F-1/A 1 d881786df1a.htm AMENDMENT NO. 2 TO FORM F-1 Amendment No. 2 to Form F-1
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As filed with the Securities and Exchange Commission on June 8, 2015

Registration No. 333-204147

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM F-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

BIOTIE THERAPIES OYJ

(Exact name of Registrant as specified in Its charter)

 

 

Biotie Therapies Corp.

(Translation of Registrant’s name into English)

 

Republic of Finland   2834   NOT APPLICABLE

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Joukahaisenkatu 6, FI-20520

Turku, Finland

(+358) 2 274-8900

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

 

 

Biotie Therapies, Inc.

701 Gateway Boulevard — Suite 350

South San Francisco, CA 94080

(650) 244-4850

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

 

 

Copies to:

 

Richard D. Truesdell, Jr.

Sophia Hudson

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017

 

Steven D. Singer

Lisa Firenze

Wilmer Cutler Pickering Hale and Dorr LLP

7 World Trade Center, 250 Greenwich Street

New York, NY 10007

 

 

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

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

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

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

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of securities to be registered  

Proposed

maximum
aggregate offering
price(1)

  Amount of
registration fee(3)

Shares, no nominal value, represented by ADSs(2)

  $64,400,000   $7,484

 

 

(1)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. Includes ADSs that the underwriters will have an option to purchase from us and the selling shareholder.

 

(2)   All shares will be represented by American Depositary Shares, or ADSs, with each ADS representing 80 shares. ADSs issuable upon deposit of the shares registered hereby are being registered pursuant to a separate Registration Statement on Form F-6.
(3)   $6,972 of this amount was previously paid.

 

 

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

 

 

 


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

 

SUBJECT TO COMPLETION, DATED JUNE 8, 2015

PRELIMINARY PROSPECTUS

 

LOGO

$56,000,000

American Depositary Shares

Representing Shares

BIOTIE THERAPIES CORP.

(incorporated in the Republic of Finland)

 

 

We are offering 3,777,919 ADSs, assuming a public offering price of $14.82 per ADS based on the last reported sales price of our shares on the NASDAQ OMX Helsinki Ltd. on June 2, 2015, of €0.168 and assuming an exchange rate of $1.1029 per euro.

This is the initial public offering of American Depositary Shares, or the ADSs, representing shares of Biotie Therapies Corp., a Finnish company. Each ADS represents 80 shares. Our shares have no nominal value.

We also intend to grant underwriters an option to purchase up to 47,105 ADSs, and UCB S.A., who we refer to as the selling shareholder, intends to grant the underwriters an option to purchase up to 519,583 ADSs, within 30 days of this offering based on the assumptions described above. We will not receive any proceeds from ADSs sold by the selling shareholder pursuant to the underwriters’ option to purchase additional ADSs.

We have applied to list the ADSs on the NASDAQ Global Market, or the NASDAQ, under the symbol “BITI.” Our shares are listed on the NASDAQ OMX Helsinki Ltd., or the Finnish Stock Exchange, under the symbol “BTH1V.”

We are an “emerging growth company” under the U.S. federal securities laws and will be subject to reduced public company reporting requirements.

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 15 of this preliminary prospectus, which we refer to as this prospectus.

 

 

 

     Per ADS      Total  

Public offering price

   $                    $                

Underwriting discounts and commissions1

   $         $     

Proceeds, before expenses, to us

   $         $     
1  

We have agreed to reimburse the underwriters for certain FINRA-related expenses. See “Underwriting,” page 209.

Certain of our existing investors and members of our board of directors have indicated an interest in purchasing up to an aggregate of $25 million of the ADSs in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities and persons may determine to not purchase any ADSs in this offering. It is also possible that these entities and persons and additional existing investors could indicate an interest in purchasing more of the ADSs. In addition, the underwriters could determine to sell fewer ADSs to any of these entities or persons than such entities or persons indicate an interest in purchasing or to not sell any ADSs to these entities and persons.

The ADSs are expected to be ready for delivery on or about                     , 2015.

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

 

 

 

RBC CAPITAL MARKETS     STIFEL   
JMP SECURITIES
ROTH CAPITAL PARTNERS

The date of this prospectus is                     , 2015


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TABLE OF CONTENTS

 

     Page  

Business

     104   

Management

     150   

Principal and Selling Shareholders

     166   

Related-Party Transactions

     170   

Description of Share Capital and Articles of Association

     172   

Description of American Depositary Shares

     188   

Shares and American Depositary Shares Eligible for Future Sale

     197   

Taxation

     200   

Underwriting

     209   

Expenses of the Offering

     216   

Legal Matters

     217   

Experts

     217   

Service of Process and Enforcement of Judgments

     218   

Where You Can Find More Information

     219   

Index to Financial Statements

     F-1   
 

 

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “Biotie,” “Biotie Therapies Corp.,” “Biotie Therapies Oyj,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Biotie Therapies Oyj (translated as Biotie Therapies Corp. in English), together with its subsidiaries.

In this offering, the underwriters will subscribe for our shares which will be deposited with the depositary in exchange for ADSs, and investors will purchase ADSs. In this prospectus, for the sake of convenience, we refer to this offering as an offering of ADSs.

Our consolidated financial statements are presented in euros. Unless otherwise indicated in this prospectus, all references in this prospectus to “$,” “dollars” and “USD” mean U.S. dollars, all references to “€” and “euros” mean euros, and are to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community and all references to “CHF” mean Swiss Franc. Unless otherwise indicated, throughout this prospectus and solely for convenience, conversions from one currency to another:

 

   

relating to payments made or received on or before March 31, 2015 were made at the rate used in preparation of the relevant financial statements; and

 

   

relating to future payments were made at the euro to dollars rate of €1.00=$1.1029, the official rate quoted by the European Central Bank on June 2, 2015.

These conversions should not be considered representations that any such amounts have been, could have been or could be converted into such other currency at that or any other exchange rate as at that or any other date.

 

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

For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus outside the United States.

Through and including                     , 2015 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in the American Depositary Shares, or ADSs representing our shares.

Our Business

We are a biopharmaceutical company primarily focused on developing therapeutics for central nervous system disorders. Our pipeline includes product candidates designed to address unmet medical needs in Parkinson’s disease and related dementia, other neurodegenerative indications and primary sclerosing cholangitis, an orphan fibrotic liver disease. In addition, we have successfully developed a product for alcohol dependence that is being commercialized by Lundbeck and is a source of further potential milestone payments and ongoing royalties.

We are preparing to commence a pivotal Phase 3 clinical trial of our lead product candidate, tozadenant, that we believe could form the basis for its approval in the United States as an adjunctive treatment to levodopa in Parkinson’s. Levodopa, the most widely prescribed treatment for Parkinson’s, loses effectiveness in most patients over time. Parkinson’s patients often experience a reemergence of debilitating symptoms on a daily basis as their levodopa doses wear off. Tozadenant is an oral, selective adenosine A2a receptor antagonist that aims to address this wearing off effect. In a 420-patient Phase 2b trial, tozadenant displayed clinically important and statistically significant effects across prespecified primary and multiple secondary endpoints at a number of doses. In addition, tozadenant has been found to be generally safe and well tolerated in our ten clinical trials conducted to date.

We also have two additional development-stage product candidates: SYN120 for Parkinson’s disease dementia and Alzheimer’s disease; and BTT1023 for primary sclerosing cholangitis, an orphan fibrotic liver disease. In addition, under our license and commercialization agreement with H. Lundbeck A/S, or Lundbeck, for Selincro, our product for alcohol dependence, we have received €22.0 million in upfront and milestone payments to date and are eligible to receive additional regulatory and commercial milestone payments and ongoing royalties.

Our Market Opportunity

Parkinson’s disease is the second most common neurodegenerative disorder worldwide, affecting an estimated 6.3 million sufferers, including at least one million people in the United States. Its prevalence increases with age; globally, approximately 1% of those aged 60 years or older and 4% or more of those aged 80 years or older are affected. As a result, prevalence will increase as the global population ages. The Parkinson therapeutics market size in the United States, five major EU markets, Brazil and Japan is currently estimated at approximately $3.6 billion and is projected to rise to $5.3 billion by 2022, and the United States is projected to have the largest Parkinson’s therapeutics market share at 44% by 2022. Within four to six years of commencing treatment with levodopa, an estimated 40% of Parkinson’s patients will experience wearing off episodes, increasing by an additional 10% per year after that.

While motor symptoms are the hallmark of Parkinson’s, non-motor symptoms are common and include sleep disturbance, autonomic dysfunction, mood disturbance, including anxiety and depression, and

 

 

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cognitive disorders, including memory difficulties and dementia. Alzheimer’s, the most prevalent neurodegenerative disease, is also an irreversible brain disease that causes progressive deterioration of memory and cognitive skills. Currently, it is estimated that there are approximately 34 million Alzheimer’s patients worldwide, of which 5.3 million are in the United States. The average per-person Medicare spending for those with Alzheimer’s and other dementias is three times higher than for those without these conditions. Nearly one in every five dollars spent by Medicare is on patients with Alzheimer’s or another form of dementia. Globally, the Alzheimer’s disease market is expected to grow to $10.1 billion by 2020.

Primary sclerosing cholangitis, or PSC, is a fibrotic liver disease. Epidemiological studies in Northern Europe and North America have shown prevalence rates of PSC ranging from approximately 4 to 16 per 100,000 inhabitants which meets the criteria for orphan disease designation. BTT1023 has received orphan drug designation for the treatment of PSC in Europe. We intend to pursue orphan drug designation for BTT1023 in the United States.

According to a 2014 study, over 47 million people in the five major EU markets, 42 million people in the United States and 19 million people in Japan engaged in heavy episodic drinking (defined as consumption of more than 60 grams of pure alcohol, or more than six standard drinks) within the last 30 days. A recently published modelling study showed that increasing the drug-based treatment of alcohol dependency in Europe by 40% would reduce alcohol-attributable mortality by 9% for women and 13% for men, potentially saving 11,700 lives annually. Up until 2025, alcohol per capita consumption is expected to continue to increase in the United States and South-East Asia, and Europe is expected to remain the region with the highest per capita consumption in the world.

Our Strategy

Our goal is to be a leading global specialty central nervous system company focused on diseases with unmet medical needs. Key elements of our strategy are to:

 

   

Advance development of tozadenant through regulatory approval.

 

   

Leverage our expertise in drug development and advance the product candidates in our pipeline.

 

   

Selectively establish partnerships and collaborations to derive near-term value from our existing assets.

 

   

Continue to take advantage of non-dilutive sources of funding to fund future trial costs.

 

 

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We have a commercial and development stage portfolio, as summarized below:

 

LOGO

Tozadenant

Tozadenant is an orally administered, potent and selective inhibitor of the adenosine A2a receptor that we are developing for the treatment of Parkinson’s. Tozadenant has been evaluated in Parkinson’s patients in two published clinical trials. Most recently, in a 420-patient Phase 2b clinical trial of tozadenant, in the 120 mg arm, the duration of end-of-dose wearing off episodes, or OFF-time, was improved in levodopa- treated Parkinson’s patients from a mean OFF-time at baseline of 6.1 hours per day to 4.2 hours per day which was an improvement of 1.9 hours over baseline, and a 1.1 hour placebo-adjusted improvement. There was a corresponding improvement in awake time not spent in OFF episodes, or ON-time, which increased by 1.2 hours compared with placebo. Notably, clinically important improvements were not associated with increases in troublesome dyskinesia. Dyskinesia, or involuntary muscle movements, is generally distinguished by patients as troublesome or not depending on whether the movements adversely affect motor function. Parkinson’s patients treated with levodopa often, over time, experience dyskinesia during ON-time and current adjunctive treatments to levodopa frequently further increase dyskinesia. Tozadenant has also been evaluated in healthy subjects in eight clinical trials in which safety, tolerability, pharmacokinetics and pharmacodynamics were examined. In these ten clinical trials, tozadenant has been found to be generally safe and well tolerated.

Based on our discussions with the U.S. Food and Drug Administration, or the FDA, at our End of Phase 2 meeting, we believe our planned Phase 3 clinical program, together with existing data, could form the basis for approval of tozadenant as an adjunctive treatment to levodopa in Parkinson’s patients experiencing end-of-dose wearing off episodes. Since the End of Phase 2 meeting, we have progressed preparations for our planned pivotal Phase 3 clinical trial, including chemistry manufacturing and control work, non-clinical work and Phase 3 enabling pharmacological trials, and expect to begin recruiting for the Phase 3 clinical trial by the middle of 2015. The FDA has agreed to a Special Protocol Assessment with respect to the design of our Phase 3 trial of tozadenant. We have also requested scientific advice from the European Medicines Agency, or the EMA, with respect to the design of our Phase 3 trial. Based on their response, we expect EMA approval of tozadenant to be contingent on conducting studies in addition to the currently planned Phase 3 program. We plan to engage in further discussions with the EMA with respect to their requirements for the approval of tozadenant.

 

 

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Our Phase 3 program for tozadenant will consist of a double-blind trial followed by an open-label extension, and, if this trial demonstrates safety and efficacy, a separate open-label trial to generate further information on safety. The double blind portion will be a six-month trial comparing 60 mg and 120 mg twice/day doses of tozadenant to placebo as an adjunctive therapy in 450 levodopa-treated patients with Parkinson’s who are experiencing end-of-dose wearing off episodes. Following the double-blind treatment period, patients will be eligible to enroll in a one-year open label treatment period, which will evaluate the safety of tozadenant during long-term administration. If the double-blind portion of the first trial meets its primary efficacy endpoint, we will initiate another open-label trial in 450 of a separate population of Parkinson’s patients to establish the requisite number of unique patient exposures required for approval.

Assuming that the pivotal Phase 3 clinical trial yields positive data, and long-term safety is demonstrated in open-label treatment, we intend to file for registration, initially in the United States. At this time, we plan to determine the most appropriate commercial strategy, which may involve establishing our own infrastructure, partnering with another commercial company, or a combination of both.

Our Additional Product Candidates

SYN120 is our oral product candidate to treat both cognitive deficits and psychosis, which frequently coincide in neurodegenerative diseases such as Parkinson’s and Alzheimer’s. We have completed single and multiple ascending dose Phase 1 trials of SYN120, an oral dual antagonist of the 5HT6 and 5HT2a receptors, in healthy volunteers. In these trials, doses well above the anticipated therapeutic dose were well tolerated. An 80-patient Phase 2a randomized, double-blind, placebo-controlled trial of SYN120 in Parkinson’s dementia, largely funded by the Michael J. Fox Foundation for Parkinson’s Research, is being conducted by the Parkinson Study Group, which began recruiting patients at the end of 2014. Top-line data is expected by the end of 2016.

BTT1023 is our product candidate for the orphan disease PSC, a chronic and progressive fibrotic liver disease for which there is no FDA-approved treatment. We have partnered with the U.K. National Institute of Health Research to fund a Phase 2 proof of concept trial of BTT1023 in PSC, which is being conducted in collaboration with the University of Birmingham. Interim data is expected by the end of 2016. BTT1023 has received orphan drug designation for the treatment of PSC in Europe. We intend to pursue orphan drug designation for BTT1023 in the United States.

Our Marketed Product

Our marketed product, Selincro, an orally administered opioid receptor ligand used in alcohol dependence therapy, received European marketing authorization in 2013 and has been introduced across Europe in 29 countries by our partner, Lundbeck, a Danish pharmaceutical company specializing in central nervous system products.

Corporate Information

Our full name is Biotie Therapies Oyj, translated as Biotie Therapies Corp. in English. We are domiciled in Turku, Finland, and our address is Joukahaisenkatu 6, FI-20520 Turku, Finland. Our telephone number is +358 2 274 8900. We are a Finnish public limited liability company and must comply with Finnish legislation. We were incorporated in Finland in 1998. We listed our shares on the Finnish Stock Exchange on October 31, 2002, and our shares currently trade under the symbol “BTH1V.” In February 2011, we acquired Synosia Therapeutics Holding AG, or Synosia, a company that had been formed by certain former executives of F. Hoffmann-La Roche Ltd., or Roche, that had licensed a number of central nervous system focused assets that

 

 

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had previously been under development by Roche, including tozadenant and SYN120. Our primary operating subsidiary, Biotie Therapies, Inc., is located in South San Francisco, California.

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

Risks Associated with Our Business

Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors.” You should read these risks before you invest in the ADSs. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include the following:

 

   

We have incurred net losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. As of March 31, 2015, our retained earnings were an accumulated deficit of €160.8 million. We may never achieve or sustain profitability.

 

   

The adequacy of our capital resources is particularly dependent on cash generation from milestones and royalties in connection with sales of Selincro and other sources of non-dilutive funding. We cannot assure you of the adequacy of our capital resources to successfully complete the development and commercialization of our product candidates, and a failure to obtain additional capital, if needed, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

 

   

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish, or license on unfavorable terms, our rights to our product candidates and may impact any future potential revenue streams.

 

   

We depend significantly on the success of tozadenant and our other product candidates. Tozadenant and our other product candidates are still in clinical development. If our clinical trials are not successful, we do not obtain regulatory approval or we are unable, or unable to find a partner, to commercialize tozadenant or our other product candidates, or we experience significant delays in doing so, our business, financial condition and results of operations will be materially adversely affected.

 

   

We have substantial value allocated to our intangible assets and goodwill resulting from business combinations, which could be substantially impaired upon indications of impairment. Such non- cash impairments could have an adverse effect on our financial condition and the value of our assets.

 

   

Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes. The results of previous clinical trials may not be predictive of future results and clinical trials of product candidates may not be successful.

 

   

If clinical trials of our product candidates are prolonged or delayed, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all.

 

   

Clinical development, regulatory review and approval by the FDA, the EMA and comparable foreign regulatory authorities are lengthy, time consuming, expensive and inherently unpredictable activities. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

 

 

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We are likely to face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.

 

   

We depend on licenses for development and commercialization rights to our products, product candidates and technologies. Termination of these rights or the failure to comply with obligations under these or other agreements under which we obtain such rights could materially harm our business and prevent us from developing or commercializing our products and product candidates.

 

   

The success of our strategic partnerships and collaborations depends, to a significant degree, on the performance of our partners, over which we have little or no control.

 

   

We rely on third parties to conduct our nonclinical and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for, or commercialize, our product candidates and our business could be substantially harmed.

 

   

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

 

   

If we are unable to obtain and maintain sufficient intellectual property protection for our product or product candidates, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our product and product candidates successfully and to compete effectively may be adversely affected.

 

   

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our products, conduct our clinical trials and commercialize our product candidates.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

the ability to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; and

 

   

to the extent that we no longer qualify as a foreign private issuer (1) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and (2) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, including golden parachute compensation.

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

 

 

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non-affiliates, or issue more than $1.0 billion of nonconvertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. For example, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Implications of Being a Foreign Private Issuer

Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:

 

   

the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

   

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

 

   

the rules under the Exchange Act requiring the filing with the U.S. Securities and Exchange Commission, or SEC, of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events.

Notwithstanding these exemptions, we will file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and will submit to the SEC, on Form 6-K, unaudited quarterly financial information for the first three quarters of each fiscal year.

We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: the majority of our executive officers or directors are U.S. citizens or residents, more than 50% of our assets are located in the United States or our business is administered principally in the United States.

 

 

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THE OFFERING

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in the ADSs.

 

Issuer

Biotie Therapies Corp.

 

ADSs offered by us

3,777,919 ADSs, representing 302,233,506 shares in the aggregate, assuming an ADS price of $14.82 based on the last reported sale price of our shares on the Finnish Stock Exchange on June 2, 2015, an exchange rate of $1.1029 per euro and an ADS to share ratio of one to 80.

 

Option to purchase additional ADSs

We intend to grant the underwriters an option to purchase up to an additional 47,105 ADSs from us, and UCB S.A., who we refer to as the selling shareholder, intends to grant the underwriters an option to purchase up to 519,583 ADS from it, within 30 days of the date of this prospectus in connection with the offering, assuming an ADS price of $14.82 based on the last reported sale price of our shares on the Finnish Stock Exchange on June 2, 2015, an exchange rate of $1.1029 per euro and an ADS to share ratio of one to 80. The number of ADSs the underwriters have the option to purchase from us will be determined based on the public offering price per ADS. We will not receive any proceeds from ADSs sold by the selling shareholder pursuant to the underwriters’ option to purchase additional ADSs.

 

American Depositary Shares

Each ADS will represent 80 shares. As an ADS holder you will have the rights provided in the deposit agreement among us, the Depositary and holders and beneficial owners of ADSs from time to time. To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which will be filed as an exhibit to the registration statement that includes this prospectus.

 

Depositary

The Bank of New York Mellon.

 

Shares to be outstanding after this offering

978,601,681 shares, assuming an ADS price of $14.82 based on the last reported sale price of our shares on the Finnish Stock Exchange on June 2, 2015, an exchange rate of $1.1029 per euro and an ADS to share ratio of one to 80, and including the shares to be issued upon the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings and excluding the underwriters’ option to purchase additional ADSs.

 

Voting rights

Each of our shares has one vote. Each ADS represents 80 shares.

 

 

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NASDAQ listing

We have applied to list the ADSs on the NASDAQ under the symbol “BITI.”

 

Finnish Stock Exchange Listing

Our shares are listed on the NASDAQ OMX Helsinki Ltd. under the symbol “BTH1V.”

 

Use of proceeds

We estimate that we will receive net proceeds of approximately $49.1 million (€44.5 million), assuming the offering information described above, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us ($49.7 million (€45.1 million) if the underwriters exercise in full their option to purchase additional ADSs). We intend to use the net proceeds from this offering, together with a portion of our current liquid assets (which subsequent to March 31, 2015 includes $33.5 million (€30.3 million) in net proceeds from the Convertible Notes Financings) to fund our Phase 3 double-blind clinical trial (and extension) of tozadenant in Parkinson’s through completion, which we expect to require an investment of approximately €75 million, including all related studies that will be performed. We intend to fund the SYN120 Phase 2a clinical trial in Parkinson’s dementia and the BTT1023 Phase 2 clinical trial in PSC, which we expect to cost approximately €5 million in total, and other working capital requirements, with our remaining liquid assets, milestone and royalty revenues from Lundbeck for Selincro, and already identified non-dilutive sources. We will not receive any proceeds from ADSs sold by the selling shareholder pursuant to the underwriters’ option to purchase additional ADSs.

 

  See “Use of Proceeds.”

 

Dividend policy

We have not declared or paid any cash dividends on our shares since our incorporation and do not currently intend to pay cash dividends on our shares, as we do not expect to have distributable reserves that would enable us to pay a dividend, in the foreseeable future. Currently, we have not adopted a dividend policy. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

 

  Even if our board of directors decides to propose dividends in the future, the form, frequency and amount of such dividends will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors our board of directors may deem relevant. The terms of our capital loans may restrict our ability to pay dividends in the future. We did not have distributable assets as of March 31, 2015.

 

Lock-up agreements

We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any of our share capital or securities

 

 

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convertible into or exchangeable or exercisable for any of our share capital during the 180-day period following the date of this prospectus. Members of our board of directors and our senior management, as well as certain of our shareholders, have agreed to substantially similar 180-day lock-up provisions, subject to certain exceptions. The selling shareholder has agreed to the same provisions for a 30-day period following the date of this prospectus.

 

Risk factors

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

Except as otherwise indicated herein, in this prospectus the number of our outstanding shares after this offering is based on 455,968,174 shares outstanding as of March 31, 2015, including 452,272,890 shares with voting rights and 3,695,284 treasury shares that are held by us and that we cannot vote, and includes 302,233,506 shares to be issued by us in this offering and 220,400,001 shares to be issued by us upon the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings upon the completion of this offering, as described below in “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Subsequent Events — The Convertible Notes Financings” but excludes (as of March 31, 2015):

 

   

a maximum of 2,824,772 shares issuable upon exercise of options outstanding pursuant to our Swiss option scheme, at a weighted-average exercise price of €0.24 per share, and which will be settled from the current treasury shares held by us;

 

   

a maximum of 2,678,000 shares issuable upon the exercise of options outstanding pursuant to our stock option plan 2011, at an exercise price of €0.01 per share, and of which a maximum of 720,500 shares will be settled from the current treasury shares held by us;

 

   

a maximum of 945,000 shares issuable upon the settlement of share units outstanding pursuant to our equity incentive plan 2011, at a subscription price of nil, a maximum of 150,000 shares of which will be settled from the current treasury shares held by us;

 

   

a maximum of 7,412,000 shares issuable upon the exercise of options outstanding pursuant to our stock option plan 2014, at an exercise price of €0.01 per share, of which a maximum of 4,320,000 shares are subject to a market-related performance condition at the time of vesting;

 

   

a maximum of 6,328,750 shares issuable upon the settlement of share units outstanding pursuant to our equity incentive plan 2014, at a subscription price of the euro equivalent of $0.01 per share, of which 2,520,000 share units are subject to a market-related performance condition at the time of settlement;

 

   

a maximum of 9,409,250 shares issuable upon the exercise of share options and settlement of share units that may be, but have not yet been, granted pursuant to our stock option plan 2014 and our equity incentive plan 2014, at a subscription price of €0.01 and the euro equivalent of $0.01 respectively;

 

   

the number of shares that would be issuable upon the exercise of our right to offer shares to be subscribed or purchased by YA Global Master SPV Ltd. pursuant to the Standby Equity Distribution Agreement, or the SEDA, which at March 31, 2015, could be for a maximum value of €20.0 million; for more information on the SEDA, see “Description of Share Capital and Articles of Association — Share Capital — Standby Equity Distribution Agreement”;

 

 

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828,000 shares issuable upon conversion of the outstanding convertible capital loan as of March 31, 2015, at a conversion rate of €1.8688 per share for 540,000 of the shares and €2.3359 for 288,000 of the shares; and

 

   

a maximum of 220,400,001 shares issuable upon the exercise of warrants outstanding as of May 28, 2015 at an exercise price of €0.17 per share.

Unless otherwise indicated, all information contained in this prospectus also reflects and assumes:

 

   

the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings into 220,400,001 shares upon the closing of this offering;

 

   

no exercise, settlement or vesting of options or share units after March 31, 2015;

 

   

no conversion of the convertible capital loan;

 

   

no exercise of our right to offer shares under the SEDA (described above) after March 31, 2015; for the time being, we do not intend to use this instrument;

 

   

an initial public offering price of $14.82 per ADS based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro; and

 

   

no exercise by the underwriters of their option to purchase up to an additional 47,105 ADSs from us and 519,583 ADSs from the selling shareholder within 30 days of the date of this prospectus in connection with the offering, which numbers will be determined based on the public offering price per ADS.

