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As filed with the Securities and Exchange Commission on June 18, 2013

Registration No. 333-188855

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Prosensa Holding B.V.(1)

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

 

The Netherlands   2834   NOT APPLICABLE

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

J.H. Oortweg 21

2333 CH Leiden, the Netherlands,

+31 (0)71 33 22 100

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

National Corporate Research, Ltd.

10 East 40th Street

New York, New York 10016

(212) 947-7200

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

 

 

Copies to:

 

Richard D. Truesdell, Jr.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
 

Richard B. Aftanas

Andrea L. Nicolas

Skadden, Arps, Slate, Meagher & Flom LLP

4 Times Square

New York, NY 10036

 

 

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

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

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

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

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each Class of

Securities to be Registered

  Proposed
Maximum
Aggregate
Offering Price(1)
 

Amount of

Registration Fee(2)

Ordinary shares, nominal value 0.01 per share

  $69,000,000   $9,412

 

 

(1)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457 under the Securities Act of 1933.
(2)   Filing fees in the amount of $8,184 were previously paid.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

 

(1)   We intend to change our name from Prosensa Holding B.V. to Prosensa Holding N.V. prior to the consummation of this offering.

 

 

 


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

 

Subject to completion, dated June 18, 2013

Prospectus

5,000,000 ordinary shares

 

LOGO

This is an initial public offering of ordinary shares by Prosensa Holding B.V. We are selling 5,000,000 of our ordinary shares. The estimated initial public offering price is between $11.00 and $13.00 per share.

We have applied to have our ordinary shares listed on the Nasdaq Global Market under the symbol “RNA.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for future filings.

 

        Per share        Total  

Initial public offering price

     $                     $                   

Underwriting discounts and commissions(1)

     $          $    

Proceeds to us, before expenses

     $          $    

 

(1)   See “Underwriting” for additional compensation payable to participating members.

We have granted the underwriters an option for a period of 30 days to purchase up to an additional 750,000 of our ordinary shares to cover over-allotments.

Certain of our existing investors and their affiliated entities, as well as GlaxoSmithKline, one of our collaborators, have indicated an interest in purchasing an aggregate of up to approximately $15 million of our ordinary shares in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to purchase fewer shares than they indicate an interest in purchasing or to not purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more of our ordinary shares. In addition, the underwriters could determine to sell fewer shares to any of these entities than the entities indicate an interest in purchasing or to not sell any shares to these entities. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering.

Delivery of the ordinary shares will be made on or about                 , 2013.

Investing in our ordinary shares involves a high degree of risk. See “Risk factors” beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

Joint book-running managers

 

J.P. Morgan   Citigroup

Lead manager

Leerink Swann

Co-managers

 

Wedbush PacGrow Life Sciences   KBC Securities   Trout Capital

                    , 2013


Table of Contents

Table of contents

 

 

 

     Page  

Prospectus summary

     1   

The offering

     5   

Summary financial information

     7   

Risk factors

     9   

Cautionary statement regarding forward-looking statements

     45   

Presentation of financial and other information

     46   

Use of proceeds

     47   

Dividend policy

     48   

Capitalization

     49   

Dilution

     50   

Selected financial information

     52   

Exchange rate information

     54   

Management’s discussion and analysis of financial condition and results of operations

     55   

Business

     82   

Management

     123   

Principal shareholders

     136   

Related party transactions

     139   

Description of share capital and Articles of Association

     143   

Shares eligible for future sale

     160   

Taxation

     162   

Underwriting

     171   

Expenses of the offering

     177   

Legal matters

     178   

Experts

     178   

Enforcement of civil liabilities

     179   

Where you can find more information

     180   

Index to consolidated financial statements

     F-1   

 

 

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Prosensa Holding B.V.,” “Prosensa Holding N.V.” or “Prosensa,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to (i) Prosensa Holding B.V., together with its subsidiaries prior to the conversion of Prosensa Holding B.V. into Prosensa Holding N.V. and (ii) Prosensa Holding N.V., together with its subsidiaries, after giving effect to the conversion of Prosensa Holding B.V. into Prosensa Holding N.V., which is expected to occur immediately prior to the consummation of this offering. The trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

 

 

 

 

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We have not authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters have not authorized any other person to provide you with different or additional information. Neither we nor the underwriters are making an offer to sell the ordinary shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

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Prospectus summary

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk factors,” “Business” and “Management’s discussion and analysis of financial condition and results of operations” sections and our consolidated audited and condensed consolidated unaudited financial statements, including the notes thereto, included in this prospectus, before deciding to invest in our ordinary shares.

Our company

We are an innovative biotechnology company engaged in the discovery and development of ribonucleic acid-modulating, or RNA-modulating, therapeutics for the treatment of genetic disorders. Our primary focus is on rare neuromuscular and neurodegenerative disorders with a large unmet medical need, including Duchenne muscular dystrophy, myotonic dystrophy and Huntington’s disease. Our clinical portfolio of RNA-based product candidates is focused on the treatment of Duchenne muscular dystrophy, or DMD. Each of our DMD compounds has been granted orphan drug status in the United States and the European Union.

DMD is one of the most prevalent rare genetic diseases globally affecting up to 1 in 3,500 boys and is invariably fatal. There is currently no approved disease-modifying therapy for DMD. The progressive muscle-wasting that characterizes this disease is caused by inadequate production of dystrophin, a protein necessary for muscle function, as a result of mutations in the dystrophin gene. The different mutations, which are mostly deletions of one or more exons, found in the dystrophin gene result in distinct sub-populations of DMD patients. We are designing product candidates to address several sub-populations using our platform technology. Our first product candidate, drisapersen, can address a variety of mutations in the dystrophin gene, such as a deletion of exon 50 or exons 48 to 50.

We started operations in 2002 and are located in Leiden, the Netherlands. We work closely with Leiden University Medical Center, or LUMC, with whom we entered into an exclusive licensing agreement in 2003 for LUMC’s proprietary RNA modulation exon-skipping technology to develop treatments for DMD, other neuromuscular disorders and indications outside the field of neuromuscular disorders. Since 2002, we have raised 56.4 million from private placements of equity securities, including to a number of venture capital firms. In addition, we have received grants and loans from several DMD-focused patient advocacy organizations to support our research of therapies for DMD. As of March 31, 2013, we had 36.1 million in cash and cash equivalents.

Clinical development of our lead product candidate, drisapersen, in DMD

Drisapersen is being developed in collaboration with GlaxoSmithKline, or GSK. Drisapersen aims to restore dystrophin expression and improve muscle condition and function in the largest known sub-population of DMD patients. In clinical trials, drisapersen has been shown to produce dystrophin expression and have a beneficial therapeutic effect on DMD patients. A Phase II placebo-controlled study of drisapersen in 53 DMD patients was completed and demonstrated a statistically significant and clinically important difference in the primary endpoint, which was the

 

 

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distance walked in the six minute walk test, or 6MWD, between the placebo group and the continuous active-treatment group at a dose of 6 mg/kg/week after 24 weeks. This clinically meaningful benefit was maintained after 48 weeks of treatment, and drisapersen was well tolerated throughout the duration of this study. Preliminary results suggest that treatment with drisapersen was in general associated with increased levels of dystrophin expression when compared with pre-treatment levels.

Drisapersen successfully completed a twelve-patient Phase I/II study, and all patients were enrolled in an open-label extension study which has been ongoing since August 2009. The results indicate that drisapersen may lead to stabilization of the disease, as evidenced by an improvement or a slower than expected decline in the 6MWD, and the ongoing study continues to provide safety and tolerability data.

A pivotal Phase III study of drisapersen was initiated in December 2010, and results are expected in the fourth quarter of 2013. This study is a randomized, double-blind and placebo-controlled trial, assessing drisapersen at a dose of 6 mg/kg/week in 186 boys. The primary endpoint is the 6MWD at 48 weeks.

To date, over 300 patients have participated in clinical studies of drisapersen at more than 50 trial sites in 25 countries, and patient retention rates through March 2013 averaged 96% across all drisapersen clinical studies.

Our follow-on DMD compounds

PRO044, our next most advanced product candidate, addresses a separate sub-population of DMD patients. We developed PRO044 using our exon-skipping technology to generate a product candidate with the same mechanism of action that is used by drisapersen. PRO044 is currently in a Phase I/II study in Europe, which we expect to complete in the second half of 2013. We have four additional earlier-stage compounds that address other distinct sub-populations of DMD patients. Of these, PRO045 entered clinical trials in the first quarter of 2013, and we anticipate that PRO053 will enter clinical trials in mid-2013. PRO052 and PRO055 are in advanced preclinical development. We have also started a research program, PROSPECT, which includes a new and innovative application of our exon-skipping technology platform to specifically target rarer mutations in the dystrophin gene.

Our collaboration with GlaxoSmithKline

In 2009, we entered into an exclusive worldwide collaboration with GSK for the development and commercialization of RNA-based therapeutics for DMD, with GSK exclusively licensing worldwide rights to develop and commercialize drisapersen and obtaining an option to exclusively license PRO044.

In addition, GSK has the option to exclusively license either PRO045 or PRO053 and the further option to exclusively license either PRO052 or PRO055. PRO045 is paired with PRO053, and PRO052 is paired with PRO055, because each product candidate in the respective pairings addresses a similar-sized patient sub-population and is at a comparable stage of development. We will retain the full rights to the product candidates that are not licensed by GSK, and for each product candidate licensed by GSK from each of the pairings of product candidates described

 

 

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above, we will retain the option to certain commercial rights in a selected European territory. All of our other DMD compounds fall outside of the scope of this agreement, and we intend to develop and commercialize them ourselves or consider partnerships.

Upon entering into the agreement with GSK, we received a £16 million (17.2 million) nonrefundable upfront payment from GSK and have received £41.5 million (47.4 million) in total under the agreement. Including amounts already paid, we are eligible for up to £428 million (505 million) in total milestone payments under the agreement. We are also entitled to receive percentage royalties in the low tens on future global sales of drisapersen and each of the other compounds that GSK licenses and successfully commercializes.

Our RNA modulation technology platform

Our DMD programs are part of our broader RNA modulation platform technology, which in addition to exon skipping, is focused on reducing mutant RNA associated with trinucleotide repeat expansion diseases. Our current programs in this area are PRO135 for myotonic dystrophy (DM1) and PRO289 for Huntington’s disease (HD). Both DM1 and HD are rare diseases with a severe impact on patients, and currently no disease-modifying therapies exist for either.

Our business strategy

Our goal is to become a leader in the rare genetic disease field, with a particular focus on DMD. Over time, we intend to mature into a fully integrated biopharmaceutical company focused on the discovery, development and commercialization of our products.

The key components of our business objectives are:

 

 

Collaborate with our partner, GSK, to rapidly advance drisapersen, our lead DMD candidate;

 

 

Leverage our know-how from drisapersen to accelerate and reduce development risk of our earlier-stage DMD products;

 

 

Independently commercialize our proprietary products in DMD;

 

 

Leverage our proprietary RNA modulation and exon-skipping drug discovery platform; and

 

 

Continue to invest in and strengthen our intellectual property portfolio.

We may also enter into strategic collaborations that deliver additional expertise and enhance implementation of our strategy.

Corporate information

We are a Dutch private company with limited liability, and prior to the consummation of this offering we intend to convert to a Dutch public company with limited liability. Our principal executive offices are located at J.H. Oortweg 21, 2333 CH Leiden, the Netherlands. Our telephone number at this address is +31 (0)71 33 22 100.

Investors should contact us for any inquiries at the address and telephone number of our principal executive office. Our principal website is www.prosensa.com. The information contained on our website is not a part of this prospectus.

 

 

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Risks associated with our business

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk factors” section of this prospectus immediately following this prospectus summary. These risks include the following:

 

 

We currently have no commercial products, and we have not received regulatory approval for, nor have we generated commercial revenue from, any of our product candidates.

 

 

We depend heavily on the success of drisapersen. Our ability to generate royalty and product revenues will depend heavily on the successful development of drisapersen and our other product candidates, which may not occur for several years, if ever.

 

 

Our financial prospects for the next several years are substantially dependent on the development and marketing efforts of our partner GSK for drisapersen and the other product candidates that it may license under our collaboration.

 

 

Drisapersen and our other product candidates are in clinical and preclinical development, and clinical trials of these product candidates may not be successful. If GSK or we are unable to obtain marketing approvals for, or successfully commercialize, drisapersen or our other product candidates, our ability to generate revenue may be materially impaired.

 

 

We have a history of operating losses and anticipate that we will continue to incur losses for the foreseeable future. As of March 31, 2013, we had an accumulated deficit of 44.2 million. We may need additional funding, and such funding may cause substantial dilution to our shareholders.

 

 

We may be unable to maintain and protect our intellectual property assets, which could harm our ability to compete and impair our business.

Implications of being an emerging growth company

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

 

the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure; and

 

 

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our ordinary shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.

 

 

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The offering

 

Ordinary shares offered by us

   5,000,000 ordinary shares.

Ordinary shares to be outstanding after this offering

  



34,002,298 ordinary shares.

Over-allotment option

   We have granted the underwriters the right to purchase up to an additional 750,000 ordinary shares from us within 30 days of the date of this prospectus, to cover over-allotments, if any, in connection with the offering.

Use of proceeds

  

We estimate that the net proceeds to us from the offering will be approximately $53,400,000 (41,705,000). We currently expect that we will use the net proceeds from this offering, together with our cash and cash equivalents on hand, as follows:

 

• approximately 61 million to fund our current DMD development portfolio for which we bear expenses (PRO045, PRO053, PRO052 and PRO055), PROSPECT and DMD-support projects, including our DMD natural history study;

 

• approximately 8 million to fund non-DMD projects, including DM1 and HD; and

 

• the remainder for working capital and other general corporate purposes.

 

See “Use of proceeds.”

Dividend policy

   We have never paid or declared any cash dividends on our ordinary shares, and we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future.

Risk factors

   See “Risk factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our ordinary shares.

Listing

   We have applied to list our ordinary shares on the Nasdaq Global Market, or Nasdaq, under the symbol “RNA.”

The number of our ordinary shares to be outstanding after this offering is based on 3,491,058 of our ordinary shares outstanding as of May 31, 2013 and 25,511,240 additional ordinary shares issuable upon the automatic conversion of all of our outstanding preferred shares into ordinary shares

 

 

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immediately prior to the consummation of this offering (the Share Conversion) pursuant to our shareholders’ agreement, as described under “Related party transactions—Shareholders’ agreement.”

The number of our ordinary shares to be outstanding after this offering excludes:

 

 

2,207,707 of our ordinary shares issuable upon the exercise of options outstanding as of May 31, 2013 at a weighted average exercise price of 0.34 per share; and

 

 

376,827 of our ordinary shares covered by additional awards available for future issuance under our equity incentive plans as of May 31, 2013.

Unless otherwise indicated, all information contained in this prospectus:

 

 

gives effect to the conversion of all of our outstanding preferred shares into an aggregate of 25,511,240 ordinary shares immediately prior to the consummation of this offering, which we refer to as the Share Conversion;

 

 

gives effect to the amendment of our articles of association as adopted by our general meeting of shareholders in connection with the consummation of this offering; and

 

 

assumes no exercise of the option granted to the underwriters to purchase up to 750,000 additional ordinary shares to cover over-allotments, if any, in connection with the offering.

Certain of our existing investors and their affiliated entities, as well as GlaxoSmithKline, one of our collaborators, have indicated an interest in purchasing an aggregate of up to approximately $15 million of our ordinary shares in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to purchase fewer shares than they indicate an interest in purchasing or to not purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more of our ordinary shares. In addition, the underwriters could determine to sell fewer shares to any of these entities than the entities indicate an interest in purchasing or to not sell any shares to these entities. The underwriters will receive the same underwriting discount on any shares purchased by these entities as they will on any other shares sold to the public in this offering.

 

 

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Summary financial information

The summary income statement and balance sheet data for the years ended and as of December 31, 2012 and 2011 of Prosensa Holding B.V. are derived from the consolidated financial statements included in this prospectus. The summary income statement and balance sheet data for the three months ended and as of March 31, 2013 and 2012 are derived from the unaudited condensed consolidated financial statements included in this prospectus. We maintain our books and records in euros (), and we prepare our financial statements under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.

This financial information should be read in conjunction with “Presentation of financial and other information,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated audited and unaudited financial statements, including the notes thereto, included in this prospectus.

Consolidated statement of comprehensive income data

 

      Year ended December 31,     Three months  ended
March 31,
 
( in thousands)    2011     2012     2012     2013  

 

   

 

 

   

 

 

 

License revenue

   6,510      5,726      1,385      1,407   

Collaboration revenue

     2,179        2,127        589        993   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     8,689        7,853        1,974        2,400   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income

     36        174        0        1   

Research and development expense

     (15,348     (14,393     (3,781     (4,060

General and administrative expense

     (5,203     (4,023     (1,061     (1,795

Other gains/(losses)—net

     22        49        3        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (11,804     (10,340     (2,865     (3,453
  

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

     434        796        212        192   

Finance costs

     (209     (348     (82     (188
  

 

 

   

 

 

   

 

 

   

 

 

 

Finance income—net

     225        448        130        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     0        0        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   (11,579   (9,892   (2,735   (3,449
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share

        

Basic and diluted(1)

     (0.60     (0.37     (0.12     (0.12

Weighted-average shares outstanding(2)

        

Basic

     19,240,137        26,574,570        23,145,096        29,002,298   

Diluted

     20,656,759        28,110,543        24,562,830        31,210,005   

Pro forma net loss per share (unaudited)(3)

     (0.37   (0.12   (0.12

 

   

 

 

   

 

 

 

 

(1)   Basic and diluted net loss per share are the same in these periods because outstanding options and restricted shares would be anti-dilutive due to our net loss in these periods.

 

(2)   Includes preferred shares.

 

(3)   The unaudited pro forma net loss per share data give effect to the automatic conversion of all of our preferred shares into an aggregate of 25,511,240 shares of our ordinary shares immediately prior to the consummation of this offering (the Share Conversion as described under “Related party transactions—Shareholders’ agreement”). The pro forma information is presented for informational purposes only and is not necessarily indicative of what our results would have been had the Share Conversion actually occurred on such date nor is it indicative of our future performance.

 

 

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Consolidated balance sheet data

 

      As of December 31, 2012     As of March 31, 2013  
( in thousands)    Actual             Actual             Pro forma(1)  

 

   

 

 

 
                    

Cash and cash equivalents

     40,738        36,115        79,695   

Working capital (deficit)(2)

     (2,353     (2,349     (3,483

Total assets

     47,329        43,360        86,940   

Long-term debt, including current portion

     6,541        6,682        6,682   

Accumulated (deficit)

     (40,834     (44,225     (44,225

Total shareholders’ equity

     15,574        12,183        54,629   

 

   

 

 

 

 

(1)   The unaudited pro forma balance sheet data give effect to the Share Conversion upon the consummation of this offering and to the issuance and sale of 5,000,000 ordinary shares in this offering by us at an assumed initial public offering price of $12.00 per share, the midpoint of the range set forth on the cover page of this prospectus, and the application of the net proceeds of the offering, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, as set forth under “Use of proceeds.” Because the conversion of our preferred shares into ordinary shares will occur on a one-to-one basis, the Share Conversion will have no impact on total shareholders’ equity. See “Use of proceeds” and “Capitalization.” The pro forma information is presented for informational purposes only and is not necessarily indicative of what our results would have been had these transactions actually occurred on such date nor is it indicative of our future performance.

 

(2)   Working capital (deficit) is calculated as current assets excluding cash and cash equivalents less trade and other payables.

 

 

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Risk factors

You should carefully consider the risks and uncertainties described below and the other information in this prospectus before making an investment in our ordinary shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our ordinary shares could decline and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary statement regarding forward-looking statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.

Risks related to our business and industry

We depend heavily on the success of drisapersen. Drisapersen and all of our other product candidates are still in preclinical and clinical development. Clinical trials of our product candidates may not be successful. If we and GlaxoSmithKline are unable to commercialize drisapersen and our other product candidates, or experience significant delays in doing so, our business, financial condition and results of operations will be materially adversely affected.

We have invested a significant portion of our efforts and financial resources in the development of drisapersen and our other five product candidates, all targeting patients with Duchenne muscular dystrophy, or DMD. All of our product candidates are still in preclinical and clinical development. Our ability to generate royalty and product revenues, which we do not expect will occur for at least the next several years, if ever, will depend heavily on the successful development and eventual commercialization of these product candidates, particularly drisapersen. The success of drisapersen and our product candidates will depend on several factors, including the following:

 

 

for drisapersen and the other product candidates that GlaxoSmithKline, or GSK, licenses under our collaboration, the successful efforts of GSK in completing clinical trials of, receipt of regulatory approval for and commercialization of such product candidates;

 

 

for the product candidates to which we retain rights under the collaboration, completion of preclinical studies and clinical trials of, receipt of marketing approvals for, establishment of commercial manufacturing capabilities of and successful commercialization of such product candidates; and

 

 

for all of our product candidates, acceptance of our product candidates by patients, the medical community and third-party payors, effectively competing with other therapies, a continued acceptable safety profile following approval, and qualifying for, maintaining, enforcing and defending our intellectual property rights and claims.

If we or GSK, as applicable, 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 drisapersen and our other product candidates, which would materially adversely affect our business, financial condition and results of operations.

 

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Because we are developing product candidates for the treatment of diseases in which there is little clinical experience and, in some cases, using new endpoints or methodologies, there is more risk that the outcome of our clinical trials will not be favorable.

There is currently no approved disease-modifying therapy for DMD. In addition, there has been limited historical clinical trial experience generally for the development of drugs to treat the underlying cause of DMD. As a result, the design and conduct of clinical trials for this disease, particularly for drugs to address the underlying cause of this disease, is subject to increased risk. In particular, regulatory authorities in the United States and European Union have not issued definitive guidance as to how to measure and achieve efficacy.

In the last several years, the six minute walk test, or 6MWT, has been used in several trials of product candidates for patients with DMD, and is accepted by U.S. and European regulators to be an appropriate primary outcome measure for DMD trials. We may nonetheless experience setbacks with the Phase III clinical trial or any other clinical trial for drisapersen or the clinical trials for our other product candidates because of the limited clinical experience in this indication. For example, regulators have not yet established what difference in the distance walked in the 6MWT, or 6MWD, is required to be demonstrated in a clinical trial of a DMD therapy in order to signify a clinically meaningful result and/or obtain regulatory approvals. As a result, we may not achieve the pre-specified endpoint with statistical significance in the trials of drisapersen or of our other product candidates, which would decrease the chance of obtaining marketing approval for drisapersen or our other product candidates for DMD. We could also face similar challenges in designing clinical trials and obtaining regulatory approval for future product candidates, including any that we may develop for myotonic dystrophy (DM1) or Huntington’s disease (HD) because there is also limited historical clinical trial experience for the development of drugs to treat these diseases.

Our financial prospects for the next several years are substantially dependent upon the development and marketing efforts of GSK for our lead candidate drisapersen and the other DMD product candidates that it may license under our collaboration, and our continuing strategic relationship with GSK. GSK may act in its best interest rather than in our best interest, which could materially adversely affect our business, financial condition and results of operations.

We rely on GSK to fund and conduct the clinical development and commercialization of drisapersen and the other product candidates GSK may license under our collaboration, and GSK has complete control over such activities. Our ability to generate revenue in the near term will depend primarily on the successful development, regulatory approval, marketing and commercialization of drisapersen by GSK. Such success is subject to significant uncertainty, and we have limited control over the resources, time and effort that GSK may devote to drisapersen. Any of several events or factors could have a material adverse effect on our ability to generate revenue from GSK’s potential commercialization of drisapersen. For example, GSK:

 

 

may be unable to successfully complete the clinical development of drisapersen;

 

 

may have to comply with additional requests and recommendations from the European Medicines Agency, or EMA, the U.S. Food and Drug Administration, or FDA, or other similar regulatory agencies, including requests or recommendations for additional clinical trials;

 

 

may not make all regulatory filings and obtain all necessary approvals from the EMA, the FDA and similar regulatory agencies;

 

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may not commit sufficient resources to the development, regulatory approval, marketing and distribution of drisapersen, whether for strategic reasons or otherwise due to a change in business priorities;

 

 

may unilaterally terminate our collaboration agreement on specified prior notice without any reason and without any further commitment to continue development of any of our product candidates;

 

 

may not be able to manufacture drisapersen in compliance with requirements of the EMA, the FDA and similar regulatory agencies in commercial quantities sufficient to meet market demand;

 

 

may not achieve market acceptance of drisapersen by physicians, patients and third-party payors;

 

 

may not achieve sufficient pricing for drisapersen to compensate for development, post-licensing and commercialization costs, or GSK may underestimate such post-licensing and commercialization costs;

 

 

may not compete successfully with any alternative therapies for DMD; and

 

 

may independently develop products that compete with drisapersen or our other product candidates in the treatment of DMD.

Pursuant to our collaboration with GSK, GSK will fund all our costs and expenses associated with the further clinical development of, and has sole decision-making authority and is responsible for all research, development, regulatory, manufacturing, marketing, advertising, promotional, launch and sales and other commercial activities in connection with drisapersen and each other compound that it receives a license for under the collaboration. In return, we are to receive milestone payments upon successful compound development and percentage royalties in the low tens on product sales. The milestones generally relate to development and regulatory achievements, and a portion of the milestone payments relate to drisapersen. If we fail to maintain this relationship with GSK, or GSK fails to honor its agreements under the collaboration, our business and results of operations could be materially and adversely affected.

In addition, GSK has the right to make decisions regarding the development and commercialization of product candidates under the collaboration without consulting us and may make decisions with which we do not agree. Conflicts between GSK and us may arise if there is a dispute about the progress of the clinical development of a product candidate, the achievement and payment of a milestone amount or the ownership of intellectual property developed during the course of our collaboration agreement. It may be necessary for us to assume responsibility at our own expense for the development of drisapersen or our other product candidates subject to the GSK collaboration. In that event, we would likely be required to limit the size and scope of one or more of our programs or increase our expenditures and seek additional funding, which may not be available on acceptable terms or at all, which would materially adversely affect our business, financial condition and results of operations.

 

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We do not and will not have access to all information regarding the product candidates we license to GSK. Consequently, our ability to inform our shareholders about the status of such product candidates, and to make informed operational and investment decisions about the product candidates to which we have retained development and commercialization rights, may be limited.

We do not and will not have access to all information regarding the products being developed and potentially commercialized by GSK, including potentially material information about clinical trial design and execution, safety reports from clinical trials, spontaneous safety reports if the product is later approved and marketed, regulatory affairs, process development, manufacturing, marketing and other areas known by GSK. In addition, we have confidentiality obligations under our agreement with GSK. Thus, our ability to keep our shareholders informed about the status of product candidates under our collaboration will be limited by the degree to which GSK keeps us informed and allows us to disclose such information to the public. If GSK fails to keep us informed about the clinical development and regulatory approval of our collaboration and product candidates licensed to it, we may make operational and investment decisions that we would not have made had we been fully informed, which may materially and adversely affect our business and operations.

We have a history of operating losses, and we may not achieve or sustain profitability. We anticipate that we will continue to incur losses for the foreseeable future. If we fail to obtain additional funding to conduct our planned research and development effort, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.

We incurred net losses of 9.9 million and 11.6 million for the years ended December 31, 2012 and 2011, respectively, and net losses of 3.4 million and 2.7 million for the three months ended March 31, 2013 and 2012, respectively. As of March 31, 2013, we had an accumulated deficit of 44.2 million. Our losses have resulted principally from expenses incurred in research and development of our product candidates and from general and administrative expenses that we have incurred while building our business infrastructure. We expect to continue to incur significant operating losses in the future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of our product candidates. In our fiscal year ending December 31, 2013, we expect to incur in the range of 20-25 million of costs associated with research and development, which amount is exclusive of costs incurred by GSK in developing our licensed product candidate drisapersen and other amounts received from GSK under the collaboration in connection with the development of our other DMD product candidates.

To date, we have financed our operations through private placements of equity securities, upfront, milestone and expense reimbursement payments received from GSK under our collaboration and funding from patient organizations, governmental bodies and bank loans. To date we have not generated any revenues from product sales. Based on our current plans, we do not expect to generate significant royalty or product revenues unless and until GSK or we obtain marketing approval for, and commercialize, drisapersen or any of our product candidates for which we have retained commercialization rights. We believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. We

 

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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 may have to seek additional funding. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. In addition, we may not be able to obtain further funding from patient organizations or governmental bodies.

Even if we do generate product royalties or product sales, we may never achieve or sustain profitability on a quarterly or annual basis. Our failure to sustain profitability would depress the market price of our ordinary shares and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our ordinary shares also could cause you to lose all or a part of your investment.

Raising additional capital may cause dilution to our shareholders, including purchasers of ordinary shares in this offering, 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 the net proceeds of this offering, together with our existing cash and cash equivalents and anticipated milestone payments under our collaboration with GSK. In the event we need to seek additional funds, however, we may raise additional capital through the sale of equity or convertible debt securities. In such an event, 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 holder of our ordinary shares. 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.

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 or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds 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.

Exchange rate fluctuations or abandonment of the euro currency may materially affect our results of operations and financial condition.

Due to the international scope of our operations, fluctuations in exchange rates, particularly between the euro, the British pound and the U.S. dollar, may adversely affect us. Although we are based in the Netherlands, we source research and development, manufacturing, consulting and other services from several countries. In addition, our arrangements with GSK are denominated in British pounds. Further, potential future revenue may be derived from abroad, particularly from the United States. As a result, our business and share price may be affected by fluctuations in foreign exchange rates between the euro and these other currencies, which may also have a significant impact on our reported results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place.

 

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In addition, the possible abandonment of the euro by one or more members of the European Union could materially affect our business in the future. Despite measures taken by the European Union to provide funding to certain E.U. member states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens, it is possible that the euro could be abandoned in the future as a currency by countries that have adopted its use. This could lead to the re-introduction of individual currencies in one or more E.U. member states, or in more extreme circumstances, the dissolution of the European Union. The effects on our business of a potential dissolution of the European Union, the exit of one or more E.U. member states from the European Union or the abandonment of the euro as a currency, are impossible to predict with certainty, and any such events could have a material adverse effect on our business, financial condition and results of operations.

Risks related to the development and clinical testing of our product candidates

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of our product candidates are prolonged or delayed, we or our collaborator may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all.

To obtain the requisite regulatory approvals to market and sell any of our product candidates, we or our collaborator for such candidate must demonstrate through extensive preclinical and clinical trials that our products are safe and effective in humans. The process for obtaining governmental approval to market our products is rigorous, time-consuming and costly. It is impossible to predict the extent to which this process may be affected by legislative and regulatory developments. Due to these and other factors, such as the fact that no product using antisense oligonucleotides, or AONs, for systemic use has been approved for sale in the European Union and only one AON is approved for systemic use in the United States, our current product candidates or any of our other future product candidates could take a significantly longer time to gain regulatory approval than expected or may never gain regulatory approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our product candidates.

