F-1 1 d760135df1.htm F-1 F-1
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As filed with the Securities and Exchange Commission on September 22, 2014.

Registration No. 333-          

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

DBV TECHNOLOGIES S.A.

(Exact name of registrant as specified in its charter)

 

 

 

France   2836   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

DBV Technologies S.A.

Green Square-Bâtiment D

80/84 rue des Meuniers

92220 Bagneux France

+33 1 55 42 78 78

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

CT Corporation System

111 8th Avenue

New York, New York 10011

(212) 894-8800

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

 

 

 

Copies to:

 

Mitchell S. Bloom, Esq.

Michael H. Bison, Esq.

Goodwin Procter LLP

Exchange Place

53 State Street

Boston, MA 02109

(617) 570-1000

 

Karen Noël

Gide Loyrette Nouel A.A.R.P.I.

22, cours Albert ler

75008 Paris France

+33 1 40 75 36 25

 

Marc Recht, Esq.

Nicole Brookshire, Esq.

Divakar Gupta, Esq.

Cooley LLP

500 Boylston Street

Boston, MA 02116

(617) 937-2300

 

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement becomes effective.

 

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

 

Amount

to be

Registered(1)

 

Proposed
Maximum
Aggregate
Offering Price

Per Share

  Proposed
Maximum
Aggregate
Offering Price(2)
  Amount of
Registration Fee

Ordinary Shares, €0.10 nominal value per share(3)

  3,000,000   $32.02   $96,060,000.00   $12,373

 

 

 

(1)   Includes (a) ordinary shares which the underwriters have the option to purchase cover over-allotments, if any, and (b) ordinary shares which are being offered in an offering in France and countries outside of the United States and Canada but which may be resold from time to time in the United States in transactions requiring registration under the Securities Act. The total number of ordinary shares in the United States and French offerings is subject to reallocations between these two offerings. All or part of these ordinary shares may be represented by American Depositary Shares, or ADSs. Offers and sales of shares outside the United States are being made pursuant to Regulation S under the Securities Act of 1933 and are not covered by this Registration Statement.
(2)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Section 457(c) under the Securities Act, based on the average of the high and low prices of the ordinary shares on Euronext Paris on September 17, 2014, as expressed in U.S. dollars based on the closing New York trading U.S. dollar exchange rate for the euro on September 19, 2014 ($1.2829).
(3)   Each ADS represents one ordinary share. ADSs issuable upon deposit of the ordinary shares registered hereby are being registered pursuant to a separate Registration Statement on Form F-6.

 

 

 

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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.

 

 

 


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

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 2014

 

PRELIMINARY PROSPECTUS

 

LOGO

 

American Depositary Shares

 

DBV Technologies S.A.

 

Representing                 Ordinary Shares

 

$         per ADS

 

 

 

This is the initial public offering of our American Depositary Shares, or ADSs. We are selling                     ordinary shares in the form of ADSs in the United States, Canada and countries outside of France. The ADSs may be evidenced by American Depositary Receipts, or ADRs, and each ADS represents the right to receive one ordinary share. We have granted the underwriters an option to purchase up to                     additional ordinary shares and ADSs to cover over-allotments.

 

This offering of ADSs is part of a global offering of an aggregate                      ordinary shares, including                      ordinary shares offered in France and countries outside of the United States and Canada pursuant to a separate prospectus. The total number of ordinary shares in the U.S. and French offerings is subject to reallocation between these offerings.

 

We have applied to have the ADSs listed on the Nasdaq Global Market under the symbol “DBVT” and the ordinary shares are listed on Euronext Paris under the symbol “DBV.” On                     , 2014, the last reported sale price of the ordinary shares on Euronext Paris was €         per share, equivalent to a price of $         per ADS, assuming an exchange rate of €         per U.S. dollar.

 

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

 

Investing in the ADSs involves risks. See “Risk Factors” beginning on page 12.

 

 

 

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

 

 

 

     Per Share      Per ADS      Total  

Public Offering Price

   $                    $                    $                

Underwriting Discount(1)

   $         $         $     

Proceeds to DBV (before expenses)

   $         $         $     

 

(1)   We refer you to “Underwriting” beginning on page 187 of this prospectus for additional information regarding underwriting compensation.

 

The underwriters expect to deliver the ADSs to purchasers on or about                 , 2014 through the book-entry facilities of The Depository Trust Company.

 

 

 

Citigroup     Leerink Partners
  Bryan, Garnier & Co.  
  Trout Capital  

 

 

 

                , 2014


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We are responsible for the information contained in this prospectus and any free-writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we take no responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

 

 

 

TABLE OF CONTENTS

 

     Page  

SUMMARY

     1   

RISK FACTORS

     12   

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     52   

CURRENCY EXCHANGE RATES

     54   

MARKET INFORMATION

     55   

USE OF PROCEEDS

     56   

DIVIDEND POLICY

     58   

CAPITALIZATION

     59   

DILUTION

     61   

SELECTED FINANCIAL AND OTHER DATA

     64   

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

     65   

BUSINESS

     83   

MANAGEMENT

     120   

RELATED-PARTY TRANSACTION

     137   

PRINCIPAL SHAREHOLDERS

     141   

DESCRIPTION OF SHARE CAPITAL

     143   

LIMITATIONS AFFECTING SHAREHOLDERS OF A FRENCH COMPANY

     163   

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     165   

SHARES AND ADSs ELIGIBLE FOR FUTURE SALE

     175   

MATERIAL INCOME TAX CONSIDERATIONS

     178   

FRENCH TAX CONSEQUENCES

     183   

ENFORCEMENT OF CIVIL LIABILITIES

     186   

UNDERWRITING

     187   

EXPENSES OF THE GLOBAL OFFERING

     193   

LEGAL MATTERS

     194   

EXPERTS

     195   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     196   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

 

 

ENFORCEABILITY OF CIVIL LIABILITIES

 

We are a société anonyome, or S.A., incorporated under the laws of France. The majority of our directors and officers and certain other persons named in this prospectus are citizens and residents of countries other than the United States and all or a significant portion of the assets of the directors and officers and certain other persons named in this prospectus and substantially all of our assets are located outside of the United States. As a result, it may not be possible for you to effect service of process within the United States upon such persons or to enforce against them or against us in U.S. courts judgments predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in France, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated on the U.S. federal securities laws.

 

 


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For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. 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.

 

We are incorporated in France, and a majority of our outstanding securities are owned by non-U.S. residents. Under the rules of the U.S. Securities and Exchange Commission, or SEC, we are currently eligible for treatment as a “foreign private issuer.” As a foreign private issuer, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic registrants whose securities are registered under the Securities Exchange Act of 1934, as amended.

 

Our financial statements are presented in euros. All references in this prospectus to “$,” “US$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” mean U.S. dollars and all references to “€” and “euros,” mean euros, unless otherwise noted. Throughout this prospectus, references to ADSs mean ADSs or ordinary shares represented by ADSs, as the case may be.


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SUMMARY

 

The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in the ADSs. You should read the entire prospectus carefully, including “Risk Factors” and our financial statements and the related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the sections of this prospectus titled “Business,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before making an investment decision. Unless otherwise indicated, “DBV,” “the company,” “our company,” “we,” “us” and “our” refer to DBV Technologies S.A. and its consolidated subsidiary.

 

Company Overview

 

We are a clinical-stage specialty biopharmaceutical company focused on changing the field of immunotherapy by developing a novel technology platform called Viaskin. Our therapeutic approach is based on epicutaneous immunotherapy, or EPIT, our proprietary method of delivering biologically active compounds to the immune system through intact skin using Viaskin. We have generated significant data demonstrating that Viaskin’s mechanism of action is novel and differentiated, as it targets specific antigen-presenting immune cells in the skin, called Langerhans cells, that capture the antigen and migrate to the lymph node in order to activate the immune system without passage of the antigen into the bloodstream. We are advancing this unique technology to treat patients, including infants and children, suffering from severe food allergies, for whom safety is paramount, since the introduction of the offending allergen into their bloodstream can cause severe or life-threatening allergic reactions, such an anaphylactic shock.

 

Our proprietary platform is based on our epicutaneous Viaskin patch. We have designed and developed this technology internally, for which we have scalable manufacturing capabilities. Viaskin is an electrostatic patch, which offers a convenient, self-administered, non-invasive immunotherapy to patients. Once applied on intact skin, Viaskin forms a condensation chamber, which hydrates the skin and solubilizes the antigen allowing it to penetrate the epidermis, where it is captured by Langerhans cells. Based on numerous scientific publications and our own research, we believe this unique mechanism of action is safe and that it generates a strong immune response that results in tolerance towards the allergen. Our epicutaneous immunotherapy method allows us to address severe food allergies, as well as unmet medical needs in other immunotherapy indications.

 

The following table summarizes our most advanced product candidates:

 

LOGO

 

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Our lead product candidate, Viaskin Peanut, has obtained Fast Track designation from the U.S. Food and Drug Administration, or FDA, which is intended to expedite or facilitate the process for reviewing new drugs and biological products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. In September 2014 we announced topline results for our VIPES (Viaskin Peanut’s Efficacy and Safety), Phase IIb clinical trial of Viaskin Peanut in peanut allergic patients. Pending consultation with the FDA, we plan to initiate our Phase III clinical trial in the first quarter of 2016.

 

Our second product candidate, Viaskin Milk, is being developed for cow’s milk protein allergy, or CMPA, in the pediatric patient population. In the second half of 2014, we intend to initiate a 150-subject, multi-center, double-blind, placebo-controlled, randomized Phase I/II safety and efficacy clinical trial of repeated doses of Viaskin Milk in patients with Immunoglobulin E, or IgE, mediated CMPA, which we refer to as MILES (Milk Delivered Epicutaneously Study).

 

We have further used our Viaskin technology platform to advance other innovative product development programs to address additional opportunities in immunology. We currently have one pre-clinical product candidate as a result of these product development programs, our product candidate for house dust mite allergy. Our other earlier stage product development programs include eosinophilic esophagitis, pertusiss boost vaccine and birch pollen allergy, none of which have resulted in a product candidate to date. We are also exploring earlier stage opportunities in respiratory syncytial virus vaccine, refractory hemophilia A, Crohn’s disease and type I diabetes. We intend to commercialize our food allergy product candidates by ourselves in the United States and certain European countries. In other geographies and indications outside food allergies, we will explore selective partnerships with parties who have relevant clinical and commercial expertise in order to maximize shareholder value.

 

Our Industry

 

Our Industry

 

Allergy is considered a “disease of the developed world” as its increasing incidence is proportional to higher living standards. Epidemiological studies suggest that over half of Americans are sensitive to at least one allergen. Environmental and lifestyle changes, urbanization, pollution, dietary changes, development of sanitation standards and decrease in chronic bacterial infections all are assumed to be factors promoting the rapid increase in prevalence of allergy throughout the developed world.

 

Approximately 3% to 5% of Americans suffer from food allergies, with a number of recent studies suggesting that nearly 6 million or approximately 8% of children have some type of food allergy. Recent studies suggest that patients with food allergies are especially at risk of experiencing significant disruption in their daily lives. Food allergies are not only a physical disability, but they are also associated with psychological traumas, including fear of eating, antisocial behavior and anxiety. There are currently no approved symptomatic or disease-modifying treatments for food allergy. Strict avoidance of food allergens and early recognition and management of allergic reactions to food are important measures to prevent serious health consequences. However, strict avoidance of food allergen is very difficult to achieve, especially for children. Some foods can contain hidden traces of allergens, labeling is often deceptive and contamination of allergen-free foods occurs regularly. For example, according to a paper published in The Journal of Allergy and Clinical Immunology, it is estimated that accidental exposure to peanuts in peanut allergic patients occurs once every three to five years and the annual incidence of accidental ingestion is between 15% and 40%. In the case of pediatric patients, food allergies also have a significant impact on the life of caretakers as well as the patients. A recent study suggests that the quality of life in children with peanut allergy is more impaired than in children with insulin-dependent diabetes mellitus.

 

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Recent scientific studies suggest that treating allergies early in life could prevent disease progression or the development of polyallergies, however, no approved treatments currently exist for young allergic children. A study of children desensitized to pollen and monitored for five years demonstrated that treating pollen allergy reduced the development of asthma. This early intervention, when the immune system is not mature, is referred to as the “window of opportunity.” Thus, research suggests that addressing allergies during this time in life is likely of critical clinical importance.

 

Our Solution: Epicutaneous Immunotherapy (EPIT) Using Our Viaskin Technology Platform

 

Over the last decade, we have developed an innovative immunotherapy technology platform, with the potential for sustained therapeutic effect, by delivering biologically active compounds, including antigens, via intact skin. This technology platform, which we call Viaskin, is based on an electrostatic patch, which administers the antigen directly on the skin. Once administered, the antigen is concentrated in the superficial layers of the skin, where it activates the immune system by specifically targeting the Langherans cells, without passage of the antigen into the bloodstream. We refer to this novel approach to immunotherapy as epicutaneous immunotherapy, or EPIT. Based on our trials and research, we believe that EPIT has the potential to provide all of the intended benefits of a disease-modifying treatment in allergy, while avoiding severe or life-threatening allergic reactions.

 

Viaskin—The First Epicutaneous Immunotherapy

 

Three important characteristics of our Viaskin technology platform contribute to its potential safety and efficacy:

 

   

The Viaskin patch contains the antigen in dry form, which allows it to retain its chemical properties optimally.

 

   

The Viaskin patch creates a condensation chamber with the skin. This increases the hydration of the skin and solubilizes the antigen, which allows it to penetrate the upper layers of the epidermis. Here, the antigen is close to the most tolerogenic antigen-presenting cells in the body, Langerhans cells.

 

   

The Viaskin patch delivers the antigen directly to the Langerhans cells, but not into the bloodstream, thereby avoiding systemic allergic reactions. This mechanism of action leads to the potential safety of Viaskin, which has been observed in multiple clinical trials in over 400 subjects.

 

Viaskin Peanut

 

Our lead product candidate, Viaskin Peanut, is being developed for the treatment of peanut allergy in adults, adolescents and children.

 

In August 2012, we initiated VIPES, a multi-center, double-blind, placebo-controlled, randomized Phase IIb clinical trial of Viaskin Peanut, in 221 peanut allergic subjects with a well-documented medical history of systemic reactions after ingestion of peanut at 22 sites in North America and Europe. In the trial, subjects were randomized equally into four treatment arms to evaluate three doses of Viaskin Peanut, specifically 50 µg, 100 µg and 250 µg peanut protein, compared to placebo. The trial was prospectively organized across the three dose levels with two patient strata, composed of three different patient age groups; children (113 subjects, ages 6-11) for the first stratum and adolescents (73 subjects, ages 12-17) plus adults (35 subjects, ages 18-55) for the other stratum. Each patient underwent two double-blind, placebo-controlled food challenges, or DBPCFCs: one at initial screening and one at 12 months after initiation of treatment. The challenge was halted once the subject exhibited an objective symptom, thus establishing a subject’s baseline peanut tolerance level. Patients in VIPES received a daily application of the Viaskin Peanut patch over a 12-month treatment period. Each patch was applied for 24 hours, either on the upper arm for adults (age 18 to 55) and adolescents (age 12 to 17) or on the back of children (age 6 to 11). The primary efficacy endpoint was the percentage of treatment responders for each active treatment compared to placebo. Trial responders were defined as patients who, after 12 months of treatment with Viaskin Peanut and using a double-blind, placebo controlled food challenge, started to react at a dose of peanut protein equal to or greater than 1,000 mg, or at least a 10-fold increase in the eliciting dose of peanut protein compared to baseline. Patients completed their last food challenge visits after twelve months of treatment.

 

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In September 2014 we announced topline results for the VIPES trial, the largest clinical trial in peanut allergy immunotherapy ever completed. The trial met its primary endpoint at the highest explored dose (Viaskin Peanut 250 µg), achieving statistical significance (p=0.0108) in desensitizing a higher proportion of patients versus placebo after 12 months of treatment. Patients treated with Viaskin Peanut 250 µg also showed statistically significant changes in measured serological markers while placebo patients did not exhibit material differences. The safety profile was confirmed across all active arms with no serious treatment-related adverse events reported, and patient compliance with daily Viaskin Peanut application was above 97%. The trial drop-out rate was 6.4%, below the 15% rate initially anticipated. Pending consultation with the FDA, we plan to initiate our Phase III trial for Viaskin Peanut in the first quarter of 2016.

 

In October 2013, the Consortium for Food Allergy Research, or CoFAR, launched a multi-center, randomized, double-blind, placebo-controlled trial to evaluate Viaskin Peanut in children and adults (age 4 to 25) allergic to peanuts, called CoFAR6 (Consortium for Food Allergy Research 6). This trial is sponsored and funded by The National Institute of Allergy and Infectious Diseases, an institute of the U.S. National Institutes of Health, and coordinated by Professor Hugh Sampson in New York. The trial is being conducted in five hospitals in the United States and includes 75 patients, both adults and children. The recruitment of CoFAR6 ended in July 2014. Subjects randomized to two doses of Viaskin Peanut (100 µg and 250 µg) or placebo undergo a peanut protein oral food challenge at week 52. In June 2013, the Assistance Publique—Hopitaux de Paris, or AP-HP, presented data from its ARACHILD pilot trial of Viaskin Peanut.

 

In June 2012, we presented proof-of-concept data at the European Academy of Allergy and Clinical Immunology, or EAACI, Congress from a multi-center, double-blind, placebo-controlled, randomized Phase Ib clinical trial of Viaskin Peanut.

 

Viaskin Milk

 

Our second product candidate, Viaskin Milk, is being developed for the treatment of two indications, CMPA and milk-induced eosinophilic esophagitis, or EoE, both in children, including infants. Proof-of-concept data from a pilot clinical trial of Viaskin Milk was published in The Journal of Allergy and Clinical Immunology in 2010. In the second half of 2014, we intend to initiate MILES, a multi-center, double-blind, placebo-controlled, randomized Phase I/II safety and efficacy clinical trial of Viaskin Milk in the pediatric patient population with CMPA. In the first half of 2015, with our assistance, the Children’s Hospital of Philadelphia intends to initiate a multi-center, double-blind, placebo-controlled, randomized trial to study safety and efficacy of Viaskin Milk in the pediatric patient population with milk-induced EoE.

 

Our Strategy

 

Our goal is to become the leading global biopharmaceutical company focused on discovering, developing, manufacturing and commercializing treatments for severe allergies. Key elements of our strategy are:

 

   

Rapidly develop and seek marketing approval for Viaskin Peanut;

 

   

Advance the development of our Viaskin technology platform into other areas of unmet medical need in food and pediatric allergies;

 

   

Become a fully integrated biopharmaceutical company focused on the commercialization of our Viaskin food allergy products in the United States and other major markets; and

 

   

Maximize the value of our innovative Viaskin technology platform by building a broad immunotherapy product pipeline.

 

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Risks Associated with Our Business

 

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

 

   

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

 

   

Failure to obtain necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

 

   

We depend almost entirely on the successful development of our novel Viaskin technology, and cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, our Viaskin products.

 

   

We face substantial competition from companies with considerably more resources and experience than we have, which may result in others discovering, developing, receiving approval for, or commercializing products before or more successfully than us.

 

   

We rely on third-party manufacturers, which may result in delays in our clinical trials and product introductions.

 

   

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

 

   

In our clinical trials, we utilize an oral food challenge procedure intentionally designed to trigger an allergic reaction, which could be severe or life-threatening.

 

   

Our ability to compete may decline if we do not adequately protect our proprietary rights.

 

   

Our by-laws and French corporate law contain provisions that may delay or discourage a takeover attempt and the rights of shareholders in companies subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the United States.

 

Corporate Information

 

We were incorporated as a société par actions simplifiée, or S.A.S., under the laws of the French Republic on March 29, 2002, for a period of 99 years and subsequently converted to a société anonyome, or S.A., on March 13, 2003. We are registered at the Paris Registre de Commerce et des Sociétés under the number 441 772 522. Our principal executive offices are located at Green Square-Bâtiment D, 80/84 rue des Meuniers, 92220 Bagneux, France, and our telephone number is +33 1 55 42 78 78. Our agent for service of process in the United States is CT Corporation System. We also maintain a website at www.dbv-technologies.com. The reference to our website is an inactive textual reference only and the information contained in, or that can be accessed through, our website is not a part of this prospectus.

 

We own various trademark registrations and applications, and unregistered trademarks and servicemarks, including “Diallertest®,” “Viaskin®,” “EPIT™, “DBV Technologies®” and our corporate logo. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will

 

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not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

Implications of Being an Emerging Growth Company

 

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

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

   

only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in management’s discussion and analysis of financial condition and results of operations; 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 non-binding advisory vote on executive compensation, including golden parachute compensation.

 

We may take advantage of these exemptions 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 upon the earliest to occur of (1) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities; (3) the issuance, in any three-year period, by our company of more than $1.0 billion in non-convertible debt securities held by non-affiliates; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some but not all of these exemptions. 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 for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under International Financial Reporting Standards 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

 

We are also considered a “foreign private issuer.” In our capacity as a foreign private issuer, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, or the “Exchange Act,” as amended, that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our ordinary shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

 

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We may take advantage of these exemptions until such time as we are no longer foreign private issuer. We would cease to be a foreign private issuer at such time as (1) more than 50% of our outstanding voting securities are held by U.S. residents or (2) 50% of less of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (a) the majority of our executive officers or directors are U.S. citizens or residents, (b) more than 50% of our assets are located in the United States or (c) our business is administered principally in the United States.

 

We have taken advantage of certain reduced reporting and other 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.

 

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The Offering

 

Global offering

                 ordinary shares offered by the us, including ordinary shares represented by American depositary shares, or ADSs, consisting of the U.S. offering and the French offering. The closing of each of the U.S. offering and the French offering is conditioned upon the other. The total number of ordinary shares in the U.S. and French offerings is subject to reallocation between these offerings as permitted under the applicable laws and regulations.

 

U.S. Offering

                ordinary shares in the form of ADSs, offered by us in the United States, Canada and countries outside of France.

 

French Offering

                ordinary shares offered by us in France and countries outside of the United States and Canada.

 

Ordinary shares to be outstanding after the global offering

                shares.

 

Option to purchase additional ordinary shares and ADSs

                 shares and ADSs.

 

American Depositary Shares

Each ADS represents one ordinary share, nominal value €0.10 per share. You will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and all holders and beneficial owners of ADSs issued thereunder. To better understand the terms of the ADSs, you should carefully read the section in this prospectus titled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

 

Depositary

Citibank, N.A.

 

Use of proceeds

We estimate that we will receive net proceeds from the global offering of approximately $         (€        ) million, assuming a public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                     , 2014, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds we receive from the global offering to advance the clinical developments of Viaskin Peanut and Viaskin Milk, fund our earlier stage development activities, build-out our infrastructure in the United States and worldwide, and for working capital and general corporate purposes. See the section of this prospectus titled “Use of Proceeds.”

 

Risk factors

You should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in the ADSs.

 

Proposed Nasdaq Global Market trading symbol

“DBVT”

 

Euronext Paris trading symbol

“DBV”

 

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The number of ordinary shares that will be outstanding after the global offering is based on the number of ordinary shares outstanding as of June 30, 2014 and excludes:

 

   

2,824,313 ordinary shares issuable upon the exercise of share options, free shares (actions gratuites) and warrants (including employee warrants (BSPCE)) issued pursuant to our share option plans and other delegations of authority from our shareholders outstanding as of June 30, 2014 at a weighted average exercise price of €6.62 per share (not including 1,200,893 ordinary shares issuable upon the vesting of outstanding free shares that may be issued for free with no exercise price being paid); and

 

   

                ordinary shares reserved for future issuance under share option plans and other delegations of authority from our shareholders.

