F-1 1 d407559df1.htm FORM F-1 Form F-1
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As filed with the United States Securities and Exchange Commission on October 2, 2017

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ABLYNX NV

(Exact name of registrant as specified in its charter)

 

 

 

Belgium   2836   Not applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Technologiepark 21

9052 Ghent/Zwijnaarde, Belgium

+32 9 262 00 00

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

 

 

Depositary Management Corporation

570 Lexington Avenue, 44th Floor

New York, New York 10022

(212) 319 4800

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

 

 

Copies to:

 

Mitchell S. Bloom

John M. Mutkoski

Seo Salimi

Goodwin Procter LLP

100 Northern Avenue

Boston, MA 02210

(617) 570-1000

 

Lars Van Bever

Robin Van Gysel

Eubelius CVBA

Louizalaan 99 Avenue Louise

B-1050 Brussels

+32 2 543 31 00

 

Richard D. Truesdell Jr.
Marcel Fausten

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, NY 10017
(212) 450-4000

   Arnaud Coibion

Filip Lecoutre

Linklaters LLP

Rue Brederode 13

1000 Brussels

+32 2 501 95 95

 

 

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.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Ordinary Shares, no nominal value(3)

  $150,000,000   $18,675.00

 

 

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Section 457(o) of the Securities Act. Includes the aggregate offering price of additional American Depositary Shares, or ADSs, that the underwriters have the option to purchase.
(2) Includes (a) additional ordinary shares which the underwriters have the option to purchase and (b) ordinary shares which are being offered in a private placement in Europe and other 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 or an exemption therefrom. The total number of ordinary shares in the U.S. offering and the European private placement is subject to reallocation between them. All or part of these ordinary shares may be represented by American Depositary Shares, or ADSs.
(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.

 

 

 


Table of Contents

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 preliminary 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 OCTOBER 2, 2017

PRELIMINARY PROSPECTUS

Ordinary Shares

(Including              Ordinary Shares in the Form of American Depositary Shares)

 

LOGO

$              per American Depositary Share

 

 

This is Ablynx NV’s initial public offering in the United States. We are offering an aggregate of              of our ordinary shares in a global offering. We are offering              ordinary shares in the form of American Depositary Shares, or ADSs, to investors in the United States. The ADSs may be evidenced by American Depositary Receipts, or ADRs, and each ADS represents the right to receive one ordinary share. We are concurrently offering              ordinary shares in Europe and countries outside of the United States and Canada in a private placement through the underwriters named in this prospectus.

Prior to this offering, our ADSs were not listed on a U.S. securities exchange market. We intend to apply to list our ADSs on the NASDAQ Global Select Market under the symbol “ABLX.” Our ordinary shares are listed on Euronext Brussels under the symbol “ABLX.” On             , 2017, the last reported sale price of our ordinary shares on Euronext Brussels was €             per ordinary share, equivalent to a price of $             per ADS, assuming an exchange rate of $             per euro. We are selling our ordinary shares at €         per share in the European private placement, which is equivalent to a price of $         per ADS, assuming an exchange rate of $         per Euro.

Investing in our ordinary shares and ADSs involves risks that are described in the “Risk Factors” section beginning on page 13 of this prospectus.

 

     Per ADS      Per
Ordinary Share
     Total  

Public Offering Price

   $                             $           

Underwriting Discount(1)

   $                             $           

Proceeds, before expenses, to us

   $                             $           

 

(1) We refer you to “Underwriting” beginning on page 234 of this prospectus for additional information regarding underwriting compensation.

The underwriters may exercise their option to purchase up to an additional              ADSs from us in the U.S. offering at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus. We have also granted the underwriters an option to purchase up to an additional              ordinary shares in the European private placement, at the offering price in the European private placement, less the underwriting discount, exercisable for 30 days after the date of this prospectus.

The total number of ordinary shares in the U.S. offering and the European private placement is subject to reallocation between them.

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.

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.

The ADSs and ordinary shares will be ready for delivery on or about                 2017.

Book-Running Managers

 

BofA Merrill Lynch   J.P. Morgan   Jefferies

Co-Managers

 

Baird

 

Bryan, Garnier & Co.

 

Ladenburg Thalmann

The date of this prospectus is                 , 2017.


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TABLE OF CONTENTS

 

     Page  

SUMMARY

     1  

RISK FACTORS

     13  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     73  

CURRENCY EXCHANGE RATES

     75  

MARKET INFORMATION

     76  

USE OF PROCEEDS

     77  

DIVIDEND POLICY

     79  

CAPITALIZATION

     80  

DILUTION

     82  

SELECTED FINANCIAL AND OTHER DATA

     85  

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

     86  

BUSINESS

     106  

MANAGEMENT

     167  

RELATED-PARTY TRANSACTIONS

     185  

PRINCIPAL SHAREHOLDERS

     188  

DESCRIPTION OF SHARE CAPITAL

     191  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     206  

ORDINARY SHARES AND ADSs ELIGIBLE FOR FUTURE SALE

     218  

MATERIAL UNITED STATES AND BELGIAN INCOME TAX CONSIDERATIONS

     221  

ENFORCEMENT OF CIVIL LIABILITIES

     232  

UNDERWRITING

     234  

EXPENSES OF THE OFFERING

     242  

LEGAL MATTERS

     243  

EXPERTS

     244  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     245  

GLOSSARY OF TERMS

     245  

INDEX TO FINANCIAL STATEMENTS

     F-1  

We have not, and the underwriters have not, authorized any person to provide you with information different from that contained in this prospectus or any related free-writing prospectus that we authorize to be distributed to you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus speaks only as of the date of this prospectus unless the information specifically indicates that another date applies, regardless of the time of delivery of this prospectus or of any sale of the securities offered hereby.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.

No action is being taken in any jurisdiction outside the United States to permit a public offering of the ADSs or ordinary shares or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to the global offering and the distribution of the prospectus applicable to that jurisdiction.

All references in this prospectus to “$” are to U.S. dollars and all references to “€” are to euro. Solely for the convenience of the reader, certain euro amounts herein have been translated into U.S. dollars at the official exchange rate quoted as of September 22, 2017 by the U.S. Federal Reserve Bank of €1.00 to $1.1969. These

 

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translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as at that or any other date.

Through and including         , 2017 (25 days after the date of this prospectus), all dealers that buy, sell or trade ADSs or our ordinary shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

We are a limited liability company (naamloze vennootschap) incorporated under the laws of Belgium. 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 uncertainty as to the enforceability in Belgium, either in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely on the U.S. federal securities laws.

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 or ordinary shares and the distribution of this prospectus outside the United States.

We are incorporated in Belgium and we are currently eligible for treatment as a “foreign private issuer” under the rules of the U.S. Securities and Exchange Commission, or SEC. 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 euro. All references in this prospectus to “$,” “US$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” mean U.S. dollars and all references to “€” and “euro” mean euro, 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, “Ablynx,” “ABLX,” “the company,” “our company,” “we,” “us” and “our” refer to Ablynx NV.

Overview

We are a late-stage clinical biopharmaceutical company utilizing our proprietary Nanobody platform to develop treatments for a broad range of therapeutic indications with an unmet medical need. We believe that Nanobodies represent a leading next generation protein therapeutic technology. We have more than 45 proprietary and partnered Nanobody programs across a range of therapeutic indications including hematology, inflammation, infectious disease, autoimmune disease, oncology and immuno-oncology. We employ a hybrid business model whereby we pursue our wholly owned programs through to commercialization or key value inflection points while also working with pharmaceutical partners on programs in areas where they bring specific disease expertise and resources. Our lead, wholly owned product candidate, caplacizumab, for the treatment of acquired thrombotic thrombocytopenic purpura, or aTTP, is currently undergoing regulatory review in Europe, and we recently announced positive top line results from a Phase III trial with caplacizumab in October 2017. Submission of a Biologics License Application, or BLA, for caplacizumab in the United States is planned in the first half of 2018 and we received Fast Track Designation for caplacizumab in July 2017. Our wholly owned and partnered product pipeline includes three other Nanobody-based product candidates at the Phase II stage of development and four at the Phase I stage of development, and we and our partners are currently planning to initiate Phase I trials for multiple other product candidates over the next few years.

Our most advanced wholly owned product candidate is caplacizumab for the treatment of aTTP, which is a rare, potentially fatal, blood clotting disorder, with an aggregate of 7,500 episodes estimated to occur each year in North America, Europe and Japan. We first communicated the results from our worldwide Phase II trial of caplacizumab in aTTP patients in 2014, and based on these encouraging data, we submitted a Marketing Authorization Application, or MAA, for caplacizumab in this indication to the European Medicines Agency, or EMA, in February 2017. In October 2017, we announced positive top line results from a 145 patient Phase III worldwide clinical trial of caplacizumab for the treatment of aTTP, and we expect these data will drive the registration process for caplacizumab in both Europe and the United States. Our second most advanced wholly owned product candidate is ALX-0171 for the treatment of respiratory syncytial virus, or RSV. We commenced a Phase II trial in 180 hospitalized infants in January 2017 and expect top line results in the second half of 2018. A third partnered Nanobody-based asset in Phase II trials is vobarilizumab for the treatment of rheumatoid arthritis, or RA, as well as for the treatment of systemic lupus erythematosus, or SLE. We have completed two Phase IIb clinical trials in approximately 600 RA patients and have had end-of-Phase II meetings with the U.S. Food and Drug Administration, or FDA, and EMA. We are also currently conducting a Phase II trial with vobarilizumab in 312 patients with SLE and expect top line results in the first half of 2018.

There are numerous potential therapeutic applications for our Nanobody technology. Accordingly, we are using our platform to advance wholly owned and partnered programs in areas which have an unmet medical need and where we believe there is a particular advantage in using our Nanobody technology. Our partnering strategy has allowed us to leverage the specific disease-area expertise of our collaborators, obtain significant funding to help build and advance our Nanobody product pipeline and further validate our technology platform. We currently have collaborations with nine pharmaceutical partners covering a broad range of clinical and pre-

 



 

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clinical programs. To date, we have received an aggregate of €453.5 million in upfront, full time equivalent, and milestone payments from these collaborators and are eligible to receive more than €10.6 billion in additional milestone payments, plus sales royalties, subject to the achievement of clinical milestones, regulatory approvals, and other specified conditions.

Nanobodies are a class of novel therapeutic proteins that are based on the smallest functional fragments of “heavy-chain only” antibodies, which occur naturally in the Camelidae family, including llamas and alpacas. We believe that Nanobody-based product candidates combine many of the benefits of conventional monoclonal antibodies, or mAbs, with some of the advantages of small molecule drugs.

We believe Nanobody technology has the potential to provide the foundation for the next generation of biologics, combining some of the most important advantages of mAbs and small molecules, as well as offering some unique features. Nanobodies have similar affinities and specificities to mAbs but they are much smaller and more stable with the additional advantages of being able to be delivered via multiple administration routes and capable of being produced in a simple microbial fermentation. Our Nanobody technology allows us to rapidly develop binders to a broad range of targets, including challenging and complex proteins such as G-protein coupled receptors, or GPCRs, and ion channels, as well as to develop multi-functional molecules. We are also able to modulate the half-life of a Nanobody product candidate to optimize treatment for the indication being pursued. To date, we have generated Nanobodies against more than 150 potential disease targets, have shown proof-of-concept in more than 50 animal disease models and we have administered Nanobodies to over 2,000 patients and volunteers with encouraging safety and efficacy data.

Our Nanobody product pipeline is outlined below:

 

LOGO

 



 

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Our Competitive Strengths

We believe that the combination of our technologies, expertise and business strategy will allow us to deliver impactful therapies to patients suffering from a broad range of diseases. Our competitive strengths include:

 

    A wholly owned, lead product candidate undergoing regulatory review in Europe based on Phase II trial results and with recently announced positive top line Phase III results. Caplacizumab is our first-in-class product candidate for the treatment of aTTP. We submitted a MAA to the EMA in February 2017 and announced positive data from our Phase III trial of caplacizumab for aTTP in October 2017. We will use these data to support the MAA review process and a BLA in the United States, which we currently expect to file in the first half of 2018. In July 2017, we received Fast Track Designation from the FDA for caplacizumab. We plan to launch caplacizumab ourselves in Europe in the second half of 2018 and in the United States in the first half of 2019, assuming regulatory approval. If approved, caplacizumab would be the first pharmaceutical specifically indicated for the treatment of aTTP, and we estimate the total market opportunity in North America, Europe and Japan to be in excess of €800.0 million, based on the yearly incidence rate of aTTP in those markets. We have received orphan drug designation for caplacizumab for treatment of aTTP from the FDA and EMA, and we have issued patents covering caplacizumab that will expire in Europe in 2034 and in the United States in 2026. In addition, we have filed patent applications in various jurisdictions covering caplacizumab, which, if granted, would be expected to expire in 2035.

 

    A second, wholly owned clinical product candidate, ALX-0171, in a Phase IIb trial. ALX-0171, our second most advanced wholly owned product candidate, utilizes an advantage of Nanobodies over mAbs in that the former can be nebulized, and therefore be administered by inhalation, while retaining their biological activity. In a Phase I/IIa trial in 53 hospitalized RSV-infected infants, treatment with inhaled ALX-0171 had a rapid impact on viral replication and also reduced viral load, as compared to a placebo. There was also an encouraging initial indication of a therapeutic effect. We are currently conducting a Phase IIb trial in 180 infants hospitalized with a RSV infection and expect top line data to be available in the second half of 2018. With only one drug treatment currently indicated for RSV in infants and this product not being widely adopted, we believe there is a greater than €1.0 billion opportunity for an effective RSV therapeutic in North America, Europe and Japan, in the aggregate. We have patent protection on ALX-0171 in the United States until 2030. In addition, we have filed patent applications in various jurisdictions covering ALX-0171, which, if granted, would be expected to expire in 2037.

 

    A balanced risk approach, with more than 45 wholly owned and partnered programs. We have built a broad and robust pipeline by developing our wholly owned programs, while also entering into strategic collaborations. This approach has allowed us to recover the cost of some of our discovery and development programs from our partners and allows us to pursue additional indications ourselves.

 

    Broadly applicable technology with advantages over many other platforms. Our Nanobody technology has several key features which we believe increase its potentially successful applicability across a variety of therapeutic indications:

 

    Extensive clinical experience with encouraging efficacy and safety data in over 2,000 patients and volunteers in multiple indications

 

    Highly effective binding functionality across a broad range of targets

 

    Ability to engineer substantial increase in potency and multiple modes of action

 

    Potential for differentiated efficacy and safety profiles, in comparison to mAbs

 

    Ability to modulate half-life

 



 

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    Multiple administration routes

 

    Ease and flexibility of manufacture

 

    Multiple collaborations with strategic partners with the potential for us to receive more than €10.6 billion in future milestone payments. We currently have partnerships with nine pharmaceutical companies. Some collaborations involve us identifying programs ourselves, taking them through pre-clinical and clinical development and then entering into a licensing agreement with a partner who is subsequently responsible for the completion of clinical development and the commercialization of the product. Other collaborations are early discovery partnerships where we agree on protein targets with the partner and then generate and characterize Nanobodies against these targets before transferring them to the partner for further development and commercialization. To date, we have received a total of €453.5 million in upfront, full time equivalent, or FTE, and milestone payments as part of our collaborations and have the potential to receive more than €10.6 billion in additional milestone payments, plus sales royalties, subject to the achievement of clinical milestones, regulatory approvals, and other specified conditions.

 

    Intellectual property portfolio protecting product candidates as well as various aspects of our Nanobody platform. Our accumulated pre-clinical and clinical experience with Nanobodies has allowed us to establish an intellectual property portfolio that currently has more than 50 issued U.S. patents, more than 180 issued foreign patents, and over 400 U.S. and foreign patent applications, in more than 100 patent families. Our two lead wholly owned product candidates, caplacizumab and ALX-0171, are expected to have patent protection that will expire in 2035 and 2037, respectively, subject to applicable patent applications being granted. The patents and patent applications within our intellectual property portfolio include claims directed to the composition-of-matter of our product candidates and their methods of use, as well as various aspects of the Nanobody platform that are used to generate, optimize and manufacture product candidates.

Our Strategy

In order to maximize the value of our Nanobody platform, we plan to:

 

    Create a fully integrated biopharmaceutical company. Our vision is to be a biopharmaceutical company with end-to-end capabilities in research, development and commercialization. We intend to commercialize product candidates on our own where we believe the target market can be addressed with a relatively small and specialized salesforce strategy, otherwise we will evaluate potential partnerships at key inflection points. We believe that this approach will allow us to maximize the potential value of our Nanobody platform and the product candidates we generate from it.

 

    Obtain registration for caplacizumab in the treatment of aTTP and commercialize the product ourselves in the major European markets and North America. We intend to use the data from the Phase III HERCULES trial, which we reported in October 2017, to support the MAA filing and to provide the basis of a BLA filing in the United States in the first half of 2018. In anticipation of regulatory approval, we have begun to build the necessary internal commercial infrastructure by appointing a Chief Commercial Officer and establishing a supporting team. We expect regulatory approval in Europe in the second half of 2018, and if approved, the first sales would be expected in Germany shortly afterwards. In the United States, regulatory approval is anticipated in the first half of 2019, and if approved, sales in the United States would occur shortly thereafter. Assuming we are successful with our registration applications, our intent is to commercialize caplacizumab in Japan with a pharmaceutical partner, and in other geographies with specialized local distributors.

 



 

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    Advance our wholly owned product candidate, ALX-0171, through the Phase IIb RESPIRE trial in infants and in parallel investigate the use of ALX-0171 in hematopoietic stem cell transplant, or HSCT, patients who have contracted RSV. Seek to secure a partner after the results of the RESPIRE trial. We are currently conducting a 180 patient worldwide Phase IIb trial of ALX-0171 in infants hospitalized with a RSV infection and expect top line data in the second half of 2018. If this trial is successful, we plan to explore partnering options and potentially collaborate with a pharmaceutical company to support commencement of a Phase III trial in infants hospitalized with RSV and explore the use of ALX-0171 in primary healthcare for RSV-infected infants and the elderly, as well as hospitalized elderly with RSV. We plan to also commence a Japanese trial in RSV-infected infants in 2018. In addition, we are planning to start a trial of ALX-0171 in the first half of 2018 in patients who have undergone HSCT and who have contracted RSV.

 

    Evaluate the development options for vobarilizumab upon the outcome of our SLE trial. In July and August 2016, we released encouraging efficacy data from two Phase IIb trials (monotherapy and combination studies) of vobarilizumab in a total of approximately 600 RA patients. We are completing a Phase II trial of vobarilizumab in 312 SLE patients with data expected in the first half of 2018. Under an agreement with AbbVie, AbbVie will have an opt-in right to license vobarilizumab at the time the data from the SLE trial become available, upon payment of $25.0 million. If AbbVie exercises this right, it will also have an obligation to use commercially reasonable efforts to advance vobarilizumab in RA. If AbbVie does not opt-in then all rights to vobarilizumab revert unencumbered to us.

 

    Focus our internal proprietary discovery and development activities on therapeutic targets where Nanobodies have the potential for clear and promotable advantages over other technologies. We plan to use the characteristics of our platform technology, such as our “mix and match” formatting capabilities and the ability to administer our product candidates using multiple routes of administration, to pursue targets and indications where other technologies have not provided satisfactory solutions. These targets also include GPCRs and ion channels, which have proven to be difficult protein classes for which to develop viable product candidates using other technologies.

