20-F 1 a17-8984_120f.htm 20-F

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(Mark One)










For the fiscal year ended December 31, 2016









For the transition period from                       to                       






Date of event requiring this shell company report . . . . . . . . . . . . . . . . . . .


Commission file number 001-35193



(Exact name of Registrant as specified in its charter)


Kingdom of Spain

(Jurisdiction of incorporation)


Avinguda de la Generalitat, 152-158

Parc de Negocis Can Sant Joan

Sant Cugat del Vallès 08174

Barcelona, Spain

(Address of principal executive offices)


David Ian Bell

General Counsel

Grifols Shared Services North America, Inc.

 2410 Lillyvale Ave

Los Angeles, CA 90032-3514

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)


Securities registered or to be registered, pursuant to Section 12(b) of the Act.


Title of each class


Name of each exchange on which registered

American Depositary Shares

evidenced by American Depositary

Receipts, each American

Depositary Share representing

one Class B non-voting

share of Grifols, S.A.


The NASDAQ Stock Market LLC


Securities registered or to be registered pursuant to Section 12(g) of the Act.



(Title of Class)


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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.



(Title of Class)


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes   o No


If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

o Yes   x No


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes   o No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes   o No


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


Large accelerated filer x


Accelerated filer o


Non-accelerated filer o


Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:




International Financial Reporting Standards as issued
by the International Accounting Standards Board


Other o


If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17   o Item 18


If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No



Indicate the number of outstanding shares of each of the issuer’s classes of capital stock or common stock as of the close of the period covered by the annual report.


426,129,798 Class A Shares

261,425,110 Class B Shares


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Item 1.






Item 2.






Item 3.






Item 4.






Item 4.A.






Item 5.






Item 6.






Item 7.






Item 8.






Item 9.






Item 10.






Item 11.






Item 12.












Item 13.






Item 14.






Item 15.






Item 16.






Item 16.A.






Item 16.B.






Item 16.C.






Item 16.D.






Item 16.E.






Item 16.F.






Item 16.G.






Item 16.H.




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As used in this annual report on Form 20-F, unless the context otherwise requires or as is otherwise indicated:


·                                          all references to “Grifols,” the “Company,” “we,” “us” and “our” refer to Grifols, S.A., a company (sociedad anónima) organized under the laws of Spain, and our consolidated subsidiaries; and


·                                          all references to the “Group” or the “Grifols Group” are to Grifols, S.A. and the group of companies owned or controlled by Grifols, S.A.




The basis of presentation of financial information of Grifols in this document is in conformity with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and other legislative provisions containing the applicable legislation governing our financial information, unless indicated otherwise.


The Novartis Diagnostic Business (as hereinafter defined) has been included in our consolidated financial statements from January 10, 2014, the day following the consummation of the Novartis Acquisition (as hereinafter defined). Had the Novartis Acquisition occurred on January 1, 2014, there would not have been a material impact on our financial statements.


All references in this annual report on Form 20-F to (i) “euro”, “€” or “EUR” are to the common currency of the European Union and (ii) “U.S. dollar”, “$” or “USD” are to the currency of the United States.


All tabular disclosures are presented in thousands of euro except share and per share amounts, percentages and as otherwise indicated.  Certain monetary amounts and other figures included in this annual report on Form 20-F have been subject to rounding adjustments.  Accordingly, any discrepancies in any tables between the totals and the sums of amounts listed are due to rounding.


Constant Currency


Net revenue variance and financial result in constant currency are determined by comparing adjusted current period figures, calculated using prior period monthly average exchange rates, to the prior period net revenue and financial result. The resulting percentage variance in constant currency is considered to be a non-IFRS-IASB financial measure. Net revenue and financial result variance in constant currency calculates net revenue variance and financial result without the impact of foreign exchange fluctuations. We believe that constant currency variance is an important measure of our operations because it neutralizes foreign exchange impact and illustrates the underlying change from one year to the next. We believe that this presentation provides a useful period-over-period comparison as changes due solely to changes in exchange rates are eliminated. Net revenue variance and financial result in constant currency, as defined and presented by us, may not be comparable to similar measures reported by other companies. Net revenue variance and financial result in constant currency has limitations, particularly because the currency effects that are eliminated constitute a significant element of our net revenue and expenses and could impact our performance significantly. We do not evaluate our results and performance without considering variances in constant currency on the one hand and changes prepared in accordance with IFRS-IASB on the other. We caution you to follow a similar approach by considering data regarding constant currency period-over-period revenue variance only in  addition to, and not as a substitute for or superior to, other measures of financial performance prepared in accordance with IFRS-IASB. We present the fluctuation derived from IFRS-IASB net revenue next to the fluctuation derived from non IFRS-IASB net revenue.


See below for a reconciliation of reported net revenues to net revenues in constant currency:








% Var








% Var




(in millions of euros)






(in millions of euros)




Reported Net Revenues








Reported Net Revenues








Variation due to exchange rate effects








Variation due to exchange rate effects








Constant Currency Net Revenues








Constant Currency Net Revenues









See below for a reconciliation of reported financial result to financial result in constant currency:



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% Var








% Var




(in millions of euros)






(in millions of euros)




Reported Financial Result








Reported Financial Result








Variation due to exchange rate effects








Variation due to exchange rate effects








Constant Currency Net Revenues








Constant Currency Net Revenues











Market information (including market share, market position and industry data for our operating activities and those of our subsidiaries or of companies acquired by us) or other statements presented in this annual report on Form 20-F regarding our position (or that of companies acquired by us) relative to our competitors largely reflect the best estimates of our management.  These estimates are based upon information obtained from customers, trade or business organizations and associations, other contacts within the industries in which we operate and, in some cases, upon published statistical data or information from independent third parties.  Except as otherwise stated, our market share data, as well as our management’s assessment of our comparative competitive position, has been derived by comparing our sales figures for the relevant period to our management’s estimates of our competitors’ sales figures for such period, as well as upon published statistical data and information from independent third parties, and, in particular, the reports published and the information made available by, among others, the Marketing Research Bureau, or the MRB.  You should not rely on the market share and other market information presented herein as precise measures of market share or of other actual conditions.




This annual report contains statements that constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Forward-looking statements are typically identified by words such as “may,” “anticipate,” “believe,” “estimate,” “predict,” “expect,” “intend,” “forecast,” “will,” “would,” “should” or the negative of such terms or other variations on such terms or comparable or similar words or expressions.


These forward-looking statements reflect, as applicable, our management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially.  These factors include, but are not limited to:


Risks Relating to Our Business:


·                  the complexity of our manufacturing processes and the susceptibility of our biological intermediates to contamination;


·                  our need to continually monitor our products for possible unexpected side effects;


·                  our ability to adhere to government regulations so that we may continue to manufacture and distribute our products;


·                  the impact of disruptions in our supply of plasma or in the operations of our plasma collection centers;


·                  the impact of competing products and pricing and the actions of competitors;


·                  the impact of product liability claims on our business;


·                  our reliance on a plasma supply free of transmittable disease;


·                  interest rates and availability and cost of financing opportunities;


·                  the impact of interest rate fluctuations;


·                  unexpected shut-downs of our manufacturing and storage facilities or delays in opening new planned facilities;


·                  reliance on third parties for manufacturing of products and provision of services;



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·                  our ability to commercialize products in development;


·                  our ability to protect our intellectual property rights.


Risks Relating to the Healthcare Industry:


·                  recently enacted U.S. healthcare legislation, new legislation, regulatory action or legal proceedings affecting, among other things, the U.S. healthcare system, pharmaceutical pricing and reimbursement, including Medicaid, Medicare and the Public Health Service Program;


·                  legislation or regulations in markets outside of the United States affecting product pricing, reimbursement, access, or distribution channels;


·                  changes in legal requirements affecting the industries in which we operate; and


·                  other factors that are set forth below under the section entitled “Risk Factors”.


Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those listed above, and actual results may differ materially from those in the forward-looking statements.


The forward-looking statements contained in this annual report speak only as of the date of this annual report.  Except as required by law, we do not undertake to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.



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Item 1.                                                         IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS


A.                                    Directors and Senior Management


Not applicable.


B.                                    Advisers


Not applicable.


C.                                    Auditor


Not applicable.


Item 2.                                                         OFFER STATISTICS AND EXPECTED TIMETABLE


A.                                    Offer Statistics


Not applicable.


B.                                    Method and Expected Timetable


Not applicable.


Item 3.                                                         KEY INFORMATION


A.                                    Selected Financial Data


Selected Consolidated Financial Information


The following is a summary of our historical consolidated financial data for the periods ended and as of the dates indicated below.  You are encouraged to read this information together with Item 5 of this Part I, “Operating and Financial Review and Prospects,” and our audited consolidated financial statements and the accompanying notes included in this annual report on Form 20-F.


The following tables present our consolidated financial data for the periods and as of the dates indicated.  Our consolidated balance sheet data as of December 31, 2016 and 2015 and our consolidated statement of profit or loss data for the years ended December 31, 2016, 2015 and 2014 is derived from our audited consolidated financial statements for those years, which are included in this annual report on Form 20-F. Our consolidated balance sheet data as of December 31, 2014, 2013 and 2012 and our consolidated statement of profit or loss data for the years ended December 31, 2013 and 2012 is derived from our consolidated financial statements for those years, which are not included in this Form 20-F.




As of December 31,


Consolidated Balance Sheet Data














(in thousands of euros)


























Other intangible assets












Property, plant and equipment












Investments in equity accounted investees












Non-current financial assets












Deferred tax assets












Total non-current assets














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As of December 31,


Consolidated Balance Sheet Data














(in thousands of euros)














Trade and other receivables












Trade receivables












Other receivables












Current income tax assets












Trade and other receivables












Other current financial assets












Other current assets












Cash and cash equivalents












Total current assets












Total Assets
























Share capital












Share premium
























Treasury stock












Interim dividend












Profit for the year attributable to the Parent












Total Share Capital and Accumulated Results












Available for sale financial assets








Cash flow hedges





















Translation differences












Other comprehensive expenses












Equity attributable to the Parent












Non-controlling interests












Total Equity
















































Non-current financial liabilities












Deferred tax liabilities












Total non-current liabilities
























Current financial liabilities












Debts with associates











Trade and other payables
























Other payables












Current income tax liabilities












Total trade and other payables












Other current liabilities












Total current liabilities












Total Liabilities












Total Equity and Liabilities














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For the Year Ended December 31,


Consolidated Statement of Profit or Loss Data














(in thousands of euros, except per share data)


Continuing Operations












Net revenue












Cost of sales












Gross Profit












Research and development












Selling, general and administration expenses












Operating Expenses












Operating Result












Finance income












Finance costs












Change in fair value of financial instruments












Impairment and gains/(losses) on disposal of financial instruments










Exchange differences












Finance result












Share of (losses) of equity accounted investees












Profit before income tax from continuing operations












Income tax expense












Profit after income tax from continuing operations












Consolidated profit for the year












Profit attributable to the Parent












(Loss) attributable to non-controlling interests












Basic earnings per ordinary share(1)












Average number of shares(1)












Basic earnings per ordinary share from continuing operations(1)












Cash dividend per ordinary share (2)











Cash dividend per preference share (2)












(1)           On January 4, 2016, the share split approved on December 3, 2015, by the Company’s board of directors became effective. As a result of the share split, the nominal value of the new Class A shares becomes €0.25 per share (previously €0.50 per share), while the nominal value of the new Class B shares becomes €0.05 per share (previously €0.10 per share). In line with the audited financial statements included herein, average weighted number of ordinary shares and basic earnings per ordinary share for 2016 and 2015, have been calculated taking the split into consideration and comparative data for 2014 and 2013 has been modified accordingly. Consequently, the data for 2012 is not comparable.


(2)           Cash dividends for 2016 are not comparable to prior years due to the share split effect explained in note (1) above.




For the Year Ended December 31,


Consolidated Statement of Comprehensive Income














(in thousands of euros)


Consolidated profit for the year












Other comprehensive expenses












Items for reclassification to profit or loss












Translation differences












Translation differences / Cash Flow Hedge








Available for sale financial Assets








Equity accounted investees(1)












Cash flow hedges — effective part of changes in fair value












Cash flow hedges — amounts taken to profit and loss












Other comprehensive income










Tax effect














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For the Year Ended December 31,


Consolidated Statement of Comprehensive Income














(in thousands of euros)


Other comprehensive income/(loss) for the year, after tax












Total comprehensive income for the year












Total comprehensive income attributable to the Parent












Total comprehensive income/(expense) attributable to non-controlling interests













(1)           In 2013, we changed the presentation of the consolidated statements of comprehensive income as required by IAS 1, effective for annual periods beginning on or after July 1, 2012.


Exchange Rates


The following tables show, for the periods indicated, the exchange rate between the U.S. dollar and the euro.  This information is provided solely for your information and we do not represent that euro could be converted into U.S. dollars at these rates or at any other rate, during the periods indicated or at any other time.  These rates are not the rates used by us in the preparation of our audited consolidated financial statements included in this annual report on Form 20-F.


As used in this annual report on Form 20-F, the term “Noon Buying Rate” refers to the rate of exchange for euro, expressed in U.S. dollars per euro, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes.  The Noon Buying Rate for the euro on March 24, 2017 was $1.0806 = €1.00.  The following tables describe, for the periods and dates indicated, information concerning the Noon Buying Rate for the euro.  Amounts are expressed in U.S. dollars per €1.00.


Annual Data (Year Ended December 31,)


End ($)


Rate ($) (1)


High ($)


Low ($)





















































Source:  Federal Reserve Bank of New York


(1)           The average of the Noon Buying Rates for the euro on the last day reported of each month during the relevant period.


Recent Monthly Data


High ($)


Low ($)


September 2016






October 2016






November 2016






December 2016






January 2017






February 2017






March 2017 (through March 24, 2017)







B.                                    Capitalization and Indebtedness


Not Applicable.


C.                                    Reasons for the Offer and Use of Proceeds


Not Applicable.



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D.                                    Risk Factors


Risk Relating to Our Structure, Shares and American Depositary Shares


Our substantial level of indebtedness could adversely affect our financial condition, restrict our ability to react to changes to our business, and prevent us from fulfilling our obligations under our debt.


We have a significant amount of indebtedness. As of December 31, 2016, our current and non-current financial liabilities were €4.9 billion, of which a substantial majority (€4.7 billion) was long-term debt.


Our high level of indebtedness could have significant adverse effects on our business, such as:


·                                          making it more difficult for us to satisfy our obligations with respect to our outstanding debt;


·                                          making us more vulnerable to economic downturns and adverse developments in our business;


·                                          impairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes;


·                                          reducing the funds available to us for operations and other purposes due to the substantial portion of our cash flow from operations which we use to pay interest on our indebtedness;


·                                          placing a prior ranking claim on the underlying assets of all of the indebtedness outstanding under our purchase money indebtedness, equipment financing and real estate mortgages;


·                                          limiting our ability to fund a change of control offer;


·                                          placing us at a competitive disadvantage compared to our competitors that may have proportionately less debt;


·                                          limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and


·                                          restricting us from making strategic acquisitions or exploiting other business opportunities.


We expect to use cash flow from operations to pay our expenses and amounts due under our outstanding indebtedness.  Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control.  Our business may not generate sufficient cash flow from operations in the future and our anticipated growth in revenue and cash flow may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs.  If we do not have enough money, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money.  We may not be able to accomplish any of these alternatives on terms acceptable to us, or at all.  In addition, the terms of existing or future debt agreements, may restrict us from adopting any of these alternatives.  The failure to generate sufficient cash flow or to achieve any of these alternatives could materially and adversely affect our business, results of operations and financial condition.


Despite our substantial indebtedness, we may still incur significantly more debt.  This could exacerbate the risks associated with our substantial leverage.


We may be able to incur substantial additional indebtedness, including additional secured indebtedness, in the future.  Our business is capital intensive, and we regularly seek additional capital.  Although the indenture governing the Existing Notes (as defined herein), the New Credit Facilities (as defined herein) and the European Investment Bank Term Loan (as defined herein) contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions, including secured debt, could be substantial.  Adding additional debt, including under the New Credit Facilities, to current debt levels could exacerbate the leverage related risks described above.  For more information on our indebtedness, see Item 5 of this Part I, “Operating and Financial Review and Prospects — B.  Liquidity and Capital Resources — Sources of Credit.”


To service our indebtedness and other obligations, we will require a significant amount of cash.  Our ability to generate cash depends on many factors beyond our control.


Our ability to make payments on and to refinance our indebtedness and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future.  A significant reduction in our operating cash flows resulting from changes in economic conditions, increased competition or other events beyond our control could increase the need for additional or alternative sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations,



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prospects and our ability to service our debt and other obligations.  If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital.  We cannot assure you that any of these alternative strategies could be effected on satisfactory terms, if at all, or that they would yield sufficient funds to make required payments on our indebtedness.


We cannot assure you that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under the New Credit Facilities or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.  We may need to refinance all or a portion of our indebtedness on or before the maturity of such indebtedness.  We cannot assure you that we will be able to refinance any of our indebtedness, including the New Credit Facilities, our Existing Notes and the European Investment Bank Term Loan, on commercially reasonable terms or at all.


Covenants in our debt agreements restrict our business in many ways.


The agreements governing our indebtedness and other financial obligations applicable to us contain various covenants, with customary caveats, that limit our ability and/or our restricted subsidiaries’ ability to, among other things:


·                                          incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;


·                                          issue redeemable stock and preferred equity;


·                                          pay dividends to the shareholders of Grifols, S.A. or distributions or redeem or repurchase capital stock;


·                                          prepay, redeem or repurchase debt;


·                                          make loans, investments and capital expenditures;


·                                          enter into agreements that restrict distributions from our restricted subsidiaries;


·                                          sell assets and capital stock of our subsidiaries;


·                                          enter into certain transactions with affiliates; and


·                                          consolidate or merge with or into, or sell substantially all of our assets to, another person.


A breach of any of these covenants could result in a default under our New Credit Facilities, our Existing Notes and/or the European Investment Bank Term Loan.  Upon the occurrence of an event of default under the New Credit Facilities and the European Investment Bank Term Loan, the lenders could elect to declare all amounts outstanding under the New Credit Facilities and the European Investment Bank Term Loan to be immediately due and payable and terminate all commitments to extend further credit.  If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness.  We have pledged a significant portion of our assets as collateral under the New Credit Facilities.  If the lenders under the New Credit Facilities or the European Investment Bank Term Loan accelerate the repayment of borrowings, we may not have sufficient assets to repay the New Credit Facilities, the European Investment Bank Term Loan and our other indebtedness, including our Existing Notes and the European Investment Bank Term Loan.  Our borrowings under the New Credit Facilities are at variable rates of interest and expose us to interest rate risk.  If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease.


Our ability to meet our financial obligations depends on our ability to receive dividends and other distributions from our subsidiaries.


Our principal assets are the equity interests that we hold in our operating subsidiaries.  As a result, we are dependent on dividends and other distributions from our subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal and interest on our outstanding debt.  Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness.  In addition, any payment of dividends, distributions, loans or advances to us by our subsidiaries could be subject to restrictions on dividends or, in the case of foreign subsidiaries, restrictions on repatriation of earnings under applicable local law and monetary transfer restrictions in the jurisdictions in which our subsidiaries operate.  In addition, payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings.  Our subsidiaries are permitted under the terms of our indebtedness to incur additional indebtedness that may restrict payments from those subsidiaries to us.  We cannot assure you that agreements governing current and future indebtedness of our subsidiaries will permit those subsidiaries to provide us with sufficient cash to fund payments on our indebtedness when due.



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Our subsidiaries are legally distinct from us and, except for existing and future subsidiaries that guarantee certain indebtedness, have no obligation, contingent or otherwise, to pay amounts due on our debt or to make funds available to us for such payment.


We are a foreign private issuer under the rules and regulations of the Securities and Exchange Commission and, thus, are exempt from a number of rules under the Securities Exchange Act of 1934 and are permitted to file less information with the Securities and Exchange Commission than a company incorporated in the United States.


As a foreign private issuer under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we are exempt from certain rules under the Exchange Act, including the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations.  Moreover, we are not required to file periodic reports and financial statements with the Securities and Exchange Commission, or the SEC, as frequently or as promptly as U.S. companies with securities registered under the Exchange Act; we are not required to file financial statements prepared in accordance with United States generally accepted accounting principles; and we are not required to comply with SEC Regulation FD, which imposes certain restrictions on the selective disclosure of material information.  In addition, our officers, directors and principal shareholders are not subject to the reporting or short-swing profit recovery provisions of Section 16 of the Exchange Act or the rules under the Exchange Act with respect to their purchases and sales of our Class A shares or Class B shares.  Accordingly, you may receive less information about us than you would receive about a company incorporated in the United States and may be afforded less protection under the U.S. federal securities laws than you would be afforded with respect to a company incorporated in the United States.  If we lose our status as a foreign private issuer at some future time, we will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if we were a company incorporated in the United States.  The costs incurred in fulfilling these additional regulatory requirements could be substantial.