 

Except as otherwise noted, the information in this prospectus assumes no exercise by the underwriters of their option to purchase additional ADSs.

 

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Summary Financial and Other Data

 

The following tables summarize our historical financial and other data. We derived the summary statement of income (loss) data for the years ended December 31, 2012 and 2013 from our audited financial statements included elsewhere in this prospectus. We derived the summary consolidated statement of income (loss) data for the six months ended June 30, 2013 and 2014 and the consolidated statement of financial position data as of June 30, 2014 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our audited financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read these data together with our financial statements and related notes beginning on page F-1, as well as the sections of this prospectus titled “Selected Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Currency Exchange Rates” and the other financial information included elsewhere in this prospectus.

 

    Year Ended December 31,     Six Months Ended June 30,  
    2012     2013     2013     2014  
    Euro     Euro     US$(1)     Euro     Euro     US$(1)  

Statement of Income (Loss) Data:

  

   

Operating income

  2,776,588      3,826,313      $ 5,238,222      1,336,019      2,661,132      $ 3,643,090   

Operating expenses:

           

Cost of goods sold

    82,958        102,366        140,139        52,546        113,663        155,605   

Research and development

    11,499,368        17,366,538        23,774,791        6,824,121        10,441,632        14,294,594   

General and administration

    4,598,699        6,309,750        8,638,048        2,716,033        4,182,864        5,726,341   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    16,181,025        23,778,654        32,552,978        9,592,700        14,738,159        20,176,540   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    (13,404,437 )     (19,952,340     (27,314,753     (8,256,681     (12,077,026     (16,533,449
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial profit (loss)

    492,337        645,925        884,271        349,725        303,283        415,194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

  (12,912,100   (19,306,416   $ (26,430,484   (7,906,957   (11,773,743   $ (16,118,254
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (losses) per share(2)

           

Basic

  (1.05   (1.42   $ (1.94   (0.59   (0.77   $ (1.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  (1.05   (1.42   $ (1.94   (0.59   (0.77   $ (1.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Number of shares used for computing

           

Basic

    12,326,779        13,604,687        13,604,687        13,408,147        15,244,107        15,244,107   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    12,326,779        13,604,687        13,604,687        13,408,147        15,244,107        15,244,107   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.3690 at June 30, 2014.
(2)   See Note 22 to our financial statements for further details on the calculation of basic and diluted loss per ordinary share.

 

     As of June 30, 2014  
     Actual      As
Adjusted(1)(2)
 
     Euro      US$(3)      Euro      US$(3)  

Statement of Financial Position:

           

Cash and cash equivalents

   29,062,028       $ 39,785,916                      $            

Total assets

     38,801,602         53,119,393         

Total shareholders’ equity

     31,554,289         43,197,822         

Total non-current liabilities

     1,708,514         2,338,956         

Total current liabilities

     5,538,798         7,582,614         

 

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(1)   As adjusted basis gives effect to our issuance and sale of             ordinary shares and ADSs in the global offering at an assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(2)   Each $1.00 (€0.73) increase or decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would increase or decrease each of as adjusted cash and cash equivalents, total assets and total shareholders’ equity by approximately $         (€        ) million, assuming that the number of shares and ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. We may also increase or decrease the number of shares and ADSs we are offering. Each increase or decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us would increase or decrease each of as adjusted cash and cash equivalents, total assets and total shareholders’ equity by approximately $         (€        ) million, assuming that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions. Each increase of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) increase in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would increase each of as adjusted cash and cash equivalents, total assets and total shareholders’ equity by approximately $         (€        ) million, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would decrease each of as adjusted cash and cash equivalents, total assets and total shareholders’ equity by approximately $         (€        ) million, after deducting underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of shares and ADSs offered by us, and other terms of the global offering determined at pricing.
(3)   Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.3690 at June 30, 2014.

 

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RISK FACTORS

 

Investing in the ADSs involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus, including our consolidated financial statements and the related notes, before making an investment decision regarding our securities. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment in our securities. If any of these risks materialize, our business, financial condition or results of operations could suffer, the price of the ADSs could decline and you could lose part or all of your investment.

 

Risks Related to Our Financial Condition and Capital Requirements

 

We Have Incurred Significant Losses Since Our Inception And Anticipate That We Will Continue To Incur Significant Losses For The Foreseeable Future.

 

We are a clinical-stage biopharmaceutical company, and we have not yet generated significant income, with the exception of the French research tax credit (crédit d’impôt recherche), or CIR, which is classified as other income in our statement of income (loss). We have incurred net losses in each year since our inception in 2002, including net losses of €12.9 million, €19.3 million and €11.8 million for the years ended December 31, 2012 and 2013 and for the six months ended June 30, 2014, respectively. Although we have historically generated non-meaningful revenues through the sale of our Diallertest Milk product in France, we do not expect these sales to be a point of strategic focus for our company in the future and we may even discontinue these sales in the future. As of June 30, 2014, we had an accumulated deficit of €42.5 million.

 

We have devoted most of our financial resources to research and development, including our clinical and pre-clinical development activities. To date, we have financed our operations primarily through the sale of equity securities, obtaining public assistance in support of innovation, such as conditional advances from OSEO Innovation, or OSEO, and reimbursements of research tax credit claims. The amount of our future net losses will depend, in part, on the pace and amount of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or additional grants or tax credits. We have not completed pivotal clinical studies for any lead product candidates and it will be several years, if ever, before we have a product candidate ready for commercialization. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the size of any markets in which our product candidates have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidates in those markets.

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:

 

   

continue our research, pre-clinical and clinical development of our product candidates;

 

   

expand the scope of our current clinical studies for our product candidates;

 

   

initiate additional pre-clinical, clinical or other studies for our product candidates;

 

   

further develop the manufacturing process for our product candidates;

 

   

change or add additional manufacturers or suppliers;

 

   

seek regulatory and marketing approvals for our product candidates that successfully complete clinical studies;

 

   

establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval, especially in North America;

 

   

seek to identify and validate additional product candidates;

 

   

acquire or in-license other product candidates and technologies;

 

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make milestone or other payments under any in-license agreements;

 

   

maintain, protect and expand our intellectual property portfolio;

 

   

attract and retain new and existing skilled personnel;

 

   

create additional infrastructure to support our operations as a public company; and

 

   

experience any delays or encounter issues with any of the above.

 

The net losses we incur may fluctuate significantly from year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular period or periods, our operating results could be below the expectations of securities analysts or investors, which could cause the price of the ADSs to decline.

 

Even If This Offering Is Successful, We May Need To Raise Additional Funding, Which May Not Be Available On Acceptable Terms, Or At All. Failure To Obtain This Necessary Capital When Needed May Force Us To Delay, Limit Or Terminate Our Product Development Efforts Or Other Operations.

 

We are currently advancing our product candidates through pre-clinical and clinical development. Developing product candidates is expensive, lengthy and risky, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance Viaskin Peanut and Viaskin Milk clinical studies.

 

As of June 30, 2014, our cash and cash equivalents were €29.1 million. We estimate that the net proceeds from the global offering will be approximately $         (€        ), assuming a public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect that the net proceeds from the global offering and our existing cash will be sufficient to fund our current operations until the end of 2016. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to pursue pre-clinical and clinical activities, obtain regulatory approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

 

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of the ADSs to decline. The sale of additional equity or convertible securities would dilute all of our shareholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidate or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

 

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If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

 

We Are Limited In Our Ability To Raise Additional Share Capital, Which May Make It Difficult For Us To Raise Capital To Fund Our Operations.

 

Under French law, our share capital may be increased only with shareholders’ approval at an extraordinary general shareholders’ meeting following the recommendation of our board of directors. The shareholders may delegate to our board of directors either the authority (délégation de compétence) or the power (délégation de pouvoir) to carry out any increase in share capital. See “Description of Share Capital—Key Provisions of Our By-laws and French Law Affecting Our Ordinary Shares—Changes in Share Capital.” At our 2014 shareholders’ meeting, our shareholders delegated to our board the authority to issue additional ordinary shares in an amount not to exceed 20% of issued capital as of June 3, 2014, or a maximum of 3,026,189 ordinary shares. Accordingly, after giving effect to the global offering, our board may be precluded from issuing additional ordinary shares without first obtaining shareholders’ approval.

 

In addition, the French Commercial Code imposes certain limitations on our ability to price any offering of our share capital without preferential subscription right (sans droit préférentiel de souscription), which limitation may prevent us from successfully completing any such offering. Specifically, under the French Commercial Code, unless the offering is less than 10% of issued share capital, securities cannot be sold in an offering if it is not possible to fix the per share price of the shares at a level at least equal to the volume weighted average trading price on Euronext Paris over the last three trading days preceding the commencement of the marketing of the transaction, referred to as the “book building” process, less a maximum discount of 5%.

 

If We Do Not Obtain The Capital Necessary To Fund Our Operations, We Will Be Unable To Successfully Develop, Obtain Regulatory Approval For, And Commercialize, Our Biopharmaceutical Products.

 

The development of biopharmaceutical products is capital-intensive. We anticipate we may require additional financing to continue to fund our operations. Our future capital requirements will depend on, and could increase significantly as a result of, many factors including:

 

   

progress in, and the costs of, our pre-clinical studies and clinical trials and other research and development programs;

 

   

depending on the regulatory authorities’ requests, larger or longer clinical trials;

 

   

the scope, prioritization and number of our research and development programs;

 

   

the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we obtain;

 

   

the extent to which we are obligated to reimburse, or entitled to reimbursement of, clinical trial costs under future collaboration agreements, if any;

 

   

the costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights;

 

   

the costs of securing manufacturing arrangements for commercial production; and

 

   

the costs of establishing, or contracting for, sales and marketing capabilities if we obtain regulatory approvals to market our product candidates.

 

Until we can generate significant continuing revenues, we expect to satisfy our future cash needs through collaboration arrangements, sales of our securities, debt financings, obtaining public assistance in support of innovation, such as conditional advances from OSEO, and reimbursements of research tax credit claims, or by

 

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licensing one or more of our future product candidates. Dislocations in the financial markets have generally made equity and debt financing more difficult to obtain, and may have a material adverse effect on our ability to meet our fundraising needs. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or our commercialization efforts. Additional funding, if obtained, may significantly dilute existing shareholders if that financing is obtained through issuing equity or instruments convertible into equity.

 

Our Product Development Programs For Candidates May Require Substantial Financial Resources And May Ultimately Be Unsuccessful.

 

In addition to the development of our lead product candidates, we may pursue development of our other early-stage development programs. Our current early-stage development programs are still in the pre-clinical proof-of-concept phase and may not result in product candidates we can advance to the clinical development phase. None of our other potential product candidates have commenced clinical trials, and there are a number of U.S. Food and Drug Administration, or FDA, and European Medicines Agency, or EMA, regulatory requirements that we must satisfy before we can commence these clinical trials. Satisfaction of these requirements will entail substantial time, effort and financial resources. We may never satisfy these requirements. Any time, effort and financial resources we expend on our other early-stage development programs may adversely affect our ability to continue development and commercialization of Viaskin patch product candidates, and we may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. Even if we do commence clinical trials of our other potential product candidates, such product candidates may never be approved by the FDA or the EMA.

 

The Requirements Of Being A U.S. Public Company May Strain Our Resources, Divert Management’s Attention And Affect Our Ability To Attract And Retain Executive Management And Qualified Board Members.

 

As a U.S. public company, we will incur legal, accounting, and other expenses that we did not previously incur. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Nasdaq listing requirements and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” and/or a foreign private issuer. The Exchange Act would require that, as a public company, we file annual, semi-annual and current reports with respect to our business, financial condition and result of operations. However, as a foreign private issuer, we are not required to file quarterly and current reports with respect to our business and results of operations. We currently make annual and semi-annual filings with respect to our listing on Euronext Paris. Unless otherwise required by the Exchange Act or the listing rules of the Nasdaq Global Market, we do not expect to file quarterly financial reports and will continue to file financial reports on an annual and semi-annual basis. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. As a result, management’s attention may be diverted from other

 

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business concerns, which could adversely affect our business and results of operations. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our cost and expense. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

 

We also expect that being a U.S. public company, these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

 

As a result of disclosure of information in this prospectus and in filings required of a U.S. public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and results of operations.

 

Further, being a U.S. public company and a French public company will have an impact on disclosure of information and compliance with two sets of applicable rules. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

 

Risks Related to Product Development, Regulatory Approval and Commercialization

 

We Depend Almost Entirely On The Successful Development Of Our Novel Viaskin Technology. We Cannot Be Certain That We Will Be Able To Obtain Regulatory Approval For, Or Successfully Commercialize, Viaskin Products.

 

We currently have two lead Viaskin technology-based product candidates, Viaskin Peanut and Viaskin Milk, in clinical development, and our business depends almost entirely on their successful clinical development, regulatory approval and commercialization. We currently have no drug or biological product approved for sale and may never be able to develop marketable drug or biological product. Viaskin Peanut and Viaskin Milk will require substantial additional clinical development, testing, and regulatory approval before we are permitted to commence their commercialization. Our other product candidates, such as Viaskin HDM, are still in pre-clinical development. The clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States

 

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and in other countries where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each target indication. This process can take many years and may include post-marketing studies and surveillance, which will require the expenditure of substantial resources beyond the proceeds we raise in this offering. Of the large number of drugs in development in the United States, only a small percentage successfully completes the FDA regulatory approval process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development and clinical programs, we cannot assure you that Viaskin Peanut, Viaskin Milk or any other of our product candidates will be successfully developed or commercialized.

 

We are not permitted to market Viaskin Peanut or Viaskin Milk in the United States until we receive approval of a Biologic License Application, or a BLA, from the FDA, or in any foreign countries until we receive the requisite approval from such countries. Obtaining approval of a BLA, or requisite approval in foreign countries, is a complex, lengthy, expensive and uncertain process, and the FDA may delay, limit or deny approval of Viaskin Peanut and Viaskin Milk for many reasons, including, among others:

 

   

we may not be able to demonstrate that Viaskin Peanut or Viaskin Milk is safe and effective in treating food allergies, to the satisfaction of the FDA;

 

   

the results of our clinical trials or the clinical trials conducted by third party academic institutions and included in our application package may not meet the level of statistical or clinical significance required by the FDA for marketing approval;

 

   

the FDA may disagree with the number, design, size, conduct or implementation of our clinical trials;

 

   

the FDA may require that we conduct additional clinical trials;

 

   

the FDA may not approve the formulation, labeling or specifications of either Viaskin Peanut or Viaskin Milk;

 

   

the clinical research organizations, or CROs, that we retain to conduct our clinical trials may take actions outside of our control that materially adversely impact our clinical trials;

 

   

the FDA may find the data from pre-clinical studies and clinical trials insufficient to demonstrate that either the Viaskin Peanut’s or Viaskin Milk’s clinical and other benefits outweigh its safety risks;

 

   

the FDA may disagree with our analysis or interpretation of data from our pre-clinical studies and clinical trials;

 

   

the FDA may not accept data generated at our clinical trial sites;

 

   

if our BLA, if and when submitted, is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional pre-clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions;

 

   

the FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval or post-approval;

 

   

the FDA may restrict the use of our products to a narrow population;

 

   

the FDA or the applicable foreign regulatory agency may not approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or

 

   

the FDA may change its approval policies or adopt new regulations.

 

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Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully market any of our Viaskin patch product candidates. Moreover, because our business is almost entirely dependent upon Viaskin technology, any such setback in our pursuit of regulatory approval would have a material adverse effect on our business and prospects.

 

Our Product Candidates Are Expected To Undergo Clinical Trials That Are Time-consuming And Expensive, The Outcomes Of Which Are Unpredictable, And For Which There Is A High Risk Of Failure. If Clinical Trials Of Our Product Candidates Fail To Satisfactorily Demonstrate Safety And Efficacy To The FDA And Other Regulators, We, Or Our Collaborators, May Incur Additional Costs Or Experience Delays In Completing, Or Ultimately Be Unable To Complete, The Development And Commercialization Of These Product Candidates.

 

Pre-clinical testing and clinical trials are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. It may take several years to complete the pre-clinical testing and clinical development necessary to commercialize a drug or biologic, and delays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in pre-clinical testing and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials even after promising results in earlier trials and we cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. An unfavorable outcome in one or more trials would be a major setback for our product candidates and for us. Due to our limited financial resources, an unfavorable outcome in one or more trials may require us to delay, reduce the scope of, or eliminate one or more product development programs, which could have a material adverse effect on our business and financial condition and on the value of the ADSs.

 

In connection with clinical testing and trials, we face a number of risks, including:

 

   

a product candidate is ineffective, inferior to existing approved medicines, unacceptably toxic, or has unacceptable side effects;

 

   

patients may die or suffer other adverse effects for reasons that may or may not be related to the product candidate being tested, especially during the double-blind, placebo-controlled food challenges;

 

   

extension studies on long-term tolerance could invalidate the use of our product, showing Viaskin does not generate a sustained protective effect;

 

   

the results may confirm an absence of statistically significant therapeutic effect of Viaskin Peanut in adolescents and/or adults, as observed in the ARACHILD pilot trial and our recently completed VIPES trial;

 

   

the results may not confirm the positive results of earlier testing or trials; and

 

   

the results may not meet the level of statistical significance required by the FDA or other regulatory agencies to establish the safety and efficacy of our product candidates.

 

The results of pre-clinical studies do not necessarily predict clinical success, and larger and later-stage clinical trials may not produce the same results as earlier-stage clinical trials. The prior clinical trials of Viaskin patch product candidates showed favorable safety and efficacy data; however, we may have different enrollment criteria in our future clinical trials. As a result, we may not observe a similarly favorable safety and efficacy profile as our prior clinical trials. In addition, we cannot assure you that in the course of potential widespread use in future, some drawbacks would not appear in maintaining production quality, protein stability or allergenic strength. Frequently, product candidates developed by pharmaceutical, biopharmaceutical and biotechnology

 

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companies have shown promising results in early pre-clinical studies or clinical trials, but have subsequently suffered significant setbacks or failed in later clinical trials. In addition, clinical trials of potential products often reveal that it is not possible or practical to continue development efforts for these product candidates.

 

If we do not successfully complete pre-clinical and clinical development, we will be unable to market and sell our product candidates and generate revenues. Even if we do successfully complete clinical trials, those results are not necessarily predictive of results of additional trials that may be needed before a BLA may be submitted to the FDA. Although there are a large number of drugs and biologics in development in the United States and other countries, only a small percentage result in the submission of a BLA to the FDA, even fewer are approved for commercialization, and only a small number achieve widespread physician and consumer acceptance following regulatory approval. If our clinical trials are substantially delayed or fail to prove the safety and effectiveness of our product candidates in development, we may not receive regulatory approval of any of these product candidates and our business and financial condition will be materially harmed.

 

In our clinical trials, we utilize an oral food challenge procedure intentionally designed to trigger an allergic reaction, which could be severe or life-threatening.

 

In accordance with our food allergy clinical trial protocols, we utilize a double-blind, placebo-controlled food challenge procedure. This consists of giving the offending food protein to patients in order to assess the sensitivity of their food allergy, and thus the safety and efficacy of our product candidates versus placebo. The food challenge protocol is meant to induce objective symptoms of an allergic reaction. These oral food challenge procedures can potentially trigger anaphylaxis or potentially life-threatening systemic allergic reactions. Even though these procedures are well-controlled, standardized and performed in highly specialized centers with intensive care units, there are inherent risks in conducting a trial of this nature. An uncontrolled allergic reaction could potentially lead to serious or even fatal reactions. Any such serious clinical event could potentially adversely affect our clinical development timelines, including a complete clinical hold on our food allergy clinical trials. We may also become liable to subjects who participate in our clinical trials and experience any such serious or fatal reactions. Any of the foregoing could have a material adverse effect on our business, prospects, stock price or financial condition.

 

Delays, Suspensions And Terminations In Our Clinical Trials Could Result In Increased Costs To Us And Delay Or Prevent Our Ability To Generate Revenues.

 

Human clinical trials are very expensive, time-consuming, and difficult to design, implement and complete. The completion of trials for Viaskin Peanut, Viaskin Milk or our other product candidates may be delayed for a variety of reasons, including delays in:

 

   

demonstrating sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;

 

   

reaching agreement on acceptable terms with prospective CROs, and clinical trial sites;

 

   

validating test methods to support quality testing of the drug substance and drug product;

 

   

obtaining sufficient quantities of the drug substance or other materials necessary to conduct clinical trials;

 

   

manufacturing sufficient quantities of a product candidate;

 

   

obtaining approval of an investigational new drug, or IND, application from the FDA;

 

   

obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective clinical trial site;

 

   

determining dosing and clinical design and making related adjustments; and

 

   

patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical trial sites, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial.

 

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The commencement and completion of clinical trials for our product candidates may be delayed, suspended or terminated due to a number of factors, including:

 

   

lack of effectiveness of product candidates during clinical trials;

 

   

adverse events, safety issues or side effects relating to the product candidates or their formulation;

 

   

serious adverse events relating to the double-blind, placebo-controlled food challenge procedure when testing patients for the sensitivity of their allergies;

 

   

inability to raise additional capital in sufficient amounts to continue clinical trials or development programs, which are very expensive;

 

   

the need to sequence clinical trials as opposed to conducting them concomitantly in order to conserve resources;

 

   

our inability to enter into collaborations relating to the development and commercialization of our product candidates;

 

   

failure by us or our collaborators to conduct clinical trials in accordance with regulatory requirements;

 

   

our inability or the inability of our collaborators to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials;

 

   

governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, including mandated changes in the scope or design of clinical trials or requests for supplemental information with respect to clinical trial results;

 

   

failure of our collaborators to advance our product candidates through clinical development;

 

   

delays in patient enrollment, variability in the number and types of patients available for clinical trials, and lower-than anticipated retention rates for patients in clinical trials;

 

   

difficulty in patient monitoring and data collection due to failure of patients to maintain contact after treatment;

 

   

a regional disturbance where we or our collaborative partners are enrolling patients in our clinical trials, such as a pandemic, terrorist activities or war, or a natural disaster; and

 

   

varying interpretations of our data, and regulatory commitments and requirements by the FDA and similar foreign regulatory agencies.

 

Many of these factors may also ultimately lead to denial of our BLA for our product candidate. If we experience delay, suspensions or terminations in a clinical trial, the commercial prospects for the related product candidate will be harmed, and our ability to generate product revenues will be delayed or such revenues could be reduced or fail to materialize.

 

In addition, we may encounter delays or product candidate rejections based on new governmental regulations, future legislative or administrative actions, or changes in FDA or other similar foreign regulatory agency policy or interpretation during the period of product development. If we obtain required regulatory approvals, such approvals may later be withdrawn. Delays or failures in obtaining regulatory approvals may result in:

 

   

varying interpretations of data and commitments by the FDA and similar foreign regulatory agencies; and

 

   

diminishment of any competitive advantages that such product candidates may have or attain.

 

Furthermore, if we fail to comply with applicable FDA and other regulatory requirements at any stage during this regulatory process, we may encounter or be subject to:

 

   

diminishment of any competitive advantages that such product candidates may have or attain;

 

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delays or termination in clinical trials or commercialization;

 

   

refusal by the FDA or similar foreign regulatory agencies to review pending applications or supplements to approved applications;

 

   

product recalls or seizures;

 

   

suspension of manufacturing;

 

   

withdrawals of previously approved marketing applications; and

 

   

fines, civil penalties, and criminal prosecutions.

 

If Our Product Candidates Are Not Approved By The FDA, We Will Be Unable To Commercialize Them In The United States.