 

    Selectively leverage our technology platform to secure strategic collaborations to create additional value. Given the numerous potential therapeutic applications for Nanobodies, in addition to our proprietary programs, we have also strategically partnered with leading pharmaceutical companies, which has enabled us to access the specific disease-area expertise, capabilities and resources of our partners. We expect to continue this collaborative strategy, focusing on the quality of the partnerships and the value they create for our pipeline. We also have, and will continue to, externally identify technologies which we believe can be combined with our Nanobody technology to improve its capabilities and address additional indications.

Risks Associated with Our Business

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, but are not limited to, the following:

 

    We are a clinical-stage biopharmaceutical company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

 

    Even if the global offering is successful, we may need substantial additional funding in order to complete the development and commercialization of our product candidates. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development or research operations.

 



 

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    We are heavily dependent on the success of our lead product candidate caplacizumab. We are also dependent on the success of our other late-stage product candidates, in particular, ALX-0171. We cannot give any assurance that any product candidate will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized.

 

    We are dependent on collaboration partners for the development and commercialization of vobarilizumab for the treatment of RA and SLE.

 

    The regulatory approval processes of the FDA, the EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

 

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

 

    We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated. We may not be successful in our efforts to use and expand our Nanobody technology to build a pipeline of product candidates and develop marketable products due to significant competition and technological change, which could limit or eliminate the market opportunity for our product candidates and technology platform.

 

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

 

    We rely on third-parties to supply and manufacture our product candidates and delivery devices, such as the inhaler used for ALX-0171, and we expect to continue to rely on third-parties to manufacture our products and devices, if approved. The development of such product candidates and the commercialization of any products, if approved, could be stopped, delayed or made less profitable if any such third-party fails to provide us with sufficient quantities of product candidates, products or devices or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.

 

    We are a Belgian public limited liability company, and shareholders of our company may have different and in some cases more limited shareholder rights than shareholders of a U.S. listed corporation.

Corporate Information

We were incorporated as a limited liability company (naamloze vennootschap) under the laws of Belgium on July 4, 2001 under the name “MatchX” and changed our name to “Ablynx” on June 12, 2002. We are registered with the Register of Legal Entities (Ghent) under the enterprise number 0475.295.446. Our principal executive offices are located at Technolgiepark 21, 9052 Ghent/Zwijnaarde, Belgium, and our telephone number is +32 9 262 00 00. Our agent for service of process in the United States is Depositary Management Corporation. We also maintain a website at www.ablynx.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 Ablynx and our corporate logo. All other trademarks or trade names referred to in this prospectus are

 



 

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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 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 in the registration statement for the global offering; 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 $1.07 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (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 the global 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

 



 

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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.

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 more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are U.S. citizens or residents, (2) more than 50% of our assets are located in the United States or (3) 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 us, consisting of ordinary shares represented by American depositary shares, or ADSs, offered in the U.S. offering and ordinary shares offered in the European private placement. The total number of ordinary shares in the U.S. offering and European private placement is subject to reallocation between these offerings as permitted under applicable laws and regulations.

ADSs offered by us in the U.S. offering   

ADSs, representing              ordinary shares.

Ordinary Shares offered by us in the European private placement   

ordinary shares.

Ordinary Shares to be outstanding after the global offering   

ordinary shares.

Option to purchase additional ADSs   

ADSs representing an equal number of ordinary shares.

Option to purchase additional ordinary shares   

ordinary shares.

American Depositary Shares    Each ADS represents one ordinary 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    JPMorgan Chase Bank, 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 ADS in the U.S. offering and €         per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on                 , 2017, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters’ options to purchase additional ADSs. We intend to use the net proceeds we receive

 



 

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   from the global offering to continue to build-out our sales, marketing and distribution infrastructure in preparation of the commercial launch of caplazicumab in Europe and the United States, advance the development of ALX-0171 through its Phase IIb trial, advance the discovery and development of earlier stage product candidates, and for working capital and other 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 symbol    “ABLX”
Euronext Brussels trading symbol    “ABLX”

The number of ordinary shares to be outstanding after the global offering is based on 61,419,295 of our ordinary shares outstanding as of September 30, 2017, and includes                  ordinary shares represented by ADSs and ordinary shares to be offered in the global offering, and excludes:

 

    2,568,393 ordinary shares issuable upon the exercise of warrants outstanding as of September 30, 2017 pursuant to our warrant plans, at a weighted-average exercise price of €5.30 per ordinary share; and

 

    7,733,952 ordinary shares eligible for issuance upon conversion of our outstanding 3.25% senior unsecured convertible bonds due May 2020, or the Bonds, as of September 30, 2017, if we elect to not settle any conversion of the Bonds for cash, and assuming no adjustments to the initial conversion price of €12.93 for anti-dilution protections.

Except as otherwise noted, all information in this prospectus assumes:

 

    no exercise by the underwriters of their option to purchase additional ADSs in the U.S. public offering and additional ordinary shares in the European private placement; and

 

    no issuance or exercise of warrants after September 30, 2017.

 



 

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Summary Financial 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, 2016 and 2015 from our audited 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. The financial data as at June 30, 2017 and for the six months ended June 30, 2017 and 2016 have been derived from our unaudited interim financial statements included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as our audited financial statements and include all normal recurring adjustments that we consider necessary for a fair statement of our financial position and operating results as of the dates and for the periods presented. 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 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,      Period ended June 30,  
(in thousands, except share and per share data)    2016      2015      2017      2016  

Statement of profit and loss and other comprehensive income data:

           

Revenue

   84,773      76,761      34,665      53,116  

Grant Income

     414        779        45        391  

Research and development expenses

     (100,315      (83,084      (50,517      (49,015

General and administrative expenses

     (13,472      (11,411      (8,950      (6,516
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (28,600      (16,955      (24,757      (2,024
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial income

     34,761        1,768        3,124        28,387  

Financial expense

     (7,248      (39,360      (3,691      (3,535
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive profit/(loss)

   (1,087    (54,547    (25,324    22,828  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic profit/(loss) per share (in €)

     (0.02      (1.00      (0.42      0.41  

Diluted loss per share (in €)

     (0.43      (1.00      (0.42      (0.03

 



 

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The following table sets forth our summary statement of financial position data as of June 30, 2017 on:

 

    an actual basis; and

 

    an as adjusted basis to reflect our issuance and sale of              an aggregate of ordinary shares in the global offering (including              ADSs in the U.S. offering), assuming a public offering price of $             per ADS in the U.S. and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     As of June 30, 2017  
     Actual      As adjusted(1)  
(in thousands)              

Statement of financial position data:

     

Cash and cash equivalents

   26,390     

Total assets

     235,240     

Total liabilities

     154,808     

Total liabilities and equity

   235,240     

 

(1) Each $1.00 (€            ) increase or decrease in the assumed public offering price of $             per ADS in the U.S. and €         per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, would increase or decrease each of as adjusted cash and cash equivalents, total assets and total equity by approximately $             (€            ) million, assuming that the number of ordinary 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 ordinary shares and ADSs we are offering. Each increase or decrease of 1,000,000 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us would increase or decrease each of as adjusted cash and cash equivalents, total assets and total 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 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) increase in the assumed public offering price of $             per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, would increase each of as adjusted cash and cash equivalents, total assets and total equity by approximately $             (€            ) million, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) decrease in the assumed public offering price of $             per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, would decrease each of as adjusted cash and cash equivalents, total assets and total 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 ADSs offered by us, and other terms of this offering determined at pricing.

 



 

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RISK FACTORS

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

Risks Related to Our Financial Position and Need for Additional Capital

We are a clinical-stage biopharmaceutical company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability.

We are a clinical-stage biopharmaceutical company and we have not yet generated any product income. We have incurred significant operating losses since our inception in 2001. We incurred total operating losses and comprehensive losses of €24.8 million and €25.3 million, respectively, for the six months ended June 30, 2017. We incurred total operating losses of €17.0 million and €28.6 million and total comprehensive losses of €54.5 million and €1.1 million for the years ended December 31, 2015 and 2016, respectively. As of June 30, 2017, we had an accumulated loss of €288.7 million. Our historical losses resulted principally from costs incurred in research and development, optimization of our Nanobody technology, pre-clinical testing, clinical development of our product candidates as well as costs incurred for research programs and from general and administrative costs associated with these operations. In the future, we intend to continue to conduct research and development, pre-clinical testing, clinical trials and regulatory compliance activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for the next several years. Our expected losses, among other things, will continue to cause our working capital and shareholders’ equity to decrease. We anticipate that our expenses will increase substantially if and as we, among other things:

 

    complete the three year follow-up study of caplacizumab, our lead product candidate;

 

    establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval, including caplacizumab;

 

    advance our caplacizumab commercialization strategy and continue to prepare for the initial launch of caplacizumab in Europe and the United States;

 

    continue the clinical development of our Nanobody-based product candidates, ALX-0171 in infants hospitalized with RSV and patients who have undergone a stem cell transplant and have become infected with RSV, and vobarilizumab for both RA and SLE;

 

    start preparation of potential pivotal Phase III trials of ALX-0171;

 

    start preparations for clinical development of certain proprietary Nanobodies currently at the pre-clinical development stage;

 

    continue the research and development program for our other proprietary pre-clinical stage product candidates and discovery-stage programs;

 

    seek to enhance our technology platform and discover and develop additional product candidates;

 

    seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

   

obtain, maintain, expand and protect our intellectual property portfolio, including litigation costs associated with defending against alleged patent or other intellectual property infringement claims;

 

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    add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts;

 

    experience any delays or encounter any issues with respect to any of the above, including failed studies, ambiguous trial results, safety issues or other regulatory challenges; and

 

    operate as a public company in the United States.

Since our inception in 2001, we have invested most of our resources in developing our technology and our product candidates, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing general and administrative support for these operations. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have funded our operations through public and private placements of equity, the private placement of convertible bonds, upfront, milestone and expense reimbursement payments received from our collaborators, funding from governmental bodies and interest income from the investment of our cash, cash equivalents and financial assets. There is no assurance that we will be able to achieve any of the milestones necessary to receive the more than €10.6 billion in potential milestone payments under our various collaboration agreements to help fund our continuing operations.

To become and remain profitable, we will need to continue developing and eventually commercialize products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing pre-clinical testing and clinical trials of our product candidates, discovering and developing additional product candidates, obtaining regulatory approval for any product candidates that successfully complete clinical trials, establishing manufacturing and marketing capabilities and ultimately selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, may never generate revenue that is significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with pharmaceutical and biological product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we are required by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, or other comparable foreign authorities to perform studies in addition to those we currently anticipate, or if there are any delays in completing our clinical trials or the development of any of our product candidates, our expenses could increase and revenue could be further delayed.

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

Even if the global offering is successful, we may need substantial additional funding in order to complete the development and commercialization of our product candidates. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development or research operations.

To date, we have funded our operations through public and private placements of equity, the private placement of convertible bonds, upfront, milestone and expense reimbursement payments received from our collaborators, funding from governmental bodies and interest income from the investment of our cash, cash equivalents and financial assets. We expect to require additional funding in the future to sufficiently finance our operations and advance development of our product candidates.

We expect that our existing cash, cash equivalents and investments, together with anticipated net proceeds from the global offering, will enable us to fund our operating expenses and capital expenditure requirements

 

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through at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Our future capital requirements for caplacizumab, ALX-0171, vobarilizumab, our early-stage clinical programs or our pre-clinical programs will depend on many factors, including the following:

 

    our ability to successfully commercialize caplacizumab, if approved for commercial sale;

 

    the progress, timing and completion of pre-clinical testing and clinical trials for our current or any future product candidates;

 

    the maintenance of our existing collaboration agreements and the entry into new collaboration agreements;

 

    AbbVie Inc.’s, or AbbVie’s, decision to exercise its rights to license vobarilizumab;

 

    our ability to find a new suitable partner for the development of vobarilizumab if AbbVie does not exercise its rights to license vobarilizumab and/or identify new indications for vobarilizumab which we could pursue independently;

 

    our ability to reach milestones under our existing collaboration arrangements;

 

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

 

    the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current and future product candidates;

 

    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 product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of our product candidates;

 

    selling and marketing activities undertaken in connection with the potential commercialization of our current or any future product candidates, if approved, and costs involved in the creation of an effective sales and marketing organization; and

 

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

Our ability to raise additional funds will depend on financial, economic and market conditions and other factors, over which we may have no or limited control. If adequate funds are not available on commercially acceptable terms when needed, or at all, we may be forced to delay, reduce or terminate the development or commercialization of all or part of our research programs or product candidates or we may be unable to take advantage of future business opportunities.

Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to make payments on our debt, and we may not have the ability to raise the funds necessary to settle conversions of, or repurchase, the convertible bonds upon a fundamental change, which could adversely affect our business, financial condition and results of operations.

We incurred significant indebtedness in the amount of €100.0 million in aggregate principal with additional

accrued interest under our 3.25% senior unsecured bonds due 2020, or the Bonds. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the Bonds, depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be

 

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required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. In addition, under the terms and conditions of the Bonds, upon the occurrence of certain events, the Bonds conversion rate will be adjusted to provide anti-dilution protection to the holders of the Bonds. These events include, among other events, the (i) consolidation, reclassification or subdivision of the ordinary shares without a change in our share capital, (ii) issuance of any ordinary shares that are credited as fully paid to shareholders by way of capitalization of profit or reserves (subject to certain limitations), (iii) payment of dividends to shareholders, (iv) issuance of ordinary shares, options, warrants or other rights, including in the global offering, at a price that is less than 95% of the weighted average of the market price of an ordinary share on the five consecutive dealing days ending on the dealing day immediately preceding a particular date, if such price is less than the then-current conversion rate, and (v) exercise of conversion rights after a change of control. Furthermore, upon a default under the Bonds, bondholders holding at least 25% of the aggregate principal amount of the outstanding Bonds may accelerate our payment obligations such that the principal amount of the Bonds and accrued interest (if any) to the date of payment will become immediately due. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Source of Funds” and “Description of Share Capital—Share Capital—Other Outstanding Securities.”

Upon conversion of the Bonds, unless we elect to deliver our ordinary shares to settle such conversion, we will be required to make cash payments in respect of the Bonds being converted. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Bonds surrendered therefor or Bonds being converted. Our failure to repurchase Bonds at a time when the repurchase is required or to pay any cash payable on future conversions of the Bonds as required would constitute a default. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Bonds or make cash payments upon conversions thereof.

In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:

 

    make us more vulnerable to adverse changes in general European, U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;

 

    limit our flexibility in planning for, or reacting to, changes in our business and our industry;

 

    place us at a disadvantage compared to our competitors who have less debt; and

 

    limit our ability to borrow additional amounts for working capital and other general corporate purposes, including to fund possible acquisitions of, or investments in, complementary businesses, products, services and technologies.

Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase. Furthermore, any decrease in our share price will result in a decrease in the fair value of the embedded derivative associated with the Bonds. See Note 5 in the notes to our annual financial statements appearing at the end of this prospectus for a description of embedded derivative risks associated with the Bonds.

Raising additional capital may cause dilution to holders of our ordinary shares or purchasers of ADSs or ordinary shares in the global offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our operations with our existing cash, cash equivalents and current financial assets, the net proceeds from the global offering, revenue from our collaborations, funding from governmental bodies and interest income from the

 

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investment of our cash, cash equivalents and financial assets. In order to further advance development of our product candidates, discover additional product candidates, redeem or repay our convertible bonds and pursue our other business objectives, however, we will need to seek additional funds.

We cannot guarantee that future financing will be available in sufficient amounts or on commercially reasonable terms, or at all. Moreover, the terms of any financing may adversely affect the holdings or the rights of holders of our ADSs or ordinary shares 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 or ordinary shares to decline. If the legal preferential subscription right provided for by Article 592 et. seq. of the Belgian Companies Code is cancelled or limited, the sale of additional equity or convertible securities could dilute all of our existing shareholders and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of ordinary shares or ADSs. The incurrence of indebtedness could 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 collaborators or others at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. Further, any additional fundraising efforts may divert our management from its day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates.

To the extent that we raise additional capital through the sale of equity or convertible bonds, our shareholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we 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 of our product candidates, 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.

If we are unable to use carryforward tax losses or benefit from favorable tax legislation to reduce our taxes, our business, results of operations and financial condition may be adversely affected.

On December 31, 2016, we had cumulative carry forward tax losses of €242.1 million in Belgium. These are, as a general rule, currently available to carry forward and offset against future taxable income for an indefinite period in Belgium. If we are unable to use carryforward tax losses to reduce our future taxable basis for corporate tax purposes, our business, results of operations and financial condition may be adversely affected.

As a company active in research and development in Belgium, we have benefited from certain research and development incentives including, for example, the Belgian research and development tax credit. These tax credits can be offset against Belgian corporate income tax due. The excess portion may be refunded at the end of a five-year fiscal period for the Belgian research and development incentive. The research and development incentives are calculated based on the amount of eligible research and development expenditure. The Belgian tax credit represented €19.5 million for the year ended December 31, 2016 and €15.7 million for the year ended December 31, 2015. The Belgian tax authorities may audit each research and development program in respect of which a tax credit has been claimed and assess whether it qualifies for the tax credit regime. The tax authorities may challenge our eligibility for, or our calculation of, certain tax reductions and/or deductions in respect of our research and development activities and, should the Belgian tax authorities be successful, we may be liable for additional corporate income tax, and penalties and interest related thereto, which could have a significant impact

 

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on our results of operations and future cash flows. Furthermore, if the Belgian government decides to eliminate, or reduce the scope or the rate of, the research and development incentive benefit, either of which it could decide to do at any time, our results of operations could be adversely affected.

We also expect to benefit in the future from the “patent income deduction” (which has been abolished but is subject to a grandfathering regime until June 30, 2021) and/or the new “innovation income deduction” which was recently introduced in Belgium by the Law of February 9, 2017 as a replacement of the patent income deduction. The patent income deduction allowed companies to deduct 80% of their gross patent income from their profit for the taxable period. This regime was, however, abolished by the Law of February 9, 2017 with a grandfathering period until June 30, 2021. Under this grandfathering, taxpayers can continue to benefit from the patent income deduction for patent income realized through June 30, 2021 to the extent it relates to patents for which the taxpayer filed an application prior to July 1, 2016, or which were acquired or licensed in prior to that date, for a period of maximum five years. As a replacement of the patent income deduction, the government introduced a new regime in order to promote innovation. A newly introduced innovation income deduction allows a company to deduct 85% of the net income derived from qualifying intellectual property rights (e.g. income from patented products) from the taxable basis for corporate income tax purposes. When taken in combination with carried forward tax losses and research and development incentives, we expect to be able to benefit from this lower tax rate. Any unexpected adverse changes to these Belgian tax regimes, or an inability to qualify for such advantageous tax legislation or these deductions, would adversely affect our business, results of operations and financial condition.

We have obtained funding from agencies of the government of the Flemish region of Belgium which contain certain covenants which may restrict our operations.

We have contracted over the past year numerous funding agreements with agencies of the Flemish government to partially finance our research and development programs. These funding agreements are subject to various criteria linked to employment and investment in the Flemish region of Belgium. We have committed to establish our operational site in the Flemish region, which must remain our major effective operational site, and to maintain our site and all our existing activities, including research and development in the Flemish region. Similarly, our funding agreement with one such agency of the Flemish government requires us to maintain substantial research and development activities in the Flemish region. Such undertakings restrict our ability to choose the most convenient or cost-effective location of our premises.

If we were to breach these contractual obligations, we may be held liable by the agencies of the Flemish government with which we have funding agreements for any damage incurred by the such agencies resulting from the breach of contract and we could be required to reimburse in full the subsidies granted by such agencies.

Further, pursuant to the general terms of each grant, certain Flemish agencies are entitled to re-evaluate the subsidies granted to us in case of a fundamental change in our shareholding base, which is not defined in the general terms, but we believe would involve a change of control of us. Any such reevaluation could negatively impact the funding that we receive or have received from the Flemish agencies.