Certain of our existing investors and members of our board of directors have indicated an interest in purchasing up to an aggregate of $25 million of the ADSs in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities and persons may determine to not purchase any ADSs in this offering. It is also possible that these entities and persons and additional existing investors could indicate an interest in purchasing more of the ADSs. In addition, the underwriters could determine to sell fewer ADSs to any of these entities or persons than such entities or persons indicate an interest in purchasing or to not sell any ADSs to these entities and persons.

 

 

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SUMMARY FINANCIAL AND OTHER INFORMATION

The consolidated statements of comprehensive income data (except for the unaudited pro forma loss per share, pro forma information and pro forma as adjusted information) for each of the years ended December 31, 2014 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of comprehensive income data (except for the unaudited pro forma loss per share, pro forma information and pro forma as adjusted information) for each of the three-month periods ended March 31, 2015 and 2014 and the summary consolidated statement of financial position data as of March 31, 2015 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary to state fairly our results of operations for the three months ended March 31, 2015 and 2014 and our financial position as of March 31, 2015. The summary consolidated financial information below should be read in conjunction with our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus as well as the “Presentation of Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

Our audited consolidated financial statements for the years ended December 31, 2014 and 2013 and our unaudited condensed consolidated financial statements for the three-month periods ended March 31, 2015 and 2014 have been prepared in accordance with IFRS as issued by the IASB.

Our historical results are not necessarily indicative of our future results. The summary financial information below does not contain all the information included in our financial statements. In addition, our historical results for the three months ended March 31, 2015 are not necessarily indicative of results to be expected for a full year or any other interim period.

On April 23, 2015 and May 7, 2015, we and certain new and existing investors entered into agreements pursuant to which such investors subscribed for €27.5 million and €5.6 million, respectively, of our non-interest bearing, convertible promissory notes, respectively, and received warrants exercisable for our shares on May 28, 2015. The convertible notes may be converted by their holders into our shares at a conversion price of €0.15 per share at any time prior to the repayment of the convertible notes, which must occur on or after May 1, 2035. Furthermore, the convertible notes mandatorily convert into new shares upon the completion of this offering. If this offering is not completed by May 1, 2016, we may force the conversion of the outstanding convertible notes at any time thereafter until May 1, 2035. The warrants entitle the holder to subscribe for our shares from November 1, 2015 until November 1, 2020 at a fixed conversion price of €0.17 per share. We refer to these transactions herein as the Convertible Notes Financings. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Subsequent Events—The Convertible Notes Financings.”

 

 

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Consolidated Statements of Comprehensive Income Data

 

    Year Ended December 31,     Three Months Ended March 31,  
              2014                          2013                          2015                          2014             
(€ thousands, except per share data)         (unaudited)  

Revenue

    14,901        27,712        871        5,096   

Research and development expenses

    (17,192     (17,807     (4,766     (4,803

Impairment of in-process research and development assets

    (27,605                     

General and administrative expenses

    (7,326     (8,971     (1,730     (1,950

Other operating income

    1,132        565               135   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (36,090     1,499        (5,625     (1,522

Interest income

           37        1          

Interest expenses

    (687     (726     (151     (152

Other net financial income (expenses)

    1,612        2,841        (119     (45
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before taxes

    (35,165     3,651        (5,894     (1,719

Income tax benefit

           2,195                 
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    (35,165     5,846        (5,894     (1,719

Other comprehensive income (loss)

       

Remeasurements of post-employment benefit obligations

    (81                     

Currency translation differences

    6,593        (2,629     8,181        315   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

    (28,653     3,217        2,287        (1,404
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to equity holders of the parent

    (35,165     5,846     

 

(5,894

 

 

(1,719

 

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income attributable to equity holders of the parent

    (28,653     3,217        2,287        (1,404
 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings per share (EPS) basic & diluted(1)

    (0.08     0.01        (0.01     (0.00

Pro forma (loss) earnings per share (EPS) basic & diluted(1)(2)

    (0.05     0.01        (0.00     (0.00

 

(1)   Basic and diluted (loss) earnings per share are the same in all periods because outstanding options, share units and the convertible loan would have been anti-dilutive for the year ended December 31, 2014 and for the three months ended March 31, 2015 and 2014. Dilutive shares had no impact on EPS after rounding for the year ended December 31, 2013.

 

(2)   The unaudited pro forma (loss) earnings per share (EPS) basic & diluted data gives effect to the Convertible Notes Financings. The pro forma information is presented for informational purposes only and is not necessarily indicative of what our results would have been had the conversion of the convertible notes actually occurred at such date nor is it indicative of our future performance.

 

 

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Consolidated Statement of Financial Position Data

The table below presents a summary of our actual balance sheet data and pro forma balance sheet data as of March 31, 2015:

 

     As at March 31, 2015  
         Actual             Pro Forma(1)         Pro Forma
    As Adjusted(2)    
 
     (€ thousands)  

Cash and cash equivalents

     6,315        36,653        81,153   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity

      

Share capital(1)(2)

     193,285        223,700        268,201   

Reserve for invested unrestricted equity

     5,389        5,389        5,389   

Other reserves

     17,210        17,210        17,210   

Retained earnings

     (160,789     (160,789     (160,789
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     55,095        85,510        130,011   
  

 

 

   

 

 

   

 

 

 

 

(1)   The unaudited pro forma balance sheet data gives effect to the Convertible Notes Financings and the automatic conversion of the convertible notes issued in the Convertible Notes Financings into shares. For pro forma purposes, we have preliminarily evaluated the accounting for the convertible notes and warrants and expect that the subscription price will be recorded in full in equity as share capital in accordance with the Finnish Companies Act, net of transaction costs, as the instruments will be settled in our shares based on a fixed conversion ratio. As a result, the net proceeds from the convertible notes will result in an increase of cash of approximately €30.3 million with a corresponding amount recorded in share capital at issuance.

 

(2)   The unaudited pro forma as adjusted balance sheet data gives effect to the following transactions: (i) the Convertible Notes Financings; (ii) the automatic conversion of the convertible notes issued in connection with the Convertible Notes Financings upon the completion of this offering into                  shares; and (iii) the issuance and sale of 3,777,919 ADSs in this offering by us assuming an initial public offering price of $14.82 per ADS, based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, as set forth under “Use of Proceeds”; and excludes the underwriters’ option to purchase additional ADSs.

The pro forma as adjusted information is presented for informational purposes only and is not necessarily indicative of what our financial position and results would have been had these transactions actually occurred at such date nor is it indicative of our future financial position or performance.

The pro forma as adjusted data does not reflect the effects of the conversion of the warrants, which are exercisable into 220,400,001 of our shares at an exercise price of €0.17 for proceeds of €37.5 million.

 

 

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RISK FACTORS

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

Risks Related to Our Financial Position

We have incurred net losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future.

We are a developmental stage company with a history of operating losses. With the exception of the year ended December 31, 2013, we have never been profitable and have incurred losses in each year since our inception. Although we made a profit in 2013, this was primarily due to a nonrefundable development milestone payment received from UCB Pharma S.A., or UCB, for tozadenant, which cannot be expected to recur in the future. Our net results were a €35.2 million loss and a €5.8 million profit for the years ended December 31, 2014 and 2013, respectively. As of March 31, 2015, we had retained earnings, which were an accumulated deficit, of €160.8 million. Substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations. Our marketed product, Selincro, received European marketing authorization in 2013, but it is still in the early stages of commercialization and a reliable revenue stream will depend on the ability of our partner, H. Lundbeck A/S, or Lundbeck, to successfully grow sales of Selincro. The remainder of our pipeline products, including our lead product candidate, tozadenant, are still in the clinical development phase and we are preparing to commence a pivotal Phase 3 trial of tozadenant.

We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities, and will continue to do so for the foreseeable future. To date, we have mainly funded our operations through private placements of equity securities, nonconvertible and convertible capital loans, long-term research and development loans, development milestone payments, milestone payments under our license and commercialization agreement with Lundbeck, or the Lundbeck License Agreement, and, most recently, royalties under the Lundbeck License Agreement, and a number of trials of product candidates have been partially or wholly funded through non-dilutive funding. The amount of our future net losses will depend, in part, on the rate of our future expenditures, our ability to obtain additional funding and the relative levels of milestone payments and royalties on sales of Selincro from Lundbeck. We expect to continue to incur significant expenses and net losses for at least the next several years. Our research and development expenses may vary from period to period based on the timing of our research and development activities, including due to timing of initiation of clinical trials and enrollment of patients in clinical trials. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase for the foreseeable future as our product candidates progress in clinical trials. In particular, research and development expenses are expected to increase as we advance the clinical development of tozadenant. The successful development of our product candidates is highly uncertain. At this time we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates.

 

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Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.

We may never achieve or sustain profitability.

Our ability to achieve net profits in the future will depend on, among other factors, whether or not we can successfully develop our product candidates into marketable drugs and obtain necessary regulatory approvals, and on the ability of our partner Lundbeck to successfully grow sales of Selincro. Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our operations and financial condition have been, and will likely continue to be, dependent on our ability to find suitable partners that have the capacity to participate in, or take over, any or all late stage clinical trials, manufacturing and marketing of our product candidates. Assuming the successful product development and regulatory approval of our product candidates by the relevant authorities, our ability to generate revenue depends on the acceptance of the products by physicians and patients. The market acceptance of any product depends on a number of factors, including the continued demonstration of efficacy and safety in commercial use, cost-effectiveness, convenience and ease of administration, ability to supply sufficient quantities of product to the market, competition, adverse or favorable publicity, governmental efforts to reduce health care costs or reform government health care programs and marketing and distribution support. Our future results may vary significantly due to the potential, or the absence of, forthcoming upfront and development and commercial milestone payments related to the commercialization of our development products.

We may not succeed in these activities, and we may never generate revenue from product sales that is significant enough to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become or remain profitable could impair our ability to raise capital, expand our business, discover or develop other product candidates or otherwise adversely affect our business and operations. A decline in the value of our company could cause you to lose all or part of your investment.

We cannot assure you of the adequacy of our capital resources, including the proceeds from this offering, to successfully complete the development and commercialization of our product candidates, and a failure to obtain additional capital, if needed, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

As of March 31, 2015, we had liquid assets amounting to €27.8 million. We define “liquid assets” as cash and cash equivalents together with our financial assets at fair value through profit or loss, which consist of money market funds. We believe that we will continue to expend substantial resources for the foreseeable future developing tozadenant and our other product candidates. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, seeking regulatory approvals, as well as launching and commercializing products approved for sale, if any, and potentially acquiring new products. In addition, other unanticipated costs may arise. Because the outcome of our anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates. Based on our current operating plan, we believe that the net proceeds of this offering, together with our current liquid assets and the milestone and royalty revenues that we expect to receive from Lundbeck for Selincro, will enable us to fund our Phase 3 double-blind clinical trial (and extension) of tozadenant in Parkinson’s through completion, as well as our portion of the costs of the SYN120 Phase 2a clinical trial in Parkinson’s dementia and the BTT1023 Phase 2 clinical trial in PSC. We intend to fund the remaining

 

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portion of these trials from already identified non-dilutive sources. We have based this estimate on assumptions that may prove to be incorrect, and we could expend our capital resources sooner than we currently expect.

Our future funding requirements will depend on many factors, including but not limited to:

 

   

the numerous risks and uncertainties associated with developing drugs;

 

   

the level of Selincro sales achieved by Lundbeck and Lundbeck’s ability to obtain regulatory approvals in additional countries, which will affect the amount of milestones and royalties that we receive;

 

   

the number and characteristics of product candidates that we pursue;

 

   

the rate of enrollment, progress, cost and outcomes of our clinical trials, which may or may not meet their primary end-points, and other related activities;

 

   

the timing of, and cost involved in, conducting nonclinical studies that are regulatory prerequisites to conducting clinical trials of sufficient duration for successful product registration;

 

   

the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates;

 

   

the timing of, and the costs involved in, obtaining regulatory approvals for tozadenant and our other product candidates if clinical trials are successful;

 

   

the timing of, and costs involved in, conducting post-approval studies that may be required by regulatory authorities;

 

   

the cost of commercialization activities for tozadenant and our other product candidates, if any of our product candidates are approved for sale;

 

   

the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder and any non-dilutive funding that we may receive;

 

   

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs, if any, and the outcome of any such litigation; and

 

   

the timing, receipt, and amount of sales of, or royalties on, our future products, if any.

In addition, our operating plan may change as a result of many factors currently unknown to us. As a result of these factors, we may need additional funds sooner than planned. We expect to finance future cash needs primarily through a combination of public or private equity offerings, debt financings, strategic collaborations and non-dilutive funding. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly reduce operating expenses and delay, scale back or eliminate one or more of our development programs.

The adequacy of our capital resources is particularly dependent on cash generation from milestones and royalties in connection with sales of Selincro and other sources of non-dilutive funding.

Under the terms of our November 2006 option agreement with Lundbeck and the Lundbeck License Agreement, to date we have received €22.0 million in upfront and milestone payments and are eligible to receive an additional potential €72.0 million in milestone payments upon achievement of specified regulatory and commercial milestones. In addition to milestone payments, we are eligible to receive

 

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royalties on sales of Selincro. The payment of milestone payments and royalties under the Lundbeck License Agreement is dependent on a combination of factors, including the successful registration of Selincro for alcohol dependence in non-European countries, the successful registrations of Selincro in indications other than alcohol dependence and the level of sales of Selincro, which is partly dependent on the first two factors. We expect to use the milestone payments and royalty revenues that we receive from Selincro to partially fund our planned Phase 3 clinical program for tozadenant and clinical trials of our other product candidates. Lundbeck’s commercialization of Selincro is entirely outside of our control and we cannot assure you that we will receive further milestone payments and/or royalties. If we do not receive the levels of milestone payments and royalties that we expect to receive, we cannot assure you that we will be able to fully fund our planned Phase 3 program for tozadenant or clinical activity of our other product candidates, and we may have to raise additional capital.

In July 2014, we announced that we received a grant of up to $2.0 million (€1.7 million) from the Michael J. Fox Foundation for Parkinson’s Research, or the Michael J. Fox Foundation, to investigate SYN120 in Parkinson’s dementia. Under the terms of the Michael J. Fox Foundation grant, we are subject to a repayment obligation and must pay the Michael J. Fox Foundation royalties on sales of SYN120-related products after such products reach a specified threshold of net sales, until we reach the royalty cap of the amount of award payments actually received, adjusted for inflation at the time of payment. The Michael J. Fox Foundation will largely fund an 80-patient, Phase 2a, randomized, double-blind, placebo-controlled trial of 16 weeks duration in patients with Parkinson’s dementia, which will be conducted by the Parkinson Study Group. We are working in collaboration with the University of Birmingham to conduct a Phase 2 proof of concept clinical trial with BTT1023 in PSC. The investigator-sponsored clinical trial has been awarded partial funding from the U.K. National Institute of Health Research. As such, we have gained access to non-dilutive sources of funding to support our two Phase 2 clinical programs. We intend to continue to pursue additional sources of non-dilutive funding through our relationships with government, not-for-profit organizations and other partners, but cannot assure you that we will be able to maintain this funding or obtain similar funding in future. Further, an inability to meet conditions required for receiving grants, possible obligations to pay back certain or entire amounts of such grants or the unavailability of grants in the future may have a material adverse effect on our business results or operations and financial condition.

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish, or license on unfavorable terms, our rights to our product candidates and may impact any future potential revenue streams.

If our current liquid assets and the proceeds of this offering are insufficient to meet our operating requirements, we may seek additional capital through a variety of means, including through private and public equity offerings and debt financings. Although Finnish law provides existing shareholders with preemptive rights to subscribe for shares offered in proportion to the amount of shares in their possession in connection with any new offering of shares, this right is subject to waiver resolved upon by a majority which represents at least two-thirds of the votes cast and two-thirds of the shares represented at a shareholders’ meeting, provided that, from the company’s perspective, there is a weighty financial reason for the waiver. In addition, certain non-Finnish shareholders may not be able to exercise their preemptive subscription rights in any future offerings due to the legislation and regulations of their home country, including U.S. shareholders. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of such equity or convertible debt securities may include liquidation or other preferences that are senior to or otherwise adversely affect your rights as a shareholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt,

 

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making capital expenditures, declaring dividends or encumbering our assets to secure future indebtedness. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

 

   

significantly delay, scale back or discontinue the development, manufacturing scale-up or commercialization of our product candidates;

 

   

seek corporate partners on terms that are less favorable than might otherwise be available; or

 

   

relinquish or license on unfavorable terms our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Any such consequence may have a material adverse effect on our business, operating results and prospects and on our ability to develop our product candidates.

In connection with the Convertible Notes Financings we have indemnification obligations to certain investors pursuant to the subscription agreement with such investors. These obligations could subject us to substantial liabilities.

In connection with the Convertible Notes Financings, we entered into a subscription agreement with certain investors pursuant to which we are obligated to indemnify such investors against damages arising from, among other things, our breach or alleged breach of any of our representations or warranties contained in the subscription agreement and any of our obligations under the subscription agreement. If we are required to indemnify the investors under the circumstances set forth in the subscription agreement, we may be subject to substantial liabilities. The maximum potential amount of such liabilities is the aggregate consideration paid by the investors party to the subscription agreement, or €27.5 million.

Impairment charges or write-downs on our assets could have a significant adverse effect on our results of operations and financial results.

Substantial value is allocated to our intangible assets and goodwill resulting from business combinations, which could be substantially impaired upon indications of impairment. Indications of impairment may primarily arise when: the clinical program for an asset does not proceed as expected, a different clinical development pathway is pursued than initially intended, the asset is partnered or out-licensed utilizing a transaction structure that changes the timing or amount of our future economic rights to the asset, or some of the economic value from the asset is realized. As a result, impairment testing could lead to additional material impairment charges in the future that could have an adverse effect on our financial condition and the value of our assets.

We regularly review our long-lived intangible and tangible assets, including identifiable intangible assets and goodwill, for impairment. Goodwill, acquired research and development, and acquired development projects not yet ready for use are subject to impairment review at least annually. Impairment testing under International Financial Reporting Standards, or IFRS, may lead to impairment charges in the future. Any significant impairment charges could have a material adverse effect on our results of operations and financial condition. In 2014, for example, we recognized impairment charges totaling €27.6 million in relation to nepicastat, which was fully written down as a result of the receipt of top-line data that did not meet its primary efficacy endpoint in respect of the Phase 2a trial, and SYN120, which was written down to its recoverable amount, as a result of a revision to our plans to develop SYN120 for Parkinson’s dementia, which has smaller commercial potential than Alzheimer’s. For a detailed discussion of how we determine whether an impairment has occurred, what factors could result in an impairment and the increasing impact of impairment charges on our results of operations, see “Business — Critical Accounting Estimates and Judgments of Our Management — Critical Accounting Estimates and Judgments — Impairment of Intangible Assets and Goodwill” and note 2 to our consolidated financial statements included elsewhere in this prospectus.

 

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We are exposed to risks related to currency exchange rates.

We conduct a significant portion of our operations outside Finland and other eurozone countries, principally in the United States. Because our financial statements are presented in euros, changes in currency exchange rates have had and could have a significant effect on our operating results. Exchange rate fluctuations between local currencies and the euro create risk in several ways, including the following: weakening of the euro may increase the euro cost of our research and development expenses, which are principally in United States dollars; strengthening of the euro may decrease the value of our revenues denominated in other currencies; and the exchange rates on non-euro transactions and cash deposits can distort our financial results. In addition, in the next few years we expect to receive the majority of revenues (royalties from sales of Selincro) in euros and that the majority of our expenditure (continuing research and development expenses) will be incurred United States dollars, which may cause an impact on our financial results to the extent those revenues are used to fund those expenses.

Risks Related to the Development and Clinical Testing of Our Product Candidates

We depend significantly on the success of tozadenant and our other product candidates. Tozadenant and our other product candidates are still in clinical development. If our clinical trials are not successful, we do not obtain regulatory approval or we are unable, or unable to find a partner, to commercialize tozadenant or our other product candidates, or we experience significant delays in doing so, our business, financial condition and results of operations will be materially adversely affected.

We have invested a significant portion of our efforts and financial resources in the development of tozadenant, SYN120 and BTT1023, all of which are still in clinical development. Our ability to generate revenues from these product candidates, which we do not expect will occur for at least the next several years, if ever, will depend heavily on successful clinical development, obtaining regulatory approval and eventual commercialization of them. We cannot assure you that we will be able to successfully develop or commercialize our product candidates or any future product candidates. The potential success of tozadenant, particularly in the United States, is initially dependent on the success of our pivotal Phase 3 clinical trial.

More generally, the success of tozadenant, SYN120 and BTT1023 will depend on several factors, including the following:

 

   

completing clinical trials that demonstrate the efficacy and safety of our product candidates;

 

   

receiving marketing approvals from applicable regulatory authorities;

 

   

establishing relationships for commercial manufacturing capabilities;

 

   

launching commercial sales, marketing and distribution operations;

 

   

acceptance of our product candidates by patients, the medical community and third-party payors;

 

   

a continued acceptable safety profile following approval;

 

   

competing effectively with other therapies; and

 

   

qualifying for, maintaining, enforcing and defending our intellectual property rights and claims.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to obtain approval for and/or to successfully commercialize tozadenant, SYN120 or BTT1023, which would materially adversely affect our business, financial condition and results of operations.

 

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Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes.

To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our products are safe and effective in humans. To date, we have not completed all preclinical studies or clinical trials required for the approval of our product candidates (other than our approved product Selincro). We are preparing to commence a pivotal Phase 3 trial of tozadenant. We would not expect to have data for our Phase 3 double-blind clinical trial (and extension) of tozadenant until the second half of 2017 and would not be able to submit a new drug application, or NDA, until adequate safety data has been obtained from the open-label trial of the Phase 3 program. In addition to tozadenant, together with the Parkinson Study Group, we are currently conducting a Phase 2a trial of SYN120 in Parkinson’s dementia and expect to announce top-line data by the end of 2016. A potential Phase 2 clinical trial of SYN120 in Alzheimer’s is dependent on obtaining additional funding. Enrollment for the Phase 2 clinical trial of BTT1023 in PSC opened at the end of the first quarter of 2015, and interim data is expected by the end of 2016.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

   

the rate of enrollment, progress, cost and outcomes of our clinical trials, which may or may not meet their primary end-points, and other related activities;

 

   

the number and characteristics of product candidates that we pursue;

 

   

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;

 

   

the timing of, and cost involved in, conducting nonclinical studies that are regulatory prerequisites to conducting clinical trials of sufficient duration for successful product registration;

 

   

the timing of, and the costs involved in, obtaining regulatory approvals for tozadenant and our other product candidates if clinical trials are successful;

 

   

the cost of commercialization activities for tozadenant and our other product candidates, if any of our product candidates are approved for sale;

 

   

the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder;

 

   

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and

 

   

the timing, receipt, and amount of sales of, or royalties on, our future products, if any.

A change in the outcome of any of these variables with respect to the development of tozadenant or our other product candidates could mean a significant change in the costs and timing associated with the development of such product candidate. Failure can occur at any time during the clinical trial process. Clinical trials must be conducted in accordance with U.S. Food and Drug Administration, or the FDA, European Medicines Agency, or the EMA and comparable foreign regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current good manufacturing practices, or cGMP, and other requirements. We depend on medical institutions and

 

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clinical research organizations, or CROs, as well as on investigators and sponsors with which we collaborate on investigator-sponsored trials, such as the investigators and sponsors conducting the Phase 2a clinical trial of SYN120 in Parkinson’s dementia and the Phase 2 clinical trial of BTT1023 in PSC, to conduct our clinical trials in compliance with current good clinical practice, or cGCP, standards. To the extent these medical institutions or CROs fail to enroll participants for our clinical trials or conduct the trial to cGCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays or both, which may harm our business.

The results of previous clinical trials may not be predictive of future results and clinical trials of product candidates may not be successful.

Clinical failure can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing. We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in the intended treatment population before we can seek regulatory approvals for their commercial sale. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials and future preclinical studies and the positive results generated to date in clinical trials for our product candidates do not ensure that later clinical trials will demonstrate similar results. For example, our prior product candidate under development for cocaine development, nepicastat, showed positive results in preclinical studies and an earlier clinical trial, but failed to distinguish from placebo in a Phase 2a clinical trial where it did not meet the primary efficacy endpoint of an increased proportion of subjects remaining abstinent from cocaine during the last two weeks of the treatment period. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. For example, preladenant, another adenosine A2a antagonist developed by Merck & Co., or Merck, demonstrated efficacy in a Phase 2b trial in Parkinson’s patients experiencing OFF episodes on levodopa. However, in May 2013, Merck announced that it was discontinuing preladenant development due to a lack of efficacy demonstrated in three different Phase 3 trials, including two in Parkinson’s patients with motor fluctuations. Product candidates that have shown promising results in early clinical trials may still suffer significant setbacks in subsequent clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Further, progress in trials of one product candidate does not indicate that we will make similar progress in additional trials for that product candidate or in trials for our other product candidates. Furthermore, our Phase 2b trial evaluated the efficacy of tozadenant during a 12 week trial while our planned Phase 3 trial will evaluate efficacy over a 24 week period. In addition, patients will be taking tozadenant for nearly 18 months, considerably longer than in our previous trials. We cannot assure you that the efficacy and safety seen in previous trials will continue to be observed in trials of longer duration or with other trial design differences. Our future clinical trials may not be successful.

The success of tozadenant and our other product candidates initially depends on our ability to complete clinical trials that demonstrate the efficacy and safety of our product candidates. We cannot assure you that any Phase 2, Phase 3 or other clinical trials that we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.

 

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If we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with tozadenant, BTT1023, SYN120 or any other product candidates we may decide to develop in the future, or if we are required to conduct additional clinical trials or other testing of tozadenant, SYN120, BTT1023 or any other product candidate that we may develop in future beyond the trials and testing that we contemplate, we may:

 

   

be delayed in obtaining marketing approval for our product candidates;

 

   

not obtain marketing approval at all;

 

   

obtain approval for indications or patient populations that are not as broad as intended or desired;

 

   

obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

 

   

be subject to additional post-marketing testing or other requirements; or

 

   

remove the product from the market after obtaining marketing approval.

The design and conduct of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed.