Additionally, pursuant to The NASDAQ Stock Market LLC, or NASDAQ, “Listing Rules,” as a foreign private issuer, we may elect to follow our home country practice in lieu of the corporate governance requirements of the NASDAQ Listing Rule 5600 Series, with the exception of those rules that are required to be followed pursuant to the provisions of NASDAQ Listing Rule 5615(a)(3).  We have elected to follow Spanish practices in lieu of the requirements of the NASDAQ Listing Rule 5600 Series to the extent permitted under NASDAQ Listing Rule 5615(a)(3).  See Item 16.G. of Part II, “Corporate Governance.”


If we discover material weaknesses or significant deficiencies in our internal control over financial reporting, it may adversely affect our ability to provide timely and reliable financial information and satisfy our reporting obligations under U.S. federal securities laws, which also could affect the market price of our American Depositary Shares or our ability to remain listed on NASDAQ.


Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company.  If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed.  A “significant deficiency” is a deficiency, or combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention of those responsible for oversight of our financial reporting.


To the extent that any material weakness or significant deficiency exists in our or our consolidated subsidiaries’ internal control over financial reporting, such material weakness or significant deficiency may adversely affect our ability to provide timely and reliable financial information necessary for the conduct of our business and satisfaction of our reporting obligations under U.S. federal securities laws, which could affect our ability to remain listed on NASDAQ.  Ineffective internal and disclosure controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our American Depositary Shares, or ADSs, or the rating of our debt.


The Grifols family may exercise significant influence over the conduct of our business.


The Grifols family and Scranton Enterprises B.V. own, directly and indirectly, 36.4% of our Class A shares.  The Class A shares exercise 100% of the voting control of our company.  As a result, the Grifols family and Scranton Enterprises B.V. may exercise significant influence over matters requiring shareholders’ approval, including, among other things, the election of our board of directors, or the Board, dividend policy and certain fundamental corporate action, such as the issuance of bonds, a merger or a dissolution.  Conflicts may arise between the interests of the principal shareholders and those of the other shareholders, and the principal shareholders may choose to resolve the conflict in a way that does not coincide with the interests of the other shareholders.


The market price of our Class B ADSs on NASDAQ may be volatile.


The market price of our Class B ADSs may be volatile as a result of various factors, many of which are beyond our control.  These factors include, but are not limited to, the following:



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·                                          market expectations for our financial performance;


·                                          actual or anticipated fluctuations in our results of operations and financial condition;


·                                          changes in the estimates of our results of operations by securities analysts;


·                                          potential or actual sales of blocks of our Class B ADSs in the market by any shareholder or short selling of our Class B ADSs.  Any such transaction could occur at any time or from time to time, with or without notice to us;


·                                          the entrance of new competitors or new products in the markets in which we operate;


·                                          volatility in the market as a whole; and


·                                          the risk factors mentioned in this section.


The market price of our Class B ADSs may be adversely affected by any of the preceding or other factors regardless of operations and financial condition.


Fluctuations in the exchange rate between the U.S. dollar and the euro may increase the risk of holding our ADSs or shares.


The Spanish securities market for equity securities consists of four stock exchanges located in Madrid, Barcelona, Bilbao and Valencia (collectively, the “Spanish Stock Exchanges”).  The majority of the transactions conducted on the Spanish Stock Exchanges are done through the Spanish Automated Quotation System (Sistema de Inteconexión Bursátil Español, or SIBE).


Our Class A shares and Class B shares are listed on the Spanish Stock Exchanges and quoted on SIBE in euros.  In addition, our Class B shares are traded in the United States on the NASDAQ Global Select Market in the form of ADSs, evidenced by American Depositary Receipts, or ADRs, in U.S. dollars.  Fluctuations in the exchange rate between the U.S. dollar and the euro may result in temporary differences between the value of our ADSs and the value of our shares, which may result in heavy trading by investors seeking to exploit such differences.  This may increase the volatility of, and have an adverse effect on, the price of our shares or ADSs.


In addition, as a result of fluctuations in the exchange rate between the U.S. dollar and the euro, the U.S. dollar equivalent of the proceeds that a holder of our ADSs would receive upon the sale in Spain of any shares withdrawn from the ADR depositary and the U.S. dollar equivalent of any cash dividends paid in euros on our shares represented by the ADSs could also decline.


Subscription (or preemptive) rights may be unavailable to U.S. holders of our shares or ADSs.


In the case of a future increase of our registered share capital, existing shareholders will generally be entitled to subscription (or preemptive) rights pursuant to Spanish law, unless waived by a resolution of the shareholders or, if such power has been delegated to the Board pursuant to a shareholders’ resolution, by a resolution of the Board and except in certain situations, such as capital increases made for an in-kind contribution, in which subscription (or preemptive) rights are not applicable by law. Holders of the Class B shares will generally not have a right to vote on any resolution on a capital increase or on the waiver of subscription (or preemptive) rights, unless such resolution does not treat the Class B shares in the same way as the Class A shares, except in the limited circumstances set out in the Articles of Association of Grifols, S.A. as amended, or the Articles of Association.


Even if preemptive rights are granted, holders of our ADSs or U.S. resident shareholders may not be able to exercise subscription (or preemptive) rights, in which case holders of our ADSs could be substantially diluted, unless a registration statement under the Securities Act of 1933, as amended, or the Securities Act, is effective with respect to such rights and the shares for which they give such right or an exemption from the registration requirements of the Securities Act is available.


We intend to evaluate at the time of any rights offering the costs and potential liabilities associated with any such registration requirements, as well as the benefits of enabling the exercise of subscription (or preemptive) rights for the shares.  In doing so, we will also evaluate any other factors that we may consider appropriate at the time.


There can be no assurance that we will decide to comply with such registration requirements.  If no such registration requirements are satisfied, the depositary will sell the subscription (or preemptive) rights relating to the ADSs on deposit and will distribute the proceeds of such sale, if any, to the holders of the ADSs.  If the depositary is unable to sell rights that are not exercised



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or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case no value will be given for these rights.


ADS holders may be subject to limitations on the transfer of their ADSs.


ADSs are transferable on the books of the depositary.  However, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when the books of the depositary are closed or if such action is deemed necessary or advisable by the depositary or by us because of any requirement of law or of any government or governmental body or commission or under any provision of the deposit agreement.  Moreover, the surrender of ADSs and withdrawal of our shares may be suspended subject to the payment of fees, taxes and similar charges or if we direct the depositary at any time to cease new issuances and withdrawals of our shares during periods specified by us in connection with shareholders’ meetings, the payment of dividends or as otherwise reasonably necessary for compliance with any applicable laws or government regulations.


Your ability to enforce civil liabilities under U.S. securities laws may be limited.


We are a company organized under the laws of Spain, and many of our subsidiaries are also incorporated outside of the United States.  A substantial portion of our assets and the assets of our subsidiaries are located outside of the United States.  In addition, nearly all of our directors and officers and certain of our subsidiaries’ officers and directors are nationals or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States.  As a result, it may be difficult for investors to effect service of process within the United States upon us, certain of our subsidiaries or their directors or officers with respect to matters arising under the Securities Act or to enforce against them judgments of courts of the United States predicated upon civil liability under the Securities Act.  It may also be difficult to recover fully in the United States on any judgment rendered against such persons or against us or certain of our subsidiaries.


In addition, there is doubt as to the enforceability in Spain of original actions, or of actions for enforcement of judgments of U.S. courts of liabilities, predicated solely upon the securities laws of the United States.  If a judgment was obtained outside Spain and efforts were made to enforce the judgment in Spain, there is some doubt that Spanish courts would agree to recognize and enforce a foreign judgment.  Accordingly, even if you obtain a favorable judgment in a U.S. court, you may be required to re-litigate your claim in Spain.


Risks Relating to Our Business


Our manufacturing processes are complex and involve biological intermediates that may be susceptible to contamination and variations in yield.


Plasma is a raw material that is susceptible to damage and contamination and may contain human pathogens, any of which would render the plasma unsuitable for further manufacturing.  For instance, contamination or improper storage of plasma by us or third-party suppliers may require us to destroy some of our raw material.  If unsuitable plasma is not identified and discarded prior to its release to our manufacturing processes, it may be necessary to discard intermediate or finished product made from that plasma or to recall any finished product released to the market, resulting in a charge to cost of goods sold.


The manufacture of our plasma products is an extremely complex process of fractionation (separating the plasma into component proteins), purification, filling and finishing.  Our products can become non-releasable or otherwise fail to meet our specifications through a failure of one or more of our product testing, manufacturing, process controls and quality assurance processes.  We may detect instances in which an unreleased product was produced without adherence to our manufacturing procedures or plasma used in our production process was not collected or stored in a compliant manner consistent with cGMP regulations or other regulations, which would likely result in our determination that the impacted products should not be released and therefore should be destroyed.


Once we have manufactured our plasma-derived products, they must be handled carefully and kept at appropriate temperatures.  Our failure, or the failure of third parties that supply, ship or distribute our products, to properly care for our plasma-derived products may require that such products be destroyed.


While we expect to write off small amounts of work in process inventories in the ordinary course of business due to the complex nature of plasma, our processes and our products, unanticipated events may lead to write-offs and other costs materially in excess of our expectations.  Such write-offs and other costs could cause material fluctuations in our profitability.  Furthermore, contamination of our products could cause investors, consumers or other third parties with whom we conduct business to lose confidence in the reliability of our manufacturing procedures, which could adversely affect our sales and profits.  In addition, faulty or contaminated products that are unknowingly distributed could result in patient harm, threaten the reputation of our products and expose us to product liability damages and claims.



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Due to the nature of plasma, there will be variations in the biologic properties of the plasma we collect or purchase for fractionation that may result in fluctuations in the obtainable yield of desired fractions, even if cGMP regulations are followed.  Lower yields may limit production of our plasma-derived products due to capacity constraints.  If such batches of plasma with lower yields impact production for extended periods, it may reduce the total capacity of product that we could market and increase our cost of goods sold, thereby reducing our profitability.


Our manufacture of intermediate immunoassay antigens and antibodies to screen human donated blood and blood products is also a complex biologic process, subject to substantial production risks.


Once our products are approved and marketed, we must continually monitor them for signs that their use may result in serious and unexpected side effects, which could jeopardize our reputation and our ability to continue marketing our products.  We may also be required to conduct post-approval clinical trials as a condition to licensing a product.


As for all pharmaceutical products, the use of our products sometimes produces undesirable side effects or adverse reactions or events (collectively, “adverse events”).  For the most part, these adverse events are known, are expected to occur at some frequency and are described in the products’ labeling.  Known adverse events of a number of our products include allergic or anaphylactic reactions including shock and the transmission of infective agents.  Further, the use of certain products sometimes produces additional adverse events, which are detailed below.


·                                          The use of Albumin sometimes produces the following adverse events:  hypervolemia, circulatory overload, pulmonary edema, hyperhydration and allergic manifestations including urticaria, chills, fever and changes in respiration, pulse and blood pressure.


·                                          The use of blood clotting Factor IX sometimes produces the following adverse events:  the induction of neutralizing antibodies; thromboembolism, including myocardial infarction; disseminated intravascular coagulation; venous thrombosis and pulmonary embolism; and in the case of treatment for immune tolerance induction, nephrotic syndrome.


·                                          The use of the antihemophilic blood clotting factor, or Factor VIII, sometimes produces the following adverse events:  the induction of neutralizing antibodies, thromboembolic events and hemolytic anemia or hemolysis.


·                                          The use of intravenous immunoglobulin, or IVIG, sometimes produces the following adverse events:  nausea, vomiting, asthenia, pyrexia, rigors, injection site reaction, allergic or anaphylactic reaction, aseptic meningitis, arthralgia, back pain, dizziness, headache, rash, pruritus, urticaria, hemolysis or hemolytic anemia, hyperproteinemia, increased serum viscosity and hyponatremia, thromboembolic reactions such as myocardial infarction, stroke, pulmonary embolism and deep vein thromboses, transfusion-related acute lung injury and renal dysfunction and acute renal failure.


·                                          The use of anti-hepatitis B IVIG sometimes produces the following adverse events:  thromboembolic reactions such as myocardial infarction, stroke, pulmonary embolism and deep vein thromboses, aseptic meningitis, hemolytic anemia or hemolysis and acute renal failure.


·                                          The use of Koate®-DVI, which we license exclusively in the United States to Kedrion S.p.A, a corporation organized under the laws of Italy, sometimes produces the following adverse events:  allergic reactions, tingling in the arm, ear and face, blurred vision, headache, nausea, stomach ache and a jittery feeling.


·                                          The use of Prolastin® or its successor in the United States and Canada, Prolastin®-C, alpha-1 proteinase inhibitor, or A1PI, sometimes produces the following adverse events:  dyspnea, tachycardia, rash, chest pain, chills, influenza-like symptoms, hypersensitivity, hypotension and hypertension.


In addition, the use of our products may be associated with serious and unexpected adverse events, or with less serious reactions at a greater than expected frequency.  This may be especially true when our products are used in critically ill patient populations.  When these unexpected events are reported to us, we must undertake a thorough investigation to determine causality and implications for product safety.  These events must also be specifically reported to the applicable regulatory authorities.  If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable risk associated with the product, we would be obligated to withdraw the impacted lot(s) of that product.  Furthermore, an unexpected adverse event caused by a new product may be recognized only after extensive use of the product, which could expose us to product liability risks, enforcement action by regulatory authorities and damage to our reputation.


Once we produce a product, we rely on physicians to prescribe and administer it as we have directed and for the indications described on the labeling.  It is not, however, unusual for physicians to prescribe our products for unapproved, or off-label, uses or in a manner that is inconsistent with our directions.  To the extent such off-label uses and departures from our administration directions



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become pervasive and produce results such as reduced efficacy or other adverse effects, the reputation of our products in the marketplace may suffer.


Our ability to continue manufacturing and distributing our products depends on our continued adherence to cGMP regulations at our facilities.


The manufacturing processes for our products are governed by detailed written procedures and governmental regulations that set forth cGMP requirements for blood, blood products and other products.  Our quality operations unit monitors compliance with these procedures and regulations, and the conformance of materials, manufacturing intermediates and final products to their specifications.  Failure to adhere to established procedures or regulations, or to meet a specification, could require that a product or material be rejected and destroyed.


Our adherence to cGMP regulations and the effectiveness of our quality systems are periodically assessed through inspections of our facilities by the U.S. Food and Drug Administration, or the FDA, and analogous regulatory authorities of other countries.  If deficiencies are noted during an inspection, we must take action to correct those deficiencies and to demonstrate to the regulatory authorities that our corrections have been effective.  If serious deficiencies are noted or if we are unable to prevent recurrences, we may have to recall product or suspend operations until appropriate measures can be implemented.  We are also required to report certain deviations from procedures to the FDA and even if we determine that the deviations were not material, the FDA could require us to take similar measures.  Since cGMP reflects ever-evolving standards, we regularly need to update our manufacturing processes and procedures to comply with cGMP.  These changes may cause us to incur costs without improving our profitability or the safety of our products.  For example, more sensitive testing assays (if and when they become available) may be required or existing procedures or processes may require revalidation, all of which may be costly and time consuming and could delay or prevent the manufacturing of a product or launch of a new product.


Changes in manufacturing processes, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval or revalidation of the manufacturing processes and procedures in accordance with cGMP regulations.  There may be comparable foreign requirements.


For example, we finished the construction of a new fractionation plant at our facility, located at Parets del Vallès, near Barcelona, Spain, or the Parets facility, in 2014. The new Parets fractionation plant was approved by the FDA in 2014.  In 2014, we also completed construction and received FDA approval of a new fractionation plant at our Clayton, North Carolina plasma fractionation and manufacturing facility, which we refer to as our Clayton facility. Our immunoglobulin purification facility located in Los Angeles, California, which we refer to as our Los Angeles facility,  was completed and approved by the FDA in the fourth quarter of 2014 and started operations in 2015. We are also in the process of constructing a new, upgraded facility to assume production of the intermediate immunoassay antigen and antibody products now manufactured at our facility in Emeryville, California, or our Emeryville facility. To validate our manufacturing processes and procedures following completion of our upgraded facilities, we must demonstrate that the processes and procedures at the upgraded facilities are comparable to those currently in place at our other facilities.  To provide such a comparative analysis, both the existing processes and the processes that we expect to be implemented at our upgraded facilities must comply with the regulatory standards prevailing at the time that our expected upgrade is completed. In addition, regulatory requirements, including cGMP regulations, continually evolve.  Failure to adjust our operations to conform to new standards as established and interpreted by applicable regulatory authorities would create a compliance risk that could impair our ability to sustain normal operations.


Regulatory authorities, including the FDA and the European Medicines Agency, or the EMA, routinely inspect our facilities to assess ongoing compliance with cGMP.  If the FDA, the EMA or other regulatory authorities find our facilities to be out of compliance, our ongoing operations or plans to expand would be adversely affected.


A significant disruption in our supply of plasma could have a material adverse effect on our business and our growth plans.


The majority of our revenue depends on our access to U.S. source plasma (plasma obtained through plasmapheresis), the principal raw material for our plasma derivative products.  Our ability to increase revenue depends substantially on increased access to plasma.  If we are unable to obtain sufficient quantities of source plasma, we may be unable to find an alternative cost-effective source of plasma and we would be limited in our ability to maintain current manufacturing levels of plasma derivative products.  As a result, we could experience a substantial decrease in net revenues or profit margins, a loss of customers, a negative effect on our reputation as a reliable supplier of plasma derivative products or a substantial delay in our production growth plans.


Our current business plan envisages an increase in the production of plasma derivative products, which depends on our ability to increase plasma collections or improve product yield.  The ability to increase plasma collections may be limited, our supply of plasma could be disrupted or the cost of plasma could increase substantially, as a result of numerous factors, including:


·                                          A reduction in the donor pool.  Regulators in most of the largest markets for plasma derivative products, including the United States, restrict the use of plasma collected from specific countries and regions in the manufacture of



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plasma derivative products.  For example, the appearance of the variant Creutzfeldt Jakob, or mad cow, disease, resulted in the suspension of the use of plasma collected from U.K. residents and concern over the safety of blood products, which has led to increased domestic and foreign regulatory control over the collection and testing of plasma and the disqualification of certain segments of the population from the donor pool, significantly reducing the potential donor pool.  The appearance of new viral strains could further reduce the potential donor pool.  Also, improvements in socioeconomic conditions in the areas in which our and our suppliers’ plasma collection centers are located could reduce the attractiveness of financial incentives for potential donors, resulting in increased fees paid to donors or a reduction in the number of donors.


·                                          Regulatory requirements.  See “—Disruption of the operations of our plasma collection centers would cause us to become supply constrained and our financial performance would suffer.”


·                                          Plasma supply sources.  In recent years, there has been vertical integration in the industry as plasma derivatives manufacturers have been acquiring plasma collection centers.  Any significant disruption in the supply of plasma or an increased demand for plasma may require plasma from alternative sources, which may not be available on a timely basis.


Disruption of the operations of our plasma collection centers would cause us to become supply constrained and our financial performance would suffer.


In order for plasma to be used in the manufacturing of our products, the individual centers at which the plasma is collected must be licensed and approved by the regulatory authorities, such as the FDA and the EMA, of those countries in which we sell our products.  When a new plasma collection center is opened and on an ongoing basis after its approval, it must be inspected by the FDA and the EMA for compliance with cGMP and other regulatory requirements, and these regulatory requirements are subject to change.  For example, on May 22, 2015, the FDA issued a final rule addressing the collection of blood components, such as plasma, intended for transfusion or further manufacturing use, including requirements with respect to donor education, donor history and donor testing.  The final rule became effective on May 23, 2016.  While we believe that our centers will timely adopt the new regulations, which generally reflect our current approaches, the compliance efforts may increase our costs. An unsatisfactory inspection could prevent a new center from being approved for operation or risk the suspension or revocation of an existing approval.


In order for a plasma collection center to maintain its governmental approval to operate, its operations must continue to conform to cGMP and other regulatory requirements.  In the event that we determine a plasma collection center did not comply with cGMP in collecting plasma, we may be unable to use and may ultimately destroy plasma collected from that center, which would be recorded as a charge to cost of goods.  Additionally, if noncompliance in the plasma collection process is identified after the impacted plasma has been pooled with compliant plasma from other sources, entire plasma pools, in-process intermediate materials and final products could be impacted.  Consequently, we could experience significant inventory impairment provisions and write-offs.


We plan to obtain our supplies of plasma for use in our manufacturing processes through collections at our plasma collection centers and through selective acquisitions or remodeling and relocations of existing centers.  This strategy is dependent upon our ability to successfully integrate new centers, to obtain FDA and other necessary approvals for any centers not yet approved by the FDA, to maintain a cGMP compliant environment in all centers and to attract donors to our centers.


