5. Financial instruments and risk management

The following table shows the carrying amounts of financial assets and financial liabilities:

Financial assets
	December 31, 2017		December 31, 2016
Cash and cash equivalents		14,973,369		32,422,222
Loans and receivables
Other receivables		79,840		134,900
Total financial assets		15,053,209		32,557,122

Financial liabilities
At amortized cost
Trade and other payables		1,200,820		1,837,997
Accrued expenses		4,395,609		4,652,033
Loan		10,126,406		12,364,204
At fair value through profit and loss
Derivative financial instruments		1,836,763		117,132
Total financial liabilities		17,559,598		18,971,366

Fair values

The carrying amount of cash and cash equivalents, other receivables, trade and other payables and accrued expenses is a reasonable approximation of their fair value due to the short term nature of these instruments. In respect of the Company’s loan which has floating rates of interest, the fair value approximates carrying value.

Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk, credit risk, interest rate and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Management identifies, evaluates and controls financial risks. No financial derivatives have been used in 2017 and 2016 to hedge risk exposures. The Group invests its available cash in instruments with the main objectives of preserving principal, meeting liquidity needs and minimizing foreign exchange risks. The Group allocates its liquid assets to first tier Swiss or international banks.

Liquidity risk

The Group’s principal source of liquidity is its cash reserves which are mainly obtained through the issuance of new shares. The Group has succeeded in raising capital to fund its development activities to date and has raised funds that will allow it to meet short term development expenditures. The Company will require regular capital injections to continue its development work, which may be dependent on meeting development milestones, technical results and/or commercial success. Management monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs. The ability of the Group to maintain adequate cash reserves to sustain its activities in the medium term is highly dependent on the Group’s ability to raise further funds. Consequently, the Group is exposed to continued liquidity risk.

The table below analyses the remaining contractual maturities of financial liabilities, including estimated interest payments as of December 31, 2017 and 2016. The amounts disclosed in the table are the undiscounted cash flows:

	Carrying amount		Less than 3 months		Between 3 months and 2 years		2 years and later		Total
December 31, 2017
Trade and other payables		1,200,820		1,200,820		—		—		1,200,820
Accrued expenses		4,395,609		4,395,609		—		—		4,395,609
Loan and borrowings		10,126,406		1,349,531		9,446,716		1,166,225		11,962,472
Derivative financial instruments		1,836,763		—		—		1,836,763		1,836,763
Total		17,559,598		6,945,960		9,446,716		3,002,988		19,395,664

	Carrying amount		Less than 3 months		Between 3 months and 2 years		2 years and later		Total
December 31, 2016
Trade and other payables		1,837,997		1,837,997		—		—		1,837,997
Accrued expenses		4,652,033		3,632,752		1,019,281		—		4,652,033
Loan and borrowings		12,364,204		311,013		8,725,772		6,834,249		15,871,034
Derivative financial instruments		117,132		—		—		117,132		117,132
Total		18,971,366		5,781,762		9,745,053		6,951,381		22,478,196

Fair value measurement

Financial assets / liabilities	Fair values as at
	December 31, 2017	December 31, 2016	Fair value hierarchy	Valuation technique(s) and key input(s)
Derivative financial liabilities	Liability 1,836,763	Liability 117,132	Level 2	Black-Scholes option pricing model The share price is determined by our NASDAQ quoted-price. The strike price and maturity are coming from the contract. The volatility assumption is driven by our historic quoted share price and the risk free rate is estimated based on observable yield curves at the end of each reporting period.

						Non-cash changes
	01.01.2017		Financing Cash Flows ¹⁾			Fair value revaluation			Other changes ²⁾			31.12.2017
Derivative financial instrument		117,132		5,091,817			(3,372,186	)		—			1,836,763
Loans		12,364,204		(2,087,076	)		—			(150,722	)		10,126,406
Total		12,481,336		3,004,741			(3,372,186	)		(150,722	)		11,963,169

¹⁾

The financing cash flows are from loan repayment and from issuance of new derivative

²⁾

Internal rate of return changes and fx-difference

Credit risk

Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents and deposits with banks, as well as from other receivables. The Company’s policy is to invest funds in low risk investments including interest bearing deposits. Other receivables were current as of December 31, 2017 and December 31, 2016, not impaired and included only well-known counterparties.

The Group has been holding cash and cash equivalents in the Group’s principal operating currencies (CHF, USD and EUR) with international banks of high credit rating.

The Group’s maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated statement of financial position:

	December 31, 2017		December 31, 2016
Financial assets
Cash and cash equivalents		14,973,369		32,442,222
Other receivables		79,840		134,900
Total		15,053,209		32,577,122

As of December 31, 2017 and December 31, 2016 other receivables consisted of other non-current receivables from third party and deposits for rent.

Market risk

Currency risk

The Group operates internationally and is exposed to foreign exchange risk arising from various exposures, primarily with respect to US Dollar and Euro. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. The summary of quantitative data about the exposure of the Group’s financial assets and liabilities to currency risk was as follows:

	2017						2016
	USD			EUR			USD			EUR
	(in CHF)
Cash and cash equivalent		13,901,698			116,942			31,124,874			444,075
Trade and other payables		(365,999	)		(426,050	)		(501,249	)		(847,892	)
Accrued expenses		(1,750,752	)		(1,692,946	)		(1,031,096	)		(2,964,552	)
Loan and borrowings		(10,126,406	)		—			(12,364,204	)		—
Derivative financial instruments		(1,836,763	)		—			(117,132	)		—
Net statement of financial position exposure-asset/(liability)		(178,222	)		(2,002,054	)		17,111,193			(3,368,369	)

As of December 31, 2017, a 5% increase or decrease in the USD/CHF exchange rate with all other variables held constant would have resulted in a CHF 8,662 (2016: CHF 872,443) increase or decrease in the net result. Also, a 5% increase or decrease in the EUR/CHF exchange rate with all other variables held constant would have resulted in a CHF 117,320 (2016: CHF 180,595) increase or decrease in the net result.

The Company has subsidiaries in the United States and Ireland, whose net assets are exposed to foreign currency translation risk. Due to the small size of the subsidiaries the translation risk is not significant.

Interest rate risk

On July 19, 2016, the Company entered into a Loan and Security Agreement for a secured term loan facility of up to $20.0 million with Hercules Capital, Inc. as administrative agent (“Hercules”) and the lenders party thereto. An initial tranche of $12.5 million was drawn on July 19, 2016, concurrently with the execution of the loan agreement. The loan matures on January 2, 2020 and bears interest at a minimum rate of 9.55% per annum, and is subject to the variability of the prime interest rate. The Company’s exposure to interest rates on financial assets and financial liabilities is resulting from loan and cash at banks. As of December 31, 2017 an increase or decrease in interest rates on financial obligations by 50 basis points with all other variables held constant would have resulted in a CHF 62,500 (2016: 28,276) increase or decrease in the net result.

Capital risk management

The Company and its subsidiaries are subject to capital maintenance requirements under local law in the country in which it operates. To ensure that statutory capital requirements are met, the Company monitors capital, at the entity level, on an interim basis as well as annually. From time to time the Company may take appropriate measures or propose capital increases to ensure the necessary capital remains intact.