Clinical trials must be conducted in accordance with EMA, FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current good manufacturing practices, or cGMP, and other requirements. We depend on GSK (for drisapersen and other licensed product candidates) and on medical institutions and clinical research organizations, or CROs (for our other compounds), to conduct our clinical trials in compliance with Good Clinical Practice, or GCP. To the extent GSK and or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business. In addition, clinical trials are conducted in countries outside the European Union and the United States, which may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-E.U. and non-U.S. CROs, as well as expose us to risks associated with clinical investigators who are unknown to the EMA or the FDA, and different standards of diagnosis, screening and medical care.

 

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To date, we have not completed all clinical trials required for the approval of any of our product candidates. Our lead compound drisapersen is in Phase III trials. The trials of our other compounds are less advanced or have not yet started. The commencement and completion of clinical trials for our products may be delayed, suspended or terminated as a result of many factors, including but not limited to:

 

 

negative or inconclusive results, which may require us or GSK, as applicable, to conduct additional preclinical or clinical trials or to abandon projects that we expect to be promising;

 

 

safety or tolerability concerns could cause us or GSK, as applicable, to suspend or terminate a trial if we or GSK find that the participants are being exposed to unacceptable health risks;

 

 

the delay or refusal of regulators or IRBs to authorize us or GSK to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;

 

 

regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

 

delays or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

 

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

 

 

the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;

 

 

lower than anticipated retention rates of patients and volunteers in clinical trials;

 

 

our third-party research contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

 

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

 

 

delays in establishing the appropriate dosage levels;

 

 

the difficulty in certain countries in identifying the sub-populations that we are trying to treat in a particular trial, which may delay enrollment and reduce the power of a clinical trial to detect statistically significant results;

 

 

the quality or stability of the product candidate falling below acceptable standards;

 

 

the inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and

 

 

exceeding budgeted costs due to difficulty in predicting accurately costs associated with clinical trials.

Since we have adopted a platform technology approach and all of our current clinical development candidates use similar process technology and are similarly applied to DMD, any of the above unforeseen difficulties that arises with one of our clinical development candidates may negatively affect all of our product candidates.

Positive or timely results from preclinical trials do not ensure positive or timely results in late stage clinical trials or product approval by the EMA, the FDA or other regulatory authorities.

 

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Products that show positive preclinical or early clinical results may not show sufficient safety or efficacy to obtain regulatory approvals and therefore fail in later stage clinical trials. The EMA, the FDA and other regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the EMA, the FDA or any other regulatory authority.

Any delay in commencing or completing clinical trials for our products could increase our product development costs and delay marketing approval and commercialization of our products. For instance, in 2009 we held a pre-IND meeting with the FDA to discuss PRO044 clinical studies, and the FDA determined that we had insufficient data at that time to support the initiation of a clinical trial of PRO044 in the United States. PRO044 continues to be on clinical hold in the United States pending the results of long-term preclinical safety studies that we anticipate will be completed in the fourth quarter of 2013. In addition, in 2010, the FDA determined that inadequate data had been presented to support long-term studies of drisapersen and requested additional safety data. Upon submission of additional data, the FDA lifted the clinical hold on drisapersen in 2011.

In addition, it is possible that the FDA may not consider the results of GSK’s Phase III clinical trial of drisapersen, once completed, to be sufficient for the approval of drisapersen for DMD patients. In general, the FDA has usually suggested two adequately designed and powered and well-controlled trials to demonstrate effectiveness. Even if favorable results are achieved in the Phase III trial of drisapersen, the FDA may nonetheless require that GSK conduct additional clinical trials, possibly using a different design.

It is also possible that none of our products will complete clinical trials in any of the markets in which we intend to sell those products. If this were to happen, we would not receive the regulatory approvals needed and neither we nor our collaborator would be able to market our products. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability to commercialize our product candidates and may harm our business and results of operations.

Failure to obtain marketing authorization for our product candidates will result in our being unable to market and sell such products, which would materially adversely affect our business, financial conditional and results of operation. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.

If serious adverse, undesirable or unacceptable side effects are identified during the development of our product candidates, we may need to abandon our development of such product candidates.

If our product candidates are associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early-stage or clinical

 

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testing have later been found to cause side effects that prevented further development of the compound.

Transient proteinuria (protein in the urine) was observed in all twelve patients in our Phase I/II study of drisapersen, and eleven patients demonstrated signs of proteinuria at week twelve of the extension phase of this trial. Other reported adverse events from this study included injection site reactions, which were seen to varying degrees of severity in all subjects, raised cystatin C (a protein indicative of kidney function), decreased C3 (a protein indicating immunological activity), low platelet counts and raised liver enzymes, including GLDH and gamma GT, which may indicate abnormal liver function. In addition, clinical trial experience to date with drisapersen in trials that GSK is conducting indicates adverse events that include proteinuria, local injection site reactions (pain, bruising, erythema, induration, pigmentation), thrombocytopenia (decrease in the amount of platelets in the blood) and increases in certain liver enzymes. In addition to the adverse events noted above, single reports have been received of the following clinical conditions: intracranial venous sinus thrombosis (blood clot), extramembranous glomerulonephritis (inflammation affecting part of the kidney) and nephrotic-linked proteinuria. Such side effects could be raised by the FDA, the EMA and other regulatory authorities and could be an impediment to receipt of marketing approval or physician or patient acceptance of drisapersen or our other product candidates because of concerns related to safety.

We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts and business, financial condition and results of operations could be materially adversely affected.

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends on many factors, including the size of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the nature of the trial protocol, competing clinical trials and the availability of new drugs approved for the indication the clinical trial is investigating.

The successful completion of our clinical trials for our DMD product candidates is dependent upon our ability to enroll a sufficient number of patients in the sub-populations of DMD patients that our particular product candidates target. Our product candidates focus on the treatment of DMD, which is a rare disease with a small patient population. As our products target sub-populations of DMD patients and trial enrollment is limited to boys in a certain age range only, the number of patients eligible for our trials is even smaller. Further, there are only a limited number of specialist physicians and major clinical centers are concentrated in a few geographic regions. In addition, other companies are conducting clinical trials and have announced plans for future clinical trials that are seeking, or are likely to seek, to enroll patients with the same conditions that we are studying and patients are generally only able to enroll in one single trial at a time. The small population of patients, competition for these patients and the limited trial sites may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner.

 

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We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage; and our product liability insurance may not cover all damages from such claims.

We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently we have no products that have been approved for commercial sale; however, the current and future use of product candidates by us and our corporate collaborators in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, our corporate collaborators or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our product candidates.

Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates.

Although we maintain limited product liability insurance for our product candidates, it is possible that our liabilities could exceed our insurance coverage. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for any of our product candidates. However, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.

Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.

Even if our product candidates obtain regulatory approval, they will be subject to continual regulatory review.

If marketing authorization is obtained for any of our product candidates, the product will remain subject to continual review and therefore authorization could be subsequently withdrawn or restricted. We will be subject to ongoing obligations and oversight by regulatory authorities, including adverse event reporting requirements, marketing restrictions and, potentially, other post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize such products.

If there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include imposing fines on us, imposing restrictions on the product or its manufacture and requiring us to recall or remove the product from the market. The regulators could also suspend or withdraw our marketing authorizations, requiring us to conduct additional

 

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clinical trials, change our product labeling or submit additional applications for marketing authorization. If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations.

Due to our limited resources and access to capital, we must and have in the past decided to prioritize development of certain product candidates; these decisions may prove to have been wrong and may adversely affect our revenues.

Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular compounds, product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities. Similarly, our decisions to delay, terminate or collaborate with third parties in respect of certain product development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the biopharmaceutical industry, in particular for DMD therapies, our business, financial condition and results of operations could be materially adversely affected.

Because we are subject to environmental, health and safety laws and regulations, we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities which may adversely affect our business and financial condition.

Our operations, including our research, development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, handling, release and disposal of, and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or other sanctions.

As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials. Environmental, health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case, our production and development efforts may be interrupted or delayed and our financial condition and results of operations may be materially adversely affected.

Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing.

Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals

 

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have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted, delayed or become more expensive.

Risks related to regulatory approval of our product candidates

Our ability to obtain marketing approval for the product candidates to which we have retained commercialization rights depends on GSK obtaining marketing approval for drisapersen and the success of our regulatory strategy for our candidates that target ultra-orphan sub-populations of DMD patients. If either is not successful, we may not obtain marketing approvals for our product candidates.

GSK controls the regulatory approval application process for drisapersen, including how it communicates with regulators and makes the case for marketing approval. If GSK is not successful in obtaining marketing approval for drisapersen, or does so in a way that is limiting with respect to our other DMD product candidates, our ability to obtain regulatory approval for such product candidates, and consequently our business and results of operations, could be adversely affected.

Our regulatory strategy for obtaining approval for the product candidates to which we have retained commercialization rights depends on the acceptance of our proposed extrapolation principle that if exon skipping works for one AON compound that is shown to be safe and effective, then the principle should to a certain extent also apply to subsequent compounds for rarer sub-populations. Because DMD is a rare disease and our product candidates after drisapersen target smaller sub-populations for which it is less feasible to conduct placebo-controlled studies, our ability to obtain marketing approval may be dependent on regulators’ acceptance of this extrapolation principle. If regulators do not accept this principle, we may be delayed in or prevented from obtaining marketing approval.

No exon-skipping therapies using AONs for systemic use have yet been approved or marketed in the European Union, and only one AON for systemic use has been approved in the United States.

Our exon-skipping therapy using AONs is intended to correct genetic defects that cause disease in humans, and our current product candidates target DMD. Our compounds have not yet been incorporated into a commercial product and are still in development. To date, no product using AONs for systemic use has been approved for sale in the European Union. In the United States currently only one AON is approved by the FDA for systemic use. Therefore, we are not certain that our technology will meet the applicable safety and efficacy standards of the regulatory authorities. In addition, any regulatory setbacks faced by third parties developing similar compounds could affect the receptiveness of regulators to our compounds.

Any failures or setbacks involving our therapy, including adverse effects resulting from the use of this therapy in humans, could have a detrimental impact on our internal product candidate pipeline and our ability to maintain and/or enter into new corporate collaborations regarding these technologies, which would materially adversely affect our business, financial position and results of operations.

 

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Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.

In the United States, the European Union and some other foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system. These changes could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sale prices for physician-administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost-reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

More recently, in March 2010, President Obama signed into law the Health Care Reform Law, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revises the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. We will not know the full effects of the Health Care Reform Law until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Both in the US and in the EU, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.

In the area of companion diagnostics, FDA officials indicated in 2010 that the agency planned to issue two guidances in this area. The FDA issued one draft guidance in July 2011, and the FDA plans to finalize this guidance in 2013. The FDA has yet to issue a second draft guidance and may decide not to issue a second draft guidance or finalize the existing draft guidance. The FDA’s issuance of a final guidance, or issuance of additional draft guidance, could affect our development of in vitro companion diagnostics and the applicable regulatory requirements. In

 

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addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

In the EU, Regulation (EC) 1901/2006, the so called Paediatric Regulation, came into force in January 2007 and introduced considerable changes into the regulatory environment for pediatric medicines. The effects of this regulation are still not fully known. Additionally, an official guideline is being developed which addresses the development of medicinal products for the treatment of Duchenne and Becker muscular dystrophy. This guideline is planned to be adopted during the development of our compounds and may have an effect on the regulatory process for gaining market access in the EU.

Our relationships with customers and payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, primarily in the United States, that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable healthcare laws and regulations, include the following:

 

 

the U.S. healthcare 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 either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under U.S. healthcare programs such as Medicare and Medicaid;

 

 

the U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

 

the U.S. Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

 

the U.S. false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits items or services;

 

 

the transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, biologics and medical supplies to report to the U.S. Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and

 

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analogous laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and 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 in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

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, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business with are 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.

Risks related to commercialization of our product candidates

We operate in highly competitive and rapidly changing industries, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

The biopharmaceutical and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. Our success is highly dependent on our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in Europe, the United States and other jurisdictions. These organizations may have significantly greater resources than we do and conduct similar research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with our product candidates.

We believe that our key competitor in DMD is Sarepta Therapeutics, Inc., or Sarepta, a U.S. company focused on the development of their lead product candidate eteplirsen. Eteplirsen is currently in Phase II trials in DMD and employs the same exon 51 skipping approach as drisapersen. Sarepta may be in discussions with the FDA for accelerated approval of eteplirsen, which if granted, could place us at a competitive disadvantage. Even without accelerated approval, depending on the overall clinical profile, efficacy and commercialization of eteplirsen, Sarepta may render our development and discovery efforts in the area of DMD uncompetitive. Other companies are also developing alternative therapeutic approaches to the treatment of DMD. These approaches may be used as complementary to our products targeting DMD, but they could also be competitive.

 

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In addition, GSK may decide to market and sell products that compete with the product candidates that we have agreed to license to it, and any competition by GSK could also have a material adverse effect on our future business, financial condition and results of operations.

The highly competitive nature of and rapid technological changes in the biotechnology and pharmaceutical industries could render our product candidates or our technology obsolete or non-competitive. Our competitors may, among other things:

 

 

develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;

 

 

obtain quicker regulatory approval;

 

 

establish superior proprietary positions;

 

 

have access to more manufacturing capacity;

 

 

implement more effective approaches to sales and marketing; or

 

 

form more advantageous strategic alliances.

Should any of these factors occur, our business, financial condition and results of operations could be materially adversely affected.

We rely on obtaining and maintaining orphan drug status for market exclusivity. Orphan drug status may not ensure that we have market exclusivity in a particular market, and we could lose orphan market exclusivity if another drug is approved first using the same method of action or demonstrates clinical superiority.

All of our DMD compounds have been granted orphan drug status by the FDA and EMA. If drisapersen or our other product candidates were to lose orphan drug status or the marketing exclusivity that it provides, our business and results of operations could be materially adversely affected. In the United States, a product candidate with orphan drug status qualifies for market exclusivity for seven years after FDA approval, unless a chemically identical competing product for the same indication is proved to be “clinically superior,” that is, safer, more effective or significantly more convenient. Thus, if drisapersen is granted regulatory approval in the United States, the FDA may not approve a competing generic product during the market exclusivity period; however, a chemically dissimilar product such as Sarepta’s eteplirsen would not be affected by drisapersen’s U.S. market exclusivity and could similarly obtain market exclusivity in the United States if it were to receive FDA approval.

In Europe, EMA regulations provide ten-year marketing exclusivity in Europe for orphan drugs, subject to certain exceptions, including the demonstration of “clinically relevant superiority” by a similar medicinal product. EMA orphan marketing exclusivity applies to drug products for the same indication that use the same method of action but can be chemically dissimilar. Eteplirsen has been granted orphan drug designation in the European Union. If Sarepta were to obtain marketing approval from the EMA for eteplirsen before drisapersen is approved by the EMA, Sarepta could have the benefit of orphan drug marketing exclusivity to our detriment because both products use the same method of action (exon skipping) for patients with DMD. Drisapersen would have to demonstrate a clinically relevant advantage over eteplirsen (in efficacy, safety and/or pharmacokinetics) in order to defeat such market exclusivity in Europe. If drisapersen is approved by the EMA before eteplirsen, eteplirsen could defeat drisapersen’s market exclusivity in Europe by demonstrating a clinically relevant advantage.

 

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The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate reimbursement levels and pricing policies.

The successful commercialization of our product candidates will depend, in part, on the extent to which third-party coverage and reimbursement for our products will be available from government and health administration authorities, private health insurers and other third-party payors.

These bodies may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. Obtaining and maintaining reimbursement status is time-consuming and costly. Significant uncertainty exists as to the reimbursement status of newly approved medical products. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely. In addition, many governments and health insurers are increasingly attempting to manage healthcare costs by limiting both coverage and the level of reimbursement of new products. As a result, they may not cover or provide adequate payment for our future products.

The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of our product candidates and the future revenues we may expect to receive from those products. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.

Our products may not gain market acceptance, in which case we may not be able to generate product revenues, which will materially adversely affect our business, financial condition and results of operations.

Even if the EMA, the FDA or any other regulatory authority approves the marketing of any product candidates that we develop on our own or with a collaboration partner, physicians, healthcare providers, patients or the medical community may not accept or use them. If these products do 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 any of our product candidates will depend on a variety of factors, including:

 

 

the timing of market introduction;

 

 

the number and clinical profile of competing products;

 

 

our ability to provide acceptable evidence of safety and efficacy;

 

 

the prevalence and severity of any side effects;

 

 

relative convenience and ease of administration;

 

 

cost-effectiveness;

 

 

patient diagnostics and screening infrastructure in each market;

 

 

marketing and distribution support;

 

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availability of coverage, reimbursement and adequate payment from health maintenance organizations and other insurers, both public and private; and

 

 

other potential advantages over alternative treatment methods.

If our product candidates fail to gain market acceptance, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any, return on our investments. Even if some products achieve market acceptance, the market may prove not to be large enough to allow us to generate significant revenues.

Adverse events in the field of RNA modulation therapy could damage public perception of our product candidates and negatively affect our business.

The commercial success of our products will depend in part on public acceptance of the use of RNA modulation therapy for the treatment of human diseases. Adverse events in clinical trials of our product candidates or in clinical trials of others developing RNA-modulating products and the resulting publicity, as well as any other adverse events in the field of RNA modulation therapy that may occur in the future, could result in a decrease in demand for any products that we may develop. For example, a recently published report described a case of renal damage in a healthy volunteer enrolled in a clinical trial sponsored by Santaris Pharma A/S. The trial used a type of so-called locked-acid AON compound that primarily targets the kidney, intestines and liver and works by blocking messenger RNA for the enzyme PCSK9. If public perception is influenced by claims that RNA modulation therapy is unsafe, our products may not be accepted by the general public or the medical community.

Future adverse events in RNA modulation therapy or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining regulatory approval for our product candidates.

We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together with suitable partners.

We have never commercialized a product candidate, and we currently have no sales force, marketing or distribution capabilities. To achieve commercial success for drisapersen and other product candidates that GSK licenses under our collaboration, we will rely on GSK. For product candidates for which we retain commercialization rights, we will have to develop our own sales, marketing and supply organization or outsource these activities to a third party.

Factors that may affect our ability to commercialize our product candidates on our own include recruiting and retaining adequate numbers of effective sales and marketing personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our drug candidates and other unforeseen costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization will be expensive and time-consuming and could delay the launch of our product candidates. We may not be able to build an effective sales and marketing organization. If we are unable to build our own distribution and marketing capabilities or to find suitable partners for the commercialization of our product candidates, we may not generate revenues from them or be able to reach or sustain profitability.

 

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Risks related to our dependence on third parties

We may become liable for claims under the collaboration agreement with GSK or be unable to successfully enforce claims against counterparties.

Our collaboration agreement with GSK contains a liability and indemnification provision under which we may claim damages from GSK and under which GSK may claim damages from us, in each case in connection with the other party’s performance of its obligations under the collaboration. In the event we need to claim damages from any of our counterparties to any agreement, we may not receive payments covering our damages in full, because the applicable provision limits the payment to a certain amount, is unenforceable for any reason or the counterparty is unable to pay (due to insolvency or otherwise). Although in many cases we try to limit our liability, such limitations may not be effective in the event that we need to pay damages, and we nevertheless could become liable to make substantial payments, which would have a material adverse effect on our business, financial condition and results of operations.

If we fail to maintain our current strategic relationship with LUMC our business, commercialization prospects and financial condition may be materially adversely affected.

We have an exclusive worldwide license from Leiden University Medical Center, or LUMC, for the application of LUMC’s proprietary RNA modulation exon-skipping technology to develop treatments for DMD, other neuromuscular disorders and indications outside the field of neuromuscular disorders. These intellectual property rights have been the basis of our research so far and the development of treatments targeting DMD. The continuation of a good relationship with LUMC is essential for our business prospects. If our relationship with LUMC were to deteriorate or LUMC were to challenge our use of its intellectual property or our calculations of the payments we owe under our agreement, our business, financial condition, commercialization prospects and results of operations could be materially adversely affected.

If we fail to enter into new strategic relationships our business, financial condition, commercialization prospects and results of operations may be materially adversely affected.

Our product development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. Therefore, in addition to our relationships with GSK and LUMC, for some of our product candidates, we may decide to enter into new collaborations with pharmaceutical or biopharmaceutical companies for the development and potential commercialization of those product candidates.

We face significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming to negotiate and document. We may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all. If that were to occur, we may have to curtail the development of a particular 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 our sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate product revenue. If we do

 

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enter into a new collaboration agreement, we could be subject to the following risks, each of which may materially harm our business, commercialization prospects and financial condition:

 

 

we may not be able to control the amount and timing of resources that the collaboration partner devotes to the product development program;

 

 

the collaboration partner may experience financial difficulties;

 

 

we may be required to relinquish important rights such as marketing, distribution and intellectual property rights;

 

 

a collaboration partner could move forward with a competing product developed either independently or in collaboration with third parties, including our competitors; or

 

 

business combinations or significant changes in a collaboration partner’s business strategy may adversely affect our willingness to complete our obligations under any arrangement.

We rely on third parties to provide services in connection with our preclinical and clinical development programs. The inadequate performance by or loss of any of these service providers could affect our product candidate development.

We rely on GSK to conduct clinical trials for the DMD compounds it has licensed from us under our collaboration; and we rely on other third parties, including CROs, medical institutions, clinical investigators and contract laboratories, to conduct significant portions of our preclinical and clinical trials. Although we oversee these activities to ensure compliance with our quality standards, budgets and timelines, we have had and will continue to have less control over the conduct of the clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trials than potentially would be the case if we relied entirely upon our own staff. Such third parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting the management of the clinical trials.

Problems with the timeliness or quality of the work of third parties may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay the trials, and contractual restrictions may make such a change difficult or even impossible. In addition, it may be very challenging, and in some cases impossible, to find a replacement service provider that can conduct our trials in an acceptable manner and at an acceptable cost. In addition, if such third parties fail to comply with regulations regarding clinical trials and laboratory practices and other regulations of the EMA, FDA or other regulatory authorities, we may experience serious delays to our clinical trials, have to suspend clinical trials or lose the regulatory approval for a specific product. Any such failure could give rise to a material interruption in the development of the product and have a material adverse effect on our commercial potential.

We currently rely on third-party suppliers and other third parties for production of our product candidates and our dependence on these third parties may impair the advancement of our research and development programs and the development of our product candidates.

Currently, we develop and manufacture the drug product for our initial preclinical studies using standardized manufacturing processes in our own laboratories. We currently rely on and expect to continue to rely on third parties for the supply of raw materials and to manufacture drug

 

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supplies for clinical trials and commercial quantities of our products and drug candidates. GSK is responsible for the production of product candidates that it licenses under our collaboration; and we are responsible for production of product candidates for which GSK has not exercised its option under our collaboration, to which we have retained rights or that are outside of the GSK collaboration. For the foreseeable future, we expect to continue to rely on such third parties.

Reliance on third-party providers may expose us to more risk than if we were to manufacture product candidates ourselves. We are obliged to work with manufacturing companies and third party suppliers that are licensed by the EMA, the FDA or other regulatory authorities and that comply with EMA, FDA or other regulatory authorities’ laws and regulations on an ongoing basis. We do not have control over a third-party manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to environmental health and safety matters. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation. Furthermore, third-party providers may breach existing agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreement because of their own financial difficulties or business priorities, at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

While we generally contract with multiple suppliers of raw materials, drug substances, drug product formulation and filling, for each specific AON there is only one contractor for drug substance manufacture and one contractor for drug product manufacture. In addition, we have only a single contractor for the packaging and distribution of product for clinical trials. While we believe we have limited the risk of interruption of production delays because our manufacturing process is highly standardized and therefore we believe that a contractor for one AON product candidate could be brought online to manufacture another AON product candidate, we may incur delays in qualifying an alternative manufacturer for a new compound. Any such delay could delay our clinical trials or have an adverse impact on any commercial activities.

In addition, the fact that we are dependent on GSK, our suppliers and other third parties for the manufacture, filling, storage and distribution of our product candidates means that we are subject to the risk that the products may have manufacturing defects that we have limited ability to prevent or control. The sale of products containing such defects could adversely affect our business, financial condition and results of operations.

Growth in the costs and expenses of components or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could be interrupted from time to time and, if interrupted, that supplies could be resumed (whether in part or in whole) within a reasonable timeframe and at an acceptable cost or at all.

Risks related to intellectual property and information technology

Our business will be adversely affected if we are unable to gain access to relevant intellectual property rights of third parties, or if our licensing partners terminate our rights to license in relevant intellectual property rights.

We currently rely, and may in the future rely, on certain intellectual property rights licensed from third parties to protect our technology. In particular, we have entered into a collaboration

 

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arrangement with LUMC for the reciprocal licensing of our and LUMC’s individual and joint intellectual property rights in relation to certain patent rights and know-how rights, which have been the basis of our research and development of treatment targeting DMD. Pursuant to this agreement with LUMC, we have an exclusive worldwide license for the exploitation of key intellectual property rights in this respect. Our intellectual property portfolio for DMD consists of patents and patent applications licensed from LUMC, patents and patent applications for which we and LUMC are joint owners and patents and patent applications that we own. LUMC retains full ownership of certain patents and patent applications which we have licensed under the agreement.

We have the responsibility to maintain and control the intellectual property portfolio licensed from LUMC, however, the licensed rights may not be adequately maintained by LUMC. In addition, our licensed rights may be suspended, terminated or otherwise lost in consequence of a breach of the agreement with LUMC or due to other relevant facts and circumstances such as insolvency of the licensor. Our ability to comply with our contractual obligations towards LUMC may be affected by factors that we can only partially influence or control.

If LUMC were to terminate the license, we would be prevented from continuing our use of this technology in clinical trials or, if our products are approved for marketing, from using this technology in products that could be sold commercially. The loss of rights under this license could preclude us from further developing, commercializing and marketing our products, which would have a material adverse effect on our business, financial condition, results of operations and prospects.

We rely on patents and other intellectual property rights to protect our product candidates and technologies, the enforcement, defense and maintenance of which may be challenging and costly. Failure to enforce or protect these rights adequately could harm our ability to compete and impair our business.

Our commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property rights for our product candidates, methods used to manufacture those products and the methods for treating patients using those products, or on licensing in such rights. Failure to protect or to obtain, maintain or extend adequate patent and other intellectual property rights could materially adversely affect our ability to develop and market our products and product candidates.

Issued patents covering one or more of our products could be found invalid or unenforceable if challenged in court.

To protect our competitive position, we may from time to time need to resort to litigation in order to enforce or defend any patents or other intellectual property rights owned by or licensed to us, or to determine or challenge the scope or validity of patents or other intellectual property rights of third parties. For example, in 2009, AVI Biopharma Inc. (now Sarepta) filed an opposition against EP ’249, one of our patents, with the European Patent Office, or EPO, requesting revocation of the patent as granted, alleging, among other things, lack of novelty, inventive step and sufficiency of disclosure. The EPO Opposition Division, presiding in oral proceedings on November 16, 2011 in Munich, Germany, maintained the EP ’249 patent in an amended form. We believe that the patent as maintained in amended form by the EPO Opposition Division still provides protection for our lead product candidate drisapersen. We and

 

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Sarepta both had the right to appeal the written decision of the EPO until June 15, 2013. We have appealed the written decision of the EPO. For additional information please see “Business—Intellectual property—Opposition proceedings against EP ’249.” As enforcement of intellectual property rights is difficult, unpredictable and expensive, we may fail in enforcing our rights—in which case our competitors may be permitted to use our technology without being required to pay us any license fees. In addition, however, litigation involving our patents carries the risk that one or more of our patents will be held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third parties to commercialize our products or our platform technology, and then compete directly with us, without payment to us.

If we were to initiate legal proceedings against a third party to enforce a patent covering one of our products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States or in Europe, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. Patent and Trademark Office, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of our platform technology. Such a loss of patent protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights.

Intellectual property rights of third parties could adversely affect our ability to commercialize our product candidates, such that we could be required to litigate or obtain licenses from third parties in order to develop or market our product candidates. Such litigation or licenses could be costly or not available on commercially reasonable terms.

Our competitive position may suffer if patents issued to third parties or other third party intellectual property rights cover our products or elements thereof, our manufacture or uses relevant to our development plans. In such cases, we may not be in a position to develop or commercialize products or drug candidates unless we successfully pursue litigation to nullify or invalidate the third party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, if available on commercially reasonable terms. In addition, we are aware of issued patents and pending patent applications held by third parties that may be construed as covering some of our product candidates, in particular with respect to PRO045 or PRO053. We believe that if such patents or patent applications (if issued as currently pending) were asserted against us, we would have defenses against such claims, including defenses of patent invalidity and unenforceability. However, if such defenses were not successful and such patents were successfully asserted against us such that they are found to be valid and enforceable, and infringed by our product candidates, unless we obtain a license to such patents, which may not be available on commercially reasonable terms or at all, we could be prevented from continuing to develop or commercialize our products. We could also be required to pay substantial damages.

 

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It is also possible that we failed to identify relevant patents or applications. For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our products or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our products or the use of our products.

Third party intellectual property right holders, including our competitors, may actively bring infringement claims against us. The granting of orphan drug status in respect of any of our product candidates does not guarantee our freedom to operate and is separate from our risk of possible infringement of third parties’ intellectual property rights. We may not be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing our products.

If we fail in any such dispute, in addition to being forced to pay damages, we or our licensees may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign drug candidates so that we no longer infringe the third party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

Intellectual property litigation could cause us to spend substantial resources and 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 and if securities analysts or investors perceive these results to be negative, we 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 our resources available for development 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 substantially 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.

We enjoy only limited geographical protection with respect to certain patents and may face difficulties in certain jurisdictions, which may diminish the value of intellectual property rights in those jurisdictions.

We generally file our first patent application (i.e. priority filing) at the European Patent Office (EPO). International applications under the Patent Cooperation Treaty, or PCT, are usually filed

 

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within twelve months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in the United States, Australia, New Zealand, Japan, and Canada and all European Patent Convention, or EPC, member states by filing at the EPO and, depending on the individual case, also in any or all of, inter alia, China, India, Singapore and Israel. We have so far not filed for patent protection in all national and regional jurisdictions where such protection may be available. In addition, we may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted by others. It is also quite common that depending on the country, the scope of patent protection may vary for the same drug candidate and/or technology.

The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the United States and the European Union, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our licensors encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired and our business and results of operations may be adversely affected.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

 

 

Others may be able to make compounds that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.

 

 

We or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed.

 

 

We or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions.

 

 

Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights.

 

 

It is possible that our pending patent applications will not lead to issued patents.

 

 

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Issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.

 

 

Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.

 

 

We may not develop additional proprietary technologies that are patentable.

 

 

The patents of third parties may have an adverse effect on our business.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the America Invents Act (AIA) has been recently enacted in the United States, resulting in significant changes to the U.S. patent system. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, the complexity and uncertainty of European patent laws has also increased in recent years. For example, the EPC was amended in April 2010 by limiting the time permitted for filing divisional applications. In addition, the EP patent system is relatively stringent in the type of amendments that are allowed during prosecution. These changes could limit our ability to obtain new patents in the future that may be important for our business.

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

We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed to be of limited value. However, trade secrets and/or confidential know-how are difficult to maintain as confidential.