Our ability to increase and improve the efficiency of production at our plasma collection centers may be affected by:  (i) changes in the economic environment and population in selected regions where we operate plasma collection centers; (ii) the entry of competitive centers into regions where we operate; (iii) our misjudging the demographic potential of individual regions where we expect to increase production and attract new donors; (iv) unexpected facility related challenges; or (v) unexpected management challenges at select plasma collection centers.


A significant portion of our net revenue has historically been derived from sales of our immunoglobulin products and we expect that they will continue to comprise a significant portion of our sales.  Any adverse market event with respect to these products would have a material adverse effect on us.


We have historically derived a significant portion of our net revenues from our immunoglobulin products, including our IVIG products.  In 2016, our IVIG products accounted for approximately 39% of our net revenues.  If any of these IVIG products were to lose significant sales or were substantially or completely displaced in the market, we would lose a significant and material source of our net revenue.  Similarly, if either Flebogamma® or Gamunex®-C/Gamunex® were to become the subject of litigation or an adverse governmental ruling requiring us to cease sales of it, our business could be adversely affected.  Although we do not currently anticipate any significant decrease in the sales of any of these products, a significant decrease could result from plasma procurement and manufacturing issues resulting in lower product availability for sales and changing market conditions.



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We face significant competition.


We face significant competition.  Shire, Biotest, CSL Behring, Kedrion, Octapharma and BPL now have a 10% liquid IVIG product in the United States.  Both Octapharma and Bio Products Laboratory have launched 5% liquid IVIG products.  As competition has increased, some of our competitors have discounted the price of IVIG products as many customers have become increasingly price sensitive with respect to IVIG products.  If customers demand lower priced products, we may lose sales or be forced to lower our prices.


In 2015, the European Commission granted marketing authorization for CSL’s Respreeza® in all European Union member states. This product is a more concentrated intravenous formulation than the one we offer in Europe.  Another competitor offers an inhaled formula and submitted a Marketing Authorization Application with the EMA at the beginning of 2016 and is in Phase II/III clinical trials in the United States. Our current and future competitors may increase their sales, lower their prices, change their distribution model or improve their products, causing harm to our product sales and market share.  Also, if the attrition rate of our A1PI patient base accelerates faster than we have forecast, we would have fewer patients and lower sales volume.


Other new treatments, such as small molecules, monoclonal or recombinant products, may also be developed for indications for which our products are now used.  Recombinant Factor VIII and Factor IX products, which are currently available and widely used in the United States and Europe, compete with our plasma-derived product in the treatment of hemophilia A and B and are perceived by many to have lower risks of disease transmission.  Additional recombinant products and new small molecules, some with extended half-lives, could compete with our products and reduce the demand for our products.  At the end of 2016, Kamada announced the BLA submission of its  rabies product to compete with our rabies hyperimmune product in the United States.  In February 2009, GTC Biotherapeutics obtained FDA approval of a competitive antithrombin III, or ATIII, a product derived from the milk of transgenic goats for the treatment of hereditary antithrombin deficiency.  This product now directly competes with our product, Thrombate® III, which had previously been the only FDA-approved ATIII product.  In addition, alternatives exist for Albumin in its application as a plasma volume expander.  If an increased use of alternative products for Factor VIII, Factor IX or Albumin makes it uneconomical to produce our plasma-derived products, or if further technological advances improve these products or create other competitive alternatives to our plasma derivative products, our financial condition and results of operations could be materially adversely affected.


We do not currently sell any recombinant products.  We have recombinant versions of A1PI and plasmin in our pipeline, but we cannot be certain that any of these products will ever be approved or commercialized.  As a result, our product offerings may remain plasma-derived, even if our competitors offer competing recombinant products.


The introduction of products approved for alternative routes of administration, including the subcutaneous route of administration, may also adversely affect sales of our products. For example, CSL and Shire introduced a preparation of human immunoglobulin at a 20% concentration for the treatment of people who need replacement of antibodies and Shire has an immune globulin with a recombinant human hyaluronidase indicated for the treatment of Primary Immunodeficiency (PI) in adults. According to the MRB, the global market for subcutaneous products is relatively small. Our 10% Gamunex® has the FDA approval to be administered intravenously or subcutaneously and we are working on a 20% concentration product to be administered in both ways.


We face competition from companies with greater financial resources.


We operate in highly competitive markets.  Our principal competitors include Shire, CSL Behring and Octapharma.  Some of our competitors have significantly greater financial resources than us.  As a result, they may be able to devote more funds to research and development and new production technologies, as well as to the promotion of their products and business.  These competitors may also be able to sustain for longer periods a deliberate substantial reduction in the price of their products or services.  The development by a competitor of a similar or superior product or increased pricing competition may result in a reduction in our net revenues or a decrease in our profit margins.


Technological changes in the production of plasma derivative and diagnostic products could render our production process uneconomical.


Technological advances have accelerated changes in recent years. Future technological developments could render our production processes uneconomical and may require us to invest substantial amounts of capital to upgrade our facilities. Such investments could have a material adverse effect on our financial condition and results of operations. In addition, we may not be able to fund such investment from existing funds or raise sufficient capital to make such investments.


The discovery of new pathogens could slow our growth and adversely affect profit margins.


The possible appearance of new pathogens could trigger the need for changes in our existing inactivation and production methods, including the administration of new detection tests.  Such a development could result in delays in production until the new methods are in place, as well as increased costs that may not be readily passed on to our customers.



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Product liability claims or product recalls involving our products or products we distribute could have a material adverse effect on our business.


Our business exposes us to the risk of product liability claims. We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and an even greater risk when we commercially sell any products. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:


·                                          decreased demand for our products and any product candidates that we may develop;


·                                          injury to our reputation;


·                                          withdrawal of clinical trial participants;


·                                          costs to defend the related litigation;


·                                          substantial monetary awards to trial participants or patients;


·                                          loss of revenue; and


·                                          the inability to commercialize any products that we may develop.


Like many plasma fractionators, we have been, and may in the future be, involved in product liability or related claims relating to our products, including claims alleging the transmission of disease through the use of such products. Plasma is a biological matter that is capable of transmitting viruses and pathogens, whether known or unknown. Therefore, our plasma and plasma derivative products, if donors are not properly screened or if the plasma is not properly collected, tested, inactivated, processed, stored and transported, could cause serious disease and possibly death to the patient. See also “—Our ability to continue to produce safe and effective products depends on a plasma supply free of transmittable diseases.” Any transmission of disease through the use of one of our products or third-party products sold by us could result in claims by persons allegedly infected by such products.


Our potential product liability also extends to our Diagnostic and Hospital division products. In addition, we sell and distribute third-party products, and the laws of the jurisdictions where we sell or distribute such products could also expose us to product liability claims for those products. Furthermore, the presence of a defect in a product could require us to carry out a recall of such product.


A product liability claim or a product recall could result in substantial financial losses, negative reputational repercussions and an inability to retain customers. Although we have a program of insurance policies designed to protect us and our subsidiaries from product liability claims, and we self-insure a portion of this risk, claims made against our insurance policies could exceed our limits of coverage. We intend to expand our insurance coverage as our sales grow. However, as product liability insurance is expensive and can be difficult to obtain, a product liability claim could decrease our access to product liability insurance on acceptable terms. In turn, we may not be able to maintain insurance coverage at a reasonable cost and may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.


Our ability to continue to produce safe and effective plasma derivative products depends on a plasma supply free of transmittable diseases.


Despite overlapping safeguards, including the screening of donors and other steps to remove or inactivate viruses and other infectious disease-causing agents, the risk of transmissible disease through plasma-derived products cannot be entirely eliminated.  If a new infectious disease was to emerge in the human population, the regulatory and public health authorities could impose precautions to limit the transmission of the disease that would impair our ability to procure plasma, manufacture our products or both.  Such precautionary measures could be taken before there is conclusive medical or scientific evidence that a disease poses a risk for plasma-derived products.


In recent years, new testing and viral inactivation methods have been developed that more effectively detect and inactivate infectious viruses in collected plasma.  There can be no assurance, however, that such new testing and inactivation methods will adequately screen for, and inactivate, infectious agents in the plasma used in the production of our products.


Plasma and plasma derivative products are fragile, and improper handling of our plasma or plasma derivative products could adversely affect results of operations.


Plasma is a raw material that is susceptible to damage.  Almost immediately after its collection from a donor, plasma is stored and transported at temperatures that are at least -20 degrees Celsius (-4 degrees Fahrenheit).  Once we manufacture plasma derivative



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products, they must be handled carefully and kept at appropriate temperatures.  Our failure, or the failure of third parties that supply, ship or distribute our plasma and plasma derivative products, to properly care for our plasma or plasma derivative products may require us to destroy some raw materials or products.  If the volume of plasma or plasma derivative products damaged by such failures were to be significant, the loss of that plasma or those plasma derivative products could have a material adverse effect on our financial condition and results of operations.


Our future success depends on our ability to retain members of our senior management and to attract, retain and motivate qualified personnel.


We are highly dependent on the principal members of our executive and scientific teams.  The loss of the services of any of these persons might impede the achievement of our research, development, operational and commercialization objectives.  In particular, we believe the loss of the services of any of Raimon Grifols Roura, Víctor Grifols Deu, Ramón Riera Roca, Alfredo Arroyo Guerra, Carlos Roura Fernández, Vicente Blanquer Torre, Mateo Florencio Borrás Humbert, Montserrat Lloveras Calvo, David Ian Bell, Gregory Gene Rich, Shinji Wada, Francisco Javier Jorba Ribes, Nuria Pascual Lapeña, Lafmin Morgan and Carsten Schroeder would significantly and negatively impact our business.  We do not maintain “key person” insurance on any of our senior management.


Recruiting and retaining qualified operations, finance and accounting, scientific, clinical and sales and marketing personnel will be critical to our success.  We may not be able to attract and retain these personnel on acceptable terms, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.  We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.  If we are unable to attract, retain and motivate qualified and experienced personnel, we could lose customers and suffer reduced profitability.  Even if we are successful in attracting and retaining such personnel, competition for such employees may significantly increase our compensation costs and adversely affect our financial condition and results of operations.


cGMP regulations also require that the personnel we employ and hold responsible for product manufacturing, including, for example, the collection, processing, testing, storage or distribution of blood or blood components, be adequate in number, educational background, training (including professional training as necessary) and experience, or a combination thereof, and have capabilities commensurate with their assigned functions, a thorough understanding of the procedures or control operations they perform, the necessary training or experience and adequate information concerning the application of relevant cGMP requirements to their individual responsibilities. Our failure to attract, retain and motivate qualified personnel may result in a regulatory violation, affect product quality, require the recall or market withdrawal of affected product or result in a suspension or termination of our license to market our products, or any combination thereof.


Our business requires substantial capital to operate and grow and to achieve our strategy of realizing increased operating leverage, including the completion of several large capital projects.


We have implemented several large capital projects to expand and improve our facilities and to improve the structure of our plasma collection centers in the United States. These projects may run over budget or be delayed.  We cannot be certain that these projects will be completed in a timely manner or that we will maintain our compliance with cGMP regulations, and we may need to spend additional amounts to achieve compliance.  Additionally, by the time these multi-year projects are completed, market conditions may differ significantly from our assumptions regarding the number of competitors, customer demand, alternative therapies, reimbursement and public policy, and as a result, capital returns might not be realized.


We also plan to continue to spend substantial sums on research and development, to obtain the approval of the FDA, and other regulatory agencies, for new indications for existing products, to develop new product delivery mechanisms for existing products and to develop innovative product additions.  We face a number of obstacles to successfully converting these efforts into profitable products, including, but not limited to, the successful development of an experimental product for use in clinical trials, the design of clinical study protocols acceptable to the FDA and other regulatory agencies, the successful outcome of clinical trials, our ability to scale our manufacturing processes to produce commercial quantities or successfully transition technology, the approval of the FDA and other regulatory agencies of our products and our ability to successfully market an approved product or new indication.


For example, when a new product is approved, the FDA or other regulatory authorities may require post-approval clinical trials, sometimes called Phase IV clinical trials.  If the results of such trials are unfavorable, this could result in the loss of the license to market the product, with a resulting loss of sales.


We are expecting significant capital spending as we are undertaking an investment plan that involves among other investments, cumulative industrial capital investments to expand the manufacturing capacities of the Bioscience division of approximately $360 million from 2016 through 2021.  The amount and timing of future capital spending is dependent upon a number of factors, including market conditions, regulatory requirements and the extent and timing of particular projects, among other things.  Our ability to grow our business is dependent upon the timely completion of these projects and obtaining the requisite regulatory approvals.



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We may not be able to develop some of our international operations successfully.


We currently conduct sales in over 100 countries.  The successful operation of such geographically dispersed resources requires considerable management and financial resources.  In particular, we must bridge our business culture to the business culture of each country in which we operate.  In addition, international operations and the provision of services in foreign markets are subject to additional risks, such as changing market conditions, currency exchange rate fluctuations, trade barriers, exchange controls, regulatory changes, changes to tax regimes, foreign investment limitations, civil disturbances and war.  Furthermore, if an area in which we have significant operations or an area into which we are looking to expand suffers an economic recession or currency devaluation, our net revenues and accounts receivable collections in that region will likely decline substantially or we may not be able to successfully expand or operate in that region.


We are susceptible to interest rate variations.


We use issuances of debt and bank borrowings as a source of funding.  At December 31, 2016, $3.8 billion and €389 million of our senior interest bearing debt, which represented 80.7% of our senior interest bearing debt, bore interest at variable rates, at a spread over the London Interbank Offered Rate, or LIBOR, for our U.S. dollar denominated debt and at a spread over the Euro Interbank Offered Rate, or EURIBOR, for our euro denominated debt.  Any increase in interest rates payable by us, which could be adversely affected by, among other things, our inability to meet certain financial ratios, would increase our interest expense and reduce our cash flow, which could materially adversely affect our financial condition and results of operations.  See Item 11 of this Part I, “Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk.” After adjusting for the entry into the New Credit Facilities, $5 billion and €0.6 million of our senior interest bearing debt, which represented 85% of our senior interest bearing debt, bore interest at variable rates, at a spread over LIBOR for our U.S. dollar denominated debt and at a spread over EURIBOR for our euro denominated debt.


Our results of operations and financial condition may be affected by adverse changes in foreign currency exchange rates, especially a significant shift in the value of the euro as compared to the U.S. dollar.


A significant portion of our business is conducted in currencies other than our reporting currency, the euro.  In 2016, €3.1 billion, or 75.5%, of our net revenue of €4.0 billion was denominated in U.S. dollars.  We are also exposed to currency fluctuations with respect to other currencies, such as the British pound, the Brazilian real, the Canadian dollar and the Argentine, Mexican and Chilean pesos.  Currency fluctuations among the euro, the U.S. dollar and the other currencies in which we do business result in foreign currency translation gains or losses that could be significant.


We are also exposed to risk based on the payment of U.S. dollar denominated indebtedness.  At December 31, 2016, we had approximately $4.8 billion of U.S. dollar denominated senior debt.  See Item 11 of this Part I, “Quantitative and Qualitative Disclosures About Market Risk — Currency Risk.”


If the San Diego, Clayton, Emeryville, Los Angeles or Parets facilities were to suffer a crippling accident, or if a force majeure event materially affected our ability to operate and produce saleable products, a substantial part of our manufacturing capacity could be shut down for an extended period.


A substantial portion of our revenue is derived from plasma fractionation or products manufactured at our San Diego, Clayton, Emeryville, Los Angeles and Parets facilities. In addition, a substantial portion of our plasma supply is stored at facilities in City of Industry, California and Benson, North Carolina, as well as at our Clayton and Parets facilities. If any of these facilities were to be impacted by an accident or a force majeure event such as an earthquake, major fire, storm or explosion, major equipment failure or power failure lasting beyond the capabilities of our backup generators, our revenue would be materially adversely affected. In this situation, our manufacturing capacity could be shut down for an extended period and we could experience a loss of raw materials, work-in-process or finished goods inventory. Other force majeure events such as terrorist acts, influenza pandemic or similar events could also impede our ability to operate our business. In addition, in any such event the reconstruction of our Clayton, Los Angeles or Parets facilities or our plasma storage facilities, gaining the regulatory approval for such new facilities and the replenishment of raw material plasma could be time consuming. During this period, we would be unable to manufacture all of our products at other plants due to the need for FDA and foreign regulatory authority inspection and certification of such facilities and processes.


Our property damage and business interruption insurance may be insufficient to mitigate the losses from any such accident or force majeure event. We may also be unable to recover the value of the lost plasma or work-in-process inventories, as well as the sales opportunities from the products we would be unable to produce.


If we experience equipment difficulties or if the suppliers of our equipment or disposable goods fail to deliver key product components or supplies in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.


We depend on a limited number of companies that supply and maintain our equipment and provide supplies such as chromatography resins, filter media, glass and stoppers used in the manufacture of our products.  If our equipment should malfunction,



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the repair or replacement of the machinery may require substantial time and cost, which could disrupt our production and other operations.  Our plasma collection centers rely on disposable goods supplied by third parties and information technology systems hosted by third parties.  Our plasma collection centers cannot operate without an uninterrupted supply of these disposable goods and the operation of these systems.  Alternative sources for key component parts or disposable goods may not be immediately available.  And while we have experienced periodic outages of these systems, a material outage would affect our ability to operate our collection centers.  Any new equipment or change in supplied materials may require revalidation by us or review and approval by the FDA or foreign regulatory authorities, including the EMA, which may be time-consuming and require additional capital and other resources.  We may not be able to find an adequate alternative supplier in a reasonable time period, or on commercially acceptable terms, if at all. As a result, shipments of affected products may be limited or delayed.  Our inability to obtain our key source supplies for the manufacture of products may require us to delay shipments of products, harm customer relationships and force us to curtail operations.


If our shipping or distribution channels were to become inaccessible due to a crippling accident, an act of terrorism, a strike, earthquake, major fire or storm, or any other force majeure event, our supply, production and distribution processes could be disrupted.


Not all shipping or distribution channels are equipped to transport plasma.  If any of our shipping or distribution channels becomes inaccessible due to a crippling accident, an act of terrorism, a strike, earthquake, major fire or storm or any other force majeure event, we may experience disruptions in our continued supply of plasma and other raw materials, delays in our production process or a reduction in our ability to distribute our products directly to our customers.


We rely in large part on third parties for the sale, distribution and delivery of our products.


In the United States, we regularly enter into distribution, supply and fulfillment contracts with group purchasing organizations, or GPOs, home care companies, alternate infusion sites, hospital groups and others.  We are highly dependent on these agreements for the successful sale, distribution and delivery of our products.  For example, we rely principally on GPOs and on our distributors to sell our IVIG products.  If such parties breach, terminate or otherwise fail to perform under these contracts, our ability to effectively distribute our products will be impaired and our business may be materially and adversely affected.  In addition, through circumstances outside of our control, such as general economic decline, market saturation or increased competition, we may be unable to successfully renegotiate our contracts or secure terms which are as favorable to us.  Furthermore, we rely in certain countries on distributors for sales of our products.  Disagreements or difficulties with our distributors supporting our export business could result in a loss of sales.


We may not be able to commercialize products in development.


Before obtaining regulatory approval for the sale of our product candidates or for the marketing of existing products for new indicated uses, we must conduct, at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals and clinical trials to demonstrate the safety and efficacy of our product candidates in humans.  Preclinical and clinical testing is expensive, is difficult to design and implement, can take many years to complete and is uncertain as to outcome.  A failure of one or more of our clinical trials can occur at any stage of testing.  We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including, without limitation:


·                                          regulators or institutional review boards, or IRBs, may not authorize us to commence a clinical trial or conduct a clinical trial within a country or at a prospective trial site;


·                                          the regulatory requirements for product approvals may not be explicit, may evolve over time and may diverge by jurisdiction;


·                                          our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or we may be required by regulators, to conduct additional preclinical testing or clinical trials or to abandon projects that we had expected to be promising;


·                                          the number of patients required for our clinical trials may be larger than we anticipate, enrollment in our clinical trials may be slower than we anticipate or participants may withdraw from our clinical trials at higher rates than we anticipate, any of which would result in significant delays;


·                                          our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;


·                                          we may be forced to suspend or terminate our clinical trials if the participants are being exposed to unacceptable health risks or if any participant experiences an unexpected serious adverse event;



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·                                          regulators or IRBs may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;


·                                          undetected or concealed fraudulent activity by a clinical researcher, if discovered, could preclude the submission of clinical data prepared by that researcher, lead to the suspension or substantive scientific review of one or more of our marketing applications by regulatory agencies and result in the recall of any approved product distributed pursuant to data determined to be fraudulent;


·                                          the cost of our clinical trials may be greater than we anticipate;


·                                          the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate, as we currently do not have any agreements with third-party manufacturers for the long-term commercial supply of any of our product candidates;


·                                          an audit of preclinical or clinical studies by the FDA or other regulatory authorities may reveal noncompliance with applicable regulations, which could lead to disqualification of the results and the need to perform additional studies; and


·                                          the effects of our product candidates may not achieve the desired clinical benefits or may cause undesirable side effects, or the product candidates may have other unexpected characteristics.