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, patient adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. In the case of any Phase 3 trials we conduct, results may differ from earlier trials due to the larger number of clinical trial sites and additional countries and languages involved in such trials. For example, in the recent Merck trials of preladenant in a similar Parkinson’s population to that which we will evaluate in our Phase 3 trial of tozadenant, rasagiline, an approved drug that has consistently demonstrated efficacy in a number of trials in this population, was used as a positive control and also failed to demonstrate efficacy, suggesting the trials were flawed. A published post-hoc analysis identified a number of factors that potentially contributed to the trial failure. Based on our review of those factors we decided to limit trial conduct for tozadenant to North America and selected European countries, limit the number of trial sites, institute measures to monitor how patients will be identified and selected for enrollment and how both the investigators and patients are trained. While we believe these factors are critical in ensuring good trial design and conduct, we cannot assure you that our planned Phase 3 trial design or conduct will yield results that demonstrate the efficacy or safety of tozadenant or that any such results will be sufficient to support approval.

In addition, in the case of tozadenant, our Phase 2b clinical trial included, and our Phase 3 clinical trial will include, certain endpoints based on patient reported outcomes, some of which are captured daily from trial participants with diaries. Low compliance by patients in maintaining an accurate diary may impact the trials’ validity or statistical power.

The FDA has agreed to a Special Protocol Assessment, or SPA, with respect to the design of our Phase 3 trial of tozadenant. We have also requested scientific advice from the EMA with respect to the design of our Phase 3 trial. Based on their response, we expect EMA approval of tozadenant to be contingent on conducting studies in addition to the currently planned Phase 3 program. We plan to engage in further discussions with the EMA with respect to their requirements for the approval of tozadenant.

 

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If clinical trials of our product candidates are prolonged or delayed, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates on a timely basis or at all.

We cannot assure you that our clinical trials will begin as planned or be completed on schedule, if at all, or that we will not need to restructure our trials after they have begun. Significant clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates, which may harm our business and results of operations. In addition, some of the factors that cause, or lead to, clinical trial delays may ultimately lead to the denial of regulatory approval of tozadenant, SYN120, BTT1023 or any other product candidate we may decide to develop in future. The completion of clinical trials for our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited to:

 

   

the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site;

 

   

changes in regulatory requirements, policies and guidelines;

 

   

delays or failure to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial;

 

   

delays relating to adding new clinical trial sites;

 

   

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

 

   

delays in establishing the appropriate dosage levels;

 

   

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

 

   

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

 

   

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

 

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If serious adverse, undesirable or unacceptable side effects or preclinical findings are identified during the development of our product candidates or following approval, we may need to abandon our development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences following marketing approval.

If our product candidates are associated with serious adverse, undesirable or unacceptable side effects or preclinical findings, we may need to abandon their development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in preclinical or early stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound for larger indications.

In our Phase 2b clinical trial of tozadenant, the majority of patients in each treatment group experienced at least one treatment emergent adverse event, or TEAE, during the trial. The most frequently reported TEAEs (occurring in more than 5% of patients in any treatment group, with incidence greater than placebo) were dyskinesia, nausea, dizziness, constipation, insomnia and fall. The majority of TEAEs were mild or moderate in maximum intensity. As expected with most central nervous system drugs, there was a dose-related increase in the reporting of adverse events and in the proportion of patients who discontinued early due to TEAEs, with a higher proportion (approximately 20%) of patients in the 240 mg twice/day tozadenant group discontinuing early due to TEAEs compared to the lower dose groups (approximately 8% to 12%). A total of 24 severe adverse events, or SAEs, were reported in 13 patients. The incidence of SAEs was 1.2%, 3.7%, 2.4%, and 4.8% in the 60 mg, 120 mg, 180 mg, and 240 mg groups, and 3.6% in the placebo group. Of the 24 SAEs reported, 11 occurred in two of the 13 patients. Nonfatal SAEs were reported for seven patients. All nonfatal SAEs resolved except for an event of atrial fibrillation in a placebo-group patient who also had an ischemic stroke. One nonfatal SAE of acute psychosis with paranoia was assessed by the investigator as being probably related to tozadenant; and we do not intend to take any further actions based on this isolated report. Fatal SAEs were reported for six patients, all of whom received tozadenant. An independent blinded data monitoring committee reviewed all TEAEs and SAEs during the trial and an independent expert panel reviewed these data after the trial was complete and unblinded. Both panels concluded that there was no relationship between tozadenant treatment and the fatal SAEs. Nevertheless, a data safety monitoring board will oversee the safety of the planned Phase 3 clinical trial. Occurrence of serious procedure- or treatment-related side effects could lead the safety monitoring board to recommend discontinuation of the trial or modification of the protocol, and could impede clinical trial enrollment and receipt of marketing approval from the FDA, the EMA and comparable foreign regulatory authorities. They could also adversely affect physician or patient acceptance of our product candidates.

Additionally if one or more of our product candidates receives regulatory approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw approvals of such product;

 

   

regulatory authorities may require additional warnings on the label;

 

   

regulatory authorities may limit or otherwise control the distribution of such products;

 

   

we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

 

   

we could be sued and held liable for harm caused to patients; and

 

   

our reputation and physician or patient acceptance of our products may suffer.

 

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Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

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

Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal and/or drop outs. Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of drugs approved for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies.

The specific target population of patients specified in a trial protocol may make it difficult for us to enroll enough patients to complete our clinical trials in a timely and cost-effective manner. In our Phase 3 clinical trial of tozadenant, we will seek to enroll Parkinson’s patients receiving treatment with levodopa and who experience OFF episodes and meet other inclusion criteria, and are not otherwise excluded by meeting any of the exclusion criteria, defined in the trial protocol. We seek to identify, recruit, enroll and dose patients meeting these entry criteria. We opened enrollment to patients in a Phase 2 clinical trial of BTT1023 in PSC in the first quarter of 2015. PSC is an orphan indication, which means that the potential pool of appropriate patients for the trial is more limited than the potential pool of patients for trials in non-orphan indications. Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process, delay or potentially jeopardize our ability to commence product sales and generate revenue and materially affect the competitive environment in which we may commercialize our product candidates. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

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

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

 

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Risks Related to Regulatory Approval of Our Product Candidates

Clinical development, regulatory review and approval by the FDA, the EMA and comparable foreign regulatory authorities are lengthy, time consuming, expensive and inherently unpredictable activities. If we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The process of obtaining regulatory approvals from the FDA, the EMA and comparable foreign regulatory authorities requires the expenditure of substantial time and financial resources and is inherently unpredictable. Approval policies, regulations, and the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application, or cause a change to the decision to seek approval in some jurisdictions. It is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. In addition, we may gain regulatory approval for tozadenant or other product candidates in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the approved products.

Events that may prevent successful or timely commencement, enrollment, completion or regulatory authority acceptance of clinical development plans include:

 

   

the FDA, the EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

 

   

the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical studies or clinical trials;

 

   

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a NDA or biologics license application or other submission or to obtain regulatory approval in the United States or elsewhere;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may require us to conduct additional clinical trials depending on the safety data from our planned future clinical trials;

 

   

we may be unable to demonstrate to the FDA, the EMA or comparable foreign regulatory authorities that a product candidate’s risk-benefit ratio for its proposed indication is acceptable;

 

   

the FDA, the EMA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;

 

   

we or any third-party service providers may be unable to demonstrate compliance with cGMP to the satisfaction of the FDA, the EMA or comparable foreign regulatory authorities which could result in delays in regulatory approval or require us to withdraw or recall products and interrupt commercial supply of our products; and

 

   

the approval policies or regulations of the FDA, the EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would

 

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significantly harm our business, results of operations, and prospects. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or comparable foreign regulatory authorities.

The FDA’s agreement to our SPA for our Phase 3 trial of tozadenant does not guarantee any particular outcome from regulatory review, including ultimate approval and may not lead to a faster development or regulatory review or approval process.

We consulted with the FDA regarding the design and adequacy of our proposed Phase 3 clinical program to support marketing approval of tozadenant through a SPA. The FDA has agreed to our SPA with respect to the design of our Phase 3 trial of tozadenant.

The FDA’s SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a drug product’s efficacy and safety. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to the effectiveness in the indication studied. All agreements and disagreements between the FDA and the sponsor regarding a SPA must be clearly documented in a SPA letter or the minutes of a meeting between the sponsor and the FDA. However, even if an agreement regarding a SPA is reached, a SPA agreement does not guarantee approval of a product candidate, and even if the FDA agrees to the design, execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, a SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor company fails to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant facts. In addition, even after a SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the trial. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any trial that is the subject of the SPA agreement. We cannot assure you that our Phase 3 clinical trial of tozadenant will succeed, will be deemed binding by the FDA under our SPA, or will result in any FDA approval for tozadenant. We expect that the FDA will review our compliance with the protocol under our SPA agreement and that it will conduct inspections at some of the sites where the trial will be conducted. We cannot assure you that each of the clinical trial sites will pass such FDA inspections, and negative inspection results could significantly delay or prevent any potential approval for tozadenant. If the FDA revokes or alters its agreement under the SPA, or interprets the data collected from the clinical trial differently than we do, the FDA may not deem the data sufficient to support an application for regulatory approval, which could materially adversely affect our business, financial condition and results of operations. A revocation or alteration of our existing SPA could significantly delay or prevent approval of our application. Our SPA agreement with the FDA does not ensure that tozadenant will receive marketing approval or that the approval process will be faster than conventional regulatory procedures.

 

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If we fail to obtain regulatory approval in any jurisdiction, we will not be able to market our products in that jurisdiction.

We intend to market our product candidates, including tozadenant, if approved, in international markets through partnerships. Such marketing will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements. The approval procedures vary from country to country and may require additional testing. In addition, in many countries outside the United States, a product must undergo health economic assessments to agree on pricing and/or be approved for reimbursement before it can be approved for sale in that country, or before it becomes commercially viable. The FDA and the EMA may come to different conclusions regarding approval of a marketing application. Approval by the FDA or EMA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA or EMA. We may not obtain regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market. If we or any future partner are unable to obtain regulatory approval for tozadenant or our other product candidates in one or more significant jurisdictions, then the commercial opportunity for tozadenant or our other product candidates, and our financial condition, will be adversely affected.

We have also requested scientific advice from the EMA with respect to the design of our Phase 3 trial of tozadenant. Based on their response, we expect EMA approval of tozadenant to be contingent on conducting studies in addition to the currently planned Phase 3 program. We plan to engage in further discussions with the EMA with respect to their requirements for the approval of tozadenant.

Even if our product candidates obtain regulatory approval, we will be subject to ongoing regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to restrictions, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

If marketing authorization is obtained for any of our product candidates, the product will remain subject to continual regulatory review and therefore authorization could be subsequently withdrawn or restricted. Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor safety and efficacy. In addition, if the FDA, the EMA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse effect reporting, storage, advertising, promotion and recordkeeping, and, potentially, other post-marketing obligations, may result in significant expense and limit our ability to commercialize such products. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with an approved product, including adverse effects of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, may result in, among other things:

 

   

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

   

fines, warning letters, or holds on clinical trials;

 

   

refusal by the FDA, the EMA or comparable foreign regulatory authorities to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

 

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product seizure or detention, or refusal to permit the import or export of products; and

 

   

injunctions or the imposition of civil or criminal penalties.

If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations. The policies of the FDA, EMA or a comparable foreign regulatory authority may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

We may be unable to obtain orphan drug designation or exclusivity in the United States for BTT1023. If our competitors are able to obtain orphan drug exclusivity for their products in the same indication for which we are developing BTT1023, we may not be able to have our product candidate approved by the applicable regulatory authority for a significant period of time. Conversely, we may not be able to benefit from the associated marketing exclusivity from orphan drug exclusivity that we obtain.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States. In the European Union, the European Commission may designate a product candidate as an orphan medicinal product if it is a medicine for the diagnosis, prevention or treatment of life-threatening or very serious conditions that affects not more than five in 10,000 persons in the European Union, or it is unlikely that marketing of the medicine would generate sufficient returns to justify the investment needed for its development. BTT1023 has been granted orphan drug designation for PSC in Europe, and we intend to pursue orphan drug designation for BTT1023 in the United States. However, there is no assurance we will be able to receive orphan drug designation for BTT1023 in the United States, and even if we are successful in obtaining orphan drug designation for BTT1023 in the United States, orphan drug status may not ensure that we have market exclusivity in a particular market. Further, the granting of a request for orphan drug designation does not alter the standard regulatory requirements and process for obtaining marketing approval.

Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which, subject to certain exceptions, precludes the FDA from approving the marketing application of another drug for the same indication for that time period or precludes the EMA, and other national drug regulators in the European Union, from accepting the marketing application for another medicinal product for the same indication. The applicable period is seven years in the United States and ten years in the European Union. The European Union period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost in the United States if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even if we obtain orphan drug exclusivity for BTT1023 or another of our product candidates, that exclusivity may not effectively protect the product from competition because exclusivity can be suspended under certain circumstances. In the United States, even after an orphan drug is approved, the FDA can

 

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subsequently approve another drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the European Union, orphan exclusivity will not prevent a marketing authorization being granted for a similar medicinal product in the same indication if the new product is safer, more effective or otherwise clinically superior to the first product or if the marketing authorization holder of the first product is unable to supply sufficient quantities of the product.

Risks Related to Commercialization of Our Product Candidates

We are likely to face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than our product candidates, our commercial opportunities will be negatively impacted.

We are currently developing product candidates that are likely to compete with other drugs and therapies that currently exist or are being developed. Products we may develop in the future are also likely to face competition from other drugs and therapies, some of which we may not currently be aware. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do.

Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing pharmaceutical products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection and/or marketing approval or discovering, developing and commercializing products in our field before we do.

Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. In addition, the biopharmaceutical industry is characterized by rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our product candidates obsolete, less competitive or not economical.

We are aware of a number of pharmaceutical and biotechnology companies that are actively engaged in the research and development of pharmaceutical products for the same, or similar, therapeutic indications as we are. A number of these companies are developing competing drugs or treatment methods to those that we are targeting. As competitors develop their product candidates, they may develop proprietary positions in certain areas that may have a material adverse effect on the competitiveness of our products on the market. We may not always be aware of development of competing products or technologies and, therefore, there may be significant competing products or treatment methods in development of which we have no knowledge.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe adverse effects, are more convenient or are less expensive than any products that we may develop. Our competitors may also obtain

 

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FDA, EMA or comparable foreign regulatory approval for their products more rapidly than we may obtain approval for ours, which could delay approval of our products and/or result in our competitors establishing a strong market position before we are able to enter the market. Even if our product candidates achieve marketing approval, they may be priced at a significant premium over competitive products if any have been approved by then, resulting in reduced competitiveness.

There is a large number of companies developing or marketing treatments for central nervous system diseases and disorders, including many major pharmaceutical and biotechnology companies. These treatments consist of small molecule drug products in the case of Parkinson’s, Alzheimer’s and related neurodegenerative diseases and biologic therapeutics that work by using next-generation antibody technology platforms in the case of inflammation and fibrotic diseases.

Tozadenant

Current therapies, including levodopa, the most widely prescribed treatment for Parkinson’s, lose effectiveness in most patients over time. The adenosine A2a antagonists represent a novel mechanism of action for the treatment of Parkinson’s, with the potential for treating both motor and nonmotor symptoms, and may have the potential for slowing disease progression. Currently approved adjunctive treatment for Parkinson’s can be considered complementary rather than competitive to tozadenant as they may be used in combination. However, as most adjunctive treatments to levodopa will be generic by the time that we expect tozadenant to be approved for marketing, it is probable that they will be used prior to tozadenant.

Istradefylline (approved in Japan; Phase 3 elsewhere), also an adenosine A2a antagonist, potentially addresses the same patient population as tozadenant. Istradefylline was refused FDA approval in 2008, but was approved for sale in Japan (as Nouriast) in 2013. Kyowa Hakko Kirin recently announced a new 600-patient Phase 3 development program of istradefylline in the United States, which is expected to be completed by the end of 2015 or early 2016. If istradefylline is approved and commercially launched in the United States prior to tozadenant, it will result in direct competition with a molecule sharing the same mechanism of action.

SYN120

Currently, there are no therapies that cure Parkinson’s or Alzheimer’s. Existing therapies for both Parkinson’s dementia and Alzheimer’s are targeted at symptomatic improvement of cognitive function. Rivastigmine is the only product approved in the United States for the treatment of Parkinson’s dementia. Five drugs have been approved by the FDA for symptomatic treatment of Alzheimer’s.

There are several 5HT6 antagonists currently in development. Pfizer’s PF05212377 is in Phase 2, Lundbeck’s LuAE58054 is in Phase 3 and GlaxoSmithKline reported results of a Phase 2 trial of SB742457 in mid-2011. SB742457 was acquired by Axovant Sciences, Inc. in December 2014 (referred to as RVT-101), which has announced plans to commence a Phase 3 program of RVT-101 for the treatment of mild-to-moderate Alzheimer’s in the fourth quarter of 2015. When added on to Aricept, the current standard of care for Alzheimer’s, both SB742457 and LuAE58054 demonstrated improvement in cognition in patients with Alzheimer’s, validating the relevance of 5HT6 receptors as a therapeutic target. These 5HT6 antagonists are further advanced in development than SYN120 and may become treatment options prior to when SYN120 could reach the market. Differentiating SYN120 from these products will be necessary to effectively compete with them and we cannot assure you that this will be possible.

Other major development targets for symptomatic treatments of cognitive deficits are nicotinic acetylcholine receptor (nAChR) agonists or modulators and histamine H3 receptor antagonists. Several nAChR compounds are in early-stage development. Pimavanserin, a 5HT2a inverse agonist, has recently shown promise in improving neuropsychiatric symptoms in Parkinson’s disease psychosis and therefore has validated the importance of the 5HT2a receptor as a target in this condition. We expect that pimavanserin will be approved for treatment of Parkinson’s disease psychosis prior to when SYN120 could be launched,

 

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and pimavanserin could become the standard for treatment of the condition. Differentiation of SYN120 from pimavanserin will be necessary for it to compete effectively and we cannot assure you that this will be possible.

BTT1023

There are currently no FDA approved agents that can prevent, arrest or reverse fibrosis. We are aware of four competing clinical development programs in PSC all of which are in Phase 2. Gilead’s simtuzumab (GS-6624) anti-lysyl oxidase-like 2 antibody targets an enzyme important for fibrogenesis and, if efficacious, is expected to improve liver pathology. The other three programs in development for PSC of which we are aware target bile acid transport in some way. Dr. Falk Pharma’s norUrso is an ursodeoxycholic acid that may improve liver function. Lumena Pharmaceuticals (recently acquired by Shire plc) is developing LUM001, a bile acid transport inhibitor currently in a small, open label, pilot trial in PSC with safety and tolerability as primary endpoints and an estimated trial completion date of December 2015. Like norUrso it may improve liver function but is not expected to affect the underlying disease. Intercept’s obeticholic acid is another semi-synthetic bile acid analogue which could improve liver function and which may have anti-fibrotic effects, and is currently in a trial with an estimated completion date in June 2019.

For more information on competition, see “Business — Competition.”

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

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

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

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

 

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Even if approved, if any of our products or product candidates do not achieve broad market acceptance among physicians, patients, the medical community and third-party payors, our revenue generated from their sales will be limited.

Even when product development is successful and regulatory approval has been obtained, our ability to generate any significant revenue depends on the acceptance of the products by physicians and patients. The degree of market acceptance of our products will depend on a number of factors, including:

 

   

limitations or warnings contained in the approved labeling for a product;

 

   

changes in the standard of care for the targeted indications for any of our products;

 

   

limitations in the approved clinical indications for our products;

 

   

demonstrated clinical safety and efficacy compared to other products;

 

   

lack of significant adverse side effects;

 

   

sales, marketing and distribution support;

 

   

availability and extent of reimbursement from managed care plans and other third-party payors;

 

   

timing of market introduction and perceived effectiveness of competitive products;

 

   

the degree of cost-effectiveness of our product candidates;

 

   

availability of alternative therapies at similar or lower cost, including generic and over-the-counter products;

 

   

the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;

 

   

whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular diseases;

 

   

adverse publicity about our product candidates or favorable publicity about competitive products;

 

   

governmental efforts to reduce health care costs or reform government health care programs;

 

   

convenience and ease of administration of our products; and

 

   

potential product liability claims.

If any of our products or product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the medical community, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

The market for tozadenant and our other product candidates may not be as large as we expect.

Our estimates of the potential market opportunity for tozadenant include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. These assumptions include the size of the Parkinson’s disease market, the number of patients who are treated and may become eligible for treatment with tozadenant and our penetration into that market. While we believe that our internal assumptions are reasonable, if any of these assumptions proves to be inaccurate, then the actual market for tozadenant could be smaller than our estimates of our potential market opportunity. If the actual market for tozadenant is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability. Similar estimates and assumptions apply to all of our product candidates.

 

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

We have relied, and will continue to rely, on Lundbeck for the commercialization of Selincro. We currently have no sales force, marketing or distribution capabilities and we have never commercialized a product candidate. For our product candidates for which we retain commercialization rights, we will have to develop our own sales, marketing and supply organization or outsource these activities to a third party.

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

Risks Related to Our Reliance on Third Parties

Collaborations on products and product candidates are important to our business, and future collaborations may also be important to us. If we are unable to maintain any of these collaborations, if these collaborations are not successful, or if we fail to enter into new strategic relationships, our business could be adversely affected.

We have in the past entered into, and intend to continue to enter into, collaborations with other companies that we believe could provide us with valuable funding and other benefits. However, we cannot assure you that any such collaboration will continue or be successful. For example, in August 2010, Synosia Therapeutics AG, or Synosia, which we acquired in February 2011, entered into a license and collaboration agreement with UCB, or the UCB Collaboration Agreement, to develop and commercialize tozadenant. Pursuant to the UCB Collaboration Agreement, UCB was granted an option to receive an exclusive license to tozadenant. However, in March 2014, UCB terminated the UCB Collaboration Agreement and returned its rights to us following an assessment of its early and late stage clinical development pipeline as well as its other preclinical opportunities, which according to UCB, did not reflect any concerns regarding the safety or efficacy of tozadenant. The decision was made prior to the End of Phase 2 meeting with the FDA. In addition, we have entered into various other collaboration and license arrangements with third parties, including our development collaborations with the Parkinson Study Group, the National Institute of Health Research and the University of Birmingham, our license agreement with Roche Palo Alto LLC, Hoffman-La Roche Inc. and F. Hoffman-La Roche Ltd., collectively, the Roche Entities, and such agreement, the Roche License Agreement, and the Lundbeck License Agreement for the development and commercialization of Selincro. We cannot assure you that any such collaboration or license agreement will be successful.

In the future, we may enter into additional collaborations to fund our development programs or to gain access to sales, marketing or distribution capabilities. Our existing collaborations, and any future collaborations we enter into, may pose a number of risks, including the following:

 

   

collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

   

collaborators may not perform their obligations as expected by us or by health authorities, such as the FDA, the EMA or comparable foreign regulatory authorities;

 

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collaborators may dissolve, merge, be bought, or may otherwise become unwilling to fulfill the initial terms of the collaboration with us;

 

   

collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;

 

   

collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or may require a new formulation of a product candidate for clinical testing;

 

   

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

   

product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;

 

   

a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;

 

   

disagreements with collaborators or licensors, including disagreements over proprietary rights, contract interpretation, payment obligations or the preferred course of development, might cause delays or termination of the research, development or commercialization of products or product candidates, might lead to additional responsibilities, including financial obligations for us with respect to products or product candidates, or might result in litigation or arbitration, any of which would be time consuming and expensive;

 

   

collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

   

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and

 

   

collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates.

If our collaborations on research and development candidates do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of our program collaborators.

Additionally, subject to its contractual obligations to us, if one of our collaborators is involved in a business combination, the collaborator might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators in a timely manner.

 

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We may in the future determine to collaborate with additional pharmaceutical and biotechnology companies for development and potential commercialization of our product candidates. We may face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval by the FDA, the EMA or comparable foreign regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our product candidate.

Collaborations are complex and time consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market and our business may be materially and adversely affected.

The success of our strategic partnerships and collaborations depends, to a significant degree, on the performance of our partners, over which we have little or no control.

In November 2006, we entered into an option agreement to negotiate the Lundbeck License Agreement, and subsequently entered into the Lundbeck License Agreement in May 2007. Pursuant to the Lundbeck License Agreement, we granted Lundbeck an exclusive, royalty-bearing, sublicensable worldwide license under certain patents and know-how related to Selincro owned by or exclusively licensed to us, to develop, manufacture and commercialize Selincro for any purpose. Under the terms of the Lundbeck License Agreement, we are eligible to receive royalties from Lundbeck on net sales of Selincro on a product-by-product and country-by-country basis until the later of either the date when there are no valid patent rights owned by us covering the licensed product or other statutory exclusivity rights covering the licensed product in force and May 23, 2017. We are also eligible to receive certain milestone payments under the Lundbeck License Agreement, upon the achievement of specified regulatory and commercial milestones. The timing of any milestone payments that we may receive is dependent on a combination of factors, including the successful registration of the product for alcohol dependence in non-European countries, the successful registrations in indications other than alcohol dependence and the level of sales of Selincro that Lundbeck achieves. In addition, the level of sales that Lundbeck achieves also determines the level of royalties that we will receive under the Lundbeck License Agreement. Lundbeck is solely responsible for all manufacturing costs and expenses, as well as commercialization activities relating to licensed products. Lundbeck is subject to certain obligations requiring it to use commercially reasonable efforts to develop and commercialize Selincro in various countries. If Lundbeck is required to perform additional studies in certain countries in order to obtain regulatory approval to market and sell Selincro products to treat alcohol dependence in such countries, Lundbeck may offset certain development costs related to such studies against any future

 

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royalties or milestone payments payable to us. The ability of Lundbeck to continue to successfully commercialize Selincro is entirely outside of our control and we cannot assure you that we will receive or when we will receive further milestone payments and/or any royalties.

Lundbeck conducts, and we would expect any future partner we may have to conduct, its own regular strategic reviews of its research and development and/or commercialization programs and may elect to delay or terminate one or more of these strategic or collaborative partnerships, develop independently or in collaboration with a third party products that could compete with our product or product candidates, and could fail to commit sufficient resources to the development or commercialization of our product or product candidates which are subject to these partnerships or collaborations or otherwise fail to perform as we expect. If any of these risks materialize our revenues from up-front license payments, milestone payments and royalties generated from Selincro or, in the future, any of our product candidates that are subject to similar partnerships and collaborations may be substantially reduced, which would have a material adverse effect on our business, financial condition and results of operations.