To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and

 

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is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.

Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how.

Under certain circumstances and to guarantee our freedom to operate, we may also decide to publish some know-how to prevent others from obtaining patent rights covering such know-how.

Our information technology systems could face serious disruptions that could adversely affect our business.

Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt our operations. A significant disruption in the availability of our information technology and other internal infrastructure systems could cause interruptions in our collaborations with our partners and delays in our research and development work.

Risks related to employee matters and managing growth

Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel.

Our success depends upon the continued contributions of our key management, scientific and technical personnel, many of whom have substantial experience with or been instrumental for us and our unique RNA modulation therapy and related technologies. These key management individuals include the members of our management board consisting of Hans Schikan, our Chief Executive Officer; Berndt Modig, our Chief Financial Officer; Giles Campion, our Chief Medical Officer and Senior Vice President Research and Development; and Luc Dochez, our Chief Business Officer and Senior Vice President Business Development. The key members of our management team include Larry Bell, our Vice President of Regulatory Affairs; Judith van Deutekom, our Vice President Drug Discovery; Tina Flatau, our Vice President Alliances and Project Management; Paul van Hagen, our Senior Director Finance and Control; Richard Holslag, our Vice President Manufacturing; Sjef de Kimpe, our Vice President Early Drug Development; and Allison Morgan, our Vice President Clinical Development.

The loss of key managers and senior scientists could delay our research and development activities. In addition, the competition for qualified personnel in the biopharmaceutical and pharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement business strategy, which could have a material adverse effect on our business.

 

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We expect to expand our development, regulatory and sales and marketing capabilities, and 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 and 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 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 the offering and our ordinary shares

The price of our ordinary shares may be volatile and may fluctuate due to factors beyond our control.

The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of our ordinary shares may fluctuate significantly due to a variety of factors, including:

 

 

positive or negative results of testing and clinical trials by us, strategic partners, or competitors;

 

 

delays in entering into strategic relationships with respect to development and/or commercialization of our product candidates or entry into strategic relationships on terms that are not deemed to be favorable to us;

 

 

technological innovations or commercial product introductions by us or competitors;

 

 

changes in government regulations;

 

 

developments concerning proprietary rights, including patents and litigation matters;

 

 

public concern relating to the commercial value or safety of any of our product candidates;

 

 

financing or other corporate transactions;

 

 

publication of research reports or comments by securities or industry analysts;

 

 

general market conditions in the pharmaceutical industry or in the economy as a whole; or

 

 

other events and factors beyond our control.

In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may materially affect the market price of companies’ stock, including our, regardless of actual operating performance.

 

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There has been no public market for our ordinary shares prior to this offering, and an active market in the shares may not develop in which investors can resell our ordinary shares.

Prior to this offering there has been no public market for our ordinary shares. We cannot predict the extent to which an active market for our ordinary shares will develop or be sustained after this offering, or how the development of such a market might affect the market price for our ordinary shares. The initial public offering price of our ordinary shares in this offering will be agreed between us and the underwriters based on a number of factors, including market conditions in effect at the time of the offering, which may not be indicative of the price at which our shares will trade following completion of the offering. Investors may not be able to sell their shares at or above the initial public offering price.

Certain of our existing shareholders and members of our management board will continue to own a majority of our ordinary shares and as a result will be able to exercise significant control over us, and your interests may conflict with the interests of our existing shareholders.

Following completion of this offering, our existing shareholders are expected to own approximately 85% of our ordinary shares. If our existing shareholders or their affiliates as well as GlaxoSmithKline purchase all the shares they have indicated an interest in purchasing in this offering, the number of our ordinary shares beneficially owned by our existing shareholders and GlaxoSmithKline will, in the aggregate, increase to 89% of our ordinary shares. Depending on the level of attendance at our general meetings of shareholders, these shareholders may be in a position to determine the outcome of decisions taken at any such general meeting. Any shareholder or group of shareholders controlling more than 50% of the capital present and voting at our general meetings of shareholders may control any shareholder resolution requiring a simple majority, including the appointment of supervisory board members, certain decisions relating to our capital structure, the approval of certain significant corporate transactions and amendments to our Articles of Association. Among other consequences, this concentration of ownership may have the effect of delaying or preventing a change in control and might therefore negatively affect the market price of our ordinary shares.

Future sales, or the possibility of future sales, of a substantial number of our ordinary shares could adversely affect the price of the shares and dilute shareholders.

Future sales of a substantial number of our ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our ordinary shares. Following the completion of this offering, we will have 34,002,298 ordinary shares outstanding (assuming no exercise of the over-allotment option) based on 3,491,058 ordinary shares outstanding as of May 31, 2013 and 25,511,240 additional ordinary shares issuable upon the automatic conversion of all of our outstanding preferred shares into ordinary shares. This includes the shares in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Approximately 85% of the shares outstanding will be held by existing shareholders. If our existing shareholders or their affiliates as well as GlaxoSmithKline purchase all the shares they have indicated an interest in purchasing in this offering, the number of our ordinary shares beneficially owned by our existing shareholders and GlaxoSmithKline will, in the aggregate, increase to 89% of our ordinary shares. A significant portion of these shares will be subject to the lock-up agreements described in the “Underwriting” section of this prospectus. If, after the end of such lock-up agreements, these shareholders sell substantial amounts of shares in the public market, or the market perceives that such sales may occur, the market price of our ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected. We also intend to enter into a registration rights agreement upon consummation of this offering pursuant to which we will agree under certain circumstances to file a registration statement to register the resale of the shares held by certain of our existing shareholders, as well as

 

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to cooperate in certain public offerings of such shares. In addition, we intend to register all ordinary shares that we may issue under our equity compensation plans. Once we register these ordinary shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

Provisions of our Articles of Association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and prevent or frustrate any attempt to replace or remove the then management board and supervisory board.

Certain provisions of our Articles of Association may make it more difficult for a third party to acquire control of us or effect a change in our management board or supervisory board. These provisions include: the authorization of a class of preference shares that may be issued to a friendly party; staggered four-year terms of our supervisory board members; a provision that our management board and supervisory board members may only be removed by the general meeting of shareholders by a two-thirds majority of votes cast representing more than 50% of our outstanding share capital (unless the removal was proposed by the supervisory board); and a requirement that certain matters, including an amendment of our Articles of Association, may only be brought to our shareholders for a vote upon a proposal by our management board that has been approved by our supervisory board.

Our anti-takeover provision may prevent a beneficial change of control.

We have adopted an anti-takeover measure pursuant to which our management board may, subject to supervisory board approval but without shareholder approval, issue (or grant the right to acquire) cumulative preferred shares. We may issue an amount of cumulative preferred shares up to 100% of our issued capital immediately prior to the issuance of such cumulative preferred shares. In such event, the cumulative preferred shares (or right to acquire cumulative preferred shares) will be issued to a separate, newly established foundation.

The cumulative preferred shares will be issued to the foundation for their nominal value, of which only 25% will be due upon issuance. The voting rights of our shares are based on nominal value and as we expect our shares to trade substantially in excess of nominal value, cumulative preferred shares issued at nominal value can obtain significant voting power for a substantially reduced price and thus be used as a defensive measure. These cumulative preferred shares will have both a liquidation and dividend preference over our ordinary shares and will accrue cash dividends at a fixed rate. The management board may issue these cumulative preferred shares to protect us from influences that do not serve our best interests and threaten to undermine our continuity, independence and identity. These influences may include a third-party acquiring a significant percentage of our ordinary shares, the announcement of a public offer for our ordinary shares, other concentration of control over our ordinary shares or any other form of pressure on us to alter our strategic policies. If the management board determines to issue the cumulative preferred shares to such a foundation, the foundation’s articles of association will provide that it will act to serve the best interests of us, our associated business and all parties connected to us, by opposing any influences that conflict with these interests and threaten to undermine our continuity, independence and identity. This foundation will be structured to operate independently of us.

 

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If you purchase ordinary shares in this offering, you will suffer immediate dilution of your investment.

The initial public offering price of our ordinary shares is substantially higher than the pro forma net tangible book value per ordinary share. Therefore, if you purchase ordinary shares in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per ordinary share after this offering. To the extent outstanding options are exercised, you will incur further dilution. Based on the initial public offering price of $12.00 per share, you will experience immediate dilution of $9.97 per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, purchasers of ordinary shares in this offering will have contributed approximately 45% of the aggregate price paid by all purchasers of our ordinary shares but will own only approximately 15% of our ordinary shares outstanding after this offering. See “Dilution.”

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

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our ordinary shares. The failure by our management 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 the net proceeds from this offering in a manner that does not produce income or that loses value.

We do not expect to pay dividends in the foreseeable future.

We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. Payment of future dividends to shareholders will in addition effectively be at the discretion of the management board, subject to the approval of the supervisory board after taking into account various factors including our business prospects, cash requirements, financial performance and new product development. In addition, payment of future dividends may be made only if our shareholders’ equity exceeds the sum of our paid-in and called-up share capital plus the reserves required to be maintained by Dutch law or by our Articles of Association. Accordingly, investors cannot rely on dividend income from our ordinary shares and any returns on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.

Holders of our ordinary shares outside the Netherlands may not be able to exercise preemptive rights.

In the event of an increase in our share capital, holders of our ordinary shares are generally entitled under Dutch law to full preemptive rights, unless these rights are excluded either by a resolution of the general meeting of shareholders, or by a resolution of the management board (if the management board has been designated by the general meeting of shareholders for this purpose). See “Description of capital stock and Articles of Association—Comparison of Dutch

 

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corporate law and our Articles of Association and U.S. corporate law—Preemptive rights.” Certain holders of our ordinary shares outside the Netherlands, in particular U.S. holders of our ordinary shares, may not be able to exercise preemptive rights unless a registration statement under the Securities Act of 1933, as amended (Securities Act) is declared effective with respect to our ordinary shares issuable upon exercise of such rights or an exemption from the registration requirements is available.

Upon the consummation of this offering, we will be a Dutch public company with limited liability. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.

Upon the consummation of this offering, we will be a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our Articles of Association and by the laws governing companies incorporated in the Netherlands. The rights of shareholders and the responsibilities of members of our management board and supervisory board may be different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. In the performance of its duties, our management board and supervisory board are required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See “Description of capital stock and Articles of Association—Corporate governance.”

We are not obligated to and do not comply with all the best practice provisions of the Dutch Corporate Governance Code. This may affect your rights as a shareholder.

As a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains both principles and best practice provisions for management boards, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the Nasdaq Global Stock Market, or Nasdaq. The principles and best practice provisions apply to our management board and our supervisory board (in relation to role and composition, conflicts of interest and independency requirements, board committees and remuneration), shareholders and the general meeting of shareholders (for example, regarding anti-takeover protection and our obligations to provide information to its shareholders) and financial reporting (such as external auditor and internal audit requirements). We do not comply with all the best practice provisions of the DCGC. See “Description of capital stock and Articles of Association—Dutch corporate governance.” This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.

Claims of U.S. civil liabilities may not be enforceable against us.

We are incorporated under the laws of the Netherlands. Substantially all of our assets are located outside the United States. The majority of our managing directors and supervisory directors reside outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them or us in U.S. courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.

 

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The United States and the Netherlands currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in the Netherlands. In order to obtain a judgment which is enforceable in the Netherlands, the party in whose favor a final and conclusive judgment of the U.S. court has been rendered will be required to file its claim with a court of competent jurisdiction in the Netherlands. Such party may submit to the Dutch court the final judgment rendered by the U.S. court. If and to the extent that the Dutch court finds that the jurisdiction of the U.S. court has been based on grounds which are internationally acceptable and that proper legal procedures have been observed, the court of the Netherlands will, in principle, give binding effect to the judgment of the U.S. court, unless such judgment contravenes principles of public policy of the Netherlands. Dutch courts may deny the recognition and enforcement of punitive damages or other awards. Moreover, a Dutch court may reduce the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Civil Procedure Code.

Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or members of our management board or supervisory board, officers or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.

Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Dutch laws and regulations with regard to such matters and intend to furnish quarterly financial information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the Securities and Exchange Commission (SEC) of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

 

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As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we will rely on certain home country governance practices rather than the corporate governance requirements of Nasdaq.

We will be a foreign private issuer. As a result, in accordance with the listing requirements of Nasdaq, we will rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of Nasdaq. In accordance with Dutch law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock. Although we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice in the Netherlands, thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b). In addition, we have opted out of shareholder approval requirements for the issuance of securities in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. For an overview of our corporate governance principles, see “Description of capital stock and Articles of Association—Corporate governance.” Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to these Nasdaq requirements.

We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. We may no longer be a foreign private issuer as of June 30, 2014 (the end of our second fiscal quarter in the fiscal year after this offering), which would require us to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers as of January 1, 2015. In order to maintain our current status as a foreign private issuer, either (a) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors may not be United States citizens or residents, (ii) more than 50 percent of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S.

 

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domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our supervisory board.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an “emerging growth company” we are required to report only two years of financial results and selected financial data compared to three and five years, respectively, for comparable data reported by other public companies. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors will find our ordinary shares less attractive because we may rely on these 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 price of our ordinary shares may be more volatile.

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, shareholders 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 controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are 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 conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls 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.

 

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We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our ordinary shares and our trading volume could decline.

The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or too few securities or industry analysts commence coverage of our company, the trading price for our ordinary shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, the price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which might cause the price of our ordinary shares and trading volume to decline.

We may be classified as a passive foreign investment company (a “PFIC”) in 2013 or any future years. If we are a PFIC for any taxable year, this could result in adverse U.S. federal income tax consequences to U.S. investors.

Under the Internal Revenue Code of 1986, as amended (the Code), we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, “passive income.” Passive income generally includes interest, dividends, rents, certain non-active royalties and capital gains. Whether we will be a PFIC in any year depends on the composition of our income and assets, and the relative fair market value of our assets from time to time, which we expect may vary substantially over time. Because (i) we currently own, and will own after the completion of this offering, a substantial amount of passive assets, including cash, and (ii) the values of our assets, including our intangible assets, that generate non-passive income for PFIC purposes, is uncertain and may vary substantially over time, it is uncertain whether we will be or will not be a PFIC in 2013 or any future years.

If we are a PFIC for any taxable year during which a U.S. investor holds ordinary shares, the U.S. investor may be subject to adverse tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements.

For further discussion of the adverse U.S. federal income tax consequences of our classification as a PFIC, see “Taxation—U.S. federal income tax considerations for U.S. holders.”

 

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Cautionary statement regarding forward-looking statements

This prospectus contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others.

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk factors” in this prospectus. These risks and uncertainties include factors relating to:

 

 

the timing and conduct of GSK’s and our trials of drisapersen and our other product candidates, including statements regarding the timing of initiation and completion of the trials and when results of the trials will be made public;

 

 

our plans to pursue research and development of our product candidates for DMD and product candidates for other indications;

 

 

the potential advantages of our RNA modulation therapies, in particular drisapersen and our other product candidates for DMD;

 

 

the clinical utility of drisapersen and our other product candidates;

 

 

the timing or likelihood of regulatory filings and approvals;

 

 

our expectations regarding regulators’ acceptance of accelerated approval pathways for our follow-on product candidates;

 

 

our estimates regarding the market opportunity for drisapersen and our other product candidates;

 

 

our ability to establish sales, marketing and distribution capabilities;

 

 

our ability to establish and maintain manufacturing arrangements for our product candidates;

 

 

our intellectual property position;

 

 

our expectations regarding milestone, royalty and expense reimbursement payments under our GSK collaboration;

 

 

our expectations regarding the use of proceeds from this offering;

 

 

our estimates regarding expenses, future revenues, capital requirements and the need for additional financing;

 

 

the impact of government laws and regulations;

 

 

our competitive position; and

 

 

other risk factors discussed under “Risk factors.”

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

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Presentation of financial and other information

We prepare our financial statements under IFRS as issued by the IASB. None of the financial statements included in this prospectus were prepared in accordance with generally accepted accounting principles in the United States. We maintain our books and records in euros. In this prospectus, translations from euros to U.S. dollars were made at the rate of 0.781 to $1.00, the official exchange rate quoted as of March 31, 2013 by the European Central Bank.

All amounts paid to us under our agreement with GSK are paid in British pounds. In this prospectus, translations from British pounds to euros

 

 

relating to payments made on or before March 31, 2013 were made at the rate in effect at the time of the relevant payment; and

 

 

relating to future payments were made at a rate of £1.00 to 1.183, the official exchange rate quoted as of March 31, 2013 by the European Central Bank.

Pursuant to the Shareholders’ Agreement, all of our outstanding preferred shares will convert into our ordinary shares upon the consummation of this offering. The conversion rate for the preferred shares is calculated by reference to the original issue price of relevant preferred shares, adjusted for any stock splits, share distributions and, in the case of holders of Class A and Class B preferred shares, certain anti-dilution protections. The conversion rate immediately prior to the consummation of this offering will be one-to-one, and therefore all of our outstanding preferred shares will convert into an aggregate of 25,511,240 ordinary shares, which will result in us having 34,002,298 ordinary shares outstanding after this offering. We refer to this as the Share Conversion. See “Related party transactions—Shareholders’ agreement.”

Prior to the consummation of this offering, we intend to convert from a private company with limited liability, Prosensa Holding B.V., to a public company with limited liability, Prosensa Holding N.V. The audited financial statements for the years ended and as of December 31, 2012 and 2011 and the unaudited financial statements for the three months ended and as of March 31, 2013 and 2012 are the financial statements for Prosensa Holding B.V.

The term “$” refers to U.S. dollars, the terms “£,” “GBP” and “British pounds” refer to the legal currency of the United Kingdom and the terms “” or “euro” refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.

 

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Use of proceeds

We expect to receive total estimated net proceeds of approximately $53,400,000 (41,705,000), based on the midpoint of the range set forth on the cover page of this prospectus after deducting estimated underwriting discounts and commissions and expenses of the offering that are payable by us. Each $1.00 increase (decrease) in the public offering price per ordinary share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and expenses, by $0.93 (0.73), assuming that the number of shares offered by us, as set forth on the cover of this prospectus, remains the same.

As of March 31, 2013, we had cash and cash equivalents of 36.1 million. We currently expect that we will use the net proceeds from this offering, together with our cash and cash equivalents on hand, as follows:

 

 

approximately 61 million to fund our current DMD development portfolio for which we bear expenses (PRO045, PRO053, PRO052 and PRO055), PROSPECT and DMD-support projects, including our DMD natural history study;

 

 

approximately 8 million to fund non-DMD projects, including DM1 and HD; and

 

 

the remainder for working capital and other general corporate purposes.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors, including our ability to obtain additional financing, the relative success and cost of our research, preclinical and clinical development programs, the amount and timing of additional revenues, if any, received from our collaboration with GSK and whether we enter into future collaborations. As a result, management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue other clinical trials or preclinical activities if the net proceeds from this offering and our other sources of cash are less than expected.

Based on our planned use of the net proceeds of this offering and our current cash and cash equivalents described above, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term interest-bearing obligations and certificates of deposit.

 

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Dividend policy

We have never paid or declared any cash dividends on our ordinary shares, and we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our supervisory board and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our supervisory board deems relevant.

 

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Capitalization

The table below sets forth our capitalization (defined as long-term debt and shareholders’ equity) as of March 31, 2013 derived from our unaudited consolidated financial statements included in this prospectus:

 

 

on an actual basis; and

 

 

on a pro forma basis to give effect to the Share Conversion, our sale of our ordinary shares in this offering and the receipt of approximately $53,400,000 in estimated net proceeds, assuming an offering price of $12.00 (9.37) per share (the midpoint of the range set forth on the cover of this prospectus), after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us in connection with the offering.

Investors should read this table in conjunction with our consolidated audited and condensed consolidated unaudited financial statements included in this prospectus as well as “Use of proceeds,” “Selected financial information” and “Management’s discussion and analysis of financial condition and results of operations.”

 

      March 31, 2013  
( in thousands)    Actual     Pro forma  

 

 

Cash and cash equivalents

   36,115      79,695   
  

 

 

   

 

 

 

Short-term debt

     280        280   

Long-term debt, excluding current portion

     6,402        6,402   
  

 

 

 

Total debt

     6,682        6,682   
  

 

 

 

Shareholders’ equity

    

Share capital

     290        340   

Ordinary shares

     35        340   

Class O shares

     7          

Class A shares

     74          

Class B1 shares

     83          

Class B2 shares

     50          

Class B3 shares

     41          

Share premium

     56,118        98,514   

Other reserves

     1,114        1,114   

Accumulated deficit

     (41,890     (41,890

Unappropriated earnings

     (3,449     (3,449
  

 

 

 

Total shareholders’ equity(1)

     12,183        54,629   
  

 

 

 

Total capitalization(1)(2)

     18,865        61,311   

 

 

 

(1)   Each $1.00 increase (decrease) in the offering price per ordinary share would increase (decrease) our cash and cash equivalents, total shareholders’ equity and total capitalization by $0.93 (0.73).

 

(2)   Total capitalization consists of long-term debt (including current portion) plus total shareholders’ equity.

The table above does not include:

 

 

2,207,707 of our ordinary shares issuable upon the exercise of options outstanding as of March 31, 2013 at a weighted average exercise price of 0.34 per share; and

 

 

376,827 of our ordinary shares covered by additional awards available for future issuance under our equity incentive plans as of March 31, 2013.

 

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Dilution

If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering.

At March 31, 2013, we had a net tangible book value of $14.5 million (11.3 million), corresponding to a net tangible book value of $0.50 per share (0.39 per share). Net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by 29,002,298, the total number of our ordinary shares and preferred shares outstanding at March 31, 2013. Because the conversion of our preferred shares into ordinary shares will occur on a one-to-one basis, the Share Conversion will not result in additional dilution.

After giving effect to the sale by us of the 5,000,000 ordinary shares offered by us in the offering, and assuming an offering price of $12.00 per share (9.37 share), the midpoint of the range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value estimated at March 31, 2013 would have been approximately $68.9 million (53.8 million), representing $2.03 per share (1.58 per share). This represents an immediate increase in net tangible book value of $1.53 per share (1.19 per share) to existing shareholders and an immediate dilution in net tangible book value of $9.97 per share (7.79 per share) to new investors purchasing shares in this offering. Dilution for this purpose represents the difference between the price per share paid by these purchasers and net tangible book value per share immediately after the completion of the offering.

The following table illustrates this dilution to new investors purchasing shares in the offering.

 

      $                                

 

 

Net tangible book value per share at March 31, 2013

     0.50        0.39   

Increase in net tangible book value per share attributable to new investors

     1.53        1.19   

Pro forma net tangible book value per share after the offering

     2.03        1.58   

Dilution per ordinary share to new investors

     9.97        7.79   

Percentage of dilution in net tangible book value per ordinary share for new investors

     83     83

 

 

Each $1.00 increase (decrease) in the offering price per share, respectively, would increase (decrease) the pro forma net tangible book value after this offering by $0.14 per share (0.11 per share) and the dilution to investors in the offering by $0.86 per share (0.67 per share).

 

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The following table sets forth, on a pro forma basis as of March 31, 2013, giving effect to this offering, the total number of shares owned by existing shareholders and to be owned by new investors, the total consideration paid and the average price per share paid by our existing shareholders and to be paid by new investors purchasing shares in this offering. The calculation below is based on an assumed initial public offering price of $12.00 per share (9.37 per share), the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

      Shares purchased      Total consideration      Average price
per share
 
     Number      Percent      Amount      Percent     

 

 

Existing shareholders

     29,002,298         85%       $ 72,225,000       56,408,000         55%       $ 2.49       1.94   

New investors

     5,000,000         15             60,000,000         46,860,000         45             12.00         9.37   
     

 

 

       

Total

     34,002,298         100%               100%         

 

 

Each $1.00 increase (decrease) in the offering price per share, respectively, would increase (decrease) the total consideration paid by new investors by $5.0 million (3.9 million) and increase (decrease) the percentage of total consideration paid by new investors by approximately 2%, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

The table above is based on actual our ordinary shares outstanding as of March 31, 2013 and additional shares of our ordinary shares issuable upon the automatic conversion of all of our outstanding preferred shares upon the consummation of this offering pursuant to the Share Conversion. The table above does not include:

 

 

2,207,707 of our ordinary shares issuable upon the exercise of options outstanding as of March 31, 2013 at a weighted average exercise price of 0.34 per share; and

 

 

376,827 of our ordinary shares covered by additional awards available for future issuance under our equity incentive plans as of March 31, 2013.

If the underwriters exercise their over-allotment option in full, the following will occur:

 

 

the percentage of our ordinary shares held by existing shareholders will decrease to approximately 83% of the total number of our ordinary shares outstanding after this offering; and

 

 

the percentage of our ordinary shares held by new investors will increase to approximately 17% of the total number of our ordinary shares outstanding after this offering.

Certain of our existing shareholders and their affiliated entities, as well as GlaxoSmithKline, one of our collaborators, have indicated an interest in purchasing an aggregate of approximately $15 million of our ordinary shares in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities may determine to purchase fewer shares than they indicate an interest in purchasing or not to purchase any shares in this offering. It is also possible that these entities could indicate an interest in purchasing more ordinary shares. In addition, the underwriters could determine to sell fewer shares to any of these entities than the entities indicate an interest in purchasing or not to sell any shares to these entities. The foregoing discussion and tables do not reflect any potential purchases by these entities or their affiliated entities.

 

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Selected financial information

The summary income statement and balance sheet data for the years ended and as of December 31, 2012 and 2011 of Prosensa Holding B.V. are derived from the consolidated financial statements included in this prospectus. The summary income statement and balance sheet data for the three months ended and as of March 31, 2013 and 2012 are derived from the unaudited consolidated financial statements included in this prospectus. We maintain our books and records in euros, and we prepare our financial statements under IFRS as issued by the IASB.

This financial information should be read in conjunction with “Presentation of financial and other information,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated audited and condensed consolidated unaudited financial statements, including the notes thereto, included in this prospectus.

Consolidated statement of comprehensive income data

 

      Year ended December 31,     Three months
ended March 31,
 
( in thousands)    2011     2012     2012     2013  

 

   

 

 

   

 

 

 

License revenue

   6,510      5,726      1,385      1,407   

Collaboration revenue

     2,179        2,127        589        993   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     8,689        7,853        1,974        2,400   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income

     36        174        0        1   

Research and development expense

     (15,348     (14,393     (3,781     (4,060

General and administrative expense

     (5,203     (4,023     (1,061     (1,795

Other gains/(losses)—net

     22        49        3        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (11,804     (10,340     (2,865     (3,453
  

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

     434        796        212        192   

Finance costs

     (209     (348     (82     (188
  

 

 

   

 

 

   

 

 

   

 

 

 

Finance income—net

     225        448        130        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     0        0        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   (11,579   (9,892   (2,735   (3,449
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share

        

Basic and diluted(1)

     (0.60     (0.37     (0.12     (0.12

Weighted-average shares outstanding(2)

        

Basic

     19,240,137        26,574,570        23,145,096        29,002,298   

Diluted

     20,656,759        28,110,543        24,562,830        31,210,005   

 

(1)   Basic and diluted net loss per share are the same in these periods because outstanding options and restricted shares would be anti-dilutive due to our net loss in these periods.
(2)   Includes preferred shares.

 

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Consolidated balance sheet data

 

      As of
December 31,
    As of
March  31,
 
( in thousands)    2011     2012     2013  

 

  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents

     18,743        40,738        36,115   

Working capital (deficit)(1)

     (4,271     (2,353     (2,349

Total assets

     25,191        47,329        43,360   

Long-term debt, including current portion

     3,032        6,541        6,682   

Accumulated (deficit)

     (31,122     (40,834     (44,225

Total shareholders’ equity

     2,630        15,574     

 

12,183

  

 

(1)   Working capital (deficit) is calculated as current assets excluding cash and cash equivalents less trade and other payables.

 

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Exchange rate information

Our business is primarily conducted in the European Union, and we maintain our books and records in euros. We have presented results of operations in euros. On June 14, 2013, the exchange rate was 0.752 to $1.00. In this prospectus, translations from euros to U.S. dollars were made at the rate of 0.781 to $1.00, the official exchange rate quoted as of March 31, 2013 by the European Central Bank. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of euros at the dates indicated. All amounts paid to us under our agreement with GSK are paid in British pounds. In this prospectus, translations from British pounds to euros (a) relating to payments made on or before March 31, 2013 were made at the rate in effect at the time of the relevant payment and (b) relating to future payments were made at a rate of £1.00 to 1.183, the official exchange rate quoted as of March 31, 2013 by the European Central Bank.

The following table presents information on the exchange rates between the euro and the U.S. dollar for the periods indicated:

 

      Period-end      Average for
period
     Low      High  
     ( per U.S. dollar)      

 

 

Year Ended December 31:

           

2008

     0.719         0.680         0.625         0.803   

2009

     0.694         0.717         0.661         0.796   

2010

     0.748         0.754         0.687         0.837   

2011

     0.773         0.718         0.672         0.776   

2012

     0.758         0.778         0.743         0.827   

Month Ended:

           

December 31, 2012

     0.758         0.762         0.752         0.775   

January 31, 2013

     0.738         0.753         0.738         0.769   

February 28, 2013

     0.762         0.749         0.733         0.765   

March 31, 2013

     0.781         0.771         0.764         0.783   

April 30, 2013

     0.765         0.768         0.762         0.780   

May 31, 2013

     0.769         0.770         0.758         0.778   

June 2013 (through June 14, 2013)

     0.752         0.758         0.751         0.769   

 

 

 

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Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with the information under “Selected financial information” and our consolidated audited and condensed consolidated unaudited financial statements, including the notes thereto, included in this prospectus. The following discussion is based on our financial information prepared in accordance with IFRS as issued by the IASB, which might differ in material respects from generally accepted accounting principles in other jurisdictions. The following discussion includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described under “Risk factors” and elsewhere in this prospectus.

Overview

We are an innovative biotechnology company engaged in the discovery and development of ribonucleic acid-modulating, or RNA-modulating, therapeutics for the treatment of genetic disorders. Our primary focus is on rare neuromuscular and neurodegenerative disorders with a large unmet medical need, including Duchenne muscular dystrophy, myotonic dystrophy and Huntington’s disease. Our clinical portfolio of RNA-based product candidates is focused on the treatment of Duchenne muscular dystrophy, or DMD. Each of our DMD compounds has been granted orphan drug status in the United States and the European Union.

To date, we have financed our operations through private placements of equity securities, upfront, milestone and expense reimbursement payments received from GlaxoSmithKline, or GSK, under our research and development collaboration and license agreement, or the GSK Agreement, as well as funding from patient organizations, governmental bodies and bank loans. From January 1, 2002 until March 31, 2013, we raised gross proceeds of 56.4 million from private placements of equity securities and received £41.5 million (47.4 million) in payments from GSK and 5.5 million in loans from patient organizations and governmental bodies. As of March 31, 2013, we had cash and cash equivalents of 36.1 million. To date, we have not generated any revenues from royalties or product sales. Based on our current plans, we do not expect to generate royalty or product revenues unless and until GSK obtains marketing approval for, and commercializes, drisapersen or any of the product candidates it licenses from us or we obtain marketing approval for, and commercialize, any of our product candidates for which we have retained commercialization rights.