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

Due to the international scope of our operations, our assets, earnings and cash flows are influenced by movements in exchange rates of several currencies, particularly the U.S. dollar, the British pound and the euro. Our functional currency is the euro and the majority of our operating expenses are paid in euro, but we also receive payments from our main business partners in U.S. dollars and we regularly acquire services, consumables and materials in U.S. dollars, British pounds and the euro. Further, potential future revenue may be derived from abroad, particularly from the United States. As a result, our business and share price may be affected by fluctuations in foreign exchange rates between the euro and these other currencies, which may also have a

 

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significant impact on our reported results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place. See Note 5 in the notes to our annual financial statements appearing at the end of this prospectus for a description of foreign exchange risks.

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

Risks Related to Development, Clinical Testing and Commercialization of Our Product Candidates

We are heavily dependent on the success of our lead product candidate, caplacizumab. We are also dependent on the success of our other late-stage product candidates, in particular, ALX-0171. We cannot give any assurance that any product candidate will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized.

Our business and future success is substantially dependent on our ability to develop, either alone or in partnership, successfully, obtain regulatory approval for, and then successfully commercialize our product candidate, caplacizumab, which recently completed a Phase III trial for acquired thrombotic thrombocytopenic purpura, or aTTP. Our business and future success also depend on our ability to develop successfully, obtain regulatory approval for, and then successfully commercialize, either on our own or with a partner, our other product candidates, such as ALX-0171, which is in a Phase IIb trial for the treatment of respiratory syncytial virus, or RSV, and vobarilizumab, which has completed two Phase IIb trials for the treatment of rheumatoid arthritis, or RA, and is currently in a Phase II trial for the treatment of systemic lupus erythematosus, or SLE. Our product candidates will require additional clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions (if regulatory approval can be obtained at all), securing sources of commercial manufacturing supply, building of, or partnering with, a commercial organization, substantial investment and significant marketing efforts before any revenues can be generated from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA, the EMA or any other comparable foreign regulatory authority, and we may never receive such regulatory approval for any of our product candidates. We cannot give any assurance our clinical trials for caplacizumab, ALX-0171 or vobarilizumab will be completed in a timely manner, or at all, or that we will be able to obtain approval from the FDA, the EMA or any other comparable regulatory authority for any of these product candidates. We cannot be certain that we will advance any other of our current or future product candidates into clinical trials. If any of caplacizumab, ALX-0171 or vobarilizumab or any current or future product candidate is not approved and successfully commercialized, we will not be able to generate any product revenues for that product candidate. Moreover, any delay or setback in the development of any product candidate could adversely affect our business and cause the price of our ADSs or ordinary shares to fall.

We are dependent on collaboration partners for the development and commercialization of vobarilizumab for the treatment of RA and SLE.

Under an agreement signed with AbbVie, at the time we released the Phase IIb trial results for vobarilizumab for the treatment of RA, AbbVie had an opt in right at the time to license vobarilizumab in exchange for milestone payments and royalties. In October 2016, AbbVie chose to not exercise that opt-in right. AbbVie will have another opt-in right to license vobarilizumab at the time the data from the SLE trial become

 

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available, upon payment of $25.0 million. If AbbVie exercises this right, it will also have an obligation to use commercially reasonable efforts to advance vobarilizumab in RA. If AbbVie does not opt-in and all rights that we granted to AbbVie with respect to vobarilizumab revert unencumbered to us, we expect to further explore whether we can identify another collaborator for the development of vobarilizumab for the treatment of either RA or SLE, or both and/or identify new indications for vobarilizumab which we could pursue independently. We currently do not plan on advancing the development of vobarilizumab on our own in RA or SLE. As such, if AbbVie does not exercise its rights and we are not able to enter into a collaboration with another partner to advance the development of vobarilizumab, we may not be able to realize the benefits of our development efforts to date and we may not be able to capture the potential value of this product candidate.

The complexity of a combination product that includes a biological product and a medical device presents additional, unique development and regulatory challenges, which may adversely impact our development plans and our ability to obtain regulatory approval of our product candidates, including caplacizumab for the treatment of aTTP, ALX-0171 for the treatment of RSV, and vobarilizumab for the treatment of RA and SLE.

A number of our product candidates include a biological product and a medical device component. For example, caplacizumab is comprised of caplacizumab powder for solution for injection, water for injection provided in a prefilled syringe, a vial adapter, a hypodermic needle with safety device and two alcohol pads; ALX-0171 relies on the combination of two components: a trivalent Nanobody and a nebulizer for delivery of the therapeutic; and vobarilizumab is currently being tested in a prefilled glass syringe presentation and may be further designed to be a pen injector.

We anticipate that caplacizumab and vobarilizumab will be reviewed as combination products, each as part of a single BLA. ALX-0171 currently uses a nebulizer and we do not yet know whether the nebulizer will be reviewed as part of a combination product as a BLA or if it will be subject to a separate device submission. The nebulizer we currently use is manufactured by the Vectura Group plc. In Europe, ALX-0171 will be regulated as a medicinal product for which a Marketing Authorization Application, or MAA, needs to be filed via the centralized procedure. In addition, the nebulizer device will need to be CE-marked as a medical device and the CE-certificate added to the Marketing Authorization Application dossier. In the United States, the nebulizer device is not 510(k)-cleared or approved for use in the administration of ALX-0171. If ALX-0171 and the nebulizer are reviewed in separate submissions, then both submissions must receive concurrent marketing authorizations. In addition, if the Vectura nebulizer is not cleared or approved as either part of our BLA submission for ALX-0171 or a separate device submission, our ability to obtain regulatory approval for ALX-0171 for RSV would be adversely affected.

Developing and obtaining regulatory approval for combination products such as caplacizumab, ALX-0171, and vobarilizumab pose unique challenges because they involve components that are regulated under different types of regulatory requirements, and by different FDA centers. As a result, such products raise regulatory, policy and review management challenges. For example, because divisions from both CBER and FDA’s Center for Devices and Radiological Health must review our submissions concerning product candidates that are combination products, the regulatory review and approval process for these products may be lengthened. In addition, differences in regulatory pathways for each component of a combination product can impact the regulatory processes for all aspects of product development and management, including clinical investigation, marketing applications, manufacturing and quality control, adverse event reporting, promotion and advertising, user fees and postapproval modifications. Similarly, the device components of our product candidates will require any necessary approvals or other marketing authorizations in other jurisdictions, which may prove challenging to obtain.

 

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The regulatory approval processes of the FDA, the EMA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA, the EMA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

    the FDA, the EMA or comparable foreign regulatory authorities may disagree with, question or request changes in, the design or implementation of our clinical trials, such as the FDA did with our RESPIRE trial;

 

    we may be unable to demonstrate to the satisfaction of the FDA, the EMA or comparable foreign regulatory authorities that a product candidate is safe, pure and potent or effective for its proposed indication;

 

    the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA or comparable foreign regulatory authorities for approval;

 

    we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

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

 

    the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a Biologics License Application, or BLA, to the FDA or other submission or to obtain regulatory approval in the United States, the European Union or elsewhere;

 

    the FDA, the EMA or foreign comparable authority may fail to approve or authorize the nebulizer being developed by Vectura Group plc, that we contemplate to be used to administer ALX-0171 for RSV;

 

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

 

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

This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations and prospects. The FDA, the EMA and other comparable foreign authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or

 

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may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

We have not previously submitted a Biologics License Application, or BLA, to the FDA, and we recently submitted our first MAA to the EMA for approval of caplacizumab for the treatment of aTTP. We cannot be certain that any of our other product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

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

If the FDA, the EMA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs and with good clinical practices, or GCPs for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. In addition, any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate.

Our product candidates are regulated as biologics in the United States and, therefore, can only be sold if we obtain a BLA from the FDA. The holder of a BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. The holder of a BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Failure to comply with a BLA or any other ongoing regulatory obligation may result in suspension of approval to manufacture or distribute the relevant product, as well as fines or imprisonment for violations. Similar requirements apply in the EU. Our product candidates can only be sold if we obtain a Marketing Authorization from the Committee for Medicinal Products for Human Use. We will then be required to monitor adverse events and report these via a pharmacovigilance system. Any changes to the manufacturing process will need to be submitted for notification and/or approval. Failure to comply may lead to withdrawal of the Marketing Authorization and fines.

If there are changes in the application of legislation, regulations or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include imposing fines on us, imposing restrictions on the product or its manufacture and requiring us to recall or remove the product from the market. The regulators could also suspend or withdraw our marketing authorizations, requiring us to conduct additional clinical trials, change our product labeling or submit additional applications for marketing authorization. If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations.

 

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Many of our product candidates are in pre-clinical or early-stage clinical development. Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of our late-stage product candidates, particularly caplacizumab and ALX-0171, are prolonged or delayed, we or our collaborators may be unable to obtain required regulatory approvals, and therefore will be unable to commercialize our product candidates on a timely basis or at all, which will adversely affect our business.

To obtain the requisite regulatory approvals to commercialize any of our product candidates, we or our collaborator for such candidates must demonstrate through extensive pre-clinical studies and clinical trials that our products are safe, pure and potent or effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process and our future clinical trial results may not be successful.

We may experience delays in our ongoing clinical trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all.

Clinical trials can be delayed, suspended, or terminated for a variety of reasons, including the following:

 

    delays in or failure to obtain regulatory approval to commence a trial;

 

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

 

    delays in or failure to obtain institutional review board, or IRB, or ethics committee approval at each site;

 

    delays in recruiting, or failure to recruit, suitable patients to participate in a trial;

 

    failure to have patients complete a trial or return for post-treatment follow-up;

 

    clinical sites deviating from trial protocol or dropping out of a trial;

 

    adding new clinical trial sites;

 

    manufacturing sufficient quantities of product candidate for use in clinical trials;

 

    third-party actions claiming infringement by our product candidates in clinical trials and obtaining injunctions interfering with our progress;

 

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

 

    changes in regulatory requirements, policies and guidelines;

 

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

 

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

 

    delays in establishing the appropriate dosage levels in clinical trials;

 

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

 

    business interruptions resulting from geo-political actions, including war and terrorism, natural disasters including earthquakes, typhoons, floods and fires, or failures or significant downtime of our information technology systems resulting from cyber attacks on such systems or otherwise.

We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted or ethics committees, by the Data Review Committee, or DRC, or Data

 

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Safety Monitoring Board, or DSMB, for such trial or by the EMA, the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the EMA, the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, including those relating to the class to which our product candidates belong, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability to commercialize our product candidates and may harm our business and results of operations.

Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates or result in the development of our product candidates being stopped early.

The results of pre-clinical studies and early-stage clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Initial success in our ongoing clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials.

Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and initial clinical trials. Furthermore, there can be no assurance that any of our clinical trials will ultimately be successful or support further clinical development of any of our product candidates. There is a high failure rate for drugs and biologics proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results.

Interim, top line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim, top line or preliminary data from our clinical trials. We may decide to conduct an interim analysis of the data after a certain number or percentage of subjects have been enrolled, but before completion of the trial. Similarly, we may report top line or preliminary results of primary and key secondary endpoints before the final trial results are completed. Preliminary, top line and interim data from our clinical trials may change as more patient data or analyses become available. Preliminary, top line or interim data from our clinical trials are not necessarily predictive of final results. Preliminary, top line and interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, more patient data become available and we issue our final clinical trial report. Interim, top line and preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, preliminary, interim and top line data should be viewed with caution until the final data are available. Material adverse changes in the final data compared to the interim data could significantly harm our business prospects.

 

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

Identifying and qualifying patients to participate in our clinical trials is critical to our success. Patient enrollment depends on many factors, including the size and nature of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability of new drugs approved for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies. Since some of our product candidates are focused on addressing rare diseases and conditions, there are limited patient pools from which to draw in order to complete our clinical trials in a timely and cost-effective manner. If the actual number of patients with the indications we are pursuing, or choose to pursue in the future, is smaller than we anticipate, we may encounter difficulties in enrolling patients in our clinical trials, thereby delaying or preventing development and approval of our drug candidates. Even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials.

In addition, any negative results we may report in clinical trials of our product candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same drug candidate. Delays in the enrollment for any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, some of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

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

We are currently assembling a sales and marketing infrastructure and have no experience in the sale or marketing of pharmaceutical products. To achieve commercial success for any approved product, we must develop or acquire a sales and marketing organization, outsource these functions to third-parties or enter into partnerships.

If caplacizumab is approved for commercial sale, we plan on establishing our own sales and marketing capabilities in North America and in the European Union with the support of a Contract Sales Organization, or CSO, while commercializing in Japan with a pharmaceutical partner, and in other geographies with specialized local distributors. There are risks involved in establishing our own sales and marketing capabilities as well as entering into arrangements with third-parties to perform these services. Even if we establish sales and marketing capabilities, we may fail to launch our products effectively or to market our products effectively since we have no experience in the sales and marketing of pharmaceutical products. In addition, recruiting and training a sales force is expensive and time consuming and could delay any product launch. In the event that any such launch is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel. Factors that may inhibit our efforts to commercialize our products on our own include:

 

    our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

    the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;

 

    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;

 

    unforeseen costs and expenses associated with creating an independent sales and marketing organization; and

 

    costs of marketing and promotion above those anticipated by us.

 

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If we enter into arrangements with third-parties to perform sales and marketing services for our products, the revenues or the profitability of these product revenues to us could be lower than if we were to market and sell any products that we develop ourselves. Such collaborative arrangements with partners may place the commercialization of our products outside of our control and would make us subject to a number of risks including that we may not be able to control the amount or timing of resources that our collaborative partner devotes to our products or that our collaborator’s willingness or ability to complete its obligations, and our obligations under our arrangements may be adversely affected by business combinations or significant changes in our collaborator’s business strategy. In addition, we may not be successful in entering into arrangements with third-parties to sell and market our products or may be unable to do so on terms that are favorable to us. Acceptable third-parties may fail to devote the necessary resources and attention to sell and market our products effectively.

If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third-parties, we may not be successful in commercializing our products, which in turn would have a material adverse effect on our business, prospects, financial condition and results of operations.

If the market opportunities for caplacizumab for the treatment of aTTP, or our other current or future product candidates, is smaller than we believe it is, our business may suffer.

Our lead product candidate is for the treatment of aTTP, which is an orphan disease. Given the small number of patients with aTTP, our eligible patient population and pricing estimates may differ significantly from the actual market addressable by caplacizumab. Our projections of both the number of people who have aTTP, as well as the subset of people who have the potential to benefit from treatment with caplacizumab, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, patient foundations, physicians or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of aTTP and the number of patients may turn out to be lower than expected. Similarly, we have based on our estimates on reimbursement rates on, among other things, our estimates of the prevalence of aTTP, the reimbursement for similar drugs and other assumptions which may be incorrect. If our estimates are incorrect, and the reimbursement rates for caplacizumab are lower than expected, assuming approval of caplacizumab, our results of operations and business may suffer.

Similarly, we have made certain estimates and assumptions regarding the market size and reimbursement rates for our other product candidates, including ALX-0171 and vobarilizumab, and may do so for future product candidates. If our estimates are incorrect, and the market size of for our product candidates are smaller than expected, our results of operations and business may suffer.

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

Undesirable side effects that may be 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, a requirement that we implement a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the product outweigh its risks, or the delay or denial of regulatory approval by the FDA, the EMA or other comparable foreign authorities. While our pre-clinical and clinical studies for our product candidates to date have generally been well tolerated from a risk-benefit perspective, the results from future trials may not support this conclusion.

For example, in the recently reported Phase III HERCULES trial of caplacizumab in 145 patients for the treatment of aTTP, a total of 532 treatment emergent adverse events, or TEAEs, were reported in 71 patients (97.3%) in the placebo treatment group compared with 571 TEAEs in 69 patients (97.2%) in the caplacizumab treatment group. The percentage of subjects with at least one study drug-related TEAE was lower in the placebo

 

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treatment group (32 subjects (43.8%)) compared with the caplacizumab treatment group (41 subjects (57.7%)). In the caplacizumab group, the most common study drug related TEAEs, or TEAEs that were assessed as possibly drug-related, were nosebleeds, bleeding of the gums, and bruising. TEAEs leading to study drug discontinuation were reported for nine patients in the placebo treatment group and five patients in the caplacizumab treatment group. At least one serious adverse event, or SAE, was reported for 39 subjects (53.4%) in the placebo group and 28 subjects (39.4%) in the caplacizumab group. In the placebo group, this was driven by the 28 subjects with recurrence of aTTP. Study drug-related SAEs were reported in four subjects (5.5%) in the placebo group and 10 subjects (14.1%) in the caplacizumab group. In the caplacizumab group, the most common SAE assessed as at least possibly study drug related were nosebleeds. Other SAEs assessed as at least possibly drug related included menorraghia (bleeding from the uterus), upper gastrointestinal bleeding, hematemesis, gingival bleeding, subarachnoid hemorrhage (bleeding in the space between the brain and the tissue covering the brain), ventricular fibrillation, and pain in the extremities. Three subjects in the placebo treatment group and one subject in the caplacizumab treatment group had TEAEs with death as the outcome. The latter subject experienced a SAE of cerebral ischemia during the follow-up period of the study. This event was assessed by the investigator as not related to study drug treatment.

The results of future clinical studies may show that our product candidates cause undesirable or unacceptable side effects or even death. In such an event, our trials could be suspended or terminated and the FDA, the EMA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Further, because all of our product candidates and pre-clinical programs are based on our proprietary Nanobody platform technologies, any adverse safety or efficacy findings related to any product candidate or pre-clinical program may adversely impact the viability of our other product candidates or pre-clinical programs.

Additionally, if any of our product candidates receive marketing approval and we or others later identify undesirable or unacceptable side effects caused by such products, a number of potentially significant negative consequences could result, including the following:

 

    regulatory authorities may withdraw approvals of such products and require us to take our approved product off the market;

 

    regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

    regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that we implement a REMS plan to ensure that the benefits of the product outweigh its risks;

 

    we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

    we may be subject to limitations on how we may promote the product;

 

    sales of the product may decrease significantly;

 

    we may be subject to litigation or product liability claims; and

 

    our reputation may suffer.

Any of these events could prevent us, our collaborators or our potential future partners from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our products.

 

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The future commercial success of our product candidates will depend on the degree of market acceptance of our potential products among physicians, patients, healthcare payers and the medical community.

Our product candidates are at varying stages of development and we may never have a product that is commercially successful. To date, we have no product authorized for marketing. Our lead product candidate, caplacizumab, may require further clinical investigation, regulatory review, significant marketing efforts and substantial investment before it can produce any revenues. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many other companies that have believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the marketing of their product. Due to the inherent risk in the development of pharmaceutical products, it is probable that not all or none of the product candidates in our portfolio will successfully complete development and be commercialized. Furthermore, when available on the market, our products may not achieve an adequate level of acceptance by physicians, patients and the medical community, and we may not become profitable. In addition, efforts to educate the medical community and third-party payers on the benefits of our products may require significant resources and may never be successful which would prevent us from generating significant revenues or becoming profitable. Market acceptance of our future products by physicians, patients and healthcare payers will depend on a number of factors, many of which are beyond our control, including, but not limited to the following:

 

    the wording of the product label;

 

    changes in the standard of care for the targeted indications for any product candidate;

 

    sales, marketing and distribution support;

 

    potential product liability claims;

 

    acceptance by physicians, patients and healthcare payers of each product as safe, effective and cost-effective;

 

    relative convenience, ease of use, ease of administration and other perceived advantages over alternative products;

 

    prevalence and severity of adverse events or publicity;

 

    limitations, precautions or warnings listed in the summary of product characteristics, patient information leaflet, package labeling or instructions for use;

 

    the cost of treatment with our products in relation to alternative treatments;

 

    the extent to which products are approved for inclusion and reimbursed on formularies of hospitals and managed care organizations; and

 

    whether our products are designated in the label, under physician treatment guidelines or under reimbursement guidelines as a first-line, second-line, or third-line or last-line therapy.