 

The FDA must approve any new medicine before it can be commercialized, marketed, promoted or sold in the United States. We must provide the FDA with data from pre-clinical studies and clinical trials that demonstrate that our product candidates are safe and effective for a defined indication before they can be approved for commercial distribution. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We must provide data to ensure the identity, strength, quality and purity of the drug substance and drug product. Also, we must assure the FDA that the characteristics and performance of the clinical batches will be replicated consistently in the commercial batches. We will not obtain approval for a product candidate unless and until the FDA approves a BLA. The processes by which regulatory approvals are obtained from the FDA to market and sell a new or repositioned product are complex, require a number of years and involve the expenditure of substantial resources. We cannot assure you that any of our product candidates will receive FDA approval in the future, and the time for receipt of any such approval is currently incapable of estimation.

 

A Fast Track Designation By The FDA May Not Actually Lead To A Faster Development Or Regulatory Review Or Approval Process.

 

We have obtained Fast Track designation for Viaskin Peanut, and we may do so for other product candidates as well. If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet medical needs for this condition, the sponsor may apply for FDA Fast Track designation. The FDA has broad discretion whether or not to grant this designation, and even if we believe our product candidates are eligible for this designation, we cannot be sure that the FDA would decide to grant it. Even if we do have Fast Track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program.

 

Even If We Achieve A Breakthrough Therapy Designation By The FDA For Our Product Candidates, It May Not Lead To A Faster Development Or Regulatory Review Or Approval Process, And It Does Not Increase The Likelihood That Our Product Candidates Will Receive Marketing Approval.

 

We may seek a breakthrough therapy designation for our product candidates in the future. A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe that our product candidates meet the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not

 

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result in a faster development process, review or approval compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the products no longer meet the conditions for qualification.

 

The Approval Process Outside The United States Varies Among Countries And May Limit Our Ability To Develop, Manufacture And Sell Our Products Internationally. Failure To Obtain Marketing Approval In International Jurisdictions Would Prevent Our Product Candidates From Being Marketed Abroad.

 

In order to market and sell our product candidates in the European Union and many other jurisdictions, we, and our collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and may involve additional testing. We may conduct clinical trials for, and seek regulatory approval to market, our product candidates in countries other than the United States. Depending on the results of clinical trials and the process for obtaining regulatory approvals in other countries, we may decide to first seek regulatory approvals of a product candidate in countries other than the United States, or we may simultaneously seek regulatory approvals in the United States and other countries. If we or our collaborators seek marketing approvals for a product candidate outside the United States, we will be subject to the regulatory requirements of health authorities in each country in which we seek approvals. With respect to marketing authorizations in Europe, we will be required to submit a European marketing authorization application, or MAA, to the EMA which conducts a validation and scientific approval process in evaluating a product for safety and efficacy. The approval procedure varies among regions and countries and may involve additional testing, and the time required to obtain approvals may differ from that required to obtain FDA approval. Obtaining regulatory approvals from health authorities in countries outside the United States is likely to subject us to all of the risks associated with obtaining FDA approval described above. In addition, marketing approval by the FDA does not ensure approval by the health authorities of any other country, and approval by foreign health authorities does not ensure marketing approval by the FDA.

 

Even If We, Or Our Collaborators, Obtain Marketing Approvals For Our Product Candidates, The Terms Of Approvals And Ongoing Regulation Of Our Products May Limit How We Or They Market Our Products, Which Could Materially Impair Our Ability To Generate Revenue.

 

Even if we receive regulatory approval for a product candidate, this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage relative to alternative therapies. For instance, a regulatory approval may limit the indicated uses for which we can market a product or the patient population that may utilize the product, or may be required to carry a warning in its labeling and on its packaging. Products with boxed warnings are subject to more restrictive advertising regulations than products without such warnings. These restrictions could make it more difficult to market any product candidate effectively. Accordingly, assuming we, or our collaborators, receive marketing approval for one or more of our product candidates, we, and our collaborators will continue to expend time, money and effort in all areas of regulatory compliance.

 

Any Of Our Product Candidates For Which We, Or Our Collaborators, Obtain Marketing Approval In The Future Could Be Subject To Post-marketing Restrictions Or Withdrawal From The Market And We, And Our Collaborators, May Be Subject To Substantial Penalties If We, Or They, Fail To Comply With Regulatory Requirements Or If We, Or They, Experience Unanticipated Problems With Our Products Following Approval.

 

Any of our product candidates for which we, or our collaborators, obtain marketing approval in the future, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such products, among other things, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents,

 

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requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the FDA requirement to implement a REMS to ensure that the benefits of a drug or biological product outweigh its risks.

 

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of a product, such as long term observational studies on natural exposure. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured, marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we, or our collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we, or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws.

 

If We Do Not Achieve Our Projected Development And Commercialization Goals In The Timeframes We Announce And Expect, The Commercialization Of Our Product Candidates May Be Delayed, And Our Business Will Be Harmed.

 

We sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies, clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

 

   

our available capital resources or capital constraints we experience;

 

   

the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians and collaborators, and our ability to identify and enroll patients who meet clinical trial eligibility criteria;

 

   

our receipt of approvals by the FDA and other regulatory agencies and the timing thereof;

 

   

other actions, decisions or rules issued by regulators;

 

   

our ability to access sufficient, reliable and affordable supplies of compounds used in the manufacture of our product candidates;

 

   

the efforts of our collaborators with respect to the commercialization of our products; and

 

   

the securing of, costs related to, and timing issues associated with, product manufacturing as well as sales and marketing activities.

 

If we fail to achieve announced milestones in the timeframes we expect, the commercialization of our product candidates may be delayed, our business and results of operations may be harmed, the trading price of the ADSs or ordinary shares may decline.

 

Access To Raw Materials And Products Necessary For The Conduct Of Clinical Trials And Manufacturing Of Our Product Candidates Is Not Guaranteed.

 

We are dependent on third parties for the supply of various materials, chemical or biological products that are necessary to produce patches for our clinical trials or diagnosis patches. The supply of these materials could

 

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be reduced or interrupted at any time. In such case, we may not be able to find other suppliers of acceptable materials in appropriate quantities at an acceptable cost. If key suppliers or manufacturers are lost or the supply of materials is diminished or discontinued, we may not be able to continue to develop, manufacture and market our product candidates or products in a timely and competitive manner. In addition, these materials are subject to stringent manufacturing processes and rigorous testing. Delays in the completion and validation of facilities and manufacturing processes of these materials could adversely affect our ability to complete trials and commercialize our products in a cost-effective and timely manner. To prevent such situations, we intend to diversify our supply sources by identifying at a minimum a second source of supply for critical raw materials and materials, such as natural protein and polymer film with a titanium coating. If we encounter difficulties in the supply of these materials, chemicals or biological products, if we were not able to maintain our supply agreements or establish new agreements to develop and manufacture our products in the future, our business, prospects, financial condition, results and development could be significantly affected.

 

Relying On Third-party Manufacturers May Result In Delays In Our Clinical Trials And Product Introductions. We Or The Third Parties Upon Whom We Depend May Be Adversely Affected By Earthquakes Or Other Natural Disasters And Our Business Continuity And Disaster Recovery Plans May Not Adequately Protect Us From A Serious Disaster.

 

Developing and commercializing new medicines entails significant risks and expenses. Our clinical trials may be delayed if third-party manufacturers are unable to assure a sufficient quantity of the drug product to meet our study needs. Currently, we have only one manufacturer for peanut protein extract, an active pharmaceutical ingredient used in our Viaskin Peanut clinical trials. If such manufacturer cannot manufacture the peanut protein extract as required by us in a timely manner, we may not be able to find a substitute manufacturer on a timely basis and our clinic trials may be delayed. If our If our clinical trials are delayed, our commercialization efforts may be impeded, or our costs may increase.

 

Once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review. The discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. Any manufacturers with which we contract are required to operate in accordance with FDA-mandated current good manufacturing practices, or cGMPs. A failure of any of our contract manufacturers to establish and follow cGMPs and to document their adherence to such practices may lead to significant delays in the launch of products based on our product candidates into the market. Moreover, the constituent parts of a combination product retain their regulatory status (as a biologic or device, for example) and, as such, we or our contract manufacturers may be subject to additional requirements in the Quality System Regulation, or QSR, applicable to medical devices, such as design controls, purchasing controls, and corrective and preventive action. Failure by third-party manufacturers to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, revocation or suspension of marketing approval for any products granted pre-market approvals, seizures or recalls of products, operating restrictions, and criminal prosecutions.

 

Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

 

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We Rely On Third Parties To Conduct Our Clinical Trials And Perform Data Collection And Analysis, Which May Result In Costs And Delays That Prevent Us From Successfully Commercializing Product Candidates.

 

We rely, and will rely in the future, on medical institutions, clinical investigators, CROs, contract laboratories, and collaborators to perform data collection and analysis and others to carry out our clinical trials. Our development activities or clinical trials conducted in reliance on third parties may be delayed, suspended, or terminated if:

 

   

the third parties do not successfully carry out their contractual duties or fail to meet regulatory obligations or expected deadlines;

 

   

we replace a third party; or

 

   

the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons.

 

Third party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product candidates. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.

 

Even If Collaborators With Which We Contract In The Future Successfully Complete Clinical Trials Of Our Product Candidates, Those Candidates May Not Be Commercialized Successfully For Other Reasons.

 

Even if we contract with collaborators that successfully complete clinical trials for one or more of our product candidates, those candidates may not be commercialized for other reasons, including:

 

   

failing to receive regulatory clearances required to market them as drugs;

 

   

being subject to proprietary rights held by others;

 

   

failing to obtain clearance from regulatory authorities on the manufacturing of our products;

 

   

being difficult or expensive to manufacture on a commercial scale;

 

   

having adverse side effects that make their use less desirable;

 

   

failing to compete effectively with products or treatments commercialized by competitors; or

 

   

failing to show long-term risk/benefit ratio of our products.

 

We May Enter Into Agreements With Third Parties To Sell And Market Any Products We Develop And For Which We Obtain Regulatory Approvals, Which May Affect The Sales Of Our Products And Our Ability To Generate Revenues.

 

Given our development stage, we have limited experience in sales, marketing and distribution of biopharmaceutical products. However, once our product candidates obtain marketing approval, we intend to develop sales and marketing capacity, either alone or with strategic partners by contracting with, or licensing, them to market any of our products. Outsourcing sales and marketing in this manner may subject us to a variety of risks, including:

 

   

our inability to exercise control over sales and marketing activities and personnel;

 

   

failure or inability of contracted sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;

 

   

disputes with third parties concerning sales and marketing expenses, calculation of royalties, and sales and marketing strategies; and

 

   

unforeseen costs and expenses associated with sales and marketing.

 

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If we are unable to partner with a third party that has adequate sales, marketing, and distribution capabilities, we may have difficulty commercializing our product candidates, which would adversely affect our business, financial condition, and ability to generate product revenues.

 

Our Product Candidates Are Regulated As Biological Products, Or Biologics, Which May Subject Them To Competition Sooner Than Anticipated.

 

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, was enacted as part of the 2010 enactments of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an approved biologic. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

 

We believe that any of our product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

 

Even If Any Of Our Product Candidates Are Commercialized, They May Not Be Accepted By Physicians, Patients, Or The Medical Community In General. Even If We, Or Our Collaborators, Are Able To Commercialize Our Product Candidates, The Products May Become Subject To Market Conditions That Could Harm Our Business.

 

Even if the medical community accepts a product as safe and efficacious for its indicated use, physicians may choose to restrict the use of the product if we or any collaborator is unable to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our product is preferable to any existing drugs or treatments. We cannot predict the degree of market acceptance of any product candidate that receives marketing approval, which will depend on a number of factors, including, but not limited to:

 

   

the demonstration of the clinical efficacy and safety of the product;

 

   

the approved labeling for the product and any required warnings;

 

   

the advantages and disadvantages of the product compared to alternative treatments;

 

   

our and any collaborator’s ability to educate the medical community about the safety and effectiveness of the product;

 

   

the coverage and reimbursement policies of government and commercial third-party payors pertaining to the product; and

 

   

the market price of our product relative to competing treatments.

 

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We Are Dependent On A Single Exclusive Distributor For The Marketing Of Our Diallertest Milk Diagnostic Product. We May Discontinue Our Diallertest Milk Program.

 

In 2004 we introduced to the French market Diallertest Milk, the first ready-to-use patch test for detecting CMPA in young children. Diallertest Milk is the only product that we market to date, and is exclusively distributed in France though a distributor.

 

Diallertest Milk is currently available on the French market with a temporary exception status. Regulatory authorities are requesting a pivotal Phase III clinical trial to complete the marketing authorization file. We are examining the relevance of carrying out this clinical protocol, and are evaluating potential marketing and/or distribution relationships to market this product in Europe in the field of pediatrics. We may also elect, or may be required at the request of regulatory authorities, to stop the marketing of Diallertest Milk. If we were to stop the marketing of Diallertest Milk, or if our current or future distributors struggle to market this product in European markets, our ability to generate revenue from these product sales would be materially adversely effected. We cannot assure you that these product revenues will continue in the future and in any event we do not currently expect these product revenues to have a materially positive impact on our business and financial condition in future periods.

 

We Face Substantial Competition From Companies With Considerably More Resources And Experience Than We Have, Which May Result In Others Discovering, Developing, Receiving Approval For, Or Commercializing Products Before Or More Successfully Than Us.

 

The biopharmaceuticals industry is highly competitive. Numerous biopharmaceutical laboratories, biotechnology companies, institutions, universities and other research entities are actively involved in the discovery, research, development and marketing of therapeutic responses to treat allergies making it a highly competitive field. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Although we believe we are currently in a unique position with respect to the testing and treatment of food allergies in young children, established competitors may invest heavily to quickly discover and develop novel compounds that could make the Viaskin patch products obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to Viaskin patch products. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

 

In the case of food allergies, we are aware of several academic studies that are currently being conducted in major centers and hospitals worldwide. These studies are evaluating sublingual, subcutaneous, intranasal or other forms of desensitization or products using synthetic allergens, denatured allergens or combinations of medicines or methods, or medicines using traditional methods such as Chinese herbs. We are not aware of any pharmaceutical development in conjunction with these academic efforts at this time.

 

We expect studies combining other methods of immunotherapy, such as oral immunotherapy, or OIT, with anti-IgE treatments will be conducted. These types of co-administrations may significantly improve the safety of specific immunotherapies administered orally or subcutaneously, and may become significant competitors with our products.

 

To our knowledge, other pharmaceutical and biotechnology companies are also seeking to develop food allergy treatments, although many are in the discovery or preclinical stages. For example, Allergen Research Corporation is currently evaluating in Phase II clinical trials a formulation of peanut flour for oral administration intended for oral desensitization. We are aware of other companies that are working on recombinant peanut proteins capable of initiating an attenuated immune response of using subcutaneous administration. We are also

 

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aware that Sanofi S.A. has entered into licensing agreements of discovery platforms in selected food allergies, notably with Immune Design Corp. and Selecta Biosciences Inc. and may pose a competitive risk to our products in the future.

 

Government Restrictions On Pricing And Reimbursement, As Well As Other Healthcare Payor Cost-containment Initiatives, May Negatively Impact Our Ability To Generate Revenues If We Obtain Regulatory Approval To Market A Product.

 

The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare costs to contain or reduce costs of healthcare may adversely affect one or more of the following:

 

   

our ability or our collaborators’ ability to set a price we believe is fair for our products, if approved;

 

   

our ability or our collaborators’ ability to obtain and maintain market acceptance by the medical community and patients;

 

   

our ability to generate revenues and achieve profitability; and

 

   

the availability of capital.

 

The ACA is expected to significantly impact the provision of, and payment for, health care in the United States. Various provisions of the ACA take effect over the next several years, and are designed to expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide health care benefits, prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide additional support for medical research. More recently, both the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012, or the ATRA, include, among other things, mandatory reductions in Medicare payments to certain providers. Additional legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could influence the purchase of medicines and reduce demand and prices for our products, if approved. This could harm our or our collaborators’ ability to market any products and generate revenues. Cost containment measures that healthcare payors and providers are instituting and the effect of further healthcare reform could significantly reduce potential revenues from the sale of any of our product candidates approved in the future, and could cause an increase in our compliance, manufacturing, or other operating expenses.

 

In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. In addition, in certain foreign markets, the pricing of prescription drugs is subject to government control and reimbursement may in some cases be unavailable. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for biopharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, biopharmaceutical products launched in the European Union do not follow price structures of the United States and generally tend to have significantly lower prices.

 

We believe that pricing pressures at the federal and state levels in the United States, as well as internationally, will continue and may increase, which may make it difficult for us to sell our potential products that may be approved in the future at a price acceptable to us or any of our future collaborators.

 

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Our Product Candidates May Cause Undesirable Side Effects That Could Delay Or Prevent Their Regulatory Approval, Limit The Commercial Profile Of An Approved Label, Or Result In Significant Negative Consequences Following Marketing Approval, If Any.

 

Our product candidates are being developed to address the needs of severely allergic patients, for some of whom coming into contact with even minute amounts of an allergen can have a profound and life-threatening adverse reaction. Accordingly, safety is of paramount importance in developing these product candidates. To date four clinical trials of Viaskin Peanut and Viaskin Milk product candidates have been conducted both outside and inside of the United States in over 400 human subjects to evaluate the safety and efficacy of these product candidates for the treatment of peanut allergies and milk allergies. Adverse events observed in these clinical trials have primarily involved general disorders and administration site conditions, such as erythema, pruritus, edema, and urticaria. It is worth noting that, as a desensitization patch bringing the allergen into contact with the skin, Viaskin patch product candidates can, in severely allergic patients, cause some erythematous or eczema skin reactions, which are a source of itching and discomfort for the patient. This reaction is typically temporary in duration and fades after a few weeks of use. In addition, during daily administration of the patches during treatments, depending on the severity of the allergies and patient response to treatment, precautionary measures are necessary when handling the patches after use due to risk of contamination.

 

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Further, if our Viaskin patch product candidates receive marketing approval and we or others identify undesirable side effects caused by the products (or any other similar products) after the approval, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw or limit their approval of the products;

 

   

regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication;

 

   

we may be required to change the way the products are distributed or administered, conduct additional clinical trials or change the labeling of the products;

 

   

we may decide to remove the products from the marketplace;

 

   

we could be sued and held liable for injury caused to individuals exposed to or taking our products; and

 

   

our reputation may suffer.

 

Any of these events could prevent us from achieving or maintaining market acceptance of the affected products and could substantially increase the costs of commercializing our products and significantly impact our ability to successfully commercialize our products and generate revenues.

 

Our Future Growth Depends, In Part, On Our Ability To Penetrate Foreign Markets, Where We Would Be Subject To Additional Regulatory Burdens And Other Risks And Uncertainties.

 

Our future profitability will depend, in part, on our ability to commercialize Viaskin patch product candidates in markets within and without the United States and Europe. If we commercialize Viaskin patch product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

 

   

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

 

   

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

 

   

import or export licensing requirements;

 

   

longer accounts receivable collection times;

 

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longer lead times for shipping;

 

   

language barriers for technical training;

 

   

reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics;

 

   

foreign currency exchange rate fluctuations;

 

   

patients’ ability to obtain reimbursement for Viaskin patch products in foreign markets; and

 

   

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

 

Foreign sales of Viaskin patch products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

 

We Are Subject To Healthcare Laws And Regulations, Which Could Expose Us To Criminal Sanctions, Civil Penalties, Contractual Damages, Reputational Harm And Diminished Profits And Future Earnings.

 

Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of Viaskin patch products, if approved. Our arrangements with such persons and third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute Viaskin patch products, if we obtain marketing approval. Restrictions under applicable federal, state and foreign healthcare laws and regulations include but are not limited to the following:

 

   

The federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase or lease, order or recommendation of, any item, good, facility or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid.

 

   

The federal civil and criminal false claims laws and civil monetary penalties laws impose criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.

 

   

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program or knowingly and willingly falsifying, concealing or covering up a material fact or making false statements relating to healthcare matters.

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, which impose certain requirements on covered entities and their business associates, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

 

   

The federal transparency requirements under the Physician Payments Sunshine Act, enacted as part of the ACA, that require applicable manufacturers of covered drugs, devices, biologics and medical supplies to track and annually report to CMS payments and other transfers of value provided to physicians and teaching hospitals and certain ownership and investment interests held by physicians or their immediate family members.

 

   

Analogous state or foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state marketing and/or transparency laws applicable to manufacturers that may be broader in scope than the

 

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federal requirements, state laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect as HIPAA.

 

Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of which could substantially disrupt our operations. If the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

 

Changes In Regulatory Requirements, FDA Guidance Or Guidance From Certain European Regulatory Authorities Or Unanticipated Events During Our Clinical Trials Of Viaskin Patch Products May Occur, Which May Result In Changes To Clinical Trial Protocols Or Additional Clinical Trial Requirements, Which Could Result In Increased Costs To Us And Could Delay Our Development Timeline.

 

Changes in regulatory requirements, FDA guidance or guidance from certain European regulatory authorities or unanticipated events during our clinical trials may force us to amend clinical trial protocols or the FDA or certain European regulatory authorities may impose additional clinical trial requirements. These discussions have caused us to adjust certain trial protocols. Similar amendments to our clinical trial protocols would require resubmission to the FDA and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of a clinical trial. If we experience delays completing, or if we terminate, any of our clinical trials, or if we are required to conduct additional clinical trials, the commercial prospects for the Viaskin patch product candidates, or any other product candidates, may be harmed and our ability to generate product revenue will be delayed.

 

The FDA And Other Regulatory Agencies Actively Enforce The Laws And Regulations Prohibiting The Promotion Of Off-label Uses. If We Are Found To Have Improperly Promoted Off-label Uses, We May Become Subject To Significant Liability.

 

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as Viaskin patch products, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If we receive marketing approval for Viaskin patch products as a treatment for a particular allergy, physicians, in their professional medical judgment, may nevertheless prescribe Viaskin patch products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability under the FDCA and other statutory authorities, such as laws prohibiting false claims for reimbursement. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of Viaskin patch products, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

 

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We May Not Obtain Biopharmaceutical Company Status And Therefore Have To Rely On Contract Manufacturers Indefinitely.

 

To date, we do not have biopharmaceutical company status, or PCS, and therefore, cannot manufacture the product candidates that we develop in France. A company with premises located in France must submit an application to the French Drug and Health Products Safety Agency, or ANSM, in order to get PCS status. The ANSM grants PCS to a company upon evaluation and determination that such company’s premises has adequate personnel, procedure and organization. We intend to seek PCS when our Viaskin patch product candidates have received MAA and thereby have the ability to manufacture our product candidates without contracting third parties. There are two types of PCS: (1) distributor “exploitant” status, which permits medicines to be marketed directly in France by the company after demonstrating control of certain key functions such as pharmacovigilance, medical information and advertising, management of quality complaints and batch recall; and (2) manufacturer status, which permits the manufacturing and quality control of medicines after demonstrating adequate manufacturing and quality control premises that exhibit a quality assurance system that meets cGMP.

 

Failure to obtain PCS status would force us to revise our strategy. First, failure to obtain manufacturer status would force us to entrust the manufacturing and control of the therapeutic products to one or more specialized contract manufacturing organizations, or CMOs, as is the case with the current production of our clinical lots. Second, if distributor “exploitant” status was not obtained, we could not conduct a direct commercial approach to the French market and would therefore have to enter into marketing license agreements with other biopharmaceutical companies. Failure to obtain any of the two types of PCS status would affect the production and marketing of our product candidates, once approved, and could be detrimental to our business, earnings, financial conditions and growth prospects.

 

Our Product Development Programs For Candidates Other Than Viaskin Patch Products May Require Substantial Financial Resources And May Ultimately Be Unsuccessful.