We rely on third parties to conduct our nonclinical and clinical trials and perform other tasks for us. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for, or commercialize, our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third-party CROs to monitor and manage data for our ongoing nonclinical and clinical programs, including the clinical trials of tozadenant, SYN120 and BTT1023. In addition, we rely on investigators and sponsors with which we collaborate on investigator-sponsored trials, such as the investigators and sponsors conducting the Phase 2a clinical trial of SYN120 in Parkinson’s dementia and the Phase 2 clinical trial of BTT1023 in PSC. We rely on these parties for execution of our nonclinical and clinical studies and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs, Contract Manufacturing Organizations, or CMOs and other vendors are required to comply with cGMP, cGCP, and Good Laboratory Practice, or GLP, which are regulations and guidelines enforced by the FDA, the EMA or comparable foreign regulatory authorities for all of our product candidates in nonclinical and clinical development. Regulatory authorities enforce these regulations through periodic inspections of trial sponsors, principal investigators, trial sites and other contractors. If we, or any of our CROs or vendors, fail to comply with applicable regulations, the data generated in our nonclinical and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities may require us to perform additional nonclinical and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that all of our clinical trials comply with cGCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

If any of our relationships with these third-party CROs terminates, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing nonclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed, or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. During the course of development and conducting

 

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our clinical trials, the projected costs of such studies may be increased by our CROs. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, and prospects.

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

We currently rely on and expect to continue to rely on third parties for the manufacturing and supply of drug products for the clinical trials of our product candidates, including tozadenant, SYN120 and BTT1023. For the foreseeable future, we expect to continue to rely on such third parties for the manufacture of any of our product candidates on a clinical or, if any of our product candidates receives regulatory approval, commercial scale. Reliance on third-party providers may expose us to different risks than if we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA, the EMA or comparable foreign regulatory authorities pursuant to inspections that will be conducted after we submit an NDA or comparable approval application to the FDA, the EMA or comparable foreign regulatory authorities. Although we have auditing rights with all our manufacturing counterparties, we do not have control over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to environmental, health and safety matters. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, the EMA or comparable foreign regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA, the EMA or comparable foreign regulatory authorities does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation.

Furthermore, third-party providers may breach agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreements because of their own financial difficulties or business priorities, potentially at a time that is costly or otherwise inconvenient for us. If they do not successfully carry out their contractual duties or obligations or meet expected deadlines, including due to scheduling conflicts, there might be a disruption in the clinical supply chain that would directly impact the continuity of our clinical trials. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.

In addition, the fact that we are dependent on our suppliers and other third parties for the manufacture, packaging and labeling, storage and distribution of our product candidates means that we are subject to the

 

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risk that our product candidates and, if approved, commercial products may have manufacturing defects that we have limited ability to prevent or control. The sale of products containing such defects could result in recalls or regulatory enforcement action that could adversely affect our business, financial condition and results of operations.

Growth in the costs and expenses of components or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could be interrupted from time to time and, if interrupted, we cannot assure you that supplies could be resumed (whether in part or in whole) within a reasonable time frame and at an acceptable cost or at all.

Our current and anticipated future dependence upon others for the manufacturing of tozadenant, SYN120 and BTT1023 and any other product candidate that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Certain of the drug substances and drug products for our product candidates are currently acquired from single-source suppliers. The loss of these suppliers, or their failure to supply us with the drug substance or drug product, could materially and adversely affect our business.

We do not currently, and do not expect in the future to, independently conduct manufacturing activities for our product candidates, including tozadenant, SYN120 and BTT1023. Our contract manufacturers may have a relationship with a preferred single supplier for certain materials for the manufacture of tozadenant, SYN120 and BTT1023. We are therefore reliant upon single-source third-party CMOs to manufacture and supply the drug substance and drug product and components thereof. We do not currently have any other reliable suppliers for the drug substance or drug product of our product candidates and, although we believe that there are alternate sources of supply that could satisfy our clinical and commercial requirements and have performed preliminary investigations to identify back-up manufacturers for our portfolio, we cannot assure you that identifying alternate sources and establishing relationships with such sources with the desired scale and capability would not result in significant delay and additional costs in the development of our product candidates. Additionally, we may not be able to enter into supply arrangements with alternative suppliers on commercially reasonable terms, or at all. A delay in the development of our product candidates or having to enter into a new agreement with a different third party on less favorable terms than we have with our current suppliers could have a material adverse impact upon our business.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain sufficient intellectual property protection for our product or product candidates, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our product and product candidates successfully and to compete effectively may be adversely affected.

Our success depends in large part on our ability to obtain and maintain protection with respect to our intellectual property and proprietary technology. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our products and product candidates, including Selincro and tozadenant. The patent position of pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably, and can change. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in pharmaceutical or biotechnology patents. The patent applications that we own or in-license may fail to result in issued patents, and if they do, such patents may not cover our products or product candidates in the United States or in

 

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other countries. Accordingly, we cannot predict whether additional patents protecting our technology will issue in the United States or in non-U.S. jurisdictions, or whether any patents that do issue will have claims of adequate scope to provide us with a competitive advantage. Additionally, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our licensed and owned patents, the reproduction of our manufacturing or other know-how or marketing of competing products in violation of our proprietary rights generally. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

Competitors may use our technologies in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States and Europe. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Proceedings to enforce our patent rights in jurisdictions outside the United States, Europe and Japan, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we or our licensors, may only pursue, obtain or maintain patent protection in a limited number of countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found. We may be unaware of prior art that could be used to invalidate an issued patent or prevent our pending patent applications from issuing as patents. Even if patents do successfully issue and even if such patents cover our products or product candidates, third parties (including our licensees) may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Further, the existence of issued patents does not guarantee our right to practice the patented technology or commercialize the patented product. Third parties may have or obtain rights to patents which they may use to prevent or attempt to prevent us from commercializing Selincro or any of our patented product candidates. If these other parties are successful in obtaining valid and enforceable patents, and establishing our infringement of those patents, we could be prevented from selling Selincro or any of our other products unless we were able to obtain a license under such third-party patents. In addition, third parties may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or agency of competent jurisdiction may find our patents invalid and/or unenforceable.

Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our products or product candidates, prevent others from designing around our claims or otherwise provide us with a competitive advantage. Additionally, our confidentiality agreements and other contractual protections may not be adequate to protect our intellectual

 

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property from unauthorized disclosure, third-party infringement or misappropriation. We may not have adequate remedies in the case of a breach of any such agreements, and our trade secrets and other proprietary information could be disclosed to our competitors or others may independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technologies. In addition, the research resulting in certain of our licensed patent rights and technology has been, and may in the future be, funded by the U.S. government. As a result, the government may have certain rights, including march-in rights, to such patent rights and technology.

If the patent applications we own or have in-licensed with respect to Selincro, tozadenant or our other product candidates fail to issue as patents, if their breadth or strength of protection is narrowed or threatened, or if they fail to provide meaningful exclusivity, it could dissuade companies from collaborating with us and adversely affect our competitive position. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid or unenforceable or will be threatened by third parties. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product or product candidate that we may develop and could impair or eliminate our ability to collect future revenues and royalties with respect to such products or product candidates. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we were the first to file any patent application related to a product or product candidate. If third parties have prepared and filed patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the USPTO to determine priority of invention for patent applications filed before March 16, 2013, or in derivation proceedings to determine inventorship for patent applications filed after such date. In addition, patents have a limited lifespan. In the United States and most foreign jurisdictions, the natural expiration of a patent is generally 20 years after its effective filing date. Various extensions may be available; however, the life of a patent and the protection it affords is limited. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. Even if patents covering our product candidates are obtained, once such patents expire, we may be vulnerable to competition from similar or generic products. The launch of a generic version of one of our products in particular would be likely to result in an immediate and substantial reduction in the demand for our product, which could have a material adverse effect on our business.

Any loss of patent protection could have a material adverse impact on our business. We may be unable to prevent competitors from entering the market with a product that is similar to or the same as our products and product candidates.

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and obtaining and enforcing biopharmaceutical patents is costly, time consuming, and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, and these decisions have narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our and our licensors’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future decisions by the U.S. Congress, the federal courts and the USPTO, as well as similar bodies in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents and patents we and our licensors or collaborators may obtain in the future.

 

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Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation and switch the U.S. patent system from a “first to invent” system to a “first to file” system. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents, all of which could have a material adverse effect on our business and financial condition.

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our products and future approved products or impair our competitive position.

Patents could be issued to third parties that we may ultimately be found to infringe. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain or maintain a license to any technology that we require may materially harm our business, financial condition and results of operations. Furthermore, we would be exposed to a threat of litigation.

In the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation or proceedings include:

 

   

we or our collaborative partners may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our products or processes do not infringe those third parties’ patents;

 

   

if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation, inter partes review or opposition proceedings to determine the priority of invention, inventorship or validity of the applicable patent rights which could jeopardize our patent rights and potentially provide a third party with a dominant patent position;

 

   

if third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we and our collaborators will need to defend against such proceedings; and

 

   

if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or products infringe or misappropriate their patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings.

Any such lawsuit would be costly and could affect our results of operations and divert the attention of our management and scientific personnel. There is a risk that a court would decide that we or our collaborators are infringing the third-party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators may not have a viable alternative to

 

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the technology protected by the patent and may need to halt work on the affected product candidate or cease commercialization of an approved product. In addition, there is a risk that a court may order us or our collaborators to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities to third parties and require us to cease using the technology that is at issue or to license the technology from third parties. We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have a material adverse effect on our business.

The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity or enforceability of the patents in court. We may not have sufficient resources to bring these actions to a successful conclusion and there is no assurance that such a license would be available or that a court would find in our favor. In addition, if we do not obtain a license, develop or obtain noninfringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid or unenforceable, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.

The cost 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 cost of such litigation and proceedings more effectively than we can because of their substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

We are dependent on third parties for the prosecution, protection, and enforcement of intellectual property rights relating to some of our products and product candidates.

While we normally seek to obtain the right to control the prosecution, maintenance, enforcement and defense of intellectual property rights related to our products and product candidates, there may be times when our licensors or collaborators control, or have a first right to control, the filing, prosecution, enforcement and defense of such rights. For instance, pursuant to the Lundbeck License Agreement, Lundbeck has a first right to enforce our patent rights related to Selincro products against third party infringers worldwide. Similarly, under the terms of the Roche License Agreement, the Roche Entities have the first right to prosecute, maintain and enforce the licensed patent rights. We cannot be certain that our licensors or collaborators will prosecute, maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or the payment of all applicable prosecution and maintenance fees related to Selincro, tozadenant or any of our other product candidates. We also cannot be certain that the drafting or prosecution of the licensed patents by our licensors have been conducted in compliance with applicable laws and regulations, and will result in valid and enforceable patents and other intellectual property rights. If they fail to do so, we could lose our rights to the intellectual property, our ability to develop and commercialize those products or product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.

 

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We depend on licenses for development and commercialization rights to our products, product candidates and technologies. Termination of these rights or the failure to comply with obligations under these or other agreements under which we obtain such rights could materially harm our business and prevent us from developing or commercializing our products and product candidates.

We are party to various agreements, including the Roche License Agreement and our license and commercialization agreement with Medarex, Inc., or the Medarex License Agreement, that we depend on for rights to use various technologies that are material to our business, including intellectual property rights relating to Selincro, tozadenant and other product candidates. In each of these cases, our rights to use the licensed intellectual property are subject to the continuation of and our compliance with the terms of these agreements.

These agreements impose, and we may enter into additional licensing arrangements or other agreements with third parties that may impose, diligence, development and commercialization timelines, milestone payments, royalty, insurance and other obligations on us. For example, pursuant to the Roche License Agreement, we are obligated to make certain milestone payments to the Roche Entities upon the achievement of specified regulatory and commercial milestones. We are also obligated to pay the Roche Entities royalties on net sales of licensed products. Pursuant to the Medarex License Agreement, we are also obligated to make certain milestone payments upon the achievement of specified regulatory and commercial milestones and to pay royalties on net sales of licensed products.

We also have diligence and development obligations under certain of our license agreements. For example, pursuant to the Roche License Agreement, we are required to use commercially reasonable efforts to develop and commercialize licensed products in the United States, Europe and other countries in which we deem it commercially reasonable to do so. Similarly, under the Medarex License Agreement, we must use commercially reasonable efforts to obtain regulatory approvals for BTT1023 worldwide and to pursue commercial sales in countries where such approvals are obtained. If we fail to comply with our obligations under current or future licensing agreements, these agreements may be terminated or the scope of our rights under them may be reduced and we might not have the rights or the financial resources to develop, manufacture or market any product that is covered by these agreements. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, seek alternative sources of financing or cause us to lose our rights under these agreements, including our rights to tozadenant, Selincro and other important intellectual property or technology. Any of the foregoing could prevent us from developing or commercializing Selincro, tozadenant or our other product candidates, which could have a material adverse effect on our operating results and overall financial condition.

If trademarks and trade names related to our products or product candidates are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our registered or unregistered trademarks or trade names, as well as the registered or unregistered trademarks or trade names used by our licensees or distributors in relation with our products or product candidates, may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We, or our licensees or distributors, may not be able to protect our rights to these trademarks and trade names, which we, our licensees or distributors, need to build name recognition by potential partners or customers in our markets of interest. Over the long term, if we, our licensees or distributors, are unable to establish name recognition based on our trademarks and trade names, then we, our licensees or distributors, may not be able to compete effectively and our business may be adversely affected.

 

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If we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be adversely affected.

In addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements with our employees, consultants, collaborators, CMOs, CROs and others upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees as well as our personnel policies also generally provide that any inventions conceived by the individual in the course of rendering services to us shall be our exclusive property or that we may obtain full rights to such inventions at our election. However, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s assignee. Such assignment or license may not be available on commercially reasonable terms or at all.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade secrets would impair our competitive position and may materially harm our business, financial condition and results of operations. Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection against such independent discovery.

As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various non-U.S. patent offices at various points over the lifetime of our patents and/or applications. Additionally, the USPTO and various non-U.S. patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. There are situations in which noncompliance can result in abandonment

 

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or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on our business.

Certain of our current and former employees and patents are subject to Finnish law and therefore may be eligible to receive compensation based on our future income related to intellectual property invented or coinvented by these employees.

We are based in Finland, and therefore we are subject to Finnish employment law. According to the Finnish Act on the Right in Employee Inventions, which regulates the ownership of, and compensation for, inventions made by employees, several of our employees may be eligible to receive compensation based on our future income related to intellectual property invented or coinvented by these employees.

If we are required to pay additional compensation or face other disputes under the Finnish Act on the Right in Employee Inventions, our results of operations could be adversely affected.

Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Our internal computer systems and those of our current and any future collaborators and other contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.

Risks Related to Our Business and Industry

Our relationships with health care professionals, institutional providers, principal investigators, consultants, customers (actual and potential) and third-party payors are, and will continue to be, subject, directly and indirectly, to federal and state health care fraud and abuse, false claims, marketing expenditure tracking and disclosure, government price reporting, and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, fines, exclusion from government-funded health care programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.

Our business operations and activities may be directly or indirectly subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act. If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs. In addition, we may be subject to patient privacy regulation by the federal government and state governments in which we conduct our business. The laws that may affect our ability to operate include, but are not limited to:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in

 

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kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal health care program such as Medicare and Medicaid;

 

   

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

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any health care benefit program or making false statements relating to health care matters;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing regulations, which impose requirements on certain covered health care providers, health plans, and health care clearinghouses as well as their respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization;

 

   

the federal physician self-referral law, commonly known as the Stark Law, which prohibits a physician from making a referral to an entity for certain designated health services reimbursed by Medicare or Medicaid if the physician or a member of the physician’s family has a financial relationship with the entity, and which also prohibits the submission of any claims for reimbursement for designated health services furnished pursuant to a prohibited referral;

 

   

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

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

 

   

federal government price reporting laws, changed by the ACA to, among other things, increase the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program and offer such rebates to additional populations, that require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs (participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, and potentially limit our ability to offer certain marketplace discounts);

 

   

the Foreign Corrupt Practices Act, a U.S law which regulates certain financial relationships with foreign government officials (which could include, for example, certain medical professionals); and

 

   

analogous state and foreign laws and regulations.

In the European Union, the Data Protection Directive, or DPD, imposes strict regulations and establishes a series of requirements regarding the storage of personally identifiable information on computers or recorded on other electronic media. This has been implemented by all European Union member states through national laws. DPD provides for specific regulations requiring all non-European Union countries doing business with European Union member states to provide adequate data privacy protection when receiving personal data from persons in any of the European Union member states. In

 

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addition, the use and disclosure of personal health and other private information is subject to regulation in other jurisdictions in which we do business or expect to do business in the future. Those jurisdictions may attempt to apply such laws extraterritorially or through treaties or other arrangements with European governmental entities. We cannot assure you that our privacy and security policies and practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information.

In addition, the regulatory approval and commercialization of any of our product candidates outside the United States will also likely subject us to foreign equivalents of the health care laws mentioned above, among other foreign laws.

The ACA, among other things, amended the intent standard of the federal Anti-Kickback Statute and criminal health care fraud statutes to a stricter standard such that a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.

Efforts to ensure that our business arrangements will comply with applicable health care laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other health care laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, fines, exclusion from government funded health care programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.

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

We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently we have licensed Selincro to Lundbeck for commercial sale. In addition, the current and future use of product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, health care providers, pharmaceutical companies or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our product candidates.

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

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

 

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Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations, including, but not limited to:

 

   

decreased demand for Selincro, or our current or future product candidates;

 

   

injury to our reputation;

 

   

withdrawal of clinical trial participants;

 

   

initiation of investigations by regulators;

 

   

costs to defend the related litigation;

 

   

a diversion of management’s time and our resources;

 

   

substantial monetary awards to clinical trial participants or patients;

 

   

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

   

loss of revenue;

 

   

exhaustion of any available insurance and our capital resources;

 

   

the inability to commercialize our products or product candidates; and

 

   

a decline in the price of our shares or the ADSs.

We will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be adversely affected if we are subject to negative publicity. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Because of our dependence on consumer perceptions, any adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our financial condition or results of operations.

Price controls may be imposed in certain markets, which may adversely affect our future profitability.

In some countries, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various countries and parallel distribution, or arbitrage between low-priced and high-priced countries, can further reduce prices. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

 

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The impact of recent health care reform legislation and other changes in the health care industry and in health care spending on us is currently unknown, and may adversely affect our business model.

Our revenue prospects could be affected by changes in health care spending and policy in the United States, Europe and other countries. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, the method of delivery or payment for health care products and services could negatively impact our business, operations and financial condition.

The United States and state governments continue to propose and pass legislation designed to reduce the cost of health care. In March 2010, the U.S. Congress enacted the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, which include changes to the coverage and reimbursement of drug products under government health care programs such as:

 

   

increasing drug rebates under state Medicaid programs for brand name prescription drugs and extending those rebates to Medicaid managed care;

 

   

extending discounted rates on drug products available under the Public Health Service pharmaceutical pricing program to additional hospitals and other providers;

 

   

assessing a fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and Medicaid; and

 

   

requiring drug manufacturers to provide a 50% discount on Medicare Part D brand name prescription drugs sold to Medicare beneficiaries whose prescription drug costs cause the beneficiaries to be subject to the Medicare Part D coverage gap (i.e., the so-called “donut hole”).

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing health care legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of health care services to contain or reduce costs of health care may adversely affect:

 

   

the demand for any products for which we may obtain regulatory approval;

 

   

our ability to set a price that we believe is fair for our products;

 

   

our ability to obtain coverage and reimbursement approval for a product;

 

   

our ability to generate revenues and achieve or maintain profitability; and

 

   

the level of taxes that we are required to pay.

In addition, other legislative changes have been proposed and adopted since the 2010 health care reform legislation. The Budget Control Act of 2011, as amended, or the Budget Control Act, includes provisions intended to reduce the federal deficit. The Budget Control Act resulted in the imposition of 2% reductions in Medicare payments to providers beginning in 2013. Recent legislation extends reductions through 2023. Any significant spending reductions affecting Medicare, Medicaid or other publicly funded or subsidized health programs that may be implemented, and/or any significant taxes or fees that may be imposed on us, as part of any broader deficit reduction effort or legislative replacement to the Budget Control Act, could have an adverse impact on our anticipated product revenues.

 

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We and our contract manufacturers and our suppliers could be subject to liabilities, fines, penalties or other sanctions under environmental, health and safety laws and regulations if we or they fail to comply with such laws or regulations or otherwise incur costs that could have a material adverse effect on the success of our business.

We currently rely on and expect to continue to rely on third parties for the manufacturing and supply of active pharmaceutical ingredient, or API, and drug products of our product candidates, including tozadenant, SYN120 and BTT1023. These third parties are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, transportation, use, storage, treatment and disposal of hazardous materials and wastes. Although we have auditing rights with all our CMOs for production of API and drug products, we do not have control over a manufacturer’s or supplier’s compliance with environmental, health and safety laws and regulations. Liabilities they incur pursuant to these laws and regulations could result in significant costs or in certain circumstances, an interruption in operations, any of which could adversely affect our business and financial condition if we are unable to find an alternate supplier in a timely manner.

We currently do not operate any manufacturing facility or laboratories to produce hazardous materials. With respect to any hazardous materials or waste which we are currently, or in the future will be, handling, using, storing or disposing of, we cannot eliminate the risk of contamination or injury from these materials or wastes, including at third-party disposal sites. In the event of such contamination or injury, we could be held liable for any resulting damages and liability. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with applicable environmental, health and safety laws. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations may also result in substantial fines, penalties or other sanctions.

Risks Related to Employee Matters and Managing Growth

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our products, conduct our clinical trials and commercialize our product candidates.

We are highly dependent on the members of our senior management, which consists of, Timo Veromaa, our CEO, David Cook, our CFO, Stephen Bandak, our CMO and Mehdi Paborji, our COO. The loss of the services of any of these persons could impede the achievement of our research, development and commercialization objectives. Also, each of these persons may terminate their employment with us at any time, subject to their individual employment terms and conditions. We do not maintain “key person” insurance for any of our executives or other employees.

Recruiting and retaining qualified scientific, clinical, manufacturing, sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, sometimes we may rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors, including our scientific co-founders, may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

 

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We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance our product candidates through clinical trials and commercialization, we plan to determine the most appropriate commercial strategy, which may involve setting up our own infrastructure, partnering with another commercial company, or a combination of both to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, if necessary, sales and marketing personnel. Due to our limited financial resources, we may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company or disrupt our operations.

Risks Related to the American Depositary Shares, Our Shares and This Offering

We do not know whether a market will develop for the ADSs or what the market price of the ADSs will be and, as a result, it may be difficult for you to sell your ADSs.

If a market for the ADSs does not develop or is not sustained, it may be difficult for you to sell your ADSs at an attractive price, or at all. Certain of our existing investors and members of our board of directors have indicated an interest in purchasing up to an aggregate of $25 million of ADSs in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities and persons may determine to not purchase any ADSs in this offering. It is also possible that these entities and persons and additional existing investors could indicate an interest in purchasing more of the ADSs. In addition, the underwriters could determine to sell fewer ADSs to any of these entities or persons than such entities or persons indicate an interest in purchasing or to not sell any ADSs to these entities and persons. In addition, the underwriters may place the remaining portion of this offering with a limited number of investors. Therefore, trading of the ADSs may be very limited. Further, an inactive market may also impair our ability to raise capital by selling our shares and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares as consideration. We cannot predict the prices at which the ADSs will trade. It is possible that in one or more future periods, our results of operations may be below the expectations of public market analysts and investors and, as a result of these and other factors, the price of the ADSs may fall.

The market price of the ADSs may be highly volatile, and you may not be able to resell your ADSs at or above the initial public offering price.

The initial public offering price for the ADSs will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. Because of our relatively small public float the ADSs may be less liquid than the shares of companies with broader public ownership and trading of a relatively small volume of ADSs may have a greater impact on the market price for the ADSs than would be the case if our public float were larger. The market price of the ADSs may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

results and timing of clinical trials of our and our competitors’ product candidates;

 

   

failure of any of our product candidates, if approved, to achieve commercial success;

 

   

competition from existing products or new products that may emerge;

 

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

 

   

commencement or termination of any licensing arrangement;

 

   

issues in manufacturing our product candidates or future approved products;

 

   

the passage of legislation or other regulatory developments affecting us or our industry;

 

   

regulatory actions with respect to our products or our competitors’ products;

 

   

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

 

   

changes to coverage policies or reimbursement levels by commercial third-party payors and government payors and any announcements relating to coverage policies or reimbursement levels;

 

   

lawsuits threatened or filed against us;

 

   

disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain intellectual property protection for our technologies;

 

   

failure to adequately protect our trade secrets;

 

   

additions and departures of key personnel;

 

   

announcement or expectation of additional financing efforts;

 

   

our inability to raise additional capital or the terms on which we raise it;

 

   

period-to-period fluctuations in our financial condition and results of operations, including the timing of receipt of any milestone or other payments under commercialization or licensing agreements;

 

   

publication of research reports by securities analysts about us or our competitors or our industry;

 

   

our failure or the failure of our competitors to meet projections of the investment community or guidance that we or our competitors may give to the market;

 

   

fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

   

strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;

 

   

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

   

speculation in the press or investment community;

 

   

sales of our shares or of the ADSs by us, our insiders or our other shareholders;

 

   

changes in accounting principles;

 

   

terrorist acts, acts of war or periods of widespread civil unrest;

 

   

natural disasters and other calamities;

 

   

changes in market conditions for biopharmaceutical stocks;

 

   

changes in general market and economic conditions; and

 

   

other risk factors discussed in this section.

 

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In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of the ADSs, regardless of our operating performance. As a result of this volatility, you may not be able to sell your shares at or above the initial public offering price. As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent our markets. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

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

The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover us, the trading price for the ADSs and our shares would likely be negatively impacted. If one or more of the analysts who covers us downgrades the ADSs or our shares or publishes incorrect or unfavorable research about our business, the price of the ADSs or our shares would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, or downgrades the ADSs our shares, demand for the ADSs our shares could decrease, which could cause the price of the ADSs or trading volume to decline.

You will incur immediate and substantial dilution as a result of this offering.

If you purchase ADSs in this offering, you will incur immediate and substantial dilution of €(7.75) ($(8.70)) per ADS, after giving effect to the sale by us of the 3,777,919 ADSs (representing 302,233,506 shares) offered by us in the offering and the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings upon the completion of this offering, and considering an offering price of $14.82 per ADS, based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Dilution for this purpose represents the difference between the price per ADS paid by new investors and net tangible book value per ADS immediately after the completion of the offering and the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings upon the completion of this offering. As a result of the dilution to investors purchasing ADSs in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For more information on the dilution you may suffer as a result of investing in this offering, see “Dilution.”