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

Our high dependency on public perception of our products may negatively influence the success of these products.

If any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of the safety and quality of our products. We could be adversely affected if we were subject to negative publicity or if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients. Because of our dependence upon consumer perception, any

 

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adverse publicity associated with illness or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies could have a material adverse impact on our business, prospects, financial condition and results of operations.

Future adverse events in research into the severe autoimmune diseases, inflammation and cancer that we focus our research efforts on, or the biopharmaceutical industry more generally, could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could delay or increase the costs of obtaining regulatory approval for our product candidates.

We face significant competition for our drug discovery and development efforts, and if we do not compete effectively, our commercial opportunities will be reduced or eliminated. We may not be successful in our efforts to use and expand our Nanobody technology to build a pipeline of product candidates and develop marketable products due to significant competition and technological change, which could limit or eliminate the market opportunity for our product candidates and technology platform.

The market for pharmaceutical products is highly competitive. Our competitors include many established pharmaceutical companies, biotechnology companies, academic institutions and other research or commercial institutions, many of which have substantially greater financial, research and developmental resources than we have. Many of our competitors and potential competitors have substantially greater scientific, research and product development capabilities as well as greater financial, manufacturing, marketing and human resources than we do. In addition, there is intense competition for establishing clinical trial sites and registering patients for clinical trials.

Many specialized biotechnology firms and early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third-parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the development of our products. The fields in which we operate are characterized by a rapidly growing understanding of disease biology, quickly changing technologies, strong intellectual property barriers to entry, and a multitude of companies involved in the creation, development and commercialization of novel therapeutics. There can be no assurance that our competitors are not currently developing, or will not in the future develop, technologies and products that are equally or more effective or are more economically attractive as any of our current or future technology or product. Competing products or technology platforms may gain faster or greater market acceptance than our products or technology platforms and medical advances or rapid technological development by competitors may result in our product candidates or technology platforms becoming non-competitive or obsolete before we are able to recover our research and development and commercialization expenses. If we, our product candidates or our technology platforms do not compete effectively, it may have a material adverse effect on our business, prospects, financial condition and results of operation.

Competition for the indications we pursue is intense and includes multiple antibody fragments, single-domain antibodies, other biologics and small molecules either already marketed or in development by large pharmaceutical companies such as AbbVie, which markets Humira for the treatment of RA and other indications; Amgen Inc., which markets Enbrel for the treatment of RA and other indications; GlaxoSmithKline plc, which markets Benlysta for the treatment of SLE; and Janssen Pharmaceuticals Inc., which markets Remicade for the treatment of RA. In some cases, these competitors are also our collaborators. In addition, these and other pharmaceutical companies have monoclonal antibodies or other biologics in clinical development for the treatment of autoimmune diseases. In addition to the current standard of care, we are aware that Eli Lily, Sanofi, Novartis and others are developing drugs that may have utility for the treatment of RA; Roche Holding AG, AstraZeneca plc, Amgen Inc. and others are developing drugs that may have utility for the treatment of SLE; and we are aware of competing products specifically targeting RSV infection that are being developed by

 

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AstraZeneca plc, Regeneron Pharmaceuticals, Inc. and others. We are not aware of any drug candidates in development for the treatment of aTTP that may compete with caplacizumab in the future, although Shire plc does have a recombinant ADAMTS13 enzyme which they are developing for congenital TTP which they may choose to explore in the treatment of aTTP.

Similarly, other companies have single-domain antibody drug discovery platforms that may compete with us in the search for novel therapeutic antibody targets, including Argenx SE, Galapagos NV, and BeiGene, Ltd.

We anticipate that we will face intense and increasing competition as new treatments enter the market and advanced technologies become available.

Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own pre-clinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA is complex and is still being interpreted and implemented by the FDA. As a result, the law’s ultimate impact, implementation and meaning are subject to uncertainty.

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. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar product, once approved, could compete with or replace any one of our reference products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. See “Business—Government Regulation—Biosimilars and Exclusivity” for more details regarding biosimilar regulatory exclusivities.

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

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

 

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Failure to successfully identify, develop and commercialize additional products or product candidates could impair our ability to grow.

Although a substantial amount of our efforts will focus on the continued pre-clinical and clinical testing and potential approval of the product candidates in our current pipeline, a key element of our long-term growth strategy is to develop and market additional products and product candidates. Because we have limited financial and managerial resources, research programs to identify product candidates will require substantial additional technical, financial and human resources, whether or not any product candidates are ultimately identified. The success of this strategy depends partly upon our ability to identify, select and develop promising product candidates and products. Our technology may fail to discover and to generate additional product candidates that are suitable for further development. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate may not be suitable for clinical development as a result of its harmful side effects, limited efficacy or other characteristics that indicate that it is unlikely to be a product that will receive approval by the FDA, the EMA and other comparable foreign regulatory authorities and achieve market acceptance. If we do not successfully develop and commercialize product candidates based upon our technological approach, we may not be able to obtain product or collaboration revenues in future periods, which would adversely affect our business, prospects, financial condition and results of operations.

Our long-term growth strategy to develop and market additional products and product candidates is heavily dependent on precise, accurate and reliable scientific data to identify, select and develop promising pharmaceutical product candidates and products. Our business decisions may therefore be adversely influenced by improper or fraudulent scientific data sourced from third-parties. Any irregularities in the scientific data used by us to determine our focus in research and development of product candidates and products could have a material adverse effect on our business, prospects, financial condition and results of operations.

If we fail to obtain and maintain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenue will be reduced.

Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, after a recommendation from the EMA’s Committee for Orphan Medicinal Products, or COMP, the European Commission grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition. Though the orphan drug designation application is currently pending in Japan, our failure to obtain marketing approval of caplacizumab in Japan would prevent caplacizumab from being marketed in Japan. Any approval that we are granted for our product candidates in the United States or Europe would not assure approval of product candidates in the other or in any other jurisdiction. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the

 

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same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

In 2009, both the FDA and EMA granted orphan drug designation to caplacizumab for treatment of aTTP and an application for orphan drug designation is pending in Japan. We may also seek orphan drug designation in the United States, Europe or Asia for certain indications addressed by our current and future product candidates. Even if we are able to obtain orphan designation, we may not be the first to obtain marketing approval for such indication due to the uncertainties associated with developing pharmaceutical products. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA or the EMA can subsequently approve the same drug with the same active moiety for the same condition if the FDA or the EMA concludes that the later drug is safer, more effective, or makes a major contribution to patient care.

A Breakthrough Therapy Designation by the FDA for our product candidates 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 some of our product candidates. A breakthrough therapy is defined as a drug 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 drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs 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. Drugs designated as breakthrough therapies by the FDA may also be eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets 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 result in a faster development process, review or approval compared to drugs considered for approval under non-expedited FDA review 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 drugs no longer meet the conditions for qualification.

Fast Track Designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

In July 2017, we received Fast Track Designation from the FDA for caplacizumab. We may also seek Fast Track Designation for some of our other product candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not

 

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to grant this designation, so even if we believe a particular product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even though we have received Fast Track Designation for caplacizumab or if we receive Fast Track Designation for future product candidates, we may not experience a faster development process, review or approval compared to non-expedited FDA review procedures. In addition Fast Track Designation, the FDA may withdraw Fast Track Designation for caplacizumab or any other product candidate that is granted Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.

We rely and will continue to rely on collaborative partners regarding the development of our research programs and product candidates. If we fail to enter into new strategic relationships, our business, financial condition, commercialization prospects and results of operations may be materially adversely affected.

We are, and expect to continue to be, dependent on partnerships for the development and commercialization of our existing and future research programs and product candidates. We currently have collaborative research relationships with various pharmaceutical companies such as AbbVie, Boehringer Ingelheim, Eddingpharm, Merck & Co., Inc., Merck KGaA, Novartis Pharma AG, Novo Nordisk A/S, Taisho Pharmaceutical Co., Ltd., and Sanofi S.A. and with various academic and research institutions worldwide, for the development of product candidates resulting from such collaborations. Entering into collaboration agreements is a central part of our business strategy, and we will continue to have discussions on potential partnering opportunities with various pharmaceutical companies. If we fail to enter into or maintain collaborations on reasonable terms or at all, our ability to develop our existing or future research programs and product candidates could be delayed, the commercial potential of our products could change and our costs of development and commercialization could increase.

Our dependence on collaborative partners subjects us to a number of risks, including, the following:

 

    we may not be able to control the amount and timing of resources that the collaboration partner devotes to our research programs and product candidates;

 

    for collaboration agreements where we are solely or partially responsible for funding development expenses through a defined milestone event, the payments we receive from the collaboration partner may not be sufficient to cover the expenses have or would need to incur in order to achieve that milestone event;

 

    we may be required to relinquish significant rights, including intellectual property, marketing and distribution rights;

 

    our anticipated payments under any partnership agreement (e.g., royalty payments for licensed products) may not materialize;

 

    we rely on the information and data received from third-parties regarding their research programs and product candidates;

 

    we will not have control of the process conducted by the third-party in gathering and composing data regarding their research programs and product candidates and we may not have formal or appropriate guarantees from its contract parties with respect to the quality and the completeness of such data;

 

    if our collaborators, including AbbVie, fail to exercise their options to license our product candidates, or if rights to develop and commercialize our product candidates subject to collaborations revert to us for any reason, we may not have sufficient financial resources to develop such product candidates, which may result in us failing to recognize any value from our investments in developing such product candidates;

 

    our collaboration agreements contain, and future agreements may also contain, non-competition provisions which place restrictions on our business operations and the indications we may pursue;

 

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    a collaborative partner may develop a competing product either by itself or in collaboration with others, including one or more of our competitors;

 

    our collaborative partners’ willingness or ability to complete their obligations under our partnership arrangements may be adversely affected by business combinations or significant changes in a collaborative partner’s business strategy;

 

    we may experience delays in, or increases in the costs of, the development of our research programs and product candidates due to the termination or expiration of collaborative research and development arrangements;

 

    we may have disagreements with collaborative partners, including disagreements over proprietary rights, contract interpretation or the preferred course of development that might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;

 

    collaborative partners may not properly obtain, maintain, defend or enforce our intellectual property rights or may use proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; and

 

    collaborative partners may infringe, misappropriate or otherwise violate the intellectual property rights of third-parties, which may expose us to litigation and potential liability.

We face significant competition in seeking appropriate collaborative partners. Our ability to reach a definitive agreement for a partnership depends, among other things, upon our assessment of a potential collaborator’s resources and expertise, the terms and conditions of the proposed partnership and the potential collaborator’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of regulatory approval, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership regardless of the merits of the challenge and industry and market conditions generally. A potential collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a partnership could be more attractive than the one with us.

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

We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Currently, we have no products that have been approved for commercial sale; however, the current and future use of product candidates by us and our corporate collaborators in clinical trials, and the potential sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients who use our products, healthcare providers, pharmaceutical companies, our corporate collaborators or other third parties that sell our products. Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization of our product candidates. Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates causes adverse side effects during clinical trials or after regulatory approval, we may be exposed to substantial liabilities. Physicians and patients may not comply with warnings that identify known potential adverse effects and describe which patients should not use our product candidates. Regardless of the merits or eventual outcome, liability claims may cause, among other things, the following:

 

    decreased demand for our products due to negative public perception;

 

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    injury to our reputation;

 

    withdrawal of clinical trial participants or difficulties in recruiting new trial participants;

 

    initiation of investigations by regulators;

 

    costs to defend or settle the related litigation;

 

    a diversion of management’s time and our resources;

 

    substantial monetary awards to trial participants or patients;

 

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

 

    loss of revenues from product sales; and

 

    the inability to commercialize any of our product candidates, if approved.

Liability claims resulting from any of the events described above could have a material adverse effect on our business, financial condition and results of operations.

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

Outbreaks of diseases in llamas and other livestock diseases could have a material adverse effect on our

business.

We create Nanobodies from B-cells isolated from the tissue taken from immunized llamas. Outbreaks of livestock diseases such as blue tongue disease could restrict our ability to source and transport llamas which could adversely impact our operations. We currently source llamas from two different vendors who stable the llamas in four different locations in Belgium. In the event these two vendors cannot meet our supply needs, and we are unable to find new vendors on suitable terms, if at all, there could be an adverse effect on our business.

An outbreak of livestock diseases may result in restrictions on the transportation of livestock within, to or from these locations. Any outbreak of a livestock disease could result in any of the following measures being imposed by the relevant European governmental authorities:

 

    restrictions on the movement and/or sale of our llamas;

 

    requirements for us to destroy one or more of our herds; or

 

    placing our facilities in quarantine until the threat of disease spreading is eliminated.

We do not maintain insurance to cover the consequences of livestock disease, including those cited above. Therefore, there can be no guarantee that any compensation will be available in the event of any livestock disease outbreak.

The use of animals in our research and development could generate negative publicity for us and public expressions of concern with respect to the use of animals in general could result in greater governmental regulation. Any of these factors could delay or even prevent the successful development of potential products and may have an adverse effect on our business.

 

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We may not be able to integrate efficiently or achieve the expected benefits of any acquisitions of complementary businesses, product candidates or technologies.

Since our inception in 2001, our growth has not depended on acquisitions. Should we in the future contemplate to acquire any complementary business, product candidate or technology, our ability to integrate and manage acquired businesses, product candidates or technologies effectively will depend upon a number of factors including the size of the acquired business, the complexity of any product candidate or technology and the resulting difficulty of integrating the acquired business’s operations, if any. Our relationship with current employees or employees of any acquired business may become impaired as a result of an acquisition. We may also be subject to unexpected claims and liabilities arising from such acquisitions. These claims and liabilities could be costly to defend, could be material to our financial position and might exceed either the limitations of any applicable indemnification provisions or the financial resources of the indemnifying parties. There can also be no assurance that we will be able to assess ongoing profitability and identify all actual or potential liabilities of a business, product candidate or technology prior to its acquisition. If we acquire businesses, product candidates or technologies that result in assuming unforeseen liabilities for which contractual protections have not been obtained or are not available, our business, prospects, financial condition and results of operations could be materially adversely affected.

Our business is subject to economic, political, regulatory and other risks associated with international operations.

Our business is subject to risks associated with conducting business internationally. Accordingly, our future results could be harmed by a variety of factors, including the following:

 

    economic weakness, including inflation, or political instability in particular non-U.S. economies and markets;

 

    differing regulatory requirements for drug approvals;

 

    differing jurisdictions could present different issues for securing, maintaining or obtaining freedom to operate in such jurisdictions;

 

    potentially reduced protection for intellectual property rights;

 

    difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;

 

    changes in regulations and customs, tariffs and trade barriers;

 

    changes in currency exchange rates of the euro, U.S. dollar, British pound and Swiss francs and currency controls;

 

    changes in a specific country’s or region’s political or economic environment;

 

    trade protection measures, import or export licensing requirements or other restrictive actions by governments;

 

    differing reimbursement regimes and price controls in certain international markets;

 

    negative consequences from changes in tax laws;

 

    compliance with tax, employment, immigration and labor laws for employees living or traveling abroad, including, for example, the variable tax treatment in different jurisdictions of stock options granted under our employee stock plan;

 

    workforce uncertainty in countries where labor unrest is more common than in the United States and European Union;

 

    difficulties associated with staffing and managing international operations, including differing labor relations;

 

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    production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

    business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Risks Related to Regulatory Compliance

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

In the United States, the European Union and other foreign jurisdictions, there have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, became law. The ACA is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

Among the provisions of the ACA of importance to our potential product candidates are the following:

 

    an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications;

 

    expansion of eligibility criteria for Medicaid programs, a Federal and state program which extends healthcare to low income individuals and other groups, by, among other things, allowing states to offer Medicaid coverage to additional individuals and adding new eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

 

    expansion of manufacturers’ rebate liability under the Medicaid Drug Rebate Program, which requires that drug manufacturers provide rebates to states in exchange for state Medicaid coverage for most of the manufacturers’ drugs, by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicare Advantage plans (i.e. a type of Medicare healthcare plan offered by private companies);

 

    a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that are inhaled, infused, instilled, implanted or injected;

 

    expanding the types of entities eligible for the 340B drug discount program, which requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations and covered entities at significantly reduced prices;

 

    establishing the Medicare Part D coverage gap discount program, which requires manufacturers to provide a 50% point-of-sale-discount off the negotiated price of applicable products to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient products to be covered under Medicare Part D;

 

    creation of a new non-profit, nongovernmental institute, called the Patient-Centered Outcomes Research Institute, to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research;

 

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    creation of the Independent Payment Advisory Board, or IPAB, which, if impaneled, would have authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription products; and

 

    establishment of the Center for Medicare and Medicaid Innovation within Centers for Medicare & Medicaid, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription product spending (funding has been allocated to support the mission of the CMS Innovation through 2019).

The current administration supports a repeal of the ACA and an Executive Order has been signed commanding federal agencies to try to waive or delay requirements of the ACA that impose economic or regulatory burdens on states, families, the health-care industry and others. The Executive Order also declares that the administration will seek the “prompt repeal” of the law and that the government should prepare to “afford the States more flexibility and control to create a more free and open healthcare market.” At this time, the immediate impact of the Executive Order is not clear. Congress also could consider subsequent legislation to replace elements of the ACA that are repealed. We cannot predict how the ACA’s possible repeal, or any legislation that may be proposed to replace the ACA will impact our business.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These new laws may result in additional reductions in Medicare and other healthcare funding. For example, on August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. The Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including without limitation the Bipartisan Budget Act of 2015, will remain in effect through 2025 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other health care funding, which could have a material adverse effect on our customers and accordingly, our financial operations.

Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. The U.S. Department of Health and Human Services, or HHS, has set a goal of moving 30% of Medicare payments to alternative payment models by 2016 and 50% of Medicare payments into these alternative payment models by the end of 2018. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Specifically, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.

Further, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals, if any, of our product candidates, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or

 

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prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing conditions and other requirements.

Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payers or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.

In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our current or any future products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or Member State level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most European Union member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.

We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States, the European Union or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

We may be subject to healthcare laws, regulation and enforcement; our failure to comply with these laws could harm our results of operations and financial conditions.

Although we do not currently have any products on the market, our current and future operations may be directly, or indirectly through our customers and third-party payers, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute. Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws impact, among other things, our proposed sales, marketing and education programs and constrain our business and financial arrangements and relationships with third-party payers, healthcare professionals who participate in our clinical research program, healthcare professionals and others who recommend, purchase, or provide our approved products, and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Finally, our current and future operations are subject to additional healthcare-related statutory and

 

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regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. These laws include, but are not limited to, the following:

 

    the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

    the U.S. federal false claims and civil monetary penalties laws, including, without limitation, the civil False Claims Act (which can be enforced through “qui tam,” or whistleblower actions, by private citizens on behalf of the federal government), which impose criminal and civil penalties against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent or for knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government;

 

    the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services;

 

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, and as amended again by the Final HIPAA Omnibus Rule, published in January 2013, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and healthcare providers, as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information;

 

    the U.S. Federal Food, Drug, and Cosmetic Act, or FDCA, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices;

 

    the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to the CMS information related to certain payments and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

 

   

analogous state laws and regulations, including the following: state anti-kickback and false claims laws, which may apply to our business practices, including research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payer, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities, and state laws governing the privacy and security of health information in certain

 

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circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

 

    the European and other foreign law equivalents of each of these laws, including reporting requirements detailing interactions with and payments to healthcare providers.