 

The success of our business depends primarily upon our ability to identify, develop and commercialize products to treat common food and/or environmental allergies. In addition to the development of Viaskin Peanut and Viaskin Milk, we may pursue development of our other development programs, including Viaskin HDM. None of our other potential product candidates has commenced any clinical trials, and there are a number of FDA requirements that we must satisfy before we can commence clinical trials. Satisfaction of these requirements will entail substantial time, effort and financial resources. We may never satisfy these requirements. Any time, effort and financial resources we expend on our other development programs may adversely affect our ability to continue development and commercialization of Viaskin Peanut and Viaskin Milk, and we may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. If we do commence clinical trials of our other potential product candidates, such product candidates may never be approved by the FDA. If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.

 

If We Do Not Secure Collaborations With Strategic Partners To Test, Commercialize And Manufacture Certain Product Candidates Outside Of Food Allergies, We May Not Be Able To Successfully Develop Products And Generate Meaningful Revenues.

 

A key aspect of our current strategy is to selectively enter into collaborations with third parties to conduct clinical testing, as well as to commercialize and manufacture product candidates outside food allergies. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We currently have multiple collaboration agreements in effect, including collaborations for the development of applications in the field of respiratory allergies or autoimmune disease, as well as other therapeutic domains, such as vaccines. Collaboration

 

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agreements typically call for milestone payments that depend on successful demonstration of efficacy and safety, obtaining regulatory approvals, and clinical trial results. Collaboration revenues are not guaranteed, even when efficacy and safety are demonstrated. The current economic environment may result in potential collaborators electing to reduce their external spending, which may prevent us from developing our product candidates.

 

Even if we succeed in securing collaborators, the collaborators may fail to develop or effectively commercialize products using our product candidates. Collaborations involving our product candidates pose a number of risks, including the following:

 

   

collaborators may not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as budget limitations, lack of human resources, or a change in strategic focus;

 

   

collaborators may believe our intellectual property is not valid, is not infringed by potential competitors or is unenforceable or the product candidate infringes on the intellectual property rights of others;

 

   

collaborators may dispute their responsibility to conduct development and commercialization activities pursuant to the applicable collaboration, including the payment of related costs or the division of any revenues;

 

   

collaborators may decide to pursue a competitive product developed outside of the collaboration arrangement;

 

   

collaborators may not be able to obtain, or believe they cannot obtain, the necessary regulatory approvals; or

 

   

collaborators may delay the development or commercialization of our product candidates in favor of developing or commercializing another party’s product candidate.

 

Thus, collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.

 

Collaboration agreements are generally terminable without cause on short notice. Once a collaboration agreement is signed, it may not lead to commercialization of a product candidate. We also face competition in seeking out collaborators. If we are unable to secure new collaborations that achieve the collaborator’s objectives and meet our expectations, we may be unable to advance our product candidates and may not generate meaningful revenues.

 

Intellectual Property Risks Related to Our Business

 

Our Ability To Compete May Decline If We Do Not Adequately Protect Our Proprietary Rights.

 

Our commercial success depends on obtaining and maintaining proprietary rights to our product candidates for the treatment of common food and/or environmental allergies, as well as successfully defending these rights against third-party challenges. We will only be able to protect our product candidates, and their uses from unauthorized use by third parties to the extent that valid and enforceable patents, or effectively protected trade secrets, cover them. Our ability to obtain patent protection for our product candidates is uncertain due to a number of factors, including:

 

   

we may not have been the first to make the inventions covered by pending patent applications or issued patents;

 

   

we may not have been the first to file patent applications for our product candidates or the compositions we developed or for their uses;

 

   

others may independently develop identical, similar or alternative products or compositions and uses thereof;

 

   

our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;

 

   

any or all of our pending patent applications may not result in issued patents;

 

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we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;

 

   

any patents issued to us may not provide a basis for commercially viable products, may not provide any competitive advantages, or may be successfully challenged by third parties;

 

   

our compositions and methods may not be patentable;

 

   

others may design around our patent claims to produce competitive products which fall outside of the scope of our patents; or

 

   

others may identify prior art or other bases which could invalidate our patents.

 

Even if we have or obtain patents covering our product candidates or compositions, we may still be barred from making, using and selling our product candidates or technologies because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering compositions or products that are similar or identical to ours. There are many issued U.S. and foreign patents relating to chemical compounds and therapeutic products, and some of these relate to compounds we intend to commercialize. Numerous U.S. and foreign issued patents and pending patent applications owned by others exist in the allergy treatment field in which we are developing products. These could materially affect our ability to develop our product candidates or sell our products if approved. Because patent applications can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our product candidates or compositions may infringe. These patent applications may have priority over patent applications filed by us.

 

Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees, various other governmental fees on patents and/or applications due in several stages over the lifetime of patents and/or applications, as well as the cost associated with complying with numerous procedural provisions during the patent application process. We may or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we choose to forgo patent protection or allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer.

 

Legal actions to enforce our patent rights can be expensive and may involve the diversion of significant management time. In addition, these legal actions could be unsuccessful and could also result in the invalidation of our patents or a finding that they are unenforceable. We may or may not choose to pursue litigation or other actions against those that have infringed on our patents, or used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to protect or to enforce our intellectual property rights successfully, our competitive position could suffer, which could harm our results of operations.

 

Biopharmaceutical Patents And Patent Applications Involve Highly Complex Legal And Factual Questions, Which, If Determined Adversely To Us, Could Negatively Impact Our Patent Position.

 

The patent positions of biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions. The interpretation and breadth of claims allowed in some patents covering biopharmaceutical compositions may be uncertain and difficult to determine, and are often affected materially by the facts and circumstances that pertain to the patented compositions and the related patent claims. The standards of the United States Patent and Trademark Office, or USPTO, are sometimes uncertain and could change in the future. Consequently, the issuance and scope of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject also to opposition or comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent

 

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application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, reexamination, post-grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.

 

In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use our discoveries or to develop and commercialize our technology and products without providing any compensation to us, or may limit the number of patents or claims we can obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and those countries may lack adequate rules and procedures for defending our intellectual property rights.

 

If we fail to obtain and maintain patent protection and trade secret protection of our product candidates, we could lose our competitive advantage and competition we face would increase, reducing any potential revenues and adversely affecting our ability to attain or maintain profitability.

 

Developments In Patent Law Could Have A Negative Impact On Our Business.

 

From time to time, the United States Supreme Court, or the Supreme Court, other federal courts, the United States Congress, the USPTO or similar foreign authorities may change the standards of patentability and any such changes could have a negative impact on our business.

 

In addition, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. These changes may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has developed new and untested regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions, became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act may affect our ability to obtain patents, and if obtained, to enforce or defend them. Accordingly, it is not clear what, if any, impact the America Invents Act will have on the cost of prosecuting our patent applications, our ability to obtain patents based on our discoveries and our ability to enforce or defend any patents that may issue from our patent applications, all of which could have a material adverse effect on our business.

 

If We Are Unable To Protect The Confidentiality Of Our Trade Secrets, Our Business And Competitive Position Would Be Harmed.

 

In addition to patent protection, because we operate in the highly technical field of development of therapies, we rely in part on trade secret protection in order to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We expect to enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us.

 

In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant

 

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from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.

 

We Will Not Seek To Protect Our Intellectual Property Rights In All Jurisdictions Throughout The World And We May Not Be Able To Adequately Enforce Our Intellectual Property Rights Even In The Jurisdictions Where We Seek Protection.

 

Filing, prosecuting and defending patents on our product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. The statutory deadlines for pursuing patent protection in individual foreign jurisdictions are based on the priority dates of each of our patent applications.

 

Competitors may use our technologies in jurisdictions where we do not pursue and obtain 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. 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. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

 

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biopharmaceuticals or biotechnologies. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

 

Proceedings to enforce our patent rights in foreign jurisdictions 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, could put 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. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property. 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.

 

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Third Parties May Assert Ownership Or Commercial Rights To Inventions We Develop.

 

Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. We have written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations. These agreements provide that we must negotiate certain commercial rights with collaborators with respect to joint inventions or inventions made by our collaborators that arise from the results of the collaboration. In some instances, there may not be adequate written provisions to address clearly the resolution of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our use of a third-party collaborator’s materials where required, or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’s samples, we may be limited in our ability to capitalize on the market potential of these inventions. In addition, we may face claims by third parties that our agreements with employees, contractors, or consultants obligating them to assign intellectual property to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such inventions. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property. Either outcome could have an adverse impact on our business.

 

Third Parties May Assert That Our Employees Or Consultants Have Wrongfully Used Or Disclosed Confidential Information Or Misappropriated Trade Secrets.

 

We employ individuals who were previously employed at universities or other biopharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

A Dispute Concerning The Infringement Or Misappropriation Of Our Proprietary Rights Or The Proprietary Rights Of Others Could Be Time Consuming And Costly, And An Unfavorable Outcome Could Harm Our Business.

 

There is significant litigation in the biopharmaceutical industry regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our product candidates, technologies or activities infringe the intellectual property rights of others. If our development activities are found to infringe any such patents, we may have to pay significant damages or seek licenses to such patents. A patentee could prevent us from using the patented drugs or compositions. We may need to resort to litigation to enforce a patent issued to us, to protect our trade secrets, or to determine the scope and validity of third-party proprietary rights. From time to time, we may hire scientific personnel or consultants formerly employed by other companies involved in one or more areas similar to the activities conducted by us. Either we or these individuals may be subject to allegations of trade secret misappropriation or other similar claims as a result of prior affiliations. If we become involved in litigation, it could consume a substantial portion of our managerial and financial resources, regardless of whether we win or lose. We may not be able to afford the costs of litigation. Any adverse ruling or perception of an adverse ruling in defending ourselves against these claims could have a material adverse impact on our cash position and the price of the ADSs. Any legal action against us or our collaborators could lead to:

 

   

payment of damages, potentially treble damages, if we are found to have willfully infringed a party’s patent rights;

 

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injunctive or other equitable relief that may effectively block our ability to further develop, commercialize, and sell products; or

 

   

us or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all, all of which could have a material adverse impact on our cash position and business and financial condition. As a result, we could be prevented from commercializing current or future product candidates.

 

We May Infringe The Intellectual Property Rights Of Others, Which May Prevent Or Delay Our Product Development Efforts And Stop Us From Commercializing Or Increase The Costs Of Commercializing Our Product Candidates, If Approved.

 

Our success will depend in part on our ability to operate without infringing the intellectual property and proprietary rights of third parties. We cannot assure you that our business, products and methods do not or will not infringe the patents or other intellectual property rights of third parties.

 

The biopharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that our product candidates or the use of our technologies infringes patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. Any claim relating to intellectual property infringement that is successfully asserted against us may require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing another party’s patents, for past use of the asserted intellectual property and royalties and other consideration going forward if we are forced to take a license. In addition, if any such claim were successfully asserted against us and we could not obtain such a license, we may be forced to stop or delay developing, manufacturing, selling or otherwise commercializing Viaskin patch products.

 

Even if we are successful in these proceedings, we may incur substantial costs and divert management 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 of the patents in court, or redesign our products. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, intellectual property litigation or claims could force us to do one or more of the following:

 

   

cease developing, selling or otherwise commercializing our product candidates;

 

   

pay substantial damages for past use of the asserted intellectual property;

 

   

obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and

 

   

in the case of trademark claims, redesign, or rename, Viaskin, Diallertest or other trademarks we may own, to avoid infringing the intellectual property rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming.

 

Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

Issued Patents Covering Our Product Candidates Could Be Found Invalid Or Unenforceable If Challenged In Court.

 

If we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering our product candidate, the defendant could counterclaim that the patent covering our product candidate

 

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is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.

 

Risks Related to Our Organization, Structure and Operation

 

We Will Need To Develop And Expand Our Company, And We May Encounter Difficulties In Managing This Development And Expansion, Which Could Disrupt Our Operations.

 

As of June 30, 2014, we had 47 full-time employees, and in connection with becoming a U.S. public company, we expect to significantly increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, including the commercialization of our product candidates in North America, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our company.

 

We Depend On Key Personnel And Attracting Qualified Management Personnel And Our Business Could Be Harmed If We Lose Key Personnel And Cannot Attract New Personnel.

 

Our success depends to a significant degree upon the technical and management skills of our officers and key personnel, including in particular those of Pierre-Henri Benhamou, our Chairman and Chief Executive Officer and Bertrand Dupont, our Chief Technical Officer. The loss of the services of any of these individuals would likely have a material adverse effect on us. Our success also will depend upon our ability to attract and retain additional qualified management, marketing, technical, and sales executives and personnel. The loss of any of our key executives, or the failure to attract, integrate, motivate, and retain additional key personnel could have a material adverse effect on our business.

 

We compete for such personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess. There can be no assurance that we will be successful in attracting or retaining such personnel and the failure to do so could have a material adverse effect on our business, financial condition, and results of operations.

 

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Our Employees May Engage In Misconduct Or Other Improper Activities, Including Violating Applicable Regulatory Standards And Requirements Or Engaging In Insider Trading, Which Could Significantly Harm Our Business.

 

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to: comply with the regulations of the FDA and applicable non-U.S. regulators, provide accurate information to the FDA and applicable non-U.S. regulators, comply with fraud and abuse and other healthcare laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of, including trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

 

Product Liability And Other Lawsuits Could Divert Our Resources, Result In Substantial Liabilities And Reduce The Commercial Potential Of Our Product Candidates.

 

The risk that we may be sued on product liability claims is inherent in the development and commercialization of biopharmaceutical products. Side effects of, or manufacturing defects in, products that we develop could result in the deterioration of a patient’s condition, injury or even death. For example, our liability could be sought after by patients participating in the clinical trials in the context of the development of the therapeutic products tested and unexpected side effects resulting from the administration of these products. Once a product is approved for sale and commercialized, the likelihood of product liability lawsuits increases. Criminal or civil proceedings might be filed against us by patients, the regulatory authorities, biopharmaceutical companies and any other third party using or marketing our products. These actions could include claims resulting from acts by our partners, licensees and subcontractors, over which we have little or no control. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of the affected products.

 

We may be subject to legal or administrative proceedings and litigation other than product liability lawsuits which may be costly to defend and could materially harm our business, financial condition and operations.

 

We maintain product liability insurance coverage for our clinical trials with an €11.0 million annual aggregate coverage limit. Nevertheless, our insurance coverage may be insufficient to reimburse us for any expenses or losses we may suffer. In addition, in the future, we may not be able to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product or other legal or administrative liability claims by us or our partners, licensees or subcontractors, which could prevent or inhibit the commercial production and sale of any of our product candidates that receive regulatory approval, which could adversely affect our business. Product liability claims could also harm our reputation, which may adversely affect our collaborators’ ability to commercialize our products successfully.

 

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We Must Maintain Effective Internal Control Over Financial Reporting, And If We Are Unable To Do So, The Accuracy And Timeliness Of Our Financial Reporting May Be Adversely Affected, Which Could Have A Material Adverse Effect On Our Business, Investor Confidence And Market Price.

 

We must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. In addition, once we are a public company, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, will require, among other things, that we assess the effectiveness of our disclosure controls and procedures semi-annually and the effectiveness of our internal control over financial reporting at the end of each fiscal year. We anticipate being first required to issue management’s annual report on internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act, in connection with issuing our consolidated financial statements as of and for the year ending December 31, 2015.

 

The rules governing the standards that must be met for our management to assess our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These stringent standards require that our audit committee be advised and regularly updated on management’s review of internal control over financial reporting. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation. This process is time-consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal controls over financial reporting beginning with our annual report following the date on which we are no longer an “emerging growth company,” which may be up to five fiscal years following the date of this offering. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If we fail to staff our accounting and finance function adequately or maintain internal control over financial reporting adequate to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, our business and reputation may be harmed and the price of the ADSs may decline. Furthermore, investor perceptions of us may be adversely affected, which could cause a decline in the market price of our ordinary shares.

 

Our Failure To Maintain Certain Tax Benefits Applicable To French Technology Companies May Adversely Affect Our Results Of Operations.

 

As a French technology company, we have benefited from certain tax advantages, including, for example, the CIR. The CIR is a French tax credit aimed at stimulating research and development. The CIR can be offset against French corporate income tax due and the portion in excess (if any) may be refunded at the end of a three fiscal-year period. The CIR is calculated based on our claimed amount of eligible research and development expenditures in France and represented €2.5 million, €3.3 million and €2.5 million as of December 31, 2012 and 2013 and June 30, 2014, respectively. The French tax authority with the assistance of the Research and Technology Ministry may audit each research and development program in respect of which a CIR benefit has been claimed and assess whether such program qualifies in its view for the CIR benefit. The French tax authorities may challenge our eligibility to, or our calculation of certain tax reductions and/or deductions in respect of our research and development activities and, should the French tax authorities be successful, we may be liable to additional corporate income tax, and penalties and interest related thereto, which could have a significant impact on our results of operations and future cash flows. Furthermore, if the French Parliament decides to eliminate, or reduce the scope or the rate of, the CIR benefit, either of which it could decide to do at any time, our results of operations could be adversely affected.

 

We May Be Forced To Repay Conditional Advances Prematurely If We Fail To Comply With Our Contractual Obligations Under The Applicable Innovation Grant Agreements.

 

Since inception, we have received multiple conditional advances totaling €2.6 million for innovation granted by OSEO, the French Agency for Innovation and part of the Banque Publique d’Investissement. If we

 

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fail to comply with our contractual obligations under the applicable innovation grant agreements, including if we lose our exclusive right to commercially develop our product candidates, we could be forced to repay the sums advanced ahead of schedule. Such premature repayment could adversely affect our ability to finance its research and development projects. In addition, we cannot ensure that we will then have the additional financial means needed, the time or the ability to replace these financial resources with others.

 

We May Be Exposed To Significant Foreign Exchange Risk. Exchange Rate Fluctuations May Adversely Affect The Foreign Currency Value Of Our ADSs.

 

We incur portions of our expenses, and may in the future derive revenues, in currencies other than the euro, in particular, the U.S. dollar. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the euro. Therefore, for example, an increase in the value of the euro against the U.S. dollar could be expected to have a negative impact on our revenue and earnings growth as U.S. dollar revenue and earnings, if any, would be translated into euros at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows. The ADSs will be quoted in U.S. dollars on the Nasdaq Global Market and our ordinary shares are trading in euros on Euronext Paris. Our financial statements are prepared in euros. Fluctuations in the exchange rate between euros and the U.S. dollar will affect, among other matters, the U.S. dollar value and the euro value of our ordinary shares and ADSs.

 

We May Use Hazardous Chemicals And Biological Materials In Our Business. Any Claims Relating To Improper Handling, Storage Or Disposal Of These Materials Could Be Time Consuming And Costly.

 

Our research and development processes may involve the controlled use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. For example, in production, the confinement of the electrospray function and the use of the allergen in liquid form make it possible to prevent the allergens from contaminating the environment. However, we cannot assure you that in case of malfunction during the handling, storage or production process, allergen would not be released into the atmosphere and sensitize the persons present in the environment. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed any insurance coverage and our total assets. Federal, state, local or foreign laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. Compliance with environmental laws and regulations may be expensive and may impair our research and development efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced.

 

Our Internal Computer Systems, Or Those Of Our Third-party Contractors Or Consultants, May Fail Or Suffer Security Breaches, Which Could Result In A Material Disruption Of Our Product Development Programs.

 

Despite the implementation of security measures, our internal computer systems and those of our third-party contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we do not believe that we have experienced any such 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 programs. For example, the loss of clinical trial data for our product candidates could result in delays in our regulatory approval efforts and

 

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significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed.

 

We May Acquire Businesses Or Products, Or Form Strategic Alliances, In The Future, And We May Not Realize The Benefits Of Such Acquisitions.

 

At this stage, our strategy does not involve plans to acquire companies or technologies facilitating or enabling us to access to new medicines, new research projects, or new geographical areas, or enabling us to express synergies with our existing operations. However, if such acquisitions were to become necessary in future, we may not be able to identify appropriate targets or make acquisitions under satisfactory conditions, in particular, satisfactory price conditions. In addition, we may unable to obtain the financing for these acquisitions under favorable conditions, and could be led to finance these acquisitions using cash that could be allocated to other purposes in the context of existing operations. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction, which could have a material adverse effect on our business, financial conditions, earnings and prospects.

 

Risks Related to This Offering and Ownership of Our Ordinary Shares and ADSs

 

There Has Been No Prior Market For The ADSs And An Active And Liquid Market For Our Securities May Fail To Develop, Which Could Harm The Market Price Of The ADSs.

 

Prior to this offering, while our ordinary shares have been traded on Euronext Paris since March 28, 2012, there has been no public market for the ADSs or our ordinary shares in the United States. Although we anticipate our ADSs being approved for listing on the Nasdaq Global Market, an active trading market for our ADSs may never develop or be sustained following this offering. The initial public offering price of our ADSs will be determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of our ADSs or ordinary shares after this offering. In the absence of an active trading market for our ADSs or ordinary shares, investors may not be able to sell their ADSs at or above the initial public offering price or at the time that they would like to sell. The market price of ADSs and ordinary shares could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

   

actual or anticipated fluctuations in our financial condition and operating results;

 

   

actual or anticipated changes in our growth rate relative to our competitors;

 

   

competition from existing products or new products that may emerge;

 

   

announcements by us, our partners or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or capital commitments;

 

   

failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

 

   

issuance of new or updated research or reports by securities analysts;

 

   

fluctuations in the valuation of companies perceived by investors to be comparable to us; share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

   

additions or departures of key management or scientific personnel;

 

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

 

   

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;

 

   

announcement or expectation of additional debt or equity financing efforts;

 

   

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

 

   

general economic and market conditions.

 

These and other market and industry factors may cause the market price and demand for our ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ADSs and may otherwise negatively affect the liquidity of our capital shares. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.

 

After The Global Offering, Share Ownership Will Remain Concentrated In The Hands Of Our Principal Shareholders And Management, Who Will Continue To Be Able To Exercise A Direct Or Indirect Controlling Influence On Us.

 

We anticipate that our executive officers, directors, current 5% or greater shareholders and affiliated entities, including Sofinnova Capital V FPCI, Bpifrance Participations and InnoBio FCPR, will together beneficially own approximately         % of our ordinary shares outstanding after the global offering, assuming no exercise of the underwriters’ option to purchase additional shares and ADSs. As a result, these shareholders, acting together, will have significant influence over all matters that require approval by our shareholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other shareholders, including those who purchase shares or ADSs in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other shareholders may view as beneficial.

 

We Have Broad Discretion In The Use Of The Net Proceeds From The Global Offering And May Not Use Them Effectively.

 

Our management will have broad discretion in the application of the net proceeds that we receive from the global offering, 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 global offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

 

If Securities Or Industry Analysts Do Not Publish Research Or Publish Inaccurate Or Unfavorable Research About Our Business, The Price Of 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 our company, the trading price for the ADSs would be negatively impacted. If one or more of the analysts who covers us downgrades the ADSs or publishes incorrect or unfavorable research about our business, the price of the ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, or downgrades the ADSs, demand for the ADSs could decrease, which could cause the price of the ADSs or trading volume to decline.

 

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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 The ADSs. In Addition, French Law May Limit The Amount Of Dividends We Are Able To Distribute.

 

We have never declared or paid any cash dividends on our ordinary shares and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. 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 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 French law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared and presented in accordance with IFRS. In addition, payment of dividends may subject us to additional taxes under French law. Please see the section of this prospectus titled “Description of Share Capital—Key Provisions of Our By-laws and French Law Affecting Our Ordinary Shares—Rights, Preferences and Restrictions Attaching to Ordinary Shares” for further details on the limitations on our ability to declare and pay dividends and the taxes that may become payable by us if we elect to pay a dividend. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France.

 

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.

 

If You Purchase ADSs In This Offering, You Will Experience Substantial And Immediate Dilution.