We do not currently intend to pay dividends on our securities and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our shares and the ADSs. In addition, any distribution of dividends must be in accordance with the rules and restrictions applying under Finnish law.

We have not declared or paid any cash dividends on our shares since our incorporation and do not currently intend to pay cash dividends on our shares in the foreseeable future, as we currently have significant cumulative losses and so do not have distributable reserves. Currently, we have not adopted a dividend policy. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business. Therefore, you are not likely to receive any dividends on your ADSs for the foreseeable future and the success of an investment in ADSs will depend upon any future

 

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appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which our shareholders have purchased the ADSs. Investors seeking cash dividends should not purchase the ADSs.

Further, under the Finnish Companies Act, a company may distribute only the unrestricted equity less the funds to be left undistributed according to the articles of association, if any. In addition, repayment of the capital and accrued interests of our capital loans may restrict our ability to pay dividends in the future. Our capital loans and their terms and conditions have been described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity.”

In addition, exchange rate fluctuations may affect the amount of euros that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon the payment of cash dividends or other distributions we declare and pay in euros, if any. These factors could harm the value of the ADSs, and, in turn, the U.S. dollar proceeds that holders receive from the sale of the ADSs.

The dual listing of our shares and the ADSs following this offering may adversely affect the liquidity and value of the ADSs.

Following this offering and after the ADSs are traded on the NASDAQ, our shares will continue to be listed on the Finnish Stock Exchange. Trading of the ADSs or shares in these markets will take place in different currencies (U.S. dollars on the NASDAQ and euros on the Finnish Stock Exchange), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Finland). The trading prices of our shares on these two markets may differ due to these and other factors. Any decrease in the price of our shares on the Finnish Stock Exchange could cause a decrease in the trading price of the ADSs on the NASDAQ. Investors could seek to sell or buy our shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the shares available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs. We cannot predict the effect of this dual listing on the value of our shares and the ADSs. However, the dual listing of our shares and the ADSs may reduce the liquidity of these securities in one or both markets and may adversely affect the development of an active trading market for the ADSs in the United States. Although our shares will initially continue to be listed on the Finnish Stock Exchange following this offering, we may decide at some point in the future to delist our shares from the Finnish Stock Exchange, and our shareholders may approve such delisting. We cannot predict the effect such delisting of our shares on the Finnish Stock Exchange would have on the market price of the ADSs on the NASDAQ. Furthermore, in connection with any distributions of payments under the deposit agreement, the depositary may convert foreign currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion will be the most favorable rate that could be obtained at the time or as to the method by which that rate will be determined, subject to its obligations under the deposit agreement.

 

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

Our management will have broad discretion in the application of the net proceeds that we receive from this offering as well as of our existing liquid assets, including applications for working capital, possible acquisitions and other general corporate purposes, and we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from the offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

A significant portion of our shares may be sold into the public market in the near future, which could cause the market price of the ADSs or shares to drop significantly, even if our business is doing well.

Future sales of our shares or the ADSs in the public market after this offering and the availability of shares for future sale could adversely affect the market price of the ADSs prevailing from time to time. As described in the section entitled “Shares and American Depositary Shares Eligible for Future Sale,” certain of our shares currently outstanding will not be available for sale shortly after this offering due to contractual restrictions on transfers of shares. However, sales of substantial numbers of ADSs or shares, or the perception that these sales could occur, could adversely affect prevailing market prices for the ADSs and could impair our future ability to raise equity capital.

We have entered into a registration rights agreement with certain of the investors in the Convertible Notes Financings pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of the shares and ADSs held by them or shares issuable upon exercise of the warrants held by them, as well as to cooperate in certain public offerings of such shares and ADSs. In addition, the shares subject to our equity incentive plans and the shares reserved for future delivery under such plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Following this offering, we intend to file one or more registration statements on Form S-8 with the U.S. Securities and Exchange Commission, or the SEC, covering ADSs (equivalent to shares) available for future issuance under our equity incentive plans. Upon effectiveness of such registration statements, any shares subsequently issued under such plans will be eligible for sale in the public market, except to the extent that they are restricted by the lock-up agreements referred to above and subject to compliance with Rule 144 in the case of our affiliates. Sales of a large number of the shares issued under these plans in the public market could have an adverse effect on the market price of the ADSs. See “Shares and American Depositary Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future. If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of the ADSs could decline substantially.

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

Our shares currently trade on the Finnish Stock Exchange and are denominated in euros, while the ADSs that we expect will trade on the NASDAQ will be denominated 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 the ADSs and the value of our shares, which may result in heavy trading by investors seeking to exploit such differences. 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 the ADSs would receive upon the sale in Finland of any shares withdrawn from the depositary and the U.S. dollar equivalent of any cash dividends paid in euros on our shares represented by the ADSs could also decline.

 

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Holders of the ADSs are not treated as shareholders of our company.

By participating in this offering you will become a holder of ADSs with underlying shares in a Finnish public limited liability company. Holders of the ADSs are not treated as shareholders of us, unless they withdraw the shares underlying the ADSs from the depositary. The depositary is the holder of the shares underlying the ADSs. Holders of ADSs therefore do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement, see “Description of American Depositary Shares.”

You may not be able to exercise your right to vote the shares underlying your ADSs.

Holders of ADSs may exercise voting rights with respect to the shares represented by the ADSs only in accordance with the provisions of the deposit agreement. You may instruct the depositary to vote the number of whole deposited shares your ADSs represent. The depositary will notify you of general meetings of shareholders or other solicitations of consents and arrange to deliver our voting materials to you if we ask it to. Those materials will describe the matters to be voted on and explain how you may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary.

You may instruct the depositary to vote the shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the shares underlying the ADSs you hold. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions provided that any such failure is in good faith. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested. If we do not tell the depositary to ask for your instructions, you can still instruct the depositary how to vote, and the depositary may vote as you instruct, but it is not required to do so.

Our management may have the right to vote the shares underlying your ADSs

Under the deposit agreement, if the depositary asks for your instructions how to vote the shares underlying your ADSs but does not receive those instructions by a specified date, the depositary may give a proxy to our management to vote those shares. This provision may tend to increase the power of our management as against shareholders and make it more difficult for ADSs holders and our shareholders to exercise effective control over our board of directors and other matters submitted to a vote by shareholders.

Your right as a holder of ADSs to participate in any future preemptive subscription rights issues or to elect to receive dividends in shares may be limited, which may cause dilution to your holdings.

Under Finnish law, the existing shareholders have a preemptive right to subscribe for shares offered in proportion to the amount of shares in their possession in connection with any offering of shares. However, a general meeting of shareholders may vote, by a majority which represents at least two-thirds of the votes cast and two-thirds of the shares represented at the meeting, to waive this preemptive right provided that, from the company’s perspective, there is a weighty financial reason for the waiver.

Certain non-Finnish shareholders may not necessarily be able to exercise their preemptive subscription rights in our future offerings due to the legislation and regulations of their home country. For example, ADS holders in the United States will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary need not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are

 

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under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

You may be subject to limitations on the transfer of your ADSs and the withdrawal of the underlying shares.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason subject to your right to cancel your ADSs and withdraw the underlying shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our shares. In addition, you may not be able to cancel your ADSs and withdraw the underlying shares when you owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from NASDAQ corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

We are a “foreign private issuer,” as defined in the SEC’s rules and regulations. The NASDAQ Listing Rules include certain accommodations in the corporate governance requirements that allow foreign private issuers to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of NASDAQ . The application of such exceptions requires that we disclose the NASDAQ Listing Rules that we do not follow and describe the Finnish corporate governance practices we do follow in lieu of the relevant NASDAQ corporate governance standard. If and when the ADSs are listed on NASDAQ, we intend to continue to follow Finnish corporate governance practices in lieu of the corporate governance requirements of NASDAQ in certain respects. In accordance with the Finnish Companies Act, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of NASDAQ Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock. Although we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Finnish law does not have regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally required in Finland, thus our practice will vary from the requirement of NASDAQ Listing Rule 5620(b). In addition, we have opted out of shareholder approval requirements for the issuance of securities in connection with certain events such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements of NASDAQ

 

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Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. Finnish law does not require the implementation of a remuneration committee. Although we do have a remuneration committee, our practice will vary from NASDAQ Listing Rule 5620(d) which sets forth certain requirements as to the responsibilities, composition and independence of a compensation committee. Accordingly, our shareholders may not have the same protection afforded to shareholders of companies that are subject to these NASDAQ requirements.

For an overview of our corporate governance principles, see “Description of Share Capital and Articles of Association—Corporate governance.”

We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter.

In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. Our foreign private issuer status will be tested on June 30 of each year. We expect that we will maintain our status on June 30, 2015, but in the future we may lose the status if, for example, more than 50% of our executive officers or members of our board of directors are residents or citizens of the United States.

The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP, rather than IFRS. Such conversion of our financial statements to U.S. GAAP would involve significant time and cost, and we would still be required to prepare financial statements in accordance with IFRS under Finnish Stock Exchange requirements. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on United States stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

We are eligible to be treated as an “emerging growth company,” as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) the ability to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; (2) an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act; and (3) to the extent that we no longer qualify as a foreign private issuer, (a) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and (b) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, including golden parachute compensation.

 

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We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our shares held by non-affiliates, or issue more than $1.0 billion of nonconvertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. For example, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under IFRS, as issued by the International Accounting Standards Board, or IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

The rights of shareholders in companies subject to Finnish corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.

We are a Finnish company with limited liability. Our corporate affairs are governed by our articles of association. The rights of shareholders and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders in companies governed by the laws of United States jurisdictions.

Our bylaws and Finnish corporate law contain provisions that may delay or discourage a takeover attempt.

Provisions contained in our articles of association and Finnish corporate laws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. In addition, under Finnish law, certain measures are possible and permissible that may reduce the likelihood of a company becoming subject to a public tender offer. These may include provisions in the articles of association concerning, for example, the maximum number of votes that a shareholder can cast at a shareholders’ meeting, increased majority voting requirements for certain types of shareholder decisions, or a duty to make an offer to purchase outstanding shares at a price specified in the articles of association to all other shareholders upon exceeding a certain ownership threshold. We have not currently adopted any specific provisions in our articles of association that may have the effect of making a takeover of us more difficult or less attractive but there is no guarantee that our shareholders will not adopt such provisions in the future which may delay or discourage a takeover attempt.

U.S. investors may have difficulty enforcing civil liabilities against our company and directors and senior management and the experts named in this prospectus.

We are incorporated under the laws of Finland. Some of our assets are located outside the United States and certain of our directors and members of senior management reside outside of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them or us in U.S. courts’ judgments predicated upon the civil liability provisions of the federal securities laws of the United States. Foreign courts may refuse to hear a United States securities law claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim.

 

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Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. We have been advised by Hannes Snellman Attorneys Ltd, our Finnish counsel, that there is currently no treaty between the United States and Finland providing for reciprocal recognition and enforceability of judgments rendered in connection with civil and commercial disputes and, accordingly, a final judgment rendered by a U.S. court based on civil liability would not be enforceable in Finland as such. However, a U.S. court’s judgment may carry evidentiary value in any proceedings for civil liability brought in the Finnish courts. See “Service of Process and Enforcement of Judgments.”

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our shares.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements, or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our shares.

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

We may be classified as a “passive foreign investment company,” or PFIC, in 2015 or any future years. U.S. investors may suffer adverse U.S. federal income tax consequences if we are a PFIC for any taxable year.

Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income” or (ii) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, “passive income.” Passive income generally includes interest, dividends, rents and royalties (except to the extent derived in the active conduct of a trade or business) and the excess of gain over losses from disposition of assets which produce passive income. Whether we will be a PFIC in 2015 or any future years depends on the composition of our income and assets, and the relative fair market value of our assets from time to time, which has varied, and we expect will continue to vary, substantially over time. Because (i) we currently own, and will own after the completion of this offering, a substantial amount of passive assets, including cash, and (ii) the valuation of our assets that generate non-passive income for PFIC purposes, including our intangible assets, is uncertain and may vary substantially over time, it is uncertain whether we will be, and there can be no assurance that we will not be, a PFIC in 2015 or any future years. In addition, we may, directly or indirectly, hold equity interests in other entities, including certain of our subsidiaries, that are PFICs, or Lower-tier PFICs.

 

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If we were a PFIC for any taxable year during which a U.S. investor holds ADSs, we generally would continue to be treated as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds ADSs, even if we ceased to meet the threshold requirements for PFIC status. Such a U.S. investor may be subject to adverse tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements.

For further discussion of the adverse U.S. federal income tax consequences if we are classified as a PFIC, see “Taxation — Material U.S. Federal Income Tax Considerations for U.S. Holders.”

Failure by a Finnish resident investor to file a transfer tax notice with the Finnish tax authorities will result in a transfer tax payable by such Finnish resident investor.

The initial public offering of the ADSs is expected to be carried out as a sale of existing ADSs by the underwriters and not as an issue of new ADSs. Therefore, as no Finnish intermediary will be involved in the sale of the ADSs, any investors resident in Finland for tax purposes will have an obligation to file with the Finnish tax authorities a transfer tax notification. Such filing obligation does not exist with respect to investors not resident in Finland for tax purposes. Should an investor resident in Finland for tax purposes not comply with this filing obligation, the sale of ADSs will not qualify for the transfer tax exemption and Finnish transfer tax will be payable by the investor at a rate of 1.6%.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless otherwise indicated in this prospectus, all references in this prospectus to “$,” “dollars” and “USD” mean U.S. dollars, all references to “€” and “euros” mean euros, and are to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community and all references to “CHF” mean Swiss Franc. Unless otherwise indicated, throughout this prospectus and solely for convenience conversions from one currency to another:

 

   

relating to payments made or received on or before March 31, 2015 were made at the rate used in preparation of the relevant financial statements; and

 

   

relating to future payments were made at the euro to dollars rate of €1.00=$1.1029, the official rate quoted by the European Central Bank on June 2, 2015.

These conversions should not be considered representations that any such amounts have been, could have been or could be converted into such other currency at that or any other exchange rate as at that or any other date.

Financial Statements

We report under IFRS as issued by the IASB. We present our consolidated financial statements in euros and in accordance with IFRS.

This prospectus contains our audited consolidated financial statements as of and for the years ended December 31, 2014 and 2013 and our unaudited condensed consolidated financial statements as of March 31, 2015 and for the three-month periods ended March 31, 2015 and 2014, which have been prepared in accordance with IFRS as issued by IASB.

Market Share and Other Information

This prospectus contains industry, market and competitive position data that are based on industry publications and studies conducted by third parties as well as our own internal estimates and research. This information involved a number of assumptions and limitations, and you are cautioned not to give undue weight to this information. These industry publications and third-party studies generally state that the information that they contain has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

Rounding

The figures presented in this prospectus, including the financial information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum of the numbers in a column or row may not conform exactly to the total figure given for that column or row. In addition, certain percentages presented in this prospectus reflect calculations based upon the underlying figures prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

 

   

our operation as a development stage company with a history of net losses;

 

   

our dependence on cash generation from milestones and royalties in connection with sales of Selincro and other sources of non-dilutive funding;

 

   

the adequacy of our capital resources to successfully complete the development and commercialization of our product candidates;

 

   

our ability to raise additional capital, if required;

 

   

our dependence on the success of tozadenant and our other product candidates, which are still in clinical development and may eventually prove unsuccessful;

 

   

the substantial value allocated to our intangible assets and goodwill resulting from business combinations and potential for impairment;

 

   

uncertainties as to timelines and outcomes in the clinical drug development process;

 

   

uncertainty surrounding whether any of our product candidates will receive regulatory approval, which is necessary before they can be commercialized;

 

   

development and marketing of competing products that are more effective, safer or less expensive than our product candidates;

 

   

our dependence on licenses for development and commercialization rights to our products, product candidates or technologies;

 

   

our dependence on the success of our strategic partnerships and collaborations;

 

   

our reliance on third parties to conduct our nonclinical and clinical trials and perform other tasks for us;

 

   

our reliance on third-party suppliers and other third parties for production of our product candidates;

 

   

our ability to obtain and maintain sufficient intellectual property protection for our product or product candidates;

 

   

our ability to attract and keep senior management and key scientific personnel; and

 

   

other risk factors discussed under “Risk Factors.”

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

 

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MARKET INFORMATION

Our shares have been trading on the Finnish Stock Exchange under the symbol “BTH1V” since October 31, 2002.

The following table sets forth for the periods indicated the reported high and low closing sale prices per ordinary share in euros and the average daily trading volume on the Finnish Stock Exchange.

 

Period

   High      Low      Average
Daily
Trading
Volume
 

Annual

        

2010

   0.58       0.31         357,340   

2011

   0.73       0.38         961,802   

2012

   0.53       0.33         333,332   

2013

   0.45       0.27         631,682   

2014

   0.36       0.19         498,417   

Quarterly

        

First Quarter 2013

   0.45       0.36         651,975   

Second Quarter 2013

   0.40       0.33         517,178   

Third Quarter 2013

   0.36       0.32         357,784   

Fourth Quarter 2013

   0.36       0.27         1,021,910   

First Quarter 2014

   0.36       0.22         496,473   

Second Quarter 2014

   0.25       0.22         387,628   

Third Quarter 2014

   0.25       0.19         608,003   

Fourth Quarter 2014

   0.22       0.19         490,919   

First Quarter 2015

   0.23       0.18         625,317   

Month Ended

        

December 2014

   0.21       0.19         611,313   

January 2015

   0.20       0.19         318,452   

February 2015

   0.23       0.19         1,023,114   

March 2015

   0.19       0.18         542,651   

April 2015

   0.18       0.16         883,883   

May 2015

   0.17       0.14         852,159   

June 2015 (through June 2, 2015)

   0.17       0.17         129,028   

 

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USE OF PROCEEDS

We expect to receive total estimated net proceeds of approximately $49.1 million €44.5 million), assuming that the number of ADSs offered by us, price per ADS, exchange rate and ratio of shares to ADSs, each as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and expenses of the offering that are payable by us ($49.7 million (€45.1 million) if the underwriters exercise in full their option to purchase additional ADSs).

As of March 31, 2015, our liquid assets amounted to €27.8 million. We define “liquid assets” as cash and cash equivalents together with our financial assets at fair value through profit or loss, which consists of money market funds. We intend to use the net proceeds from this offering, together with a portion of our current liquid assets (which subsequent to March 31, 2015 includes €30.3 million in net proceeds from the Convertible Notes Financings) to fund our Phase 3 double-blind clinical trial (and extension) of tozadenant in Parkinson’s through completion, which we expect to require an investment of approximately €75 million, including all related studies that will be performed. We intend to fund the SYN120 Phase 2a clinical trial in Parkinson’s dementia and the BTT1023 Phase 2 clinical trial in PSC, which we expect to cost approximately €5 million in total, and other working capital requirements, with our remaining liquid assets, milestone and royalty revenues from Lundbeck for Selincro, and already identified non-dilutive sources.

Our expected use of the net proceeds from this offering represents our current intentions based upon our present plans and business conditions, which could change in the future as our plans and business conditions evolve. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures depend on numerous factors, including the ongoing status of and results from our clinical trials and other studies, the level and timing of milestones and royalties received from Lundbeck for our marketed product, Selincro, and any unforeseen cash needs. As a result, our management will have broad discretion in applying the net proceeds of this offering and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue other clinical trials or preclinical activities if the net proceeds from this offering and our other sources of cash are less than expected.

Each $1.00 (€0.91) increase or decrease in the assumed initial public offering price of $14.82 (€13.44) per ADS (based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro) would increase or decrease our net proceeds from this offering by $3,513,465 (€3,185,600), assuming that the other assumptions set forth on the cover of this prospectus remain the same and after deducting underwriting discounts and commissions. We may also increase or decrease the number of ADSs we are offering. Each increase or decrease of 100,000 ADSs in the number of ADSs offered by us would increase or decrease the net proceeds to us from the sale of the ADSs we are offering by $1,378,537 (€1,249,920), assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions. Each increase of 100,000 ADSs in the number of ADSs offered by us together with a concomitant $1.00 (€0.91) increase in the assumed initial public offering price would increase the net proceeds to us from the sale of the ADSs we are offering by $4,985,001 (€4,519,903), after deducting underwriting discounts and commissions. We believe it is unlikely that we would offer additional ADSs at the assumed initial public offering price or any higher offering price because we intend to raise no more than $95 million in aggregate from this offering and the sale of the convertible notes in the Convertible Notes Financings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Subsequent Events — The Convertible Notes Financings.” Each decrease of 100,000 ADSs in the number of ADSs offered by us together with a concomitant $1.00 (€0.91) decrease in the assumed initial public offering price would decrease the net proceeds to us from the sale of the ADSs we are offering by $4,799,001 (€4,351,257), after deducting

 

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underwriting discounts and commissions. The information on net proceeds payable to us discussed above is illustrative only and will adjust based on the actual initial public offering price, the actual number of ADSs offered by us, and other terms of the offering determined at pricing.

Pending their use, we intend to invest the net proceeds from this offering in a variety of capital preservation investments, including money market deposits and investment funds that will be designated as financial assets at fair value through profit and loss in our consolidated statement of financial position.

We will not receive any proceeds from ADSs sold by the selling shareholder pursuant to the underwriters’ option to purchase additional ADSs.

 

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DIVIDENDS AND DIVIDEND POLICY

We have not declared or paid any cash dividends on our shares since our incorporation and do not currently intend to pay cash dividends on our shares in the foreseeable future, as we do not expect to have distributable reserves that would enable us to pay a dividend, in the foreseeable future. Currently, we have not adopted a dividend policy. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.

Each of our shares confers equal rights to share in the distribution of our funds. Under the Finnish Companies Act (624/2006), as amended, or the Finnish Companies Act, the annual general meeting of shareholders decides on the distribution of dividends, if any, on the basis of the proposal of our board of directors in connection with the adoption of our audited financial statements. Any material changes in a company’s financial situation after the preparation of the financial statements is required to be taken into account in the distribution of dividends. Pursuant to the Finnish Companies Act, the distribution of dividends shall be based on the latest adopted and audited financial statements and a company may also pay interim dividends based on the earnings of the current financial year in accordance with the audited financial statements adopted by an extraordinary general meeting of shareholders. A company may distribute only the unrestricted equity less the funds to be left undistributed according to the articles of association, if any. No funds may be distributed if at the time of deciding on the distribution it is known or it should be known that the company is insolvent or that the distribution will result in insolvency. A dividend or other distribution of assets may not exceed the amount proposed or approved by our board of directors. However, if shareholders holding a minimum of one-tenth of all shares so demand at an annual general meeting of shareholders prior to a decision regarding the use of the profit, and sufficient distributable funds are available, the profit to be distributed shall equal at least half of the profit of the financial year after deduction of items to be left undistributed under the articles of association, if any. According to the Finnish Companies Act, shareholders may not, however, request a distribution of profit exceeding 8% of shareholders’ equity. The dividend for the financial year potentially distributed prior to the annual general meeting of shareholders shall be deducted from the distributable amount. The payment of any dividend requires the approval of the majority of the votes cast at the annual general meeting of shareholders. According to the Finnish Companies Act, the annual general meeting of shareholders may also authorize our board of directors to resolve on the distribution of dividends on the basis of adopted financial statements. Such authorization is required to define the maximum amount of dividends to be distributed thereunder and may not remain in effect after the following annual general meeting of shareholders.

Even if our board of directors decides to propose dividends in the future, the form, frequency and amount of such dividends will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors our board of directors may deem relevant.

Repayment of the capital and accrued interests of our capital loans may restrict our ability to pay dividends in the future. Our capital loans and their terms and conditions have been described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity.” We did not have any distributable assets as at March 31, 2015 and had retained earnings which was an accumulated deficit of €160.8 million at March 31, 2015. See also “Description of Share Capital and Articles of Association — Shareholders’ Rights — Dividend and Other Distribution of Funds” and “Description of American Depositary Shares.”

 

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CAPITALIZATION

Investors should read this table together with our consolidated financial statements, including the notes thereto, included in this prospectus, as well as “Use of Proceeds,” “Selected Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     As at March 31, 2015  
     Actual     Pro Forma(1)     Pro Forma
As Adjusted(2)
 
     (€ thousands)  

Cash and cash equivalents

     6,315        36,653        81,153   
  

 

 

   

 

 

   

 

 

 

Financial assets at fair value through profit or loss

     21,513        21,513        21,513   
  

 

 

   

 

 

   

 

 

 

Non-current debt(3)

     30,376        30,376        30,376   
  

 

 

   

 

 

   

 

 

 

Shareholders’ equity

      

Share capital (ordinary shares, no nominal value, 455,468,174 shares outstanding on an actual and a pro forma basis (including 3,695,284 treasury shares); 946,219,519 shares outstanding on a pro forma as adjusted basis (including 3,695,284 treasury shares))

     193,285        223,700        268,201   

Reserve for invested unrestricted equity

     5,389        5,389        5,389   

Other reserves

     17,210        17,210        17,210   

Retained earnings

     (160,789     (160,789     (160,789
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity(4)

     55,095        85,510        130,011   
  

 

 

   

 

 

   

 

 

 

Total capitalization(5)

     85,471        115,886        160,387   
  

 

 

   

 

 

   

 

 

 

 

(1)   The unaudited pro forma balance sheet data gives effect to the Convertible Notes Financings and the automatic conversion of the convertible notes issued in the Convertible Notes Financings into shares. For pro forma purposes, we have preliminarily evaluated the accounting under IAS 32 for the convertible notes and warrants and expect that the subscription price will be recorded in full in equity as share capital in accordance with the Finnish Companies Act, net of transaction costs, as the instruments will be settled in our shares based on a fixed conversion ratio. As a result, the net proceeds from the convertible notes will result in an increase of cash of approximately €30.3 million with a corresponding amount recorded in share capital at issuance.

 

(2)   The unaudited pro forma as adjusted balance sheet data gives effect to the following transactions: (i) the Convertible Notes Financings; (ii) the automatic conversion of the convertible notes issued in connection with the Convertible Notes Financings upon the completion of this offering into          shares; and (iii) the issuance and sale of 3,777,919 ADSs representing 302,233,506 shares in this offering by us assuming an initial public offering price of $14.82 per ADS, based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro, after deducting estimated underwriting discounts and commissions and offering expenses payable by us, as set forth under “Use of Proceeds”; and excludes the underwriters’ option to purchase additional ADSs. The automatic conversion of the convertible notes into shares will not impact cash.

The pro forma as adjusted information is presented for informational purposes only and is not necessarily indicative of what our financial position and results would have been had these transactions actually occurred at such date nor is it indicative of our future financial position or performance.