If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may be delayed in or unable to obtain marketing approval or reimbursement for our product candidates, or be unable to obtain approval for indications that are not as broad as intended or have the product removed from the market after obtaining marketing approval.


Our product development costs will also increase if we experience delays in testing or approvals.  We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, if at all.  Significant preclinical or clinical trial delays also could shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates or could allow our competitors to bring products to market before we do, impairing our ability to commercialize our products or product candidates.


Even if preclinical trials are successful, we still may be unable to commercialize a product due to difficulties in obtaining regulatory approval for its engineering process or problems in scaling that process to commercial production.  Additionally, if produced, a product may not achieve an adequate level of market acceptance by physicians, patients, healthcare payors and others in the medical community to be profitable.  The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, some of which are beyond our control, including:


·                                          the prevalence and severity of any side effects;


·                                          the efficacy and potential advantages over alternative treatments;


·                                          the ability to offer our product candidates for sale at competitive prices;


·                                          relative convenience and ease of administration;


·                                          the willingness of physicians to prescribe new therapies and of the target patient population to try such therapies;


·                                          the strength of marketing and distribution support; and


·                                          sufficient third-party coverage or reimbursement.


Therefore, we cannot guarantee that any products we may seek to develop will ever be successfully commercialized, and to the extent they are not successfully commercialized, such products could involve significant expense with no corresponding revenue.


A breakdown in our information technology systems could result in a significant disruption to our business.


Our operations are highly dependent on our information technology systems, including internet-based systems, which may be vulnerable to breakdown, wrongful intrusions, data breaches and malicious attack.  In addition, information security risks have generally increased in recent years, increasing our systems’ potential vulnerability, such as to data security breaches or cyber attack, whether by employees or others, which may expose sensitive data to unauthorized persons.  Such data security breaches could lead to



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the loss of trade secrets or other intellectual property, or could lead to the public exposure of personal information (including sensitive personal information) of our employees, customers, plasma donors and others or adversely impact the conduct of scientific research and clinical trials, including the submission of research results to support marketing authorizations.  Various evolving federal, state and foreign laws protecting the privacy and security of personal information may also be implicated by improper uses or disclosures of data, resulting in liabilities and requiring specified data breach notifications.  Our information technology systems also utilize certain third party service organizations that manage sensitive data, such as personal medical information regarding plasma donors, and our business may be adversely affected if these third party service organizations are subject to data security breaches.  In addition, procedures and safeguards must continually evolve to meet new data security challenges, and enhancing protections, and conducting investigations and remediation, may impose additional costs on us.  If we were to suffer a breakdown in our systems, storage, distribution or tracing, we could experience significant disruptions affecting our manufacturing, accounting and billing processes or reputational harm or claims against us by private parties and/or governmental agencies.


Our success depends in large part on our ability to obtain and maintain protection in the United States and other countries of the intellectual property relating to or incorporated into our technology and products.


Our success depends in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering or incorporated into our technology and products, especially intellectual property related to our purification processes.  The patent situation in the field of biotechnology and pharmaceuticals generally is highly uncertain and involves complex legal and scientific questions.  We may not be able to obtain additional issued patents relating to our technology or products.  Even if patents are issued to us or to our licensors, they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of time our products have patent protection.  Additionally, most of our patents relate to the processes we use to produce our products, not to the products themselves.  In many cases, the plasma-derived products we produce or develop in the future will not, in and of themselves, be patentable.  Since our patents relate to processes, if a competitor is able to design and utilize a process that does not rely on our protected intellectual property, that competitor could sell a plasma-derived or other product similar to one we developed or sell.


Our patents also may not afford us protection against competitors with similar technology.  Because patent applications in the United States and many other jurisdictions are typically not published until 18 months after their filing, if at all, and because publications of discoveries in the scientific literature often lag behind actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in our or their issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in such patent applications.  If a third party has also filed a U.S. patent application covering our product candidates or a similar invention, we may be required to participate in an adversarial proceeding, known as an “interference proceeding,” declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States.  The costs of these proceedings could be substantial and our efforts in them could be unsuccessful, resulting in a loss of our anticipated U.S. patent position.


Our patents expire at various dates.  Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will provide us with any competitive advantage.  Even if issued, we cannot guarantee that:  any of our present or future patents or patent claims or other intellectual property rights will not lapse or be invalidated, circumvented, challenged or abandoned; our intellectual property rights will provide competitive advantages; our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; any of our pending or future patent applications will be issued or have the coverage originally sought; our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak; or we will not lose the ability to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments.  In addition, our competitors or others may design around our protected patents or technologies.


Effective protection of our intellectual property rights may be unavailable, limited or not applied for in some countries.  Changes in patent laws or their interpretation in the United States and other countries could also diminish the value of our intellectual property or narrow the scope of our patent protection.  In addition, the legal systems of certain countries do not favor the aggressive enforcement of patents, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States.  As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.  In order to preserve and enforce our patent and other intellectual property rights, we may need to make claims or file lawsuits against third parties.  Such lawsuits could entail significant costs to us and divert our management’s attention from developing and commercializing our products.


We, like other companies in the pharmaceutical industry, may become aware of counterfeit versions of our products becoming available domestically and abroad.  Counterfeit products may use different and possibly contaminated sources of plasma and other raw materials, and the purification process involved in the manufacture of counterfeit products may raise additional safety concerns, over which we have no control.  Any reported adverse events involving counterfeit products that purport to be our products could harm our reputation and the sale of our products in particular and consumer willingness to use plasma-derived therapeutics in general.



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Unauthorized use of our intellectual property may have occurred or may occur in the future.  Although we have taken steps to minimize this risk, any failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business.  For example, any unauthorized use of our trademarks could harm our reputation or commercial interests.  Moreover, if we are required to commence litigation related to unauthorized use, whether as a plaintiff or defendant, such litigation would be time consuming, force us to incur significant costs and divert our attention and the efforts of our management and other employees, which could, in turn, result in lower revenue and higher expenses.


In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how.


We generally seek to protect proprietary information by entering into confidentiality agreements with our employees, consultants, scientific advisors and third parties.  These agreements may not effectively prevent disclosure of confidential information, may be limited as to their term and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.  In addition, our trade secrets may otherwise become known or be independently developed by our competitors or other third parties.  To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.  Costly and time-consuming litigation could be necessary to determine and enforce the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.  We also rely on contractual protections with our customers, suppliers, distributors, employees and consultants and implement security measures designed to protect our trade secrets.  We cannot assure you that these contractual protections and security measures will not be breached, that we will have adequate remedies for any such breach or that our suppliers, employees or consultants will not assert rights to intellectual property arising out of such contracts.


Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage.  We may not be able to detect the unauthorized use of such information, prevent such use or take appropriate and timely steps to enforce our intellectual property rights.


We may infringe or be alleged to infringe intellectual property rights of third parties.


Our products or product candidates may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights.  Third parties may own or control these patents or patent applications in the United States and abroad.  These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages.  Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.


If we are found to be infringing on the patent rights of a third party, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both.  These licenses may not be available on acceptable terms, or at all.  Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property.  Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms.


There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries.  In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the U.S. Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products.  The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial.  Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively 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.  Patent litigation and other proceedings may also absorb significant management time.


Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.  We take steps to ensure that our employees do not use the proprietary information or know-how of others in their work for us.  We may, however, be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer.  Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management.  If we fail to defend any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.



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We have in-licensed certain patent rights and co-own certain patent rights with third parties.


Our rights in certain intellectual property that we have in-licensed or co-own with third parties and the value therein may depend on our third party licensors’ or co-owners’, as applicable, performance under our intellectual property agreements with them. If one of these third parties is unable to, or does not, enforce their own rights in such intellectual property or perform under our agreements with them, it could affect our ability to effectively compete in the marketplace and operate our business.


Our in-license agreements for certain patent rights may impose payment and/or other material obligations on us as a licensee.  Although we are currently in compliance with all of our material obligations under these licenses, if we were to breach any such obligations, our counterparty licensors may be entitled to terminate the licenses.  Such termination may restrict, delay or eliminate our ability to develop and commercialize our products, which could adversely affect our business.  We cannot guarantee that the third-party patents and technology we license will not be licensed to our competitors.  In the future, we may need to obtain additional licenses, renew existing license agreements or otherwise replace existing technology.  We are unable to predict whether these license agreements can be obtained or renewed or whether the technology can be replaced on acceptable terms, or at all.


Risks Relating to the Healthcare Industry


The implementation of the Healthcare Reform Law in the United States may adversely affect our business.


The United States Healthcare Reform Law, adopted through the March 2010 enactment of the Patient Protection and Affordable Care Act and the companion Healthcare and Education Reconciliation Act, increased federal oversight of private health insurance plans and included a number of provisions designed to reduce Medicare expenditures and the cost of health care generally, to reduce fraud and abuse, and to provide access to increased health coverage.   The Healthcare Reform Law has materially expanded the number of individuals in the United States with health insurance.  The Healthcare Reform Law has faced ongoing legal challenges, including litigation seeking to invalidate some of or all of the law or the manner in which it has been interpreted.  As a result, while upholding the law generally, the United States Supreme Court has effectively made the Healthcare Reform Law’s Medicaid expansion voluntary for each state.  In addition, President Trump and the majorities in both houses of Congress have stated their intention to repeal and replace the Healthcare Reform Law. On January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Healthcare Reform Law to waive, defer, grant exemptions from, or delay the implementation of any provision of the Healthcare Reform Law that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices.  The uncertain status of the Healthcare Reform Law affects our ability to plan.


Implementation of the Healthcare Reform Law has included significant cost-saving, revenue and payment reduction measures with respect to, for example, several government healthcare programs that cover our products, including Medicaid, Medicare Parts B and D and the 340B/Public Health Service, or PHS, program, and these efforts could have a material adverse impact on our financial performance.


For example, with respect to Medicaid, in order for a drug manufacturer’s products to be reimbursed by federal funding under Medicaid, the manufacturer must enter into a Medicaid drug rebate agreement with the Secretary of the U.S. Department of Health and Human Services, or HHS, and pay certain rebates to the states based on utilization data provided by each state to the manufacturer and to the Centers for Medicare & Medicaid Services, or CMS, and pricing data provided by the manufacturer to the federal government.  The states share these savings with the federal government and sometimes implement their own additional supplemental rebate programs.  Under the Medicaid drug rebate program, the rebate amount for most brand name drugs is the greater of 23.1% of the Average Manufacturer Price, or AMP, per unit or the difference between the AMP and the Best Price per unit and adjusted by the Consumer Price Index-Urban, or CPI-U, based on launch date and current quarter AMP, subject to certain exceptions (for example, for certain clotting factors, such as our Factor VIII and Factor IX products, the amount of the rebate is the greater of 17.1% of the AMP per unit or the difference between the AMP and the Best Price per unit and adjusted by the CPI-U based on launch date and current quarter AMP).  For non-innovator multiple source (generic) drugs, the rebate percentage is equal to a minimum of 13.0% of AMP.  In 2010, the Healthcare Reform Law also extended this rebate obligation to prescription drugs covered by Medicaid managed care organizations.


In addition, the statutory definition of AMP changed in 2010 as a result of the Healthcare Reform Law. On January 21, 2016, CMS issued a final rule, effective on April 1, 2016, providing a regulatory definition of “AMP” along with other changes to the price reporting process.  We believe our reporting meets the obligations contained in the final rule.


The Healthcare Reform Law also created new obligations for our products under Medicare Part D, a partial, voluntary prescription drug benefit created by the federal government primarily for persons 65 years old and over.  The Part D drug program is administered through private insurers that contract with CMS.  Beginning in 2011, the Healthcare Reform Law generally required that we provide a 50% discount to patients who fall within the Medicare Part D coverage gap, also referred to as the “donut hole,” which is



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a gap in Medicare Part D coverage for beneficiaries who have expended more than a certain amount, and less than a certain greater amount, for drugs.


The availability of federal funds to pay for our products under Medicaid and Medicare Part B programs requires that we extend discounts under the 340B/PHS program, and changes to this program under the Healthcare Reform Law could adversely affect our financial performance.  The 340B/PHS program extends discounts to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of certain low income individuals, and the Healthcare Reform Law expanded the number of qualified 340B entities eligible to purchase products for outpatient use, adding certain cancer centers, children’s hospitals, critical access hospitals and rural referral centers.  The PHS price, or ceiling price, cannot exceed the AMP (as reported to CMS under the Medicaid drug rebate program) less the Medicaid unit rebate amount.  We have entered into a pharmaceutical pricing agreement, or PPA, with the government in which we have agreed to participate in the 340B/PHS program by charging eligible entities no more than the PHS ceiling price for drugs intended for outpatient use. Evolving requirements with respect to this program continue to be issued by the Health Resources and Services Administration, or HRSA, of HHS, the federal agency responsible for oversight of the 340B/PHS program, which creates uncertainty.  For example, on January 5, 2017, a final rule was published in the Federal Register. The regulation’s effective date is March 21, 2017, and HRSA has stated that it plans to begin enforcing the requirements of this final rule effective April 1, 2017.  The rule includes provisions on how to calculate the ceiling price for covered outpatient drugs under the 340B program and addresses the imposition of civil monetary penalties, or CMPs, on manufacturers that knowingly and intentionally overcharge covered entities.  We believe that we meet the requirements of the 340B/PHS program, but we are continuing to review and monitor these and other HRSA proposals.


The Healthcare Reform Law also introduced a new abbreviated regulatory approval pathway for biological products found to be “biosimilar” to or “interchangeable” with a biological “reference product” previously licensed under a BLA.  This abbreviated approval pathway is intended to permit a biosimilar product to come to market more quickly and less expensively by relying to some extent on the data generated by the reference product’s sponsor, and the FDA’s previous review and approval of the reference product.   The law provides that no biosimilar application may be accepted by the FDA for review until 4 years after the date the reference product was first licensed by the FDA, and that the FDA may not make approval of an application effective until 12 years after the reference product was first licensed. Once approved, biosimilars likely would compete with, and in some circumstances may be deemed under applicable laws to be “interchangeable with,” the previously approved reference product.  The extent to which a biosimilar product, once approved, will be substituted for any of our products, in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.  We expect in the future to face greater competition from biosimilar products, including a possible increase in patent challenges, all of which could adversely affect our financial performance.


Regarding access to our products, the Healthcare Reform Law established and provided significant funding for a Patient-Centered Outcomes Research Institute to coordinate and fund Comparative Effectiveness Research, as those terms are defined in the Healthcare Reform Law.  While the stated intent of Comparative Effectiveness Research is to develop information to guide providers to the most efficacious therapies, outcomes of Comparative Effectiveness Research could influence the reimbursement or coverage for therapies that are determined to be less cost effective than others.  Should any of our products be determined to be less cost effective than alternative therapies, the levels of reimbursement for these products, or the willingness to reimburse at all, could be impacted, which could materially impact our financial results.


A Healthcare Reform Law provision, generally referred to as the Physician Payment Sunshine Act, or the PPS Act, or Open Payments Program, has imposed new reporting and disclosure requirements for biologic, drug and device manufacturers with regard to payments or other transfers of value made to certain practitioners, such as physicians and teaching hospitals, and for such manufacturers and for group purchasing organizations, with regard to certain ownership interests held by physicians in the reporting entity.  CMS publishes information from these reports on a publicly available website, including amounts transferred and health care provider identities.  Under the PPS Act we are required to collect and report detailed information regarding certain financial relationships we have with covered health care providers, and we believe that we are substantially compliant with applicable PPS Act requirements.   The PPS Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to report under certain state transparency laws that address circumstances not covered by the PPS Act, and some of these state laws are also ambiguous.  We are also subject to foreign regulations requiring transparency of certain interactions between suppliers and their customers.  While we believe we have substantially compliant programs and controls in place to comply with these reporting requirements, our compliance with these rules imposes additional costs on us.


We could be adversely affected if other government or private third-party payors decrease or otherwise limit the amount, price, scope or other eligibility requirements for reimbursement for the purchasers of our products.


Prices in many countries, including many European countries, are subject to local regulation and certain pharmaceutical products, such as plasma derivative products, are subject to price controls in several of our principal markets, including Spain and countries within the European Union.  In the United States, where pricing levels for our products are established by governmental payors and negotiated with private third-party payors, if the amount of reimbursement available for a product is reduced, it may cause groups or individuals dispensing the product to discontinue administration of the product, to administer lower doses, to substitute



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lower cost products or to seek additional price-related concessions.  These actions could have a negative effect on our financial results, particularly in cases where our products command a premium price in the marketplace or where changes in reimbursement induce a shift in the location of treatment.  The existence of direct and indirect price controls and pressures over our products has affected, and may continue to materially adversely affect, our ability to maintain or increase gross margins.  In addition, the growth of overall healthcare costs and certain weak economic and financial environment in certain countries where we do business, as well as increased scrutiny over pharmaceutical pricing practices, such as  in the United States, all enhance these pricing pressures.


In the United States, beginning in 2005, the Medicare drug reimbursement methodology for physician and hospital outpatient payment schedules changed to Average Sales Price, or ASP, + 6%.  This payment was based on a volume-weighted average of all brands under a common billing code.  After changes in certain prior years, CMS increased the rate back to ASP + 6% for 2013, and maintained the same rate for 2014 through 2017.  In addition, under the Bipartisan Budget Act of 2013, and subsequent measures, Medicare is subject to a 2% reduction in federal spending, or “sequestration,” including drugs reimbursed under Medicare, for federal fiscal years 2013 through 2025.  The full ramifications of this sequestration for Medicare reimbursement are not yet clear, as Congressional action may reduce, eliminate or otherwise change this payment reduction.  Other pricing concerns in the United States include that President Trump has suggested that he would support pharmaceutical pricing negotiations on behalf of Medicare, and certain Senators have stated their intent to introduce a bill authorizing the importation of pharmaceuticals where pharmaceutical prices in the United States for a given product are deemed excessive.  It is not clear that any such pricing negotiation or importation measures will be enacted.


Also, the intended use of a drug product by a physician can affect pricing.  Physicians frequently prescribe legally available therapies for uses that are not described in the product’s labeling and that differ from those tested in clinical studies and that are approved by the FDA or similar regulatory authorities in other countries.  These off-label uses are common across medical specialties, and physicians may believe such off-label uses constitute the preferred treatment or treatment of last resort for many patients in varied circumstances.  Industry data indicates that a significant portion of IVIG volume may be used to fill physician prescriptions for indications not approved by the FDA or similar regulatory authorities.  In the United States, many off-label uses of drug products may be reimbursed by Medicare and other third-party payors, generally based on the payors’ determination that the intended use is for a medically accepted indication, for example, based on studies published in peer-reviewed medical journals or information contained in drug compendia, such as the United States Pharmacopeia-National Formulary. However, if reimbursement for off-label uses of products, including IVIG, is reduced or eliminated by Medicare or other third-party payors, including those in the United States or the European Union, we could be adversely affected.  For example, CMS could initiate an administrative procedure known as a National Coverage Determination by which the agency determines which uses of a therapeutic product would be reimbursable under Medicare and which uses would not.  This determination process can be lengthy, thereby creating a long period during which the future reimbursement for a particular product may be uncertain.  High levels of spending on IVIG products, along with increases in IVIG prices, increased IVIG utilization and the high proportion of off-label uses, may increase the risk of regulation of IVIG reimbursement by CMS.  On the state level, similar limits could be proposed for therapeutic products covered under Medicaid.


Certain of our products are subject to various cost-containment measures, such as government-imposed industry-wide price reductions, mandatory pricing systems, reference pricing systems, payors limiting access to treatments based on cost-benefit analyses, an increase in imports of drugs from lower-cost countries to higher-cost countries, shifting of the payment burden to patients through higher co-payments, limiting physicians’ ability to choose among competing medicines, mandatory substitution of generic drugs for the patented equivalent, and growing pressure on physicians to reduce the prescribing of patented prescription medicines.  Such pressures could have a material adverse impact on our business, financial condition or results of operations, as well as on our reputation.


Certain of our business practices are subject to scrutiny by regulatory authorities, as well as to lawsuits brought by private citizens under federal and state laws.  Failure to comply with applicable laws or an adverse decision in lawsuits may result in adverse consequences to us.


The laws governing our conduct in the United States are enforceable by criminal, civil and administrative penalties.  Violations of laws such as the Federal Food, Drug and Cosmetic Act, or the FDCA, the Federal False Claims Act, or the FCA, the PHS Act or provisions of the U.S. Social Security Act known as the “Anti-Kickback Law” and the “Civil Monetary Penalties Law,” or any regulations promulgated under their authority, may result in jail sentences, fines or exclusion from federal and state programs, as may be determined by Medicare, Medicaid, the Department of Defense, other regulatory authorities and the courts.  There can be no assurance that our activities will not come under the scrutiny of regulators and other government authorities or that our practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen “relators” under federal or state false claims laws.