We have generated losses since we began our drug development operations in 2002. For the years ended December 31, 2012 and 2011, we incurred net losses of 9.9 million and 11.6 million, respectively, and for the three months ended March 31, 2013 and 2012, we incurred net losses of 3.4 million and 2.7 million, respectively. As of March 31, 2013, we had an accumulated deficit of 44.2 million. We expect to continue incurring losses as we continue our clinical and preclinical development programs, apply for marketing approval for our product candidates, and subject to obtaining regulatory approval of our product candidates, build a sales and marketing force in preparation for the potential commercialization of our product candidates.

 

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Collaboration and license agreements

GlaxoSmithKline

In 2009, we entered into the GSK Agreement for the development and commercialization of RNA-based therapeutics for DMD. Under this agreement, we granted GSK an exclusive worldwide license to develop and commercialize our lead compound, drisapersen. We have also granted GSK an exclusive option to obtain an exclusive worldwide license for our next most advanced compound, PRO044. In addition, GSK has an exclusive option to obtain an exclusive worldwide license for either PRO045 or PRO053, and an exclusive option to obtain an exclusive worldwide license for either PRO052 or PRO055. PRO045 is paired with PRO053, and PRO052 is paired with PRO055, because each of the product candidates in the respective pairings addresses a patient sub-population of a similar size and is at a comparable stage of development. Including amounts already paid and potential payments related to compounds to which GSK has not yet exercised its option, we are eligible for up to £428 million (505 million) in total milestone payments upon successful compound development and commercialization and percentage royalties in the low tens on product sales. Of the £428 million in milestone payments, £104 million (120 million) relate to development activities including option exercise payments; £195 million (232 million) relate to regulatory achievements, such as gaining regulatory approval; and £129 million (153 million) relate to commercial sales activities, such as achieving threshold worldwide net sales levels. A substantial portion of the milestone payments is related to drisapersen.

We will retain the full rights to the product candidates that are not licensed by GSK, and for each product candidate licensed by GSK from each of the pairings of product candidates described above, we will retain an option, which may be exercised following certain events, to certain commercial rights in a selected European territory. All of our other DMD compounds fall outside of the scope of this agreement, and we intend to develop and commercialize them ourselves or consider partnerships. Under the agreement, we are prohibited from separately developing any compound intended to directly induce single exon skipping in the dystrophin gene for the treatment of DMD targeting the same exon that is the subject of a program under the agreement. See “Business—Collaboration, license and funding arrangements—GlaxoSmithKline.”

In 2009, we received a £16 million (17.2 million) nonrefundable upfront payment, and in total we have received £41.5 million (47.4 million), under the GSK Agreement. Since 2009, we have recognized 28.7 million of this revenue, and 18.7 million is currently recorded as deferred revenue and is expected to be recognized over the coming two years. All payments by GSK to us are made in British pounds.

Leiden University Medical Center

We have entered into an exclusive worldwide license agreement with Leiden University Medical Center, or LUMC, for the rights to apply LUMC’s proprietary RNA modulation exon-skipping technology to develop treatments for DMD, other neuromuscular disorders and indications outside the field of neuromuscular disorders. We are obligated to make milestone payments upon the occurrence of events with respect to each subfield in which we pursue a drug indication using the LUMC patent rights, including commencing the first toxicity study, successfully completing the first Phase I study, filing for regulatory approval and satisfying certain sales thresholds. The aggregate milestone payments could total approximately 1.4 million, if we achieve such milestones in relation to an initial orphan drug indication. If we achieve such milestones in relation to a non-orphan drug indication, the aggregate milestone payments could

 

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total 5.5 million. We may also be obligated to pay LUMC additional milestone payments of 1.25 million per product in relation to products approved for additional orphan drug indications. In addition, we are obligated to pay LUMC a mid-single digit percentage royalty on net sales on a country-by-country basis if and when any of our products is brought to market. If we sublicense our rights under the LUMC agreement to a third party, as we have to GSK, we are obligated to pay LUMC a tiered royalty percentage (ranging from the low-to-mid-twenties) on the net licensing income and a low single-digit percentage royalty on the net sales generated by the sublicensee. See “Business—Collaboration, license and funding arrangements—Leiden University Medical Center.”

To date, we have paid LUMC 3.6 million in milestone payments under the agreement.

Financial operations overview

Total revenue

Our revenues to date have consisted principally of license revenue and collaboration revenue. For 2011 and 2012 and the first quarter of 2013, all of our license revenue and collaboration revenue was generated under the GSK Agreement.

 

 

License Revenue.    License revenue generally includes upfront payments and milestone payments. In 2009, we received a £16 million (17.2 million) nonrefundable upfront payment from GSK in connection with our entry into the GSK Agreement. We are recognizing this payment ratably over five years, and in each year we recognize revenue of 3.4 million and in each quarter we recognize 0.9 million. In addition, we recognized revenue of 2.3 million and 3.1 million related to unconditional milestone payments for research under the GSK Agreement in the years 2012 and 2011, respectively. For each of the three months ended March 31, 2013 and March 31, 2012, we recognized revenue of 0.5 million on these unconditional milestone payments.

 

 

Collaboration revenue.    Collaboration revenue is revenue from contracts, typically for research and development activities under the GSK Agreement. In 2012 and 2011, we recognized 2.1 million and 2.2 million, respectively, of collaboration revenues. For the three months ended March 31, 2013 and 2012, we recognized 1.0 million and 0.6 million, respectively, of collaboration revenues. In each period the revenues were mainly for services provided under the GSK Agreement related to the research and development of drisapersen and PRO044.

The timing of our operating cash flows may vary significantly from the recognition of the related cash flows, as the revenue from some upfront or initiation payments is deferred and recognized as revenue when earned, while other revenue is earned when received, such as milestone payments or service fees. Our revenue has varied substantially, and is expected to continue to vary, from quarter to quarter and year to year, depending upon, among other things, the structure and timing of milestone events, the number of milestones achieved, the level of revenues earned for ongoing development efforts, any new collaboration arrangements we may enter into and the terms we are able to negotiate with our partners. We therefore believe that period to period comparisons should not be relied upon as indicative of our future revenues.

 

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Other income

We receive research grant funding from various institutions and governmental bodies.

To fund our research and development activities, we have also obtained loans from patient organizations and governmental bodies that generally bear interest at below-market interest rates. The difference between fair value and the notional amount at inception is treated as a donation received for research we performed and classified as other income.

Cost of license revenue

We are obligated to make payments to LUMC upon the achievement of specified milestones, if any of our product candidates become successfully commercialized and if we generate certain revenues from sublicensing to a third party our rights under the agreement, as we have to GSK. For the three months ended March 31, 2013 and 2012 and for the years ended December 31, 2012 and 2011, we did not incur any costs associated with license revenue because we did not generate any applicable revenue.

Research and development expense

Research and development expense consists principally of:

 

 

salaries for research and development staff and related expenses, including social security costs;

 

 

costs for production of preclinical compounds and drug substances by contract manufacturers;

 

 

fees and other costs paid to contract research organizations in connection with additional preclinical testing and the performance of clinical trials;

 

 

costs of related facilities, materials and equipment;

 

 

costs associated with obtaining and maintaining patents and other intellectual property; and

 

 

amortization and depreciation of tangible and intangible fixed assets used to develop our product candidates.

We expect that our total research and development expense in 2013 will be in the range of 20-25 million. Our research and development expense mainly relates to the following key programs:

 

 

PRO044.    In 2011, we and GSK agreed to amend the development plan for PRO044 to extend the period of GSK’s option to obtain an exclusive worldwide license for PRO044 and provide additional funding for further development activities for PRO044. However, we continue to incur expenses for the clinical study for PRO044 that we initiated in December 2009 and for which the final clinical study report is expected to be completed in the third quarter of 2013.

 

 

PRO045 & PRO053.    We commenced a Phase I/II study of PRO045 in the first quarter of 2013, and we expect to commence a Phase I/II study of PRO053 in mid-2013. We anticipate that our research and development expenses will increase substantially in connection with the clinical trials of PRO045 and PRO053.

 

 

Other development programs (DMD and Non-DMD projects).    Other research and development expenses mainly relate to our preclinical studies of PRO052 and PRO055, as well

 

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as our PROSPECT program and our DM1 and HD programs. The expenses mainly consist of salaries, costs for production of the preclinical compounds and costs paid to contract research organizations in conjunction with preclinical testing.

Since January 1, 2009, we cumulatively spent 56.1 million on research and development. Our research and development expense may vary substantially from period to period based on the timing of our research and development activities, including timing due to regulatory approvals and enrollment of patients in clinical trials. Research and development expense is expected to increase as we advance the clinical development of our DMD product candidates and to further advance the research and development of our non-DMD product candidates. The successful development of our product candidates is highly uncertain. At this time we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

 

the scope, rate of progress and expense of our research and development activities;

 

 

clinical trial and early-stage results;

 

 

the terms and timing of regulatory approvals;

 

 

the expense of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and

 

 

the ability to market, commercialize and achieve market acceptance for drisapersen or any other product candidate that we may develop in the future.

A change in the outcome of any of these variables with respect to the development of drisapersen or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of drisapersen or such product candidate. For example, if the FDA or other regulatory authority were to require us to conduct preclinical and clinical studies beyond those which we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrollment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of the clinical development.

General and administrative expense

Our general and administrative expense consists principally of:

 

 

salaries for employees other than research and development staff, as well as expenses related to share-based compensation awards granted to all of our employees;

 

 

professional fees for auditors and other consulting expenses not related to research and development activities;

 

 

professional fees for lawyers not related to the protection and maintenance of our intellectual property;

 

 

cost of facilities, communication and office expenses;

 

 

IT expenses; and

 

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amortization and depreciation of tangible and intangible fixed assets not related to research and development activities.

We expect that our general and administrative expense will increase in the future as our business expands and we incur additional costs associated with operating as a public company. These public company-related increases will likely include costs of additional personnel, additional legal fees, accounting and audit fees, managing directors’ and supervisory directors’ liability insurance premiums and costs related to investor relations. In addition, we may grant share-based compensation awards to key management personnel and other employees in connection with this offering.

Finance income

Our cash and cash equivalents have been deposited primarily in saving and deposit accounts with original maturities of 3 months or less. Saving and deposit accounts generate a small amount of interest income. We expect to continue this investment philosophy.

Results of operations

Comparison of the three months ended March 31, 2012 and 2013

 

      Three months ended March 31,  
     2012     2013     Change  
     ( in thousands)     %  

 

  

 

 

   

 

 

   

 

 

 

License revenue

   1,385      1,407        1.6   

Collaboration revenue

     589        993        68.5   
  

 

 

   

 

 

   

 

 

 

Total revenue

     1,974        2,400        21.6   
  

 

 

   

 

 

   

 

 

 

Other income

     —          1        0.0   

Research and development expense

     (3,781     (4,060     7.4   

General and administrative expense

     (1,061     (1,795     69.1   

Other gains/(losses)—net

     3        1        66.7   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (2,865     (3,453     20.5   
  

 

 

   

 

 

   

 

 

 

Finance income

     212        192        (9.4

Finance costs

     (82     (188     129.2   
  

 

 

   

 

 

   

 

 

 

Finance income—net

     130        4        (96.9
  

 

 

   

 

 

   

 

 

 

Net loss

     (2,735     (3,449     26.1   

License revenue

License revenue remained stable at 1.4 million for each of the three month periods ended March 31, 2012 and 2013. In 2009, we received a £16 million (17.2 million) nonrefundable upfront payment from GSK in connection with our entry into the GSK Agreement. We are recognizing this payment ratably over five years, and in the three month periods ended March 31 in each of 2013 and 2012, we recognized revenue of 0.9 million. In addition, we recognized revenue of 0.5 million related to unconditional milestone payments for the PRO045/PRO053 program and the PRO052/PRO055 program received under the GSK Agreement in the three month periods ended March 31 in each of 2012 and 2013.

 

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Collaboration revenue

Collaboration revenue increased from 0.6 million in the three month period ended March 31, 2012 to 1.0 million in the three month period ended March 31, 2013. This revenue was generated mainly from services provided under the GSK Agreement related to the research and development of drisapersen and PRO044.

Other income

Other income is incidental by nature and was insignificant in the three months ended March 31, 2012 and 2013.

Research and development expense for the three months ended March 31, 2012 and 2013

 

Project expenses by project    2012      2013      Change  
     ( in thousands)      %  

 

  

 

 

    

 

 

    

 

 

 

DMD Projects

PRO044

     484         364         (24.8

PRO045 and PRO053

     910         970         6.6   

Other DMD projects

     928         1,186         27.8   

Non-DMD projects

     338         286         15.4   

Infrastructure costs

     1,121         1,254         11.9   

Total

     3,781         4,060         7.4   

Research and development expense increased 7.4% from 3.8 million in the three months ended March 31, 2012 to 4.1 million in the three months ended March 31, 2013. Our research and development expense is highly dependent on the development phases of our projects and therefore fluctuates highly from year to year. We expect that our total research and development costs in 2013 will be in the range of 20-25 million.

The variances in expense between the three months ended March 31, 2012 and the corresponding period in 2013 are mainly due to the following projects:

 

 

DMD projects.    In the three months ended March 31, 2013 we incurred lower expenses for PRO044 compared to the prior year period because our current development activities for PRO044 are largely funded by GSK. While we incurred expenses for non-clinical safety studies and manufacturing for PRO045 and PRO053 in the three months ended March 31, 2012, our research and development expenses in the first three months of 2013 mainly related to the commencement of the phase I/II study of PRO045 and the preparation of the phase I/II study of PRO053 expected to commence mid-2013. In the first three months of 2013 we also incurred expenses for the 3-months non-clinical safety studies for PRO052.

 

 

Non-DMD projects.    The expenses for our non-DMD projects DM1 and HD mainly consist of outsourced in vivo proof-of-concept studies and the corresponding manufacturing of the preclinical compounds in both years. The variance is mainly due to slightly lower expenses on other non-DMD projects.

 

 

Infrastructure costs.    We incur a significant amount of costs associated with our research and development that are non-project specific, including intellectual property-related expenses, depreciation expenses and facility costs. Because these are less dependent on individual

 

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ongoing programs, they are not allocated to specific projects. These costs were slightly higher in the first quarter of 2013 versus 2012 mainly due to intellectual property expenses, but are expected to remain stable for the full year of 2013 compared to 2012.

General and administrative expense

General and administrative expense increased from 1.1 million in 2012 to 1.8 million in the three months ended March 31, 2013 over the prior year period due to additional audit fees and professional advisory expense of 0.7 million related to a potential capital markets transaction. We expect that general and administrative expense will increase in the future as our business expands and we incur additional costs associated with operating as a public company.

Other gains/(losses)

Other gains/(losses) were insignificant in the three months ended March 31, 2012 and 2013.

Finance income

Finance income decreased 9% in the three months ended March 31, 2013 compared to the three months ended March 31, 2012 due to lower interest rates.

Finance cost

Finance cost increased 129% from 0.1 million in the three months ended March 31, 2012 to 0.2 million in the three months ended March 31, 2013. Higher finance costs were mainly due to new borrowings from patient organizations and governmental bodies of 2.3 million in the twelve month period ended March 31, 2013.

Comparison of the years ended December 31, 2011 and 2012

 

      Year ended December 31,  
     2011     2012     Change  
     ( in thousands)     %  

 

  

 

 

   

 

 

   

 

 

 

License revenue

   6,510      5,726        (12.0

Collaboration revenue

     2,179        2,127        (2.4
  

 

 

   

 

 

   

 

 

 

Total revenue

     8,689        7,853        (9.6
  

 

 

   

 

 

   

 

 

 

Other income

     36        174        383.3   

Research and development expense

     (15,348     (14,393     (6.2

General and administrative expense

     (5,203     (4,023     (22.7

Other gains/(losses)—net

     22        49        122.7   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (11,804     (10,340     (12.4
  

 

 

   

 

 

   

 

 

 

Finance income

     434        796        83.4   

Finance cost

     (209     (348     66.5   
  

 

 

   

 

 

   

 

 

 

Finance income—net

     225        448        99.1   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

     0        0        0   
  

 

 

   

 

 

   

 

 

 

Total comprehensive loss

   (11,579   (9,892     (14.6

 

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License revenue

License revenue decreased 12.0% from 6.5 million in 2011 to 5.7 million in 2012. In 2009, we received a £16 million (17.2 million) nonrefundable upfront payment from GSK in connection with our entry into the GSK Agreement. We are recognizing this payment ratably over five years, and in each of 2012 and 2011, we recognized revenue of 3.4 million. In addition, we recognized revenue of 2.3 million and 3.1 million related to unconditional milestone payments received under the GSK Agreement in the years 2012 and 2011, respectively. With respect to the year ended December 31, 2012, the unconditional payments received under the GSK Agreement related to the clinical candidate selection of PRO052 and PRO055, as well as an advanced option payment for PRO044. With respect to the year ended December 31, 2011, the unconditional milestone payments received under the GSK Agreement related to PRO045 and PRO053.

Collaboration revenue

Collaboration revenue decreased slightly from 2.2 million in 2011 to 2.1 million in 2012. This revenue was generated mainly from services provided under the GSK Agreement related to the research and development of drisapersen and PRO044.

Other income

Other income is incidental by nature. In 2012, we received a loan from a patient organization bearing an interest rate below the market interest rate. The difference between fair value and the notional amount at inception is considered a donation and recorded as other income. In 2011, we received a grant that was recorded as other income.

Research and development expense

 

Project expenses by project    2011      2012      Change  
     ( in thousands)      %  

DMD Projects

        

PRO044

     1,699         1,438         (15.4

PRO045 and PRO053

     4,745         3,283         (30.8

Other DMD projects

     3,128         3,723         19.0   

Non-DMD projects

     1,214         1,444         18.9   

Infrastructure costs

     4,562         4,505         (1.2

Total

     15,348         14,393         (6.2

Research and development expense decreased 6.2% from 15.3 million in 2011 to 14.4 million in 2012. Our research and development expense is highly dependent on the development phases of our research projects and therefore fluctuates highly from year to year. We expect that our total research and development costs in 2013 will be in the range of 20-25 million.

The variances in expense between 2011 and 2012 are mainly due to the following projects:

 

 

DMD projects.    In 2011 and 2012, we incurred clinical costs and costs related to the in-house analyses of drug substance and drug product for PRO044. In 2013, we expect that our expenses for PRO044 will decrease compared to prior periods because our current development activities for PRO044 are largely funded by GSK. While we incurred expenses for non-clinical safety work

 

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and manufacturing for PRO045 and PRO053 in 2011 and 2012, we anticipate that our research and development expenses will increase substantially for these product candidates in connection with the commencement of the clinical trials of PRO045 and PRO053 in 2013.

 

 

Non-DMD projects.    The expenses for our non-DMD projects for DM1 and HD mainly consist of outsourced in vivo proof-of-concept studies and the corresponding manufacture of the preclinical compounds.

 

 

Infrastructure costs.    We incur a significant amount of costs associated with our research and development that are non-project specific, including intellectual property-related expenses, depreciation expenses and facility costs. Because these are less dependent on individual ongoing programs, they are not allocated to specific projects. These costs remained stable over the years 2011 and 2012 and are expected to remain stable in 2013.

General and administrative expense

General and administrative expense decreased 22.7% from 5.2 million in 2011 to 4.0 million in 2012. The decrease was primarily related to legal fees related to financing activities, non-cash share-based compensation and the move to larger facilities in Leiden during 2011.

We expect that general and administrative expense will increase in the future as our business expands and we incur additional costs associated with operating as a public company.

Other gains/(losses)

Other gains/(losses) were insignificant in 2011 and 2012.

Finance income

Finance income increased 83.4% from 0.4 million in 2011 to 0.8 million in 2012. Finance income in these periods consisted primarily of interest income recognized on short-term deposits. Finance income increased in 2012 as a result of an increase in average cash and cash equivalents following our private placement of preferred equity securities to new and existing investors with total net proceeds of 22.7 million in January 2012.

Finance cost

Finance cost increased 66.5% from 0.2 million in 2011 to 0.3 million in 2012. Higher finance costs are mainly due to new borrowings from patient organizations and governmental bodies of 3.9 million in 2012.

Liquidity and capital resources

To date, we have financed our operations through private placements of equity securities, upfront, milestone and expense reimbursement payments from GSK and funding from patient organizations, governmental bodies and bank loans.

 

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Cash flows

Comparison of the three months ended March 31, 2012 and 2013

Our cash and cash equivalents as of March 31, 2013 were 36.1 million. The table below summarizes our consolidated unaudited statement of cash flows for each of the three month periods ended March 31, 2012 and 2013:

 

      Three months
ended March 31,
 
     2012     2013  
     ( in thousands)  

 

  

 

 

   

 

 

 

Net cash (used in)/generated from operating activities

     (4,571     (4,341

Net cash (used in)/generated from investing activities

     (136     (262

Net cash (used in)/generated from financing activities

     11,653        (20
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     6,946        (4,623
  

 

 

   

 

 

 

Cash, cash equivalents and bank overdrafts at the beginning of the period

   18,743      40,738   
  

 

 

   

 

 

 

Cash, cash equivalents and bank overdrafts at the end of the period

   25,689      36,115   

The net cash used in operating activities decreased slightly from 4.6 million in the three months ended March 31, 2012 to 4.3 million in the three months ended March 31, 2013 due to higher amounts of interest received in the three month period ended March 31, 2013 in the amount of 0.1 million, changes in the working capital balances of 0.8 million in the three month period ended March 31, 2013 as compared to the three month period ended March 31, 2012, offset by higher operating loss of 0.6 million. For an explanation of the higher operating loss of 0.6 million, please see “—Results of operations”.

The net cash used in investing activities increased slightly from 0.1 million in the three month period ended March 31, 2012 to 0.2 million in the three month period ended March 31, 2013 due to higher investments in tangible fixed assets.

The decrease in net cash generated from financing activities from 11.7 million in the three month period ended March 31, 2012 to approximately nil in the three month period ended March 31, 2013 is due to minimal financing activities in the three month period ended March 31, 2013 compared to the three month period ended March 31, 2012, which included proceeds of the first half of our private placement of 9,107,144 preferred (Class B) shares to new and existing investors for total net proceeds of 22.7 million agreed to in January 2012 and 0.2 million of new borrowings.

 

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Comparison of the year ended December 31, 2011 and 2012

The table below summarizes our consolidated audited statement of cash flows for the years ended December 31, 2012 and 2011:

 

      Year ended
December 31,
 
     2011     2012  
     ( in thousands)  

 

  

 

 

   

 

 

 

Net cash (used in)/generated from operating activities

     (7,291     (3,655

Net cash (used in)/generated from investing activities

     (2,211     (379

Net cash (used in)/generated from financing activities

     458        26,029   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (9,044     21,995   
  

 

 

   

 

 

 

Cash, cash equivalents and bank overdrafts at the beginning of the period/year

   27,787      18,743   
  

 

 

   

 

 

 

Cash, cash equivalents and bank overdrafts at the end of the period/year

   18,743      40,738   

The decrease in net cash used in operating activities by 49.9% from 7.3 million in 2011 to 3.7 million in 2012 was mainly due to a lower operating loss of 1.5 million and the receipt of milestone payments that were 6.6 million higher in 2012 compared to 2011, offset by changes in the working capital balances in 2012 as compared to 2011 in the amount of 5.1 million. For an explanation of the lower operating loss of 1.5 million, please see “—Results of operations.”

The decrease in net cash used in investing activities by 82.9% from 2.2 million in 2011 to 0.4 million in 2012 was due to our move to a larger facility in Leiden in 2011, which resulted in relatively higher investments in laboratory and office equipment in that year.

The increase in net cash generated from financing activities from 0.5 million in 2011 to 26.0 million in 2012 is mainly due to our private placements of 9,107,144 preferred (Class B) shares to new and existing investors for total net proceeds of 22.7 million in January 2012. In addition, in 2012 we received funding from patient organizations and governmental bodies totalling 3.9 million, offset by the repayment of finance leases in the amount of 0.4 million.

Cash and funding sources

During the three months ended March 31, 2013 we did not obtain new financing. As such, the table below only summarizes our sources of financing for the years ended December 31, 2012 and 2011.

 

      Equity
capital and
preferred
shares
     Bank
loans
    Other
debt
     Total  
  

 

 

 
            ( in thousands)  

 

  

 

 

    

 

 

   

 

 

    

 

 

 

2012

     22,656         (100     3,473         26,029   

2011

     5         (100     553         458   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     22,661         (200     4,026         26,487   

Our sources of financing in 2012 were private placements of equity securities providing total net proceeds of 22.7 million and funding from patient organizations and governmental bodies

 

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totally 3.9 million, offset by the repayment of finance leases in an amount of 0.4 million. Our sources from financing in 2011 were government grants and finance leases for laboratory equipment.

As of March 31, 2013, we had long-term debt of 6.4 million, which was comprised of bank loans in the amount of 0.4 million, other loans in the amount of 5.9 million and finance lease liabilities in the amount of 0.1 million.

We have no ongoing material financial commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than leases.

Funding requirements

We believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. 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.

Our present and future funding requirements will depend on many factors, including, among other things:

 

 

the timing of milestone, royalty and expense reimbursement payments, if any, from GSK under the GSK Agreement;

 

 

the progress, timing and completion of preclinical testing and clinical trials for any current or future compounds, including our DMD compounds;

 

 

the number of potential new compounds we identify and decide to develop;

 

 

the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims or infringements raised by third parties;

 

 

the time and costs involved in obtaining regulatory approval for our compounds and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of these compounds;

 

 

selling and marketing activities undertaken in connection with the anticipated commercialization of our DMD compounds and any other current or future compounds and costs involved in the creation of an effective sales and marketing organization; and

 

 

the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our products.

For more information as to the risks associated with our future funding needs, see “Risk factors.”

 

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Capital Expenditures

The following table sets forth our capital expenditures for the years ended December 31, 2012 and 2011, and for the three months ended March 31, 2013 and 2012.

 

      Year ended
December 31,
     Three  months
ended
March 31,
 
     2011      2012      2012      2013  
      ( in thousands)  

Investments in tangible fixed assets

     2,006         234        
81
  
     234   

Investments in intangible assets

     158         198        
70
  
     28   
  

 

 

 

Total

     2,164         432        
151
  
     262   

During 2011, we moved to larger facilities, which resulted in additional investments in laboratory and office equipment. We plan to make investments in 2013 to enhance our research and development capacity, for example, the purchase of an automated system to stain and detect proteins. For the three month period ended March 31, 2013, we invested 0.3 million in tangible and intangible fixed assets. Our budgeted capital expenditures for the full year 2013 are approximately 0.6 million, and we anticipate that they will be funded from existing cash balances.

Contractual obligations and commitments

The table below sets forth our contractual obligations and commercial commitments as of December 31, 2012 that are expected to have an impact on liquidity and cash flow in future periods.

 

     Payments due by period  
    Less than
1 year
     Between 1
and 2 years
     Between 2
and 5 years
     More than
5 years
     Total  
     ( in thousands)  

Debt obligations(1)(2)

    100         100         300         5,769         6,269   

Operating lease obligations(3)

    773         773         1,327         0         2,873   

Finance lease obligations(4)

    243         29         0         0         272   
 

 

 

 

Total

    1,116         902         1,627         5,769         9,414   

 

(1)   Debt obligations consist of bank borrowings and loans from patient organizations and governmental bodies. Most loans from patient organizations and governmental bodies have no fixed repayment scheme, but repayment (including incurred interest) is due when certain pre-determined milestones are met. See “—Critical accounting policies and significant judgments and estimates—Borrowings.” Because we cannot predict what portion will be due in less than five years, we have classified these repayments in the category “More than 5 years.”

 

(2)   As disclosed in our consolidated financial statements, certain loan agreements include additional payments due after we reach a predefined commercial sales milestone. These conditional payments total a maximum of approximately 5.0 million if all such commercial sales milestones are exceeded. These amounts do not include conditional future interest payable.

 

(3)   Operating lease obligations consist of payments pursuant to lease agreements for office and laboratory facilities, which terms will expire between the third quarter of 2013 and the second quarter of 2014, as well as lease agreements for office furniture, which will expire between March 2014 and February 2016.

 

(4)   Finance lease obligations consist of payments to lessors of laboratory equipment and software. Finance lease liabilities are secured on the assets held under lease, which revert to the lessor in the event of default.

In 2006, we received a bank loan of 900,000 from ABN Amro N.V. that matures in 2017. The loan bears interest equal to Euribor plus 1.75% per year. We repay an amount of 25,000 per quarter, and 475,000 was outstanding under this agreement as of March 31, 2013. We also have an

 

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undrawn revolving facility with 243,000 of availability as of March 31, 2013. The amount available to us under the credit facility decreases by 46,000 per year. The security for the loan and the credit facility consists of all cash and cash equivalents that are deposited with ABN Amro, including a minimum of 500,000 that must be maintained at all times in an ABN Amro bank account.

 

Off-balance sheet arrangements

As of the date of this prospectus, we do not have any, and during the periods presented we did not have any, off-balance sheet arrangements.

Quantitative and qualitative disclosures about market risk

We are exposed to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. Our overall risk management program focuses on the unpredictability of financial markets.

Market risk

We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the British pound and the U.S. dollar. Our functional currency is the euro, but we receive payments from our main business partner GSK in British pounds and acquire materials in U.S. dollars. No formal practice has been established to manage the foreign exchange risk against our functional currency. As of March 31, 2013, there was outstanding a net amount of trade receivables denominated in British pounds of 1.8 million and trade payables denominated in US dollars of 0.2 million.

Proceeds from the offering in U.S. dollars will be converted to our functional currency, the euro.

Our interest rate risk arises from long-term borrowings that are issued at variable rates. This risk is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose us to interest rate risk. During 2012 and 2011, our borrowings were denominated in euros. We manage our cash flow interest rate risk by using floating-to-fixed interest rate swaps. As of December 31, 2012, if interest rates on borrowings had been 0.1% higher/lower with all other variables held constant, after-tax total comprehensive loss for the year ended December 31, 2012 would have been 6,000 lower/higher as a result of changes in the fair value of the borrowings. As of December 31, 2011, if interest rates on borrowings had been 0.1% higher/lower with all other variables held constant, after-tax total comprehensive loss for the year ended December 31, 2011 would have been 4,000 lower/higher as a result of changes in the fair value of the borrowings. The effect of a change in interest rates of 0.1% on borrowings would have had an insignificant effect on after-tax total comprehensive loss for the year as a result of changes in the fair value of the floating to fixed interest rate swap.

Credit Risk

Over the coming years, GSK funding (milestone payments, collaboration revenue and reimbursable research expenses) remains critical for our product development programs and is considered the main credit risk. We have a limited group of external counterparties of which the most significant is GSK. We manage credit risk on a group basis.

 

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Our cash and cash equivalents are invested primarily in saving and deposit accounts with original maturities of three months or less. Saving and deposit accounts generate a small amount of interest income. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted at the beginning of the term.

We do business with a limited group of external parties, of which the most significant is GSK. If external parties are independently rated, these ratings are used. If there is no independent rating, the credit quality of these parties is assessed, taking into account their financial position, past experience and other factors. As of March 31, 2013 no credit limits had been exceeded since the beginning of 2011. We have not incurred any losses over the reporting period, and management does not expect losses from non-performance by counterparties (for example, GSK).