 

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The pro forma as adjusted data does not reflect the effects of the conversion of the warrants, which are exercisable into 220,440,001 of our shares for an exercise price of €0.17 and proceeds of €37.5 million.

 

(3)   Non-current debt comprises non-current financial liabilities relating to debt of €20.7 million, and related accrued accumulated interest on that debt of €9.6 million and a finance lease of €0.1 million as of March 31, 2015.

 

(4)   Each $1.00 (€0.91) increase or decrease in the assumed initial public offering price of $14.82 (€13.44) per ADS (based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro) would increase or decrease each of our pro forma as adjusted cash and cash equivalents, shareholders’ equity and total capitalization by approximately $3,513,465 (€3,185,660), assuming that the assumptions set forth on the cover page of this prospectus remain the same. We may also increase or decrease the number of ADSs we are offering. Each increase or decrease of 100,000 ADSs in the number of ADSs offered by us would increase or decrease our pro forma as adjusted cash and cash equivalents, shareholders’ equity and total capitalization by approximately $1,378,537 (€1,249,920), assuming that the assumptions set forth on the cover page of this prospectus remain the same. We believe it is unlikely that we would offer additional ADSs at the assumed initial public offering price or any higher offering price because we intend to raise no more than $95 million in aggregate from this offering and the sale of the convertible notes in the Convertible Notes Financings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Subsequent Events — The Convertible Notes Financings.” The pro forma as adjusted information discussed above is illustrative only and will adjust based on the actual initial public offering price, the actual number of ADSs offered by us, the exchange rate and other terms of the offering determined at pricing.

 

(5)   Total capitalization consists of non-current debt and total shareholders’ equity.

The table above does not reflect the effects of:

 

   

a maximum of 2,824,772 shares issuable upon exercise of options outstanding pursuant to our Swiss option scheme, at a weighted-average exercise price of €0.24 per share, and which will be settled from the current treasury shares held by us;

 

   

a maximum of 2,678,000 shares issuable upon the exercise of options outstanding pursuant to our stock option plan 2011, at an exercise price of €0.01 per share, and of which a maximum of 720,500 shares will be settled from the current treasury shares held by us;

 

   

a maximum of 945,000 shares issuable upon the settlement of share units outstanding pursuant to our equity incentive plan 2011, at a subscription price of nil, a maximum of 150,000 shares of which will be settled from the current treasury shares held by us;

 

   

a maximum of 7,412,000 shares issuable upon the exercise of options outstanding pursuant to our stock option plan 2014, at an exercise price of €0.01 per share, of which a maximum of 4,320,000 are subject to a market-related performance condition at the time of vesting;

 

   

a maximum of 6,328,750 shares issuable upon the settlement of share units outstanding pursuant to our equity incentive plan 2014, at a subscription price of the euro equivalent to $0.01 per share, of which 2,520,000 share units are subject to a market-related performance condition at the time of settlement;

 

   

a maximum of 9,409,250 shares issuable upon the exercise of share options and settlement of share units that may be, but have not yet been, granted pursuant to our stock option plan 2014 and our equity incentive plan 2014, at a subscription price of €0.01 an the euro equivalent of $0.01 respectively;

 

 

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the number of shares that would be issuable upon the exercise of our right to offer shares to be subscribed or purchased by YA Global Master SPV Ltd. pursuant to the Standby Equity Distribution Agreement, or the SEDA, which at March 31, 2015, could be for a maximum value of €20.0 million; for more information on the SEDA, see “Description of Share Capital and Articles of Association — Share Capital — Standby Equity Distribution Agreement”;

 

   

828,000 shares issuable upon conversion of the outstanding convertible capital loan as of March 31, 2015, at a conversion rate of €1.8688 per share for 540,000 of the shares and €2.3359 for 288,000 of the shares; and

 

   

a maximum of 220,400,001 shares issuable upon the exercise of warrants outstanding as of May 28, 2015 at an exercise price of €0.17 per share.

 

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DILUTION

If you invest in the ADSs, your ownership interest will be diluted to the extent of the difference between the initial public offering price per ADS paid by purchasers of the ADSs and the pro forma as adjusted net tangible book value per ADS immediately after the completion of this offering. At March 31, 2015, we had a net tangible book value of €(5,223,000) ($(5,619,426)), corresponding to a net tangible book value of €(0.01) ($(0.01)) per share or €(0.92) ($(0.99)) per ADS based on a share to ADS ratio of 80 to 1. Net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of our shares outstanding at March 31, 2015.

At March 31, 2015, we had a pro forma net tangible book value of €25,114,785 ($27,020,997), corresponding to a net tangible book value of €0.04 ($0.04) per share or €2.97 ($3.20) per ADS based on a share to ADS ratio of 80 to 1. Pro forma net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by the total number of our shares outstanding at March 31, 2015, after giving pro forma effect to the Convertible Notes Financings and the automatic conversion of all convertible notes issued in the Convertible Notes Financings into shares.

After giving effect to the sale by us of the 3,777,919 ADSs (representing an aggregate of 302,233,506 shares) offered by us in the offering, and assuming an offering price of $14.82 per ADS, based on the last reported sales price of our shares on the Finnish Stock Exchange on June 2, 2015 of €0.168, a share to ADS ratio of 80 to 1, and an exchange rate of $1.1029 per euro, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value at March 31, 2015 would have been approximately €69,615,646 ($74,899,474), representing €0.07 ($0.08) per share or €5.69 ($6.12) per ADS. This represents an immediate increase in pro forma as adjusted net tangible book value of €0.03 ($0.04) per share or €2.72 ($2.93) per ADS to existing shareholders and an immediate dilution in net tangible book value of €0.10 ($0.11) per share or €(7.75) ($(8.70)) per ADS to new investors purchasing ADSs in this offering. Dilution for this purpose represents the difference between the price per ADS paid by these purchasers and the net tangible book value per ADS immediately after the completion of this offering, giving effect to the Convertible Notes Financings and the automatic conversion of all outstanding convertible notes issued in the Convertible Notes Financings into shares.

The following table illustrates this dilution to new investors purchasing ADSs in the offering:

 

Assumed initial public offering price per ADS

   13.44      $ 14.82   

Net tangible book value per ADS at March 31, 2015

     (0.92     (0.99

Increase in net tangible book value per ADS attributable to the Convertible Notes Financings and the automatic conversion of all outstanding convertible notes issued in the Convertible Notes Financings

     3.89        4.18   
  

 

 

   

 

 

 

Pro forma net tangible book value per ADS before this offering

     2.97        3.20   

Increase in pro forma net tangible book value per ADS attributable to new investors

     2.72        2.93   
  

 

 

   

 

 

 

Pro forma as adjusted net tangible book value per ADS after the offering

   5.69      $ 6.12   
  

 

 

   

 

 

 

Dilution per ADS to new investors

   (7.75   $ (8.70

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

     58     59

If the underwriters exercise their option in full to purchase additional ADSs from us in this offering, the pro forma as adjusted net tangible book value per ADS after the offering would be €5.72 ($6.25) per ADS, the increase in the net tangible book value per would be €2.75 ($3.05) per ADS and the dilution to new investors purchasing ADSs in this offering would be €(7.72) ($(8.57)) per ADS.

 

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Each $1.00 (€0.91) increase or decrease in the assumed initial public offering price of $14.82 (€13.44) per ADS, would increase or decrease our pro forma as adjusted net tangible book value per ADS by €0.26 ($0.29) and the dilution to investors in the offering by €0.74 ($0.71), assuming that the assumptions set forth on the cover page of this prospectus remain the same. We may also increase or decrease the number of ADSs we are offering. Each increase or decrease of 100,000 ADSs in the number of ADSs offered by us would increase or decrease our pro forma as adjusted net tangible book value per ADS by €0.10 ($0.11) and the dilution to investors in the offering by €0.10 ($0.11), assuming that the assumptions set forth on the cover page of this prospectus remain the same. We believe it is unlikely that we would offer additional ADSs at the assumed initial public offering price or any higher offering price because we intend to raise no more than $95 million in aggregate from this offering and the sale of the convertible notes in the Convertible Notes Financings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Subsequent Events — The Convertible Notes Financings.” The dilution information discussed above is illustrative only and will adjust based on the actual initial public offering price, the actual number of ADSs offered by us and other terms of the offering determined at pricing.

The following table sets forth, at March 31, 2015, on a pro forma as adjusted basis for this offering, the Convertible Notes Financings and the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings, the consideration paid to us in cash for shares (shares expressed as ADSs (translated into US dollars at $1.1029 per euro) in the table below) purchased from us by our existing shareholders and ADSs purchased from us by new investors participating in this offering, assuming an offering price of $14.82 per ADS based on the assumptions set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable per ADS:

 

     ADSs
Purchased from  Us
    Total Consideration     Average Price  per
ADS
 
         Number              Percent             Amount              Percent            

Existing shareholders

     8,454,602         69   $ 93,611,657         63   $ 11.07   

New investors

     3,777,919         31   $ 55,988,760         37   $ 14.82   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     12,232,521         100   $ 149,600,417         100     —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Except as otherwise indicated herein, the discussion and tables above assume that 978,601,681 shares will be outstanding after this offering, based on 455,968,174 of our shares outstanding as of March 31, 2015, including 452,272,890 shares with voting rights and 3,695,284 treasury shares that are held by us and do not have voting rights, and includes 302,233,506 shares to be issued and sold by us in this offering and 220,400,001 shares to be issued by us upon the automatic conversion of all outstanding convertible notes issued in connection with the Convertible Notes Financings upon the completion of this offering, but excludes:

 

   

a maximum of 2,824,772 shares issuable upon exercise of options outstanding pursuant to our Swiss option scheme, at a weighted-average exercise price of €0.24 per share, and which will be settled from the current treasury shares held by us;

 

   

a maximum of 2,678,000 shares issuable upon the exercise of options outstanding pursuant to our stock option plan 2011, at an exercise price of €0.01 per share, and of which a maximum of 720,500 shares will be settled from the current treasury shares held by us;

 

   

a maximum of 945,000 shares issuable upon the settlement of share units outstanding pursuant to our equity incentive plan 2011, at a subscription price of nil, a maximum of 150,000 shares of which will be settled from the current treasury shares held by us;

 

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a maximum of 7,412,000 shares issuable upon the exercise of options outstanding pursuant to our stock option plan 2014, at an exercise price of €0.01 per share, of which a maximum of 4,320,000 shares are subject to a market-related performance condition at the time of vesting;

 

   

a maximum of 6,328,750 shares issuable upon the settlement of share units outstanding pursuant to our equity incentive plan 2014, at a subscription price of the amount of euros corresponding to $0.01 per share, of which 2,520,000 share units are subject to a market-related performance condition at the time of settlement;

 

   

a maximum of 9,409,250 shares issuable upon the exercise of share options and settlement of share units that may be, but have not yet been, granted pursuant to our stock option plan 2014 and our equity incentive plan 2014, at a subscription price of €0.01 an the euro equivalent of $0.01 respectively;

 

   

the number of shares that would be issuable upon the exercise of our right to offer shares to be subscribed or purchased by YA Global Master SPV Ltd. pursuant to the Standby Equity Distribution Agreement, or the SEDA, which at March 31, 2015, could be for a maximum value of €20.0 million; for more information on the SEDA, see “Description of Share Capital and Articles of Association — Share Capital — Standby Equity Distribution Agreement”;

 

   

828,000 shares issuable upon conversion of the outstanding convertible capital loan as of March 31, 2015, at a conversion rate of €1.8688 per share for 540,000 of the shares and €2.3359 for 288,000 of the shares; and

 

   

a maximum of 220,400,001 shares issuable upon the exercise of warrants outstanding as of May 28, 2015 at an exercise price of €0.17 per share.

Certain of our existing investors and members of our board of directors have indicated an interest in purchasing up to an aggregate of $25 million of the ADSs in this offering at the public offering price. However, because indications of interest are not binding agreements or commitments to purchase, these entities and persons may determine to not purchase any ADSs in this offering. It is also possible that these entities and persons and additional existing investors could indicate an interest in purchasing more of the ADSs. In addition, the underwriters could determine to sell fewer ADSs to any of these entities or persons than such entities or persons indicate an interest in purchasing or to not sell any ADSs to these entities and persons. The foregoing discussion and tables do not reflect any potential purchases by these entities and persons.

 

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EXCHANGE RATES

The following table sets forth, for the periods indicated, the high, low, average and period-end exchange rates for U.S. dollars expressed in euros. As of June 2, 2015, the exchange rate as reported by the European Central Bank was $1.00 = €0.9067. The rates set forth below are provided solely for your convenience and may differ from the actual rates used in the preparation of our consolidated financial statements and other financial data included in this prospectus.

 

     Period-End      Average for
Period
     Low      High  
                     
     (€ per $)  

Year Ended December 31:

           

2010

     0.748         0.754         0.687        0.837   

2011

     0.773         0.718         0.672         0.776   

2012

     0.758         0.778         0.743         0.827   

2013

     0.725         0.753         0.724         0.783   

2014

     0.824         0.754         0.717         0.824   

Month Ended:

           

December 31, 2014

     0.824         0.811         0.798         0.824   

January 31, 2015

     0.885         0.861         0.830         0.893   

February 28, 2015

     0.890         0.881         0.874         0.890   

March 31, 2015

     0.929         0.923         0.891         0.947   

April 31, 2015

     0.892         0.928         0.892         0.948   

May 31, 2015

     0.912         0.897         0.876         0.921   

June (through June 2, 2015)

     0.907         0.910         0.907         0.914   

 

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SELECTED FINANCIAL AND OTHER INFORMATION

The consolidated statements of comprehensive income data for each of the years ended December 31, 2014 and 2013 and the summary consolidated statement of financial position data as of December 31, 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of comprehensive income data for each of the three-month periods ended March 31, 2015 and 2014 and the summary consolidated statement of financial position data as of March 31, 2015 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary to state fairly our results of operations for the three months ended March 31, 2015 and 2014 and our financial position as of March 31, 2015. The summary consolidated financial information below should be read in conjunction with our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus as well as the “Presentation of Financial and Other Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus.

Our audited consolidated financial statements for the years ended December 31, 2014 and 2013 and our unaudited condensed consolidated financial statements for the three-month periods ended March 31, 2015 and 2014 have been prepared in accordance with IFRS as issued by the IASB.

Our historical results are not necessarily indicative of our future results. The summary financial information below does not contain all the information included in our financial statements. In addition, our historical results for the three months ended March 31, 2015 are not necessarily indicative of results to be expected for a full year or any other interim period.

 

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Consolidated Statements of Comprehensive Income Data

 

     Year Ended December 31,     Three Months Ended March 31,  
             2014                     2013                     2015                     2014          
(€ thousands, except per share data)          (unaudited)  

Revenue

     14,901        27,712        871        5,096   

Research and development expenses

     (17,192     (17,807     (4,766     (4,803

Impairment of in-process research and development assets

     (27,605                     

General and administrative expenses

     (7,326     (8,971     (1,730     (1,950

Other operating income

     1,132        565               135   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (36,090 )      1,499        (5,625 )      (1,522 ) 

Interest income

            37        1          

Interest expenses

     (687     (726     (151     (152

Other net financial income (expenses)

     1,612        2,841        (119     (45
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before taxes

     (35,165 )      3,651        (5,894 )      (1,719 ) 

Income tax benefit

            2,195                 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (35,165 )      5,846        (5,894 )      (1,719 ) 

Other comprehensive income (loss)

        

Remeasurements of post-employment benefit obligations

     (81                     

Currency translation differences

     6,593        (2,629     8,181        315   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

     (28,653 )      3,217        2,287        (1,404 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to equity holders of the parent

     (35,165     5,846        (5,894     (1,719
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income attributable to equity holders of the parent

     (28,653     3,217        2,287        (1,404
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) earnings per share (EPS) basic & diluted(1)

     (0.08     0.01        (0.01     (0.00

 

(1)   Basic and diluted (loss) earnings per share are the same in all periods because outstanding options, share units and the convertible loan would have been anti-dilutive for the year ended December 31, 2014 and for the three months ended March 31, 2015 and 2014; and dilutive shares had no impact to EPS after rounding for the year ended December 31, 2013.

 

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Consolidated Statements of Financial Position Data

 

     At December 31,      At March 31, 2015  
(in thousands of €)    2014      2013     
            (unaudited)  

ASSETS

        

Intangible assets

     47,356         68,744         53,721   

Goodwill

     5,799         5,315         6,597   

Other assets

     977         1,686         1,072   
  

 

 

    

 

 

    

 

 

 

Total non-current assets

     54,132         75,745         61,390   
  

 

 

    

 

 

    

 

 

 

Accounts receivables, other receivables and prepaid expenses

     1,806         575         5,357   

Financial assets at fair value through profit or loss

     24,941         33,457         21,513   

Cash and cash equivalents

     7,452         10,221         6,315   
  

 

 

    

 

 

    

 

 

 

Total current assets

     34,199         44,253         33,185   
  

 

 

    

 

 

    

 

 

 

Total assets

     88,331         119,998         94,575   
  

 

 

    

 

 

    

 

 

 

EQUITY AND LIABILITIES

        

Share capital

     193,285         193,285         193,285   

Reserve for invested unrestricted equity

     5,378         5,252         5,389   

Other reserves

     9,029         2,517         17,210   

Retained earnings

     (155,069      (120,688      (160,789
  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

     52,623         80,366         55,095   
  

 

 

    

 

 

    

 

 

 

Non-current financial liabilities

     20,690         20,690         20,690   

Pension benefit obligation

     670         569         670   

Other non-current liabilities

     9,671         8,918         9,842   

Non-current deferred revenues

     2,000         2,972         2,000   
  

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     33,031         33,149         33,202   
  

 

 

    

 

 

    

 

 

 

Current deferred revenues

             743           

Accounts payable and other current liabilities

     2,677         5,740         6,278   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     2,677         6,483         6,278   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     35,708         39,632         39,480   
  

 

 

    

 

 

    

 

 

 

Total shareholders’ equity and liabilities

     88,331         119,998         94,575   
  

 

 

    

 

 

    

 

 

 

 

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

The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and the notes thereto, each included elsewhere in this prospectus, as well as the information presented under “Presentation of Financial and Other Information” and “Selected Financial and Other Information.” The following discussion is based on our financial statements prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, which might differ in material respects from generally accepted accounting principles in other jurisdictions. This discussion and analysis contains forward-looking statements, which are subject to risks and uncertainties. Investors should also familiarize themselves with the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” of this prospectus. As a result of many factors, including factors described in the aforementioned sections, our actual results could differ materially from the results described herein or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a biopharmaceutical company primarily focused on developing therapeutics for central nervous system disorders. Our pipeline includes product candidates designed to address unmet medical needs in Parkinson’s disease and related dementia, other neurodegenerative indications, and primary sclerosing cholangitis, an orphan fibrotic liver disease. In addition, we have successfully developed a product for alcohol dependence that is being commercialized by Lundbeck and is a source of further potential milestone payments and ongoing royalties.

We are preparing to commence a pivotal Phase 3 clinical trial of our lead product candidate, tozadenant, that we believe could form the basis for its approval in the United States as an adjunctive treatment to levodopa in Parkinson’s. Levodopa, the most widely prescribed treatment for Parkinson’s, loses effectiveness in most patients over time. Parkinson’s patients often experience a reemergence of debilitating symptoms on a daily basis as their levodopa doses wear off. Tozadenant is an oral, selective adenosine A2a receptor antagonist that aims to address this wearing off effect. In a 420-patient Phase 2b trial, tozadenant displayed clinically important and statistically significant effects across prespecified primary and multiple secondary endpoints at a number of doses. In addition, tozadenant has been found to be generally safe and well tolerated in our ten clinical trials conducted to date.

We also have two additional development-stage product candidates: SYN120 for Parkinson’s dementia and Alzheimer’s; and BTT1023 for primary sclerosing cholangitis, an orphan fibrotic liver disease. In addition, under our license and commercialization agreement with H. Lundbeck A/S, or Lundbeck, for Selincro, our product for alcohol dependence, we have received €22.0 million in upfront and milestone payments to date and are eligible to receive additional regulatory and commercial milestone payments and ongoing royalties.

We have primarily funded our operations through private placements of equity securities, non-convertible and convertible capital loans, long-term research and development loans, development milestone payments, commercial milestone payments under our license and commercialization agreement with Lundbeck, or the Lundbeck License Agreement, and, most recently, royalties under the Lundbeck License Agreement. In addition, a number of trials of our product candidates have been partially or wholly funded through non-dilutive funding, which may or may not flow through our financial statements.

In January 2011, we entered into an agreement to acquire Synosia Therapeutics Holding AG, or Synosia, a company that had been formed by certain former executives of F. Hoffmann-La Roche Ltd., or

 

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Roche, that had licensed a number of central nervous system focused assets from Roche, including tozadenant and SYN120. From the acquisition of Synosia in 2011 through March 31, 2015, we raised gross proceeds of €57.0 million from private placements of equity securities. In addition, between 1998 and 2011, we received gross proceeds of €19.7 million from non-convertible capital loans from the Finnish Funding Agency for Technology and Innovation, or Tekes, €4.4 million from long-term research and development loans from Tekes and €1.7 million from a convertible capital loan from shareholders and venture capital investors, of which €3.3 million of the non-convertible capital loans and €1.7 million of the long-term research and development loans have been forgiven. We refer to the non-convertible capital loans and research and development loans from Tekes as the Tekes loans. Through March 31, 2015, we have also received €23.8 million in milestone and royalty payments from Lundbeck for Selincro and a total of €36.2 million from UCB Pharma S.A., or UCB, in connection with tozadenant.

As of March 31, 2015, our liquid assets amounted to €27.8 million. We define “liquid assets” as cash and cash equivalents together with our financial assets at fair value through profit or loss, which consist of money market funds. As of March 31, 2015, our cash and cash equivalents were €6.3 million and our financial assets at fair value through profit or loss were €21.5 million.

With the exception of the year ended December 31, 2013, we have never been profitable and have incurred losses in each year since inception. Although we made a profit in 2013, this was primarily due to a non-refundable development milestone payment received from UCB for tozadenant, which cannot be expected to recur in the future. Our net result was a €35.2 million loss and a €5.8 million profit for the years ended December 31, 2014 and 2013, respectively and for the three months ended March 31, 2015 and 2014, we incurred net losses of €5.9 million and €1.7 million, respectively. As of March 31, 2015 we had retained earnings, which were an accumulated deficit, of €160.8 million. Substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations.

We currently expect to earn revenue primarily under the Lundbeck License Agreement, pursuant to which we are eligible to receive royalties on sales of Selincro, as well as milestone payments upon achievement of specified regulatory and commercial milestones. We believe that the net proceeds of this offering, together with our current liquid assets and the milestone and royalty revenues that we expect to receive from Lundbeck for Selincro, will enable us to fund our Phase 3 double-blind clinical trial (and extension) of tozadenant in Parkinson’s through completion, as well as our portion of the funding for the SYN120 Phase 2a clinical trial in Parkinson’s dementia and BTT1023 Phase 2 clinical trial in primary sclerosing cholangitis, or PSC.

Collaboration and License Agreements

We have entered into strategic collaborations and license agreements for some of our products and product candidates. As part of our business development strategy, we aim to increase the number of our strategic collaborations in order to derive further value from our platforms and more fully exploit their potential.

Certain key terms of our current material collaboration and license agreements are summarized below. For further details, see “Business — Collaborations.”

Lundbeck License Agreement

In November 2006, we entered into an option agreement, or the Option Agreement, to negotiate a license and commercialization agreement with Lundbeck and subsequently entered into the Lundbeck License Agreement in May 2007. Pursuant to the Lundbeck License Agreement we granted Lundbeck an exclusive, royalty-bearing, sublicensable worldwide license under certain patents and know-how related to

 

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Selincro owned by or exclusively licensed to us, to develop, manufacture and commercialize Selincro for any purpose. Lundbeck is responsible for the manufacturing and commercialization of Selincro products, as well as registration, maintenance and defense of all trademarks related to such products.

Pursuant to the Option Agreement in November 2006, Lundbeck made an upfront payment to us of €10.0 million. Pursuant to the Lundbeck License Agreement, Lundbeck initially made an upfront payment to us of €2.0 million in May 2007 and agreed to make milestone payments to us upon the achievement of specified regulatory and commercial milestones as well as royalties on sales of Selincro. As of March 31, 2015, we have received €10.0 million in milestone payments, including €2.0 million milestones on the first commercial sale in each of the United Kingdom (May 2013), Italy (September 2013), Spain (July 2014), Germany (August 2014) and France (September 2014). In addition, we are required to reimburse Lundbeck for performing additional studies in certain countries in order to obtain and maintain regulatory approval to market and sell Selincro products in such countries. As of March 31, 2015, we have contributed €2.1 million to such studies. In October 2013, Lundbeck entered into an agreement with Otsuka Pharmaceutical Co., Ltd., or Otsuka, to develop and commercialize Selincro in Japan. Lundbeck and Otsuka will jointly finalize and fully fund the clinical program for Selincro in Japan, and it is expected that the first Phase 3 clinical trial will be initiated during 2015. For further information on the Lundbeck License Agreement, see “Business — Collaborations —Lundbeck License Agreement.”

UCB Collaboration Agreement and UCB Termination and Transition Agreement

Prior to our acquisition of Synosia in February 2011, in August 2010, Synosia entered into a license and collaboration agreement, or the UCB Collaboration Agreement, with UCB, to develop and commercialize tozadenant. Pursuant to the UCB Collaboration Agreement, UCB was granted a licensing option. Following a review of the tozadenant Phase 2 data in February 2013, UCB exercised its option in relation to tozadenant and paid us a non-refundable development milestone payment of $20.0 million (€15.3 million) following completion of the Phase 2b clinical trial. Until the end of March 2014, UCB funded further development of tozadenant amounting to €13.3 million. In March 2014, we received a notice from UCB informing us of its intent to terminate the UCB Collaboration Agreement for convenience, effective March 20, 2014. In August 2014, we and UCB entered into a termination and transition agreement, or the UCB Termination and Transition Agreement, pursuant to which we and UCB agreed to undertake a series of transitional activities to facilitate the handover of tozadenant development activities and associated regulatory documentation back to us. UCB has now met all of its obligations under the UCB Termination and Transition Agreement and has provided additional Phase 3 development funding, of which we had received €3.1 million through March 31, 2015. We are required to pay UCB a percentage of any future consideration we receive from tozadenant, up to a maximum of €3.1 million. For further information on the UCB Collaboration Agreement and the UCB Termination and Transition Agreement, see “Business — Collaborations — UCB Collaboration Agreement and UCB Termination and Transition Agreement.”