For example, the Anti-Kickback Law prohibits providers and others from directly or indirectly soliciting, receiving, offering or paying any remuneration with the intent of generating referrals or orders for services or items covered by a government health care program.  Many states have enacted similar laws.  Courts have interpreted this law very broadly, including by holding that a violation has occurred if even one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. There are statutory and regulatory exceptions, or safe harbors, that outline arrangements that are deemed lawful. However, the fact that an



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arrangement does not fall within a safe harbor does not necessarily render the conduct illegal under the Anti-Kickback Law. In sum, under the Anti-Kickback Law, and similar state laws and regulations, even common business arrangements, such as discounted terms and volume incentives for customers in a position to recommend or choose drugs and devices for patients, such as physicians and hospitals, must be structured to comply with applicable requirements. Also, certain business practices, such as payment of consulting fees to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers that prescribe products for uses not approved by the FDA and financial support for continuing medical education programs, must be conducted within narrowly prescribed and controlled limits to avoid any possibility of wrongfully influencing healthcare providers to prescribe or purchase particular products or as a reward for past prescribing.  Violations of the Anti-Kickback Law can result in substantial legal penalties, including, among others, civil and criminal penalties or exclusion from federal health care programs, including Medicare and Medicaid.


The federal FCA is violated by any entity that “presents or causes to be presented” knowingly false claims for payment to the federal government. In addition, the Healthcare Reform Law amended the FCA to create a cause of action against any person who knowingly makes a false statement material to an obligation to pay money to the government or knowingly conceals or improperly decreases an obligation to pay or transmit money or property to the government. For the purposes of these recent amendments, an “obligation” includes an identified overpayment, which is defined broadly to include “any funds that a person receives or retains under Medicare and Medicaid to which the person, after applicable reconciliation, is not entitled…”


Significant enforcement activity has been the result of actions brought by relators, who file complaints in the name of the United States (and if applicable, particular states) under the FCA or the equivalent state statutes.  “False claims” can result not only from noncompliance with the express requirements of applicable governmental reimbursement programs, such as Medicaid or Medicare, but also from noncompliance with other laws, such as the Anti-Kickback Law (which was explicitly confirmed in the Healthcare Reform Law), or laws that require quality care in service delivery.  The qui tam and whistleblower provisions of the FCA allow private individuals to bring actions on behalf of the government alleging that the government was defrauded, with tremendous potential financial gain (up to 30% of the government’s recovery plus legal fees) to private citizens who prevail.  When a private party brings a whistleblower action under the FCA, the defendant is not made aware of the lawsuit until the government starts its own investigation or makes a decision on whether it will intervene.  Many states have enacted similar laws, and these states have their own penalties which may be in addition to federal FCA penalties.  The bringing of any federal FCA action could require us to devote resources to investigate and defend the action.  Violations of the FCA can result in treble damages, and each false claim submitted can be subject to a penalty ranging from $10,781 to $21,563 per claim.  Failure to comply with fraud and abuse laws and regulations could also result in other significant civil and criminal penalties and costs, including the loss of licenses and the ability to participate in federal and state health care programs, and could have a material adverse effect on our business.  In addition, these measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our operations or incur substantial defense and settlement expenses.  Even unsuccessful challenges by regulatory authorities or private relators could result in reputational harm and the incurring of substantial costs.  Further, many of these laws are vague or indefinite and have not been interpreted by the courts, and have been subject to frequent modification and varied interpretation by prosecutorial and regulatory authorities, increasing the risk of noncompliance.  While we believe that we are substantially compliant with applicable fraud and abuse laws and regulations, and have adequate compliance programs and controls in place to ensure substantial compliance, we cannot predict whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in response to changes in applicable law or interpretation of laws, could have a material adverse effect on our business.


Failure to satisfy requirements under the FDCA can also result in penalties, as well as requirements to enter into consent decrees or orders that prescribe allowable corporate conduct.  In this regard, our Los Angeles facility was previously managed pursuant to a consent decree that was entered into in February 1998 based on action by the FDA and the U.S. Department of Justice, or the DOJ, addressing FDCA violations committed by the former owner of the facility, Alpha Therapeutic Corporation, or Alpha.  The consent decree provided for annual inspection of the plant by the FDA.  On March 15, 2012, the United States District Court for the Central District of California entered an order vacating the consent decree on the Los Angeles facility.


Adverse consequences can also result from failure to comply with the requirements of the 340B/PHS program under the PHS Act, which extends discounts to a variety of community health clinics and other entities that receive health services grants under the PHS Act.  For example, the Healthcare Reform Law requires the Secretary of HHS to develop and issue regulations for the 340B/PHS program establishing standards for the imposition of sanctions in the form of civil monetary penalties, or CMP, for manufacturers that knowingly and intentionally overcharge a covered entity for a 340B drug, and on January 5, 2017, HHS published a final rule in the Federal Register addressing the application of CMPs.  The CMP may be up to $5,000 for each instance of overcharging a covered entity.


In addition, companies in the United States, Canada and the European Union are generally restricted from promoting approved products for other indications that are not specifically approved by the competent regulatory authorities (e.g., the FDA in the United States), nor can companies promote unapproved products.  In the United States, pharmaceutical companies have, to a limited



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extent, been recognized by the FDA as permitted to disseminate to physicians certain truthful and accurate information regarding unapproved uses of approved products, or results of studies involving investigational products.  In addition, in December 2012, a federal appeals court in New York found that the criminal prosecution of a pharmaceutical manufacturer for truthful, non-misleading speech promoting the lawful, off-label use of an FDA-approved drug would violate the manufacturer’s constitutional rights of free speech, and the FDA chose not to appeal that decision.  Improper promotion of unapproved drugs or devices or unapproved indications for a drug or device may subject us to warnings from, or enforcement action by, regulatory agencies, harm demand for our products, and subject us to civil and criminal sanctions.  Further, sanctions under the FCA have recently been brought against companies accused of promoting off-label uses of drugs, because such promotion induces the use and subsequent claims for reimbursement under Medicare and other federal programs.  Similar actions for off-label promotion have been initiated by several states for Medicaid fraud.  The Healthcare Reform Law significantly strengthened provisions of the FCA, the anti-kickback provisions of Medicare and Medicaid and other health care antifraud provisions, leading to the possibility of greatly increased qui tam suits by relators for perceived violations. Industry data indicates that a significant portion of IVIG volume may be used to fill physician prescriptions for indications not approved by the FDA or similar regulatory authorities.  Violations or allegations of violations of the foregoing restrictions could materially and adversely affect our business.


We are required to report detailed pricing information, net of included discounts, rebates and other concessions, to CMS for the purpose of calculating national reimbursement levels, certain federal prices and certain federal and state rebate obligations.  We have established systems for collecting and reporting this data accurately to CMS and have instituted a compliance program to assure that the information collected is complete in all respects.  If we report pricing information that is not accurate to the federal government, we could be subject to fines and other sanctions (including potential FCA liability) that could adversely affect our business.


To market and sell our products outside of the United States, we must obtain and maintain regulatory approvals and comply with regulatory requirements in such jurisdictions.  The approval procedures vary among countries in complexity and timing.  We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all, which would preclude us from commercializing products in those markets.  In addition, some countries, particularly the countries of the European Union, regulate the pricing of prescription pharmaceuticals.  In these countries, pricing discussions with governmental authorities can take considerable time after the receipt of marketing approval for a product.  To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidate to other available therapies.  Such trials may be time consuming and expensive and may not show an advantage in efficacy for our products.  If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, in either the United States or the European Union, we could be adversely affected.


We also are subject to certain laws and regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws and related laws, and laws pertaining to the accuracy of our internal books and records, which have been the focus of increasing enforcement activity in recent years.  Under the FCPA, the United States has increasingly focused on regulating the conduct by U.S. businesses occurring outside of the United States, generally prohibiting remuneration to foreign officials for the purpose of obtaining or retaining business.  Also, in some countries we may rely on third parties for the marketing and distribution of our products, and these parties may lack sufficient internal compliance resources, and may operate in foreign markets involving substantial corruption.  If our efforts to monitor these parties fail to detect potential wrongdoing, we could be held responsible for the noncompliance of these third parties with applicable laws and regulations, which may have a material adverse effect on our business.


We are subject to extensive government regulatory compliance and ethics oversight.


Our business is subject to extensive government regulation and oversight.  We have enacted anticorruption, privacy, healthcare and corporate compliance policies and procedures that govern our business practices and those of our distributors and suppliers.  These policies and procedures are effectuated through education, training and monitoring of our employees, distributors and suppliers.  In addition, to enhance compliance with applicable health care laws and mitigate potential liability in the event of noncompliance, regulatory authorities, such as HHS’s Office of the Inspector General, or OIG, have recommended the adoption and implementation of a comprehensive health care compliance program that generally contains the elements of an effective compliance and ethics program described in Section 8B2.1 of the U.S.  Sentencing Commission Guidelines Manual.  Increasing numbers of U.S.-based pharmaceutical companies have such programs, and we have adopted U.S. healthcare compliance and ethics programs that generally incorporate the HHS OIG’s recommendations.  However, our adoption and enforcement of these various policies and procedures does not ensure that we will avoid investigation or the imposition of penalties by applicable government agencies.


We are subject to extensive environmental, health and safety laws and regulations.


Our business involves the controlled use and the generation, handling, management, storage, treatment and disposal of hazardous substances, wastes and various biological compounds and chemicals. The risk of contamination or injury from these materials cannot be eliminated. If an accident, spill or release of any regulated chemicals, substances or wastes occurs, we could be



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held liable for resulting damages, including for investigation, remediation and monitoring of the contamination, including natural resource damages, the costs of which could be substantial. As owners and operators of real property, we could also be held liable for the presence of hazardous substances as a result of prior site uses or activities, without regard to fault or the legality of the original conduct that caused or contributed to the presence or release of such hazardous substance on, at, under or from our property. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials, chemicals and wastes.


Although we maintain workers’ compensation insurance to cover the costs and expenses that may be incurred due to injuries to our employees resulting from the use and handling of these materials, chemicals and wastes, this insurance may not provide adequate coverage against potential liabilities.


We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us for claims arising in the United States. Additional or more stringent federal, state, local or foreign laws and regulations affecting our operations may be adopted in the future. We may incur substantial capital costs and operating expenses to comply with any of these laws or regulations and the terms and conditions of any permits required pursuant to such laws and regulations, including costs to install new or updated pollution control equipment, modify our operations or perform other corrective actions at our respective facilities. In addition, fines and penalties may be imposed for noncompliance with environmental and health and safety laws and regulations or for the failure to have or comply with the terms and conditions of required environmental permits.


Item 4.                                                         INFORMATION ON THE COMPANY


A.                                    History of and Development of the Company




We were founded in 1940 in Barcelona, Spain by Dr. José Antonio Grifols i Roig, a specialist and pioneer in blood transfusions and clinical analysis and the grandfather of our current Chairman of the Board.  We have been making and selling plasma derivative products for more than 70 years.  Over the last 25 years, we have grown from a predominantly domestic Spanish company into a global company by expanding both organically and through acquisitions throughout Europe, the United States, Latin America and Asia.


We were incorporated in Spain as a limited liability company on June 22, 1987 under the name Grupo Grifols, S.A., and we changed our name to Grifols, S.A. in 2005.  We conduct business under the commercial name “Grifols.”  Our principal executive office is located at Avinguda de la Generalitat, 152 Parque Empresarial Can Sant Joan, 08174 Sant Cugat del Vallès, Barcelona, Spain and our telephone number is +34 93 571 0500.  Our registered office is located at c/Jesús y María, 6, Barcelona, Spain.


We are a vertically integrated global producer of plasma derivatives.  Our activities include sourcing raw material, manufacturing various plasma derivative products and selling and distributing final products to healthcare providers.  As of December 31, 2016 we had 171 operating plasma collection centers located across the United States.  We have expanded our plasma collection network through a combination of organic growth and acquisitions and the opening of new plasma collection centers, and we plan to reach 225 FDA-approved plasma collection centers by 2021. We also produce diagnostic and hospital products.


Our Class A shares have been listed on the Spanish Stock Exchanges since we completed our initial public offering on May 17, 2006 and are quoted on the SIBE under the ticker symbol “GRF.”  In January 2008, we became part of the IBEX-35 Index, which comprises the top 35 listed Spanish companies by liquidity and market capitalization.  Our Class B shares were issued as part of the consideration for the Talecris acquisition and are listed on the Spanish Stock Exchanges and quoted on the SIBE under the ticker symbol “GRF.P.”  Our Class B shares are also traded in the United States on the NASDAQ Global Select Market in the form of ADSs, evidenced by ADRs, under the symbol “GRFS.”  Each ADS represents one of our Class B shares.  Our ADSs are currently traded in U.S. dollars.  In November 2011, our ADSs were added to the NASDAQ Biotechnology Index.


Important Events


Acquisitions and Related Financing


The  Hologic Transaction and Related Financing


On December 14, 2016, we entered into an asset purchase agreement, or the Hologic Agreement, with Hologic to acquire Hologic’s NAT (nucleic acid testing) Donor Screening Unit.  Prior to the transaction, we and Hologic jointly operated this business,



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with Hologic responsible for research and development and manufacturing of the Procleix® blood screening products and Grifols responsible for their commercialization worldwide. The transactions contemplated by the Hologic Agreement are referred to herein as the Hologic Transaction. The Hologic Transaction closed on January 31, 2017 and we paid a purchase price of $1.865 billion to Hologic.


In connection with the Hologic Transaction and the refinancing of the 2014 Credit Facilities (as defined herein), we (i) entered into a credit and guaranty agreement dated as of January 31, 2017, as amended, or the New Credit Facilities, which consists of the “Senior Term Loans” and the “Revolving Loans”. As of the date of this annual report on Form 20-F, no amounts are drawn down on the Revolving Loans. On March 20, 2017 we announced that we intend to redeem the Existing Notes on April 19, 2017.  The redemption of the Existing Notes is subject to the satisfaction of each of the following conditions precedent: (i) the closing of a senior notes offering by the Issuer or any of its subsidiaries in an aggregate principal amount of up to €1,000,000,000, and (ii) the delivery to the Trustee of written notice in the form of an Officer’s Certificate by the Issuer (in its sole and absolute discretion) to the effect that the Closing has occurred. See Item 5 of this Part I, “Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Sources of Credit,” for terms of the New Credit Facilities, the Existing Notes, European Investment Bank Term Loan and for more detailed information.


The Novartis Acquisition and Related Financing


On November 10, 2013, we entered into a share and asset agreement, or the Novartis Agreement, with Novartis Vaccines and Diagnostics, Inc., or NVD, and, solely as a Guarantor, Novartis Corporation, or Novartis, which was subsequently amended on December 27, 2013 and January 9, 2014, to acquire Novartis’ diagnostic business.  The transactions contemplated by the Novartis Agreement are referred to herein as the Novartis Acquisition. We acquired from NVD a complete line of products and systems to perform blood donor screening molecular tests aimed at detecting the pathogenic agents of transfusion-related infectious diseases such as HIV, hepatitis B, hepatitis C and West Nile Virus. We paid a purchase price of $1.7 billion (€1.2 billion).


To finance the Novartis Acquisition, we entered into a credit and guaranty agreement with a syndicate led by Nomura Securities International, Inc., Banco Bilbao Vizcaya Argentaria, S.A., and Morgan Stanley Senior Funding, Inc., or the Bridge Loan Facility, pursuant to which we borrowed $1.5 billion of loans on January 3, 2014. The Bridge Loan Facility was refinanced pursuant to the 2014 Credit Facility.


In connection with the Novartis Acquisition, we (i) entered into a credit and guaranty agreement dated as of February 27, 2014, as amended, or the 2014 Credit Facilities, which consisted of the “2014 Senior Term Loans” and the “2014 Revolving Loans” and (ii) issued $1.0 billion aggregate principal amount of 5.25% senior notes due 2022, or the Existing Notes. On October 28, 2015, Grifols Worldwide Operations Limited entered into a loan agreement with the European Investment Bank for a term loan of €100 million, or the European Investment Bank Term Loan  On February 27, 2014, the proceeds from the 2014 Credit Facilities were used to discharge $1.1 billion aggregate principal amount of 8.25% Senior Notes due 2018 that were issued on January 21, 2011, or the Old Notes.  The 2014 Credit Facility was refinanced pursuant to the offering of the Existing Notes completed on March 12, 2014.


The 2014 Credit Facilities were repaid on January 31, 2017 with proceeds of the New Credit Facilities that we entered into on January 31, 2017 and cash on hand.


Sale-leaseback Transactions


In September 2014, we entered into a contract with Store Capital Acquisitions, LLC for the sale and subsequent leaseback of eight plasma centers in the United States owned by Grifols Shared Services North America, Inc. The plasma centers were sold together with related land for a total of €18.5 million.  As a result of the sale, we recognized a net profit of €481,000.  The prices paid for the properties were established based on appraisals made by independent appraisers.


Simultaneous with the sale, we entered into operating lease agreements with Store Capital Acquisitions, LLC with respect to the aforementioned properties.  The key terms of the operating lease agreements are:


·                                          an initial term of fifteen years;


·                                          an aggregate initial rent of $1.4 million for the plasma centers during the first year, with subsequent annual increases of the lower of 2.5% or 1.5 times the published change in the U.S. Consumer Price Index; and


·                                          extensions for five-year periods, at our option, up to a maximum of twenty years.


The lease expenses incurred in 2015 for the plasma center lease contracts amounted to €1,244,000.



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For further details of our principal capital expenditures and divestitures, see Item 5 of this Part I, “Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital Expenditures.”


B.                                    Business Overview




We are one of the leading global specialty pharmaceutical companies developing, manufacturing and distributing  a broad range of biological medicines on  plasma derived proteins.  Plasma derivatives are proteins found in human plasma, which once isolated and purified, have therapeutic value.  These protein-based therapies extend and enhance the lives of individuals who suffer from chronic and acute, often life-threatening, conditions, such as primary and secondary immunological deficiencies, Chronic Inflammatory Demyelinating Polyneuropathy, or CIDP, A1PI deficiency and related emphysema, immune-mediated ITP, Guillain Barré syndrome, Kawasaki disease, allogeneic bone marrow transplants, hemophilia A and B, von Willebrand disease, traumatic or hemorrhagic shock and severe burns. In addition, we have built a diagnostic business that focuses on researching, developing, manufacturing and marketing in vitro diagnostics products for use in clinical and blood bank laboratories. We also specialize in providing infusion solutions, nutrition products and medical devices for use in hospitals and clinics.


Our products and services are used by healthcare providers in over 100 countries to diagnose and treat patients with hemophilia, immune deficiencies, infectious diseases and a range of other medical conditions, and we have a direct presence, through the operation of commercial subsidiaries, in 30 countries.


In 2015, we believe we ranked in the top three largest producers in the industry in terms of total sales globally. We believe we have a top three market position in various segments of the plasma derivatives industry including Prolastin®, IVIG, Factor VIII, Albumin as well as in terms of plasma collection centers and fractionation capacity.


For the year ended December 31, 2016, our consolidated net revenue and EBITDA were €4,049.8 million and €1,141.3 million, respectively, representing an EBITDA margin of 28.2%. During 2016, we generated 65.8% of revenue in the United States and Canada and 15.8% in Europe (of which only 5.4% was generated in Spain).


See below for a reconciliation of reported net result to EBITDA:








(in thousands of euros)


Grifols profit after income tax from continuing operations




Financial result




Share of profit (loss) of equity-accounted investees




Income tax, expense




Amortization and depreciation




Grifols EBITDA





On January 31, 2017, we completed the acquisition of the business of Hologic Inc. related to the development, production and, pursuant to the collaboration described below, sale to us of products in connection with nucleic acid probe-based testing human blood, plasma, other blood products, human cells, organs or tissue intended for or associated with transfusion or transplantation. The transaction consisted of, among other things, the acquisition of the assets and liabilities related to this business and the termination of the then-existing collaboration agreement between Hologic and us for the joint development, manufacture, commercialization, marketing and sale of such products. The acquired business will be part of our Diagnostic division.


We organize our business into four divisions:  Bioscience, Diagnostic, Hospital and Raw Materials and Others. These divisions also represent the operating segments of the Company.


Bioscience.  The Bioscience division includes activities relating to the manufacture of plasma derivatives for therapeutic use, including the reception, analysis, quarantine, classification, fractionation and purification of plasma and the sale and distribution of end products.  The main plasma products we manufacture are IVIG, Factor VIII, A1PI and Albumin.  We also manufacture intramuscular (hyperimmune) immunoglobulins, ATIII, Factor IX and plasma thromboplastin component, or PTC. The Bioscience division accounted for €3.2 billion, or 79.7%, of our total net revenue in 2016.