Liquidity Risk

We believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. See “Use of proceeds.”

Critical accounting policies and significant judgments and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with IFRS as issued by the IASB. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this prospectus, 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.

Revenue recognition and cost of license revenue

Nonrefundable upfront licensing fees and certain guaranteed, time-based payments that require continuing involvement in the form of research and development, manufacturing or other efforts are recognized in the period of expected performance. Other upfront payments are recognized by reference to the stage of completion of the underlying agreement at the balance sheet date when the rendering of services can be estimated reliably. The rendering of services can be estimated reliably when the stage of completion of the transaction at the balance sheet date can be measured reliably and costs incurred for the transaction and the costs to complete the transaction can be measured reliably. When these criteria are not met, revenue arising from the rendering of services is recognized only to the extent of the expenses recognized that are recoverable. Milestone payments are recognized when substantive services have been performed in relation to the payment and contractual milestones having been fully achieved.

Collaboration revenue, which may or may not be related to a licensing agreement, is recognized on the basis of labor hours delivered at the contractual full-time employee rates.

 

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The related cost of license revenue is based on the determination of net license revenue as defined in our license agreements after deducting allocable expenses and is subject to a certain amount of judgment.

Research and development expense

Research expenses are recognized as expenses when incurred. Costs incurred on development projects are recognized as intangible assets as of the date as of which it can be established that it is probable that future economic benefits attributable to the asset will flow to us considering its technological and commercial feasibility. This is generally the case when regulatory approval for commercialization is achieved and costs can be measured reliably. Given the current stage of the development of our products, no development expenditures have yet been capitalized. Intellectual property-related costs for patents are part of the expenditure for the research and development projects. Therefore, registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.

As part of the process of preparing our financial statements we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf, 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 the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to fees paid to clinical research organizations, or CROs, in connection with research and development activities for which we have not yet been invoiced. We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct research and development on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period.

Share-based compensation

Share options

We have adopted share-based compensation plans pursuant to which certain participants are granted the right to acquire (non-voting) depository receipts (“Depositary Receipts”) issued in

 

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respect of our ordinary shares. We refer to these rights as “options.” Upon the exercise or award or vesting of a non-cash-settled award under the plans, ordinary shares are issued to a Dutch foundation called Stichting Administratiekantoor Prosensa Holding (the “Foundation”), whose purpose is to facilitate administration of options and pool the voting interests of the underlying shares. The Foundation thereupon grants a Depository Receipt for each issued ordinary share to the person entitled to such ordinary share under an award. Legal title to the shares issued under the share-based compensation plan is held by the Foundation, and the voting rights attached to the shares are exercised by the Foundation at its own discretion.

The vesting of options is generally conditional on the participant completing a four year period of service. Each option grant vests based on the following schedule: (a) 25% on the first anniversary of the date of the grant, provided that on that date the relevant participant is still employed by us, and (b) the remaining 75% in 36 equal monthly installments over a three year period following the first anniversary of the date of grant subject to continued employment of the relevant participant. The company may decide to accelerate the vesting of the options as a result of a change of control.

On December 5, 2012, we granted options to members of our management board that vest only upon a liquidity event such as a change of control or an initial public offering and are subject to continued employment until the date such an event occurs. The number of options that vest will depend on the value of our shares in the change of control transaction or our share price following an initial public offering, as applicable.

The outstanding options granted can be exercised up to 10 years after the grant date and then expire.

The methodology we have used to date in measuring share-based compensation expense is described below. Following the completion of this offering, option pricing and values will be determined based on the quoted market price of our ordinary shares.

We value options granted to participants at fair value on the date of grant and recognize the corresponding compensation expense of those grants, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective grant. Market performance conditions attached to option grants are included when determining the grant date fair value of such options. We issue options with only service-based vesting conditions or with service-based vesting conditions combined with vesting conditions subject to a liquidity event and record the expense for these options using the straight-line method for each separate vesting tranche.

 

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The fair value of options under the various grants is based on a Monte-Carlo simulation using the following assumptions:

 

     2011     2012  

 

 

 

 

   

 

 

 

Weighted average fair value of options granted (in )

   

Options with only service-based vesting conditions

    0.99        0.69   

Options with change of control and service-based vesting conditions

           0.01   

Options with IPO and service-based vesting conditions, 0.70 exercise price

           1.52   

Options with IPO and service-based vesting conditions, 0.01 exercise price

           1.59   

Exercise price (in )

    0.01 - 1.00        0.01 - 0.70   

Risk-free interest rate

    1.90%        1.50%   

Volatility

    60.0%        60.0%   

Dividend yield

    0.0%        0.0%   

Expected life (in years)

    2-3        1-2   

 

 

 

 

   

 

 

 

We have historically been a private company and lack company-specific historical and implied volatility information. Therefore, we estimate our expected volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded share price. The publicly traded peer companies we use for this analysis include companies active in the development of drugs for unmet medical needs, including DMD, and/or applying RNA-modulating or genetics-based technology and therapies and include our main competitor, Sarepta Therapeutics Inc., as well as BioMarin Pharmaceutical Inc., Santhera Pharmaceuticals Holding AG and Summit plc. Most of the selected guideline companies only have a pipeline with compounds in development and have not yet commercialized any products. The estimated volatility that we applied is based on the median of the selected guideline companies and measured based on their observed daily share price returns over a historic period equal to the period for which expected volatility is estimated. Volatility is defined as the annualized standard deviation of share price returns.

We expect all vested options to be exercised. Therefore we consider the expected life of the options to be in line with the vesting period of the options.

As of March 31, 2013, the outstanding options had the following exercise prices:

 

Exercise price in per share    Options  

 

  

 

 

 

0.01

     1,686,841   

0.70

     166,666   

1.00

     140,000   

1.85

     83,250   

2.54

     130,950   
  

 

 

 
     2,207,707   

 

  

 

 

 

During 2011, the exercise price of 519,350 options was changed to 0.01 to align the exercise price of the options granted under our 2007 Employee Stock Option Plan and our 2010 Stock Option Plan. The incremental fair value granted amounted to 410,000 and was the difference between the fair value of the options with revised exercise price (0.01) and the fair value of the options with the original exercise price, both estimated as of the date of the modification. From

 

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the modification date this incremental fair value is recognized as an expense over the remainder of the applicable vesting period, in addition to the expense recognized for the original fair value of the options.

These assumptions represent our best estimates, but the estimates involve inherent uncertainties and the application of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different. We recognize compensation expense for only the portion of equity instruments that are expected to vest. In developing a forfeiture rate estimate, we have considered our historical experience to estimate pre-vesting forfeitures. If our actual forfeiture rate is materially different from the estimate, our share-based compensation expense could be different from what we have recorded in the current period.

The following table summarizes by grant date the number of shares subject to options granted between January 1, 2011 and December 31, 2012:

 

Grant date    Options
granted
    

Exercise

price()

     Fair value of
ordinary
share()
     Per share
estimated
fair value of
options()
 

 

 

March 22, 2011

     707,500         0.01 - 1.00         1.00         0.99   

September—November, 2011

     8,500         0.01         1.00         0.99   

January 1, 2012

     10,000         0.01         0.70         0.69   

March 31, 2012

     15,000         0.01         0.70         0.69   

July 17, 2012

     61,600         0.01         0.70         0.69   

October 22, 2012

     31,250         0.01         0.70         0.69   

December 5, 2012

     1,000,000         0.01 - 0.70         0.70         0.01 - 1.59   

 

 

The intrinsic value of all 2,207,707 outstanding options as of March 31, 2013 was approximately 19.9 million based on the estimated fair value for our ordinary shares of $12.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

On December 5, 2012, we granted to the members of our management board 1.0 million options that vest only upon a liquidity event such as a change of control or our initial public offering, subject to the continued employment of the members of the management board. In the event of our initial public offering, the number of options eligible to vest is automatically reduced from 1.0 million to 800,000, of which Giles Campion, Luc Dochez and Berndt Modig are each eligible to vest in up to 133,333 options and Hans Schikan is eligible to vest in up to 400,000 options. The vesting of the threshold number of 12.5% of the total number of options granted is subject to the sustained closing market price for our ordinary shares exceeding 8.90 per share during any 20 consecutive trading days outside a lock-up or blackout period. The number of options subject to vesting increases for every 1.00 increment in the sustained closing market price for our ordinary shares, with 12.5% of the total number of the options granted subject to vesting on the day immediately following a sustained closing market price of at least 8.90 per share and 100% subject to vesting on the day immediately following a sustained closing market price of at least 15.90 per share. Upon each subsequent achievement of a sustained, higher closing market price (in 1.00 increments), an additional number of options will be eligible to vest. Upon achievement of such sustained closing market price levels, 25% of the options vest on the day immediately following attainment of such pricing levels, and an additional 2.083% will vest at the end of each successive one-month period following the initial vesting date until the third anniversary of the

 

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initial vesting date. The options may not be exercised unless the grantee continues to be an employee, officer or director of, or consultant or advisor to, us as of the date of exercise. As of December 31, 2012 and March 31, 2013, the requirements to vest were deemed not probable under an IPO scenario, and amounts were insignificant under a change of control scenario, and therefore no expenses have been recognized. Until the date an IPO is considered to be probable, no expense will be recognized for these grants. The total expense to be recognized under an IPO scenario is approximately 1.3 million.

Restricted shares

We have made, as part of our share-based compensation plan, awards entitling recipients to acquire Depositary Receipts (“Restricted Shares”) against payment of the nominal value of the underlying ordinary shares (the “Purchase Price”), subject to our right to repurchase all or part of such Depositary Receipts at the lower of the Purchase Price and the fair value of the ordinary shares during the four year vesting period if the participant ceases to perform services to us. We have the right to repurchase 100% of the Restricted Shares awarded, and this right to repurchase shares will be reduced based on the following schedule: (a) 25% on a date of the year following the vesting commencement date no later than the anniversary of the grant, and (b) the remaining 75% in 36 equal monthly installments over a three year period following the first anniversary of the first vesting date.

The following table summarizes by grant date the number of shares subject to Restricted Shares awarded between January 1, 2011 and December 31, 2012:

 

Grant date    Restricted shares
awarded
     Purchase price ()      Per share
estimated fair
value of
restricted share ()
 

 

  

 

 

    

 

 

    

 

 

 

March 22, 2011

     78,500         0.01         1.00   

October 17, 2011

     11,250         0.01         1.00   

December 5, 2012

     115,000         0.01         0.70   

 

  

 

 

    

 

 

    

 

 

 

The fair value of the Restricted Share awards was measured based on the estimated fair value of the ordinary shares at the moment of purchase the Depository Receipts, which was 0.70 in 2012 and 1.00 in 2011, in line with the valuations of our ordinary shares. We recognize the corresponding compensation expense of those awards, net of estimated forfeitures, similar to the approach taken for option grants as indicated above, over the requisite service period, which is generally the vesting period of the respective award. We do not plan to pay dividends in the foreseeable future; therefore, dividend payments have not been considered in the valuation of the Restricted Share awards.

Valuation of ordinary shares

The fair value of our ordinary shares is determined by our management board and supervisory board, and takes into account our most recently available valuation of ordinary shares performed by an independent valuation firm and our assessment of additional objective and subjective factors we believe are relevant and which may have changed from the date of the most recent valuation through the date of the grant.

 

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Our management board and supervisory board consider numerous objective and subjective factors to determine their best estimate of the fair value of our ordinary shares as of each grant date, including the following:

 

 

the progress of our research and development programs;

 

 

achievement of enterprise milestones, including our entering into collaboration and licensing agreements;

 

 

contemporaneous third-party valuations of our ordinary shares;

 

 

our historical and forecasted performance and operating results;

 

 

our need for future financing to fund operations;

 

 

the rights and preferences of our preferred shares and our preferred shares relative to our ordinary shares;

 

 

the likelihood of achieving a discrete liquidity event, such as a sale of our Company or an initial public offering given prevailing market conditions; and

 

 

external market and economic conditions impacting our industry sector.

In determining the fair values of our ordinary shares as of each award grant date, three generally accepted approaches were considered: income approach, market approach and cost approach. Based on our stage of development and information available, we have determined that the income approach is the most appropriate method, and when applicable, we have also employed the prior sale of company stock method to estimate our aggregate enterprise value. In addition, we have taken into consideration the guidance prescribed by the American Institute of Certified Public Accounts (AICPA) Audit and Accounting Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Discounted cash flow (DCF), a form of the income approach, is an estimate of the present value of the future monetary benefits expected to flow to the owners of a business. It requires a projection of the cash flows that the business is expected to generate. These cash flows are converted to present value by means of discounting, using a rate of return that accounts for the time value of money and the appropriate degree of risks inherent in the business. The discount rate in the DCF analysis is based upon a weighted average cost of capital (WACC) calculated at each valuation date. The WACC is a method that market participants commonly used to price securities and is derived by using the Capital Asset Pricing Model and inputs such as the risk-free rate, beta coefficient, equity risk premiums and the size of the company.

The prior sale of company stock method considers any prior arm’s length sales of the company’s equity securities. Considerations factored into the analysis include: the type and amount of equity sold, the estimated volatility, the estimated time to liquidity, the relationship of the parties involved, the timing compared to the ordinary shares valuation date and the financial condition and structure of the company at the time of the sale.

The indicated fair value calculated at each valuation date is allocated to the preferred shares and ordinary shares using the option pricing method (OPM). The OPM treats ordinary shares and preferred shares as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s

 

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securities changes. Under this method, the ordinary shares have value only if the funds available for distribution to shareholders exceed the value of the liquidation preference at the time of a liquidity event, such as a strategic sale, assuming the enterprise has funds available to make a liquidation preference meaningful and collectible by the holders of preferred shares. The ordinary shares are modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular call option, a comparison with a per share price. Thus, ordinary shares are considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred shares are liquidated. The OPM uses the Black Scholes option-pricing model to price the call options. This model defines the securities’ fair values as functions of the current fair value of a company and uses assumptions such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities. In the allocation of equity, we have also considered valuation outcomes of ordinary shares through a sale of the company versus an initial public offering and considered the probabilities of each at each valuation date, since the treatment of the liquidation rights is different for these two events. The aggregate value of the ordinary shares is then divided by the number of ordinary shares outstanding to arrive at the per share value.

A valuation was performed by an independent valuation firm as of December 2010 and applied to all option grants in 2011. For the grant on March 22, 2011 and the other grants made in September through November, 2011, we relied on the December 2010 valuation report, which we deemed reasonable based on our progress at that time. Of the total 716,000 options granted in 2011, 707,500 options were granted on March 22, 2011. Between the valuation of our ordinary shares performed as of December 2010 and March 2011, there were no events in our business that were deemed to have an effect on the valuation and thus we believed the December 2010 valuation to continue to be reasonable. Furthermore, there were no significant results in 2011 from any of our development programs including the Phase III-DMD114044 pivotal trial initiated in December 2010, the continuation of the dose escalation study of PRO044 and the preclinical safety studies for PRO045 and PRO053 on-going throughout 2011. Additional valuations were performed by an independent valuation firm as of September 30, 2012 and December 5, 2012 for share-based compensation grants in 2012.

Our ordinary shares valuation as of December 2010 relied on a DCF to derive our total enterprise value. The cash flow projections were based on probability-weighted scenarios which considered estimates of time to market of our products, market share and pricing. The cash flow projections were estimated over a period equal to the expected product life cycle, and a terminal value period was not applied. All DMD indications in development were included in estimating cash flow projections, most importantly drisapersen. The expected sales were estimated based on a regional level, estimated patient populations and market shares. Production and research and development costs were estimated at the indication level with general and administrative costs and selling and marketing costs assessed at the overall company level. Cash flow projections also incorporated expected royalties and milestones related to the collaboration agreement with GSK. A WACC of 16.0% was applied. Equity was allocated using the OPM, applied retrospectively, resulting in a determination by the supervisory board and the management board of a value per ordinary share of 1.00. The OPM relies on the anticipated timing and probability of a liquidity event based on then current plans and estimates of our supervisory board and management board regarding a liquidity event of 80-85% probability of a sale of the company and 15-20% probability of an initial public offering. We assumed volatility of 60% based on historical trading volatility for our publicly traded peer companies and a time to liquidity of 1.5 years.

 

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In December 2010, the Phase III-DMD114044 pivotal trial was initiated by GSK, and results are currently expected to be available in the fourth quarter of 2013. The completion of this trial will be later than anticipated in our projections that were used for the valuation performed in 2010. In 2011 we also concluded an amendment to the GSK agreement related to the development terms for the PRO044 program. In this amendment the timing of the milestone payment for GSK licensing PRO044, which had been anticipated in the second quarter of 2011, was restructured, and the anticipated licensing to GSK of PRO044 was deferred significantly. In January 2012, we raised total net proceeds of 22.7 million in a private placement of our preferred (Class B) shares. The additional Class B shares were issued on a pari passu basis to the original Class B shares issued in December 2008 with a liquidation preference senior to Class A, Class O and ordinary shares. The events above in the aggregate had a downward effect on our valuation of our ordinary shares as of the end of 2011 and in 2012.

Our ordinary shares valuation as of September 30, 2012 and December 5, 2012 relied on a DCF as well as the prior sale of company stock method in connection with the January 2012 financing round to derive our total enterprise value. Management has determined that there were no events intervening between the respective valuation dates and therefore the analysis and inputs remained the same, except for adjustments within the analysis for the passage of time. The cash flow projections were based on probability-weighted scenarios which considered estimates of time to market of our products, market share and pricing. Projections were updated from the December 2010 valuation for anticipated timing of placebo-controlled clinical trial results, our progress since the last valuation date and the development of a competing drug for DMD that increased the risk of our losing a first-mover advantage. A WACC of 15.5% was applied. Under the prior sale of company stock method, we used the implied value from the latest financing round in January 2012 and an estimated annualized return on equity over the period between the financing round and the valuation date for the valuation of the enterprise value as of September 30, 2012 considering the factors noted above. Equity was allocated using the OPM, resulting in a value per ordinary share of 0.70. The OPM relies on the anticipated timing and probability of a liquidity event based on then current plans and estimates of our supervisory board and management board regarding a liquidity event of 80-85% probability of a sale of the company and 15-20% probability of an initial public offering. We assumed volatility of 60% based on historical trading volatility for our publicly traded peer companies and a time to liquidity of 0.50 years.

A discount for lack of marketability (DLOM) of 15% and 10%, as of December 2010 and September 30, 2012, respectively, was applied to reflect the increased risk arising from the inability to readily sell the shares. When applying the DLOM, the Black-Scholes option model was used. Under this method, the cost of the put option, which can hedge the price change before the privately held shares can be sold, was considered as the basis to determine the DLOM. The cost of the put option was the only factor considered and applied in the discount. The put option analysis reflects the potential loss from marketability over the expected time to liquidity and is a commonly applied approach to estimate this discount.

IPO price versus last valuation

On June 17, 2013, we and our underwriters determined the estimated price range for this offering, as set forth on the cover page of this prospectus. The midpoint of the price range is $12.00 per share. In comparison, our estimate of the fair value of our ordinary shares was 0.70 ($0.90) per share as of September 30, 2012 and December 5, 2012. We note that, as is typical in

 

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initial public offerings, the estimated price range for this offering was not derived using a formal determination of fair value, but was determined by negotiation between us and the underwriters. Among the factors that were considered in setting this range were our prospects and the history of and prospects for our industry, the general condition of the securities markets and the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. Specifically, we believe that the difference between the fair value of our ordinary shares as of September 30, 2012 and December 5, 2012 and the midpoint of the estimated price range for this offering is a result of the following factors: First, on April 10, 2013 positive results of the first placebo-controlled clinical study of drisapersen, in which the 24-week efficacy primary endpoint was met and 48 week safety and efficacy data were positive, were released. These results imply a higher probability of first approval to the market and successful commercialization of drisapersen in general. We are leveraging the know-how from clinical development and regulatory advice of drisapersen to optimize strategies for our earlier-stage DMD products. Therefore, positive results from drisapersen also reduce development risk of these DMD compounds. Second, in 2013 we obtained orphan drug designation for four compounds in the United States (PRO045, PRO052, PRO053 and PRO055). Third, the estimated offering price range necessarily assumes that an initial public offering has occurred, a public market for our ordinary shares has been created and our preferred shares have converted into ordinary shares in connection with the offering. The offering price range therefore excludes any marketability or illiquidity discount for our ordinary shares and also excludes the liquidation rights of the preferred shares, which were appropriately taken into account in the fair value determination of our ordinary shares as of September 30, 2012 and December 5, 2012. Fourth, there has been significant improvement in recent market prices of, and the demand for, publicly traded shares of generally comparable companies. Share prices of NASDAQ-listed rare disease companies have increased 59% on average since December 5, 2012 (includes Aegerion, Alnylam, Sarepta, Synageva, Intercept, Raptor, Sangamo, Hyperion and Amicus; equal weight average). In addition, there has been a recent increase in both the number of public offerings of companies comparable to the Company and the initial public offering valuations of such companies compared to the valuations in their most recent pre-IPO equity funding round. In the first six months of 2013, there have been 11 U.S. biotech public offerings compared to a total of 11 such offerings in all of 2012, with valuation step ups from the prior funding round ranging from 1.0-1.9x, exceeding the 0.5-1.6x range seen in 2012 offerings. Finally, 2013 year-to-date biotech IPOs have seen strong aftermarket performance, with stock prices of companies pricing since December 5, 2012 increasing by 43% on average (includes Epizyme, Portola, Ambit, Receptos, Omthera, Chimerix, Enanta, Tetraphase and Stemline. Excludes KaloBios; equal weight average).

Income taxes

We are subject to income taxes in the Netherlands. Significant judgment is required in determining the use of net operating loss carry forwards and taxation of upfront and milestone payments for income tax purposes. There are many transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

No tax charge or income was recognized during the reporting periods since we are in a loss-making position and have a history of losses. We have tax loss carry-forwards of 45.5 million and 42.1 million as of March 31, 2013 and December 31, 2012, respectively. As a result of the

 

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Dutch income tax law, tax loss carry-forwards are subject to a time limitation of nine years. Deferred income tax assets are recognized for tax losses and other temporary differences to the extent that the realization of the related tax benefit through future taxable profits is probable. We recognize deferred tax assets arising from unused tax losses or tax credits only to the extent the relevant fiscal unity has sufficient taxable temporary differences or if there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilized by the fiscal unity. Our judgment is that sufficient convincing other evidence is not available and a deferred tax asset is therefore not recognized.

In order to promote innovative technology development activities and investments in new technologies, a corporate income tax incentive has been introduced in Dutch tax law called the Innovation Box. For the qualifying profits, we effectively owe only 5% income tax, instead of the general tax rate of 25.5% which results in an estimated effective tax rate of 10%. The agreement with the tax authorities is currently signed for the years 2011 to 2015 but is expected to be extended.

Borrowings

From January 1, 2002 through March 31, 2013, we received the following loans from patient organizations and governmental bodies: 3,140,000 from Association Française contre les Myopathies (AFM), 640,000 from Agentschap NL, 500,000 from the Stichting Duchenne Parents Project, 387,000 from Charley’s Fund, 300,000 from Everest International Pte Ltd, 250,000 from Cure Duchenne, 163,000 from Aktion Benni & Co. and 65,000 from Villa Joep. These arrangements are generally in the form of below-market interest rate loans that become due upon the meeting of certain milestones in product development, generally a minimum threshold of commercialization success or successful completion of certain clinical trials. Significant judgment is required in determining when these pre-determined milestones are met and may vary over time, implying a change in the value of the loans. The AFM agreement gives us the option to terminate the agreement if we undergo a change of control. If we exercise our option to terminate the agreement, we are required to repay the loan, together with interest. In the event that we abandon the program for reasons not justified by a scientific or medical reason, we are similarly required to repay the loan, together with interest. The AFM agreement also requires us to grant to AFM a non-exclusive royalty-free license to the intellectual property covered by the agreement in the event that we abandon the research funded by the agreement. We also have received a number of other loans from patient organizations and governmental bodies in smaller amounts.

Recent accounting pronouncements

There are no IFRS standards as issued by the IASB or interpretations issued by the IFRS interpretations committee (e.g. IFRS 10, 11, 12, 13 and IAS 19R) that are effective for the first time for the financial year beginning on or after January 1, 2013 that would be expected to have a material impact on our financial position.

 

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JOBS Act exemptions

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an emerging growth company, we are electing to take advantage of the following exemptions:

 

 

including the use of two years of audited financial statements as opposed to three years;

 

 

not providing an auditor attestation report on our system of internal controls over financial reporting;

 

 

not providing all of the compensation disclosure that may be required of non-emerging growth public companies under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act;

 

 

not disclosing certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation; and

 

 

not complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

These exemptions will apply for a period of five years following the completion of our initial public offering or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our ordinary shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.

 

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Business

Overview

We are an innovative biotechnology company engaged in the discovery and development of ribonucleic acid-modulating, or RNA-modulating, therapeutics for the treatment of genetic disorders. Our primary focus is on rare neuromuscular and neurodegenerative disorders with a large unmet medical need, including Duchenne muscular dystrophy, myotonic dystrophy and Huntington’s disease. Our clinical portfolio of RNA-based product candidates is focused on the treatment of Duchenne muscular dystrophy, or DMD. Each of our DMD compounds has been granted orphan drug status in the United States and the European Union.

DMD is one of the most prevalent rare genetic diseases globally affecting up to 1 in 3,500 boys and is invariably fatal. There is currently no approved disease-modifying therapy for DMD. The progressive muscle-wasting that characterizes this disease is caused by inadequate production of dystrophin, a protein necessary for muscle function, as a result of mutations in the dystrophin gene. The different mutations, which are mostly deletions of one or more exons, found in the dystrophin gene result in distinct sub-populations of DMD patients. We are designing product candidates to address several sub-populations using our platform technology. Our first product candidate, drisapersen, can address a variety of mutations in the dystrophin gene, such as a deletion of exon 50 or exons 48 to 50.

Drisapersen, which is also referred to as PRO051 or GSK2402968, is being developed in collaboration with GlaxoSmithKline, or GSK. Drisapersen aims to restore dystrophin expression and improve muscle condition and function in the largest known sub-population of DMD patients. In clinical trials, drisapersen has been shown to produce dystrophin expression and have a beneficial therapeutic effect on DMD patients. A Phase II placebo-controlled study of drisapersen in 53 DMD patients was completed and demonstrated a statistically significant and clinically important difference in the primary endpoint, which was the distance walked in the six minute walk test, or 6MWD, between the placebo group and the continuous active-treatment group at a dose of 6 mg/kg/week after 24 weeks. This clinically meaningful benefit was maintained after 48 weeks of treatment, and drisapersen was well tolerated throughout the duration of this study.

Drisapersen successfully completed a twelve-patient Phase I/II study, and all patients were enrolled in an open-label extension study which has been ongoing since August 2009. The results indicate that drisapersen may lead to stabilization of the disease, as evidenced by an improvement or a slower than expected decline in the 6MWD, and the ongoing study continues to provide safety and tolerability data.

A pivotal Phase III study of drisapersen was initiated in December 2010, and results are expected in the fourth quarter of 2013. This study is a randomized, double-blind and placebo-controlled trial, assessing drisapersen at a dose of 6 mg/kg/week in 186 boys. The primary endpoint is the 6MWD at 48 weeks.

To date, over 300 patients have participated in clinical studies of drisapersen at more than 50 trial sites in 25 countries, and patient retention rates through March 2013 averaged 96% across all drisapersen clinical studies.

PRO044, our next most advanced product candidate, addresses a separate sub-population of DMD patients. We developed PRO044 using our exon-skipping technology to generate a product

 

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candidate with the same mechanism of action that is used by drisapersen. PRO044 is currently in a Phase I/II study in Europe, which we expect to complete in the second half of 2013. We have four additional earlier-stage compounds that address other distinct sub-populations of DMD patients. Of these, PRO045 entered clinical trials in the first quarter of 2013, and we anticipate that PRO053 will enter clinical trials in mid-2013. PRO052 and PRO055 are in advanced preclinical development. We have also started a research program, PROSPECT, which includes a new and innovative application of our exon-skipping technology platform to specifically target rarer mutations in the dystrophin gene.

In 2009, we entered into an exclusive worldwide collaboration with GSK for the development and commercialization of RNA-based therapeutics for DMD, with GSK exclusively licensing worldwide rights to develop and commercialize drisapersen and obtaining an option to exclusively license PRO044.

In addition, GSK has the option to exclusively license either PRO045 or PRO053 and the further option to exclusively license either PRO052 or PRO055. PRO045 is paired with PRO053, and PRO052 is paired with PRO055, because each product candidate in the respective pairings addresses a similar-sized patient sub-population and is at a comparable stage of development. We will retain the full rights to the product candidates that are not licensed by GSK, and for each product candidate licensed by GSK from each of the pairings of product candidates described above, we will retain the option to certain commercial rights in a selected European territory. All of our other DMD compounds fall outside of the scope of this agreement, and we intend to develop and commercialize them ourselves or consider partnerships.

Upon entering into the agreement with GSK, we received a £16 million (17.2 million) nonrefundable upfront payment from GSK and have received £41.5 million (47.4 million) in total under the agreement. Including amounts already paid, we are eligible for up to £428 million (505 million) in total milestone payments under the agreement. We are also entitled to receive percentage royalties in the low tens on future global sales of drisapersen and each of the other compounds that GSK licenses and successfully commercializes.

Our DMD programs are part of our broader RNA modulation platform technology, which in addition to exon skipping, is focused on reducing mutant RNA associated with trinucleotide repeat expansion diseases. Our current programs in this area are PRO135 for myotonic dystrophy (DM1) and PRO289 for Huntington’s disease (HD). Both DM1 and HD are rare diseases with a severe impact on patients, and currently no disease-modifying therapies exist for either.

We started operations in 2002 and are located in Leiden, the Netherlands. We work closely with Leiden University Medical Center, or LUMC, with whom we entered into an exclusive licensing agreement in 2003 for LUMC’s proprietary RNA modulation exon-skipping technology to develop treatments for DMD, other neuromuscular disorders and indications outside the field of neuromuscular disorders. Since 2002, we have raised 56.4 million from private placements of equity securities, including to a number of venture capital firms. In addition, we have received grants and loans from several DMD-focused patient advocacy organizations to support our research of therapies for DMD. As of March 31, 2013 we had 36.1 million in cash and cash equivalents.

 

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Our research and development pipeline

The following table summarizes our product development pipeline in DMD as well as DM1 and HD:

 

LOGO

 

(1)   Based on the sub-population of DMD patients that could potentially be addressed by each product candidate. The product label may be limited to a subset of this population based on ambulation, age and other factors. “Theoretic applicability of antisense-mediated exon skipping for Duchenne muscular dystrophy mutations,” Annemieke Aartsma-Rus et al. (Human Mutation, March 2009).

 

(2)   GSK has opt-in rights to PRO044. See “—Collaboration, license and funding arrangements—GlaxoSmithKline.”