It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm and the curtailment or restructuring of our operations.

The risk of us being found in violation of these laws is increased because many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. For example, the definition of the “remuneration” under the federal Anti-Kickback Statute has been interpreted to include anything of value. Further, courts have found that the federal Anti-Kickback Statute is violated if “one purpose” of remuneration is to induce referrals.

Additionally, recent healthcare reform legislation has strengthened federal and state healthcare fraud and abuse laws. For example, the ACA amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that liability under these statutes does not require a person or entity to have actual knowledge of the statutes or a specific intent to violate them. Moreover, the ACA provides that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

Efforts to ensure that our business arrangements with third-parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate reimbursement levels and pricing policies. Failure to obtain or maintain adequate coverage and reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payers are essential for most patients to be able to afford products such as our product candidates, assuming approval. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize, and attract additional collaboration partners to invest in the development of our product candidates. Assuming we obtain coverage for a given product by a third-party payer, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

 

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Third-party payers increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payers may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payer may consider our product candidate and other therapies as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved efficacy or improved convenience of administration with our product candidate, pricing of existing drugs may limit the amount we will be able to charge for our product candidate. These payers may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates, and may not be able to obtain a satisfactory financial return on products that we may develop.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payers, including private and governmental payers, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payers and other governmental payers develop their coverage and reimbursement policies for drugs and biologics. Some third-party payers may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse health care providers who use such therapies. It is difficult to predict at this time what third-party payers will decide with respect to the coverage and reimbursement for our product candidates.

Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for drug products exists among third-party payers in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payer to payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most European Union Member States have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval.

Moreover, increasing efforts by governmental and third-party payers in the European Union, the United States and elsewhere to cap or reduce healthcare costs may cause such organizations to limit both coverage and

 

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the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

Nearly all aspects of our activities are subject to substantial regulation. No assurance can be given that any of our product candidates will fulfill regulatory compliance. Failure to comply with such regulations could result in delays, suspension, refusals and withdrawal of approvals as well as fines.

The biopharmaceutical and medical technology industry is highly regulated by the FDA, the EMA and other comparable national and supra-national regulatory authorities that impose substantial requirements covering nearly all aspects of our activities, notably relating to research and development, manufacturing, preclinical tests, clinical trials, labeling, marketing, sales, storage, record keeping, promotion and pricing of our product candidates. Such regulation is further subject to regular review by the FDA, the EMA and other comparable foreign authorities which may result in changes in applicable regulation. Compliance with the requirements of local regulatory authorities, including, among others, the FDA and EMA, is necessary in each country where we, or any of our partners or licensees, conduct said activities in whole or in part. If we do not comply with one or more of these requirements in a timely manner, or at all, our product development could experience significant delays as a result of the FDA, the EMA or other comparable regulatory authorities recommending non-approval or restrictions on approval of a product candidate, leading to an inability to successfully commercialize such product candidate, which would materially harm our business. Any failure of any of our product candidates in clinical studies or to receive regulatory approval could have a material adverse effect on our business, results of operations and financial condition. If any of our product candidates fails to obtain approval on the basis of any applicable condensed regulatory approval process, this will prevent such product candidate from obtaining approval on a shortened time frame, or at all, resulting in increased expenses which would materially harm our business.

Compliance with requirements laid down by local regulatory authorities is necessary in each country where we, or any of our partners or licensees, conduct said activities in whole or in part. Local regulatory authorities notably include the EMA and the FDA. In order to market our future products in regions such as the European Economic Area, United States of America, Asia Pacific and many other foreign jurisdictions, we must obtain separate regulatory approvals. The approval procedures vary among countries and can require additional clinical testing, and the time required to obtain approval may differ from that required to obtain for example FDA or EMA approval. Moreover, clinical studies conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA or EMA does not ensure approval by the comparable foreign authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA or EMA.

There can be no assurance that our product candidates will fulfil the criteria required to obtain necessary regulatory approval to access the market. Also, at this time, we cannot guarantee or know the exact nature, precise timing and detailed costs of the efforts that will be necessary to complete the remainder of the development of our research programs and products candidates. Each of the FDA, the EMA and other comparable foreign authorities may impose its own requirements, may discontinue an approval or revoke a license, may refuse to grant approval, or may require additional data before granting approval, notwithstanding that approval may have been granted by the FDA, the EMA or one or more other comparable foreign authority. The FDA, the EMA or other comparable foreign authorities may also approve a product candidate for fewer or more limited indications or patient sub-segments than requested or may grant approval subject to the performance of post-marketing studies. The EMA’s, the FDA’s or other regulatory authority’s approval may be delayed, limited or denied for a number of reasons, most of which are beyond our control. Such reasons could include, among others, the production process or site not meeting the applicable requirements for the

 

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manufacture of regulated products, or the products not meeting applicable requirements for safety, purity or potency, or efficacy, during the clinical development stage or after marketing. No assurance can be given that clinical trials will be approved the FDA, the EMA or other comparable foreign authorities or that products will be approved for marketing by such regulatory authorities in any pre-determined indication or intended use. Any of the FDA, the EMA and other comparable foreign authorities may disagree with our interpretation of data submitted for their review.

We and our collaborative partners are, or may become subject to, other ongoing regulatory obligations, including data protection, environmental, health and safety laws and restrictions on the experimental use of animals. The costs of compliance with such applicable regulations, requirements or guidelines could be substantial, and failure to comply could result in, among other things, sanctions, fines, injunctions, civil penalties, denial of applications for marketing authorization of our products, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly increase our or our collaborative partners’ costs or delay the development and commercialization of our product candidates.

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

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

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

Risks Related to Intellectual Property

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

Our commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property rights for our product candidates, methods used to manufacture those products and the methods for treating patients using those products, or on licensing in such rights. Failure to obtain, maintain protect, enforce or extend adequate patent and other intellectual property rights could materially adversely affect our ability to develop and market our products and product candidates. We also rely on trade secrets and know-how to develop and maintain our proprietary and intellectual property position. Any failure to protect our trade secrets and know-how could adversely affect our operations and prospects.

We cannot be certain that patents will be issued or granted with respect to patent applications that are currently pending, or that issued or granted patents will not later be found to be invalid or unenforceable. The

 

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patent position of biopharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the European Patent Office, the U.S. Patent and Trademark Office, or USPTO, and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biopharmaceutical patents. Consequently, patents may not issue from our pending patent applications, and even if they do issue, such patents may not issue in a form that effectively prevents others from commercializing competing products. As such, we do not know the degree of future protection that we will have on our proprietary products and technology. The scope of patent protection that the European Patent Office and the USPTO will grant with respect to the molecules in our Nanobody product pipeline is uncertain. It is possible that the European Patent Office and the USPTO will not allow broad claims that cover antibody fragments closely related to our Nanobody product candidates as well as the specific Nanobody. As a result, upon receipt of EMA or FDA approval, competitors may be free to market antibody fragments almost identical to our Nanobodies, including biosimilar Nanobodies, thereby decreasing our market share. However, a competitor cannot submit to the FDA an application for a biosimilar product based on one of our products until four years following the date of approval of our “reference product,” and the FDA may not approve such a biosimilar product until 12 years from the date on which the reference product was approved. See the section of this prospectus titled “Business—Government Regulation—Biosimilars and Exclusivity” for more details regarding biosimilar regulatory exclusivities.

The patent prosecution process is expensive, complex and time-consuming, and we and our current or future licensors, licensees or collaboration partners may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our licensors, licensees or collaboration partners will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. In addition, although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or any licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions.

Further, the issuance, scope, validity, enforceability and commercial value of our and our current or future licensors’, licensees’ or collaboration partners’ patent rights are highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products.

Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third-parties and are reliant on our licensors, licensees or collaboration partners. For example, under our license, research or collaboration agreements with Merck & Co., Inc., AbbVie, Novo Nordisk and Boehringer Ingelheim, we granted such partners the exclusive right to prosecute certain patents developed or licensed under the applicable agreement. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaboration partners fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or collaboration partners are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.

 

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The patent examination process may require us or our licensors, licensees or collaboration partners to narrow the scope of the claims of our or our licensors’, licensees’ or collaboration partners’ pending and future patent applications, which may limit the scope of patent protection that may be obtained. We cannot assure you that all of the potentially relevant prior art relating to our patents and patent applications has been found. If such prior art exists, it can invalidate a patent or prevent a patent from issuing from a pending patent application.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may initiate an opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation proceedings in court or before patent offices, or similar proceedings challenging the validity, enforceability or scope of such patents, which may result in the patent claims being narrowed or invalidated.

Our and our licensors’, licensees’ or collaboration partners’ patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology. In addition, patents and other intellectual property rights also will not protect our technology and product candidates if third parties, including our competitors, design around our protected technology and product candidates without infringing, misappropriating or otherwise violating our patents or other intellectual property rights. Moreover, some of our patents and patent applications are, and may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

Because patent applications are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or our licensors, licensees or collaborators were or will be the first to file any patent application related to a product candidate. Furthermore, if patent applications of third parties have an effective filing date before March 16, 2013, an interference proceeding can be initiated by such third-parties to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. If patent applications of third parties have an effective filing date on or after March 16, 2013, a derivation proceeding can be initiated by such third parties to determine whether our invention was derived from theirs. Even where we have a valid and enforceable patent, we may not be able to exclude others from practicing our invention where the other party can show that they used the invention in commerce before our filing date or the other party benefits from a compulsory license. In addition, we may be subject to third-party challenges regarding our exclusive ownership of our intellectual property. If a third party were successful in challenging our exclusive ownership of any of our intellectual property, we may lose our right to use such intellectual property, such third party may be able to license such intellectual property to other third parties, including our competitors, and our competitors could market competing products and technology. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.

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

To protect our competitive position, we may from time to time need to resort to litigation in order to enforce or defend any patents or other intellectual property rights owned by or licensed to us, or to determine or challenge the scope or validity of patents or other intellectual property rights of third parties. As enforcement of intellectual property rights is difficult, unpredictable and expensive, and many of our or our licensors’ or collaboration partners’ adversaries in these proceedings may have the ability to dedicate substantially greater

 

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resources to prosecuting these legal actions than we or our licensors or collaboration partners can. Accordingly, despite our or our licensors’ or collaboration partners’ efforts, we or our licensors or collaboration partners may not prevent third parties from infringing upon, misappropriating or otherwise violating intellectual property rights we own or control, particularly in countries where the laws may not protect those rights as fully as in the United Kingdom, European Union and the United States. We may fail in enforcing our rights, in which case our competitors and other third parties may be permitted to use our technology without payment to us.

In addition, litigation involving our patents carries the risk that one or more of our patents will be narrowed, held invalid (in whole or in part, on a claim-by-claim basis) or held unenforceable. Such an adverse court ruling could allow third parties to commercialize our products or use our proprietary Nanobody platform technologies, and then compete directly with us, without payment to us.

If we were to initiate legal proceedings against a third-party to enforce a patent covering one of our products, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States or in Europe, defendant counterclaims alleging invalidity or unenforceability are commonplace. A claim for a validity challenge may be based on failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. A claim for unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the European Patent Office or the USPTO or made a misleading statement, during prosecution. Third parties may also raise challenges to the validity of our patent claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our technology or platform, or any product candidates that we may develop. The outcome following legal assertions of invalidity and unenforceability during patent litigation or other proceedings is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant or third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our product candidates or certain aspects of our propriety Nanobody platform technologies. Such a loss of patent protection could have a material adverse impact on our business financial condition, results of operations, and prospects. Further, litigation could result in substantial costs and diversion of management resources, regardless of the outcome, and this could harm our business and financial results.

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

Periodic maintenance and annuity fees on any issued patent are due to be paid to the European Patent Office, the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The European Patent Office, the USPTO and various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In certain circumstances, we rely on our collaboration partners to pay these fees due to U.S. and non-U.S. patent agencies and take the necessary action to comply with such requirements with respect to our intellectual property. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors or collaboration partners fail to maintain the patents and patent applications covering our product candidates, third parties, including our competitors might be able to enter the market with similar or identical products or technologies, which would have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

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If we do not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for extending the term of patents covering each of our product candidates, our business may be materially harmed.

In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates, their manufacture, or use are obtained, once the patent life has expired, we may be open to competition from competitive products, including biosimilar medications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. For example, certain of our in-licensed patents covering our Nanobody technology have recently expired. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act and similar legislation in the European Union. The Hatch-Waxman Act permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term loss during product development and the FDA regulatory review process. The patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method of manufacturing it may be extended. However, we may not receive an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will not be lengthened and third parties, including our competitors may obtain approval to market competing products sooner than we expect. As a result, our revenue from applicable products could be materially reduced and our business, financial condition, results of operations, and prospects could be materially harmed.

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

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

 

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

 

    the patents of third parties may have an adverse effect on our business;

 

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

 

    we or our licensors or any current or future collaboration partners might not have been the first to file patent applications covering certain of our inventions;

 

    others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing misappropriating or otherwise violating our intellectual property rights;

 

    it is possible that our current and future pending patent applications will not lead to issued patents;

 

    issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by third parties;

 

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

 

    third parties performing manufacturing or testing for us using our products or technologies could use the intellectual property of others without obtaining a proper license;

 

    we may not develop additional technologies that are patentable; and

 

    we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Our ability to compete may be adversely affected if we are unsuccessful in defending against any claims by competitors or others that we are infringing misappropriating or otherwise violating upon their intellectual property rights.

The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In particular, companies producing therapeutics have employed intellectual property litigation as a means to gain an advantage over their competitors. As a result, we may be required to defend against claims of intellectual property infringement, misappropriation or violation that may be asserted by third parties, including our competitors against us and, if the outcome of any such litigation is adverse to us, it may affect our ability to compete effectively.

Our involvement in litigation, and any interference, derivation, reexamination, inter partes review opposition or post-grant proceedings or other intellectual property proceedings inside and outside of the European Union or the United States may divert management time from focusing on business operations, could cause us to spend significant amounts of money and may have no guarantee of success. Any potential intellectual property proceedings also could force us to, among other things, do one or more of the following:

 

    stop selling, incorporating, manufacturing or using our products in the United States or other jurisdictions that use the subject intellectual property;

 

    obtain from a third-party asserting its intellectual property rights, a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all, or may be non-exclusive thereby giving our competitors access to the same technologies licensed to us;

 

    redesign those products or processes that use any allegedly infringing or misappropriated technology, which may result in significant cost or delay to us, or which redesign could be technically infeasible; or

 

    pay damages, including the possibility of treble damages in a patent case if a court finds us to have willfully infringed certain intellectual property rights.

We may be subject to claims by third-parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our consultants, advisors and employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including our competitors and potential competitors. Some of these individuals executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we intend that our consultants, advisors and employees do not use proprietary information or know-how of their former employers while working for us, we may be subject to claims that we or these individuals have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such individuals’s former employer. Litigation may be necessary to defend against these claims.

 

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If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we successfully prosecute or defend against such claims, litigation could result in substantial costs and distract our management from its day-to-day activities.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

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

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market, and sell any product candidates that we may develop and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are subject to extensive litigation regarding patents and other intellectual property rights. In the past, we have been subject to and in the future we may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and any product candidates.

Our competitive position may suffer if patents issued to third-parties or other third-party intellectual property rights cover our products or elements thereof, our manufacture or uses relevant to our development plans, the targets of our product candidates, or other attributes of our product candidates or our technology. In such cases, we may not be in a position to develop or commercialize products or product candidates unless we successfully pursue litigation to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, which may not be available on commercially reasonable terms or at all. In the event that a patent has not expired at the time of approval of such product candidate and the patent owner were to bring an infringement action against us, we may have to argue that our product, its manufacture or use does not infringe a valid claim of the patent in question. Alternatively, if we were to challenge the validity of any issued U.S. patent in court, we would need to overcome a statutory presumption of validity that attaches to every U.S. patent. This means that in order to prevail, we would need to present clear and convincing evidence as to the invalidity of the patent’s claims. Even if we believe third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. In the event that a third party successfully asserts its patent against us such that such third party’s patent is found to be valid and enforceable and infringed by our product, unless we obtain a license to such patent, which may not be available on commercially reasonable terms or at all, we could be prevented from continuing to develop or commercialize our product. Similarly, the targets for certain of our product candidates have also been the subject of research by other companies, which have filed patent applications or have patents on aspects of the targets or their uses. There can be no assurance any such patents will not be asserted against us or that we will not need to seek licenses from such third parties. We may not be able to secure such licenses on acceptable terms, or at all, and any such litigation would be costly and time-consuming.

 

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It is possible that we have failed and in the future may fail to identify relevant patents or applications that may be asserted against us. For example, certain U.S. applications filed after November 29, 2000 that will not be filed outside the United States may remain confidential until patents issue. In general, patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our products or platform technology could have been filed by others without our knowledge. Furthermore, we operate in a highly competitive field, and given our limited resources, it is unreasonable to monitor all patent applications in the areas in which we are active. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our products or the use of our products.

Third-party intellectual property right holders, including our competitors, may actively bring infringement, misappropriation or violation claims against us based on existing or future intellectual property rights, regardless of their merit. We may not be able to successfully settle or otherwise resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required to engage or continue costly, unpredictable and time-consuming litigation and may be prevented from or experience substantial delays in marketing our products.

If we are unsuccessful defending in any such claim, in addition to being forced to pay damages, we or our licensees may be temporarily or permanently prohibited from commercializing any of our product candidates that we are held to be infringing. If possible, we might be forced to redesign our product candidates so that we no longer infringe the intellectual property rights of third parties, or we may be required to seek a license to any such technology that we are found to infringe, which license may not be available on commercially reasonable terms or at all. Even if we or our licensors or collaboration partners obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaboration partners and it could require us to make significant licensing and royalty payments. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations, and prospects. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.

In addition, if the breadth or strength of protection provided by our or our licensors’ or collaboration partners’ patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Intellectual property litigation could cause us to spend substantial resources, distract our personnel from their normal responsibilities, harm our reputation and our business operations.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ADSs. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development and commercialization activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there

 

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is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

In the future, our programs may require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to acquire, in-license, maintain or use these proprietary rights. In addition, with respect to any patents we co-own with third parties, we may require licenses to such co-owners’ interest in such patents. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain a license to third-party intellectual property rights necessary for the development of a product candidate or program, we may have to abandon development of that product candidate or program, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

For example, we sometimes collaborate with U.S. and non-U.S. academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our applicable product candidate or program.

Changes in patent laws or patent jurisprudence could diminish the value of patents in general or prevent us from obtaining patents and thereby impairing our ability to protect our products.

As is the case with other biotechnology companies, our success is heavily dependent on our intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States or other jurisdictions could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For example, the America Invents Act, or the AIA, enacted in the United States in 2012 and 2013, has resulted in significant changes to the U.S. patent system.

Prior to the enactment of the AIA, assuming that other requirements for patentability are met, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 16, 2013, under the AIA, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention regardless of whether a third party was the first to invent the claimed invention. On or after that date, a third party that files a patent application in the USPTO before us could be awarded a patent covering an invention of ours even if we made the invention before the third party. The AIA will require us to be cognizant going forward of the time from invention to filing of a patent application, but circumstances could prevent us from promptly filing patent applications on our inventions.

 

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Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing additional opportunities for third parties to challenge any pending patent application or issued patent in the USPTO. Such opportunities include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceeding. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim in our patents invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

If we fail to comply with our obligations under the agreements pursuant to which we license intellectual property rights to or from third parties, or otherwise experience disruptions to our business relationships with our licensors, licensees or collaborators, we could lose the rights to intellectual property that are important to our business.