Diagnostic.  The Diagnostic division focuses on researching, developing, manufacturing and marketing in vitro diagnostics products, including analytical instruments, reagents, software and associated products for use in clinical and blood bank laboratories,



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covering the entire value chain from donation to transfusion.  We concentrate our Diagnostic business in immunology, immunohematology and specialty diagnostics such as hemostasis.  The Diagnostic division’s main customers are blood donation centers, clinical analysis laboratories and hospital immunohematology services.  The Diagnostic division accounted for €664 million, or 16.4%, of our total net revenue in 2016.  The Nucleic Acid Testing, or NAT,  Donor Screening Unit is engaged in research, development, manufacturing and commercialization of assays and instruments based on NAT technology for transfusion and transplantation screening. NAT technology makes it possible to detect the presence of infectious agents in blood and plasma donations, contributing to greater transfusion safety. We expect that the impact of the Hologic Transaction will enhance our vertical integration and further promote the development of new tests and screening routines for emerging viruses.


Hospital.  The Hospital division manufactures and installs products used by hospitals, such as parenteral solutions and enteral and parenteral nutritional fluids, which are sold almost exclusively in Spain and Portugal.  It also includes products that we do not manufacture but that we market as supplementary to the products that we do manufacture.  The Hospital division accounted for €98.6 million, or  2.4%, of our total net revenue in 2016.


Raw Materials and Others.  Net revenue from Raw Materials and Others primarily consists of revenue from third-party engineering projects performed by our subsidiary, Grifols Engineering, S.A., as well as all income derived from manufacturing agreements with Kedrion, which are described further in “— A. History of and Development of the Company — Important Events — The Talecris Acquisition and Related Financing” above, and royalty income from the Bioscience and Diagnostic divisions, including royalties acquired with the Novartis Diagnostic Business.  The Raw Materials and Others division accounted for €59.0 million, or  1.5%, of our total net revenue in 2016.


Geographic Markets


We are a leading plasma derivatives producer globally, ranking in the top three largest producers in the industry in terms of total sales, along with Shire and CSL Group. We are the world’s largest producer of A1PI, which is used for the treatment of A1PI deficiency-related emphysema.


We currently operate in over 100 countries through distributors and subsidiaries in 30 countries. The United States is the largest sales region in the world for plasma derivative products.  For the year ended December 31, 2016, the United States and Canada accounted for  65.8% of our total net revenue.


Certain sales regions, particularly in emerging markets, have experienced continuous growth, driven by enhanced socioeconomic conditions and more informed patients who are demanding better quality medical care, as well as increasing government healthcare spending on plasma derivative products. These emerging markets are expected to experience significant growth.  Our presence and experience in Latin America, in countries such as Mexico, Colombia, Argentina, Chile and Brazil, where we have been marketing and selling products for over 20 years, has positioned us to benefit from this additional growth in both our Bioscience and Diagnostic divisions.  In the Asia-Pacific region, we have established a presence through our subsidiaries and representative offices in Malaysia, China, Thailand, Singapore, Australia, Japan, India, Hong Kong, Taiwan and Indonesia. We have also opened a Middle Eastern representative office in Dubai.


Our continued focus on international expansion and acquisitions that generate operational synergies was demonstrated by our acquisition of Talecris in June 2011, a United States based producer of plasma-derived protein therapies with an established presence in the United States and Canada.  We also expanded internationally with the acquisition in March 2013 of a 60% stake in Progenika (on March 3, 2016, we increased our stake to 89.25%), a Spanish biotechnology firm with operations in the United States, Europe and the Middle East. The Novartis Acquisition further reinforced our international operations, as it expanded our global portfolio of brands, patents and licenses and gained us the Emeryville facility and commercial offices in the United States, as well as additional commercial offices in Switzerland and Hong Kong. Pursuant to the Hologic Transaction, we acquired our former joint-business partner’s NAT Donor Screening business, including a manufacturing facility in San Diego and development rights, product licenses and access to product manufacturers. We will continue to selectively consider acquisitions that would further enhance our operations.


The following chart reflects a summary of net revenue by each of our geographic regions for the past three years:


Summary of Net Revenue by Region


December 31,


% of total
net revenue


December 31,


% of total
net revenue


December 31,


% of total
net revenue




(in thousands of euros, except for percentages)


European Union(1)




























United States and Canada














Rest of the World




























Raw Materials and Others(2)






























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(1)           Net revenue earned in the European Union includes net revenue earned in Spain.


(2)           We exclude net revenue derived from our Raw Materials division and, since January 2014, net revenue from “Others” from our reported net revenue by region, because we believe that such net revenue does not represent part of our core recurrent business lines.  We have modified net revenue by region for 2013 to reflect the exclusion of net revenue from “Others” from our reported net revenue by region. Net revenue from Raw Materials and Others primarily consists of revenue from third-party engineering projects performed by Grifols Engineering, as well as all income derived from manufacturing agreements with Kedrion and royalty income from the Bioscience and Diagnostic divisions, including royalties acquired with the Novartis Diagnostic Business.


Principal Activities


We organize our business into four divisions:  Bioscience, Diagnostic, Hospital and Raw Materials and Others. These divisions also represent the operating segments of the Company. The following chart presents our total net revenues by each of our divisions for the past three years:


Summary of Revenue by Division


December 31,


% of total
net revenue


December 31,


% of total
net revenue


December 31,


% of total
net revenue




(in thousands of euros, except for percentages)












































Raw Materials and Others(1)





























(1)           Net revenue from Raw Materials and Others primarily consists of revenue from third-party engineering projects performed by Grifols Engineering, as well as all income derived from manufacturing agreements with Kedrion and royalty income from the Bioscience and Diagnostic divisions, including royalties acquired with the Novartis Diagnostic Business.


The Bioscience Division


The Bioscience division is responsible for the research and development, production and marketing of plasma derivative products.  In 2016, the Bioscience division accounted for  79.7% of total net revenue.


Operational Structure


The following chart illustrates its operational structure:




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From plasma donation to therapeutic application, there are four major steps in the industry value chain process:  (i) plasma collection, (ii) transport and logistics, (iii) manufacturing (fractionation and purification) and (iv) marketing and distribution.  We are present at all levels of the value chain, from collection centers to distribution of the final products.  This vertical integration enables us to leverage our position at each stage to control the overall process, to benefit from lower prices and to introduce complementary products, such as those offered through the Hospital division and the Diagnostic division, to our customers.


Plasma Collection


Plasma is the key raw material used in the production of plasma-derived products.  We obtain our plasma primarily from the United States through our 171 operating plasma collection centers and, to a much lesser extent, through agreements with third parties.  In 2016, our plasma collection centers obtained approximately 8.8 million liters of plasma (including specialty plasma required for the production of hyperimmunes and plasma acquired from third parties).  We believe that our plasma requirements through 2018 will be met through plasma collected at our plasma collection centers and purchased from third-party suppliers pursuant to various plasma purchase agreements. As we source the majority of our plasma internally, we have been able to ensure the availability of plasma for our manufacturing needs, assure the quality of the plasma throughout our manufacturing process and improve control over our plasma costs and our margins.


We have implemented mechanisms to ensure that plasma donors meet the guidelines set forth by applicable regulations regarding, among other things, health, age and frequency of donations.  Once the plasma donation is completed, as required by applicable United States and European regulations, we test every donation for pathogens such as HIV, hepatitis A, B and C, parvovirus B19 and syphilis.  If we discover a unit of plasma that cannot be used in the fractionation process, we notify the donor and remove all plasma previously donated by such donor from our inventory.


Transport and Logistics


Once plasma has been collected, it is frozen at the collection center and sent to fractionation centers.  One essential aspect of this process is the implementation of safety procedures to guarantee the quality and safety of the donated plasma. To ensure preservation of the proteins found in plasma, plasma must be kept at a temperature of -20 degrees Celsius (-4 degrees Fahrenheit).  In accordance with European and United States requirements, we store our plasma at a temperature of -30 degrees Celsius (-22 degrees Fahrenheit).  During transportation, plasma is kept at a temperature of at least -20 degrees Celsius.  Our frozen plasma is transported by one of two transport companies, which are the same used throughout the industry.


Fractionation and Purification


Once plasma has been obtained, it may be used for blood transfusions.  It may also be frozen (as fresh frozen plasma) and manufactured into plasma derivatives through the fractionation process.  The fractionation process consists of the separation of specific proteins through temperature and pH changes, as well as the use of filtration and centrifugation techniques.  This process also includes a phase of introducing various viral inactivation procedures.  Fractionation occurs in tanks at near freezing temperatures to maintain the integrity of the proteins.  All known plasma derivative products can be fractionated from the same batch of plasma.  As a result, the development of a new or higher yield plasma derivative product would likely generate incremental sales without increasing the requirement for additional plasma.


We currently operate three Bioscience manufacturing facilities in the United States and Spain.  Our plasma derivative products are manufactured at our Clayton, Los Angeles and Parets facilities, which have a combined fractionation capacity of 12.5 million liters per year.  Our Clayton facility is one of the world’s largest integrated protein manufacturing sites, including fractionation, purification and aseptic filling and finishing of plasma-derived proteins.


Currently, the Clayton, Los Angeles and Parets facilities are equipped and licensed to produce certain plasma derivative products for the United States, European and other markets.  For example, we produce our Flebogamma® DIF and Gamunex® IVIG products for all of our markets at the Clayton, Los Angeles and Parets facilities.


We optimize utilization of our fractionation capacity by obtaining FDA and EMA licenses, and completing further requirements, that allow us to purify at any of our other facilities intermediate products that are produced at one of our facilities.  In 2016, 2015, 2014 and in prior years, we obtained the following FDA licenses, among others:


·                                          to purify at our Clayton facility the Fraction II+III (an intermediate product) made at both our Los Angeles and Parets facilities to make Gamunex®;



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·                                          to purify at our Los Angeles facility the Fraction II+III obtained at that facility to make Gamunex® 10%;


·                                          to use Fraction V obtained at our Clayton facility to produce Albumin at our Los Angeles facility;


·                                          to use Fraction V obtained at our new fractionation facility at Clayton to produce Albutein® in our Los Angeles



·                                          to use Fraction IV-1 obtained at our Los Angeles facility to produce Prolastina®, an A1PI we market in Spain, at our Clayton facility;


·                                          to use Fraction IV-1 obtained at our Clayton facility to produce Prolastin® at our Parets facility;


·                                          to use Fraction IV-1 obtained at our Parets facility to produce Prolastin® at our Parets facility


·                                          to use the same method currently in place in our Parets facility to produce Alphanate® in our Los Angeles facility;


·                                          to use paste from the new fractionation facility at Clayton to produce Gamunex® and Prolastin®;


·                                          to produce nano-filtered Gamunex®  and the 40 gram vial presentation; and


·                                          to use Cryoprecipitate obtained at our Clayton Facility to produce Alphanate® at our Los Angeles facility.


We are continuing our efforts to obtain additional FDA licenses of this nature. The flexibility provided through such licenses allows us to increase production efficiency and to better address changes in demand between the United States, the European Union and other world markets.


For more information on our manufacturing facilities, see “— D.  Property, Plant and Equipment” below.




We have never experienced a recall of any batch of our finished biological products due to a safety risk, although certain of our other products have been subject to non-material recalls. Our philosophy is that the health of the plasma donor and the patient are the paramount considerations.  We strongly believe that our safety philosophy is consistent with the business objective of generating profit.  We also believe that we have a strong reputation for safety in our markets, thus making our products particularly attractive to customers.  Our vertically integrated business model allows us to assure the safety and quality of our plasma derivative products through the implementation of our safety standards throughout the value chain.


The plasma collection, fractionation and purification process is long, complex and highly regulated.  We have adopted and maintain rigorous safety standards that we believe exceed those required by health authorities in Europe and the United States.


We maintain standards consistent with other industry participants with regard to infectious disease screening and quarantine of units.  For example, source plasma inventory is held for not less than 60 days.  Some of our additional safety policies include look-back procedures for seroconversion.  We have also introduced innovative methods such as the Plasma Bottle Sampling system, which automatically prepares, codes and labels test samples at the time of plasma donation, and the PediGri On Line system, which provides full traceability of human plasma raw material throughout the plasma supply chain.  See “— Distribution Process” below.


Fractionation plants must be cleaned and sterilized frequently.  Our facility was designed to minimize the clean area required for the plasma fractionation tanks and separates the tanks from the room temperature work area.  This allows us to perform all maintenance work from outside the room temperature area, decreasing the risk of contamination.


Periodically, we voluntarily shut down all of our manufacturing facilities to perform maintenance work, expansion projects and other capital investments.  Our manufacturing facilities have never been shut down because of regulatory noncompliance while under our operation.  We believe that our voluntary shutdown procedure lowers the risk of any mandatory shutdown.


After plasma derivatives are processed, we inspect each bottle for irregularities such as imperfect seals, bottle cracks, volume mismeasurements and the presence of foreign objects.


We have also developed and installed in our facility a proprietary process of sterile bottle filling designed to reduce the risk of contamination.  In our process, the bottle and stopper are sterilized together. Once both are sterilized the bottle is reopened in a small sterile room for only two seconds in order to insert the product and then resealed, greatly reducing exposure to the environment and reducing the risk of contamination.



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Since January 1999, we have recorded the filling process to enable us to identify the cause of, and rectify more easily, any related problem.  Our policy is to maintain each recording for six years.  We also imprint an identification number on each of our bottles with a laser for easier identification in the event of a recall and to reduce the risk of tampering.  This allows us to protect the integrity of our manufacturing process.


We continually invest in the improvement of our manufacturing facilities and plasma fractionation process. During 2012, we completed a new ATIII purification and nanofiltration area in Clayton. During 2013, we completed a new Albumin purification area at our Parets facility and began the validation process for the new fractionation facilities in Barcelona and Clayton. During 2014, we completed a new plasma fractionation plant at both our Parets facility and our Clayton facility. During 2016, a new Albumin purification and aseptic filling area was completed at our Los Angeles facility.


Distribution Process


With each batch of plasma derivatives, we deliver electronic information regarding the origin, characteristics and controls of each of the units of plasma that we used in the preparation of the batch to our customers.  This feature, called the PediGri™ On Line system, allows for healthcare users of our products and regulatory authorities to have immediate and easy access to this information, tangible proof of the full traceability of our products. We have had this system in place since 1996, and we believe we are the only fractionator that provides this feature to customers.


We have our own sales and distribution networks covering substantially all of our markets, staffed with highly trained personnel.  A majority of our sales in 2016 were made through our own distribution network, which is experienced in the proper handling of our products. This network provides for greater safety because it allows us to track our products and react quickly in the case of a potential product recall.  In countries where we do not have our own distribution network, we use carefully selected distributors who follow all of our safety standards.


For further information, see “— Marketing and Distribution” below.


Bioscience Products and Services


Collected plasma, whether source or recovered, is fractionated into different component proteins.  We fractionate and purify a broad range of plasma derivative products that improve patient care.


Our principal plasma derivative products are IVIG, A1PI, Factor VIII and Albumin, each sold under various brand names, and their respective applications are as follows:


Product Description


Main Applications

Flebogamma® 5%. Immune Globulin Intravenous (Human).


IVIG assists in the treatment of: primary and secondary immunological deficiencies; immune-mediated ITP; Guillain Barré syndrome; Kawasaki disease; allogeneic bone marrow transplants; and CIDP (Gamunex®/Gamunex®-C only).




Flebogamma® 5% and 10% DIF. Immune Globulin Intravenous (Human).






Gamunex®/Gamunex®-C. Immune Globulin Injection (Human), 10% Caprylate/Chomatography Purified.






Prolastin®/Prolastin®-C (only in the United States) /Prolastina®/Pulmolast®. Alpha 1-Proteinase Inhibitor (Human).


Used to treat congenital alpha-1 antitrypsin deficiency-related emphysema.




Fahndi and Alphanate®. Antihemophilic Factor/von Willebrand Factor Complex (Human).


Used for the prevention and control of bleeding in Factor VIII deficiency (hemophilia A) and indication for von Willebrand disease (in the United States, for Alphanate® only).




Koate®-DVI. Antihemophilic Factor (Human).






Human Albumin Grifols®/Albutein®/Plasbumin®. Albumin (Human) 5%, 20% and 25%.


Used to re-establish and maintain circulation volume in the treatment of hypovolemia (i.e., traumatic or hemorrhagic shock and severe burns) and to treat complications related to cirrhosis.



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Our acquisition of Talecris expanded our portfolio of IVIG and A1PI products. Gamunex® IVIG, which was launched in the United States and Canada in 2003 as a ready-to-use liquid IVIG product, is one of the leading products in the IVIG segment. We believe Gamunex® IVIG is considered to be one of the premium products in its category since its launch due to a comprehensive set of differentiated product characteristics. Further, the FDA granted Gamunex® IVIG orphan drug status, which provided marketing exclusivity for the CIDP indication in the United States through September 2015. However, Gamunex® IVIG is the only IVIG product approved for CIDP in the United States.


In addition, we are the world’s largest producer of A1PI, which is used for the treatment of A1PI deficiency-related emphysema.  Prolastin®/ Prolastin®-C A1PI is the leading A1PI product in the United States and Europe. It is licensed in 28 countries. In Italy and Spain, we previously distributed Prolastin® through third parties. We began distributing Prolastin® directly to those two countries in 2013 and we began conducting clinical trials in Europe in 2013 to obtain Prolastin®-C approval there.


Prolastin® is the leading A1PI product in the United States and is also licensed in 15 countries in Europe. We had an estimated 65% market share for this product globally at the end of 2016.


Alphanate® and Fahndi™, our Factor VIII/von Willebrand factor products, are used both for the treatment of hemophilia and von Willebrand disease.  In addition, our Albumin product meets U.S. and European requirements, making it attractive to biotechnology companies and genetic labs, as well as hospitals and physicians.


In addition to the products described above, we also produce intramuscular (hyperimmune) immunoglobulins, which are used for the prevention and treatment of tetanus, prevention and treatment of hepatitis B, and Rh factor complications during birth; Anbinex® and Thrombate® III, which are used in the prevention and treatment of thromboembolic complications; AlphaNine® and Factor IX Grifols®, which are used in the prevention and control of bleeding in patients with hemophilia B; and Niuliva® and Igantibe®, which are used after liver transplants to prevent hepatitis B reinfection of the graft.


To sell plasma derivative products, we must first register the products with the relevant authorities of the jurisdictions where the products are to be marketed and sold.  To comply with the regulatory requirements in a given jurisdiction, we have a core team in Spain and the United States that prepares, files and coordinates the registration process with the technical personnel at the subsidiary assigned to that jurisdiction.  We have 707 hemoderivative product licenses registered in 93 countries throughout the European Union, United States, Latin America, Asia and the rest of the world.  Our most significant government-issued licenses for plasma derivative products are:


·                                          Flebogamma®/Flebogamma® DIF/Gamunex®/Gamunex®-C Immunoglobulin.  We have 133 licenses for the marketing and sale of one or more of these immunoglobulin products;


·                                          Fahndi/Alphanate®/Koate® Factor VIII.  We have 97 licenses for the marketing and sale of one or more of these Factor VIII products;


·                                          Human Albumin Grifols®/Albutein®/Plasbumin® Albumin.  We have 202 licenses for the marketing and sale of one or more of these Albumin products in its various concentrations; and


·                                          Prolastin®/Trypsone® A1PI.  We have 33 licenses for the marketing and sale of one or both of these A1PI products.


Pursuant to the Consent Order, we have granted Kedrion the exclusive license to sell Koate®-DVI in the United States.


In addition to the sale of the products described above, we have entered into a series of arrangements with many Spanish transfusion organizations to fractionate recovered plasma (plasma separated from blood obtained from a blood donation) from such organizations and manufacture plasma derivatives under our own brand name for use by hospitals.  We charge the transfusion centers for the fractionation and manufacturing service. We also have contracts with Canadian Blood Services and Héma-Québec and we have similar, albeit smaller, arrangements with Czech and Slovak organizations.  We also provide virus photo-inactivation of transfusion plasma to hospitals and clinics in Spain.  The plasma is inactivated at our manufacturing facilities and then sent back to the clinic or hospital at which it was collected, where it is used for transfusions.


The Diagnostic Division


The Diagnostic division focuses on researching, developing, manufacturing and marketing in vitro diagnostics products, including analytical instruments, reagents, software and associated products for use in diagnostic clinical and blood bank laboratories.  We believe that we have a significant market share of sales in NAT blood screening solutions. In addition, we have increased our sales of automated immunohematology systems and reagents to hospital transfusion and blood centers in several markets.  We also continue to grow our portfolio of clinical and diagnostic products in select areas, including autoimmunity and hemostasis, and have agreements



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to extend the number of antigens we manufacture for use in clinical and blood bank diagnostic tests.  The Diagnostic division accounted for €664 million, or 16.4%, of total net revenue in 2016. Our principal diagnostic products are:


Product Description


Main Applications




Transfusion Medicine:






Procleix® Tigris®/Procleix® Panther® systems. Automated NAT blood screening systems, assays and software.


Used to detect infectious viruses in donated blood and plasma including: HIV (Types 1 & 2); Hepatitis A, Hepatitis B, Hepatitis C and Hepatitis E; parvovirus B19; West Nile Virus; and Dengue Virus.




