sections 305 to 312 of the Act are not made.
in our opinion,
to you if,
the disclosures of directors’
8 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on pages 2 and 3, the directors are responsible for: the
preparation of the financial statements including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error; assessing the Group and Parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the
going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or
to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report.
Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in
accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on IAASA’s website at
https://www.iaasa. ie/qetmedia/b23890 13-1 cf6-458b-9b8f-
a98202dc9c3a/Description of auditors responsiblities for audit. pdf
58
Independent auditor’s report to the members of Nabriva Therapeutics Plc —
continued
9 The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Parent Company’s members, as a body,
in accordance with Section 391 of
the Companies Act 2014. Our audit work has been undertaken so that we might state to the Parent
Company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Parent Company and the Parent Company’s members, as a body, for our audit work, for our report,
or for the opinions we have formed.
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