 

If you purchase ADSs in this offering, you will experience substantial and immediate dilution of $         (€            ) per ADS in the net tangible book value after giving effect to the global offering at an assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, because the price that you pay will be substantially greater than the net tangible book value per ADS that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the public offering price when they purchased their ordinary shares. You will experience additional dilution upon exercise of any outstanding options or warrants to purchase ordinary shares under our equity incentive plans, if we issue free shares to our employees under our equity incentive plans or if we otherwise issue additional shares or ADSs below the public offering price. For a further description of the dilution that you will experience immediately after the global offering, see the section of this prospectus titled “Dilution.”

 

Future Sales Of Ordinary Shares Or ADSs By Existing Shareholders Could Depress The Market Price Of The ADSs.

 

If our existing shareholders sell, or indicate an intent to sell, substantial amounts of ordinary shares or ADSs in the public market after the 90-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of the ADSs could decline significantly and could decline below the public offering price. Upon completion of the global offering, we will have outstanding                 ordinary shares, approximately         of which are subject to the 90-day contractual lock-up referred to above. We and Citigroup Global Markets Inc. and Leerink Partners LLC may permit our officers, directors, employees and current shareholders to sell shares prior to the expiration of the lock-up agreements. See the section of this prospectus titled “Underwriting.”

 

After the lock-up agreements pertaining to this offering expire, and based on the number of ordinary shares outstanding upon completion of the global offering,          additional shares and ADSs will be eligible for sale in

 

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the public market, of which          shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act. In addition, the ordinary shares subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans and ordinary shares subject to outstanding warrants 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 with the SEC covering ADSs (equivalent to an equal number of ordinary 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 the section of this prospectus titled “Shares and ADSs 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.

 

Our By-Laws And French Corporate Law Contain Provisions That May Delay Or Discourage A Takeover Attempt.

 

Provisions contained in our by-laws and the corporate laws of France, the country in which we are incorporated, could make it more difficult for a third-party to acquire us, even if doing so might be beneficial to our shareholders. In addition, provisions of our by-laws impose various procedural and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These provisions include the following:

 

   

under French law, a non-resident of France may have to file an administrative notice with French authorities in connection with a direct or indirect investment in us, as defined by administrative rulings; see the section of this prospectus titled “Limitations Affecting Shareholders of a French Company”;

 

   

a merger (i.e., in a French law context, a share for share exchange following which our company would be dissolved into the acquiring entity and our shareholders would become shareholders of the acquiring entity) of our company into a company incorporated in the European Union would require the approval of our board of directors as well as a two-thirds majority of the votes held by the shareholders present, represented by proxy or voting by mail at the relevant meeting;

 

   

a merger of our company into a company incorporated outside of the European Union would require 100% of our shareholders to approve it;

 

   

under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;

 

   

our shareholders have granted and may grant in the future our board of directors broad authorizations to increase our share capital or to issue additional ordinary shares or other securities (for example, warrants) to our shareholders, the public or qualified investors, including as a possible defense following the launching of a tender offer for our shares;

 

   

our shareholders have preferential subscription rights on a pro rata basis on the issuance by us of any additional securities for cash or a set-off of cash debts, which rights may only be waived by the extraordinary general meeting (by a two-thirds majority vote) of our shareholders or on an individual basis by each shareholder;

 

   

our board of directors has the right to appoint directors to fill a vacancy created by the resignation or death of a director, subject to the approval by the shareholders of such appointment at the next shareholders’ meeting, which prevents shareholders from having the sole right to fill vacancies on our board of directors;

 

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our board of directors can only be convened by our chairman or our managing director, if any, or, when no board meeting has been held for more than two consecutive months, by directors representing at least one third of the total number of directors;

 

   

our board of directors meetings can only be regularly held if at least half of the directors attend either physically or by way of videoconference or teleconference enabling the directors’ identification and ensuring their effective participation in the board’s decisions;

 

   

our shares are nominative or bearer, if the legislation so permits, according to the shareholder’s choice. Shares issued are registered in individual accounts opened by us or any authorized intermediary, in the name of each shareholder and kept according to the terms and conditions laid down by the legal and regulatory provisions;

 

   

approval of at least a majority of the votes held by shareholders present, represented by a proxy, or voting by mail at the relevant ordinary shareholders’ general meeting is required to remove directors with or without cause;

 

   

advance notice is required for nominations to the board of directors or for proposing matters to be acted upon at a shareholders’ meeting, except that a vote to remove and replace a director can be proposed at any shareholders’ meeting without notice;

 

   

our by-laws can be changed in accordance with applicable laws;

 

   

the crossing of certain thresholds has to be disclosed and can impose certain obligations; see the section of this prospectus titled “Declaration of Crossing of Ownership Thresholds”;

 

   

transfers of shares shall comply with applicable insider trading rules; and

 

   

pursuant to French law, the sections of the by-laws relating to the number of directors and election and removal of a director from office may only be modified by a resolution adopted by 66 2/3% of the votes of our shareholders present, represented by a proxy or voting by mail at the meeting.

 

You May Not Be Able To Exercise Your Right To Vote The Ordinary Shares Underlying Your ADSs.

 

Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us and (2) a statement as to the manner in which instructions may be given by the holders.

 

You may instruct the depositary of your ADSs to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself. If the depositary does not receive timely voting instructions from you, it may give a proxy to a person designated by us to vote the ordinary shares underlying your ADSs. 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. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

 

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Your Right As A Holder Of ADSs To Participate In Any Future Preferential Subscription Rights Or To Elect To Receive Dividends In Shares May Be Limited, Which May Cause Dilution To Your Holdings.

 

According to French Law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these securities on a pro rata basis unless they waive those rights at an extraordinary meeting of our shareholders (by a two-thirds majority vote) or individually by each shareholder. However, our 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 will 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. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the Securities Act before making the option available to holders of ADSs. We are 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 or to elect to receive dividends in shares 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 Ordinary Shares.

 

Your ADSs, which may be evidenced by ADRs, 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 ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, you may not be able to cancel your ADSs and withdraw the underlying ordinary 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 ordinary shares or other deposited securities. See the section of this prospectus titled “Description of American Depositary Shares—Your Right to Receive the Ordinary Shares Underlying Your ADSs.”

 

We Are An “Emerging Growth Company” And Will Be Able To Avail Ourselves Of Reduced Disclosure Requirements Applicable To Emerging Growth Companies, Which Could Make Our ADSs Less Attractive To Investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of 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. In other words, an

 

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emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the price of the ADSs may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.0 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

 

As A Foreign Private Issuer, We Are Exempt From A Number Of Rules Under The U.S. Securities Laws And Are Permitted To File Less Information With The SEC Than A U.S. Company. This May Limit The Information Available To Holders Of ADSs.

 

We are a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently make annual and semi-annual filings with respect to our listing on Euronext Paris and expect to file financial reports on an annual and semi-annual basis, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there will be less publicly available information concerning our company than there would be if we were a U.S. public company.

 

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.

 

As a foreign private issuer listed on the Nasdaq Global Market, we will be subject to corporate governance listing standards. However, rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in France, which is our home country, may differ significantly from corporate governance listing standards. For example, neither the corporate laws of France nor our by-laws require a majority of our directors to be independent and we could include non-independent directors as members of our compensation committee, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. Currently, we intend to follow home country practice to the maximum extent possible. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.

 

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 and, accordingly, the next determination will be made with respect to us on June 30, 2015.

 

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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. For example, if more than 50% of our securities are held by U.S. residents and more than 50% of our executive officers or members of our board of directors are residents or citizens of the United States, we could lose our foreign private issuer status. Immediately following the closing of the global offering, approximately         % of our outstanding ordinary shares will likely be held by U.S. residents (assuming that all purchasers in the U.S. offering are residents of the United States and none of the purchasers in the French offering are residents 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. GAAP, rather than IFRS, and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial statements to U.S. GAAP will involve significant time and cost. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. 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.

 

U.S. Investors May Have Difficulty Enforcing Civil Liabilities Against Our Company And Directors And Senior Management And The Experts Named In This Prospectus.

 

Certain members of our board of directors and senior management, those of our subsidiary and certain experts named in this prospectus are non-residents of the United States, and all or a substantial portion of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. 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. 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. In particular, there is some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered but is intended to punish the defendant. The enforceability of any judgment in France will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and France do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. See the section of this prospectus titled “Enforcement of Civil Liabilities.”

 

The Rights Of Shareholders In Companies Subject To French Corporate Law Differ In Material Respects From The Rights Of Shareholders Of Corporations Incorporated In The United States.

 

We are a French company with limited liability. Our corporate affairs are governed by our by-laws and by the laws governing companies incorporated in France. 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 U.S. jurisdictions. For example, in the performance of its duties, our board of directors is required by French law to consider the interests of our company, its shareholders, its employees and

 

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other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. See the sections of this prospectus titled “Management—Corporate Governance Practices” and “Description of Share Capital.”

 

After The Completion Of This Offering, We May Be At An Increased Risk Of Securities Class Action Litigation.

 

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

 

U.S. Holders Of Our Shares May Suffer Adverse Tax Consequences If We Are Characterized As A Passive Foreign Investment Company.

 

Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, including cash, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. For purposes of these tests, passive income includes dividends, interest, and gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business. If we are characterized as a PFIC, U.S. holders of the ADSs may suffer adverse tax consequences, including having gains realized on the sale of the ADSs treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on the ADSs by individuals who are U.S. holders, and having interest charges apply to distributions by us and the proceeds of sales of the ADSs. See “Taxation—Certain Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

 

Our status as a PFIC will depend on the composition of our income (including whether we receive certain non-refundable grants or subsidies and whether such amounts will constitute gross income for purposes of the PFIC income test) and the composition and value of our assets (which, assuming we are not a “controlled foreign corporation” under Section 957(a) of the Code for the year being tested, may be determined in large part by reference to the market value of the ADSs and our ordinary shares, which may be volatile) from time to time. Our status may also depend, in part, on how quickly we utilize the cash proceeds from the global offering in our business. Based on the composition of our income, we think it is likely that we will be considered a PFIC for this taxable year and it is possible that we could be considered a PFIC for future taxable years.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus, particularly the sections of this prospectus titled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. All statements other than present and historical facts and conditions contained in this prospectus, including statements regarding our future results of operations and financial positions, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this prospectus, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

   

the initiation, timing, progress and results of our pre-clinical and clinical studies, and our research and development programs;

 

   

our ability to advance product candidates into, and successfully complete, clinical studies;

 

   

our ability to advance our Viaskin manufacturing capabilities;

 

   

the timing or likelihood of regulatory filings and approvals;

 

   

our ability to develop sales and marketing capabilities;

 

   

the commercialization of our product candidates, if approved;

 

   

the pricing and reimbursement of our product candidates, if approved;

 

   

the implementation of our business model, strategic plans for our business, product candidates and technology;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

   

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

   

the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

 

   

our ability to maintain and establish collaborations or obtain additional grant funding;

 

   

the rate and degree of market acceptance of or product candidates;

 

   

our financial performance;

 

   

developments relating to our competitors and our industry, including competing therapies; and

 

   

other risks and uncertainties, including those listed under the caption “Risk Factors.”

 

You should refer to the section of this prospectus titled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act do not protect any forward-looking statements that we make in connection with this offering.

 

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You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

This prospectus contains market data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise.

 

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CURRENCY EXCHANGE RATES

 

The following table sets forth, for each period indicated, the low and high exchange rates for euros expressed in U.S. dollars, the exchange rate at the end of such period and the average of such exchange rates on the last day of each month during such period, based on the noon buying rate of the Federal Reserve Bank of New York for the euro. As used in this document, the term “noon buying rate” refers to the rate of exchange for the euro, expressed in U.S. dollars per euro, as certified by the Federal Reserve Bank of New York for customs purposes. The exchange rates set forth below demonstrate trends in exchange rates, but the actual exchange rates used throughout this prospectus may vary.

 

     Year Ended December 31,      Six Months
Ended June 30,
 
     2009      2010      2011      2012      2013      2014  

High

     1.5100         1.4536         1.4875         1.3463         1.3816         1.3953   

Low

     1.2547         1.1959         1.2926         1.2062         1.2774         1.3495   

Rate at end of period

     1.4432         1.3269         1.2973         1.3187         1.3779         1.3658   

Average rate per period

     1.3955         1.3216         1.4002         1.2909         1.3303         1.3705   

 

The following table sets forth, for each of the last six months, the low and high exchange rates for euros expressed in U.S. dollars and the exchange rate at the end of the month based on the noon buying rate as described above.

 

     February
2014
     March
2014
     April
2014
     May
2014
     June
2014
     July
2014
     August
2014
 

High

     1.3806         1.3927         1.3898         1.3924         1.3690         1.3688         1.3436   

Low

     1.3507         1.3731         1.3704         1.3596         1.3522         1.3401         1.3150   

Rate at end of period

     1.3806         1.3777         1.3870         1.3640         1.3690         1.3379         1.3150   

 

On August 22, 2014, the noon buying rate of the Federal Reserve Bank of New York for the euro was €1.00 = $1.3233.

 

On June 30, 2014, the noon buying rate of the Federal Reserve Bank of New York for the euro was €1.00 = $1.3690. Unless otherwise indicated, currency translations in this prospectus reflect the June 30, 2014 exchange rate.

 

Information presented on a constant currency basis in this prospectus is calculated by translating current year results at prior year average exchange rates. Management reviews and analyzes business results excluding the effect of foreign currency translation because they believe this better represents our underlying business trends.

 

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MARKET INFORMATION

 

Our ordinary shares have been trading on Euronext Paris under the symbol “DBV” since March 2012.

 

The following table sets forth for the periods indicated the reported high and low closing sale prices per ordinary share on Euronext Paris in euros and U.S. dollars.

 

Period

   High      Low      High      Low  

Annual

           

2012

   9.74       7.19       $ 13.33       $ 9.84   

2013

   12.50       7.51       $ 17.11       $ 10.28   

Quarterly

           

First Quater 2012

   9.74       8.66       $ 13.33       $ 11.86   

Second Quarter 2012

   8.92       7.19       $ 12.21       $ 9.84   

Third Quarter 2012

   9.00       7.70       $ 12.32       $ 10.54   

Fourth Quarter 2012

   8.90       8.05       $ 12.18       $ 11.02   

First Quater 2013

   9.75       7.90       $ 13.35       $ 10.82   

Second Quarter 2013

   8.79       8.00       $ 12.03       $ 10.95   

Third Quarter 2013

   8.28       7.51       $ 11.34       $ 10.28   

Fourth Quarter 2013

   12.50       7.66       $ 17.11       $ 10.49   

First Quarter 2014

   23.50       10.78       $ 32.17       $ 14.76   

Second Quarter 2014

   21.20       14.61       $ 29.02       $ 20.00   

Third Quarter 2014 (through September 19, 2014)

   25.57       18.37       $ 35.01       $ 25.15   

Month Ended

           

January 2014

   16.25       10.78       $ 22.25       $ 14.76   

February 2014

   23.50       15.40       $ 32.17       $ 21.08   

March 2014

   22.74       17.99       $ 31.13       $ 24.63   

April 2014

   19.50       14.82       $ 26.70       $ 20.29   

May 2014

   19.50       14.61       $ 26.70       $ 20.00   

June 2014

   21.20       17.91       $ 29.02       $ 24.52   

July 2014

   20.74       19.01       $ 28.39       $ 26.02   

August 2014

   21.63       18.37       $ 29.62       $ 25.15   

September 2014 (through September 19, 2014)

   25.57       22.03       $ 35.01       $ 30.16   

 

On September 19, 2014, the last reported sale price of our ordinary shares on Euronext Paris was €25.57 ($35.01) per share.

 

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USE OF PROCEEDS

 

A $1.00 (€0.73) increase (decrease) in the assumed public offering price of $         (€        ) per share/ADS would increase (decrease) our net proceeds from the global offering by $         (€        ) million, assuming the number of shares and ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. Each increase or decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us would increase or decrease the net proceeds to us from the sale of the shares and ADSs we are offering by $         (€        ) million, assuming that the assumed public offering price remains the same and after deducting underwriting discounts and commissions. Each increase of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) increase in the assumed public offering price, would increase the net proceeds to us from the sale of the shares and ADSs we are offering by $         (€        ) million, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) decrease in the assumed public offering price, would decrease the net proceeds to us from the sale of the shares and ADSs we are offering by $         (€        ) million, after deducting underwriting discounts and commissions. The actual net proceeds payable to us will adjust based on the actual number of shares and ADSs offered by us, the actual public offering price and other terms of the global offering determined at pricing.

 

The principal purposes of the global offering are to increase our financial flexibility, create a public market for our securities in the United States and facilitate our access to the public equity markets. We currently expect to use the net proceeds from the global offering as follows:

 

   

approximately $         million to advance the development of our Viaskin Peanut and Viaskin Milk product candidates;

 

   

approximately $         million to fund our earlier stage development activities, including our development programs in eosinophilic esophagitis, pertusiss boost vaccine and birch pollen allergy;

 

   

approximately $         million to build-out our clinical and commercial infrastructure in the United States;

 

   

approximately $         million to support our growth globally by expanding general, administrative and operational functions in our headquarters in France.

 

We expect to use the remainder of any net proceeds from the global offering for working capital and other general corporate purposes.

 

We may also use a portion of the net proceeds to in-license, acquire or invest in complementary technologies, products or assets. However we have no current plan, commitments or obligations to do so.

 

Based on our current operation plans and assumptions, we expect that the net proceeds from the global offering, combined with our current operating capital, will be sufficient to support the advancement of our Viaskin Peanut product candidate through the completion of our planned Phase III clinical trial and, pending the results of this trial, the submission of a BLA for this product candidate, as well as the advancement of our Viaskin Milk product candidate through the end of our planned Phase II clinical trial for this product candidate. However, there can be no assurance that these expectations will be correct. See “Risk Factors—Even If This Offering Is Successful, We May Need to Raise Additional Funding...”

 

We currently have no specific plans as to how the net proceeds from the global offering will be allocated beyond the uses specified above and therefore management will retain discretion to allocate the remainder of the net proceeds of the global offering among these uses.

 

This expected use of the net proceeds from the global offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of

 

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the particular uses for the net proceeds to be received upon the completion of the global offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from pre-clinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from the global offering.

 

Pending our use of the net proceeds from the global offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments.

 

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DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future and intend to retain all available funds and any future earnings for use in the operation and expansion of our business.

 

Subject to the requirements of French law and our by-laws, dividends may only be distributed from our distributable profits, plus any amounts held in our reserves other than those reserves that are specifically required by law. See the section of this prospectus titled “Description of Share Capital—Key Provisions of Our By-laws and French Law Affecting our Ordinary Shares—Rights, Preferences and Restrictions Attaching to Ordinary Shares” for further details on the limitations on our ability to declare and pay dividends. Dividend distributions, if any, will be made in euros and converted into U.S. dollars with respect to the ADSs, as provided in the deposit agreement.

 

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CAPITALIZATION

 

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2014 on:

 

   

an actual basis; and

 

   

an as adjusted basis to reflect: (1) our issuance and sale of                  ordinary shares and ADSs in the global offering at an assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and (2) the application of our net proceeds of the global offering as described under the section of this prospectus titled “Use of Proceeds.”

 

You should read this table together with our financial statements and related notes beginning on page F-1, as well as the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere in this prospectus.

 

     As of June 30, 2014  
     Actual     As
Adjusted(1)
 

Cash and cash equivalents

   29,062,028                     
  

 

 

   

 

 

 

Conditional advances

   1,310,111          
  

 

 

   

 

 

 

Share capital:

    

Ordinary shares, €0.10 nominal value: 15,469,192 shares issued and outstanding, actual;                 shares issued and outstanding, as adjusted

     1,546,919     

Premiums related to the share capital

     70,303,336     

Reserves

     (28,522,232  

Net profit (loss)

     (11,773,743  
  

 

 

   

Total equity attributable to our shareholders

     31,554,289     
  

 

 

   

 

 

 

Total capitalization

   32,864,400        
  

 

 

   

 

 

 

 

(1)   Each $1.00 (€0.73) increase or decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would increase or decrease each of as adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $         (€        ) million, assuming that the number of shares and ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions. We may also increase or decrease the number of shares and ADSs we are offering. Each increase or decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us would increase or decrease each of as adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $         (€        ) million, assuming that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions. Each increase of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) increase in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on , 2014, would increase each of as adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $         (€        ) million, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would decrease each of as adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $         (€        ) million, after deducting underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of shares and ADSs offered by us, and other terms of the global offering determined at pricing.

 

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The number of ordinary shares that will be outstanding after the global offering is based on the number of shares outstanding as of June 30, 2014 and excludes:

 

   

2,824,313 ordinary shares issuable upon the exercise of share options, free shares (actions gratuites) and warrants (including employee warrants (BSPCE)) issued pursuant to our share option plans and other delegations of authority from our shareholders outstanding as of June 30, 2014 at a weighted average exercise price of €6.62 per share (not including the 1,200,893 ordinary shares issuable upon the vesting of outstanding free shares that may be issued for free with no exercise price being paid); and

 

   

                ordinary shares reserved for future issuance under share option plans and other delegations of authority from our shareholders.

 

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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 public offering price per ADS paid by purchasers of the ADSs and the as adjusted net tangible book value per share/ADS after the global offering. Our net tangible book value as of June 30, 2014 was €31.5 ($43.1) million, or €2.04 ($2.79) per share/ADS. Net tangible book value per share/ADS is determined by dividing (1) our total assets less our intangible assets and our total liabilities by (2) the number of ordinary shares outstanding as of June 30, 2014, or 15,469,192 ordinary shares.

 

After giving effect to our sale of                  ordinary shares and ADSs in the global offering at an assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2014 would have been €         ($         ) million, or €         ($         ) per share/ADS. This amount represents an immediate increase in net tangible book value of €         ($         ) per share/ADS to our existing shareholders and an immediate dilution in net tangible book value of €         ($         ) per share/ADS to new investors.

 

The following table illustrates this dilution on a per share/ADS basis:

 

Assumed public offering price per share/ADS

                     

Historical net tangible book value per share/ADS as of June 30, 2014

   2.04      

Increase in net tangible book value per share/ADS attributable to new investors participating in the global offering

          
  

 

 

    

As adjusted net tangible book value per share/ADS after the global offering

          
     

 

 

 

Dilution per share/ADS to new investors participating in the global offering

          
     

 

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual public offering price and other terms of the global offering determined at pricing. Each $1.00 (€0.73) increase or decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                         , 2014, would increase or decrease our as adjusted net tangible book value by approximately €         ($         ) million, or approximately €         ($        ) per share/ADS, and the dilution to new investors participating in the global offering would be approximately €         ($        ) per share/ADS, assuming that the number of shares and ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. We may also increase or decrease the number of shares and ADSs we are offering. An increase in the number of shares and ADSs offered by us by 1,000,000 shares and ADSs would increase the as adjusted net tangible book value by approximately €         ($        ) million, or €         ($        ) per share/ADS, and the dilution to new investors participating in the global offering would be €         ($        ) per share/ADS, assuming that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions. Similarly, a decrease in the number of shares and ADSs offered by us by 1,000,000 shares and ADSs would decrease the as adjusted net tangible book value by approximately €         ($        ) million, or €         ($        ) per share/ADS, and the dilution to new investors participating in the global offering would be €         ($        ) per share/ADS, assuming that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions. Each increase of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) increase in the assumed public offering price of $         (€            ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on , 2014, would increase our as adjusted net tangible book value by approximately €         ($        ) million, or approximately €         ($        ) per share/ADS, and the dilution to new investors participating in the global offering would be approximately €         ($        ) per share/ADS, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 shares and ADSs in

 

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the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would decrease our as adjusted net tangible book value by approximately €         ($        ) million, or approximately €         ($        ) per share/ADS, and the dilution to new investors participating in the global offering would be approximately €         ($        ) per share/ADS, after deducting underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price, the number of shares and ADSs offered by us and other terms of the global offering determined at pricing.