WADiana®/Erytra® analyzers. Automated immunohematology analyzers that use gel agglutination technology to enable automatic processing of DG Gel® blood determination cards.


Used to perform routine pre-transfusion blood typing, antibody screening, antibody identification and cross-match tests.




Antigens. Critical component of certain infectious disease tests.


Used in the manufacture of clinical diagnostic and blood donor screening immunoassays.




Leucored and standard blood bags. Blood bags configured according to all blood bank separation protocols. Leucored blood bags incorporate an in-line filtration system.


Used for collection and transfusion of blood.




Clinical and Specialty Diagnostics:






Triturus® analyzers. Open and fully automated analyzer for ELISA (enzyme-linked immunoabsorbent assay), tests with multi-test/multi-batch capability.


Automates the enzyme immunoassay testing in microtiter plate format and the processing of several batches of samples simultaneously.




Q-Coagulometer and Q-Smart analyzers. Fully automated hemostasis analyzers that use reagents to measure blood coagulation levels.


Used to diagnose and measure blood coagulation status of patients with blood coagulation-related and hemorrhagic disorders.




Coagulation reagents, instrumentation and software.


Used to establish the coagulation status of patients and to handle the corresponding results.




Promonitor. Highly specific ELISA kits for quantification of serum drug levels and anti-drug antibodies of various biological drugs


Used measure quantity of drug and antibodies for a number of biological drugs, commonly used in the treatment of various inflammatory diseases.


We assemble the majority of our instrument analyzers at our Parets facility. We manufacture antigens at our Emeryville facility and our blood bags at our facility located in Las Torres de Cotillas, Murcia,  Spain, or the Murcia facility, which has an estimated capacity of nine million blood bags per year.


The production, marketing and sale of many of our Diagnostic division products are subject to the prior registration of such products with the relevant authorities of the applicable jurisdictions.  We have over 1,889 diagnostic product licenses registered in 72 countries in Europe, the United States, Latin America and Asia.


In addition to the products noted above, we offer our customers products developed in collaboration with, or manufactured by, third-parties that we believe complement our product lines.


We currently distribute Diagnostic division products in Europe, North America, Asia-Pacific, the Middle East, Latin America and Africa.


In January 2014, we acquired from Novartis a complete line of products and systems to perform blood donor screening molecular tests aimed at detecting the pathogenic agents of transfusion-related infectious diseases such as HIV, hepatitis B, hepatitis C and West Nile Virus. The Novartis Diagnostic Business has been integrated in our current Diagnostic division, resulting in a significant expansion of our transfusion medicine product portfolio. More recently, in January 2017, we completed the Hologic Transaction. Prior to the Hologic Transaction, we and Hologic jointly operated this business, with Hologic responsible for research and development and manufacturing of the Procleix® blood screening products and Grifols responsible for their commercialization



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worldwide. Following the acquisition, we now control the research and development processes as well as the manufacturing of the reagents. We believe the Procleix® NAT solutions that we added to our portfolio in the Hologic Transaction, which we were already commercializing following the Novartis Acquisition, continue to lead the market, and are used to screen more blood and plasma donations worldwide each year than any other NAT system. The Procleix® products are designed to directly detect the genetic material of a virus using a technique called transcription-mediated amplification (TMA).


Transfusion Medicine


Grifols has a leadership position in transfusion medicine, with a broad portfolio of products that range from blood collection, blood and plasma testing to blood typing and transfusion. Our growth strategy in transfusion medicine has been strengthened by the January 2014 acquisition of the transfusion medicine and immunology diagnostic unit of Novartis and the recent Hologic Transaction. We focus primarily on meeting changing market needs with new and enhanced products for our Procleix NAT blood screening portfolio and on expanding sales of our immunohematology products in key markets (WADiana® and Erytra® analyzers and related DG Gel® blood determination cards). See Note 3(b) to our audited consolidated financial statements included in this annual report on Form 20-F.


We continue to focus on obtaining FDA and other regulatory approvals to expand our portfolio of NAT products. In 2015, a European Conformity, or CE mark, was granted for the NAT test that detects both parvovirus B19 and hepatitis A virus (Procleix® Parvo/HAV) in human plasma on the Procleix® Panther platform, enabling Grifols to increase the number of tests available for this platform and to expand its portfolio of products designed to meet the specific needs of the plasma industry. In 2016, the Procleix® Tigris system underwent a series of significant software and hardware improvements to better address evolving market needs, including more functional and streamlined software and increased storage holding for key consumables.


In 2016, we began working on an Investigational Use Only (IUO) assay to accommodate requests to test blood in areas potentially affected by the Zika virus. In June 2016, the first samples were tested using Grifols Procleix® Zika virus assay on a Procleix®  Panther® system under an Investigational new drug (IND) protocol. In August 2016, the FDA issued non-binding recommendations that require NAT screening of all individual donations in the United States and its territories. Grifols is currently providing reagents, instruments and services to all of our U.S. customers to allow the screening of more than 85% of the U.S. blood supply. The record-time development of the Procleix Zika virus assay, reinforces our commitment to blood safety worldwide.


Clinical trials to support U.S. registration of the Procleix Ultrio Elite Assay (HIV and hepatitis B and C) and Procleix WNV Assay (West Nile Virus) on the Procleix Panther system have been completed and the corresponding Biologics License Applications (BLA) are now undergoing review by the FDA.


As part of our strategy of geographic expansion and as a leader in this market segment, we continue to consider requests to include NAT screening for blood and plasma donations in countries as they develop their health systems. In this regard, it is important to highlight several new contracts in the Middle East. In 2015, we won a tender in Saudi Arabia to supply the Saudi Arabian National Guard, followed by a contract in 2016 to supply transfusion services to the Saudi Ministry of Health (MoH) and the majority of the member countries of the Cooperation Council for the Arab States of the Gulf (CCASG), establishing Grifols as the leading provider of NAT technology in the region. During 2016, we conducted our first sales in Oman and Kuwait. We opened a new training center in Dubai in 2016 to further support our growth in the region. The center offers single and multi-day training courses for laboratory technicians, engineers and specialists in Grifols’ broad portfolio of products in transfusion medicine and clinical diagnostic.


We continue to experience strong sales of our DG Gel® blood typing products. In December 2016, we obtained CE marking for Erytra Eflexis®, a fully automated, mid-size analyzer that performs pretransfusion compatibility testing using DG Gel® technology. It has a smart and compact design, offering intuitive operation that has expanded our product portfolio, which already includes the WADiana® and Erytra® analyzers and DG Gel® cards. In the United States, our blood typing solutions have experienced solid growth. Grifols has expanded commercialization efforts and will continue to promote this area in light of its high growth potential.


In 2015, we opened the “Grifols Immunohematology Center” in our laboratories in San Marcos, Texas. The Grifols Immunohematology Center provides reference lab testing, consulting and education services to transfusion medicine professionals. In 2016, we expanded the number of tests offered by the center to include simple and complex serological tests.


In several countries, we distribute the BLOODchip® blood group genotyping tests manufactured by Progenika, a company in which Grifols has a majority stake.



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In select markets, we are working to expand the availability of Grifols’ blood collection bags and systems, as well as our Gricode™ transfusion component tracing systems. To strengthen our position in Brazil, we are constructing a blood bag manufacturing plant there.


As part of the Novartis Acquisition, we also acquired a product line of high quality antigens, which are critical components of clinical diagnostic and blood screening immunoassay tests sold worldwide, which are produced through a joint business with Ortho Clinical Diagnostic.


As part of this joint business with Ortho Clinical Diagnostic, Grifols signed a new contract with Abbott Laboratories for the supply of high quality antigens used in the manufacture of immunoassay diagnostics. This contract, with a total value of approximately $700 million, extended the supply of antigens until 2026, ensuring higher levels of recurring income in this area. In 2016, we obtained CE mark approval for the VITROS® HIV Combo test, developed by Grifols and Ortho Clinical Diagnostics for the early detection of HIV infection. This is an important milestone in the joint business between the two companies, in which Grifols is responsible for manufacturing the antigens for the test.


Clinical and Specialty Diagnostics


Our Q-Coagulometer, Q-Smart and Triturus® analyzers remain key product lines in the clinical and specialty diagnostics product line.  In 2015, the Q-Smartanalyzer (a mechanism for laboratories to automate and standardize hemostasis tests) was commercially launched in Latin America.


We also continue to offer a broad portfolio of hemostasis reagents in this line, including DG-Chrom PC, a proprietary chromogenic kit for Protein C, and DG-TT L human reagent, a liquid human thrombin for determining thrombin time.


Also within Clinical and Specialty Diagnostics, Progenika Biopharma obtained in 2015, CE marking for its first genetic diagnosis test for Familial Hypercholesterolemia (FH) using next generation sequencing technology (NGS).  Sales continue in Chile, select E.U. countries and Australia for the Promonitor® product line, which includes an ELISA (enzyme-linked immunoabsorbent assay) device line also developed by Progenika to monitor patients being treated with biological medicines for rheumatoid arthritis and other chronic inflammatory diseases. In 2015, CE marking was granted for two new references of tests in the Promonitor family that enable treatment with the biological product golimumab. This launch strengthens Grifols’ strategy in autoimmunity based on innovative tests using ELISA technology to help rationalize the use of biological treatments. In 2016, we obtained CE marking for several new reference tests in the Promonitor family of products, developed by Progenika. The new reference tests permit the use of a single dilution to measure quantity of drug and antibodies for a number of biological drugs, commonly used in the treatment of various inflammatory diseases, such as rheumatoid arthritis and ulcerative colitis. These new tests strengthen Grifols’ strategy in autoimmunity, based on innovative tests using ELISA technology, to help rationalize the use of biological treatments.


We also continue to distribute our Triturus® analyzer, an open and fully automated analyzer for ELISA, tests with multi-test/multi-batch capability. As an open system, it can be used for the automatization of our autoimmunity and biological drug monitoring product lines and other products in our portfolio for which we are distributors.


In 2015, we signed an exclusive agreement for distribution of AESKU Diagnostics GmbH & Co.’s autoimmunity diagnostic products in the United States and Mexico. We also have various distribution agreements with AESKU in Chile, Italy, Portugal, Spain and the United Kingdom. In 2016, AESKU obtained FDA approval for Helios, the only fully automated platform capable of performing all immunofluorescence pipetting and reading steps in the United States, which strengthened our portfolio of products in the country.


We continue to sell the Intercept Blood System®, developed by Cerus, to inactivate pathogens in blood platelets and plasma in Spain and Mexico.


The Hospital Division


The Hospital division manufactures and installs products used by hospitals, such as parenteral solutions and enteral and parenteral nutritional fluids, which are sold almost exclusively in Spain and Portugal.  It also includes products that we do not manufacture but that we market as supplementary to the products that we do manufacture.  The Hospital division accounted for €98.6 million, or  2.4%, of our total net revenue in 2016.  We are the leader in the Spanish intravenous therapy segment in intravenous solutions, with a 35% market share.


Hospital logistics and i.v. Tools segments are also strategic areas for the Hospital division.  With i.v. Tools we are the leaders in bringing GMP procedures and product solutions to the hospital pharmacy, increasing the safety of their compounding needs.  With the hardware and software solutions offered by the Hospital logistics area, we are the market leader in Spain and Latin America in terms of offering solutions to manage the flow of medications in hospitals.



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The following table describes the principal hospital products that we manufacture, distribute or install and their respective applications:


Product Description


Main Applications

Intravenous therapy:






Intravenous fluid and electrolyte solutions. Main product groups include hypotonic solutions, isotonic solutions, hypertonic solutions and plasma volume expander solutions.


Fluid and electrolyte replacement and conduit for the administration of medicines.

Irrigation solutions.


Fluids for urological irrigation.

Intravenous mixtures. Ready-to-use intravenous mixtures of potassium, antibiotics and paracetamol.


Increases safety and efficiency by rendering unnecessary the mixing of solutions at in-hospital pharmacies.



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Product Description


Main Applications







i.v. Tools. Gri-fill® System uses sterile filtration to prepare intravenous mixtures at in-hospital pharmacies. Misterium™ are modular clean room facilities we sell in the United States and IBAM. Phocus RX® is a specific software and hardware tool for guiding the manual preparation of intravenous mixtures, including cytotoxic drugs. The Kiro Oncology automation system is designed specifically for the preparation of cytotoxic drugs.


Improves safety of hospital pharmacy preparation procedures by assuring sterility, traceability and user safety.




Hospital Logistics. Includes products such as: packaging instruments; software programs, including our own BlisPack®; and logistic dispensing systems, including Pyxis® and Kardex®, for inventory control.


Used in the logistical organization of hospital pharmacies and warehouses, in the preparation of unit dosing and in hospital management, admissions and accounting.







Dietgrif® enteral liquid diets. Oral diets with all the requirements for balanced nutrition. Different diets include standard, standard fiber, polypeptidic, hyperproteic and energetic.


For patients who are unable to eat enough to maintain a nutritious diet, administered through feeding tubes as well as orally.




Disposables for gastroenterology. Stents and special endoscopy disposables for gastroenterology patients.


For patients needing gastrointestinal recanalitation, normally used in endoscopic surgery.




Probiotics. Special complementary diets composed of live microorganisms.


Improves gastroenterology conditions that are the result of a lack of intestinal microflora.




Medical Devices: Disposable sterile therapeutic medical products.


The products have therapeutics uses in urology, radiology, cardiology, neurology hemodynamics and anesthesia.


The production, marketing or sale of our various Hospital division products are subject to prior registration with authorities of the relevant jurisdictions.  We have close to 190 licenses for our Hospital division products registered in 38 countries throughout the European Union, Latin America and the United States.  Our sales representatives sell primarily to pharmacy, nutrition and gastroenterology units in hospitals and other units in hospitals that use our medical devices, using our own distribution network and external distribution organizations in some Latin American markets.


As our Hospital division generates most of its revenue in Spain, it has been impacted by budgetary constraints in the Spanish health sector. In order to address these challenges more effectively, in 2014, we reorganized our commercial structure in Spain, by focusing on a more specialized, integrated model, both geographically and functionally.  As a result of this reorganization, sales growth in Spain in 2016 was stable. We also continue to promote international expansion of this division. However, there was no significant change in international markets, with 29% of the division’s net revenue in 2016 generated outside of Spain affected by the end of a third-party manufacturing contract. Sales are growing in the United States and Portugal. By area of specialization, Pharmatech, which includes Hospital Logistics and i.v. Tools, and the Intravenous Therapies lines were the main drivers of growth.


The Hospital division has established a new commercial strategy to promote Pharmatech’s presence in Latin America through the use of specialist distributors in this sector, while also maintaining a direct sales effort.


Intravenous Therapy


We manufacture and distribute intravenous solutions, primarily in Spain.  In addition, we have increased our focus on manufacturing ready-to-use intravenous mixtures for third parties.  We believe this approach will contribute to the Hospital division’s geographic diversification and allow us to maximize productive use of the Parets facility.


We are continuing to develop ready-to-use potassium solutions in polypropylene packaging. We have added to our portfolio of large volume parenterals a new system of needle-free Polypropylene bags, an added value product addressed to avoid injuries to health care practitioners.  Both Parets and Murcia, were audited by the FDA in June 2015, without any observation. We are also in the process of developing intravenous paracetamol for sales through third-party companies in the United States and intravenous ibuprofen for sales through third-party distributors in Europe. We have signed an agreement with Mylan for 0.9% Sodium Chloride distribution in the United States.


In 2015, and in line with the strengthening of the activity in third-party manufacturing contracts, the dossier for an analgesic in polypropylene bag for the North American market has been submitted to the FDA. Development work continues on a ready-to- use, non-steroidal anti-inflammatory in bag presentation for Europe and the United States. The company plans to consolidate this activity area by obtaining new contracts.



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Pharmatech : Hospital Logistics and i.v. Tools


We sell products related to the logistical organization of pharmacies and warehouses of hospitals, including packaging instruments and software programs for hospital management, admissions and accounting departments.  Most of these Hospital Logistics products are manufactured by third parties.  However, our portfolio includes some products manufactured by Grifols such as StocKey®, an automated Kanban system designed to optimize hospitals’ healthcare material restocking processes, StockKey RFID®, a radiofrequency identification cabinet for the storage of high value medical devices, such as prosthetics and coronary stents, and BlisPack®, a system designed and manufactured by us to automate the cutting of prescription pill blister packs and the electronic identification of specific drugs for individual patients to be used by hospitals.


As a complement to our intravenous solutions, we also manufacture and distribute a complete portfolio of tools used in connection with the preparation of specific i.v. medication, which we refer to as i.v. Tools. We manufacture Misterium™, a cleanroom we design to order and install on site to customer specifications.  In 2016, the principal market for Misterium™ was the United States.


PhocusRx is a system of non-invasive cameras, used in many hospital pharmacies in the United States to validate and document the process of preparing intravenous mixtures. In 2016, this system was adopted in the number one cancer hospital in the United States: the Memorial Sloan Kettering Cancer Center.


We are managing the global introduction of the Kiro Oncology robot, which automates the preparation of intravenous medication for chemotherapy to reduce the risk that health professionals will come into contact with these hazardous products. We expect that the Kiro Oncology robot will be one of the principal drivers of i.v. Tools product line growth in the near future. This system enables us to offer to hospital pharmacies worldwide what we believe to be the most complete portfolio of solutions for controlling i.v. medication preparation processes.  In 2015, Kiro Grifols obtained FDA marketing approval in the United States for the Kiro Oncology system. The Ann & Robert H. Lurie Children’s Hospital in Chicago was the first center in the United States to adopt the system, and during 2016, Smilow Cancer Hospital at Yale became our second reference site in this market.




We develop and distribute enteral nutrition products, including accessories such as feeding tubes and nutritional bags, for sale in the Spanish market. During 2016, the main driver in the Nutrition segment continued to be our distribution of nasogastric probes manufactured by Halyard. We are launching a new Diet Grif container that is more adapted to market needs in 2017.


Medical Devices


We also sell other medical devices, such as disposable sterile therapeutic medical products for urology, radiology, hemodynamics and anesthesia.  All of these products are manufactured by third parties and complement our portfolio of Hospital division products.  We are increasing our strategic efforts to sell medical devices that complement our portfolio of Bioscience division products.  We performed well in 2016 thanks, in part, to Brazilian sales and efforts to intensify our contacts to incorporate new distribution lines to the current portfolio.


Research and Development


Research and development is a significant aspect of our business. Our principal research and development objectives are (i) to discover and develop new products, (ii) to research new applications for existing products and (iii) the improvement of our manufacturing processes to improve yields, safety and efficiency. Research and development spending moved from €224.2 million in 2015 to €197.6 million in 2016. In addition, as of December 31, 2016, we had 812 scientists and support staff dedicated to research and development.


We have over 70 years of successful innovation history. For example, we developed a unique fractionation design that reduces the risk of contamination, reduces maintenance costs and increases the amount of product extracted per liter of plasma. We also developed the first centrifugation unit for the automated cleaning of blood cells. In addition, we were one of the first fractionators to conduct double viral inactivation processes for Factor VIII and have designed and implemented a new process for the sterile filling of vials that reduces exposure to potential contaminants as compared to other existing processes. Further, we have developed a nanofiltration method of viral inactivation for our IVIG and ATIII products. As a result of our continuing investment in research and development, we believe that we are well positioned to continue as a leader in the plasma-derived therapies industry.


Bioscience Division Initiatives


The Talecris acquisition complemented our substantial Bioscience division research and development project portfolio, which we believe will ensure the quality of our research activity in the long term.



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We have a number of patents and research and development projects in our Bioscience division underway, 27 of which are in the clinical development phase.  The following table reflects the total number of research and development projects in our Bioscience division by development phase as of the end of the last three years.




As of December 31,


Development Phase
































Post Commercialization Studies








Rest of projects








Total Bioscience Research and Development Projects









The table below presents the most important of our research and development projects:


Product Candidate






Potential Use


Development Phase


Albumin and IVIG






Alzheimer’s disease


Phase III (began in April 2012)




Intensive Care




Cardiovascular surgery


Phase II for Anbinex® (completed in June 2011) Phase II for Thrombate® III (entered in June 2014)


Fibrin glue


Surgical bleeding




Vascular, organ and soft-tissue surgery


Licensure (entered in Q4 2016)


Topical thrombin


Surgical bleeding




General surgery


Phase II (entered in January 2014)



AMBAR Study.  We are continuing our ongoing research into possible treatments for Alzheimer’s disease. The Alzheimer Management by Albumin Replacement, or AMBAR study, is a multicenter trial that complements two previous trials and involves combining therapeutic plasmapheresis with Albumin and IVIG in different intervals and in varying doses. Since the AMBAR project is mainly based on Albumin, the study also includes a treatment arm with Albumin alone in order for both approaches, combination of  Albumin plus IVIG and Albumin alone to be covered. Therefore, we are conducting a Phase III clinical trial to demonstrate the efficacy of plasmapheresis with Albutein® (5% and 20%) combined with Flebogamma® DIF 5% or Albutein® alone for improving the cognitive status of patients with Alzheimer’s disease. We expect the study, which will be conducted in collaboration with hospitals in Spain and in the United States, to include 365 patients plus a control group. We received approval for our study from both the Spanish Agency and the FDA, and more than 300 patients have enrolled. We completed recruitment in 2016.