Roche License Agreement

We are party to a license agreement with Roche Palo Alto LLC, Hoffman-La Roche Inc. and F. Hoffman-La Roche Ltd., collectively, the Roche Entities, and such agreement, the Roche License Agreement, pursuant to which we obtained exclusive, royalty-bearing, worldwide licenses in respect of tozadenant and SYN120. Pursuant to the Roche License Agreement, we are obligated to make certain milestone payments to the Roche Entities on the achievement of specified regulatory and commercial milestones. We are also obligated to pay the Roche Entities royalties on net sales of licensed products. For further information on the Roche License Agreement, see “Business—Collaborations—Roche License Agreement.”

 

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Medarex License Agreement

In November 2006, we entered into a license and commercialization agreement, as amended, or the Medarex License Agreement, with Medarex, Inc. or Medarex, to develop and commercialize BTT1023 worldwide. Pursuant to the Medarex License Agreement, we obtained an exclusive, royalty-bearing license under certain patents rights and know-how controlled by Medarex, to develop and commercialize BTT1023 and products containing BTT1023 worldwide. We also obtained a non-exclusive, worldwide, royalty-free license to use Medarex’s patent rights and know-how relating to the production of VAP-1 antibodies solely for the purpose of manufacturing BTT1023 or products containing BTT1023.

We have paid Medarex $1 million in upfront license fees, $1.08 million for research and development costs, as well as $1.35 million for the supply of materials for a Phase 1 clinical trial. We are further obligated to pay Medarex up to an aggregate of $8.6 million upon the occurrence of certain regulatory milestones for each product developed under the Medarex License Agreement, of which $0.5 million has already been paid. We are also required to pay Medarex up to an aggregate of $11.5 million if we achieve specified sales milestones, as well as a tiered mid-single digit royalty on net sales of products containing BTT1023 worldwide. Such royalties are payable on a country-by-country and product-by-product basis until the later of either the expiration of the last to expire of any patent or patent application controlled by Medarex that covers the applicable product in the applicable country, or 15 years from the first commercial sale of the applicable product in the applicable country. For further information on the Medarex License Agreement, see “Business—Collaborations—Medarex License Agreement.”

 

Financial Operations Overview

Revenue

In the periods presented, we earned revenue under the Lundbeck License Agreement, the UCB Collaboration Agreement and the UCB Termination and Transition Agreement as described below.

Under the Lundbeck License Agreement, we have recognized revenue from commercial milestone and royalty payments. During the years ended December 31, 2014 and 2013, we received milestone payments totaling €10.0 million in connection with launches of Selincro in the five major EU markets: the United Kingdom (May 2013), Italy (September 2013), Spain (July 2014), Germany (August 2014) and France (September 2014) and royalties of €0.9 million, €0.2 million and €0.7 million on sales of Selincro during the years ended December 31, 2014 and 2013 and the three months ended March 31, 2015, respectively. Royalties received are dependent upon the sales made by Lundbeck in each period. The milestone payments are non-refundable and are recognized when a milestone has been achieved, we have no further performance obligations in respect of the milestone and it will be possible to collect the milestone with reasonable assurance. Royalty revenue is recognized on an accrual basis in accordance with the Lundbeck License Agreement providing that it is probable that economic benefits will flow to us and the amount of revenue can be measured reliably.

Under the UCB Collaboration Agreement and the UCB Termination and Transition Agreement, we also recognized revenue from a non-refundable development milestone payment following the completion of the Phase 2b clinical trial and Phase 3 development milestones. The non-refundable development milestone payment and development funding payments are recognized upon receipt as revenue when a milestone has been achieved and we have no further performance obligations. In February 2013, UCB exercised its option in relation to tozadenant and paid us a non-refundable Phase 2 development milestone payment of $20.0 million (€15.3 million) following the completion of the Phase 2b clinical trial, and by March 31, 2015, we had received €3.1 million in development funding under the UCB Termination and Transition Agreement. During the years ended December 31, 2014 and 2013, we received €5.1 million and

 

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€8.3 million, respectively, in development milestones under the UCB Collaboration Agreement, which prior to UCB’s informing us of their intention to return their rights to tozadenant to us, were recognized in proportion to the development activities performed to date.

We expect that our revenues in the near to medium term will mainly derive from the Lundbeck License Agreement.

Research and Development Expenses

Our research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase for the foreseeable future as our product candidates progress in clinical trials. Our research and development expenses consist principally of:

 

   

salaries for research and development staff and related expenses, including employee benefits;

 

   

costs for production of the compounds by contract manufacturers;

 

   

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

 

   

an allocation of general and administrative costs related to the research and development activities; and

 

   

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

Our current research and development activities mainly relate to the following key programs, listed together with the next stage of clinical development for each product candidate:

Tozadenant: Phase 3 clinical trial of tozadenant in Parkinson’s expected to be ready to start recruiting patients by the middle of 2015.

SYN120: Phase 2a clinical trial of SYN120 in Parkinson’s dementia, which is currently recruiting patients.

BTT1023: Phase 2 clinical trial of BTT1023 in PSC, which was open to patient recruitment at the end of the first quarter of 2015.

Our research and development expenses may vary from period to period based on the timing of our research and development activities, including the timing of initiation of clinical trials and enrollment of patients in clinical trials. Research and development expenses are expected to increase as we advance the clinical development of our current product candidates, in particular the commencement of the Phase 3 clinical program for tozadenant in Parkinson’s.

The successful development of our product candidates is highly uncertain. At this time we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

   

the scope, rate of progress, results and cost of our clinical trials, nonclinical testing, and other related activities;

 

   

the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates and any products that we may develop;

 

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the number and characteristics of product candidates that we pursue;

 

   

the cost, timing, and outcomes of regulatory approvals;

 

   

the cost and timing of establishing sales, marketing, and distribution capabilities; and

 

   

the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder and any non-dilutive funding that we may receive.

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

Impairment of In-Process Research and Development Assets

In-process research and development assets acquired in a business combination are capitalized on our balance sheet at their fair values at date of acquisition and are subject to annual impairment testing until ready for use. An impairment of an in-process research and development intangible asset may be triggered if the clinical program for an asset does not proceed as expected, a different clinical development pathway is pursued than initially intended, the asset is partnered or out-licensed utilizing a transaction structure that changes the timing or amount of our future economic rights to the asset, or some of the economic value from the asset is realized. An impairment is recognized as a non-cash impairment charge to the statement of comprehensive income. During the year ended December 31, 2014, we recognized impairment charges totaling €27.6 million in relation to nepicastat, which was fully written down as a result of the receipt of top-line data that did not meet its primary efficacy endpoint in respect of the Phase 2a trial, and SYN120, which was written down to its recoverable amount, as a result of a revision to our plans to develop SYN120 initially for Parkinson’s dementia, which has smaller commercial potential than Alzheimer’s. If in the future we commence a trial of SYN120 for Alzheimer’s, for example, the impairment relating to SYN120 could be reversed.

General and Administrative Expenses

Our general and administrative expense consists principally of:

 

   

salaries for general and administrative staff and related expenses, including employee benefits and travel expenses;

 

   

business development expenses;

 

   

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

 

   

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

 

   

cost of facilities, communication and office expenses;

 

   

IT expenses; and

 

   

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

 

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Other Operating Income

Other operating income consists primarily of grant income, rent from our investment property and proceeds on the sale of the investment property.

Interest Income

Our policy is to invest funds in low-risk investments, which primarily consist of money market funds and interest-bearing savings and deposit accounts. Savings and deposit accounts generate a small amount of interest income. We expect to continue this investment philosophy.

Interest Expenses

Our interest expenses consist primarily of non-cash interest in respect of the Tekes loans and the convertible capital loan.

Other Net Financial Income (Expenses)

Other net financial income (expense) primarily relates to all non-interest related items and comprises net foreign exchange gains (losses) that arise from our intercompany borrowings, unrealized and realized gains from money market funds, that are reflected as financial assets recorded at fair value in profit and loss, and gain on extinguishment of debt related to the forgiveness of a portion of the Tekes loans in 2013.

Taxes

As we currently have cumulative operating losses in each of our companies, we do not generally pay any corporate income taxes. We do not recognize deferred tax assets on our cumulative operating losses because of the uncertainty as to whether they could be utilized.

Segment Reporting

We operate in one reportable segment, which comprises the development of pharmaceutical products. Our Chief Executive Officer reviews our consolidated operating results regularly to make decisions about resource allocation and to assess overall performance.

 

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Results of Operations

Comparison of the Years Ended December 31, 2014 and 2013

 

     Year Ended December 31,  
     2014      2013      Change  
     (€ thousands)      %  

Revenue

     14,901         27,712         (46.2

Research and development expenses

     (17,192      (17,807      (3.5

Impairment of in-process research and development assets

     (27,605                

General and administrative expenses

     (7,326      (8,971      (18.3

Other operating income

     1,132         565         100.4   
  

 

 

    

 

 

    

 

 

 

Operating (loss) income

     (36,090      1,499         (2,507.6

Interest income

             37           

Interest expenses

     (687      (726      (5.4

Other net financial income (expenses)

     1,612         2,841         (43.3
  

 

 

    

 

 

    

 

 

 

(Loss) income before taxes

     (35,165      3,651         (1,063.2

Income tax benefit

             2,195           
  

 

 

    

 

 

    

 

 

 

Net (loss) income

     (35,165      5,846         (701.5

Other comprehensive income (loss)

        

Remeasurements of post-employment benefit obligations

     (81                

Currency translation differences

     6,593         (2,629      350.8   
  

 

 

    

 

 

    

 

 

 

Total comprehensive (loss) income

     (28,653      3,217         (990.7
  

 

 

    

 

 

    

 

 

 

Revenue

The table below presents a breakdown of our revenue for the years ended December 31, 2014 and 2013:

 

     Year Ended December 31,  
         2014              2013      
     (€ thousands)  

Commercial milestone payments from Lundbeck license agreement

     6,000         4,000   

Royalties from Lundbeck license agreement

     923         155   

Phase 2 development milestones from UCB collaboration agreement

             15,286   

Phase 3 development milestones from UCB collaboration agreement

     5,047         8,271   

Phase 3 development funding income from UCB

     2,931           
  

 

 

    

 

 

 

Total

     14,901         27,712   
  

 

 

    

 

 

 

Revenue decreased 46.2% or €12.8 million to €14.9 million for the year ended December 31, 2014 compared to €27.7 million for the year ended December 31, 2013. During the year ended December 31, 2014, revenue consisted of European commercial milestones and royalties received for Selincro from Lundbeck and development milestones and development funding for tozadenant from UCB. The decrease in revenue was primarily due to the payment of the non-refundable Phase 2 development milestone payment from UCB in the amount of €15.3 million in 2013 and a decrease by €3.2 million from 2013 to 2014 in Phase 3 development milestones for tozadenant from UCB before it returned its rights to us. This decrease was offset by an increase in revenue from Lundbeck for Selincro, both in respect of a commercial milestone, with an increase of €2.0 million, and royalties, with an increase of €0.8 million.

 

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Research and Development Expenses

The table below lists our research and development expenses by project for the years ended December 31, 2014 and 2013, including certain projects that have been discontinued, namely NRL-1 and nepicastat.

 

     Year Ended December 31,  
     2014      2013      Change
     (€ thousands)          %

Project

        

Tozadenant

     8,769         11,923         (26.5

SYN120

     2,454         730         236.2   

BTT1023

     1,338         158         746.8   

NRL-1

     1,347         2,034         (33.8

Selincro

     1,506         447         236.9   

Nepicastat

     196                   

Other research and development expenses

     1,582         2,515         (37.1
  

 

 

    

 

 

    

 

 

 

Total

     17,192         17,807         (3.5
  

 

 

    

 

 

    

 

 

 

Research and development expenses decreased 3.5% or €0.6 million to €17.2 million for the year ended December 31, 2014 as compared to €17.8 million for year ended December 31, 2013. The decrease in research and development expenses was due to a change in the stage of various development products, particularly lower costs on tozadenant following UCB’s decision to return its rights to us.

Impairment of In-process Research and Development Assets

During the year ended December 31, 2014, we recognized impairment charges totaling €27.6 million in relation to nepicastat, which was fully written down, and SYN120, which was written down to its recoverable amount, as a result of a revision to our plans to develop SYN120 initially for Parkinson’s dementia, which has smaller commercial potential than Alzheimer’s. There were no such impairments during the year ended December 31, 2013.

General and Administrative Expenses

General and administrative expenses decreased 18.3% or €1.7 million to €7.3 million for the year ended December 31, 2014 as compared to €9.0 million for the year ended December 31, 2013. The decrease in general and administrative expenses was largely due to a decrease in fees related to business development activities.

Other Operating Income

Other operating income for the year ended December 31, 2014 amounted to €1.1 million, an increase of €0.5 million from €0.6 million for the year ended December 31, 2013. Other operating income in 2013 only included rental income from an investment property in Germany, which was sold in September 2014. During the year ended December 31, 2014, it included rental income up to the date of the sale of the investment property and the profit from the sale of the property, as well as grant income from Michael J. Fox Foundation for Parkinson’s Research recognized in respect of the SYN120 Parkinson’s dementia clinical trial.

Operating (Loss) Income

Operating loss for the year ended December 31, 2014 was €36.1 million. This represented a decrease of €37.6 million from the €1.5 million of operating income we generated for the year ended December 31,

 

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2013. The change was mainly attributable to the higher revenues generated in 2013, in particular the UCB development milestone payment of €15.3 million following the completion of the Phase 2b clinical trial and impairment charges of €27.6 million in respect of nepicastat and SYN120 during the year ended December 31, 2014.

Interest Income

Interest income was less than €0.1 million for both the years ended December 31, 2014 and 2013. The slight decrease between the two years is due to the proportion of liquid assets held as cash and cash equivalents and changes in interest rates.

Interest Expenses

Interest expenses consist of non-cash interest expenses accrued on the Tekes loans and the convertible capital loan. Interest rates remained broadly stable and as a result interest expense was €0.7 million for both the years ended December 31, 2014 and 2013.

Other Net Financial Income (Expenses)

Other net financial income (expenses) comprises all non-interest related items and decreased by 43.3% to €1.6 million for the year ended December 31, 2014, compared to €2.8 million for the year ended December 31, 2013. The year ended December 31, 2013 included a gain of €3.2 million in respect of extinguishment of debt in relation to the forgiveness of Tekes loans (there was no corresponding gain in the year ended December 31, 2014), which was partially offset by a net increase in foreign exchange gains and losses of €1.9 million during the period.

Income (Loss) before Taxes

For the reasons described above, loss before taxes was €35.2 million for the year ended December 31, 2014, compared to income before taxes of €3.7 million for the year ended December 31, 2013, a change of €38.9 million.

Income Tax Benefit

There was no income tax benefit for the year ended December 31, 2014, whereas in the year ended December 31, 2013 there was an income tax benefit of €2.2 million that primarily related to a reduction in the deferred tax liability that arose in Switzerland in connection with the Synosia acquisition in 2011.

Net Income (Loss)

For the reasons described above, the net loss for the year ended December 31, 2014 amounted to €35.2 million, compared to net income of €5.8 million for the year ended December 31, 2013.

Items Included in Other Comprehensive Income (Loss)

The items included in other comprehensive income (loss) include remeasurements of post-employment benefit obligations and currency translation differences. The remeasurements of post-employment benefit obligations only occurred in the year ended December 31, 2014 and were a loss of €0.1 million. The currency translation differences reflected in other comprehensive income (loss) was a gain of €6.6 million for the year ended December 31, 2014, an increase of €9.2 million, as compared to a loss of €2.6 million for the year ended December 31, 2013.

 

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Total Comprehensive (Loss) Income

Total comprehensive loss for the year ended December 31, 2014 was €28.7 million, compared to total comprehensive income of €3.2 million for the year ended December 31, 2013.

Comparison of the Quarters Ended March 31, 2015 and 2014

 

     Quarter Ended March 31,  
             2015                     2014                     Change          
     (in thousands of €)     %  

Revenue

     871        5,096        (82.9 ) 

Research and development expenses

     (4,766     (4,803     0.8   

General and administrative expenses

     (1,730     (1,950     11.3   

Other operating income

            135        N/A   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (5,625 )      (1,522 )      (269.6 ) 

Interest income

     1                 

Interest expenses

     (151     (152     0.7   

Other net financial income (expenses)

     (119     (45     (164.4
  

 

 

   

 

 

   

 

 

 

Loss before taxes

     (5,894 )      (1,719 )      (242.9 ) 

Income tax benefit

                     
  

 

 

   

 

 

   

 

 

 

Net loss

     (5,894 )      (1,719 )      (242.9 ) 

Other comprehensive income

      

Currency translation differences

     8,181        315        2,497.1   
  

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss)

     2,287        (1,404 )      262.9   
  

 

 

   

 

 

   

 

 

 

Revenue

The table below presents a breakdown of our revenue for the quarters ended March 31, 2015 and 2014:

 

     Year Ended March 31,  
         2015              2014      
     (€ thousands)  

Royalties from Lundbeck Agreement

     658         49   

Phase 3 development milestones from UCB collaboration agreement

             5,047   

Phase 3 development funding income from UCB

     213           
  

 

 

    

 

 

 

Total

     871         5,096   
  

 

 

    

 

 

 

Revenue decreased 82.9% or €4.2 million to €0.9 million for the quarter ended March 31, 2015 compared to €5.1 million for the quarter ended March 31, 2014. The decrease in revenue was primarily due to the payment of the Phase 3 development milestones from UCB under the Collaboration Agreement of €5.0 million in 2014, which did not recur in 2015 due to the termination of the agreement. This was partially offset by an increase in royalties from Lundbeck for Selincro of €0.6 million and €0.2 million from Phase 3 development funding income from UCB which did not arise in 2014.

 

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Research and Development Expenses

The table below lists our research and development expenses by project in the periods presented, including certain projects that have been discontinued, namely NRL-1 and nepicastat.

 

     Quarter Ended March 31,  
     2015      2014      Change  
     (in thousands of €)      %  

Project

        

Tozadenant

     3,351         2,923         14.6   

SYN120

     597         81         637.0   

BTT1023

     210         257         (18.3

NRL-1

     —           1,141         n/a   

Selincro

     118         49         140.8   

Nepicastat

     —           12         n/a   

Other research and development expenses

     490         340         44.1   
  

 

 

    

 

 

    

 

 

 

Total

     4,766         4,803         (0.8
  

 

 

    

 

 

    

 

 

 

Research and development expenses remained the same at €4.8 million for the quarters ended March 31, 2015, and 2014. However, there was a difference in the mix of the various development products. The main changes in the components of research and development expenses in the first quarter of 2015 compared with the first quarter of 2014 include an increase of €0.4 million for tozadenant and €0.5 million for SYN120. These increases were mainly offset by the cessation of costs in connection with the termination of development activity and return of NRL-1. NRL-1 research and development expenses amounted to €1.1 million in the first quarter of 2014.

General and Administrative Expenses

General and administrative expenses decreased 11.3% or €0.3 million to €1.7 million for the quarter ended March 31, 2015 as compared to €2.0 million for the quarter ended March 31, 2014.

Other Operating Income

Other operating income for the quarter ended March 31, 2014 amounted to €0.1 million of rental income from an investment property in Germany that was sold in September 2014. There was no other operating income during the quarter ended March 31, 2015.

Operating Loss

Operating loss for the quarter ended March 31, 2015 was €5.6 million. This represented an additional loss of €4.1 million from the loss of €1.5 million for the quarter ended March 31, 2014. The change was mainly due to the higher revenues generated in 2014 from the Phase 3 development milestones under the UCB collaboration agreement that did not recur in 2015.

Interest Income

Interest income was minimal for both of the quarters ended March 31, 2015 and 2014.

Interest Expenses

Interest expenses consist of non-cash interest expenses accrued on the Tekes loans and the convertible capital loans and remained broadly stable and as a result, interest expense was €0.2 million for both the quarters ended March 31, 2015 and 2014.

 

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Other Net Financial Income (Expenses)

Other net financial income (expenses) mainly comprises net foreign exchange losses and was a greater net expense of €0.1 million for the quarter ended March 31, 2015, compared to €0.05 million for the quarter ended March 31, 2014.

Loss before Taxes

For the reasons described above, loss before taxes was €5.9 million for the quarter ended March 31, 2015, compared to €1.7 million for the quarter ended March 31, 2014, a change of €4.2 million.

Income Tax Benefit

There was no income tax benefit for either of the quarters ended March 31, 2015 and 2014.

Net Loss

For the reasons described above, the net loss for the quarter ended March 31, 2015 amounted to €5.9 million, compared to a net loss of €1.7 million for the quarter ended March 31, 2014.

Other Comprehensive Income (Loss)

Other comprehensive income comprises currency translation differences, which mainly arises from the translation of in-process R&D assets and goodwill. It was a gain of €8.2 million for the quarter ended March 31, 2015, an increase of €7.9 million, as compared to a gain of €0.3 million for the quarter ended March 31, 2014. The movement for the quarter ended March 31, 2015 was due to the significant devaluation of the Euro against the United States Dollar and Swiss Franc.

Total Comprehensive Income (Loss)

Total comprehensive income for the quarter ended March 31, 2015 was €2.3 million, compared to a total comprehensive (loss) of €1.4 million for the quarter ended March 31, 2014.

Liquidity and Capital Resources

Our primary use of cash is to fund research and development costs. With the exception of the year ended December 31, 2013, we have never been profitable and have incurred losses in each year since inception. Although we made a profit in the 2013 fiscal year, this was primarily due to a non-refundable development milestone payment by UCB for tozadenant which cannot be expected to recur in the future. Substantially all of our losses have resulted from funding our research and development programs and general and administrative costs associated with our operations. As of March 31, 2015, we had retained earnings which was an accumulated deficit of €160.8 million and liquid assets of €27.8 million.

We have mainly funded our operations through private placements of equity securities and convertible notes, non-convertible and convertible capital loans, long-term research and development loans, development milestone and development funding payments under research and development collaboration agreements, regulatory and commercial milestone payments under the Lundbeck License Agreement and, most recently, royalties under the Lundbeck License Agreement. In addition, a number of trials of our product candidates have been partially or wholly funded through non-dilutive funding, which may or may not flow through our financial statements.

 

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Cash Flows

Comparison of the Years Ended December 31, 2014 and 2013

The following table sets forth our primary sources and uses of our liquid assets for each of the periods set forth below:

 

     Year Ended December 31,  
         2014             2013      
     (€ thousands)  

Net cash from (used in):

    

Operating activities

     (14,092     10,577   

Investing activities

     10,874        (14,065

Financing activities

     126        370   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (3,092     (3,118

Effects of changes in exchange rates

     323        (214
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents, after the impact of exchange rates

     (2,769     (3,332

Net (decrease) increase in financial assets at fair value through profit and loss

     (8,516     13,163   
  

 

 

   

 

 

 

Net (decrease) increase in liquid assets

     (11,285     9,831   
  

 

 

   

 

 

 

Liquid assets totaled €32.4 million as at December 31, 2014, as compared to €43.7 million as at December 31, 2013. The decrease of €11.3 million was mainly due to utilization of cash flow for financing our operating activities. We invested part of our liquid assets into money market funds, which are reported as “Financial assets at fair value through profit or loss” (€24.9 million as at December 31, 2014). Deposits with original maturities of less than three months are reported in the “Cash and cash equivalents,” which totaled €7.5 million as at December 31, 2014.

Operating Activities

Our net cash outflow from operating activities for the year ended December 31, 2014 was €14.1 million, a decrease of €24.7 million, as compared to a net cash inflow of €10.6 million in the same period in 2013, mainly due to the receipt of a non-refundable development milestone payment of €15.3 million from UCB in the first quarter of 2013 and a net cash outflow from working capital of €6.4 million in 2014.

Investing Activities

Net cash inflow from investing activities was €10.9 million for the year ended December 31, 2014, an increase of €25.0 million, as compared to the net cash outflow €14.1 million used in the same period in 2013, mainly due to net investments out of/into financial assets at fair value through profit and loss as required to meet our operating cash flows in each year.

Financing Activities

Net cash inflow from financing activities was €0.1 million for the year ended December 31, 2014, a decrease of €0.3 million compared to €0.4 million in the year ended December 31, 2013 due to a reduction in proceeds from share issues under employee equity plans.

 

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Comparison of the Quarters Ended March 31, 2015 and 2014

The following table sets forth our primary sources and uses of our liquid assets for each of the quarters set forth below:

 

     Quarter Ended March 31,  
         2015             2014      
     (in thousands of €)  

Net cash provided by (used in):

    

Operating activities

     (5,384     (5,409

Investing activities

     3,945        (175

Financing activities

     11        3   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (1,428     (5,581

Effects of changes in exchange rates

     291        31   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents, after the impact of exchange rates

     (1,137     (5,550

Net decrease in financial assets held at fair value through profit and loss

     (3,428     (496
  

 

 

   

 

 

 

Net decrease in liquid assets

     (4,565     (6,046
  

 

 

   

 

 

 

Liquid assets totaled €27.8 million as at March 31, 2015, as compared to €32.4 million as at December 31, 2014. The decrease of €4.6 million was mainly due to utilization of cash flow for financing our operating activities. We invested part of our liquid assets into money market funds, which are reported as “Financial assets at fair value through profit or loss” (€21.5 million as at March 31, 2015). Deposits with maturity of less than three months are reported in the “Cash and cash equivalents,” which totaled €6.3 million as at March 31, 2015.

Operating Activities

Our net cash outflow from operating activities for the quarter ended March 31, 2015 was €5.4 million, a slight decrease compared to a net cash outflow of €5.4 million during the same period in 2014. Although the net loss for the quarter ended March 31, 2015 was higher than in the same period in 2014, there was a favorable working capital movement in 2015 compared to 2014 as there was no change in deferred revenue during the three months ended March 31, 2015 and accounts payable increased as at March 31, 2015.

Investing Activities

Net cash inflow from investing activities was €3.9 million for the quarter ended March 31, 2015, an increase of €4.1 million, as compared to the net cash outflow €0.2 million in the same period in 2014. The large inflow was mainly due to proceeds from the sale of financial assets at fair value through profit and loss required to meet our operating cash flows in 2015 that did not occur in 2014.

Financing Activities

Net cash inflow from financing activities was below €0.1 million for the quarters ended March 31, 2015 and 2015 and related solely to proceeds from share issues in respect of employee equity plans.

Cash and Funding Sources

Our main sources of funding during the periods presented were revenue received from UCB in relation to tozadenant and royalties from Lundbeck in relation to Selincro sales. We have not raised any equity or debt financing during any of the periods presented.