We are a party to license and collaboration agreements under which we grant or are granted rights to intellectual property that are important to our business and we expect that we may need to enter into additional license or collaboration agreements in the future. Our existing license and collaboration agreements impose, and we expect that future license agreements will impose, various obligations related to, among other things, product development and payment of royalties and fees based on achieving certain milestones. In addition, under several of our collaboration agreements, we are prohibited from developing and commercializing products that would compete with the products licensed under such agreements. If we fail to comply with our obligations under these agreements, our licensor or collaboration partner may have the right to terminate the agreement, including any licenses included in such agreement.

The termination of any license or collaboration agreements or failure to adequately protect such license agreements or collaboration could prevent us from commercializing product candidates covered by the agreement or licensed intellectual property. For example, we rely on our license agreements with Research Corporation Technologies, Inc., or RCT, which grant us rights to certain intellectual property and proprietary materials that we use in connection with the manufacturing process for our Nanobody technology. If this agreement were to terminate, we would be unable to timely license similar intellectual property and proprietary materials from an alternate source, on commercially reasonable terms or at all, and may be required to conduct additional bridging studies on our product candidates, which could delay or otherwise have a material adverse effect on the development and commercialization of our Nanobody-based product candidates. See “Business—Intellectual Property—Licenses” for more information regarding these agreements.

Several of our existing license agreements are sublicenses from third-parties which are not the original licensor of the intellectual property at issue. Under these agreements, we must rely on our licensor to comply with its obligations under the primary license agreements under which such third-party obtained rights in the applicable intellectual property, where we may have no relationship with the original licensor of such rights. If

 

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the licensors fail to comply with their obligations under these upstream license agreements, the original third-party licensor may have the right to terminate the original license, which may terminate the sublicense. If this were to occur, we would no longer have rights to the applicable intellectual property and, in the case of a sublicense, if we were not able to secure our own direct license with the owner of the relevant rights, which it may not be able to do at a reasonable cost or on reasonable terms, it may adversely affect our ability to continue to develop and commercialize the product candidates incorporating the relevant intellectual property.

Disputes may arise regarding intellectual property subject to a license or collaboration agreement, including the following:

 

    the scope of rights granted under the agreement and other interpretation-related issues;

 

    the extent to which our technology and processes infringe on intellectual property of the licensor or collaboration partner that is not subject to the agreement;

 

    the sublicensing of patent and other rights under any current or future collaboration relationships;

 

    our diligence obligations under the agreement and what activities satisfy those diligence obligations;

 

    the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our collaboration partners; and

 

    the priority of invention of patented technology.

In addition, our license and collaboration agreements are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates, which could have a material adverse effect on our business, financial conditions, results of operations, and prospects.

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

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

To protect this type of information against disclosure or appropriation by third parties and our competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or confidential know-how. Also, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our trade secrets and confidential know-how to our competitors and other third parties or breach such agreements, and we may not be able to obtain an adequate remedy for such breaches. Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential know-how is difficult, expensive, time consuming and unpredictable. The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Furthermore, if a competitor or other third party lawfully obtained or independently developed any of our trade secrets or confidential know-how, we would have no right to prevent such competitor or other third party from using that technology or information to compete with us, which could harm our competitive position. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third-parties for misappropriating the trade secret. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.

 

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

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

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. If other entities use trademarks similar to ours in different jurisdictions, or have senior rights to ours, it could interfere with our use of our current trademarks throughout the world.

We may not be able to protect our intellectual property rights throughout the world and may face difficulties in certain jurisdictions, which may diminish the value of intellectual property rights in those jurisdictions.

We often file our first patent application (i.e., priority filing) at the European Patent Office or the USPTO. International applications under the Patent Cooperation Treaty, or PCT, are usually filed within twelve months after the priority filing. Based on the PCT filing, national and regional patent applications may be filed in additional jurisdictions where we believe our product candidates may be marketed. However, we have not yet filed for patent protection in all national and regional jurisdictions where such protection may be available because filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. In addition, we may decide to abandon national and regional patent applications before grant. Finally, the grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant patent offices, while granted by others. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.

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. Competitors may use our and our licensors’ or collaboration partners’ technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we and our licensors or collaboration partners have patent protection, but enforcement is not as strong as that in the United States and the European Union. These products may compete with our product candidates, and our and our licensors’ or collaboration partners’ patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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

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

 

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Proceedings to enforce our and our licensors’ or collaboration partners’ patent rights in foreign jurisdictions could result in substantial costs and divert our and our licensors’ or collaboration partners’ efforts and attention from other aspects of our business, regardless of whether we or our licensors or collaboration partners are successful, and could put our and our licensors’ or collaboration partners’ patents at risk of being invalidated or interpreted narrowly. In addition, such proceedings could put our and our licensors’ or collaboration partners’ patent applications at risk of not issuing and could provoke third-parties to assert claims against us or our licensors or collaboration partners. We or our licensors or collaboration partners may not prevail in any lawsuits that we or our licensors or collaboration partners initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Our business may be adversely affected as a result of computer system failures.

Any of the internal computer systems belonging to us or our third-party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failure. Any system failure, accident or security breach that causes interruptions in our own or in third-party service vendors’ operations could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our or our partners’ regulatory approval efforts and significantly increase our costs in order to recover or reproduce the lost data. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability, our product development programs and competitive position may be adversely affected and the further development of our product candidates may be delayed. Furthermore, we may incur additional costs to remedy the damage caused by these disruptions or security breaches.

Risks Related to Our Dependence on Third Parties

We rely on third-parties to supply and manufacture our product candidates and delivery devices, and we expect to continue to rely on third parties to manufacture our products and delivery devices, if approved. The development of such product candidates and the commercialization of any products, if approved, could be stopped, delayed or made less profitable if any such third party fails to provide us with sufficient quantities of product candidates or products or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our product candidates and the required delivery devices for use in the conduct of our clinical studies or for commercial supply, if our products are approved. Instead, we rely on, and expect to continue to rely on contract manufacturing organizations, or CMOs. Currently, we engage with multiple different CMOs in Europe for all activities relating to the development of our cell banks, further development of our manufacturing processes and the production of drug substance. Reliance on third-party providers may expose us to more risk than if we were to manufacture our product candidates and the required delivery devices ourselves. We do not control the manufacturing processes of the CMOs we contract with and are dependent on those third parties for the production of our product candidates in accordance with relevant regulations (such as the FDA’s good laboratory practices, or GLP, and cGMPs) for the manufacture of drug substance and product), which includes, among other things, quality control, quality assurance and the maintenance of records and documentation.

If we were to experience an unexpected loss of supply of or if any supplier were unable to meet our demand for any of our product candidates, we could experience delays in our research or planned clinical studies or commercialization. We could be unable to find alternative suppliers of acceptable quality, in the appropriate volumes and at an acceptable cost. Moreover, our suppliers are often subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. The long transition periods necessary to switch manufacturers and suppliers, if necessary, would significantly delay our clinical studies and the

 

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commercialization of our products, if approved, which would materially adversely affect our business, prospects, financial condition and results of operation.

For example, ALX-0171 for the treatment of RSV relies on a nebulizer for delivery of the therapeutic. We currently use a nebulizer manufactured by Vectura Group plc that is not 510(k)-cleared or approved for use in the administration of ALX-0171. The timing and success of our clinical trials is largely dependent on receiving a sufficient amount of nebulizers in time for our trials. If we do not receive a sufficient number of nebulizers in a timely manner, or receive nebulizers with a high failure rate, our clinical trials and commercial success would be materially harmed. In the past we have experienced manufacturing and design defects with the nebulizers received from Vectura Group plc and we cannot assure you that we will not experience problems in the future. There are only a few manufacturers of nebulizers, changing the manufacturer would take time and be costly, and we may be unable to find a replacement manufacturer on reasonable terms, if at all. In addition, if the Vectura Group plc nebulizer is cleared or approved but then modified or discontinued, or if we later change manufacturers, we would need to submit regulatory filings and additional data to the FDA or foreign regulatory authority, which would materially affect our ability to market ALX-0171.

In complying with the manufacturing regulations of the FDA, the EMA and other comparable foreign authorities, we and our third-party suppliers must spend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that the products meet applicable specifications and other regulatory requirements. The failure to comply with these requirements could result in an enforcement action against us, including the seizure of products and shutting down of production. We and any of these third-party suppliers may also be subject to audits by the FDA, the EMA or other comparable foreign authorities. If any of our third-party suppliers fails to comply with cGMP or other applicable manufacturing regulations, our ability to develop and commercialize the products could suffer significant interruptions. We face risks inherent in relying on a limited number of CMOs, as any disruption, such as a fire, natural hazards or vandalism at the CMO could significantly interrupt our manufacturing capability. We currently do not have alternative production plans in place or disaster-recovery facilities available. In case of a disruption, we will have to establish alternative manufacturing sources. This would require substantial capital on our part, which we may not be able to obtain on commercially acceptable terms or at all, and we would likely experience months of manufacturing delays as we build or locate replacement facilities and seek and obtain necessary regulatory approvals. If this occurs, we will be unable to satisfy manufacturing needs on a timely basis or at all. In addition, operating any new facilities may be more expensive than operating our current facility, and business interruption insurance may not adequately compensate us for any losses that may occur, in which case we would have to bear the additional cost of any disruption. For these reasons, a significant disruptive event of the manufacturing facility could have a material adverse effect on our business, including placing our financial stability at risk.

The manufacturing of all of our product candidates requires using cells which are stored in a cell bank. We have one master cell bank for each product manufactured in accordance with cGMP. Half of each master cell bank is stored at a separate site so that in case of a catastrophic event at one site we believe sufficient vials of the master cell banks are left at the alternative storage site to continue manufacturing. We believe sufficient working cell banks could be produced from the vials of the master cell bank stored at a given site to assure product supply for the future. However, it is possible that we could lose multiple cell banks and have our manufacturing significantly impacted by the need to replace these cell banks, which could materially adversely affect our business, prospects, financial condition and results of operations.

We rely, and expect to continue to rely, on third parties, including independent clinical investigators and CROs, to conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

We have relied upon and plan to continue to rely upon third parties, including independent clinical investigators and third-party CROs, to conduct our pre-clinical studies and clinical trials and to monitor and

 

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manage data for our ongoing pre-clinical and clinical programs. We rely on these parties for execution of our pre-clinical studies and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our third-party contractors and CROs are required to comply GCP requirements, which are regulations and guidelines enforced by the FDA, the EMA and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we, our investigators or any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

Further, these investigators and CROs are not our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they devote to our product candidates and clinical trials. If independent investigators or CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard, it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.

Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.

There are a limited number of third-party service providers that specialize in or have the expertise required to achieve our business objectives. If any of our relationships with these third-party CROs or clinical investigators terminate, we may not be able to enter into arrangements with alternative CROs or investigators on commercially reasonable terms or at all. If CROs or clinical investigators do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.

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

Service or supply failures, or other failures, business interruptions, or other disasters affecting the manufacturing facilities of any party participating in the supply chain, would adversely affect our ability to supply our products.

Our product candidates are biologics and require processing steps that are more difficult than those required for most chemical pharmaceuticals. Accordingly, multiple steps are needed to control the manufacturing

 

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processes. Problems with these manufacturing processes, even minor deviations from the normal process or from the materials used in the manufacturing process, which may not be detectable by us in a timely manner, could lead to product defects or manufacturing failures, resulting in lot failures, product recalls, product liability claims and insufficient inventory.

Also, certain raw materials or other products necessary for the manufacture and formulation of our product candidates, some of which are difficult to source, are provided by single-source unaffiliated third-party suppliers. In addition, we rely on certain third-parties to perform filling, finishing, distribution, laboratory testing and other services related to the manufacture of our product candidates, and to supply various raw materials and other products. We would be unable to obtain these raw materials, other products, or services for an indeterminate period of time if any of these third-parties were to cease or interrupt production or otherwise fail to supply these materials, products, or services to us for any reason, including due to regulatory requirements or actions (including recalls), adverse financial developments at or affecting the supplier, failure by the supplier to comply with cGMPs, contamination, business interruptions, or labor shortages or disputes. In any such circumstances, we may not be able to engage a backup or alternative supplier or service provider in a timely manner or at all. This, in turn, could materially and adversely affect our ability to supply product candidates, which could materially and adversely affect our business and future prospects.

Certain of the raw materials required in the manufacture and the formulation of our product candidates may be derived from biological sources, including human serum albumin, a main constituent and long-lived protein present in blood plasma. There are certain European regulatory restrictions on using these biological source materials. If we are required to substitute for these sources to comply with European regulatory requirements, our clinical development or commercial activities may be delayed or interrupted.

Risks Related to Our Business Operations and Managing Growth

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

Our success depends upon the continued contributions of our key management, scientific and technical personnel, many of whom have been instrumental for us and have substantial experience with our therapies and related technologies. These key management individuals include the members of our board of directors and certain executive officers.

The loss of key managers and senior scientists could delay our research and development activities. In addition, our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified management, scientific and medical personnel. Many other biotechnology and pharmaceutical companies and academic institutions that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Therefore, we might not be able to attract or retain these key persons on conditions that are economically acceptable. Furthermore, we will need to recruit new managers and qualified scientific personnel to develop our business if we expand into fields that will require additional skills. Our inability to attract and retain these key persons could prevent us from achieving our objectives and implementing our business strategy, which could have a material adverse effect on our business and prospects.

We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the area of sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources, we may not be able to

 

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effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Our employees, independent contractors, principal investigators, CROs, consultants, vendors and collaboration partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.

We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants, vendors and collaboration partners may engage in fraudulent conduct or other illegal activities. Misconduct by these parties could include intentional, reckless and negligent conduct or unauthorized activities that violate, among other things: (i) the regulations of the FDA, the EMA and other comparable foreign authorities, including those laws that require the reporting of true, complete and accurate information to such authorities; (ii) manufacturing standards; (iii) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad; or (iv) laws that require the reporting of true, complete and accurate financial information and data. Specifically, 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 may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws could also involve the improper use or misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our pre-clinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third-parties, and the precautions we take to detect and prevent this activity may not be effective 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 such laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. 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 and results of operations, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. federal healthcare programs, individual imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Risks Related to the Global Offering and Ownership of Our Ordinary Shares and ADSs

There has been no prior active market for the ADSs and an active and liquid market for the ADSs may fail to develop, which could harm the market price of the ADSs.

While our ordinary shares have traded on Euronext Brussels since 2007, there has been no active public market for the ADSs in the United States, except for a Level I ADR program, in which the ADSs were not listed on a U.S. securities exchange, but rather traded in the over-the-counter market. We expect to transition to a Level III ADR program in connection with the offering, which would allow the ADSs to trade on a U.S. securities exchange. As such, we have applied to list the ADSs on the NASDAQ Global Select Market, subject to completion of customary procedures in the United States. Any delay in the commencement of trading of the ADSs on the NASDAQ Global Select Market would impair the liquidity of the market for the ADSs and make it more difficult for holders to sell ADSs.

Even if the ADSs are listed on the NASDAQ Global Select Market, there is a risk that an active trading market for ADSs may not develop or be sustained after this offering is completed. The initial offering price will

 

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be based, in part, on the price of our ordinary shares on Euronext Brussels, and determined by negotiations among the lead underwriters and us. Among the factors considered in determining the initial offering price will be the following:

 

    the price of our ordinary shares in connection with our existing listing on Euronext Brussels;

 

    the valuation multiples of publicly traded companies that the representatives believe to be comparable to us;

 

    our financial information;

 

    the history of, and the prospects for, our company and the industry in which we compete;

 

    an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;

 

    the present state of our development; and

 

    the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

Following the global offering, the ADSs may not trade at a price equal to or greater than the initial offering price. The initial offering price may not be indicative of the market price of the ADSs after the global offering. In the absence of an active trading market for the ADSs, investors may not be able to sell their ADSs at or above the initial offering price or at the time that they would like to sell.

The price of the ADSs may be volatile and may fluctuate due to factors beyond our control.

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

 

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

 

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

 

    technological innovations or commercial product introductions by us or competitors;

 

    changes in government regulations;

 

    developments concerning proprietary rights, including patents and litigation matters;

 

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

 

    financing or other corporate transactions;

 

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

 

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

 

    other events and factors, many of which are beyond our control.

These and other market and industry factors may cause the market price and demand for our securities 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 the ADSs. 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.

 

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Certain significant shareholders will continue to own a substantial number of our ordinary shares and as a result (together with low attendance in recent shareholders meetings), may be able to exercise control over us, including the outcome of shareholder votes. These shareholders may have different interests from us or your interests.

We have a number of significant shareholders. For an overview of our current significant shareholders, please see “Principal Shareholders.” Following the completion of the global offering, these significant shareholders and their affiliates, in the aggregate, will own approximately         % of our ordinary shares (including ordinary shares represented by the ADSs).

Currently, we are not aware that any of our existing shareholders have entered or will enter into a shareholders’ agreement with respect to the exercise of their voting rights. Nevertheless, depending on the level of attendance at our general meetings of shareholders, or the General Meeting, these significant shareholders could, alone or together, have the ability to determine the outcome of decisions taken at any such General Meeting. Any such voting by these shareholders may not be in accordance with our interests or those of our shareholders. Among other consequences, this concentration of ownership may have the effect of delaying or preventing a change in control and might therefore negatively affect the market price of the ADSs or ordinary shares.

We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment during that time is if the price of the ADSs or ordinary shares, as applicable, appreciates.

We have no present intention to pay dividends in the foreseeable future. Any recommendation by our board of directors to pay dividends will depend on many factors, including our financial condition (including losses carried-forward), results of operations, legal requirements and other factors. Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory accounts prepared in accordance with Belgian accounting rules. In addition, in accordance with Belgian law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our non-consolidated statutory accounts to a legal reserve until the reserve equals 10% of our share capital. To date, we have not contributed to our legal reserve, since we have not made any profit since our inception. Therefore, we are unlikely to pay dividends or other distributions in the foreseeable future. If the price of the ADSs or the ordinary shares declines before we pay dividends, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

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

Our board of directors will have broad discretion in the application of the net proceeds from the global offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of the ADSs or ordinary shares. The failure by our board of directors to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of the ADSs or ordinary shares to decline and delay the development of our product candidates. 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.

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

The trading market for the ordinary shares and 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 ordinary shares and ADSs would be negatively impacted. If one or more of

 

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the analysts who covers us downgrades the ordinary shares and ADSs or publishes incorrect or unfavorable research about our business, the price of the ordinary shares and 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 ordinary shares and ADSs, demand for the ordinary shares and ADSs could decrease, which could cause the price of the ordinary shares and ADSs or trading volume to decline.

Future sales of ordinary shares or ADSs by existing shareholders could depress the market price of the ordinary shares and 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 ordinary shares and 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. The representatives of the underwriters may permit us, our directors and members of our executive committee to sell ordinary shares prior to the expiration of the lock-up agreements. See “Underwriting.”

After the lock-up agreements pertaining to the global offering expire, and based on the number of ordinary shares outstanding upon completion of the global offering,         additional ordinary shares will be eligible for sale in the public market, all of which ordinary shares are held by directors and members of the executive committee and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. In addition, ordinary shares which may be issued pursuant to any outstanding warrants under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.

Following the global offering, we intend to file one or more registration statements with the SEC covering ordinary shares available for future issuance under our equity incentive plans. Upon effectiveness of such registration statements, any ordinary 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 ordinary shares issued under these plans in the public market could have an adverse effect on the market price of the ordinary shares and ADSs. These sales might also make it more difficult for us to issue or sell equity or equity-related securities in the future at a time and a price that we deem appropriate. See the section of this prospectus titled “Ordinary Shares and ADSs Eligible for Future Sale” for a more detailed description of sales that may occur in the future. If these additional ordinary shares or ADSs are sold, or if it is perceived that they will be sold, in the public market, the trading price of the ordinary shares and ADSs could decline substantially.