 

(3)   GSK has opt-in rights to (a) one of PRO045 and PRO053 and (b) one of PRO052 and PRO055. See “—Collaboration, license and funding arrangements—GlaxoSmithKline.”

 

 

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Our strategy

Our goal is to become a leader in the rare genetic disease field, with a particular focus on DMD. Over time, we intend to mature into a fully integrated biopharmaceutical company focused on the discovery, development and commercialization of our products.

The key components of our business objectives are:

 

 

Collaborate with our partner, GSK, to rapidly advance drisapersen, our lead DMD candidate

We and GSK have jointly undertaken the largest ever patient trials conducted globally for a DMD product candidate. The strength of our collaboration underscores our ability to work successfully with a major pharmaceutical company, and we benefit from access to GSK’s scientific expertise, global infrastructure and regulatory relationships to advance the development of drisapersen. In partnership with GSK, we aim to achieve the first approval in all major markets for a disease-modifying therapy for DMD and bring to market a product to address the substantial unmet medical need for this currently fatal condition.

 

 

Leverage our know-how from drisapersen to accelerate and reduce development risk of our earlier-stage DMD products

Given similarities in technology and targets, we expect there to be substantial development and commercial synergies between drisapersen and our product candidates, PRO044, PRO045, PRO053, PRO052 and PRO055, which each address distinct sub-populations of DMD patients. We are leveraging the know-how from clinical development and regulatory advice for drisapersen to optimize strategies, reduce development risk and accelerate speed to market for these products, thereby expanding our commercial DMD portfolio and maximizing the patient population addressed by our product candidates.

 

 

Independently commercialize our proprietary products in DMD

In the longer term, we believe that the depth of our internal scientific capabilities and strength of our clinical pipeline and relationships with patient advocacy groups put us in a strong position to commercialize our own products. Since we are developing DMD products for different but closely related patient sub-populations, we believe that the additional infrastructure required to commercialize our proprietary DMD products will be relatively limited. We therefore believe that it would be cost-effective for us to establish our own marketing effort and sales force.

 

 

Leverage our proprietary RNA modulation and exon-skipping drug discovery platform

We intend to leverage our proprietary technology platform and expertise in RNA modulation to further progress our technology for exon skipping and to develop other product candidates for rare genetic diseases such as myotonic dystrophy and Huntington’s disease.

 

 

Continue to invest in and strengthen our intellectual property portfolio

As of the date of this prospectus, we owned or exclusively licensed 6 U.S. patents and 15 U.S. patent applications and 3 European patents and 25 European patent applications covering our RNA modulation technology platform and our exon-skipping product candidates. We plan to continue to leverage this portfolio to create value and to file new patent applications, in-license other intellectual property and take other steps to expand and strengthen our intellectual property position.

 

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We may also enter into strategic collaborations that deliver additional expertise and enhance implementation of our strategy.

Our RNA-modulating therapeutics

Human genes contain the DNA blueprint instructions for protein synthesis and gene regulation in the body. Within the DNA strand, multiple series of three-letter nucleotide bases (known as “codons”) together make up the active instructions called “exons,” which are read by cellular machinery to make proteins. Interspersed among exons are sections of DNA known as “introns,” which have no direct role in protein synthesis.

To make a particular protein, the relevant section of DNA is copied (in a process known as transcription) to make pre-mRNA (pre-messenger ribonucleic acid), which contains both exons and introns and therefore cannot be read by the cellular machinery as an instruction to make a protein. The introns are then removed (in a process known as splicing) so that the instructions in the active mRNA (messenger RNA) can be read by the cellular machinery to make a particular protein.

Schematic overview of RNA Synthesis

 

LOGO

The dystrophin gene, which is central to the pathology of DMD, is comprised of 79 exons, which are interspersed with non-coding introns. In patients with DMD, synthesis of the dystrophin protein is disrupted because of mutations in the DNA that contains the dystrophin gene. The extent and nature of the mutations are different in different sub-populations of DMD patients and may be due to, among other things, deleted or duplicated exons or small mutations that result in disrupted coding of the mRNA. This defective mRNA is said to be “out of the transcription reading frame” and results in a premature halt of the protein synthesis and a truncated, non-functional dystrophin. Consequently, patients with DMD have a lack of functional dystrophin protein in their muscles. Our aim is to restore the coding reading frame of mRNA so that it can be read to produce functional dystrophin protein.

Our technology enables us to design sequences of nucleotide bases that bind to specified regions of pre-mRNA involved in the splicing of exons. As a result, when the pre-mRNA is spliced to mRNA, the disrupted coding section is skipped or passed over completely, and the transcription reading frame is corrected. The single stranded oligonucleotides (short nucleotide sequences) that we

 

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design are known as antisense oligonucleotides, or AONs; and our preferred chemical structure is a backbone of 2’ O-methyl phosphorothioate (or 2’O-Me) groups that protect the AONs from rapid enzyme degradation once they are inside the body’s cells. In DMD, we apply this technology to address particular mutations occurring at different sites in the dystrophin gene.

Our RNA modulation platform technology can also be applied to treat genetic disorders that are caused by mutations where trinucleotide bases, such as CAG or CUG, are expanded in certain genes, generating a longer series of trinucleotide repeats than is normal. These extended repeated sequences can cause the resulting RNA transcript or protein to be unstable, dysfunctional or even toxic, and lead to various diseases. We have AON programs targeting two such disorders, HD and DM1.

Overview of DMD

DMD is a rare, severe muscle wasting disease that occurs in up to 1 in 3,500 male births. It is commonly diagnosed between the ages of three to five, when boys begin to show signs of impaired motor development. Boys with DMD continue to develop in strength and function, albeit at a lower rate than healthy boys, up until about 7 years. They then begin to lose muscle function, generally becoming wheelchair-bound around the age of 12, with loss of respiratory and cardiac function in the ensuing years. DMD patients typically die in their twenties of either cardiac or respiratory failure.

Currently, there is no approved disease-modifying treatment for DMD. Corticosteroid therapy is the current standard of care in most developed countries and may be administered as early as 3 years, although administration commonly starts at 4-6 years. Steroids have been demonstrated to temporarily preserve muscle function and delay disease progression milestones, such as time to wheelchair dependency, by approximately 2 years, but the ultimate course of the disease is unaffected. In addition, steroids have potentially serious side effects, negatively affecting growth, bone mineral density and the immune system.

DMD is caused by various mutations in the dystrophin gene, such as deletions, duplications or small mutations of one or more exons, which result in a lack of functional dystrophin in the muscle fiber. Dystrophin is a protein with a central role in linking the contractile apparatus of a muscle fiber to the cell membrane and surrounding extracellular matrix. An absence or a low level of dystrophin also leads to reduced levels of various other proteins. This leads to progressive muscle fiber degeneration characteristic of DMD, with fatty and fibrous tissue replacement of muscle.

Deletions of any number of exons in the dystrophin gene may occur. The different mutations result in distinct sub-populations of DMD patients. The figure below shows the effect of the deletion of exons 48—50 in the dystrophin gene.

Effect of a deletion of exons 48-50 in the dystrophin gene

 

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In this example, the deletion of exons 48—50 results in an mRNA that is out of the transcription reading frame since exons 47 and 51 do not fit together. Consequently, functional dystrophin will not be produced.

Exon skipping technology applied to DMD

Our therapeutic strategy for DMD is to use AON-induced exon skipping to allow a shorter but still functional dystrophin protein to be produced so that muscle performance in patients with DMD may be maintained or even improved. Our AONs bind highly specifically to a selected exon in the pre-mRNA coded by the dystrophin gene. The exon is selected because it is, for instance, adjacent to a region where one or more exons have been deleted. As a result, the exon to which the AON binds is skipped over in the splicing process, allowing two non-consecutive exons to be joined across the gap. This results in what is termed “restoration of the transcription reading frame”—in other words, the genetic instructions or code become legible again, and a shorter but still functional dystrophin protein is produced. The figure below shows how an AON binding with exon 51 of the gene’s pre-mRNA can result in an in-frame mRNA transcript and production of a shorter but still functional dystrophin protein.

Example of effect of drisapersen

 

LOGO

In this example, there is a deletion of exons 48 to 50; drisapersen binds with exon 51 in the pre-mRNA, and after splicing this results in exon 47 and exon 52 becoming consecutive exons in the mRNA. Since exon 47 and exon 52 connect properly, an in-frame mRNA results and a shorter but still functional dystrophin protein will be produced, which is expected to result in improved muscle physiology and hence clinical outcome.

Natural history of DMD and outcome measures

Natural history data can illustrate expected rates of physical decline, which helps to put into context the effects of novel drug treatments. The six minute walk test (6MWT) is a test that measures the distance a subject can walk in 6 minutes using a standardized corridor length and turning point at each end (the six minute walk distance or 6MWD). This test has been used in observational research studies to follow the natural history of DMD disease progression over time as subjects gradually lose the ability to walk.

Several key studies have demonstrated the effect of DMD on 6MWD. One study reported an average 57 meter decrease at 52 weeks from baseline in average 6MWD by boys with DMD, whereas comparable healthy boys showed an average increase in 6MWD of 13 meters. A more recent study of 113 boys reported an average decrease in 6MWD of 23 meters in the first year of observation and 65 meters in the second year. In the latter study, when grouped by age, boys below 7 years remained stable with a slight increase in average 6MWD in the first and second years, but the average 6MWD of boys over 7 declined by about 42 meters and 80 meters, respectively.

 

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The diagram below is a conceptual representation created by analyzing patient data from various studies to contrast 6MWD performance by DMD patients and healthy control subjects and to illustrate the typical decline in 6MWD performance by boys with DMD over age 7.

 

LOGO

The 6MWT is accepted by U.S. and European regulators to be an appropriate primary outcome measure for DMD trials. It is believed that the test is a sensitive measure to show effects of treatment within a timeframe of one year. Other measures of treatment effectiveness include the North Star Ambulatory Assessment, or NSAA, which has been validated in DMD at various ages, and timed tests such as rise from the floor, stair climbing and 10 meter walk/run. Muscle strength in upper and lower limbs (knees, elbows and shoulders) is also assessed, as is breathing function.

The 6MWD has successfully been used as a primary endpoint to assess ambulatory function in studies leading to regulatory approval of therapies designed to treat the underlying cause of disorders with neuromuscular and pulmonary manifestations that are associated with deterioration in 6MWD over time, such as Pompe’s disease, mucopolysaccharidosis I, Hunter syndrome and pulmonary arterial hypertension. Individual results for 6MWD compare each subject’s baseline result against a result at a study time point, and individual and averaged differences in 6MWD from baseline are further compared between treatment and non-treatment groups. The data comparing treatment and non-treatment groups may be presented in a number of ways, such as absolute differences (meters) and percent change from baseline. There is not yet an agreed regulatory position on the clinical relevance of absolute differences in meters or percent change from baseline in DMD, however studies of therapies for the diseases mentioned above have reported differences from baseline between placebo and treatment groups of 28 to 44 meters, representing an improvement of 8 - 13%, which has been considered clinically meaningful in these contexts and used in support of applications for regulatory approval. We and GSK supplement the 6MWD primary endpoint with secondary outcome functional measures, imaging and biomarkers to demonstrate the multidimensional response to therapy, which we believe is likely to be important for applications for regulatory approval.

Some of the mutations that we are targeting for treatment are very rare, and numbers of eligible patients for clinical trials are in the low double digits. In these sub-populations, it is not feasible to design clinical studies involving statistically meaningful numbers of placebo-controlled patients. For this reason, together with our partner GSK, we have started a natural history study

 

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for which we intend to recruit up to 250 DMD patients from the ages of 3-18 at clinics in ten countries. The goal of this study is to characterize DMD at various stages of progression using the same measures used in the clinical studies, such as 6MWD, and use the data to help interpret clinical trial results for our product candidates that are targeted at ultra-rare mutations that cause DMD, for which we anticipate that it will be difficult to recruit placebo groups.

Drisapersen

Our lead compound, drisapersen, is an AON with highly specific binding to exon 51 of the dystrophin gene’s pre-mRNA. The binding of drisapersen to exon 51 specifically induces exon 51 to be skipped when the mRNA for the dystrophin protein is created from the pre-mRNA. Given the frequencies reported in various international DMD mutation databases, the skipping of exon 51 could in principle correct the transcription reading frame and produce shortened but functional dystrophin expression in approximately 13% of all DMD patients.

Drisapersen was granted orphan drug status in the United States and the European Union in 2009. In the United States, if a product with orphan status receives FDA approval, the FDA will not approve a later product for the same indication that uses the same active ingredient for seven years, unless the later product is shown to be clinically superior. In the European Union, the EMA will not approve a later product for the same indication and with the same method of action for ten years after the earlier product receives EMA approval, subject to certain exceptions, including the demonstration of clinical superiority.

We demonstrated clinical proof of concept in four DMD patients receiving a single intramuscular 0.8 mg dose of drisapersen in a trial initiated in May 2006. In this study, drisapersen was safe and effective in specifically inducing exon 51 skipping and restoring dystrophin expression to 35% of normal levels in up to 97% of muscle fibers in the treated muscle area.

We conducted a subsequent Phase I/II dose-ranging safety study in which drisapersen was administered to 12 patients subcutaneously, once weekly for 5 weeks. The study, initiated in March 2008 and conducted at two European clinical centers, demonstrated that drisapersen was well-tolerated in all patients and novel dystrophin expression was detected in each treated patient. An open-label extension study of this Phase I/II study was initiated in August 2009 and is ongoing.

In October 2009, we entered into a worldwide collaboration agreement with GSK for the further clinical development of drisapersen. GSK licensed exclusive worldwide rights to develop and commercialize drisapersen. Under the agreement for drisapersen, all development, commercialization and regulatory work in support of drisapersen falls under the sole budgetary and decision-making responsibility of GSK. We have received development milestone payments for drisapersen pursuant to the agreement, and GSK must pay us development and regulatory milestone payments, as well as royalties upon successful commercialization of drisapersen. See “—Collaboration, license and funding arrangements—GlaxoSmithKline.”

 

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Ongoing clinical development

The following table sets forth information regarding completed and ongoing clinical trials of drisapersen:

 

Clinical trials of drisapersen

 

Study    Phase; study design   

Total

patients
enrolled

   Status    Dates (1)

 

PRO051-02

   Phase I/II; open label, repeat dose escalation (extension phase ongoing 6 mg/kg/wk intermittent)      12    Complete; extension study ongoing    March 2008 – ongoing

DMD114118

  

Phase I; placebo-

controlled, pharmacokinetics /safety

     20    Complete    July 2010 – August
2012

DMD114117

   Phase II; placebo-controlled, dose regimen comparison      53    Complete    September 2010 –
April 2013

DMD114876

   Phase II; placebo-controlled, dose-comparison      51    Ongoing    November 2011 – First
quarter 2014
(expected)

DMD114044

   Phase III; placebo-controlled, pivotal    186    Ongoing    December 2010 –
Fourth quarter 2013
(expected)

DMD114349

   Extension study for DMD114117 and DMD114044    Up to 239
(patients
previously in
DMD114117
and
DMD114044)
   Ongoing    October 2011 –
ongoing

 

 

(1)   The earlier date is the date the trial was initiated (first patient in), and the later date is the date the clinical trial report was available or is currently expected to be available.

Phase I/II—PRO051-02. A Phase I/II study was initiated in March 2008 to evaluate systemic administration of drisapersen. Twelve patients were given weekly subcutaneous injections for five weeks at two European clinical centers at four dosing cohorts (0.5, 2.0, 4.0 and 6.0 mg/kg). The primary endpoint was safety, and secondary endpoints included pharmacokinetics and molecular and clinical effects. Muscle biopsies were taken, and changes in RNA splicing and dystrophin protein levels assessed, at baseline and two weeks after the last dose in the 0.5 mg/kg cohort and at two and seven weeks in the other three cohorts. Novel dose-dependent dystrophin expression was detected in each patient, and specific exon 51 skipping was confirmed in the majority.

 

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Drisapersen Phase I/II—PRO051-02 study design and ongoing extension phase

 

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An open-label extension phase followed the initial five-week study after an interval of six to fifteen months. Improvement in 6MWD versus baseline was observed at the 12-week point in the extension phase. The extension phase is ongoing with all patients participating, although two boys were not able to complete the 6MWT at the start of the extension study (one because he had lost his ability to walk (non-ambulant) before the extension phase started, and one because he sustained a fracture and could not perform the test). At the 141-week time-point, 8 of the 10 subjects able to complete the 6MWT at the extension baseline were still able to perform the walking evaluation. Although the number of patients is small, the results appear to show delay of disease progression in these eight patients. This is particularly meaningful because the subjects’ ages ranged from 8-14 at 141 weeks, which is when their 6MWD would otherwise be expected to decline significantly based on past natural history studies. The extension study is continuing, and all subjects have now reached or exceeded the 189-week time-point. The chart below shows the 6MWD versus extension baseline for the ten subjects who were able to perform the 6MWT at the extension baseline at several points in time up to 141 weeks, which is the latest assessment date for which data are available.

Drisapersen Phase I/II—PRO051-02 extension phase 6MWD (0 = extension baseline)

 

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Drisapersen has been generally well tolerated throughout the Phase I/II study and open-label extension phase. Transient proteinuria (protein in the urine) was observed in all twelve patients, and eleven patients demonstrated signs of proteinuria at week 12 of the extension phase. After 72 weeks, all patients were assigned to an intermittent dosing regimen (eight weeks on, four weeks off). Protein in the urine returned to normal levels in all patients during the off dosing period indicating that this effect is reversible. Other reported adverse events from this study included injection site reactions, which were seen to varying degrees of severity in all subjects, raised cystatin C (a protein indicative of kidney function), decreased C3 (a protein indicating immunological activity), low platelet counts and raised liver enzymes, including GLDH and gamma GT, which may indicate abnormal liver function. The majority of these adverse effects were transient in nature, or were resolved during the four week off-treatment period.

Phase I—DMD114118.    GSK initiated this double-blind, escalating dose, randomized, placebo-controlled study in non-ambulant DMD subjects in July 2010, to assess the safety, tolerability and pharmacokinetics of single subcutaneous injections of drisapersen. It was planned that 32 non-ambulant DMD subjects would receive a single dose of 3, 6, 9, or 12 mg/kg. Twenty subjects received treatment, and the study completed after cohort 3 (9 mg/kg), because the maximum tolerated dose was identified, in line with the objectives of the study. Conclusions from the study were that the pharmacokinetics of drisapersen was similar for non-ambulant DMD subjects compared to ambulant DMD subjects for single doses. Single doses of drisapersen at 3 mg/kg and 6 mg/kg had no significant safety or tolerability concerns in the exposed subjects. Pharmacokinetics and safety results of this study together with data from the Phase I/II—PRO051-02 study suggested that drisapersen 6 mg/kg is the appropriate dose for further characterization in multiple dose studies in the non-ambulant DMD population.

Phase II—DMD114117.    GSK initiated this exploratory placebo-controlled study of drisapersen at a 6 mg/kg (subcutaneous) dose in September 2010. The study consisted of three arms: (1) a continuous dosing regimen of 6 mg/kg/week, including 18 subjects; (2) an intermittent dosing regimen of 9 doses of 6 mg/kg spread over 6 weeks, followed by 4 weeks off drug, including 17 subjects; and (3) a matched placebo arm, including 18 subjects. A total of 53 DMD subjects aged 5 and above with a rise from floor of less than 7 seconds were recruited. The primary endpoint was 24-week efficacy. Secondary endpoints included safety and tolerability over 48 weeks and efficacy (including 6MWD, NSAA timed tests and muscle strength) after 48 weeks. Muscle biopsies were taken pre- and post-treatment (after 24 weeks). Although this was an exploratory study, and not statistically powered to evaluate efficacy, GSK has however reported that drisapersen demonstrated a statistically significant difference in 6MWD between the 6 mg/kg week continuous dosing arm and the placebo arm at 24 weeks. The mean difference in 6MWD was 35.09 meters (p=0.014), which is seen as a clinically meaningful benefit. P-value is a measure of how likely data is to have occurred by chance. The clinically meaningful benefit was maintained after 48 weeks of treatment, with a mean difference in 6MWD of 35.84 meters (p=0.051). Intermittent dosing did not result in a statistically significant difference from the placebo group at 24 weeks; however, GSK reported a clinically meaningful difference at 48 weeks, with a mean difference in 6MWD of 27.08 meters (p=0.147). The NSAA and timed tests showed trends that supported the 6MWD findings. Little change in muscle strength was observed at either time point for either treatment arm. Preliminary results suggest that treatment with drisapersen was in general associated with increased levels of dystrophin expression when compared with pre-treatment levels.

Drisapersen, administered weekly or intermittently, was generally well tolerated. Injection site reactions and renal adverse events (including subclinical proteinuria) were observed in all

 

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treatment arms, including the placebo arm, but occurred more frequently in the continuous and intermittent treatment arms. There were no clinically meaningful adverse events related to inflammation, coagulation or hepatotoxicity. There were no reports of thrombocytopenia, and no subject discontinued treatment. There were no significant safety concerns related to drisapersen identified in this study.

Phase II—DMD114876.    This is an ongoing GSK-initiated study in the United States comparing two doses of drisapersen (3 mg/kg/week and 6 mg/kg/week) in 51 subjects over 48 weeks. The study began in November 2011, and the primary outcome measure is 6MWD at 24 weeks. Secondary outcome measures include the NSAA, timed tests and muscle strength tests. In addition, muscle biopsies are collected and analyzed for dystrophin production and muscle imaging is being investigated as an exploratory outcome measure in collaboration with the National Institutes of Health. The population is similar to the subjects enrolled in the Phase II study described above. After this time point, all boys are withdrawn from therapy to assess the pharmacokinetics and clinical effect of removal of treatment. An extension study is available after 48 weeks. Enrollment was completed in November 2012, and results are currently expected to be available in the first quarter of 2014.

Phase III—DMD114044.    GSK initiated this ongoing pivotal randomized, double-blind, placebo-controlled study in December 2010. The study assesses once-weekly subcutaneous administration of drisapersen at 6 mg/kg dosing in 186 boys over five years of age and with a minimum 6MWD of 75 meters at enrollment. The goal of the study is to demonstrate a mean improvement of 30 meters in 6MWD at 48 weeks compared with placebo. Secondary outcome measures include the NSAA, timed tests, muscle strength tests and quality of life measures. Muscle biopsies are analyzed for dystrophin production. Enrollment is complete. Results are currently expected to be made public in the fourth quarter of 2013.

Phase II/III continuation—DMD114349. GSK initiated this open-label continuation study for up to 220 subjects completing the DMD114117 and DMD114044 clinical studies. Subjects receive doses of 6mg/kg week, and the study has been ongoing since in September 2011 with 189 subjects enrolled to date. There has been a number of significant adverse event reports associated with this study, relating to thrombocytopenia (a decrease in the number of platelets that help blood to clot) and proteinuria (protein in the urine).

Drisapersen safety reports

Clinical trial experience to date with drisapersen indicates adverse events which include proteinuria, local injection site reactions (pain, bruising, erythema, induration, pigmentation), thrombocytopenia, and increases in certain liver enzymes. In addition to the adverse events noted above, single reports have been received of the following clinical conditions: intracranial venous sinus thrombosis (considered unrelated by the sponsor), extramembranous glomerulonephritis and nephrotic-linked proteinuria.

PRO044

Our second exon skipping product candidate for DMD is PRO044, which, like drisapersen, is a highly sequence-specific AON that, in this case, induces exon 44 to be skipped when the mRNA for the dystrophin protein is created from the pre-mRNA. Given the frequencies reported in various international DMD mutation databases, the skipping of exon 44 could in principle correct

 

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the transcription reading frame and produce shortened but functional dystrophin expression in approximately 6% of all DMD patients. PRO044 has obtained orphan drug designation in the United States and the European Union.

We initiated an ongoing dose-escalation trial, assessing six doses (0.5, 1.5, 5, 8, 10 and 12 mg/kg/week) in 18 DMD patients in December 2009. Subjects received PRO044 subcutaneously at 0.5, 1.5, 5, 8, 10 or 12 mg/kg/week (3 subjects per dose). Additionally, nine of the 18 subjects received an additional five administrations intravenously at 1.5, 5 or 12 mg/kg/week. Key endpoints include dystrophin expression, safety and tolerability and pharmacokinetic assessments. Enrollment was completed in the first quarter of 2013. Follow-on program design and timing will be confirmed pending the technical review of these and other emerging data. PRO044 is currently on clinical hold in the United States pending the results of long-term preclinical safety studies; it is anticipated that these will be completed in the fourth quarter of 2013.

Under the terms of our collaboration and license agreement with GSK, GSK has an option to an exclusive worldwide license to develop and commercialize PRO044. See “—Collaboration, license and funding arrangements—GlaxoSmithKline.”

Follow-on compounds

PRO045 has a similar chemical structure and the same mechanism of action as drisapersen and PRO044 and induces exon 45 skipping when the mRNA for the dystrophin protein is created from the pre-mRNA. Given the frequencies reported in various international DMD mutation databases, the skipping of exon 45 could in principle correct the transcription reading frame and produce shortened but functional dystrophin expression in approximately 8% of all DMD patients. PRO045 has been granted orphan drug designation in the United States and the European Union, and we commenced a Phase I/II study of PRO045 in the first quarter of 2013 in Europe. PRO053 induces exon 53 skipping and could in principle correct the transcription reading frame and produce functional dystrophin expression in approximately 8% of all DMD patients. PRO053 has been granted orphan drug designation in the United States and the European Union. We expect to commence a Phase I/II study for PRO053 in mid-2013.

PRO052 and PRO055 induce exon 52 skipping and exon 55 skipping, respectively. Both have been granted orphan drug designation in the United States and the European Union and are currently in advanced preclinical development. Finally, our PROSPECT program specifically targets the rare mutations in the first part of the dystrophin gene. This program is still in the discovery phase and is built on a new and innovative application of our exon-skipping technology platform.

Our regulatory strategy for DMD

DMD is a rare disease, and our DMD product candidates target discrete sub-populations of DMD patients that are distinguished by different mutations in the dystrophin gene. After drisapersen, our subsequent product candidates target mutations of decreasing prevalence or increasing rarity, affecting such small populations of patients that they are sometimes referred to as “ultra-orphan.” With increased rarity of mutations and affected patients, it is not feasible to conduct fully powered pivotal studies. Regulatory authorities acknowledge that placebo study arms are less robust and scientifically meaningful as patient population size decreases. For this reason, we are working closely with the FDA, EMA and several national competent authorities in Europe on the design of alternative pathways to approval for our therapeutic candidates. Our proposed

 

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extrapolation principle is that if exon skipping works for one AON compound that is shown to be safe and effective, then the principle should to a certain extent also apply to subsequent compounds for rarer sub-populations. We believe our natural history study will enable such alternative approval pathways by facilitating direct comparison of natural history data and interventional study data without needing to recruit large placebo groups for every exon skipping product candidate.

PRO135 in myotonic dystrophy

Myotonic dystrophy type 1 (DM1) is the most common neuromuscular dystrophy, affecting 1 in 8,000 individuals worldwide. DM1 is characterized by progressive, multi-system symptoms that typically include muscle weakness and wasting, myotonia (temporary rigidity or slow relaxation of muscles), cardiac conduction defects/arrhythmia and hormonal changes. Life expectancy is reduced due to increased mortality resulting from pulmonary and cardiac complications. The disease affects males and females equally, and the severity of symptoms increases in successive family generations. There is currently no disease modifying treatment for DM1. DM1 is caused by expansion of an unstable (CUG) trinucleotide repeat in the non-coding region of the DMPK gene. This leads to DMPK mRNA transcripts bearing long sequences of CUG nucleotide repeats that can form hairpin-like structures that bind proteins involved in RNA splicing. As a result, the splicing of certain downstream pre-mRNA transcripts that code for other proteins is affected and the resulting proteins are less or non-functional.

Our AON program for DM1, PRO135, selectively targets the toxic RNA transcripts resulting from expansion of (CUG) trinucleotide repeats in the transcription of the DMPK gene. PRO135 candidates reduce the levels of toxic transcripts in myoblasts (precursors of muscle fibers) derived from various DM1 patients. The PRO135 lead candidates are currently being tested in preclinical mouse models of DM1. Preliminary results have shown DMPK mRNA reduction in muscle as well as correction of processing of several RNA transcripts that are normally affected by the repeat expansion. Preclinical studies to identify reversal of myotonic phenotype are currently ongoing, and progression into Phase I trials is planned for early 2017. We have exclusive worldwide rights to the PRO135 program, and we are fully responsible for its research and development.

PRO289 in Huntington’s disease

Huntington’s disease (HD) is a devastating progressive neurodegenerative disorder characterized by chorea (abnormal involuntary movement) spreading to all muscles, progressive dementia and psychiatric manifestations such as depression and psychosis. In western countries, prevalence is estimated to be 5-10 in 100,000 individuals. HD symptoms usually begin to manifest between the ages of 30 to 50; death commonly follows 15 to 20 years after onset of neurological impairment. No effective disease modifying treatment for HD currently exists. HD is caused by expansion of an unstable (CAG) trinucleotide repeat in the coding region of the HTT gene, giving rise to an expanded stretch of CAG nucleotides that become repeatedly expanded on transcription. During protein synthesis, these CAG repeats are translated into a series of uninterrupted glutamine residues, which alter the function of the HD protein and cause it to accumulate in brain cells, leading to the symptoms of HD. AON candidates in our PRO289 program target these repeats and have been shown to reduce levels of expanded HTT transcripts and mutant huntingtin protein in fibroblast cultures (precursors of connective tissue cells) derived from HD patients. We are currently testing PRO289 candidates in various preclinical models of HD. We have exclusive worldwide rights to PRO289, and we are fully responsible for its research and development.

 

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Technology platform

Our technology platform enables us to modulate gene expression through the binding of specifically designed AONs to target RNA, which may induce exon skipping or exon inclusion, reduce mutated toxic RNA or protein, remove specific protein domains or block RNA expression. We focus on genetic disorders representing market opportunities with significant unmet medical needs. Our current focus is on the design, selection and preclinical development of molecules with favorable bioactivity, safety and biodistribution profiles for use in DMD (exon skipping), DM1 (reduction of mutated toxic RNA) and HD (reduction of mutated toxic protein). However, our platform may be applied to other genetic diseases for which RNA modulation would be corrective, or to other trinucleotide repeat expansion diseases, such as several types of spinocerebellar ataxia (SCA), amyotrophic lateral sclerosis (ALS) or X-linked spinal and bulbar muscular atrophy (SBMA).

Collaboration, license and funding arrangements

GlaxoSmithKline

In October 2009, we entered into a research and development collaboration and license agreement with GSK to develop and commercialize RNA-based therapeutics for the treatment of DMD. The agreement was amended in July 2011. The financial terms of the agreement include an upfront payment of £16 million (17.2 million), up to £428 million (505 million) in total milestone payments upon successful compound development and commercialization (including amounts already paid and potential payments related to compounds to which GSK has not yet exercised its option) and percentage royalties in the low tens on product sales. Of the £428 million in milestone payments, £104 million (120 million) relate to development activities including option exercise payments; £195 million (231 million) relate to regulatory achievements, such as gaining regulatory approval; and £129 million (153 million) relate to commercial sales activities, such as achieving threshold worldwide net sales levels. A substantial portion of the milestone payments are related to drisapersen.