 

If the underwriters exercise their over-allotment option in full, the as adjusted net tangible book value per share after the offering would be €         ($        ) per share/ADS, the increase in the as adjusted net tangible book value to existing shareholders would be €         ($        ) per share/ADS, and the dilution to new investors participating in the global offering would be €         ($        ) per share/ADS.

 

The following table sets forth as of June 30, 2014 consideration paid to us in cash for shares purchased from us by our existing shareholders and by new investors participating in the global offering, based on an assumed public offering price of $         (€            ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, and before deducting underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Ordinary Shares/
ADSs  Purchased from
Us
    Total Consideration     Average
Price per
Ordinary
Share/ADS
 
     Number    Percent     Amount      Percent    

Existing shareholders

                 %                                 %                  

New investors

            
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100.0 %             100.0 %  
  

 

  

 

 

   

 

 

    

 

 

   

 

Each $1.00 (€0.73) increase or decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would increase or decrease the total consideration paid by new investors participating in the global offering by $         (€        ) million, assuming that the number of shares and ADSs offered by us, as set forth on the cover page of the global prospectus, remains the same and before deducting underwriting discounts and commissions. We may also increase or decrease the number of shares and ADSs we are offering. An increase or decrease in the number of shares and ADSs offered by us by 1,000,000 shares and ADSs would increase or decrease the total consideration paid by new investors participating in the global offering by $         (€        ) million, assuming that the assumed public offering price remains the same and before deducting underwriting discounts and commissions. Each increase of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) increase in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would increase the total consideration paid by new investors participating in the global offering by $         (€        ) million, before deducting underwriting discounts and commissions. Each decrease of 1,000,000 shares and ADSs in the number of shares and ADSs offered by us together with a concomitant $1.00 (€0.73) decrease in the assumed public offering price of $         (€        ) per share/ADS, the closing price of our ordinary shares on Euronext Paris on                 , 2014, would decrease the total consideration paid by new investors participating in the global offering by $         (€        ) million, before deducting underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price, the number of shares and ADSs offered by us and other terms of the global offering determined at pricing.

 

In addition, if the underwriters exercise their over-allotment option in full, the number of shares held by the existing shareholders after the global offering would be reduced to         % of the total number of ordinary shares

 

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outstanding after the global offering, and the number of shares held by new investors participating in the global offering would increase to                 , or         % of the total number of ordinary shares outstanding after the global offering.

 

The tables and calculations above are based on the number of ordinary shares outstanding as of June 30, 2014, but do not include the following shares:

 

   

2,824,313 ordinary shares issuable upon the exercise of share options, free shares (actions gratuites) and warrants (including employee warrants (BSPCE)) issued pursuant to our share option plans and other delegations of authority from our shareholders outstanding as of June 30, 2014 at a weighted average exercise price of €6.62 per share(not including the 1,200,893 ordinary shares issuable upon the vesting of outstanding free shares that may be issued for free with no exercise price being paid); and

 

   

                 ordinary shares reserved for future issuance under our share option plans and other delegations of authority from our shareholders.

 

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SELECTED FINANCIAL AND OTHER DATA

 

You should read the following selected financial and operating data in conjunction with the financial statements and related notes beginning on page F-1 and the sections of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Currency Exchange Rates.” We derived the statements of income (loss) data for the years ended December 31, 2012 and 2013 and statements of financial position data as of December 31, 2012 and 2013 from our audited financial statements beginning on page F-1. We derived the consolidated statement of income (loss) data for the six months ended June 30, 2013 and 2014 and the consolidated statement of financial position data as of June 30, 2013 and 2014 from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. Our audited financial statements have been prepared in accordance with IFRS, as issued by the IASB. Our historical results are not necessarily indicative of the results to be expected in the future.

 

    Year Ended December 31,     Six Months Ended June 30,  
    2012     2013     2013     2014  
    Euro     Euro     US$(1)     Euro     Euro     US$(1)  

Statement of Income (Loss) Data:

           

Operating income

  2,776,588      3,826,313      $ 5,238,222      1,336,019      2,661,132      $ 3,643,090   

Operating expenses:

           

Cost of goods sold

    82,958        102,366        140,139        52,546        113,663        155,605   

Research and development

    11,499,368        17,366,538        23,774,791        6,824,121        10,441,632        14,294,594   

General and administration

    4,598,699        6,309,750        8,638,048        2,716,033        4,182,864        5,726,341   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    16,181,025        23,778,654        32,552,978        9,592,700        14,738,159        20,176,540   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

    (13,404,437 )     (19,952,340     (27,314,753     (8,256,681     (12,077,026     (16,533,449
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial profit (loss)

    492,337        645,925        884,271        349,725        303,283        415,194   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net profit (loss)

  (12,912,100   (19,306,416   $ (26,430,484   (7,906,957   (11,773,743   $ (16,118,254
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (losses) per share(2)

           

Basic

  (1.05   (1.42   $ (1.94   (0.59   (0.77   $ (1.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  (1.05   (1.42   $ (1.94   (0.59   (0.77   $ (1.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Number of shares used for computing

           

Basic

    12,326,779        13,604,687        13,604,687        13,408,147        15,244,107        15,244,107   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    12,326,779        13,604,687        13,604,687        13,408,147        15,244,107        15,244,107   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)   Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.3690 at June 30, 2014.
(2)   See Note 22 to our financial statements for further details on the calculation of basic and diluted loss per ordinary share.

 

     As of December 31,      As of June 30,  
     2012      2013      2014  
     Euro      Euro      US$(1)      Euro      US$(1)  

Statement of Financial Position:

              

Cash and cash equivalents

   38,348,130       39,402,761       $ 53,942,380       29,062,028       $ 39,785,916   

Total assets

     42,974,817         46,236,009         63,297,096         38,801,602         53,119,393   

Total shareholders’ equity

     39,173,135         40,394,685         55,300,324         31,554,289         43,197,822   

Trade non-current liabilities

     631,592         1,607,228         2,200,295         1,708,514         2,338,956   

Total current liabilities

     3,170,090         4,234,096         5,796,477         5,538,798         7,582,614   

Total liabilities

     3,801,682         5,841,324         7,996,773         7,247,312         9,921,570   

Total liabilities and shareholders’ equity

     42,974,817         46,236,009         63,297,096         38,801,602         53,119,393   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.3690 at June 30, 2014.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes included elsewhere in this prospectus. The following discussion contains forward—looking statements that involve certain risks and uncertainties. Our actual results could differ materially from those discussed in these statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly under the “Risk Factors” and “Special Note Regarding Forward-Looking Statements” sections.

 

Overview

 

We are a clinical-stage specialty biopharmaceutical company focused on changing the field of immunotherapy by developing a novel technology platform called Viaskin. Our therapeutic approach is based on epicutaneous immunotherapy, or EPIT, our proprietary method of delivering biologically active compounds to the immune system through intact skin using Viaskin. We have generated significant data demonstrating that Viaskin’s mechanism of action is novel and differentiated, as it targets specific antigen-presenting immune cells in the skin, called Langerhans cells, that capture the antigen and migrate to the lymph node in order to activate the immune system without passage of the antigen into the bloodstream. We are advancing this unique technology to treat patients, including infants and children, suffering from severe food allergies, for whom safety is paramount, since the introduction of the offending allergen into their bloodstream can cause severe or life-threatening allergic reactions, such an anaphylactic shock.

 

We initially financed our operations through several private equity investments totaling €38.7 million. In 2012, we completed a €40.6 million initial public offering of our ordinary shares on Euronext Paris. In 2013, we completed a €29.9 million private investment in public equity, or PIPE, of which we received net proceeds of €15.1 million and our selling shareholders received net proceeds of €14.8 million.

 

We have incurred net losses in each year since our inception. Substantially all of our net losses resulted from costs incurred in connection with our development programs and from general and administration expenses associated with our operations.

 

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:

 

   

continue the development of our product candidates, including planned and future clinical trials;

 

   

seek regulatory approvals for our product candidates;

 

   

prepare for the potential launch and commercialization of our product candidates, if approved;

 

   

establish a sales and marketing infrastructure for the commercialization of our product candidates, if approved; and

 

   

add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts and operations as a U.S. public company.

 

We do not expect to generate material revenue from product sales unless and until we successfully complete development of, and obtain marketing approval for, one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital, in addition to the net proceeds of the global offering, prior to completing clinical development of our product candidates. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding and collaborations, and licensing arrangements. However,

 

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we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full.

 

Our financial statements for 2012, 2013 and the first six months of 2014 have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

 

Financial Operations Overview

 

Operating Income

 

Our operating income consist of revenues and other income.

 

Revenues

 

We derive substantially all of our revenues from sales of Diallertest Milk, our diagnostic product for the detection of cow’s milk protein allergy, or CMPA, in children sold exclusively in France through a distribution partner. To date, sales of Diallertest Milk have been moderate, totaling approximately 25,000 kits per year on average over the past three years. Diallertest Milk is currently available on the French market with a temporary exception status. Regulatory authorities are requesting a pivotal Phase III trial to complete the marketing authorization file for this product. We are examining the relevance of carrying out this clinical protocol, and are evaluating potential marketing and/or distribution relationships to market Diallertest Milk in Europe in the field of pediatrics. We may also elect, or may be required at the request of regulatory authorities, to stop the marketing of Diallertest Milk. We do not currently expect these product revenues to have a material impact on our business and financial condition in future periods.

 

Other Income

 

Government Assistance

 

Due to the innovative nature of our product candidate development programs, we have benefited from a certain number of sources of assistance from the central French government or local public authorities, intended to finance our research and development efforts or the recruitment of specific personnel. These funds are recognized as other income in our statement of income (loss) for the fiscal year that recorded the financed expenses or expenditures.

 

Research Tax Credits

 

The research tax credit (crédit d’impôt recherche), or CIR, is granted to companies by the French tax authorities in order to encourage them to conduct technical and scientific research. Companies demonstrating that they have expenditures that meet the required criteria, including research expenditures located in France or, since January 1, 2005, within the European Community or in another State that is a party to the Agreement on the European Economic Area that has concluded a tax treaty with France that contains an administrative assistance clause, receive a tax credit which can be used against the payment of the corporate tax due on the fiscal year in which the expenditures were made and during the next three fiscal years, or, as applicable, can be reimbursed for the excess portion. The expenditures taken into account for the calculation of the CIR only involve research expenses.

 

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The main characteristics of the CIR are the following:

 

   

the CIR results in a cash inflow to us from the tax authorities, i.e., it is used to offset the payment of corporate tax or is paid directly to us for the portion that remains unused;

 

   

a company’s corporate income tax liability does not limit the amount of the CIR — a company that does not pay any corporate income tax can request direct cash payment of the research tax credit; and

 

   

the CIR is not included in the determination of the corporate income tax.

 

As a result, we have concluded that the CIR meets the definition of a government grant as defined in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance and that the classification as other income within operating income in our statement of income (loss) is appropriate.

 

We received the reimbursement of the CIR for the year 2012 during the year 2013. We have requested the reimbursement of the 2013 CIR under the Community tax rules for small and medium firms in compliance with the regulatory texts in effect. The CIR is presented under other income in our statement of income (loss). The CIR for the years 2008 and 2009 was subject to a tax audit in 2011. That audit, which ended on July 11, 2011, did not result in any significant adjustment.

 

Cost of Goods Sold

 

Because we are not classified as a pharmaceutical laboratory, we contract with a third party to manufacture our Diallertest Milk diagnostic patches according to current good manufacturing practices, or cGMPs. The cost of goods sold therefore includes the costs of manufacture we incur through this service provider.

 

Operating Expenses

 

Since inception, our operating expenses have consisted primarily of research and development activities and general and administration costs.

 

Research and Development

 

We engage in substantial research and development efforts to develop innovative pharmaceutical product candidates. Research and development expense consists primarily of:

 

   

cost of third-party contractors such as contract research organizations, or CROs, that conduct our non-clinical studies and clinical trials;

 

   

personnel costs, including salaries, related benefits and share-based compensation, for our employees engaged in scientific research and development functions;

 

   

purchases, real-estate leasing costs as well as conferences and travel costs; and

 

   

depreciation, amortization and provisions.

 

Our research and development expenses in the periods presented mainly relate to the following activities:

 

   

Viaskin Peanut for the treatment of peanut allergies in adults, adolescents and children, for which a Phase IIb clinical trial called VIPES (Viaskin Peanut’s Efficacy and Safety) was recently completed. In September 2014 we announced topline results for the VIPES trial and pending consultation with the FDA, we plan to initiate our Phase III trial for Viaskin Peanut in the first quarter of 2016. In September 2013, we initiated an open-label study called OLFUS (Open-Label Follow-Up Study) for VIPES, to evaluate the long-term efficacy and safety of Viaskin Peanut. VIPES OLFUS is a trial for subjects who completed 12 months in double blind in the VIPES trial. VIPES OLFUS is a multi-center clinical trial conducted in Europe and North America. It is planned to include 21 sites in four countries.

 

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Viaskin Milk for cow’s milk protein allergy, or CMPA, in children for which we plan to initiate a Phase I/II clinical trial in the United States in the second half of 2014.

 

   

Scaling of the Viaskin technology in order to be ready for the commercialization of Viaskin Peanut at a large scale.

 

Our direct research and development expenses consist principally of external costs, such as startup fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not allocate personnel-related costs, costs associated with our general platform improvements, depreciation or other indirect costs to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses.

 

Research and development activities are central to our business. 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 that our research and development expenses will continue to increase in the foreseeable future as we initiate clinical trials for certain product candidates and pursue later stages of clinical development of our product candidates.

 

We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

 

   

the scope, rate of progress and expense of our ongoing as well as any additional non-clinical studies, clinical trials and other research and development activities;

 

   

clinical trial and early-stage results;

 

   

the terms and timing of regulatory approvals;

 

   

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

 

   

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

 

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

 

General and Administration

 

General and administration expense consists primarily of personnel costs and share-based compensation for personnel other than research and development staff. General and administration expense also consists of fees for professional services, mainly related to audit, IT and legal services, real-estate leasing costs, insurance costs and communication and travel costs, notably related to our being a public company in France.

 

We anticipate that our general and administration expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential

 

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commercialization of our product candidates. We also anticipate increased expenses associated with being a public company in the United States, including costs related to audit, legal, regulatory and tax-related services associated with maintaining compliance with U.S. exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs.

 

Finance Income (Expense)

 

Our cash and cash equivalents have been deposited primarily in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate a modest amount of interest income. We expect to continue this investment philosophy.

 

Sales and Marketing

 

If and when we believe that a regulatory approval of the first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

 

Critical Accounting Policies and Estimates

 

Our financial statements are prepared in accordance with IFRS. Some of the accounting methods and policies used in preparing our financial statements under IFRS are based on complex and subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our earnings could differ from the value derived from these estimates if conditions changed and these changes had an impact on the assumptions adopted. We believe that the most significant management judgments and assumptions in the preparation of our financial statements are described below. See Note 2 to our financial statements for a description of our other significant accounting policies.

 

Conditional Advances

 

OSEO Innovation

 

Since inception we have received multiple interest-free conditional advances from OSEO Innovation, or OSEO, the French Agency for Innovation and part of the Banque Publique d’Investissement. OSEO’s mission is to provide assistance and financial support to emerging French enterprises by providing such enterprises with growth capital to facilitate the development and commercialization of innovative technologies. Each award of a conditional advance is made to help fund a specific development project. See also, Note 11 to our audited consolidated financial statements for the years ended December 31, 2012 and 2013 and Note 8 to our unaudited interim condensed consolidated financial statements for the six months ended June 30, 2013 and 2014.

 

In the case of the conditional advances from OSEO, our obligation to repay these amounts is based on the technical and commercial success of the funded project, as determined by OSEO in its sole and subjective discretion. Once a project has been selected for funding by OSEO, both a payment and a repayment schedule are defined by contract. As the project advances, we provide OSEO with one or more interim progress reports and a final report when the funded project ends. Based on these reports, OSEO makes a subjective determination, in its sole discretion, as to whether the project is a partial or total technical or commercial success, or a technical or commercial failure. In the event OSEO determines that the project is a failure, we are required by contract to repay a minimum amount. In the event OSEO determines that the project is a partial success, there is a specified repayment schedule, provided that the parties may renegotiate a different repayment schedule in good faith. In the event OSEO determines that the project is a complete success, we are obliged to repay 100% of the amount of the conditional advance.

 

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In the case of each conditional advance, we assume that OSEO will determine the project to be a total technical or commercial success and thus the maximum amount repayable with respect to such project will become due. However, actual results related to the development of these programs may differ from these estimates in which case the financial liability reflected in our statement of financial statements for the conditional advances may be reduced. The current and non-current portions of the financial liability recognized in our statement of financial statements associated with these conditional advances are determined based on the applicable reimbursement schedules at the end of each reporting period. The portion of the conditional advances for terms longer than one year is classified as a non-current liability while the portion for terms of less than one year is classified as a current liability. In addition, in the case of each conditional advance, we treat the benefit resulting from the interest-free nature of the award as a subsidy and recognize this amount as other income over the applicable repayment period. We determine the amount of this deemed subsidy amount by applying a discount rate equal to the rate of fungible treasury bonds over the time period that corresponds to the time period of the repayment of the advances.

 

In addition to the conditional advances described above, since inception we have received one non-refundable subsidy from OSEO, in connection with our development of our house dust mite product candidate. We refer to this development program as the ImmunaVia project. We account for this non-refundable subsidy as other income ratably over the duration of the funded project.

 

French Export Credit Insurance Company

 

In September 2007 we entered into an agreement with the French Export Credit Insurance Company, or COFACE, to support the promotion of our Diallertest Milk product internationally. COFACE offers and manages, on behalf and under the guarantee of the French State, public guarantees to support exportations and investments made by French companies abroad. Under the terms of this agreement, we must repay these advances at up to 7% of the revenues from the export of our Diallertest Milk until April 30, 2017. To date our export revenues for Diallertest Milk have been modest. Diallertest Milk is currently available with a temporary exception status from French regulatory authorities. Regulatory authorities in France have requested a pivotal Phase III trial to complete the marketing authorization file for this product. We are examining the relevance of carrying out this clinical protocol, and are evaluating potential marketing and/or distribution relationships to market Diallertest Milk in Europe in the field of pediatrics. We may also elect, or may be required at the request of regulatory authorities, to stop the marketing of Diallertest Milk. We do not currently expect these product revenues to have a material impact on our business and financial condition in future periods.

 

Share-Based Compensation

 

We have various share-based compensation plans for employees and non-employees. We account for share-based compensation in accordance with the authoritative guidance on share-based compensation. Under the fair value recognition provisions of this guidance, share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

 

Determining the fair value of share-based awards at the grant date requires judgment. We use the Black-Scholes option-pricing model to determine the fair value of share options. The determination of the grant date fair value of options using an option-pricing model is affected by assumptions regarding a number of complex and subjective variables. These variables include the expected term of the options, our share price volatility, risk-free interest rates, and expected dividends, which are estimated as follows:

 

Fair Value of Our Ordinary Shares.    We established a policy of using the closing sales price per ordinary share as quoted on Euronext Paris on the date prior to the date of grant for purposes of determining the fair value of ordinary shares with a floor value of 95% of the average of the closing sales price per ordinary share for the 20 trading days preceding the grant.

 

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Expected Term.    The expected term represents the period that our share-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the share option awards granted, we have based our expected term on the simplified method, which represents the average period from vesting to the expiration of the award.

 

Expected Volatility.    We are using our volatility on Euronext Paris observed on a sufficient historical dataset.

 

Risk-Free Interest Rate.    The risk-free interest rate is based on the yields of French government bonds with maturities similar to the expected term of the options for each option group.

 

Dividend Yield.    We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

 

If any of the assumptions used in the Black-Scholes model changes significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.

 

The following table presents the weighted-average assumptions used to estimate the fair value of options granted during the periods presented:

 

     December 31     June 30  
     2012     2013         2013(1)    2014  

Volatility

     40     40        40

Risk free interest rate

     1.21%-2.61     1.16%-1.72        0.71%-0.89

Expected life (in years)

     5.5-7.0        7.0           5.0-6.0   

Dividend yield

     —          —             —     
  

 

 

   

 

 

   

 

  

 

 

 

 

(1)   No options have been granted during the period.

 

For 2012 and 2013, we recorded employee share-based compensation expense of €3.2 million and €5.0 million, respectively. For the six months ended June 30, 2013 and 2014, we recorded employee share-based compensation expense of €2.1 million and €2.4 million, respectively.

 

Results of Operations

 

Comparisons for the Years Ended December 31, 2012 and 2013

 

Operating Income

 

We generated operating income of €2.8 million in 2012 and €3.8 million in 2013, an increase of 37.9%. These incomes were mainly generated by our CIR, and more marginally, by Diallertest Milk sales, and by subsidies received for research projects conducted by us.

 

     December 31  
     2012      2013  
           

Revenues

     174,360         181,800   

Other income

     2,602,228         3,644,513   

o/w CIR

     2,522,399         3,312,462   

o/w subsidies

     79,829         332,051   
  

 

 

    

 

 

 

Total income

     2,776,588         3,826,313   
  

 

 

    

 

 

 

 

As no research and development expenditure is capitalized before obtaining a marketing authorization, the CIR related to such research programs is entirely recorded as operating income. The grants we received during the period were deducted from the calculation of the CIR base.

 

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For the year ended December 31, 2013, we recorded other income related to CIR of €3.3 million, which we requested for reimbursement in 2014. In 2013, we received the reimbursement of €2.5 million for the 2012 CIR under the Community small and medium business scheme.

 

The increase of €790,063, or 31.3%, in the CIR recorded in 2013 reflects the acceleration of our various development programs in 2013.

 

The revenues generated by Diallertest Milk, which is only marketed in France through a distributor, increased by 4.3% during the last financial year, from €174,360 in 2012 to €181,800 in 2013. We do not currently expect these product revenues to have a material impact on our business and financial condition in future periods.

 

The increase of €252,222 in subsidies recorded in 2013 was due to the grant of the fourth OSEO advance.

 

Cost of Goods Sold

 

Because we are not classified as a pharmaceutical laboratory, we contract with a third party to manufacture our Diallertest Milk diagnostic patches according to the cGMP. The cost of goods sold therefore includes the costs of manufacture through this service provider. The cost of goods represented 47.6% and 56.3% of our sales revenues in 2012 and 2013, respectively.

 

     December 31  
      2012      2013  
           

Cost of goods sold

     82,958         102,366   
  

 

 

    

 

 

 

 

Research and Development Expenditures

 

From 2012 to 2013, the total amount spent by us for research and development activity increased from €11.5 million to €17.4 million, or an increase of 51.0%.

 

Our research and development expenses for the periods presented mainly relate to the following activities:

 

   

Viaskin Peanut for the treatment of peanut allergies in adults and children, for which the VIPES trial was recently completed. In September 2014 we announced topline results for the VIPES trial and pending consultation with the FDA, we plan to initiate our Phase III trial for Viaskin Peanut in the first quarter of 2016. In September 2013, we initiated VIPES OLFUS trial to evaluate the long-term efficacy and safety of Viaskin Peanut. VIPES OLFUS is an extension trial for subjects who completed 12 months in double blind in the VIPES trial. VIPES OLFUS is a multi-center trial conducted in Europe and North America. It is planned to include 21 sites in four countries.

 

   

Viaskin Milk for CMPA in children for which a Phase I/II clinical trial is starting in the United States.

 

   

Scaling of the Viaskin technology in order to be ready for the commercialization of Viaskin Peanut at a large scale.