If you purchase the ADSs in the U.S. offering or ordinary shares in the European private placement, you will experience substantial and immediate dilution.

If you purchase the ADSs in the U.S. offering or ordinary shares in the European private placement, you will experience substantial and immediate dilution of $     (€            ) per ADS/share in the net tangible book value after giving effect to the global offering at an assumed public offering price of $         per ADS in the U.S. offering and € per share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on         , 2017, because the price that you pay will be substantially greater than the net tangible book value per ADS or per share, as applicable, 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 warrants to purchase ordinary shares under our equity incentive plans (i.e., our warrant plans), or if we otherwise issue additional ordinary shares 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.”

 

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Furthermore, pursuant to the terms of our Bonds, in the event we sell the ADSs and ordinary shares in the global offering at a price per ADS or ordinary share which is less than 95% of the five day volume weighted average price of our ordinary shares on each of the five consecutive days ending on the date immediately prior to the date of the final prospectus, the conversion price of the Bonds will increase, resulting in further dilution in purchasers in this offering upon conversion of the Notes, if not settled for cash. Similarly, the Bonds contain certain anti-dilution provisions which will result in an adjustment of the conversion price, including in the event of dividends, reclassifications and subdivisions. See “Description of Share Capital—Share Capital—Other Outstanding Securities.”

After the completion of the global 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.

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

By participating in the U.S. offering you will become a holder of ADSs with underlying ordinary shares in a Belgian limited liability company (naamloze vennootschap). Holders of the ADSs are not treated as shareholders of our company, unless they withdraw our ordinary shares underlying the ADSs. The depositary, or its nominee, is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement.

Holders of ADSs will not have the same voting rights as the holders of our ordinary shares and may not receive voting materials or any other document that would need to be provided to our shareholders pursuant to the Belgian Companies Code, in time to be able to exercise your right to vote.

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.

Holders of ADSs may instruct the depositary of their ADSs to vote the ordinary shares underlying their ADSs. Otherwise, ADS holders will not be able to exercise their right to vote, unless they withdraw the ordinary shares underlying the ADSs they hold. However, ADS holders may not know about the meeting far enough in advance to withdraw those ordinary shares. We cannot guarantee ADS holders that they will receive the voting materials or any other document that would need to be provided to our shareholders pursuant to the Belgian Companies Code, in time to ensure that they can instruct the depositary to vote their ordinary shares or to withdraw their ordinary shares so that they can vote them themselves. 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 ADS holders may not be able to exercise their right to vote, and there may be nothing they can do if the ordinary shares underlying their ADSs are not voted as they requested.

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

Our ordinary shares currently trade on Euronext Brussels in euros, while the ADSs will trade on NASDAQ in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the euro may result in temporary

 

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differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences.

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

We will be traded on more than one market and this may result in price variations; in addition, investors may not be able to easily move ordinary shares for trading between such markets.

Our ordinary shares have traded on the Euronext Brussels since 2007 and we have applied to have our ADSs representing ordinary shares approved for listing on NASDAQ. Trading in our ADSs or ordinary shares on these markets will take place in different currencies (U.S. dollars on NASDAQ and euros on the Euronext Brussels), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Belgium). The trading prices of our ordinary shares and our ADSs on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on the Euronext Brussels could cause a decrease in the trading price of our ADSs on the NASDAQ. Investors could seek to sell or buy our ordinary shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange, and the ordinary shares available for trading on the other exchange. In addition, holders of ADSs will not be immediately able to surrender their ADSs and withdraw the underlying ordinary shares for trading on the other market without effecting necessary procedures with the depositary. This could result in time delays and additional cost for holders of ADSs.

Holders of ADSs may not be able to participate in equity offerings we may conduct from time to time.

Certain shareholders, including those in the United States, may, even in the case where preferential subscription rights have not been cancelled or limited, not be entitled to exercise such rights, unless the offering is registered or the ordinary shares are qualified for sale under the relevant regulatory framework. As a result, there is the risk that investors may suffer dilution of their shareholdings should they not be permitted to participate in preference right equity or other offerings that we may conduct in the future.

Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares.

ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of 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 the right of ADS holders to cancel their 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, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they 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 “Description of American Depositary Shares—Share Dividends and Distributions—How will I receive dividends and other distributions on the ordinary shares underlying my ADSs—Rights to Receive Additional Ordinary Shares.”

 

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Our shareholders residing in countries other than Belgium may be subject to double taxation with respect to dividends or other distributions made by us.

Any dividends or other distributions we make to shareholders will, in principle, be subject to withholding tax in Belgium at a rate of 30%, except for shareholders which qualify for a reduced withholding tax or an exemption of withholding tax such as, among others, qualifying pension funds or a company qualifying as a parent company in the sense of the Council Directive (90/435/EEC) of July 23, 1990, the Parent-Subsidiary Directive, or that qualify for a reduced withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply and shareholders residing in countries other than Belgium are advised to consult their advisers regarding the tax consequences of dividends or other distributions made by us. Our shareholders residing in countries other than Belgium may not be able to credit the amount of such withholding tax to any tax due on such dividends or other distributions in any other country than Belgium. As a result, such shareholders may be subject to double taxation in respect of such dividends or other distributions. Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, the U.S.—Belgium Tax Treaty. The U.S.—Belgium Tax Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, depending on their status and provided that the U.S. taxpayer satisfies all conditions imposed by the U.S.—Belgium Tax Treaty. The Belgian withholding tax on dividends is generally reduced to 15% under the U.S.—Belgium Tax Treaty. The 5% withholding tax applies in cases where the U.S. shareholder is a company which holds at least 10% of the ordinary shares in the company. The Belgian withholding tax is reduced to 0% when the shareholder is a U.S. resident company which has held at least 10% of the ordinary shares in the company for at least 12 months, or is, subject to certain conditions, a U.S. pension fund. U.S. shareholders are encouraged to consult their own tax advisers to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.—Belgium Tax Treaty.

U.S. holders of the ADSs 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 “Material United States and Belgian Income Tax Considerations—Certain Material U.S. Federal Income Tax Considerations to U.S. Holders—Passive Foreign Investment Company Considerations.”

Our status as a PFIC will depend on the composition of our income 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 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. With respect to the 2017 taxable year and foreseeable future taxable years, we do not anticipate that we will be a PFIC based upon the expected value of our assets, including any goodwill, and the expected composition of our income and assets. However, our status as a PFIC is a fact-intensive determination made on an annual basis and we cannot provide any assurances regarding our PFIC status for the current or future taxable years. We do not currently intend to provide the information necessary for U.S. holders to make a “qualified electing fund,” or QEF, election if we are treated as a PFIC for any taxable year, and prospective investors should assume that a QEF election will not be available.

 

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The recently proposed corporate income tax reform could have an adverse impact on us and the holders of our ADSs.

In its budgetary agreement of July 25, 2017 the Belgian federal government announced corporate income tax reform. This long-awaited reform would entail some fundamental changes, including a decrease in the standard corporate income tax rate from 33.99% to 29.58% in 2018 (including supplementary crisis surcharges of 2%) and ultimately to 25% in 2020.

It is possible that such corporate income tax reform, and more specifically the compensation measures resulting from the prerequisite that the reform may not have a negative impact on the public budget, may change the taxation linked to an investment in the ordinary shares represented by the ADSs significantly. For example, the government agreement announces a reform, amongst others, of the notional interest deduction, a minimum taxation for companies which make a profit of more than one million euros, a reform of taxation of capital gains on shares in the corporate income tax. In addition, statements have been made that the tax on the stock exchange in relation to, among others, the sale and purchase of shares would be subject to an increase of the applicable rate. As regards to capital gains on shares, the government intends to introduce a minimum participation threshold. More specifically, capital gains will only be exempted if the company holds a participation of 10% or the participation has an acquisition value of at least 2,500,000 euros. If this condition is not fulfilled, corporate income tax will be due.

More generally, such reform could also result in a fiscal framework that is less favorable to us, which could have a negative impact on the value of the ordinary shares represented by ADSs or the return associated with them. The proposed reform is not final, is still being negotiated at the government level and changes can still be expected.

We may not be able to complete equity offerings without cancellation or limitation of the preferential subscription rights of our existing shareholders, which may as a practical matter preclude us from timely completing offerings.

In accordance with the Belgian Companies Code, our articles of association provide for preferential subscription rights to be granted to our existing shareholders to subscribe on a pro rata basis for any issue for cash of new ordinary shares, convertible bonds or warrants that are exercisable for cash, unless such rights are cancelled or limited either by resolution of our shareholders meeting or by our board of directors in the framework of the authorized capital, as described below. On July 18, 2013, our shareholders authorized our board to increase our share capital (possibly with cancellation or limitation of the preferential subscription rights of our existing shareholders at the discretion of our board (including for the benefit of certain persons who are not employees of our company)), subject to certain limitations, for a period of five years as from the publication of such authorization (which occurred on August 8, 2013). We refer to this authority for our board to increase our share capital as our authorized capital. As of the date of this prospectus, our board of directors may decide to issue up to 28,388,340 ordinary shares (at the current fractional value per share of €1.87) pursuant to this authorization and taking into account previous transactions under the authorized capital, but without taking into account the ordinary shares that we would issue in this global offering or subsequent issuances under our stock option plans or otherwise. See “Description of Share Capital—Articles of Association and Other Share Information—Changes to Our Share Capital.” Absent renewal by our shareholders of this authorization of the board or absent cancellation or limitation by our shareholders of the preferential subscription rights of our existing shareholders, the requirement to offer our existing shareholders the preferential right to subscribe for new ordinary shares being offered on a pro rata basis, may as a practical matter preclude us from timely raising capital on commercially acceptable terms or at all.

We are an “emerging growth company” and are availing ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make the ADSs or our ordinary shares 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

 

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“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. We cannot predict if investors will find the ADSs or our ordinary shares less attractive because we may rely on these exemptions. If some investors find the ADSs or our ordinary shares less attractive as a result, there may be a less active trading market for the ADSs or our ordinary shares and the price of the ADSs or our ordinary shares 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 (1) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (2) the last day of our fiscal year following the fifth anniversary of the date of the completion of the global offering; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (4) 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 or our ordinary shares.

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 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 United States 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 Brussels and intend to report our results of operations voluntarily on a quarterly basis, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers 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 not a foreign private issuer.

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 NASDAQ, 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 Belgium, which is our home country, may differ significantly from corporate governance listing standards. For example, neither the corporate laws of Belgium nor our articles of association require a majority of our directors to be independent and we could include non-independent directors as members of our nomination and remuneration committee, though a majority is required, 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. See “Management.”

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             , 2018.

 

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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 the members of our executive committee or members of our board of directors are residents or citizens of the United States, we could lose our foreign private issuer status.

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.

We will incur increased costs as a result of operating as a U.S.-listed public company, and our board of directors will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we no longer qualify as an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a public company listed on Euronext Brussels. We are a Belgian public limited company (naamloze vennootschap). The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Stock Market, or NASDAQ, and other applicable securities rules and regulations impose various requirements on non-U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our board of directors and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

However, these rules and regulations are often 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.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will be required to furnish a report by our board of directors on our internal control over financial reporting. 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 controls 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. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal controls over financial reporting are effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

 

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We are a Belgian public limited liability company, and shareholders of our company may have different and in some cases more limited shareholder rights than shareholders of a U.S. listed corporation.

We are a public limited liability company (naamloze vennootschap) incorporated under the laws of Belgium. Our corporate affairs are governed by Belgian corporate law. The rights provided to our shareholders under Belgian corporate law and our articles of association differ in certain respects from the rights that you would typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws.

Under Belgian corporate law, other than certain limited information that we must make public and except in certain limited circumstances, our shareholders may not ask for an inspection of our corporate records, while under Delaware corporate law any shareholder, irrespective of the size of its shareholdings, may do so. Shareholders of a Belgian corporation are also unable to initiate a derivative action, a remedy typically available to shareholders of U.S. companies, in order to enforce a right of our Company, in case we fail to enforce such right ourselves, other than in certain cases of director liability under limited circumstances. In addition, a majority of our shareholders present or represented at our meeting of shareholders may release a director from any claim of liability we may have, including if he or she has acted in bad faith or has breached his or her duty of loyalty, provided, in some cases, that the relevant acts were specifically mentioned in the convening notice to the meeting of shareholders deliberating on the discharge. In contrast, most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if he or she has acted in bad faith or has breached his or her duty of loyalty to the company. Finally, Belgian corporate law does not provide any form of appraisal rights in the case of a business combination. See “Description of Share Capital.”

As a result of these differences between Belgian corporate law and our articles of association, on the one hand, and U.S. federal and state laws, on the other hand, in certain instances, you could receive less protection as an ADS holder of our company than you would as a shareholder of a listed U.S. company.

The audit report included in this prospectus is prepared by an auditor who is not inspected by the U.S. Public Company Accounting Oversight Board, or the PCAOB, and, as such, you are deprived of the benefits of such inspection.

Auditors of companies that are registered with the U.S. Securities and Exchange Commission and traded publicly in the United States, including our auditors, must be registered with the PCAOB and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Although our auditors are registered with the PCAOB, because our auditors are located in Belgium, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Belgian authorities, our auditors are not currently inspected by the PCAOB. This lack of PCAOB inspections in Belgium currently prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in Belgium, including our auditors. The inability of the PCAOB to conduct inspections of auditors in Belgium makes it more difficult to evaluate the effectiveness of our auditors’ audit procedures or quality control procedures as compared to auditors outside of Belgium that are subject to PCAOB inspections. As a result, investors may be deprived of the benefits of PCAOB inspections.

It may be difficult for investors outside Belgium to serve process on, or enforce foreign judgments against, us or our directors and senior management.

We are a Belgian public limited liability company (naamloze vennootschap). Less than a majority of the members of our board of directors and members of our executive committee are residents of the United States. All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States. As a result, it may not be possible for investors to effect service of process upon such persons or on us or to enforce against them or us a judgment obtained in U.S. courts. Original actions or actions for the enforcement of judgments of U.S. courts solely relating to the civil liability provisions of the federal or state securities laws of the United States are not directly enforceable in Belgium. The United States and Belgium do

 

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not currently have a multilateral or bilateral treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for the payment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, the judgment must be recognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004 Belgian Code of Private International Law. Recognition or enforcement does not imply a review of the merits of the case and is irrespective of any reciprocity requirement. A U.S. judgment will, however, not be recognized or declared enforceable in Belgium if it infringes upon one or more of the grounds for refusal that are exhaustively listed in Article 25 of the Belgian Code of Private International Law. Actions for the enforcement of judgments of U.S. courts might be successful only if the Belgian court confirms the substantive correctness of the judgment of the U.S. court and is satisfied that:

 

    the effect of the enforcement judgment is not manifestly incompatible with Belgian public policy;

 

    the judgment did not violate the rights of the defendant;

 

    the judgment was not rendered in a matter where the parties transferred rights subject to transfer restrictions with the sole purpose of avoiding the application of the law applicable according to Belgian international private law;

 

    the judgment is not subject to further recourse under U.S. law;

 

    the judgment is not compatible with a judgment rendered in Belgium or with a subsequent judgment rendered abroad that might be recognized in Belgium;

 

    a claim was not filed outside Belgium after the same claim was filed in Belgium, while the claim filed in Belgium is still pending;

 

    the Belgian courts did not have exclusive jurisdiction to rule on the matter;

 

    the U.S. court did not accept its jurisdiction solely on the basis of either the nationality of the plaintiff or the location of the disputed goods; and

 

    the judgment submitted to the Belgian court is authentic.

In addition to recognition or enforcement, a judgment by a federal or state court in the United States against us may also serve as evidence in a similar action in a Belgian court if it meets the conditions required for the authenticity of judgments according to the law of the state where it was rendered. The findings of a federal or state court in the United States will not, however, be taken into account to the extent they appear incompatible with Belgian public policy.

Takeover provisions in Belgian law may make a takeover difficult.

Public takeover bids on our ordinary shares and other voting securities and securities granting access to voting rights, such as warrants or convertible bonds, if any, are subject to the Belgian Act of April 1, 2007 and to the supervision by the Belgian Financial Services and Markets Authority, or FSMA. Public takeover bids must be made for all of our voting securities, as well as for all other securities granting access to voting rights. Prior to making a bid, a bidder must issue and disseminate a prospectus, which must be approved by the FSMA. The bidder must also obtain approval of the relevant competition authorities, where such approval is legally required for the acquisition of our company.

The Belgian Act of April 1, 2007 provides that a mandatory bid will be triggered if a person, as a result of its own acquisition or the acquisition by persons acting in concert with it or by persons acting on their account, directly or indirectly holds more than 30% of the voting securities in a company that has its registered office in Belgium and of which at least part of the voting securities are traded on a regulated market or on a multilateral trading facility designated by the Royal Decree of April 27, 2007 on public takeover bids. The mere fact of exceeding the relevant threshold through the acquisition of one or more voting securities will give rise to a mandatory bid, irrespective of whether or not the price paid in the relevant transaction exceeds the current market price.

 

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The duty to launch a mandatory bid does not apply in certain cases set out in the Royal Decree of April 27, 2007 on public takeover bids, such as (i) in case of an acquisition, if it can be shown that a third party exercises control over the Company or that such party holds a larger stake than the person holding 30% of the voting securities (ii) in case of an acquisition in the context of an enforcement of security provided that the acquirer disposes of the shares exceeding the 30% threshold within twelve months and does not exercise the voting rights attached to those excess shares or (iii) in case of a capital increase with preferential subscription rights decided by the shareholders meeting.

Normally, the authorization of the board of directors under the authorized capital to increase our ordinary share capital through contributions in kind or in cash with cancellation or limitation of the preferential right of the existing shareholders is suspended if we are notified by the Belgian Financial Services and Markets Authority, or the FSMA, of a public takeover bid on the financial instruments of the company. The shareholders meeting can, however, authorize the board of directors to increase the ordinary share capital by issuing ordinary shares in an amount of not more than 10% of the existing ordinary shares at the time of such a public takeover bid. Our board of directors is no longer authorized to do so.

There are several provisions of Belgian company law and certain other provisions of Belgian law, such as the obligation to disclose important shareholdings and merger control, that may apply to us and which may make an unfriendly tender offer, merger, change in management or other change in control, more difficult. These provisions could discourage potential takeover attempts that third parties may consider and thus deprive the shareholders of the opportunity to sell their ordinary shares at a premium (which is typically offered in the framework of a takeover bid).

Recent developments relating to the United Kingdom’s referendum vote in favor of withdrawal from the European Union could adversely affect us.

The United Kingdom held a referendum on June 23, 2016 in which a majority voted for the United Kingdom’s withdrawal from the European Union, or Brexit. As a result of this vote, on March 29, 2017 the United Kingdom officially started the separation process and negotiations are expected to commence to determine the terms of the United Kingdom’s withdrawal from the European Union as well as its relationship with the European Union going forward, including the terms of trade between the United Kingdom and the European Union. The effects of Brexit have been and are expected to continue to be far-reaching. Brexit and the perceptions as to its impact may adversely affect business activity and economic conditions in Europe and globally and could continue to contribute to instability in global financial and foreign exchange markets. Brexit could also have the effect of disrupting the free movement of goods, services and people between the United Kingdom and the European Union; however, the full effects of Brexit are uncertain and will depend on any agreements the United Kingdom may make to retain access to European Union markets.