 

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We have no ongoing material financial commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than research and development loans, some of which are due for repayment as described below.

Funding Requirements

We believe that the net proceeds of this offering, together with our current liquid assets and the milestone and royalty revenues that we expect to receive from Lundbeck for Selincro, will enable us to fund our Phase 3 double-blind clinical trial (and extension) of tozadenant in Parkinson’s through completion, as well as our portion of the funding for the SYN120 Phase 2a clinical trial in Parkinson’s dementia and BTT1023 Phase 2 clinical trial in PSC. We intend to fund the remaining portion from non-dilutive sources. We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including but not limited to:

 

   

the level of Selincro sales achieved by Lundbeck and its ability to obtain regulatory approvals in additional countries, which will affect the amount of milestones and royalties that we receive;

 

   

the rate of enrollment, progress and cost of our clinical trials and other related activities;

 

   

the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates;

 

   

the cost, timing and outcomes of our clinical trials, which may meet their primary end-points or not; and

 

   

the terms and timing of any collaborative, licensing, and other arrangements that we may establish, including any required milestone and royalty payments thereunder and any non-dilutive funding that we may receive.

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

We have no ongoing material financial commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than research and development loans, some of which are due for repayment as described below.

Contractual Obligations and Commitments

The following table sets forth information relating to our contractual obligations and commitments as at December 31, 2014.

 

     Payments due by period  
     Less than
1 year
     Between 1 and
3 years
     Between 3 and
5 years
     More than
5 years
     Total(1)(2)  
     (€ thousands)  

Convertible capital loan(3)(4)

                             1,682         1,682   

Non-convertible capital loans(3)(4)

                             16,318         16,318   

Research and development loans(4)

             538         1,614         538         2,690   

Operating lease commitments

     843         1,356         581                 2,780   

 

(1)   As of December 31, 2014, we also had outstanding contractual payment obligations (contracted commitments), primarily for contract research work services related to ongoing clinical development programs, totaling €0.2 million. These contractual commitments have not been included in this table.

 

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(2)   We have entered into various license agreements that contingently trigger one-off payments upon achievement of certain milestones, the payment of royalties and certain other payments. If all the milestone triggering events were to be achieved, the aggregate amount of milestone payments due would be approximately $114 million. Because the achievement and timing of these payments are uncertain, our commitments under these agreements have not been included in this table. We anticipate that approximately $1.5 million of these milestone payments may become due within the next year. See “—Collaboration and License Agreements.”
(3)   The convertible capital loan and the non-convertible capital loans have a stated maturity in less than one year. However, the repayment of these loans and payment of accrued interest thereon is governed by a restrictive condition, according to which the loan principal must only be repaid if our consolidated restricted equity is fully covered. Accrued interest must only be paid if the consolidated entity has sufficient funds for profit distribution as of the most recently ended fiscal year. Interest accrues in the interim. All capital loans are therefore classified as long-term debt.
(4)   The amounts do not include interest costs at the loans’ applicable interest rates.

Convertible Capital Loan

We have an outstanding convertible capital loan that was issued originally in 1999 to certain shareholders and venture capital organizations with a notional amount of €2.5 million. The interest rate is 10% per annum. The repayment of the loan and interest is governed by a restrictive condition, according to which the capital may only be returned if our consolidated restricted equity for the last financial period is sufficient to pay back the loan. Interest on the convertible capital loan shall be paid only if we have (on a consolidated basis) sufficient funds for profit distribution as of the most recently ended fiscal year. The loan also accrues interest from the fiscal years in which our financial statements do not present sufficient funds available for profit distribution. As at December 31, 2014, the carrying value of the convertible capital loan was €1.7 million and accumulated accrued interest on the convertible capital loan amounted to €3.4 million (€3.2 million at December 31, 2013) and is recorded in “Other non-current liabilities” on the balance sheet. The convertible capital loan can also be converted at any time, at the option of the holder, into 828,000 of our shares under the terms of the agreement at a conversion rate of €1.8688 per share for 540,000 of the shares and €2.3359 for 288,000 of the shares.

Non-Convertible Capital Loans

As of December 31, 2014, we had outstanding a total of 14 non-convertible capital loans granted by Tekes in an aggregate amount of €16.3 million, following the forgiveness of two loans (carrying value €1.1 million) in 2013. The proceeds from the loans have been fully used to fund a number of research & development projects. The majority of the loans outstanding at December 31, 2014 were drawn prior to 2009, and the maturities range from eight to ten years from drawdown. The interest rate per annum for these loans is the base rate set by the Ministry of Finance minus 1%, subject to a minimum rate of 3%. As the base rate has been lower than the minimum of 3%, the interest rate for these loans has been 3% for both periods presented. Further, these loans and accumulated accrued interest are not repayable until our restricted equity is fully covered or we (on a consolidated basis) have distributable funds. Restricted equity is fully covered when our distributable funds are greater than zero. Distributable funds (or unrestricted equity) of the Company comprises retained earnings (accumulated deficit), reserve for invested unrestricted equity and other reserves (unrestricted) and as of December 31, 2014 (the last financial period) and totaled a debit of €140.1 million. Since we have not had distributable funds since the withdrawal of these loans, interest recorded through the financial expenses are accrued and presented under other non-current liabilities in the balance sheet as we do not expect to have distributable funds in foreseeable future. The accumulated accrued interest on the non-convertible capital loans amounted to €6.0 million at December 31, 2014 (€5.5 million at December 31, 2013).

 

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Research and Development Loans

As of December 31, 2014, we had €2.7 million of research and development loans granted by Tekes. Research and development loans amounting to €1.7 million were extinguished in 2013 following Tekes’ decision to forgive the loans. Research and development loans are granted to a defined product development project and cover a contractually defined portion of the project’s research and development expenses. The interest rate for these loans is the base rate set by the Ministry of Finance minus 3%, subject to a minimum rate of 1%. As the base rate has been lower than the minimum of 1%, the interest rate for these loans has been 1% for both periods presented. Repayment of these loans is required to be completed between 2017 and 2021, or a later date if agreed with Tekes, thereafter loan principal is payable in equal installments over a five-year period.

Operating Lease Commitments

Operating lease commitments comprise rent commitments for leasehold properties and lease commitments for motor vehicles, machines and equipment with leases of three to five years. Our operating leases are non-cancellable and they do not include redemption or extension options.

Other Commitments

As of December 31, 2014, we also had outstanding contractual payment obligations (contracted commitments), primarily for contract research work services related to ongoing clinical development programs, totaling €0.2 million.

We have entered into various license agreements that contingently trigger one-off payments upon achievement of certain milestones and royalty payments in the future. Because the achievement and timing of these milestones and net sales is not fixed and determinable, our commitments under these agreements have not been included in the Contractual Obligations and Commitments table above. See “— Collaboration and License Agreements.”

Subsequent Events

Convertible Notes Financings

Pursuant to certain agreements entered into between us and the other parties identified therein in April and May 2015, certain new investors and existing shareholders subscribed for €33.1 million aggregate principal amount of our convertible promissory notes and received warrants exercisable for our shares on May 28, 2015, which we refer to as the Convertible Notes Financings. An aggregate of 220,400,001 convertible notes were issued to the subscribers, and each convertible note has a conversion price of €0.15 per share. The convertible notes may be converted by their holders at any time prior to repayment. The convertible notes will automatically convert upon completion of this offering. The convertible notes do not bear any interest unless an event of default has occurred and continues for ten business days, whereupon the convertible notes would accrue interest at a rate of 8% per year thereafter during the continuance of the event of default. An aggregate of 220,400,001 warrants were issued to the subscribers, and each warrant entitles the holder to subscribe for one share at a subscription price of €0.17. The warrants, irrespective of the consummation of this offering, entitle the holder to subscribe for our shares from November 1, 2015 until November 1, 2020. See “Description of Share Capital and Articles of Association—Share Capital—Warrants” for a description of the warrants. Under the terms and conditions of the convertible notes, the issuance of securities resulting in our raising an amount greater than $95 million in gross proceeds from this offering, including the underwriters’ option to purchase additional shares from us in connection with this offering, from the issuance of convertible notes in the Convertible Notes Financings, and from any other

 

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offerings of our securities from the date of the relevant subscription agreement for the Convertible Notes Financings through the date of the completion of this offering, would constitute an event of default, which could result in the requisite noteholders declaring the convertible notes immediately due and payable. As a result, we intend to raise no more than $95 million in aggregate from this offering and the sale of the convertible notes in the Convertible Notes Financings.

Off-Balance Sheet Arrangements

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

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to several financial risks caused by, for example, the following factors: changes to market prices in debt and capital markets and fluctuation of exchange rates and interest rates. Our risk management principles focus on the unpredictability of the financial markets and aim at minimizing any undesired impacts on our financial result. Our Board of Directors defines our general risk management principles and provides operational guidelines concerning specific areas including but not limited to foreign exchange risk, interest rate risk, credit risk, use of derivatives and investment of our liquid assets.

Market Risk

Foreign Exchange Risk

We operate internationally but are only exposed to translation risk from our investments in foreign operations, the U.S. dollar being the most significant currency. We are not exposed to significant transaction risk, as we and our subsidiaries mainly operate in our functional currencies. As of March 31, 2015, we had cash and cash equivalents of €3.2 million in U.S. dollars, €0.05 million in Swiss Francs and €0.1 million in Pounds Sterling and money market funds of €1.8 million in U.S. dollars.

We have granted an intercompany loan (€41.0 million as at March 31, 2015) to our U.S. subsidiary that qualifies for part of the net investment, and exchange differences reflected as net gains / (losses) from foreign exchange in the statement of comprehensive (loss) income.

We may need to consider transfer of balances between currencies as appropriate to manage the currency in which revenue is received and expenses are incurred. However, we have a policy not to hedge translation risk.

Proceeds from this offering in U.S. dollars will be held in U.S. dollars, as the majority of the costs for the tozadenant Phase 3 program are expected to be incurred in that currency.

Interest Rate Risk

Our interest rate risk arises from borrowings from Tekes and private investors. Borrowings carry fixed interest rates and hence do not expose us to variable interest rate risk. Our loans from Tekes are mainly tied to the base rate defined by the Finnish Ministry of Finance, which is reset rarely, with a floor at 3% for the non-convertible capital loans and 1% for the research and development loans. During the periods presented, the interest rate level has been below the floor, so we have accrued for the floor interest of 3% or 1%, respectively, on the Tekes loans. Hence an increase in base rates would not have any material impact on our profit or loss. Further, accumulated accrued interest is not payable until we are profitable and have sufficient funds for profit distribution. Surplus cash is invested in short term money market funds, and they also expose us mainly to fair value interest rate risk.

 

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Credit and Counterparty Risk

Deposit and security receivables from banks expose us to credit risk. The banks we use for our deposits are among the most reputable financial institutions in the United States and Europe. We invest liquid assets in low risk securities with high ratings and in interest bearing bank accounts. Management monitors the sufficiency of our liquid assets and exposure to credit risk regularly.

We preferentially work with counterparties with good credit ratings. We currently derive a significant proportion of our collaborative income from a small group of partners. This risk of concentration of creditors is partly mitigated by the fact that our collaboration partners are typically large and internationally reputable pharmaceutical companies which are financially sound. These collaborations are governed by contractual relationships that typically address and describe remedies for situations in which our interests and the interests of the partner are no longer in line. In addition, we aim to collaborate on different development programs with as many partners as possible in order to spread the risk of creditor concentration.

Critical Accounting Estimates and Judgments

In the application of our accounting policies, our management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revisions and future periods if the revision affects both current and future periods.

While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

We recognize revenue from collaboration and licensing agreements with pharmaceutical companies that may include licenses, development and approval milestone payments, development funding income, commercial milestone payments and royalties. These agreements often require significant analysis and judgment by management in order to determine the appropriate method of revenue recognition.

Where such arrangements can be divided into separate units of accounting (each unit constituting a separate earnings process), the arrangement consideration is allocated to the different units based on their relative fair values and recognized over the respective performance period. This analysis requires considerable estimates and judgments, including estimates of the relative fair values of the various elements included in such agreements and the estimated length of the respective performance periods. Depending upon how such judgment is exercised, the timing and amount of revenue recognized could differ significantly. Revenue in the various accounting units containing elements is recognized when the criteria for revenue recognition regarding the elements of that accounting unit have been met according to their type and only to the extent of the consideration that is not contingent upon completion or performance of the remaining elements in the contract.

Revenues on licenses are recognized when, in the judgment of management, significant risks and rewards of ownership have been transferred to the buyer and where we do not retain either the continuing managerial involvement to the degree usually associated with ownership or effective control.

 

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Non-refundable development, approval and commercial milestone payments are recognized when a milestone has been achieved and we have no further performance obligations. This is normally when we are informed by the partner that the milestone has been achieved.

Any milestone payments that have been received but for which the earnings process has not been completed are reported as deferred revenue (a liability) in the balance sheet. Any change in the estimated development period may lead to an adjustment of the recognition amount and time. In case the estimated development schedule were to be delayed, the annual income would lessen since the amount of the total revenue would be allocated over a longer period of time.

In certain agreements, where development milestones are primarily received to reimburse development costs for specific development activities, revenue is recognized as the lower of the non-refundable cash received under the agreement and that based on the percentage of completion method. This is based on the efforts and costs incurred to date in relation to the total estimated costs to complete the contract. Any change in the estimated costs to complete could cause a change in the amount of revenue that should have been recognized to date.

Impairment of Intangible Assets

We have significant investments in intangible assets that have an indefinite useful life, such as goodwill, or intangible assets not ready to use, such as acquired in-process research and development assets, are not subject to amortization and are tested annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost of disposal and value in use. Our impairment review methodology applied is based on the fair value less cost of disposal. The fair value of the asset is determined from the discounted future net cash flows expected to be derived from the asset or, in the case of goodwill, the cash generating unit. The discounted future net cash flows of development assets are adjusted for the probability of future development success; the discount rate used reflects the time value of money and appropriate risk premiums for the asset. The fair value less cost of disposal is then compared to the carrying amount of the asset. An impairment charge is recognized in the consolidated statement of comprehensive income for the amount by which the asset’s carrying amount exceeds its fair value less cost of disposal.

During the year ended December 31, 2014, we recognized impairment charges totaling €27.6 million in relation to two of our in-process research and development assets; for the remaining in-process research and development asset and goodwill we determined that no adjustment to carrying values was required. Nepicastat was fully written down to nil as a result of the receipt of the top-line data that did not meet its primary efficacy endpoint in respect of the Phase 2a trial, and SYN120 was written down to its recoverable amount as a result of a revision to our plans to develop SYN120 initially for Parkinson’s dementia, which has a smaller commercial potential than Alzheimer’s. If in the future we commence a trial of SYN120 for Alzheimer’s, for example, the impairment relating to SYN120 could be reversed. Key assumptions regarding impairment testing, including the impairments recognized in 2014, are discussed in note 11 to the consolidated financial statements included elsewhere in this prospectus.

During the year ended December 31, 2013, we reviewed the carrying amounts of our intangible assets and goodwill and determined that no adjustments to carrying values were required.

The determination of the fair values requires management to make a number of estimates and assumptions related to future expectations of success and to use discount rates and other inputs that are relevant to the specific assets. Should we be required to recognize future impairments in the consolidated

 

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statement of comprehensive income as a result of the impairment testing, this could have a material effect on our results and financial position, although this would not have any impact on our cash or liquid asset balances.

Research and Development Expenses

The stage of a particular development asset generally forms the basis for the decision whether costs incurred on research and development projects can be capitalized or not. In general, our view is that research and development expenses may not be capitalized until marketing approval has been received from the relevant regulatory agencies, as this is considered to be the first point at which it may be appropriate to conclude that future revenues can be generated. Expenses before that point are recognized as they are incurred in the consolidated statement of comprehensive income and when a project reaches that point, it is reviewed at each reporting period to assess whether in management’s judgment it meets the capitalization criteria. Given the current stage of the development of our products, no development expenditures have yet been capitalized.

As of each balance sheet date, we estimate the level of service performed by our vendors or other counterparties and the associated costs incurred for the services performed. As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses, which are predominantly in respect of research and development activities. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf, estimating the level of service performed and the associated cost incurred for the service when it has not yet been invoiced or notified of the actual cost; in most cases, this is done by discussion with the vendors. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of their accrued expenses at each balance sheet date in our financial statements based on the facts and circumstances known to us at that date. Although we do not expect our estimates to be materially different from the amounts actually incurred, our understanding of the status and timing of services performed relative to actual status and timing may vary and could result in us reporting amounts that are too high or too low in a particular period. When the actual amounts are known, any difference is recognized in the consolidated statement of comprehensive income.

Share-based Payments

Option rights and share units have been measured at their fair value, using market based inputs, at the grant date, and are recognized as an expense in the consolidated statement of comprehensive income over the vesting period. A Black-Scholes pricing model is used to value the option rights and share units that have been granted, and critical judgments need to be exercised in determining the appropriate assumptions to include in the model, as well as to determine the most appropriate way of recognizing the compensation expense. Our shares are listed on the Finnish Stock Exchange and therefore, the market based inputs used to fair value the option rights and share units include company-specific historical share price and volatility information. The key assumptions in the model are detailed in note 19 to our consolidated financial statements included elsewhere in this prospectus.

At each balance sheet date, we review and update, as appropriate, each of the underlying assumptions, such as the expected number of options and share units that are expected to become exercisable. The impact of any changes in the estimates or assumptions is recorded in the statement of comprehensive income and a corresponding adjustment to equity.

Deferred Income Taxes

We are subject to income taxes in Finland, the United States, Switzerland and Germany. Significant judgment is required in determining the use of net operating loss carry forwards and the taxation of up-front

 

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and milestone payments for income tax purposes. There are many transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences may impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

As at December 31, 2014, we had accumulated tax loss carryforwards of €120.6 million, which are potentially available to offset against future profits. Our policy is to recognize deferred tax assets arising from unused tax losses or tax credits only to the extent the relevant fiscal entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profits will be available against which the unused tax losses or unused tax credits can by utilized by the fiscal entity. Estimation of the level of future taxable profits is therefore required in order to determine the appropriate carrying value of the deferred tax asset at each balance sheet date. Management’s judgment is currently that sufficient convincing other evidence is not available and a deferred tax asset is, therefore, not recognized.

Recent Accounting Pronouncements

The following standards have been issued, but are not effective until after December 31, 2014, and are considered relevant for us. We are currently assessing their potential impact on our accounting policies, financial position and performance.

IFRS 9: Financial Instruments

IFRS 9: “Financial instruments” addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in International Accounting Standards, or IAS, 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains, but simplifies, the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income (loss) and fair value through profit and loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option to present changes in fair value in other comprehensive income (loss) not recycling. There is a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income (loss) and for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the “hedged ratio” to be the same as the one management actually uses for risk management purposes. Contemporaneous documentation is still required, but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. We are assessing the impact of IFRS 9.

IFRS 15: Revenue from Contracts with Customers

IFRS 15: “Revenue from contracts with customers” deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognized when a customer obtains control of a good or service and thus has the ability to direct the use of, and obtain the benefits from, the good or service. The standard replaces IAS 18 “Revenue” and IAS 11 “Construction contracts” and related interpretations. The standard is effective for annual periods beginning on or after January 1, 2017 and earlier application is permitted. We are assessing the impact of IFRS 15.

 

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JOBS Act Exemptions

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” As an emerging growth company, we are electing to take advantage of not providing an auditor attestation report on our system of internal controls over financial reporting. These exemptions will apply for a period of five years following the completion of our initial public offering or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.

 

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BUSINESS

Overview

We are a biopharmaceutical company primarily focused on developing therapeutics for central nervous system disorders. Our pipeline includes product candidates designed to address unmet medical needs in Parkinson’s disease and related dementia, other neurodegenerative indications and primary sclerosing cholangitis, an orphan fibrotic liver disease. In addition, we have successfully developed a product for alcohol dependence that is being commercialized by Lundbeck and is a source of further potential milestone payments and ongoing royalties.

We are preparing to commence a pivotal Phase 3 clinical trial of our lead product candidate, tozadenant, that we believe could form the basis for its approval as an adjunctive treatment to levodopa in Parkinson’s. Levodopa, the most widely prescribed treatment for Parkinson’s, loses effectiveness in most patients over time. Parkinson’s patients often experience a reemergence of debilitating symptoms on a daily basis as their levodopa doses wear off. Tozadenant is an oral, selective adenosine A2a receptor antagonist that aims to address this wearing off effect. In a 420-patient Phase 2b trial, tozadenant displayed clinically important and statistically significant effects across prespecified primary and multiple secondary endpoints at a number of doses. In addition, tozadenant has been found to be generally safe and well tolerated in our ten clinical trials conducted to date.

Parkinson’s disease is the second most common neurodegenerative disorder worldwide, affecting an estimated 6.3 million sufferers, including at least one million people in the United States. At least one million people who suffer from Parkinson’s live in the United States. The symptoms that these patients face, such as tremors or stiffness of the face and limbs, slowness of movement and impaired coordination worsen over time and can severely affect patients’ quality of life. Ultimately, Parkinson’s patients are often forced to stop working and become increasingly dependent on caregivers in their homes or in specialized facilities. Levodopa is the standard treatment for Parkinson’s, and an estimated 70% to 80% of Parkinson’s patients receive levodopa at any given time. The periods when levodopa doses wear off and patients experience a reemergence of symptoms are commonly referred to as OFF episodes. Within four to six years of commencing treatment with levodopa, an estimated 40% of Parkinson’s patients will experience OFF episodes, increasing by an additional 10% per year after that. We believe that tozadenant has the potential for use as an adjunctive therapy in combination with levodopa and other drugs indicated for the treatment of Parkinson’s symptoms to reduce the duration of OFF episodes.

We believe tozadenant is an attractive lead product candidate based on the following:

 

   

Late stage innovative product that has demonstrated meaningful benefit for Parkinson’s patients, including those receiving multiple medications.

 

   

Phase 2b clinical trial showed statistically significant effectiveness, including decreasing the duration of OFF episodes; and the U.S. Food and Drug Administration, or the FDA, has indicated it could qualify as the first of two pivotal trials.

 

   

Pivotal Phase 3 clinical trial in preparation that we believe together with existing data could form the basis for approval.

 

   

Well tolerated in more than 500 unique exposures, including two clinical trials in patients with Parkinson’s and eight in healthy volunteers.

 

   

Potential to be the first drug with a new mechanism of action for the treatment of Parkinson’s introduced to North America and Europe in over 20 years.

 

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Novel mechanism of action complementary to other treatments for Parkinson’s.

 

   

Exclusive, worldwide license to develop and commercialize tozadenant products.

Our Product Portfolio

In addition to tozadenant, we have a commercial and development stage portfolio, as summarized below:

 

LOGO

SYN120 is our oral product candidate to treat both cognitive deficits and psychosis, which frequently coincide in neurodegenerative diseases such as Parkinson’s and Alzheimer’s. We have completed single and multiple ascending dose Phase 1 trials of SYN120, an oral dual antagonist of the 5HT6 and 5HT2a receptors, in healthy volunteers. In these trials, doses well above the anticipated therapeutic dose were well tolerated. An 80-patient Phase 2a randomized, double-blind, placebo-controlled trial of SYN120 in Parkinson’s dementia, largely funded by the Michael J. Fox Foundation for Parkinson’s Research, or the Michael J. Fox Foundation, is being conducted by the Parkinson Study Group, which began recruiting patients at the end of 2014. Top-line data is expected by the end of 2016.

BTT1023 is our product candidate for the orphan disease primary sclerosing cholangitis, or PSC, a chronic and progressive fibrotic liver disease for which there is no FDA-approved treatment. We have partnered with the U.K. National Institute of Health Research to fund a Phase 2 proof of concept trial of BTT1023 in PSC, which is being conducted in collaboration with the University of Birmingham. Interim data is expected by the end of 2016. BTT1023 has received orphan drug designation for the treatment of PSC in Europe. We intend to pursue orphan drug designation for BTT1023 in the United States.

Our marketed product, Selincro, an orally administered opioid receptor ligand used in alcohol dependence therapy, received European marketing authorization in 2013 and has been introduced across Europe in 29 countries by our partner H. Lundbeck A/S, or Lundbeck, a Danish pharmaceutical company specializing in central nervous system products. Under our November 2006 option agreement with Lundbeck, or the Option Agreement, and our license and commercialization agreement with Lundbeck, or the Lundbeck License Agreement, we have received €22.0 million in milestone payments to date and are eligible to receive additional regulatory and commercial milestone payments and ongoing royalties on sales of Selincro.

 

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Strategy

Our goal is to be a leading global specialty central nervous system company focused on diseases with unmet medical needs. Key elements of our strategy are:

 

   

Advance development of tozadenant through regulatory approval. We are preparing to commence a pivotal Phase 3 trial of tozadenant, which we believe could form the basis for its approval in the United States as an adjunctive treatment to levodopa in Parkinson’s patients experiencing end-of-dose wearing off episodes. We believe that tozadenant could serve as a significant enhancement to existing maintenance therapies. We have an exclusive, worldwide, royalty-bearing license to exploit tozadenant and intend to conduct a Phase 3 clinical trial, which we believe will qualify as the second of two pivotal trials. We expect to commence this Phase 3 double-blind trial in the third quarter of 2015 and subsequently file for registration, initially in the United States, after adequate safety data has been obtained from the open-label trial of the Phase 3 program.

 

   

Leverage our expertise in drug development to advance product candidates in our pipeline. In addition to tozadenant, we are currently conducting a Phase 2a trial of SYN120 in Parkinson’s dementia and expect to announce top-line data by the end of 2016. We may also conduct an additional Phase 2 clinical trial of SYN120 in Alzheimer’s if we obtain additional funding. We began enrolling patients for the Phase 2 trial of BTT1023 in PSC in the first quarter of 2015, and interim data is expected by the end of 2016. BTT1023 has received orphan drug designation for the treatment of PSC in Europe. We intend to pursue orphan drug designation for BTT1023 in the United States. We believe our expertise in drug development and experience identifying, acquiring, developing and out-licensing clinical assets will allow us to continue to apply our core competencies to advance our product candidates successfully.

 

   

Selectively establish partnerships and collaborations to derive near-term value from our existing assets. We have successfully worked with the Michael J. Fox Foundation and the Parkinson Study Group to fund and conduct our ongoing Phase 2a trial of SYN120 in Parkinson’s dementia and are partnering with the U.K. National Institute of Health Research to fund a Phase 2 clinical trial of BTT1023 in PSC that is being conducted in collaboration with the University of Birmingham. We actively evaluate potential collaborators for licensing, sales and distribution of certain of our product candidates during their dev