 

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Our direct research and development expenses consist principally of external costs, such as startup fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not allocate personnel-related costs, costs associated with our general platform improvements, depreciation or other indirect costs to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses as described in the table below:

 

     December 31  
      2012      2013  
           

Viaskin Peanut(1)

     —           6,503,562   

Viaskin Milk

     —           957,714   

Total direct research and development expenses(1)

     —           7,461,276   
  

 

 

    

 

 

 

Personnel expenses

     4,800,518         7,194,722   

Other Viaskin- & EPIT-related expenses(1)

     5,922,763         1,690,826   

Facility expenses

     259,224         263,438   

Conferences, travel expenses

     324,123         465,871   

Depreciation, amortization and provisions

     192,740         290,406   

Personnel and other expenses(1)

     11,499,368         9,905,262   
  

 

 

    

 

 

 

Total R&D expenses

     11,499,368         17,366,538   
  

 

 

    

 

 

 

 

(1)   In 2012, all resources in research and development were indirectly dedicated to Viaskin Peanut, since it was our only active program at the time. However, as of 2013, our resources were allocated to our two lead programs as well as more broadly to the Viaskin platform and the EPIT methodology, including the scaling of our technology to prepare for the commercialization of Viaskin Peanut.

 

The increased expenditures from year to year resulted from the costs associated with the VIPES Phase IIb trial of the Viaskin Peanut that began during the summer of 2012, as well as a substantial strengthening of research and development teams due to the increasing number of active programs.

 

In particular, we have incurred:

 

   

an increase of total payroll dedicated to research and development of 49.9%, resulting in both an increase in staff from 26 employees at the end of 2012 to 33 employees at the end of 2013, and in the expense related to granting performance shares and stock options to employees in 2013;

 

   

an increase of 57.0% of subcontracting and collaborations that includes the costs of service providers within the conduct of the VIPES Phase IIb trial in 2013;

 

   

an increase in travel expenses of 43.7%, in line with the increase in our research and development staff; and

 

   

an increase in depreciation, amortization and provisions of 50.7%, reflecting our increased investment in capital equipment.

 

General and Administration Expenses

 

During the period presented, our general and administration expenses increased from €4.6 million to €6.3 million, or an increase of 37.2%.

 

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Our general and administration expenses break down as follows:

 

     December 31  
     2012      2013  
           

Personnel expenses

     3,107,246         4,698,848   

Fees

     512,709         586,638   

Real estate leasing

     157,467         111,232   

Insurance

     56,054         105,018   

Communication and travel expenses

     480,999         450,701   

Telecommunication expenses

     86,831         65,350   

Administrative costs and rental of personal property

     65,867         97,131   

Other

     131,526         194,832   

Total G&A expenses

     4,598,699         6,309,750   
  

 

 

    

 

 

 

 

General and administration expenses for the year ended December 31, 2012 were €4.6 million, compared to €6.3 million for the year ended December 31, 2013. The increase of €1.7 million in general and administration expenses was primarily due to increased personnel related costs of €1.6 million.

 

Financial Profit (Loss)

 

Our net financial profit increased to €645,925 in 2013 from €492,337 in 2012, an increase of 31.2%. The change in our financial profit in 2013 is mainly explained by the cash investment income we received, notably as part of capital increases completed in March 2012 and November 2013, the financial revenues having increased from €517,540 in 2012 to €670,234 in 2013.

 

Comparisons for the Six Months Ended June 30, 2013 and 2014

 

Operating Income

 

We generated operating income of €1.3 million in the six months ended June 30, 2013 and €2.7 million in the six month ended June 30, 2014, an increase of 99.2%. These incomes were mainly generated by our CIR, and more marginally, by Diallertest Milk sales, and by subsidies received for research projects conducted by us.

 

     June 30  
     2013      2014  
           

Revenues

     72,735         103,165   

Other income

     1,263,284         2,557,967   

o/w CIR

     1,128,954         2,452,678   

o/w subsidies

     134,330         105,289   
  

 

 

    

 

 

 

Total income

     1,336,019         2,661,132   
  

 

 

    

 

 

 

 

As no research and development expenditure is capitalized before obtaining a marketing authorization, the CIR related to such research programs is entirely recorded as operating income. The grants we received during the period were deducted from the calculation of the CIR base.

 

For the six months ended June 30, 2014, we recorded other income related to CIR of €2.5 million, which we will request for reimbursement in 2015. We requested the reimbursement of €3.3 million for the full year 2013 CIR under the Community small and medium business scheme.

 

The increase of €1,323,724, or 117.3%, in the CIR recorded in the six months ended June 30, 2014 compared to 2013 reflects the acceleration of our various development programs in 2014, notably relating to the conduct of the VIPES Phase IIb trial in addition to the preparation for the VIPES OLFUS follow-up trial.

 

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The revenues generated by Diallertest Milk, which is only marketed in France through a distributor, increased by 41.8% during the six months ended June 30, from €72,735 in 2013 to €103,165 in 2014. We do not currently expect these product revenues to have a material impact on our business and financial condition in future periods.

 

Subsidies recorded in the six months ended June 30, 2013 and 2014 remained stable, slightly decreasing by €29,041.

 

Research and Development Expenditures

 

During the six months ended June 30, 2013 and the same period in 2014, the total amount spent by us for research and development activity increased from €6.8 million to €10.4 million, or an increase of 53.0%.

 

Our research and development expenses for the periods presented mainly relate to the following activities:

 

   

In September 2013, we initiated VIPES OLFUS trial to evaluate the long-term efficacy and safety of Viaskin Peanut. VIPES OLFUS is an extension trial for subjects who completed 12 months in double blind in the VIPES trial. VIPES OLFUS is a multi-center trial conducted in Europe and North America, including 21 sites in four countries.

 

   

The preparation of the launch of the MILES Phase I/II trial of Viaskin Milk for CMPA.

 

   

Scaling of the Viaskin technology in order to be ready for the commercialization of Viaskin Peanut.

 

Our direct research and development expenses consist principally of external costs, such as startup fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical studies, and costs related to acquiring and manufacturing clinical study materials. We do not allocate personnel-related costs, costs associated with our general platform improvements, depreciation or other indirect costs to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as personnel and other expenses as described in the table below:

 

     June 30  
     2013      2014  
           

Viaskin Peanut

     2,713,723        3,541,464   

Viaskin Milk

     138,645        895,234   

Total direct research and development expenses

     2,852,368         4,436,698   
  

 

 

    

 

 

 

Personnel expenses

     2,745,687         3,716,261   

Other Viaskin- & EPIT-related expenses

     709,748         1,664,246   

Facility expenses

     111,658         99,314   

Conferences, travel expenses

     264,160         335,083   

Depreciation, amortization and provisions

     140,501         190,030   

Personnel and other expenses

     3,971,754         6,004,934   
  

 

 

    

 

 

 

Total R&D expenses

     6,824,122         10,441,632   
  

 

 

    

 

 

 

 

The increased expenditures from year to year resulted from the costs associated with the VIPES Phase IIb trial and the preparation of the VIPES OLFUS follow-up trial, as well as a substantial strengthening of research and development teams due to the increasing number of active programs.

 

In particular, we have incurred:

 

   

an increase of 35.3% of total payroll dedicated to research and development, due to both an increase in staff from 30 employees at the end of June 2013 to 40 employees at the end of June 2014, and the expense

 

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related to granting performance shares and share options to employees in the six months ended June 30, 2014; and

 

   

an increase of 56.7% of subcontracting and collaborations that includes the costs of service providers within the conduct of the VIPES Phase IIb trial and the preparation of the VIPES OLFUS follow-up trial in 2014.

 

General and Administration Expenses

 

During the period presented, our general and administration expenses increased from €2.7 million to €4.2 million, or an increase of 54.0%.

 

Our general and administration expenses break down as follows:

 

     June 30  
     2013      2014  
           

Personnel expenses

     1,737,632         2,952,358   

Fees

     413,700         281,843   

Real estate leasing

     47,927         41,090   

Insurance

     48,972         76,362   

Communication and travel expenses

     241,538         229,538   

Telecommunication expenses

     26,291         44,873   

Administrative costs and rental of personal property

     57,802         54,655   

Other

     142,172         502,145   

Total G&A expenses

     2,716,033         4,182,864   
  

 

 

    

 

 

 

 

General and administration expenses for the six months ended June 30, 2013 were €2.7 million, compared to €4.2 million for the six months ended June 30, 2014. The increase of €1.5 million in general and administration expenses was primarily due to increased personnel related costs of €1.2 million, including notably certain non-recurring compensation items, the grant of performance shares, and the ramp-up of U.S. activities.

 

Financial Profit (Loss)

 

Our net financial profit decreased to €303,283 in the first six months of 2014 from €349,725 in the first six months of 2013, a decrease of 13.3%. The change in our financial profit in 2014 is mainly explained by a reduction in financial revenues mechanically derived from our cash burn.

 

Liquidity and Capital Resources

 

We have financed our operations since inception through several private placements of equity securities totaling €38.7 million, a €40.6 million initial public offering of our ordinary shares on Euronext Paris in 2012 and a €29.9 million PIPE in 2013, of which we received net proceeds of €15.1 million and our shareholders received net proceeds of €14.8 million.

 

The table below summarizes our sources and uses of cash for the years ended December 31, 2012 and 2013 and the six months ended June 30, 2013 and 2014:

 

     December 31     June 30  
     2012     2013     2013     2014  
                  

Cash used in operating activities

     (10,432,549     (13,253,215     (5,634,937     (10,465,958

Cash used in investing activities

     (368,760     (1,408,425     (980,422     (622,447

Cash flows provided by financing activities

     37,098,822        16,235,770        1,053,572        747,672   

Net increase in cash and cash equivalents

     26,297,514        1,574,130        (5,561,787     (10,340,733
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Our net cash flows used from operational activities was at €13.3 million and €10.4 million for 2013 and 2012, respectively. During 2013, our net cash flows used from operational activities increased due to our growing efforts in advancing our research and development programs, mainly Viaskin Peanut, that progressed through its Phase IIb clinical trial. This increase was partially offset by a positive change in working capital of €574,252 over the period.

 

In the six months ended June 30, our net cash flows used from operational activities was at €10.5 million and €5.6 million for 2014 and 2013, respectively, reflecting the strong acceleration of operations, notably in research and development with the conduct of VIPES clinical trial and the preparation for VIPES OLFUS clinical trial.

 

Our net cash flows used from investing activities stood at €1.4 million and €368,760 in 2013 and 2012, respectively. This significant increase reflects the acquisition of industrial and laboratory equipment required to conduct our development programs, as well as the refurbishment of our research and development premises.

 

In the six months ended June 30, our net cash flows used from investing activities decreased to €622,447 in 2014 from €980,422 in 2013, reflecting important acquisitions of industrial and laboratory equipment, as well as the refurbishment of our research and development premises in 2013.

 

Our net cash flows provided from financing activities declined to €16.2 million in 2013 from €37.1 million in 2012, mainly due to the fact that we only raised €15.2 million in 2013.

 

In the six months ended June 30, our net cash flows provided from financing activities declined to €747,672 in 2014 from €1.1 million in 2013, representing the exercise of long-term incentive instruments.

 

Consistent with customary practice in the French securities market, we entered into a liquidity agreement (contrat de liquidité) with Natixis, dated April 13, 2012. The liquidity agreement complies with applicable laws and regulations in France. The liquidity agreement authorizes Natixis to carry out market purchases and sales of DBV shares on Euronext Paris. To date, we have contributed an aggregate of €600,000 to the liquidity account. The amount is classified in other non-current financial assets in our statement of financial position. At June 30, 2014, 9,018 shares and €478,300 were in the liquidity account. The liquidity agreement has a term of one year and will renew automatically unless otherwise terminated by either party.

 

Cash and Funding Sources

 

During 2012, 2013 and the six months ended June 30, 2014 we obtained new financing on the public markets by issuance of securities.

 

     Equity capital      Bank Loans      Other debt      Total  

2012

     40,626,662                 —           40,626,662   

2013

     15,128,873                   —         1,159,500         16,288,373   

2014 (six month ended June 30)

     689,629                 128,000         817,629   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     56,445,164                 1,287,500         57,732,664   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

We have incurred net losses in each year since our inception. Substantially all of our net losses resulted from costs incurred in connection with our development programs and from general and administrative expenses associated with our operations.

 

We have not incurred any bank debt.

 

As of June 30, 2014, we benefited from multiple conditional advances from OSEO, which advances do not accrue interest and are repayable at 100% in the event of technical and/or commercial success of our product, as

 

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determined solely and subjectively by OSEO, a non-refundable subsidy from OSEO and a conditional advance from COFACE.

 

   

OSEO advance: On January 10, 2005, we obtained a conditional advance of €600,000 from OSEO for a project to design a high-speed prototype machine to produce patches and to develop second-generation patches in particular intended for the detection of various allergies. The entire sum had been received as of December 31, 2010. The repayment of this grant was made in accordance with the initial schedule, with the final repayment made on April 2, 2013.

 

   

OSEO advance: In 2011, we obtained a conditional advance by OSEO for a total amount of €640,000 to finance the development of our programs to treat CMPA. This amount has been fully received, with a first payment of €256,000 in December 2011, a second payment of €256,000 in June 2013 and remaining €128,000 balance paid in January 2014. If the program is deemed to be technically or commercially successful, as determined by OSEO in its sole and subjective discretion it will be repaid in 16 quarterly instalments defined as follows: four payments of €64,000 starting on September 30, 2014, then 12 payments of €32,000 starting on September 30, 2015, until June 30, 2018. If this project is deemed to be a technical or commercial failure, we will still be obligated to repay OSEO the amount of €256,000.

 

   

OSEO advance: In 2013, we obtained a conditional advance by OSEO for a total amount of €3.2 million in the context of a research and clinical development collaborative project in the field of HDM allergies in young children. We refer to this development program as the ImmunaVia project. €903,500 was received in April 2013, €903,500 is expected to be received in October 2014, €918,000 is expected in October 2015 and €481,162 is expected in April 2018. If the program is deemed to be technically or commercially successful, we will reimburse €400,000 no later than June 30, 2021, €800,000 no later than June 30, 2022, €1.1 million no later than June 30, 2023 and €1.5 million no later than June 30, 2024. In addition, we received from OSEO a total of €1,919,056 in the form of a non-refundable subsidy.

 

   

COFACE advance: On September 6, 2007, we signed a prospecting insurance contract with COFACE in order to promote our Diallertest Milk internationally. For this purpose, we received conditional advances of €147,534. We must repay these advances at up to 7% of the revenues from the export of our Diallertest Milk until April 30, 2017. Since Diallertest Milk has been reclassified from a medical device to a drug product by the relevant French authorities, we may only market it for export after we complete a Phase III marketing authorization study in accordance with the regulations in France applicable to the marketing of drug products.

 

The activity for the conditional advances recorded during 2012, 2013 and the first six months of 2014 is summarized in the table below:

 

     2nd OSEO
advance
    3rd OSEO
advance
    4th OSEO
advance
    COFACE     Total  
    

                 

Balance debt at 01/01/2012

     450,713        246,238        —          122,501        819,452   

+ receipts

     —          —          —          —          —     

- repayments

     (200,000     —          —          —          (200,000

+/- other transactions

     6,701        3,661        —          4,251        14,613   

Balance debt at 12/31/2012

     257,414        249,899        —          126,752        634,065   

+ receipts

     —          256,000        903,500        —          1,159,500   

- repayments

     (260,000     —          —          —          (260,000

+/- other transactions

     2,586        (1,579     (111,047     19,300        (90,740
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance debt at 12/31/2013

     —          504,320        792,453        146,052        1,442,825   

+ receipts

     —          128,000        —          —          128,000   

- repayments

     —          —          —          —          —     

+/- other transactions

     —          (3,016     3,721        (7,454     (6,749
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance debt at 6/30/2014

               629,304        796,174        138,598        1,564,076   

 

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Contractual Obligations and Commitments

 

The following table discloses aggregate information about material contractual obligations and periods in which payments were due as of December 31, 2013. Future events could cause actual payments to differ from these estimates.

 

     Less than
1 year
     1 to 3
years
     3 to 5
years
     More than 5
years
     Total  
                          

Long-term debt obligations

     126,292         524,080         —           792,453         1,442,825   

Capital (finance) lease obligations

     —           —           —           —           —     

Operating lease obligations

     131,120         —           —           —           131,120   

Purchase obligations

     —           —           —           —           —     

Other long-term liabilities

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     257,412         524,080         —           792,453         1,573,945   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including interest on long-term debt, fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.

 

Operating Capital Requirements

 

We believe that the net proceeds of the global offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements until the end of 2016. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. In any event, we will require additional capital to pursue pre-clinical and clinical activities, obtain regulatory approval for, and to commercialize our product candidates.

 

Until we can generate a sufficient amount of revenue from our product candidates, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding and collaborations. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and these securities may have rights senior to those of our ordinary shares. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

 

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

 

   

the size, progress, timing and completion of our clinical trials for any current or future compounds, including Viaskin Peanut;

 

   

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

 

   

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

 

   

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

 

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

 

   

the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future potential partnership agreements on the Viaskin platform.

 

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

 

Capital Expenditures

 

As all the clinical research and development expenditures are posted to the accounts as expenses until marketing authorizations are obtained, the principal investments made over 2012, 2013 and the first six months of 2013 and 2014 have been related primarily to the acquisition of laboratory equipment and, secondarily, to the acquisition of computer and office equipment.

 

     December 31      June 30  
     2012      2013      2013      2014  
              

    

 

Long-term intangible assets

     21,024         81,385         41,465         14,235   

Property, plant, and equipment

     340,411         1,089,902         788,809         399,173   

Long-term financial assets

     7,325         237,138         149,137         209,039   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     368,760         1,408,425         979,411         622,447   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

In 2012, we extended and refurbished our research and industrial development laboratories, for which we accounted for investments in property, plant and equipment of €164,000, of which €105,000 were spent on the acquisition of laboratory equipment, and €72,000 on the acquisition of our computer and office equipment.

 

In 2013, we have purchased tools and equipment for the design, the development and manufacture of industrial prototypes and tools for €399,000 and continued to expand and refurbish our research and industrial development laboratories for €292,000, of which €192,000 were spent on the acquisition of laboratory equipment, and €157,000 on the acquisition of computers and office equipment. Also, €81,000 was spent on acquisition of software packages, notably in the context of updating the accounting and management software.

 

In the six months ended June 30, 2014, we have acquired laboratory equipment and industrial tools and equipment for €176,000.

 

Off-Balance Sheet Arrangements

 

During the periods presented, we did not and do not currently have any off-balance sheet arrangements as defined under Securities and Exchange Commission rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

 

Quantitative and Qualitative Disclosures About Market Risk

 

Interest Rate Risk

 

We seek to engage in prudent management of our cash and cash equivalents, mainly cash on hand and common financial instruments (typically short- and mid-term deposits). Furthermore, the interest rate risk related to cash, cash equivalents and common financial instruments is not significant based on the quality of the financial institutions with which we work.

 

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Foreign Currency Exchange Risk

 

We are exposed to foreign exchange risk inherent in some of our supplies obtained in the United States, which have been invoiced in U.S. dollars. As of this date, we do not have revenues in dollars nor in any other currency other than the euro. Due to the relatively low level of these expenditures we believe our exposure to foreign exchange risk is unlikely to have a material adverse impact on our results of operations or financial position. Our exposure to currencies other than the U.S. dollar is negligible.

 

For 2013, 2012 and first six months of 2014, less than 10%, 11% and 5%, respectively, of our purchases and other external expenses have been made in U.S. dollars, generating a negligible net annual foreign exchange loss of €2,831, €1,502 and €1,081, respectively, for those periods. In light of these insignificant amounts, we have not adopted, at this stage, a hedging mechanism in order to protect our business activity against fluctuations in exchange rates. We cannot rule out the possibility that a significant increase in our business, particularly in the United States, may result in greater exposure to exchange rate risk and would then consider adopting an appropriate policy for hedging against these risks.

 

Liquidity Risk

 

As of this date, we do not believe that we are exposed to a short-term (12 months) liquidity risk, considering the cash and cash equivalents that we have available as of June 30, 2014 of €29.1 million, which are mainly composed of cash and term deposits that are convertible into cash immediately without penalties in case of a need for cash.

 

Moreover, we believe that the net proceeds of the global offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements until the end of 2016.

 

Inflation Risk

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

 

JOBS Act Exemptions

 

We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

   

not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

 

   

only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in management’s discussion and analysis of financial condition and results of operations; 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 non-binding advisory vote on executive compensation, including golden parachute compensation.

 

We may take advantage of these exemptions 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 upon the earliest to occur of

 

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(1) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities; (3) the issuance, in any three-year period, by our company of more than $1.0 billion in non-convertible debt securities held by non-affiliates; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some but not all of these exemptions. 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 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 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.

 

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BUSINESS

 

Overview

 

We are a clinical-stage specialty biopharmaceutical company focused on changing the field of immunotherapy by developing a novel technology platform called Viaskin. Our therapeutic approach is based on epicutaneous immunotherapy, or EPIT, our proprietary method of delivering biologically active compound to the immune system through intact skin using Viaskin. We have generated significant data demonstrating that Viaskin’s mechanism of action is novel and differentiated as it targets specific antigen-presenting immune cells in the skin, called Langerhans cells, which capture the antigen and migrate to the lymph node in order to activate the immune system without allowing passage of the antigen into the bloodstream. We are advancing this unique technology to treat patients, including infants and children, suffering from severe food allergies, for whom safety is paramount, since the introduction of the offending allergen into their bloodstream can cause severe or life-threatening allergic reactions, such an anaphylactic shock.

 

Our proprietary platform is based on our epicutaneous Viaskin patch. We have designed and developed this technology internally, for which we have scalable manufacturing capabilities. Viaskin is an electrostatic patch, which offers a convenient, self-administered, non-invasive immunotherapy to patients. Once applied on intact skin, Viaskin forms a condensation chamber, which hydrates the skin and solubilizes the antigen allowing it to penetrate the epidermis, where it is captured by Langerhans cells. Based on numerous scientific publications and our own research, we believe this unique mechanism of action is safe and that it generates a strong immune response that results in tolerance towards the allergen. Our epicutaneous immunotherapy method allows us to address severe food allergies, as well as unmet medical needs in other immunotherapy indications.

 

According to an expert panel convened by the American Academy of Allergy Asthma and Immunology, epidemiological studies suggest that over half of Americans are sensitive to at least one allergen. Allergy is considered a “disease of the developed world” as its increasing incidence is proportional to higher living standards. Based on a paper published by the American Academy of Allergy Asthma and Immunology, or the AAAAI, approximately 3% to 5% of Americans suffer from food allergies, with a number of recent studies suggesting that nearly 6 million or approximately 8% of children have some type of food allergy. Food allergies in particular can lead to extremely dangerous reactions while significantly impairing daily quality of life. According to a paper published in the Immunology and Allergy Clinics of North America, food, mainly peanut, allergies, are responsible for 150 to 200 deaths and about 200,000 emergency room visits every year in the United States. These patients often experience skin discomfort, asthma symptoms, impaired lung function and gastrointestinal complications, such as sustained bloating, nausea, vomiting and diarrhea. Food allergies can be particularly difficult for young children to manage, and due to their life-threatening nature, severe food allergies can often lead to psychological traumas. In some cases, these allergies can also cause chronic diseases such as failure to thrive in children and an allergic inflammatory condition of the esophagus called eosinophilic esophagitis, or EoE.