Pursuant to the agreement, we granted GSK an exclusive worldwide license in relation to our lead compound, drisapersen. We have also granted GSK an exclusive option to obtain an exclusive worldwide license for our next most advanced compound, PRO044. In July 2011, we jointly amended the agreement to extend the period of GSK’s option to PRO044 and to revise the development plan for PRO044 in exchange for additional pre-option funding of the PRO044 program by GSK.

In addition, GSK has an exclusive option to obtain an exclusive worldwide license for either PRO045 or PRO053, and an exclusive option to obtain an exclusive worldwide license for either PRO052 or PRO055. We will retain the full rights to such of these product candidates that are not licensed by GSK, and for each of these compounds that is licensed to GSK, we will retain an option, which may be exercised following certain events, to certain commercial rights in a selected European territory.

Drisapersen

The exclusive, worldwide patent rights and know-how for our lead compound, drisapersen, are exclusively licensed to GSK to further research, develop and commercialize this compound with the goal of commercial launch. We continue to contribute to certain development activities in support of the clinical studies under the GSK development plan, at GSK’s cost and expense.

 

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Under the exclusive license granted to GSK, GSK has sole decision-making authority and is responsible for all research, development, regulatory, manufacturing, marketing, advertising, promotional, launch and sales and all commercial activities in connection with drisapersen.

We may receive further milestone payments for drisapersen in connection with marketing authorization filings and reimbursements achieved in major markets, and certain commercial sales achievements. We also may receive tiered patent/market exclusivity royalties from GSK in the low tens.

PRO044

We have granted GSK an exclusive option to obtain an exclusive, worldwide license to the patent rights and know-how for PRO044. To date, GSK has not exercised this option. To secure the option, GSK has paid us initiation and advanced option payments, and in return we have initiated and are currently conducting research and development for PRO044. In July 2011, we jointly amended the agreement to extend the period of time in which GSK may exercise its exclusive option to PRO044 and revised the development plan for PRO044 in exchange for additional pre-option funding of the PRO044 program by GSK. When the compound meets the necessary criteria for us to produce a milestone report, GSK, upon receipt of such report, will have a limited period of time to determine whether or not to exercise its option.

Upon exercising its option, GSK will obtain the sole decision-making authority in relation to, and bear all further costs for, the continuation of the development of the PRO044 program. Upon exercise, GSK will be obligated to pay us an option exercise fee; and subsequently GSK will be obligated to pay us development and regulatory milestone payments upon successful achievement of such milestones, as well as tiered patent/market exclusivity and in some cases know-how royalties on the same conditions as described above in relation to drisapersen. In return, GSK will obtain an exclusive, worldwide license to the patent rights and know-how pertaining to PRO044 to research, develop, make, use and sell PRO044.

Follow on programs

GSK has exclusive options to obtain an exclusive, worldwide license to the patent rights and know-how pertaining to two additional compounds: one of either PRO045 or PRO053 and one of either PRO052 or PRO055. PRO045 is paired with PRO053, and PRO052 is paired with PRO055, because each of the product candidates in the respective pairings addresses a patient sub-population of a similar size and is at a comparable stage of development. To date, GSK has not exercised these options. To secure the options, GSK has paid us non-refundable initiation and candidate selection payments, and in return we have initiated and are currently conducting development of PRO045, PRO053, PRO052 and PRO055 at our own cost. When a compound meets the necessary criteria for us to produce a milestone report, GSK, upon receipt of such milestone report, will have a limited period of time to determine whether or not to exercise its option.

Until GSK exercises its exclusive option to a compound’s specific development program, we have the responsibility for the conduct of research and development of each program in accordance with the agreed-upon development plan and must bear all related costs and expenses. Upon exercising its option, GSK will obtain the sole decision-making authority in relation to, and bear all further costs for, the continuation of the development of the program. Upon exercise, GSK will be obligated to pay us an option exercise payment; and subsequently GSK will be obligated

 

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to pay us development and regulatory milestone payments upon successfully achieving such milestones, as well as patent/market exclusivity royalties and know-how royalties on the same conditions as described above in relation to drisapersen.

Under the terms of the agreement, GSK has an exclusive option to obtain an exclusive, worldwide license to the first compound for which we produce a milestone report for the agreed-upon proof of concept study for either PRO045 or PRO053 and a further option to obtain an exclusive, worldwide license to the first compound of PRO052 or PRO055 for which we produce a milestone report for the agreed-upon proof of concept study. If GSK exercises any such option, in exchange for a reduction in milestone payments for the relevant compound, we will have an option, which may be exercised following certain events, to certain commercial rights in a selected European territory for the compound subject to GSK’s option. We will retain the full rights for any product candidates for which GSK does not exercise its option or otherwise receive a license. Under the agreement, we are prohibited from separately developing any compound intended to directly induce single exon skipping in the dystrophin gene for the treatment of DMD targeting the same exon that is the subject of a program under the agreement.

Expiration and Termination

The agreement will expire on a product-by-product and country-by-country basis on the date of the expiration of all payment obligations with respect to each product in each country of commercialization. The length of such payment obligations depends on the length of patent validity for each product or in some cases a specified date after the first commercial sale of a product. The entire agreement expires upon the expiration of all payment obligations due under the agreement. The agreement may also terminate on a program-by-program basis when no compound or product is being researched, developed or commercialized by either party pursuant to the programs that are subject to the agreement. Upon expiration on a product-by-product and country-by-country basis, GSK will have an exclusive, fully-paid and royalty-free right and license to continue to commercialize the products for which it has obtained an exclusive license.

Either party may terminate the agreement, either on a program-by-program basis or in its entirety, for cause in the event of a breach or default by the other party in the performance of any of its material obligations with respect to a particular program or the agreement as a whole, if such default or breach has continued for 90 days after written notice was provided. If the parties reasonably and in good faith disagree as to whether there has been a material breach, the party that seeks to dispute the breach may contest the allegation. In the case of such a dispute, each party will attempt to reach a resolution in good faith, and if no resolution is achieved, the matter may be referred to arbitration for final settlement.

In addition, either party may terminate the agreement upon the occurrence of certain bankruptcy- or insolvency-related events.

GSK has the right to unilaterally terminate the agreement either in part or in its entirety, for any reason or no reason at all, upon 180 days prior written notice. In the event of GSK’s unilateral termination, all licenses granted to GSK with respect to the compounds and products in the terminated program (or, in the case of termination of the entire agreement, all compounds and products) will terminate, and we will have the exclusive right to research, develop and commercialize all such products. If the terminated program concerns PRO045, PRO053, PRO052 or PRO055, we shall pay to GSK a low single-digit royalty on all products we sell that contain such

 

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compound until GSK has recovered all payments made to us directly related to the product or compound and GSK’s actual costs for development thereof. In addition, all unexercised options with respect to the terminated programs will be cancelled.

Leiden University Medical Center

In September 2003, we obtained an exclusive worldwide license from LUMC for the application of its proprietary RNA modulation exon-skipping technology to develop treatments for selected neuromuscular disorders. This technology was developed at the Human Genetics department of Professor Dr. Gert-Jan van Ommen. The license agreement gives us the rights to apply the RNA modulation technology for the development of treatments for neuromuscular disorders as well as, after an amendment of the agreement in March 2008, indications outside the field of neuromuscular disorders. We now use this intellectual property related to RNA modulation technology for all of the compounds that we are currently developing. LUMC reserves the right to use its technology for research and educational purposes and any other purpose not subject to its agreement with us. We have also granted LUMC a non-exclusive, royalty-free license to certain intellectual property we own for the purpose of enabling LUMC to perform internal, non-commercial research.

In consideration for the expansion of the licensed field to include all applications pursuant to the 2008 amendment and for the occurrence of certain milestones and events, we paid LUMC 890,000. We are also obliged to make milestone payments upon the occurrence of events with respect to each subfield in which we pursue a drug indication using the LUMC patent rights, including commencing the first toxicity study, successfully completing the first Phase I study, filing for regulatory approval and satisfying certain sales thresholds. The aggregate milestone payments could total approximately 1.4 million, if we achieve such milestones in relation to an initial orphan drug indication. If we achieve such milestones in relation to a non-orphan drug indication, the aggregate milestone payments could total 5.5 million. We also may be obligated to pay LUMC additional milestone payments of 1.25 million per product in relation to products approved for additional orphan drug indications. In addition, we are obligated to pay LUMC a mid-single digit percentage royalty on net sales on a country-by-country basis if and when any of our products is brought to market. If we sublicense our rights under the LUMC agreement to a third party, as we have to GSK, we are obligated to pay LUMC a tiered royalty percentage (ranging from the low-to-mid-twenties) on the net licensing income and a low single-digit percentage royalty on the net sales generated by the sublicensees. To date we have paid LUMC 3.6 million in milestone payments under the agreement.

If we and LUMC file for a joint patent, such patent will remain jointly owned by us and LUMC. We control any enforcement rights in case of infringement related to any of the joint patent rights and we are required to pay all patent prosecution and maintenance costs during the term of the agreement. If the agreement is terminated, we are jointly responsible with LUMC for patent prosecution and maintenance costs for any patents jointly owned by LUMC and us.

The agreement will expire on a country-by-country basis upon the latest of (a) the expiration date of the last to expire of LUMC’s patent rights issued in such country, (b) the expiration date of the last to expire grant of orphan drug status issued in such country or (c) 15 years from the first commercial sale of a product in such country. The agreement may be terminated by LUMC for (i) our failure to perform any of our material duties under the agreement that is not cured within six months’ written notice, (ii) our material breach of the agreement that is not cured within 90 days’ written notice thereof, or (iii) our insolvency. We may terminate the agreement without cause upon six months written notice.

 

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Other funding arrangements

In addition to our agreement with GSK, we have obtained the following funding from patient organizations and governmental bodies: 3,140,000 from Association Française contre les Myopathies, or AFM, 640,000 from Agentschap NL, 500,000 from the Stichting Duchenne Parents Project, 387,000 from Charley’s Fund, 300,000 from Everest International Pte Ltd, 250,000 from Cure Duchenne, 163,000 from Aktion Benni & Co. and 65,000 from Villa Joep. These arrangements are generally in the form of below-market interest rate loans that become due upon the meeting of certain milestones in product development, generally a minimum threshold of commercialization success or successful completion of certain clinical trials. The AFM agreement gives us the option to terminate the agreement if we undergo a change of control. If we exercise our option to terminate the agreement, we are required to repay the loan, together with interest. In the event that we abandon the program for reasons not justified by a scientific or medical reason, we are similarly required to repay the loan, together with interest. The AFM agreement also requires us to grant AFM a non-exclusive royalty-free license to the intellectual property covered by the agreement in the event that we abandon the research funded by the agreement. Furthermore, we have received a number of other loans from patient organizations and governmental bodies in smaller amounts. We have also received grant funding. Such grants are typically for research, and typically the grant program lasts 3 to 4 years.

Competition

We are engaged in segments of the biopharmaceutical and pharmaceutical industries that are highly competitive and rapidly changing. Large pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products that target genetic disorders, including the same diseases we are targeting. If approved, we expect our product candidates to face intense and increasing competition as new products enter the DMD markets and advanced technologies become available. Our product candidates will face competition based on their safety and effectiveness, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent position and other factors. Our competitors may succeed in developing competing products before we do, obtaining regulatory approval for products or gaining acceptance for the same markets that we are targeting. If we or our collaborators are not “first to market” with one of our product candidates for a given disease indication or a given product profile, our competitive position could be compromised because it may be more difficult for us to obtain marketing approval for that product candidate and/or successfully market that product candidate as a second product to market.

We believe that our key competitor in DMD is Sarepta Therapeutics, Inc., or Sarepta, a U.S. company focused on the development of their lead product candidate eteplirsen. Eteplirsen is currently in Phase II trials in DMD with eight patients in active treatment and employs the same exon 51 skipping approach as drisapersen. Sarepta may be in discussions with the FDA for accelerated approval of eteplirsen, which if granted, could place us at a competitive disadvantage. Even without accelerated approval, depending on the overall clinical profile, efficacy and commercialization of eteplirsen, Sarepta may render our development and discovery efforts in the area of DMD uncompetitive. If, however, drisapersen obtains marketing approval from the EMA prior to eteplirsen, drisapersen could have the benefit of orphan drug marketing exclusivity in Europe for ten years because both products use the same method of action (exon

 

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skipping) for patients with DMD. Eteplirsen (or any other DMD product that uses exon skipping) would have to demonstrate a clinically relevant advantage over drisapersen (in efficacy, safety and/or pharmacokinetics) in order to defeat such market exclusivity in Europe. Because orphan drug marketing exclusivity in the United States is tied to the active ingredient rather than method of action, and drisapersen and eteplirsen use different active ingredients, if FDA marketing approval is obtained, we believe both products could be marketed simultaneously in the United States.

Other companies are also developing alternative therapeutic approaches to the treatment of DMD. For example, PTC Therapeutics, Inc. is developing ataluren, currently in Phase III development, a small molecule that enables formation of functional dystrophin in approximately 13% of DMD patients that have point mutations that create premature termination of RNA transcription and cannot be treated by exon skipping. In addition, Asklepios Biopharmaceuticals, Inc. is developing biostrophin, a gene-therapy approach currently in Phase I development. Summit plc is developing a utrophin (dystrophin-like protein) modulation program that uses orally administered small molecules to increase the production of utrophin. Summit’s most advanced molecule, SMT C1100, is currently in Phase I clinical trials.

Different therapeutic approaches aiming at muscle tissue growth through myostatin inhibition are currently being investigated in clinical studies. These include PF-06252616 by Pfizer Inc. and ACE-031 by Acceleron Pharma (in collaboration with Shire). A Phase I clinical trial to test PF-06252616, a myostatin antibody, is currently ongoing in healthy volunteers. A Phase II, dose-escalation study of ACE-031 in boys with DMD has been terminated based on preliminary safety data. Acceleron and Shire intend to resume studies of ACE-031 as soon as possible pending further analysis of safety data and following discussions with regulatory agencies. There has been no investigation of potential complementarity of exon skipping with alternative approaches such as these. In theory exon skipping and, for example, utrophin upregulation could be mutually enhancing; however experts hypothesize that there could be an issue of competition for binding at the cell membranes of the muscle cells.

In addition, corticosteroids are the current standard of care for DMD patients, although they do not address the underlying cause of DMD and have serious side effects. We believe that corticosteroids will continue to be prescribed in conjunction with any of our product candidates that obtain regulatory approval.

Manufacturing

We develop and manufacture the drug product for our initial preclinical studies using standardized manufacturing processes in our own laboratories. A selected number of Contract Manufacturing Organizations (CMOs) manufacture scaled-up quantities of the drug, based on our advice and know-how. We and the CMOs use multiple qualified suppliers for the raw materials, and the raw materials are widely commercially available from catalog.

We expect to continue our reliance on third-party CMOs to manufacture drug supplies for clinical trials and commercial quantities of our products and drug candidates. Our policy is to contract with multiple suppliers of raw materials, drug substances, drug product formulation and filling; the exception is that the packaging and distribution of product for clinical trials is allocated to a single contractor. To avoid capacity issues, for each specific AON there is only one CMO for drug substance and one CMO for drug product, although the manufacturing process for our product

 

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candidates is highly standardized across all CMOs. By maintaining agreements with multiple parties for the same stage of the manufacturing process, we believe we limit the risk of interruption of production and delays in clinical development and trials. If any CMOs should become unavailable to us for any reason, we believe that with the standardization of the manufacturing platform, there will be a number of potential replacement CMOs. Nevertheless, we may incur some delay in activating an alternative CMO for a new compound. In the future, we may decide to perform some parts of the drug substance production, drug product formulation, filling and packaging in-house.

Intellectual property

We actively seek to protect the intellectual property and proprietary technology that we believe is important to our business, including by seeking and maintaining patents intended to cover our product candidates, product platform, proprietary processes and any other inventions that are commercially important to the development of our business. We also rely on trade secrets that may be important to the development of our business and actively seek to protect the confidentiality of such trade secrets.

Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, defend and enforce our patents, preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties. For more information, please see “Risk factors—Risks related to our intellectual property and information technology.”

As of the date of this prospectus, we owned or exclusively licensed 4 U.S. patents, 10 U.S. patent applications, 1 European patent, 19 European patent applications (including 2 that are allowable), 1 international patent application, and 66 national patent applications or granted patents in other jurisdictions relating to our DMD program. As of such date we also owned or exclusively licensed 2 U.S. patents, 5 U.S. patent applications (including 1 that is allowable), 2 European patents, 6 European patent applications, 2 international applications and 31 national patent applications or granted patents in other jurisdictions relating to our other discovery programs.

Included among the patent and patent applications described above are four families of patents and patent applications that we have exclusively licensed from LUMC. These patents and patent applications claim, among other things, compositions of matter, methods of production and methods of use related to our exon skipping technology. We own or co-own 19 additional families of patents and patent applications encompassing several aspects of the same technology, for the treatment of DMD as well as distinct technologies for the treatment of other diseases for which we are developing drug candidates. Each patent family consists of patents and patent applications in the United States, as well as broadly equivalent patents in several other jurisdictions, including members of the European Patent Convention, Canada and Australia.

Our patents and patent applications directed to drisapersen include one U.S. patent and two U.S. patent applications and one European patent and one European Patent application. The issued U.S. patent expires in 2023, and the U.S. patent applications, if issued, would expire in 2023. The European issued patent expires in 2021, and the European patent application, if issued, would also expire in 2021. Such patents and patent applications include claims to compositions of matter and second medical use. For each of our other DMD candidate compounds, we are seeking to obtain patents that include claims to compositions of matter and second medical use.

 

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Our other issued patents and patent applications, if issued, that are directed to our DMD and other discovery programs are scheduled to expire between 2021 and 2033.

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be shortened if a patent is terminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a patent’s term maybe lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent. The patent term of a European patent is 20 years from its filing date, which, unlike in the U.S., is not subject to adjustment.

The term of a patent that covers an FDA-approved drug or biologic may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug or biologic is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe and other jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We anticipate that some of our issued patents may be eligible for patent term extensions. See “—Government Regulation—United States—Hatch-Waxman Act.”

Opposition proceedings against EP ‘249

In August 2008, EP 1619249 (‘249) was granted to LUMC. This patent relates to exon skipping using an oligonucleotide with a certain length, directed to the interior of a broad range of exons (including exons 43 through 46 and 50 through 53), as well as a number of method claims comprising the use of such an oligonucleotide.

In 2009, AVI Biopharma, Inc. (now Sarepta) filed an opposition against EP ‘249 with the European Patent Office, or EPO, requesting revocation of the patent as granted, alleging, inter alia, lack of novelty, inventive step and sufficiency of disclosure. We on behalf of LUMC in turn requested maintenance of the patent on the basis as granted.

The EPO Opposition Division, presiding in oral proceedings on November 16, 2011, in Munich, Germany, maintained the EP ‘249 patent in an amended form. The allowed patent as maintained protects, among other things, the skipping of exon 51 in the dystrophin gene using a 14- to 40-mer AON as a potential therapy to treat DMD. We believe that the patent as maintained in amended form by the EPO Opposition Division still provides protection for our lead product candidate drisapersen. We and Sarepta both had the right to appeal the written decision of the EPO until June 15, 2013. We have appealed the written decision of the EPO.

Commercialization strategy and organization

Given our current stage of product development, we currently do not have a commercialization infrastructure. We have partnered our lead candidate drisapersen with GSK, and if drisapersen

 

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receives regulatory approvals, GSK will have the right to market drisapersen in the jurisdictions where it obtains marketing approvals. We have retained a participatory role in the commercialization of drisapersen and will play an active role in the potential commercial launch thereof. Based on available population data and birth rates, a reported incidence of one in 3,500 male births and an expected average life span of 25 years, we estimate that the number of DMD patients in selected developed countries with a sustainable reimbursement infrastructure is approximately 75,000, of which about 15,000 are in the United States and 20,000 are in Europe. We believe that drisapersen could potentially address approximately 13% of DMD patients.

If the product candidates to which we have retained commercialization rights are granted marketing approval, we intend to market them with our own commercial team. We are operating in the rare disease area in which patients typically form local, national and global patient groups that are well-informed concerning the latest treatment possibilities. A relatively small number of medical centers of expertise tends to offer specialized treatment for these diseases. As a result, physicians can be located and targeted efficiently by a small and highly educated in-house team. We currently intend to focus our initial commercial efforts for the product candidates to which we have retained commercialization rights in the U.S. and European markets, which we believe represent the largest market opportunities for us. In addition, we believe that Japan and Latin America represent significant opportunities. The product candidates to which we have retained commercialization rights address smaller sub-populations than drisapersen, with each of PRO045 and PRO053 potentially addressing approximately 8% of the DMD patient population, and PRO055 and PRO052 applicable to approximately 2-4%. If GSK exercises its option to license PRO045, or alternatively PRO053, depending on which product candidate reaches the option criteria earlier, we have the option to exclusively commercialize that product candidate in a selected European territory upon regulatory approval. For the other product candidate of either PRO045 or PRO053 not licensed by GSK, we will retain global commercialization rights. The same principle applies to PRO052 and PRO055, where GSK has an option on one product candidate with the same option for us to commercialize the product candidate in a selected European territory. We will retain global commercial rights to the other product candidate.

Government regulation

Our business is subject to extensive government regulation. Regulation by governmental authorities in the United States, the European Union and other jurisdictions is a significant factor in the development, manufacture and marketing of any drugs and in ongoing research and development activities. All of our products are subject to rigorous preclinical and clinical trials and other pre-marketing approval requirements by the FDA, the EMA and other regulatory authorities in the United States, the European Union and in other jurisdictions.

United States

In the United States, the FDA regulates drugs and medical devices under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and regulations implemented by the agency. If we fail to comply with the applicable United States requirements at any time during the product development process, including non-clinical testing, clinical testing, the approval process or after approval, we may become subject to administrative or judicial sanctions. These sanctions could include, but are not limited to, the FDA’s refusal to allow us to proceed with clinical testing, refusal to approve

 

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pending applications, license suspension or revocation, withdrawal of an approval, warning letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency enforcement action could have a material adverse effect on us.

Approval or clearance of drugs

The process required by the FDA before a drug may be marketed in the United States generally involves satisfactorily completing each of the following:

 

 

preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good Laboratory and Good Manufacturing Practice regulations, as applicable;

 

 

submission to the FDA of an investigational new drug, or IND, application for human clinical testing, which must become effective before human clinical trials may begin;

 

 

performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;

 

 

submission of data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;

 

 

submission to the FDA of an New Drug Application, or NDA;

 

 

satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current Good Manufacturing Practices;

 

 

potential FDA audit of the non-clinical and clinical trial sites that generated the data in support of the NDA; and

 

 

FDA review and approval of the NDA before any commercial marketing, sale or shipment of the product.

The testing, collection and submission of data and the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing our products.

Preclinical studies and Investigational New Drug application

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an Investigational New Drug, or IND, application. The IND becomes effective 30 days after receipt by the FDA, unless the FDA, raises concerns or questions about the conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks. In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trials can begin. Submission of the IND may result in the FDA not allowing the trials to commence or not allowing the trial to commence on the terms originally specified in the IND. If the FDA raises concerns or questions either during this initial 30

 

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day period, or at any time during the IND process, they may choose to impose a partial or complete clinical hold. This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing study, until all outstanding concerns have been adequately addressed and the FDA have notified the company that investigations may proceed. This could cause significant delays or difficulties in completing planned clinical studies in a timely manner.

Clinical trials

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. An independent Institutional Review Board, or IRB, must also review and approve the clinical trial before it can begin and monitor the study until it is completed. The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, the safety of human subjects and the possible liability of the institution. The FDA, the IRB or the sponsor may suspend or discontinue a clinical trial at any time or impose sanctions for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA requirements or the subjects are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice rules and the requirements for informed consent.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Additional studies may be required after approval.

Phase I clinical trials are initially conducted in a limited population to test the product candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients, such as cancer patients.

Phase II clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, determine the efficacy of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage. Multiple Phase II clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase III clinical trial.

Phase III clinical trials proceed if the Phase II clinical trials demonstrate that a dose range of the product candidate is effective and has an acceptable safety profile. Phase III clinical trials are undertaken in large patient populations to further evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sites. A well-controlled, statistically relevant Phase III trial may be designed to deliver the data that the regulatory authorities will use to decide whether or not to approve a drug: such Phase III studies are referred to as ‘pivotal’.

In some cases, the FDA may approve an NDA for a product candidate with the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA approval. Such post-approval trials are typically referred to as Phase IV clinical trials. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a

 

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company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. Failure to promptly conduct Phase IV clinical trials could result in withdrawal of approval for products.

New Drug Application

The results of product candidate development, preclinical testing and clinical trials are submitted to the FDA as part of an NDA. The NDA also must contain extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee. Once the submission has been accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or the PDUFA, the FDA has ten months in which to complete its initial review of a standard NDA and respond to the applicant, and six months for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs. The review process is often significantly extended by FDA requests for additional information or clarification. The review process and the PDUFA goal date may be extended by three months if the FDA requests, or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date.

At the conclusion of the FDA’s review they will issue an action letter. If the FDA’s evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable and there are no outstanding issues, the FDA will issue an approval letter. If the application is not approved, the FDA will issue a complete response letter, which will contain the conditions that must be met in order to secure final approval of the NDA, and when possible will outline recommended actions the sponsor might take to obtain approval of the application. Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by the FDA. Such resubmissions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission is based on the information submitted by an applicant in response to an action letter. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and six months to review a Class 2 resubmission. The FDA will not approve an application until issues identified in the complete response letter have been addressed.

The FDA may also refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of the advisory committee, but it generally follows such recommendations. The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and the FDA may interpret data differently than we or our collaborators do. Once issued, the FDA may withdraw a drug approval if ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market. In addition, the FDA may require further testing, including Phase IV clinical trials, and surveillance programs to monitor the effect of approved drugs which have been commercialized. The FDA has the power to prevent or limit further marketing of a drug based on the results of these post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label. Further, if there are any modifications to a

 

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drug, including changes in indications, labeling or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional preclinical studies and clinical trials. We cannot be sure that any additional approval for new indications for any product will be approved on a timely basis, if at all.

The FDA has several programs that are intended to facilitate and expedite development and review of new drugs to address unmet medical need in the treatment of serious or life-threatening conditions. These programs are intended to help ensure that therapies for serous conditions are available as soon as it can be concluded that the therapies benefits justify their risks. These programs include breakthrough therapy designation, fast track designation, priority review and accelerated approval.

Breakthrough therapy designation

Breakthrough therapy designation is intended to expedite the development and review of products for serious and life-threatening conditions. Preliminary clinical evidence must demonstrate the drug may have substantial improvement over other available therapy. This designation conveys all of the same features of fast track designation, as well as more intensive FDA guidance throughout the development program. This guidance can include meetings throughout the development cycle, providing timely advice to ensure both the nonclinical and clinical programs are as efficient as practicable, and includes involvement of senior managers and experienced staff in cross-disciplinary and collaborative reviews. In general, sponsors must apply for breakthrough therapy designation, although the FDA may suggest to the sponsor that they consider submitting a request for the designation.

Fast track designation

The FDA’s fast track program is intended to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new product candidate may request the FDA to designate the product candidate for a specific indication as a fast track drug concurrent with or after the filing of the IND for the product candidate. The FDA must determine if the product candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.

If fast track designation is obtained, the FDA may initiate review of sections of an NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the time period specified in the PDUFA, which governs the time period goals the FDA has committed to reviewing an application, does not begin until the complete application is submitted. Additionally, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

In some cases, either a breakthrough therapy or a fast-track-designated product candidate may also qualify for one or more of the following programs:

Priority review.    Under FDA policies, a product candidate is eligible for priority review, or review within six months from the time a complete NDA is accepted for filing, if the product

 

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candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis or prevention of a disease. Under PDUFA, the FDA is further entitled to take 60 days to determine that an application is sufficiently complete to allow the filing, therefore a priority review timetable may be 60 days before acceptance plus review. We cannot guarantee any of our product candidates will receive a priority review designation, or, if such a priority designation is received, that review or approval will be faster than conventional FDA procedures, or that the FDA will ultimately grant approval.

Accelerated approval.    Under the FDA’s accelerated approval regulations, the FDA is authorized to approve product candidates that have been studied for their safety and effectiveness in treating serious or life-threatening illnesses, and that provide meaningful therapeutic benefit to patients over existing treatments based upon either a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than patient survival. In clinical trials, surrogate endpoints are alternative measurements of the symptoms of a disease or condition that are substituted for measurements of observable clinical symptoms. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to validate the surrogate endpoint or confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to validate a surrogate endpoint or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.

When appropriate, we intend to seek either breakthrough therapy, fast track designation, priority review or accelerated approval for our products. We cannot predict whether any of our products will obtain a breakthrough therapy, fast track, priority review or accelerated approval designation, or the ultimate impact, if any, of these designations on the approval process, on the timing, or the likelihood of FDA approval of any of our product candidates.

Orphan drug designation

Orphan drug designation in the United States is designed to encourage sponsors to develop drugs intended for rare diseases or conditions. In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available the drug for the disease or condition will be recovered from sales of the drug in the United States.

Orphan drug designation qualifies a company for tax credits and market exclusivity for seven years following the date of the drug’s marketing approval if granted by the FDA. An application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. A drug becomes an orphan when it receives orphan drug designation from the Office of Orphan Products Development, or OOPD, at the FDA based on acceptable confidential requests made under the regulatory provisions. The drug must then go through the new drug approval process like any other drug. Orphan drug designations are decided solely by the OOPD staff, but the OOPD occasionally will request opinions from the Center for Drug Evaluation and Research, especially when dealing with issues such as the appropriateness of the requested indication or the scientific rationale described by the sponsor.

 

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A sponsor may request orphan drug designation of a previously unapproved drug or new orphan indication for an already marketed drug. In addition, a sponsor of a drug that is otherwise the same drug as an already approved orphan drug may seek and obtain orphan drug designation for the subsequent drug for the same rare disease or condition if it can present a plausible hypothesis that its drug may be clinically superior to the first drug. More than one sponsor may receive orphan drug designation for the same drug for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation.

Drisapersen was granted orphan drug designation in the United States in 2005. All of our other DMD development compounds (PRO044, PRO045, PRO053, PRO052 and PRO055) have also been granted orphan drug designation.

The period of exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the indication for which the drug has been designated. The FDA could approve a second application for the same drug for a different use or a second application for a clinically superior version of the drug for the same use. The FDA cannot, however, approve the same drug made by another manufacturer for the same indication during the market exclusivity period unless it has the consent of the sponsor or the sponsor is unable to provide sufficient quantities.

Hatch-Waxman Act

In addition, under the FDCA, as amended by the Hatch-Waxman Act of 1984, or the Hatch-Waxman Act, a drug can be classified as a new chemical entity if the FDA has not previously approved any other new drug containing the same active agent. Under sections 505(c)(3)(D)(ii) and 505(j)(5)(D)(ii) of the FDCA, as amended by the Hatch-Waxman Act, the first applicant to gain approval of an NDA for a new chemical entity may, in the absence of patent protections, be eligible for five years of market exclusivity in the United States following regulatory approval.