We incurred costs in the amount of €11.4 million, €10.8 million and €4.9 million in connection with this project in 2016, 2015 and 2014, respectively. We hold significant granted patents and patent applications on the production of Albumin and IVIG as well as on the combination of plasma exchange with Albumin replacement for the treatment of Alzheimer’s disease.


Antithrombin.  In 2008, we initiated research into the clinical efficacy of antithrombin for use on cardiac surgery patients with cardiopulmonary bypass. In June 2011, we concluded Phase II clinical trials involving the use of our antithrombin Anbinex. In June 2014, we began a second Phase II trial for the same indication using Thrombate III. Enrollment is expected to be completed in 2017. We incurred costs in the amount of €3.8 million, €2.0 million and €1.2 million in connection with this project in 2016, 2015 and 2014, respectively.


Fibrin Glue.  We began clinical trials into the safety and efficacy of the use of fibrin glue as a supportive treatment for the improvement of hemostasis in vascular, organ and soft-tissue surgery in 2008. In 2014, we completed a clinical trial in the European Union for the use of fibrin glue in vascular surgery. Three additional clinical trials were performed: (i) a Phase III clinical trial in the United States for the use of fibrin glue in solid organ surgery; (ii) a Phase III clinical trial in the United States for the use of fibrin glue in soft-tissue surgery; and (iii) a Phase III clinical trial for the use of fibrin glue in vascular surgery in the United States. All of the U.S. clinical trials for fibrin glue were completed in 2015.


We incurred costs in the amount of €7.8 million, €16.8 million and €15.9 million in connection with this project in 2016, 2015 and 2014, respectively. We hold significant granted patents on the fibrinogen and thrombin production processes.


Topical thrombin.  This project encompasses all aspects of the development and licensing of thrombin, using topical administration methods, as a complement to hemostasis products for the cessation of bleeding in general surgery. Upon completion of supporting process development and preclinical activities, we began preparations for the Phase II clinical trial in 2013 and initiated the trial in the United States in January 2014. We completed enrollment in the Phase II clinical trial in 2015.


In connection with this project, we incurred costs in the amount of €1.1 million, €2.9 million and €5.1 million in 2016, 2015 and 2014, respectively.



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Other Bioscience research and development projects undertaken during 2016 included:


·                                          development of a high concentration immunoglobulin for subcutaneous administration;


·                                          clinical programs to evaluate new indications of Flebogamma® DIF 5% and Gamunex®-C;


·                                          a clinical study to evaluate the effects of the prolonged administration of human Albumin on cardiovascular, hepatic and renal function in patients with advanced cirrhosis and ascites.  One study involves the administration of Albutein® 20% and is being conducted at six Spanish hospitals;


·                                          a study designed to evaluate the effects of plasma exchange on the functional capacity of serum Albumin on cerebral, circulatory and renal dysfunction; and


·                                          development and clinical payments to Aradigm related to Pulmaquin and Lipoquin. Study concluded, pending FDA application for approval in the United States.


All clinical trials involve risks and uncertainties. Preclinical and clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during or as a result of preclinical testing and the clinical trial process that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates. For a discussion of these unforeseen events, see Item 3. of this Part I, “Key Information — D. Risk Factors —Risks Relating to Our Business — We may not be able to commercialize products in development.” Upon the completion of each of the development stages we evaluate the results achieved as compared to the objectives pursued. Each of the key projects listed above has met our expectations with respect to results at the various development stages and we expect to move forward with the development process for each.


We believe that our current liquidity is sufficient to fund the ongoing costs of our key projects listed above through their completion as well as our other research and development initiatives.


Diagnostic Division Initiatives


Research and development in the Diagnostic division is focused on the development of recombinant proteins and in vitro diagnostic reagents and equipment, principally for pretransfusional testing, hemostasis diagnosis and biological drug monitoring. It is based on enzymatic and immunologic reactions and molecular genetic testing, using different technologies including RBC agglutination, latex particles agglutination, solid phase capture, lateral flow and chromogenic substrates.


The principal research and development projects that we are undertaking in this division are: (i) development of recombinant proteins for the manufacture by third parties of finished kits, mainly for blood virus screening focused in HIV and hepatitis diagnosis, and also for the manufacture of Grifols finished kits for hemostasis testing as well as for the Immunohematology line of products; (ii) red blood cell typing tests and blood compatibility testing through the use of gel technology, liquid reagents and our patented Multicard device as well as the corresponding automated platforms; (iii) genetic detection of red blood cell and platelet antigens; (iv) development of an automatic ELISA platform and a broad menu of drug and anti-drug ELISA kits; and (v) development of a complete range of hemostasis reagents and automatic equipment.


Subsequent to the Hologic Transaction, we have taken over the R&D tasks in this segment. Current activities are centered in the Babesia and Zika virus NAT kits. In 2016, we obtained CE marking for our ZIKA virus screening test and FDA approval under an IND protocol.


Additionally, the Diagnostic division is developing medical devices for the extraction and storage of blood components. In 2016, we received the approval from Spain CE Mark Notified Body for Leucored CPD-SAGM Eurobloodpack configuration and the approval from Health Canada also for Leucored CPD-SAGM. The principal products under development were phthalate (DEHP)-free blood bags, Leucored Platelet Kit and Leucored RC bags soft filter.


Hospital Division Initiatives


The research and development team in the Hospital division primarily focuses on developing complementary products and on improving the safety and efficiency of existing products. During 2016, we received the approval from Agencia Española del Medicamento y Productos Sanitarios for Paracetamol 10 mg/mL and from European Health Authorities and FDA for sterile water for injection. We also submitted 0.9% Sodium Chloride as a Decentralized procedure in Europe and a new Set Grifill® in the U.S. and EU markets. The principal projects currently under development are a flexible plastic container closure system for biological products, 0.9% Sodium Chloride in Fleboflex Luer container for Kiro IV®, an anticoagulant solution, a nonsteroidal anti-inflammatory solution (NSAID) and a new version of the Gri-fill® system. In the fluid therapy market, work continues on the study of the stability of various ready-to-use mixtures in polypropylene packaging, in order to increase the range of mixtures available for hospital use. Additionally,



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the Hospital division is developing ready-to-use mixtures for third-party distribution, including intravenous paracetamol, ibuprofen and Tirofiban mixtures.


The Hospital division is also developing new software and devices using state-of-the-art technology, such as Radio-Frequency Identification (RFID) and mobile apps, to improve the warehousing control of medication, the administration of medication to the patient and the traceability of the pharmaceutical products and high value medical devices inside the hospital. Another important field of software development is targeted to improve the workflow and productivity in the IV compounding areas.


As part of the AMBAR study, the Hospital division is collaborating on the development of special devices and containers specifically designed for the procedures and protocols of the study. The Hospital division is also collaborating on the manufacturing of the cuvette of Q-Coagulometer™ for the Diagnostic division.


The Kiro-Grifols joint venture is generating synergies in the research and development of medication compounding. We are using Kiro’s automation knowledge and Grifols experience with compounding procedures, preparation, technologies and cleanroom development to create new compounding automatic platforms that will be introduced in the coming years.


The Hospital division is collaborating with the Bioscience division, with products such as plastic holders for syringes of Fibrin Glue.


Other Initiatives


In addition, we are increasing our research and development activities in new fields. We conduct these activities through the creation of joint ventures participated in by Grifols Innovation and New Technologies Ltd (GIANT), established in 2016, through agreements to use patents owned by third parties and through selective acquisitions.


Our acquisitions of Araclón and VCN Biosciences in 2012 expanded our research and development capabilities in fields outside of our traditional business segments. Araclón is dedicated to finding solutions that promote new diagnostic and therapeutic approaches to Alzheimer’s disease. Araclón is working on an early diagnostic kit and the development of a vaccine to combat Alzheimer’s disease in the asymptomatic preclinical stage. The vaccine has passed the animal experimentation stage and a Phase I clinical trial in humans has been completed. The company is preparing to enter clinical Phase II trial. VCN Biosciences is investigating and developing new therapeutic approaches based on oncolytic adenoviruses to treat tumors for which there is currently no effective treatment. Its most advanced project focuses of the treatment of pancreatic cancer. The Agencia Española del Medicamento y Productos Sanitarios approved two Phase I clinical trials for this project, and VCN Biosciences began recruiting patients for the Phase I trials in the first quarter of 2014.


In 2015, we initiated a partnership with Alkahest, acquiring 47.58% of the equity of the company, to develop plasma-based products for the treatment of cognitive decline in aging and other central nervous system (CNS) disorders, including Alzheimer’s.


In 2016, we acquired 30% of the equity of AlbaJuna Therapeutics, a spin-off company from the IrsiCaixa AIDS Research Institute, promoted jointly by “la Caixa” Foundation and the Department of Health of the Government of Catalonia, and established to promote the pre-clinical and clinical development of monoclonal antibodies that neutralize the action of HIV in the body while increasing the activity of the natural killer cells that have the task of destroying infected cells.




Our businesses are not significantly affected by seasonal trends.


Raw Materials


The cost of plasma, the key raw material used in the production of plasma-derived products, slightly increased as compared to 2015, due to the acceleration of plans to expand plasma collection centers in the United States to support growing demand for plasma proteins as well as the trend towards greater incentives to reward donors for their time. We continue to monitor the efficiency of our plasma collection platform and have concentrated all of our plasma testing into our two laboratories in Austin, Texas.


The principal raw materials for our intravenous therapy products are plastic and glass bottles, which we purchase from various European suppliers.


Marketing and Distribution


We currently sell Bioscience, Diagnostic and Hospital products to hospitals and clinics, GPOs, governments and other distributors in over 100 countries.



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In the United States, the sales model is complex, with many intermediaries, requiring Grifols to execute multi-faceted arrangements for the distribution of our products.  Sales of finished goods are distributed through various channels such as distributors, wholesalers, specialty pharmacies, home health care companies, clinics, hospitals, government entities and directly to physician offices.  Payers and purchasers also control access to products, requiring separate negotiations with payers and GPO’s. GPO’s are entities that act as purchasing intermediaries for their members, which are primarily hospitals.  GPO’s negotiate the price and volume of supplies, equipment and pharmaceutical products, including plasma derivatives, used by their members.


We market our products to healthcare providers and other decision-makers, such as those in hospitals, through focused sales presentations.  Although price and volume are negotiated through contractual agreements with intermediaries, demand for our products is generated through promotional efforts by Grifols’ sales representatives.  In the case of GPO’s, the actual sales are made to each GPO’s authorized distributor(s) at the contract price, and the distributor then sells the products to that GPO’s members.  We promote our products directly to the GPO’s members .  For safety and post-sale service reasons, the distributor is required to provide us with the specifics of the ultimate delivery to the client.


The sales, marketing and distribution process is different in Europe, where the bulk of sales are generally made directly to hospitals. We have developed long-standing relationships with major hospitals in most of our European markets, and we believe that hospitals are loyal customers that recognize the high quality and safety of our products, our reliability as a supplier and the strong product expertise and service provided by our sales representatives.  Due to the nature of our customer base and the prevalence of repeat sales in the industry, we market our products through focused sales presentations rather than by advertising campaigns.


Sales to Eastern Europe, the Middle East and some Asian countries are made mostly by third parties outside of our sales network.  Our sales in Latin America are made mainly by our sales network.


Sales Representatives


We require our sales representatives to be able to highlight the technical differences between our products and those of our competitors.  This skill requires a high degree of training, as the salesperson must be able to interact and discuss product differences with doctors, pharmacists and other medical staff.  Sales representatives call on office-based healthcare providers and hospital-based healthcare providers, departmental heads, purchasing agents, senior hospital directors, lab directors and pharmacy managers.  We compensate our sales representatives by means of a fixed salary and a bonus component based on sales.  We divide our sales efforts along the lines of our main product categories.  Our sales personnel are primarily located in Europe and the United States, but we also have sales personnel in Latin America and Asia-Pacific.


In our Bioscience division, we utilize mixed sales units comprised of both marketing and sales personnel and product line-specific sales units for immunology & neurology, pulmonary and coagulation factors.




We do not conduct any widespread advertising.  Instead, we participate in medical conferences and fairs and occasionally publish advertisements in medical journals and trade magazines.




We believe that having our own distribution network staffed with highly trained personnel is a critical element of a successful sales and marketing effort.  Through this network, we are able to provide high-quality pre- and post-sales service, which we believe enhances brand recognition and customer loyalty.  Our distribution network is experienced in the proper handling of our products and allows us to know where our products are located, enabling us to act quickly in the event of a suspected problem or product recall.


Our distribution network personnel are located in Europe, Latin America, the United States and Asia-Pacific and handle the distribution of our biological medicine, diagnostic and other medical products as well as goods manufactured by other premier healthcare companies that complement our own products.


During 2016, we distributed the majority of our products through our own distribution network.  In some cases, particularly in the field of Diagnostics, we distribute products through marketing partners and third-party distributors.  We have a direct presence in 30 countries and we carefully select distributors in the countries were we do not have a direct presence.  We have a responsive, effective logistics organization that is able to punctually meet the needs of hospital centers and other customers throughout the world.


Our sales, marketing and distribution network included 1,332 employees as of December 31, 2016, which included 1,164 sales and distribution personnel and 168 marketing employees.



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Each of our commercial subsidiaries is responsible for the requirements of the local market.  It is our goal for each commercial subsidiary to be recognizable as one of our companies by its quality of service, ethical standards and knowledge of customer needs.  Strong local knowledge enables us to build and maintain long-term relationships with customers to earn their trust and confidence.


Patents, Trademarks and Licenses


Patents and Trademarks


Through our patent ownership, co-ownership and licensing, we seek to obtain and maintain intellectual property protection for our primary products.


As of December 31, 2016, we owned over 2,360 patents and patent applications in various countries throughout the world, of which approximately 535 are in the application process. In some countries, these patents grant a 20-year protection period. Approximately 1,003 of these patents are set to expire in the next ten years, according to the international filing date. As of December 31, 2016, we also owned over 3,000 trademarks in various countries throughout the world, of which approximately 159 are in the application process. In addition, we co-own certain patents and patent applications with third parties, including patent rights co-owned with Novartis following the Novartis Acquisition.


We maintain a department with personnel in Spain and in the United States to handle the patent and trademark approval and maintenance process and to monitor possible infringements.


Plasma Derivative Products


As of December 31, 2016, we owned approximately 1,409 patents and patent applications related to plasma derivatives in various countries throughout the world, including approximately 641 in Europe and 136 in the United States and Canada. The most important of these patents relate to:


·                                          process for the production of virus-inactivated human Gamma Globulin G;


·                                          use of therapeutic human Albumin for the preparation of a drug for the treatment of patients suffering from cognitive disorders;


·                                          process for removing viruses in fibrinogen solutions; and


·                                          preparation of plasminogen.


Hospital and Diagnostic Products


As of December 31, 2016, we owned approximately 918 patents and patent applications related to our Hospital and Diagnostic products throughout the European Union (497), the United States and Canada (93), Latin America, Asia and in the rest of the world.  The most important of these patents relate to the:


·                                          Gri-fill® System, a process for the sterile filling of flexible material bags;


·                                          BlisPack®, a blister handling machine;


·                                          Erytra® , apparatus for the automatic analysis of samples on gel cards; and


·                                          suspension medium of red blood cells.


Licenses from Third Parties


We license certain intellectual property rights from third parties, including Bayer, Singulex and Hologic. Under a licensing agreement with Bayer, Talecris was granted a royalty-free, worldwide and perpetual license covering certain intellectual properties not acquired by Talecris in connection with its formation transaction. We assumed this licensing agreement in connection with the Talecris acquisition. Singulex granted us an exclusive worldwide license under certain intellectual property rights for the use and sale of certain products and services for blood donor and plasma screening. Pursuant to an intellectual property license with  Hologic, we obtained a fully paid-up license to certain of Hologic’s intellectual property for use in the NAT Donor Screening Unit.



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Licenses from Government Authorities


Government authorities in the United States, at the federal, state and local level, and in other countries throughout the European Union, Latin America, Asia and elsewhere, through licenses, approvals, reviews, inspections and other requirements, extensively regulate the research, development, testing, approval, manufacturing, labeling, post-approval monitoring and reporting, packaging, promotion, storage, advertising, distribution, marketing and export and import of healthcare products such as those that we collect, manufacture, sell or are currently developing.


For example, in order to sell our plasma derivative products we must hold appropriate product licenses from applicable governmental authorities. We have 707 hemoderivative product licenses registered in 93 countries, which include the licenses we hold from the FDA for the sale in the United States of IVIG, A1PI, albumin, Factor VIII, Factor IX, ATIII and PTC. The production, marketing and sale of many of our Diagnostic division products are subject to the prior registration of such products with the relevant authorities of the applicable jurisdictions. We have over 1,889 diagnostic product licenses registered in a total of 72 countries in Europe, the United States, Latin America and Asia. With respect to our various Hospital division products, we have close to 190 licenses for our Hospital division products registered in 38 countries throughout the European Union, Latin America and the United States.


Governmental oversight extends to the various facilities involved in our operations. For example, our Parets and Murcia facilities are subject to applicable regulations and standards of the European health authorities. With respect to oversight by the FDA, our Instituto Grifols Bioscience plant at our Parets facility has been registered with the FDA since 1995, and our other manufacturing facilities maintain FDA registration, and all are subject to FDA standards. We lease most of our plasma collection centers as well as our main laboratory facility located in Austin, Texas, and maintain licenses with the appropriate regulatory authorities, including the FDA, for all of these locations.


For more information on government licenses and regulation, see “— Principal Activities” above and “— E. Regulatory Matters” below.




For detailed information regarding the regulations applicable to our business, see “— E. Regulatory Matters” below.


Insurance Coverage


General and Product Liability


We have a program of insurance policies designed to protect us and our subsidiaries from product liability claims. Effective May 1, 2016, we have product liability insurance coverage for up to $220 million per claim and in annual aggregate for products manufactured in all of our facilities and for third-party products we sell. This policy expires on May 1, 2017. We have elected to self-insure the first $16.5 million per claim and in annual aggregate of our product liability policy through the purchase by one of our subsidiaries of such portion of the insurance policy. See “— Self-insurance” below.


Our master liability program also protects us and our affiliates from certain environmental liabilities arising in those countries in which our subsidiary companies have operations, except in the United States. This risk is covered up to a maximum of $22 million per year and in the aggregate.


Biomat USA and Talecris Plasma Resources maintain a separate liability insurance policy. The policy covers their plasmapheresis business activities and expires on May 1, 2017. The maximum amount of coverage for liability claims under the policy is $10 million per claim and in the annual aggregate. In addition, we have general liability coverage for up to $220 million for those three subsidiaries.


Property Damage and Business Interruption


Our property damage and business interruption insurance program covers us and our subsidiaries (including our United States subsidiaries). This insurance program, which expires on May 1, 2017, covers damages suffered by plants and buildings, equipment and machinery. Under the current terms, the insurer will cover damages to our facilities produced by fire, smoke, lightning and explosions, among others, for up to $1 billion per occurrence. It also covers material damages produced by flooding, for up to €100 million per claim and in the annual aggregate.


In addition, this policy covers loss of profit for a period of 24 months with a deductible equivalent to up to five business days of lost profits. Pursuant to the loss of profit benefit, in the event that any or all of our plants stop production due to an event not excluded under the policy, the insurer covers fixed expenses, in addition to net profits we did not earn during the term of coverage.



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We also have a transit and inventory insurance program, which covers damages to raw materials, supplies, semi-finished products and finished products for up to $25 million per claim for transit and $650 million for inventory in annual aggregate.




We are self-insuring part of the risks described above through the purchase of a portion of the relevant insurance policies by Squadron Reinsurance Ltd., one of our wholly owned subsidiaries. We self-insure the first $16.5 million per claim per year of our product liability policy, the first €200,000 per loss for property damage and the first ten days of lost profits, the first $27,000 per claim for transit losses and the first €200,000 per claim for inventory losses. These amounts are in excess of the deductibles for each of the policies that make up our insurance programs.


C.                                    Organizational Structure


Grifols, S.A. is the parent company of the Grifols Group, which was comprised at December 31, 2016, of 57 companies.  Subsidiaries in which Grifols, S.A. directly or indirectly owned the majority of equity or voting rights have been fully consolidated.  In addition, there were eight companies that were accounted for using the equity method, because Grifols, S.A. owned between 20% and 50% of its share capital and had no power to govern its financial or operating policies.


See Notes 1 and 2(b) to our audited consolidated financial statements included in this annual report on Form 20-F for details of our consolidated and non-consolidated companies.