 

We are committed to finding a safe, effective and patient-friendly therapy for food and pediatric allergy patients, for whom there are no currently approved treatments. Compared to other allergy treatment approaches, we believe the safety profile of our EPIT method carried-out via the Viaskin patch may offer significant therapeutic and ease-of-use advantages to these patient populations. EPIT can be utilized as an allergy-specific immunotherapy commonly referred to as desensitization. Desensitization consists of repeated administration of small quantities of allergen to decrease allergen reactivity in patients. Currently studied desensitization methods include subcutaneous, sublingual, and oral immunotherapy, which often require frequent or prolonged administration in highly specialized centers. In academic settings some successful cases exist, but large-scale pharmaceutical development in this field has been limited due to both the safety concerns and the commercial viability of these desensitization approaches. These methods seem to be poorly designed for young children due to their safety profile or the inconvenient method of administration. Most importantly, some of these approaches

 

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are also known for triggering severe adverse events during treatment, such as anaphylaxis. As a self-administered treatment with a good safety profile, we believe Viaskin has positioned us as the company with the most advanced clinical program in food allergies.

 

The following table summarizes our most advanced product candidates:

 

LOGO

 

Our lead product candidate, Viaskin Peanut, has obtained Fast Track designation from the U.S. Food and Drug Administration, or FDA, which is intended to expedite or facilitate the process for reviewing new drugs and biological products that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. In September 2014 we announced topline results from our Phase IIb double-blind, placebo-controlled, multi-center clinical trial of Viaskin Peanut called VIPES (Viaskin Peanut’s Efficacy and Safety). In the trial, 221 peanut allergic subjects were randomized into four treatment arms to evaluate three doses (50 µg, 100 µg and 250 µg) of Viaskin Peanut compared to placebo. The trial met its primary endpoint at the highest explored dose (Viaskin Peanut 250 µg), achieving statistical significance (p<0.01) in the percentage of treatment responders versus placebo. In addition, in September 2013, we initiated an open-label follow-up Phase IIb clinical trial called VIPES OLFUS (Open-Label Follow-Up Study) to assess the long-term efficacy and safety of Viaskin Peanut. VIPES OLFUS is an extension trial for subjects having completed 12 months of the VIPES trial, in which all subjects will be treated with a 250 µg dose of Viaskin Peanut. Pending consultation with the FDA, we plan to initiate a Phase III trial in the first quarter of 2016.

 

Our second most advanced product candidate, Viaskin Milk, is being developed for cow’s milk protein allergy, or CMPA, in the pediatric patient population. In the second half of 2014, we intend to initiate a 150-subject multi-center, double-blind, placebo-controlled, randomized Phase I/II safety and efficacy clinical trial of Viaskin Milk in patients with Immunoglobulin E, or IgE, mediated CMPA, which we refer to as MILES (Milk Delivered Epicutaneously Study).

 

We have further used our Viaskin technology platform to advance other innovative product development programs to address additional opportunities in immunotherapy. We currently have one pre-clinical product candidate as a result of these product development programs, our product candidate for house dust mite allergy. Our other earlier stage product development programs include EoE, pertusiss boost vaccine and birch pollen allergy, none of which have resulted in a product candidate to date. We are also exploring other opportunities in respiratory syncytial virus, or RSV, vaccine, refractory hemophilia A, Crohn’s disease and type I diabetes. We intend to commercialize our food allergy product candidates by ourselves in the United States and some European countries. In other geographies and indications outside food allergies, we will explore selective partnerships with parties who have relevant clinical and commercial expertise in order to maximize shareholder value.

 

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Our Strategy

 

Our goal is to become the leading global biopharmaceutical company focused on discovering, developing, manufacturing and commercializing treatments for severe allergies. Key elements of our strategy are:

 

   

Rapidly Develop and Seek Marketing Approval for Viaskin Peanut—In September 2014 we announced that we achieved our primary endpoint in our Phase IIb trial of Viaskin Peanut called VIPES. In December 2011, we obtained Fast Track designation from the FDA for Viaskin Peanut, the first peanut desensitization product candidate to obtain this status. Pending consultation with regulatory agencies, we intend to conduct a Phase III clinical trial and seek marketing approval for Viaskin Peanut for treatment of peanut allergy.

 

   

Advance the Development of Our Viaskin Technology Platform into Other Areas of Unmet Medical Need in Food and Pediatric Allergies—We are advancing the clinical development of Viaskin Milk to address CMPA, which is typically the first food allergy in children and affects approximately 2% to 3% of the population in developed countries. We intend to initiate MILES in the second half of 2014.

 

   

Become a Fully Integrated Biopharmaceutical Company Focused on the Commercialization of our Viaskin Food Allergy Product Candidates in the United States and Other Major Markets—We are utilizing our team’s unique food allergy expertise and knowledge to rapidly advance clinical development and approval of our product candidates. In anticipation of commercial launch, we continue to enhance our manufacturing and commercial production capabilities. Given the limited number and targeted nature of the prescribers in our target markets, we currently intend to launch and commercialize our food allergy product candidates with our own specialty sales force.

 

   

Maximize the Value of our Innovative Viaskin Technology Platform by Building a Broad Immunotherapy Product Pipeline—We believe that our Viaskin technology platform, for which we have worldwide commercialization rights, has the potential to support significant product opportunities beyond food allergies. We are pursuing a number of pre-clinical collaborations, which could enable us to broaden our product pipeline, including collaborations for the development of applications in the field of respiratory allergy or autoimmune disease, as well as other therapeutic fields, such as vaccines. We expect to selectively collaborate with leading pharmaceutical and biotechnology companies that have deep clinical expertise or extensive commercial infrastructure in other therapeutic areas of interest to us, in order to accelerate product candidate development and maximize shareholder value.

 

Our Industry

 

Allergies are a Growing Global Health Problem

 

Allergy is considered a “disease of the developed world” as its increasing incidence is proportional to higher living standards. Epidemiological studies suggest that over half of Americans are sensitive to at least one allergen. Environmental and lifestyle changes, urbanization, pollution, dietary changes, development of sanitation standards and decrease in chronic bacterial infections all seem to be factors promoting the rapid increase in prevalence of allergies throughout the developed world.

 

Background on Allergic Reaction

 

An allergic reaction is the body’s inappropriate immune response to a foreign substance, or an allergen. While, for most people, exposure to an allergen is relatively harmless, for others, exposure to an allergen can provoke an allergic reaction of varying severity. An allergic reaction typically progresses in two stages.

 

In the first stage, the allergic immune response begins with allergen sensitization. The first time an allergen penetrates the body via the skin or the mucosa, for example, the eyes, respiratory or digestive tracts, the immune system identifies the foreign element as dangerous and begins to produce specific antibodies against it. Antibodies are substances produced by the immune system that recognize and destroy certain foreign elements to

 

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which the body is exposed. The immune system produces different types of antibodies targeted to specific allergens. For allergic people, this phenomenon is known as sensitization. In the second stage of an allergic reaction, upon re-exposure to the allergen, the now sensitized immune system is ready to react. The antibody seeks to eliminate the allergen by triggering a collection of defense responses causing an allergic reaction. In various types of allergies, including food allergies, the antibody IgE plays an essential role in the development of the allergic disease. IgE is known for binding to allergens and triggering the release of cellular substances that can cause inflammation thus triggering a cascade of allergic reactions. Allergic reactions range in severity and include hives, itching, swelling, shortness of breath, vomiting and cardiac arrhythmia. Reactions vary in duration, and allergy patients experience these symptoms frequently unless treated properly. The most severe allergic reaction is anaphylaxis, which if not treated quickly by epinephrine injection, may progress to anaphylactic shock causing a rapid drop in blood pressure, loss of consciousness and possibly death within a few minutes.

 

Current Challenges in the Treatment and Management of Allergy Patients

 

Symptomatic Allergy Treatments and their Limitations

 

For food allergies, there are no approved symptomatic or disease-modifying allergy treatments. By contrast, in the case of respiratory allergies, symptomatic allergy treatments, such as antihistamines, bronchodilators and corticosteroids, are among the most widely used treatments in the world. Non-sedating antihistamines such as histamine H1 inhibitors are the mainstay treatment for respiratory allergies. Allegra and Zyrtec are two leading antihistamines treatments. Another method of symptomatic treatment consists of blocking production of IgE, the allergy antibody.

 

However, all these treatments treat the symptoms of allergies, and are not intended to treat the underlying causes of the allergic reaction itself. As a result, when the treatment course is finished, the patient is once again susceptible to the original allergen and typically will suffer a similar allergic reaction if re-exposed to the original allergen.

 

Emergency Treatments and Their Limitations

 

Allergies can lead to severe reactions that require the use of treatments that have been designated to treat allergic symptoms during emergency situations, such as anaphylactic reactions. Epinephrine, also known as adrenaline, is the most widely used treatment for anaphylactic reactions, and it is usually administered by injection. The most commonly used type of epinephrine injections are Epipen Auto-Injectors, or Epipen, which are indicated for the emergency treatment of severe allergic reactions including sudden anaphylaxis or for patients with a history of anaphylactic reactions to known triggers. Patients at risk of anaphylaxis are instructed by their physicians on how to recognize the symptoms of anaphylaxis and on when to use the Epipens. Epinephrine injections help relieve the symptoms of anaphylaxis, but they do not treat or help address the underlying causes of the allergic disease.

 

Desensitization Allergy Treatments and their Limitations

 

Another therapeutic approach for the treatment of allergies is through a type of immunotherapy, called desensitization therapy. Desensitization therapy consists of repeated administration of increasing quantities of allergen to decrease reactivity in allergic patients. It is currently recognized by the World Health Organization, or WHO, as the preferred therapeutic treatment for allergies. Desensitization therapy is widely used in respiratory allergies and allergies to insect bites. This treatment is traditionally performed by subcutaneous injections of increasing doses of the allergen at regular intervals in the hospital and under the supervision of a physician. Less invasive methods of administration, including oral drops and sublingual, or under the tongue, tablets, have also been developed to permit a simplified treatment that can be administered at home. For patients allergic to dust mites or pollen, desensitization by injection is the standard method of therapy.

 

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However, while desensitization has shown potential in less severe allergies such as house dust mites or pollen, for food allergies and other severe allergies such as peanut or milk proteins, existing desensitization therapies cannot be routinely used due to the high risk of anaphylactic shock, especially in young children. Subcutaneous methods of desensitization have been shown to cause significant side effects. Only limited academic studies have been performed using oral immunotherapy and these studies have not demonstrated an immune reaction deemed sufficiently consistent to support a broadly applicable therapy. In some cases these therapies have been shown to trigger a high proportion of severe systemic reactions, and we believe that this has limited their pharmaceutical development.

 

Moreover, with current desensitization techniques, the achieved immunity may be short-lived; many patients are not able to tolerate the allergen permanently. A therapeutic approach that promotes tolerization to the allergen would be of particular clinical and societal benefit.

 

Food and Pediatric Allergies are a High Unmet Clinical Need

 

According to a paper published by the AAAAI, approximately 3% to 5% of Americans suffer from food allergies, with a number of recent studies suggesting that nearly 6 million or approximately 8% of children have some type of food allergy. Food allergies, in particular, can lead to extremely dangerous reactions and often lead to anaphylactic shock. According to a paper published in the Immunology and Allergy Clinics of North America, food, mainly peanut allergies, are responsible for 150 to 200 deaths every year in the United States. Centers for Disease Control and Prevention reported that food allergies result in more than 300,000 ambulatory-care visit per year among children under the age of 18. Every three minutes a food allergy reaction sends someone to the emergency department, which is about 200,000 emergency department visits per year, and every six minutes the reaction is one of anaphylaxis. A recent U.S. study indicates an increase of 350% in the number of hospitalizations of children below age 18 for diagnosis of a food allergy for the period from 2004 to 2006 as compared to the period from 1998 to 2000. According to a paper published in the Immunology and Allergy Clinics of North America, the majority of fatal anaphylactic reactions in patients are caused by peanut allergy.

 

While anaphylactic shock is the most severe allergic reaction to food, patients also suffer from a poor quality of life. Symptoms tend to disappear within hours of exposure but, in some cases, can continue to affect patients for several days. Reactions can include, but are not limited to, skin discomfort, hay fever-like symptoms, impaired lung function and gastrointestinal complications, such as sustained bloating, nausea, vomiting and diarrhea. In some cases, food allergies can lead to chronic diseases such as failure to thrive in children and an allergic inflammatory condition of the esophagus called EoE.

 

Recent studies suggest that patients with food allergies are especially at risk for experiencing significant disruption to their daily life. Food allergies are not only a physical disability; they are often associated with psychological traumas, including fear of eating, antisocial behavior and anxiety. In the case of pediatric patients, food allergies also have a significant impact on their caretakers. A recent study suggests that the quality of life in children with peanut allergy is more impaired than in children with insulin-dependent diabetes mellitus.

 

There Are No Approved Treatments Suitable for Food Allergies

 

Strict avoidance of food allergens and early recognition and management of allergic reactions to food are important measures to prevent serious health consequences. However, strict avoidance of food allergen is very difficult to achieve, especially for children. Some foods can contain hidden traces of allergens, labeling is often deceptive and contamination of allergen-free foods occurs regularly. For example, according to a paper published in the Journal of Allergy and Clinical Immunology, it is estimated that accidental exposure to peanuts in peanut allergic patients occurs once every three to five years and the annual incidence of accidental ingestion is between 15% and 40%.

 

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Treating Allergies Early in Life can Modify the Disease, However, No Treatments Currently Exist for Young Children

 

Recent scientific studies suggest that treating allergies early in life could prevent disease progression or the development of polyallergies. A study of children desensitized to pollen and monitored for five years demonstrated that treating pollen allergy reduced the development of asthma. This early intervention, when the immune system is not mature, is referred to as the “window of opportunity.” Thus, research suggests that addressing allergies during this time in life is likely of critical clinical importance.

 

However, current techniques are poorly adapted to treating young allergy patients:

 

   

Injections are not well-tolerated and must be performed under strict medical supervision; and

 

   

Sublingual methods, developed to encourage home administration, are generally not suitable for young children who are unable to keep the product in contact with the oral mucosa long enough for its use to be effective (a minimum of two minutes before being swallowed). In addition, sublingual administration in children is sometimes poorly tolerated. In the case of tablets, the risk of aspiration also exists.

 

Due to these safety concerns, existing techniques are limited to children who are at least six years old. Given these limitations, it has been impossible to commercialize large-scale desensitization efforts for young children, even if medical research suggests that early allergy treatment during the “window of opportunity” is the best prophylactic and therapeutic management of the disease.

 

There is an Urgent Need for a Safe, Effective and Convenient Treatment for Food Allergy Patients

 

For all these reasons, food allergy patients, especially young children, their caregivers and their clinicians have long sought a safe, effective and convenient treatment. It is well understood that desensitization would be a desirable therapeutic approach as long as the procedure limits serious side effects, is convenient to apply and is effective. In particular, a therapeutic approach that promotes long-term therapeutic effect would be most desirable. To date, no such technique has been developed and approved.

 

Our Solution: Epicutaneous Immunotherapy (EPIT) using our Viaskin Technology Platform

 

Over the last decade, we have developed an innovative immunotherapy technology platform, with the potential for sustained therapeutic effect, by delivering biologically active compounds, including allergens, via intact skin. This technology platform, which we call Viaskin, is based on an electrostatic patch, which administers the allergen directly on the skin. Once administered, the allergen is concentrated in the superficial layers of the skin, where it activates the immune system by specifically targeting antigen-presenting cells without passage of the antigen into the bloodstream. We refer to this novel approach to immunotherapy as epicutaneous immunotherapy, or EPIT. We believe EPIT has the potential to provide all of the intended benefits of a disease-modifying treatment in allergy, while avoiding severe or life-threatening allergic reactions.

 

Viaskin—The First Epicutaneous Immunotherapy

 

Three important characteristics of our Viaskin technology platform contribute to its potential safety and efficacy:

 

   

The Viaskin patch contains the antigen in dry form, which allows it to retain its chemical properties optimally.

 

   

The Viaskin patch creates a condensation chamber with the skin. This increases the hydration of the skin and solubilizes the antigen, which allows it to penetrate the upper layers of the epidermis. Here, the antigen is close to the most tolerogenic antigen presenting cells in the body, Langerhans cells.

 

   

The Viaskin patch delivers the antigen directly to the Langerhans cells but not into the bloodstream, thereby avoiding systemic allergic reactions. This mechanism of action leads to the potential safety of the Viaskin patch, which has been observed in multiple clinical trials in over 400 subjects.

 

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Below is a diagram reflecting the primary components of the Viaskin patch:

 

LOGO

 

The key elements of the Viaskin patch mechanism of action are the following:

 

LOGO

   Containing a dry layer of allergen in its center, the patch is positioned on intact skin, without prior preparation.

LOGO

   The condensation chamber formed between the skin and the center of the patch creates hyperhydration of the skin and an accumulation of water.
LOGO    The accumulation of water solubilizes the allergen. Due to this condensation chamber, the epidermis becomes more permeable allowing passage of the allergen into the epidermis.
LOGO    Once in the epidermis, the allergen is captured by a population of highly specialized cells: Langerhans cells. These cells can take the protein at the surface of the skin, process it and present its epitopes to the lymphocytes in the lymph nodes.

 

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Viaskin—Targeting the Unique Immunological Properties of Epicutaneous Langerhans Cells

 

The Viaskin’s effect on the immune system has been the subject of numerous scientific analyses and publications, which have been featured in major medical journals and allergology conferences. These epigenetic and mechanistic studies have helped us characterize the Viaskin’s novel mechanism of action.

 

Our mechanism of action is unique and differentiated as it targets specific epidermal dendritic cells, called Langerhans cells, which capture the antigen and migrate to the lymph node in order to activate the immune system without passage of the antigen into the bloodstream. After the antigen has been presented to the T cells in the lymph node, it activates the Tregs, the main factor in the down-regulation of Th2 response, while barely influencing the Th1 expression.

 

Th2 cells are thought to play a role in allergic responses because allergies are known to be Th2 dominant conditions. An elevated Th2 response is ultimately responsible for the production of IgE, which can cause inflammation and trigger allergic reactions. Conversely, a normal, or non-allergic, immune response to an allergen is usually characterized by a well-balanced Th1/Th2 response.

 

We believe EPIT can rebalance the immune reaction by decreasing, or down-regulating, the Th2 response to allergens, keeping Th1 and Th2 balanced and thus promoting long-term tolerance toward future allergen exposure.

 

Viaskin—Compelling Clinical Benefits

 

We believe our innovative approach to EPIT has the potential to offer compelling clinical benefits to patients suffering from severe allergies:

 

   

Our Epicutaneous Approach Targeting Langerhans Cells has the Potential to Induce an Immune Reaction with a Highly Tolerogenic Profile:    By delivering the allergen directly to the lymph node through the Langerhans cells, EPIT activates specific Tregs that can down-regulate the Th2-oriented reaction to the allergen. The absence of passage of allergens into the bloodstream explains the safety while the activity in the lymph node explains the efficacy of EPIT.

 

   

Our Viaskin Patch Enables Continuous Antigen Exposure which has the Potential to Promote Sustained Tolerization:    The Viaskin patch contains allergen protein in its original antigenic state, which allows the skin to be continuously exposed to the allergen over time. We believe this promotes a long-term, sustained therapeutic effect.

 

   

The Safety Profile and Ease of Use of Viaskin May Allow the Treatment of Allergies Very Early in Life:    Because of its ease of use and well-demonstrated safety profile, we believe our Viaskin technology will allow for the treatment of all patients suffering from severe allergies, including very young children, without risk of anaphylaxis. As a result, we believe our approach will permit early treatment of allergies in children during the “window of opportunity” which could prevent disease progression in these patients or the development of polyallergies.

 

We believe that the Viaskin’s ability to induce epicutaneous immunological responses can also potentially be applied to other therapeutic areas, such as vaccination and treatment of inflammatory and autoimmune diseases.

 

Our Product Candidates

 

Our lead product candidate, Viaskin Peanut, is being developed for the treatment of peanut allergies in adults, adolescents and children. In September 2014 we announced topline results from our VIPES trial, a multi-center, double-blind, placebo-controlled, randomized Phase IIb clinical trial of Viaskin Peanut. The trial met its primary endpoint at the highest explored dose (Viaskin Peanut 250 µg), achieving statistical significance (p<0.01) in the percentage of treatment responders versus placebo. Our VIPES trial is the largest clinical trial in

 

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peanut allergy desensitization ever completed. In June 2013, the Assistance Publique—Hôpitaux de Paris, or AP-HP, presented data from its ARACHILD pilot trial of Viaskin Peanut. In June 2012, we presented proof-of-concept data at the European Academy of Allergy and Clinical Immunology, or EAACI, Congress from a multi-center, double-blind, placebo-controlled, randomized Phase Ib clinical trial of Viaskin Peanut.

 

Our second product candidate, Viaskin Milk, is being developed for children (including infants) for the treatment of two indications, CMPA and milk-induced EoE. Proof-of-concept data from a pilot clinical trial of Viaskin Milk was published in The Journal of Allergy and Clinical Immunology in 2010. In the second half of 2014, we intend to initiate our MILES trial, a multi-center, double-blind, placebo-controlled, randomized Phase I/II safety and efficacy clinical trial of Viaskin Milk in the pediatric patient population with CMPA. In the first half of 2015, with our assistance, the Children’s Hospital of Philadelphia intends to initiate a multi-center, double-blind, placebo-controlled, randomized trial to study safety and efficacy of Viaskin Milk in pediatric patient populations with milk-induced EoE.

 

We are also developing a product candidate, Viaskin HDM, for the treatment of house dust mite, or HDM, allergy. We are currently conducting pre-clinical proof-of-concept and IND-enabling studies for this product candidate with the goal of initiating a clinical program if these studies are successful.

 

Viaskin Peanut

 

Background

 

Peanut allergy is one of the most common food allergies, and can cause severe, potentially fatal, allergic reactions, including anaphylaxis. Strict avoidance of peanut is essential, as even trace amounts of peanut can cause a severe allergic reactions. According to recent studies, food allergies, mainly peanut, are responsible for 150 to 200 deaths every year in the United States and about 200,000 emergency room visits. While anaphylactic shock is the most severe allergic reaction to peanuts, many patients also suffer from a poor quality of life. Peanut allergies have lifelong effects and are often associated with psychological traumas, including fear of eating, antisocial behavior and anxiety.

 

Allergy to peanuts appears to be on the rise and its prevalence has increased in the past 10 years. According to an article published in The Journal of Allergy and Clinical Immunology, a recent survey in the United States indicated that approximately 1% of the U.S. population, or more than three million people, are allergic to peanuts and/or nuts. Two recent studies conducted in the United States and the United Kingdom show that peanut allergy has doubled in five years in children below age five. A study funded by Food Allergy Research and Education, Inc., or FARE, indicates that the number of children in the United States with peanut allergy more than tripled between 1997 and 2008. Although some patients outgrow their peanut allergies, research indicates that only about 20% of individuals with peanut allergy outgrow it during a lifetime.

 

Development Program for Viaskin Peanut

 

Phase IIb Clinical Trials—VIPES and VIPES OLFUS

 

VIPES (Viaskin Peanut’s Efficacy and Safety)

 

In August 2012, we initiated VIPES, a double-blind, placebo-controlled, multi-center Phase IIb clinical trial of Viaskin Peanut in 221 peanut allergic subjects with a well-documented medical history of systemic reactions after ingestion of peanut. Subjects completed their last food challenge visits after twelve months of treatment.

 

The VIPES trial was a multi-center clinical trial conducted at 22 sites in North America and Europe. In the trial, 221 peanut-allergic subjects were randomized into four treatment arms to evaluate three doses of Viaskin Peanut, specifically 50 µg, 100 µg and 250 µg peanut protein, compared to placebo. The trial was prospectively organized across the three dose levels with two patient strata, composed of three different patient age groups; children (113 subjects, ages 6-11) for the first stratum and adolescents (73 subjects, ages 12-17) plus adults (35 subjects, ages 18-55) for the other stratum. Each patient underwent two double-blind, placebo-controlled food

 

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challenges, or DBPCFCs: one at initial screening and one at 12 months after initiation of treatme