During the five-year exclusivity period, the FDA may not accept for review an abbreviated new drug application, or a 505(b)(2) NDA submitted by a competitor for another version of such drug, where the applicant does not own or have a legal right of reference to all the data required for approval. Protection under the Hatch-Waxman Act will not prevent the filing or approval of another full NDA, but the applicant would be required to conduct its own adequate and well-controlled clinical trials to demonstrate safety and effectiveness. The Hatch-Waxman Act also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplements to existing NDAs if new clinical investigations are essential to the approval of the applications, for example for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving abbreviated NDAs filed by competitors for drugs containing the original active agent.

The Hatch-Waxman Act also permits a patent restoration term of up to five years as compensation for the portion of a drug’s patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and it must be applied for

 

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prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may consider applying for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond the current expiration date, depending on the expected length of clinical trials and other factors involved in the filing of the relevant NDA.

Post-approval regulation

If regulatory approval for marketing of a product or new indication for an existing product is obtained, we will be required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA have imposed as part of the approval process. We will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including current Good Manufacturing Practices regulations, which impose certain procedural and documentation requirements upon drug manufacturers. Accordingly, we and our third-party manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with current Good Manufacturing Practices regulations and other regulatory requirements. Discovery of problems with a product after approval for marketing may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.

European Union

The process regarding approval of medicinal products in the EU follows roughly the same lines as in the United States and likewise generally involves satisfactorily completing each of the following:

 

 

preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good Laboratory Practice regulations;

 

 

submission to the relevant national authorities of a clinical trial application or CTA, which must be approved before human clinical trials may begin;

 

 

performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;

 

 

submission to the relevant competent authorities of a marketing authorisation application or MAA, which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;

 

 

satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current Good Manufacturing Practices;

 

 

potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and

 

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review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.

Preclinical studies

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with the relevant EU regulations and requirements. The results of the preclinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.

Clinical trial approval

Pursuant to the Clinical Trials Directive 2001/20/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of a European Union member state in which a study is planned to be conducted. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further supporting information prescribed by the Clinical Trials Directive and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.

Clinical drug development is often described as consisting of four temporal phases (Phase I- IV), see for example EMA’s note for guidance on general considerations for clinical trials (CPMP/ICH/291/95).

 

 

Phase I (Most typical kind of study: Human Pharmacology);

 

Phase II (Most typical kind of study: Therapeutic Exploratory);

 

Phase III (Most typical kind of study: Therapeutic Confirmatory); and

 

Phase IV (Variety of Studies: Therapeutic Use).

Studies in Phase IV are all studies (other than routine surveillance) performed after drug approval and related to the approved indication.

The phase of development provides an inadequate basis for classification of clinical trials because one type of trial may occur in several phases. The phase concept is a description, not a set of requirements. The temporal phases do not imply a fixed order of studies since for some drugs in a development plan the typical sequence will not be appropriate or necessary.

Manufacturing of investigational products is subject to the holding of authorization and must be carried out in accordance with current Good Manufacturing Practices.

Health authority interactions

During the development of a medicinal product, frequent interactions with the EU regulators are vital to make sure all relevant input and guidelines/regulations are taken into account in the overall program. Prosensa has established an ongoing dialogue with EMA and certain national authorities by making use of the mechanisms that exist for interaction and input.

 

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Informal interactions:    we have had several informal meetings with interested parties from EMA. These interactions have provided important input into the development programs.

 

 

Formal CHMP scientific advice:    the development plans for PRO045 and PRO053 were reviewed with the EU regulators through a scientific advice procedure with the scientific advice working party, or SAWP, of The Committee for Medicinal Products for Human Use, or CHMP. As per the procedure, a letter of intent was submitted and subsequently a briefing document including the questions was submitted. After assessment of the documentation supplied, EMA provided a list of issues for clarification, which were addressed by Prosensa in a face-to-face meeting with the SAWP and subsequently a formal advice letter was issued. Of note, for orphan medicinal products, one can apply for protocol assistance, which results in the same outcome, but is free of charge.

 

 

Formal national feedback:    in order to increase success of the CTA applications, we have held meetings on the proposed CTAs for the PRO045 compound with the UK and Dutch regulators. Their input has been incorporated into the protocols.

 

 

Business pipeline meetings:    in addition to the scientific input outlined above, procedural advice has also been obtained through a business pipeline meeting with EMA. In this meeting, we were able to present our entire pipeline for DMD, where we received input from key EMA personnel on the appropriate procedures to be followed (scientific advice/protocol assistance, PIPs and MAA) and how best to proceed.

 

 

Paediatric Investigation Plans:    Regulation (EC) 1901/2006 came into force on 26 January 2007 and has as its primary purpose the improvement of the health of children without subjecting children to unnecessary trials, or delaying the authorization of medicinal products for use in adults.

The regulation established the Paediatric Committee, or PDCO, which is responsible for coordinating the EMA’s activities regarding medicines for children. The PDCO’s main role is to determine all the studies that applicants need to do in the pediatric population as part of the so-called Paediatric Investigation Plans, or PIPs.

All applications for marketing authorization for new medicines that were not authorized in the EU before 26 January 2007 have to include the results of studies carried out in children of different ages. As indicated, the PDCO determines what these studies entail and describes them in a PIP. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized.

 

 

The PDCO can grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults.

 

 

The PDCO can also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.

Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA checks that companies actually comply with the agreed studies and measures listed in each relevant PIP.

 

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With the regulation coming into force, several incentives for the development of medicines for children also became available in the EU:

 

 

medicines that have been authorized across the EU with the results of PIP studies included in the product information are eligible for an extension of their patent protection by six months. This is the case even when the studies’ results are negative;

 

 

for orphan medicines, the incentive is an additional two years of market exclusivity instead of one;

 

 

scientific advice and protocol assistance at the EMA are free of charge for questions relating to the development of medicines for children; and

 

 

medicines developed specifically for children that are already authorized but are not protected by a patent or supplementary protection certificate, can apply for a paediatric use marketing authorization, or PUMA. If a PUMA is granted, the product will benefit from 10 years of market protection as an incentive.

Since our compounds in the DMD portfolio are all intended for the use in children by the very nature of the disease, a PIP has been agreed for drisapersen licensed to GSK and we have additional PIP procedures ongoing with PDCO for the other programs in clinical development.

Marketing authorization application

Available authorization procedures

Authorization to market a product in the European Union member states proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.

 

   

Centralized authorization procedure.    Certain drugs defined as medicinal products developed by means of biotechnological processes must undergo the centralized authorization procedure for marketing authorization, which, if granted, is automatically valid in all European Union member states. The EMA and the European Commission administer the centralized authorization procedure.

 

  Pursuant   to Regulation 726/2004, this procedure is mandatory for:

 

  a)   medicinal products developed by means of one of the following biotechnological processes:

 

   

recombinant DNA technology;

 

   

controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells; and

 

   

hybridoma and monoclonal antibody methods;

 

  b)   advanced therapy medicinal products as defined in Article 2 of Regulation 1394/2007 on advanced therapy medicinal products;

 

  c)  

medicinal products for human use containing a new active substance which, on the date of entry into force of this Regulation, was not authorized in the European

 

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Union, for which the therapeutic indication is the treatment of any of the following diseases:

 

   

acquired immune deficiency syndrome;

 

   

cancer;

 

   

neurodegenerative disorder;

 

   

diabetes;

 

   

auto-immune diseases and other immune dysfunctions; and

 

   

viral diseases; and

 

  d)   medicinal products that are designated as orphan medicinal products pursuant to Regulation 141/2000.

The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in the interest of patients at a European Community level.

Under the centralized authorization procedure, the CHMP serves as the scientific committee that renders opinions about the safety, efficacy and quality of human products on behalf of the EMA. The CHMP is composed of experts nominated by each member state’s national drug authority, with one of them appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days, to adopt an opinion as to whether a marketing authorization should be granted. The process usually takes longer as additional information is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of experts. Once the procedure is completed, a European Public Assessment Report, or EPAR, is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. The opinion produced by the CHMP is sent to the European Commission and used in reaching the final decision.

In general, if the centralized procedure is not followed, there are three alternative procedures. If marketing authorization in only one member state is preferred, an application can be filed with the national competent authority of a member state. The other two options are a mutual recognition by European Union member states and the decentralized procedure, both under Directive 2001/83. A marketing authorization may be granted only to an applicant established in the European Union.

 

   

Mutual recognition procedure.    If an authorization has been granted by one member state, or the Reference Member State, an application may be made for mutual recognition in one or more other member states, or the Concerned Member State(s).

 

   

Decentralized procedure.    The third option is the decentralized procedure. The decentralized procedure may be used to obtain a marketing authorization in several European member states when the applicant does not yet have a marketing authorization in any country.

 

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National procedure.    Applicants following the national procedure will be granted a marketing authorization that is valid only in a single member state. Furthermore, this marketing authorization is not based on recognition of another marketing authorization for the same product awarded by an assessment authority of another member state. The national procedure can also serve as the first phase of a mutual recognition procedure.

It is not always possible for applicants to follow the national procedure. In the case of medicinal products in the category for which the centralized authorization procedure is compulsory, that procedure must be followed. In addition, the national procedure is not available in the case of medicinal product dossiers where the same applicant has already obtained marketing authorization in one of the other European Union member states or has already submitted an application for marketing authorization in one of the other member states and the application is under consideration. In the latter case, applicants must follow a mutual recognition procedure.

After a drug has been authorized and launched, it is a condition of maintaining the marketing authorization that all aspects relating to its quality, safety and efficacy must be kept under review. Sanctions may be imposed for failure to adhere to the conditions of the marketing authorization. In extreme cases, the authorization may be revoked, resulting in withdrawal of the product from sale.

Accelerated assessment procedure

When appropriate, we may seek accelerated assessment for our products. When an application is submitted for a marketing authorization in respect of a drug for human use which is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may request an accelerated assessment procedure pursuant to article 14, paragraph 9 of Regulation 726/2004.

Conditional approval

As per Regulation EC 726/2004, Art. 14(7), a medicine that would fulfill an unmet medical need may, if its immediate availability is in the interest of public health, be granted a conditional marketing authorization on the basis of less complete clinical data than are normally required, subject to specific obligations being imposed on the authorization holder. These specific obligations are to be reviewed annually by the EMA. The list of these obligations shall be made publicly accessible. Such an authorization shall be valid for one year, on a renewable basis.

Exceptional circumstances

As per Regulation EC 726/2004, Art. 14(8), products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not lead to the completion of a full dossier/approval.

 

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We cannot predict whether any of our products will obtain any of such designations or predict the ultimate impact, if any, of such designations on the timing, conditions or likelihood of EMA authorization.

Period of authorization and renewals

Marketing authorization shall be valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder shall provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization shall be valid for an unlimited period, unless the Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the EU market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization shall cease to be valid (the so-called sunset clause).

Orphan drug designation

Regulation 141/2000 states that a drug shall be designated as an orphan drug if its sponsor can establish:

 

 

(a)(i) that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Community when the application is made, or;

 

 

(a)(ii) that it is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in the European Community would generate sufficient return to justify the necessary investment; and

 

 

(b) that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Community or, if such method exists, the drug will be of significant benefit to those affected by that condition.

Regulation 847/2000 holds criteria for the designation of orphan drugs.

An application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. Marketing authorization for an orphan drug leads to a ten-year period of market exclusivity. This period may, however, be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation, for example because the product is sufficiently profitable not to justify market exclusivity. Market exclusivity can be revoked only in very selected cases, such as consent from the marketing authorization holder, inability to supply sufficient quantities of the product, demonstration of “clinically relevant superiority” by a similar medicinal product, or, after a review by the Committee for Orphan Medicinal Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria are believed to no longer apply). Medicinal products designated as orphan drugs pursuant to Regulation 141/2000

 

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shall be eligible for incentives made available by the European Community and by the member states to support research into, and the development and availability of, orphan drugs.

We have applied for and been granted orphan status in the EU for all compounds in our portfolio which are intended for the treatment of DMD.

Regulatory data protection

Without prejudice to the law on the protection of industrial and commercial property, all applications for marketing authorization receive an 8+2+1 protection regime.

This regime consists of a regulatory data protection period of eight years plus a concurrent market exclusivity of ten years plus an additional market exclusivity of one further year if, during the first eight years of those ten years, the marketing approval holder obtains an approval for one or more new therapeutic indications which, during the scientific evaluation prior to their approval, are determined to bring a significant clinical benefit in comparison with existing therapies. Under the current rules, a third party may reference the preclinical and clinical data of the original sponsor beginning eight years after first approval, but the third party may market a generic version after only ten (or eleven) years have lapsed.

As indicated, additional data protection can be applied for when an applicant has complied with all requirements as set forth in an approved PIP.

Manufacturing

The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with the EMA’s current Good Manufacturing Practices requirements and comparable requirements of other regulatory bodies, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA enforces its current Good Manufacturing Practices requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out rests with the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.

Marketing and promotion

The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Community notably under Directive 2001/83 in the European Community code relating to medicinal products for human use as amended by Directive 2004/27. The applicable regulation aims to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

 

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Environmental, health and safety

We and the operations of our CMOs are further subject to various foreign, national, federal, state and local laws and regulations relating to environmental, health and safety matters, including the handling, disposal, release, and use of and maintenance of a registry for hazardous materials, among others. Although we do not believe that we will be required to make material operating or capital expenditures in connection with such laws and regulations, we may be required to incur significant costs to comply with these laws and regulations in the future, and complying with these laws and regulations may result in a material adverse effect upon our business, financial condition and results of operations. Further, our failure or the failure of our CMOs to comply with such laws and regulations could have a material adverse effect on our business and reputation, result in an interruption or delay in the development or manufacture of our products, or increase the costs for the development or manufacture of our products.

Pharmaceutical pricing and reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval, including the products being developed and potentially commercialized by GSK. Sales of any of our product candidates or GSK’s licensed product candidates under our collaboration, if approved, will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverage is approved. Third party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, we or GSK, as applicable, may need to conduct pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Our product candidates or GSK’s licensed product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs has become a priority of governments, and the prices of drugs have been a focus in this effort. Third party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The U.S. government, state legislatures and non-U.S. governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and

 

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measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as the product candidates that we are developing and could adversely affect our net revenue and results.

Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our products.

The marketability of any products for which we or GSK with respect to the product candidates it licenses under our collaboration receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the Patient Protection and Affordable Care Act was enacted in the United States in March 2010 and contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Even if favorable coverage and reimbursement status is attained for one or more products for which we or GSK receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Facilities

We lease approximately 20,000 square feet of office and laboratory space in Leiden, the Netherlands. This facility serves as our corporate headquarters and central laboratory facility. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.

Employees

As of March 31, 2013, we had 85 employees, 24 of whom hold M.D. or Ph.D. degrees. None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union. We are in the process of establishing a workers’ council for our employees. We consider our relations with our employees to be good.

 

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Legal proceedings

From time to time we are involved in legal proceedings that arise in the ordinary course of business. We believe that the outcome of these proceedings, if determined adversely to us, will not have a material adverse effect on our financial position. During the period covered by the audited and approved financial statements contained herein, we have not been a party to or paid any damages in connection with litigation that has had a material adverse effect on our financial position. No assurance can be given that future litigation will not have a material adverse effect on our financial position.

 

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Management

General

Below is a summary of relevant information concerning our management board, our supervisory board, senior management and other employees as well as a brief summary of certain significant provisions of Dutch corporate law, the Articles of Association that will be in effect upon the consummation of this offering and the Dutch Corporate Governance Code, or DCGC, in respect of our management board and supervisory board.

Board structure

We have a two-tier board structure consisting of our supervisory board (raad van commissarissen) and a separate management board (raad van bestuur).

Supervisory board

Our supervisory board supervises the policies of the management board and the general course of the affairs of our business. The supervisory board gives advice to the management board and is guided by the interests of the business when performing its duties. The management board provides the supervisory board with such necessary information as is required to perform its duties. Supervisory directors are appointed by the general meeting of shareholders upon a binding nomination of the supervisory board for a term of up to four years. The binding nomination will be prepared by the nominating and corporate governance committee.

Our Articles of Association provide for a term of appointment of supervisory directors of up to four years. The supervisory directors that were appointed by the general meeting of shareholders on June 14, 2013 were appointed for different terms as a result of which only approximately one-third of our supervisory board members will be subject to election in any one year. Such an appointment has the effect of creating a staggered board and may deter a takeover attempt.

The supervisory board meets as often as a supervisory board member deems necessary. In a meeting of the supervisory board, each supervisory director has a right to cast one vote. All resolutions by the supervisory board are adopted by an absolute majority of the votes cast. In the event the votes are equally divided, the chairman has a decisive vote. A supervisory director may grant another supervisory director a written proxy to represent him at the meeting, but a supervisory director cannot represent more than one supervisory director.

Our supervisory board can pass resolutions outside of meetings, provided that the resolution is adopted in writing and all supervisory directors have consented to adopting the resolution outside of a meeting. The chairman shall prepare and sign a report of the resolutions adopted in this manner.

Our supervisory directors do not have a retirement age requirement under our Articles of Association.

 

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The following table presents the supervisory directors appointed by the general meeting of shareholders on June 14, 2013. Daan Ellens is the current chairman of our supervisory board. Upon the consummation of this offering, we anticipate that David Mott will become chairman of our supervisory board. The term of each of our supervisory directors will terminate on the date of the annual general meeting of shareholders in the year indicated below.

 

Name    Age      Term

 

Rémi Droller

     37       2014

Daan Ellens

     64       2015

Peter Goodfellow

     61       2015

Martijn Kleijwegt

     58       2016

David Mott

     47       2016

Patrick Van Beneden

     50       2014

 

The following is a brief summary of the business experience of our supervisory directors. Unless otherwise indicated, the current business address for our supervisory directors is J.H. Oortweg 21, 2333 CH Leiden, the Netherlands.

Rémi Droller has served on our supervisory board since 2008. Mr. Droller is a managing partner at Kurma Life Sciences Partners, which he joined in September 2010. Mr. Droller was previously with CDC Innovation from 2000 to 2003 and with AGF Private Equity SA (now Idinvest Partners) from 2003 to 2010 where he was in charge of the development of the life sciences investment activity. During this period, Mr. Droller served on the board of several investee companies such as Adocia S.A.S., AM Pharma Holding B.V., BioAlliance Pharma S.A., Domain Therapeutics S.A., IntegraGen S.A., Novagali Pharma S.A., STAT Diagnostica S.L. and Zealand Pharma A.V. Mr. Droller holds a master’s degree in molecular biology from Paris VI University and a master’s degree in finance and innovation management from Masternova – AgroParisTech. Mr. Droller was nominated to serve on our board by Idinvest Partners, one of our shareholders. We believe that Mr. Droller is qualified to serve on our supervisory board because of his extensive experience as a venture capital investor and his service on the boards of directors of other biopharmaceutical companies.

Daan Ellens is currently the chairman of our supervisory board and has served on the board since 2007. Dr. Ellens also serves as chairman of the supervisory board of Hybrigenics SA, Zealand Pharma A/S. and Kreatech Holding B.V. Prior to these positions, Dr. Ellens was Chief Executive Officer of Rhein Biotech N.V. from 1994 to 2002. Dr. Ellens holds a Ph.D. degree in molecular biology from the University of Utrecht in the Netherlands and a M.B.A. degree from the University Eindhoven, the Netherlands. Dr. Ellens’ extensive and successful track record as one of the most successful European biotechnology entrepreneurs adds significant value to our team. We believe that Dr. Ellens is qualified to serve on our supervisory board because of his career in the pharmaceutical industry, including his extensive experience as an entrepreneur and executive and his service on the boards of directors of other biopharmaceutical companies.

Peter Goodfellow has served on our supervisory board since 2008 and is also a member of our scientific advisory board. Dr. Goodfellow was formerly Senior Vice President for Discovery Research at GlaxoSmithKline plc from 1998 to 2006. In addition, Dr. Goodfellow serves as a director of the Institute of Cancer Research and as a member of several advisory boards, including the Scientific Advisory Board of the Institute of Molecular and Cell Biology, the Gates Foundation Discovery Board and Sanofi’s Strategic Development and Scientific Advisory Council. He has also held the Balfour chair in genetics at Cambridge University and research positions at the Imperial Cancer Research Fund. Dr. Goodfellow holds bachelor’s and doctorate degrees from the

 

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University of Bristol and a doctorate degree from Oxford University. We believe that Dr. Goodfellow is qualified to serve on our supervisory board because of his career in the pharmaceutical industry, including his extensive experience as an executive and service on the boards of directors of other biopharmaceutical companies.

Martijn Kleijwegt has served on our supervisory board since 2008. Mr. Kleijwegt founded Life Sciences Partners in 1998 and has been managing partner of Life Sciences Partners since then. Mr. Kleijwegt has served on the boards of a number of companies including Qiagen N.V., Rhein Biotech N.V., Crucell N.V., Movetis N.V. and Pronota N.V. Mr. Kleijwegt graduated from the University of Amsterdam with a degree in economics. Mr. Kleijwegt was nominated to serve on our board by Life Sciences Partners, one of our shareholders. We believe that Mr. Kleijwegt is qualified to serve on our supervisory board because of his experience in the biopharmaceutical industry as a venture capital investor, a founder of Life Sciences Partners and a member of the boards of directors of other biopharmaceutical companies.

David Mott has served on our supervisory board since 2012 and is expected to become the chairman of our supervisory board upon the consummation of this offering. Mr. Mott has served as a general partner of New Enterprise Associates, an investment firm focused on venture capital and growth equity investments, since September 2008, where he leads the healthcare investing practice. Prior to joining NEA, Mr. Mott was President and Chief Executive Officer of MedImmune LLC, subsidiary of AstraZeneca plc, and Executive Vice President of AstraZeneca plc. From 1992 to 2008, Mr. Mott worked at MedImmune Limited and served in numerous roles during his tenure including Chief Operating Officer, Chief Financial Officer, President and Chief Executive Officer. Prior to joining MedImmune, Mr. Mott was a Vice President in the Health Care Investment Banking Group at Smith Barney, Harris Upham & Co. Inc. Mr. Mott is currently Chairman of 3-V Biosciences, Inc., TESARO, Inc., and Zyngenia, Inc. and is a director of Ardelyx, Inc., Epizyme, Inc., and Omthera Pharmaceuticals, Inc. Mr. Mott also serves on the governing board of St. Albans School. Mr. Mott received a bachelor of arts degree from Dartmouth College. Mr. Mott was nominated to serve on our board by New Enterprise Associates, one of our shareholders. We believe that Mr. Mott is qualified to serve on our supervisory board because of his experience as a venture capital investor, his experience in the pharmaceutical industry and his service on the boards of directors of other biopharmaceutical companies.

Patrick Van Beneden was appointed to our supervisory board on June 14, 2013. Mr. Van Beneden serves as a Partner and Executive Vice-President of Life Sciences at Gimv N.V. Mr. Van Beneden is currently part of the healthcare team and heads the life sciences business unit and is a member of the Gimv’s Partners’ Council. Mr. Van Beneden has 20 years of experience at GIMV and is responsible for its investment portfolio in life sciences. He has built a track record in life sciences, both in early and late stage investments and successful exits. Mr. Van Beneden joined GIMV in 1985. He is a Director of Endosense SA, Acertys, ActoGeniX, Psychiatric Genomics, Pamgene International BV, Xantos Biomedicine GmbH, deVGen, Vitromics, Biotech Fonds Vlaanderen, and TorreyPines Therapeutics. Mr. Van Beneden also serves as a member of the Advisory Board of Oxford BioScience Partners and Sofinnova SA. His former board seats include Innogenetics, Astex, Ablynx, Crucell, Avalon, Hypnion, and Crop Design. He holds a degree in Financial Sciences from Vlekho, Brussels. Mr. Van Beneden was nominated to serve on our board by Gimv N.V., one of our shareholders. We believe that Mr. Van Beneden is qualified to serve on our supervisory board because of his experience as a venture capital investor, his experience in the pharmaceutical industry and his service on the boards of directors of other biopharmaceutical companies.

 

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Management board

The management board is in charge of managing us under the supervision of the supervisory board.

The supervisory board determines the number of managing directors. Managing directors are appointed by the general meeting of shareholders upon a binding nomination of the supervisory board for a term of up to four years.

At least once per year the management board informs the supervisory board in writing of the main lines of our strategic policy, the general and financial risks and the management and control system.

We have a strong centralized management board led by Hans Schikan, our Chief Executive Officer, with broad experience in general management, strategy, corporate development, operations, in particular the commercialization of orphan drugs for rare diseases, information technology, finance, sales, communications and training. Many of our managing directors have worked together as a team for many years.

The following table lists our current management board:

 

Name    Age    Position

 

Hans Schikan

   54    Chief Executive Officer

Berndt Modig

   54    Chief Financial Officer

Giles Campion

   58    Chief Medical Officer and Senior Vice President R&D

Luc Dochez

   38    Chief Business Officer and Senior Vice President Business Development

 

The following is a brief summary of the business experience of the members of our management board. Unless otherwise indicated, the current business addresses for the members of our management board is J.H. Oortweg 21, 2333 CH Leiden, the Netherlands.

Hans Schikan has served as our Chief Executive Officer since January 2009. Mr. Schikan has more than 25 years of senior managerial experience in the pharmaceutical and biotechnology industries. From May 2004 until January 2009, Mr. Schikan worked at Genzyme Corporation in various executive roles, including Vice President of Global Marketing and Strategic Development for its rare genetic disease franchise. In this position he oversaw the launch of various orphan drugs globally. Prior to Genzyme, Mr. Schikan worked at Organon International from 1986 to 2004 in various senior business roles across different geographies, including managing director positions in multiple countries. Mr. Schikan also serves as Non-executive Director of Swedish Orphan Biovitrum A.B., Executive Board Member of the Dutch Top Institute Pharma, and Member of the Core Team of the Dutch Top Sector Life Sciences & Health. He is also past Chairman of Nefarma, the Dutch Association of Research Based Pharmaceutical Industry. Mr. Schikan holds a Pharm.D. degree from the University of Utrecht, the Netherlands.

Giles Campion has served as our Chief Medical Officer and Senior Vice-President of Research and Development since May 2009. Board certified in rheumatology, Dr. Campion has more than twenty years of experience in the pharmaceutical and biotechnology industries and is an expert in translational medicine. From 2005 to 2008, Dr. Campion was head of global medicine, GE Healthcare. Dr. Campion has held posts of increasing seniority in both large pharmaceutical and

 

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biotechnology companies working in Europe and the United States, covering many different therapeutic areas. Dr. Campion holds a bachelor’s and doctorate degree in medicine from the University of Bristol.

Luc Dochez has served as our Chief Business Officer and Senior Vice-President of Business Development since November 2008. Mr. Dochez has over 15 years of experience in the biotechnology industry. Before joining Prosensa, Mr. Dochez was a consultant within Arthur D. Little’s biotechnology practice from 1998 to 2001, Director of Business Development at Methexis Genomics N.V. from 2001 to 2002, Vice President of Business Development at TiGenix N.V. from 2002 to 2008 and President of TiGenix Inc. from 2007 to 2008. Mr. Dochez holds a Pharm.D. degree from the University of Leuven, a postgraduate degree in business economics from the same university and a M.B.A. degree from Vlerick Management School. Mr. Dochez is currently an independent supervisory board member at Ovizio S.A.

Berndt Modig has served as our Chief Financial Officer since March 2010. Mr. Modig has more than twenty-five years of international experience in finance and operations, private equity and mergers and acquisitions. Before joining Prosensa, Mr. Modig was Chief Financial Officer at Jerini AG from October 2003 to November 2008, where he directed private financing rounds, its initial public offering in 2005 and its acquisition by Shire plc in 2008. Prior to Jerini, Mr. Modig served as Chief Financial Officer at Surplex AG from 2001 to 2003 and as Finance Director Europe of U.S.-based Hayward Industrial Products Inc. from 1999 to 2001. In previous positions, Mr. Modig was a partner in the Brussels-based private equity firm Agra Industria from 1994 to 1999 and a Senior Manager in the Financial Services Industry Group of Price Waterhouse LLP in New York from 1991 to 1994. Mr. Modig served as a director of Mobile Loyalty plc from 2012 to 2013. Mr. Modig has a bachelor’s degree in business administration, economics and German from the University of Lund, Sweden and a M.B.A. degree from INSEAD, France and is a Certified Public Accountant.

Committees

Audit committee

The audit committee, which is expected to consist of Rémi Droller, Daan Ellens and Patrick Van Beneden, will assist the supervisory board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Mr. Ellens will serve as Chairman of the committee. The audit committee will consist exclusively of members of our supervisory board who are financially literate, and Daan Ellens is considered an “audit committee financial expert” as defined by the SEC. In addition, under SEC and Nasdaq rules, there are heightened independence standards for members of the audit committee, including a prohibition against the receipt of any compensation from us other than standard supervisory director fees. Mr. Droller and Mr. Van Beneden will meet this heightened standard. We will rely on the phase-in rules of the SEC and Nasdaq with respect to the independence of our audit committee. These rules require that all members of our audit committee must meet the heightened independence standard within one year of the effectiveness of the registration statement of which this prospectus forms a part. The audit committee will be governed by a charter that complies with Nasdaq rules.

Upon the completion of this offering, the audit committee will be responsible for:

 

 

recommending the appointment of the independent auditor to the general meeting of shareholders;

 

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the appointment, compensation, retention and oversight of any accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit services;

 

 

pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services;

 

 

evaluating the independent auditor’s qualifications, performance and independence, and presenting its conclusions to the full supervisory board on at least an annual basis;

 

 

reviewing and discussing with the management board and the independent auditor our annual audited financial statements and quarterly financial statements prior to the filing of the respective annual and quarterly reports;

 

 

reviewing our compliance with laws and regulations, including major legal and regulatory initiatives and also reviewing any major litigation or investigations against us that may have a material impact on our financial statements; and

 

 

approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy.

The audit committee will meet as often as one or more members of the audit committee deem necessary, but in any event will meet at least four times per year. The audit committee will meet at least once per year with our independent accountant, without our management board being present.

Compensation committee

The compensation committee, which is expected to consist of David Mott and Daan Ellens, will assist the supervisory board in determining management board compensation. Mr. Mott will serve as Chairman of the committee. The committee will recommend to the supervisory board for determination the compensation of each of our managing directors. Under SEC and Nasdaq rules, there are heightened independence standards for members of the compensation committee, including a prohibition against the receipt of any compensation from us other than standard supervisory director fees. All of our expected compensation committee members will meet this heightened standard.

Upon the completion of this offering, the compensation committee will be responsible for:

 

 

identifying, reviewing and approving corporate goals and objectives relevant to management board compensation;

 

 

analyzing the possible outcomes of the variable remuneration components and how they may affect the remuneration of the managing directors;

 

 

evaluating each managing director’s performance in light of such goals and objectives and determining each managing director’s compensation based on such evaluation;

 

 

determining any long-term incentive component of each managing director’s compensation in line with the remuneration policy and reviewing our management board compensation and benefits policies generally;