In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. If the United Kingdom were to significantly alter its regulations affecting the pharmaceutical industry, we could face significant new costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations. Altered regulations could also add time and expense to the process by which our product candidates receive regulatory approval in the United Kingdom and European Union. Similarly, it is unclear at this time what Brexit’s impact will have on our intellectual property rights and the process for obtaining, maintaining and defending such rights. It is possible that certain intellectual property rights, such as trademarks, granted by the European Union will cease being enforceable in the United Kingdom absent special arrangements to the contrary, and we may be required to refile our trademarks and other intellectual property applications domestically in the United Kingdom. As a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership in European Union. Given these possibilities and others we may not anticipate, as well as the lack of comparable precedent, we cannot be certain of the full extent to which Brexit could adversely affect our business, results of operations and financial condition.

 

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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 approval of caplacizumab for the treatment of aTTP in Europe and the United States;

 

    the initiation, timing, progress and results of our clinical trials and pre-clinical studies for our existing product candidates, any future product candidates and our research and development programs, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;

 

    our reliance on the success of our product candidate caplacizumab and certain other product candidates;

 

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

 

    our ability to collaborate with existing collaborators or find appropriate collaborators for vobarilizumab;

 

    the timing, scope or likelihood of U.S. regulatory filings and approvals;

 

    the timing, scope or likelihood of foreign regulatory filings and approvals;

 

    our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use, and any additional product candidates we may develop;

 

    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;

 

    our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

 

    cost associated with defending intellectual property infringement, product liability and other claims;

 

    regulatory development in the United States, Europe and other jurisdictions;

 

    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 our product candidates;

 

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

 

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our ability to effectively manage our anticipated growth;

our ability to attract and retain qualified employees and key personnel;

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and ordinary share performance;

our expected use of proceeds of the global offering;

the future trading price of our ADSs and ordinary shares and impact of securities analysts’ reports on these prices; 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.

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. Based on our industry experience, we believe that the third-party sources are reliable and that the conclusions contained in the publications are reasonable.

 

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CURRENCY EXCHANGE RATES

The following table sets forth, for each period indicated, the low and high exchange rates for euro 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.

 

     2012      2013      2014      2015      2016  

High

     1.3463        1.3816        1.3927        1.2015        1.1516  

Low

     1.2062        1.2774        1.2101        1.0524        1.0375  

Rate at end of period

     1.3186        1.3779        1.2101        1.0859        1.0552  

Average rate per period

     1.2859        1.3281        1.3297        1.1096        1.1072  

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

 

     March
2017
     April
2017
     May
2017
     June
2017
     July
2017
     August
2017
 

High

     1.0882        1.0941        1.1236        1.1420        1.1826        1.2025  

Low

     1.0514        1.0606        1.0869        1.1124        1.1336        1.1703  

Rate at end of period

     1.0698        1.0895        1.1236        1.1411        1.1826        1.1894  

On September 22, 2017, the noon buying rate of the Federal Reserve Bank of New York for the euro was €1.00 = $1.1969. Unless otherwise indicated, currency translations in this prospectus reflect the September 22, 2017 exchange rate.

 

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MARKET INFORMATION

Our ordinary shares have been trading on Euronext Brussels under the symbol “ABLX” since November 2007.

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

 

Period

   High      Low      High      Low  

Annual

           

2013

   8.27      5.73      $ 11.1769      $ 7.5057  

2014

   10.00      7.09      $ 13.922      $ 9.6459  

2015

   16.10      9.00      $ 17.6697      $ 9.7195  

2016

   15.425      8.35      $ 16.6867      $ 9.2810  

2017 (through September 21, 2017)

     €13.20      10.27      $ 15.5063      $ 10.982  

Quarterly

           

First Quarter 2015

   11.40      9.00      $ 12.9538      $ 9.7195  

Second Quarter 2015

   11.10      9.08      $ 12.4162      $ 9.7882  

Third Quarter 2015

   14.00      10.90      $ 15.3692      $ 11.9891  

Fourth Quarter 2015

   16.10      10.90      $ 17.6697      $ 12.4750  

First Quarter 2016

   15.425      10.40      $ 16.6867      $ 11.7464  

Second Quarter 2016

   14.495      10.815      $ 16.2488      $ 11.9376  

Third Quarter 2016

   13.10      11.075      $ 14.5907      $ 12.4848  

Fourth Quarter 2016

   11.015      8.35      $ 12.2751      $ 9.2810  

First Quarter 2017

   13.20      10.70      $ 13.9867      $ 11.1568  

Second Quarter 2017

   11.985      10.27      $ 13.5071      $ 10.9817  

Month Ended

           

December 2016

   10.815      9.75      $ 11.4065      $ 10.3437  

January 2017

   12.50      10.70      $ 13.1987      $ 11.1568  

February 2017

   13.20      11.46      $ 13.9867      $ 12.1120  

March 2017

   11.905      11.00      $ 12.6697      $ 11.9504  

April 2017

   11.655      10.27      $ 12.4254      $ 10.9817  

May 2017

   11.075      10.80      $ 12.0784      $ 11.7730  

June 2017

   11.985      11.29      $ 13.507      $ 12.8853  

July 2017

   12.80      10.86      $ 15.1181      $ 12.3761  

August 2017

   12.70      11.42      $ 14.9924      $ 13.4996  

September 2017 (through September 21, 2017)

     €12.95        €11.855        $15.5063        $14.0944  

On September 21, 2017, the last reported sale price of our ordinary shares on Euronext Brussels was €12.93 ($15.4294) per ordinary share.

 

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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 ADS in the U.S. and €                 per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters’ option to purchase additional ordinary shares or ADSs. If the underwriters exercise in full their options to purchase additional ADSs in the U.S. offering and additional ordinary shares in the European private placement, we estimate that we will receive net proceeds from the global offering of approximately $             (€            ) million, assuming a public offering price of $             per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 (€            ) increase (decrease) in the assumed public offering price of $                 per ADS in the U.S. offering and € per ordinary share in the European private placement would increase (decrease) our net proceeds from the global offering by $         (€            ) million, assuming the number of ordinary 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 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us would increase or decrease the net proceeds to us from the sale of the ordinary 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 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) increase in the assumed public offering price of $             per ADS in the U.S. offering and € per ordinary share in the European private placement, would increase the net proceeds to us from the sale of the ordinary shares and ADSs we are offering by $             (€            ) million, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) decrease in the assumed public offering price of $             per ADS in the U.S. offering and €             per ordinary share in the European private placement would decrease the net proceeds to us from the sale of the ordinary 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 ADSs offered by us, the actual public offering price and other terms of this offering determined at pricing.

The principal purposes of the global offering are to increase our financial flexibility to prepare for the commercialization of caplacizumab, if approved, advance our clinical pipeline, create a public market for our securities in the United States and facilitate our access to the U.S. public equity markets. We currently expect to use the net proceeds from this offering as follows:

 

    approximately $             million to continue to build-out a sales, marketing and distribution infrastructure in preparation for the commercial launch of caplacizumab in Europe and the United States;

 

    approximately $             million to advance the development of ALX-0171 through its Phase II trials; and

 

    approximately $             million to advance the discovery and development of earlier stage products.

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, either alone or together with a collaboration partner. However we have no current plan, commitments or obligations to do so.

This expected use of the net proceeds from the global offering represents our intentions based upon our current plans and business conditions. We cannot predict with certainty all of the particular uses for the net

 

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proceeds to be received upon the closing of the global offering or the amounts that we will actually spend on the uses set forth above. Predicting the costs necessary to develop Nanobody candidates can be difficult. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress, timing and completion of our development efforts, the status of and results from preclinical studies and any ongoing clinical trials or clinical trials we may commence in the future, the time and costs involved in obtaining regulatory approval for our product candidates as well as maintaining our existing collaborations and 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.

Based on our planned use of the net proceeds of the global offering and our current cash, cash equivalents and current financial assets, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through at least the next 12 months. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

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

 

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DIVIDEND POLICY

We have never 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. All of the ordinary shares represented by the ADSs offered by this prospectus will have the same dividend rights as all of our other outstanding ordinary shares. In general, distributions of dividends proposed by our board of directors require the approval of our shareholders at a shareholders meeting with a simple majority vote, although our board of directors may declare interim dividends without shareholder approval, subject to the terms and conditions of the Belgian Companies Code. See ‘‘Description of Share Capital.’’

Pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory financial accounts. In addition, under the Belgian Companies Code, we may declare or pay dividends only if, following the declaration and issuance of the dividends, the amount of our net assets on the date of the closing of the last financial year according to our statutory annual accounts (i.e., the amount of the assets as shown in the balance sheet, decreased with provisions and liabilities, all as prepared in accordance with Belgian accounting rules), decreased with the non-amortized costs of incorporation and expansion and the non-amortized costs for research and development, does not fall below the amount of the paid-up capital (or, if higher, the called capital), increased with the amount of the reserves that are not distributable according to Belgian law or our articles of association. An example of such non-distributable reserve is the legal reserve implying that we must allocate at least 5% of our annual net profits (under our non-consolidated statutory accounts prepared in accordance with Belgian accounting rules) to such (non-distributable) legal reserve, until the legal reserve amounts to 10% of our ordinary share capital. To date, we have not contributed to our legal reserve, since we have not made any profit since our inception.

For information regarding the Belgian withholding tax applicable to dividends and related U.S. reimbursement procedures, see ‘‘Material United States and Belgian Income Tax Law Considerations—Belgian Tax Consequences.’’

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2017 on:

 

    an actual basis; and

 

    an as adjusted basis to reflect: our issuance and sale of an aggregate of          ordinary shares (including ordinary shares in the form of ADSs) in the global offering at an assumed public offering price of $         per ADS in the U.S. and €         per ordinary share in the European private placement, based on the closing price of our ordinary shares on Euronext Brussels on             , 2017, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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, 2017  
     Actual      As
Adjusted(1)
 
(in thousands)              

Cash and cash equivalents

   26,390       

Loan and borrowings

     103,319     

Ordinary share capital:

     

Ordinary shares, no nominal value: 61,133,199 ordinary shares issued and outstanding, actual;             ordinary shares issued and outstanding, as adjusted

     107,244     

Premiums related to the ordinary share capital

     253,312     

Reserves

     8,592     

Accumulated losses

     (288,716   
  

 

 

    

Total equity attributable to our shareholders

     80,432     
  

 

 

    

 

 

 

Total capitalization

   183,751                    
  

 

 

    

 

 

 

 

(1)

Each $1.00 (€            ) increase or decrease in the assumed public offering price of $             per ADS in the U.S. and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, 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 ordinary 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 ordinary shares and ADSs we are offering. Each increase or decrease of 1,000,000 ordinary shares and ADSs in the aggregate number of ordinary 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 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) increase in the assumed public offering price of $             per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, 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 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) decrease in the assumed public offering price of $             per ADS in the U.S. offering and

 

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  €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, 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 ADSs offered by us, and other terms of this offering determined at pricing.

The number of ordinary shares to be outstanding after the global offering is based on 61,133,199 of our ordinary shares outstanding as of June 30, 2017, and includes             ordinary shares represented by ADSs and ordinary shares to be offered in the global offering, and excludes:

 

    2,885,669 ordinary shares issuable upon the exercise of warrants outstanding as of June 30, 2017 pursuant to our warrant plans, at a weighted-average exercise price of €8.11 per ordinary share; and

 

    7,733,952 ordinary shares eligible for issuance upon conversion of our Bonds as of June 30, 2017, if we elect to not settle any conversion of the Bonds for cash assuming, and assuming no adjustments to the initial conversion price of €12.93 for anti-dilution protection.

Except as otherwise noted, all information in this prospectus assumes:

 

    no exercise by the underwriters of their option to purchase additional ADSs in the U.S. public offering and additional ordinary shares in the European private placement; and

 

    no issuance or exercise of warrants after June 30, 2017.

 

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DILUTION

If you invest in the ADSs or ordinary shares in the global offering, your ownership interest will be diluted to the extent of the difference between the public offering price per ordinary share/ADS paid by purchasers of the ordinary shares/ADSs and the as adjusted net tangible book value per ordinary share/ADS after the global offering. Our net tangible book value as of June 30, 2017 was €         million ($         ) million, or €         ($         ) per ordinary share. Net tangible book value per 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, 2017, or 61,133,199 ordinary shares.

After giving effect to our sale of an aggregate of         ordinary shares (including ordinary shares presented by ADSs) in the global offering at an assumed public offering price of $         per ADS in the U.S. and €         per         ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on         , 2017, 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, 2017 would have been €         ($         ) million, or €         ($         ) per ordinary share/ADS. This amount represents an immediate increase in net tangible book value of €         ($         ) per ADS to our existing shareholders and an immediate dilution in net tangible book value of €         ($         ) per ADS to new investors.

The following table illustrates this dilution on a per ordinary basis:

 

Assumed initial public offering price per ordinary share/ADS

                    

Historical net tangible book value per ordinary share/ADS as of June 30, 2017

                    

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

       
  

 

 

    

As adjusted net tangible book value per ordinary 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 (€            ) increase or decrease in the assumed public offering price of $             per ADS in the U.S. and € per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, would increase or decrease our as adjusted net tangible book value by approximately €             ($             ) million, or approximately €             ($             ) per ordinary share/ADS, and the dilution to new investors participating in the global offering would be approximately €             ($             ) per ordinary share/ADS, assuming that the number of 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 ordinary shares and ADSs we are offering. An increase in the aggregate number of ordinary shares and ADSs offered by us by 1,000,000 ordinary shares and ADSs would increase the as adjusted net tangible book value by approximately €             ($             ) million, or €             ($             ) per ordinary share/ADS, and the dilution to new investors participating in the global offering would be €             ($             ) per ordinary share/ADS, assuming that the assumed public offering price remains the same, and after deducting underwriting discounts and commissions. Similarly, a decrease in the aggregate number of ordinary shares and ADSs offered by us by 1,000,000 ordinary shares and ADSs would decrease the as adjusted net tangible book value by approximately €             ($             ) million, or €             ($             ) per ordinary share/ADS, and the dilution to

 

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new investors participating in the global offering would be €             ($             ) per ordinary 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 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) increase in the assumed public offering price of $             per ADS in the U.S. offering and € per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, would increase our as adjusted net tangible book value by approximately €             ($             ) million, or approximately € ($ ) per ordinary share/ADS, and the dilution to new investors participating in the global offering would be approximately €             ($             ) per ordinary share/ADS, after deducting underwriting discounts and commissions. Each decrease of 1,000,000 ordinary shares and ADSs in the aggregate number of ordinary shares and ADSs offered by us together with a concomitant $1.00 (€            ) decrease in the assumed public offering price of $             per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, would decrease our as adjusted net tangible book value by approximately €             ($             ) million, or approximately €             ($             ) per ordinary share/ADS and the dilution to new investors participating in the global offering would be approximately €             ($             ) per ordinary 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 offering price, the number of ADSs offered by us and other terms of the global offering determined at pricing.

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

The following table sets forth as of June 30, 2017 consideration paid to us in cash for ordinary 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 ADS in the U.S. and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2017, 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    
  

 

 

    

 

 

   

 

 

    

 

 

   

In addition, if the underwriters exercise their option to acquire additional ordinary shares or ADSs in full, the number of ordinary shares held by the existing shareholders after the global offering would be reduced to             % of the total number of ordinary shares outstanding after the global offering, and the number of ordinary 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 number of ordinary shares to be outstanding after the global offering is based on 61,133,199 of our ordinary shares outstanding as of June 30, 2017, and includes              ordinary shares represented by ADSs and ordinary shares to be offered in the global offering, and excludes:

 

    2,885,669 ordinary shares issuable upon the exercise of warrants outstanding as of June 30, 2017 pursuant to our warrant plans, at a weighted-average exercise price of €8.11 per ordinary share; and

 

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    7,733,952 ordinary shares currently eligible for issuance upon conversion of the Bonds, if we elect to not settle any conversion of the Bonds for cash, and assuming no adjustments to the initial conversion price of €12.93 for anti-dilution protections.

Furthermore, pursuant to the terms of the Bonds, in the event we sell the ADSs and ordinary shares in the global offering at a price per ADS or ordinary share which is less than 95% of the five day volume weighted average price of our ordinary shares on each of the five consecutive days ending on the date of the final prospectus relating to this offering, the conversion price of the Bonds will increase, resulting in further dilution in purchasers in the global offering upon the conversion of the Bonds.

In the event we sell the ADSs in the U.S. public offering, or ordinary shares in the European private placement, at a price per ADS or ordinary share which is less than 95% of the five day volume weighted average price on each of the five consecutive days ending on date of the final prospectus, or the 5-day VWAP, the conversion price of the Bonds will adjust and entitle holders of the Bonds to receive additional ordinary shares upon conversion of the Bonds. Assuming a 5-day VWAP of €         , which is the 5-day VWAP on the date immediately preceding     , 2017, for each additional €1.0 we discount the sale price of ADSs and ordinary shares below €         , the conversion price of the Bonds will adjust accordingly, resulting in an aggregate of          additional ordinary shares being issuable upon conversion of the Bonds. See “Description of Share Capital—Share Capital—Other Outstanding Securities” for a description of the Bonds.

Except as otherwise noted, all information in this prospectus assumes:

 

    no exercise by the underwriters of their option to purchase additional ADSs in the U.S. public offering and additional ordinary shares in the European private placement; and

 

    no issuance or exercise of warrants after June 30, 2017.

 

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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, 2016 and 2015 and statements of financial position data as of December 31, 2016 and 2015 from our audited financial statements beginning on page F-1. Our audited financial statements have been prepared in accordance with IFRS, as issued by the IASB. The financial data as at June 30, 2017 and for the six months ended June 30, 2017 have been derived from our unaudited interim condensed financial statements included elsewhere in this prospectus. The unaudited interim condensed financial statements have been prepared on the same basis as our audited financial statements and include all normal recurring adjustments that we consider necessary for a fair statement of our financial position and operating results as of the dates and for the periods presented. Our historical results are not necessarily indicative of the results to be expected in the future.

Income Statement Data:

 

     Year ended
December 31,
     Period ended
June 30,
 
     2016      2015      2017      2016  
    

(in thousands,

except share and per share data)

 

Revenue

   84,773        €76,761        €34,665      53,116  

Grant income

     414        779        45        391  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue and grant income

     85,187        77,540        34,710        53,507  
  

 

 

    

 

 

    

 

 

    

 

 

 

Research and development expenses

     (100,315      (83,084      (50,517)        (49,015

General and administrative expenses

     (13,472      (11,411      (8,950)        (6,516
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     (28,600      (16,955      (24,757)        (2,024 ) 
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial income

     34,761        1,768        3,124        28,387  

Financial expenses

     (7,248      (39,360      (3,691)        (3,535
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive profit/(loss)

   (1,087    (54,547      €(25,324)      22,828  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic profit/(loss) per share (in €)

     (0.02      (1.00      (0.42)        0.41  

Diluted loss per share (in €)

     (0.43      (1.00      (0.42)        (0.03

Statements of Financial Position Data:

 

     As of December 31,      As of June 30,  
     2016      2015      2017      2016  
    

(in thousands)

 

Cash, cash equivalents

   53,356      3,602      26,390      89,879  

Total assets

     266,764        265,272        235,240        315,270  

Non-current liabilities

     104,349        134,828        103,319        108,573  

Current liabilities

     59,360        102,535        51,489        81,167  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     163,709        237,363        154,808        189,740  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and equity

   266,764      265,272      235,240      315,270  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 “Selected Financial Data” and our audited financial statements, including the notes thereto, included elsewhere in this prospectus. The following discussion includes 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 in “Risk Factors.”

Overview

We are a late-stage clinical biopharmaceutical company utilizing our proprietary Nanobody platform to develop treatments for a broad range of therapeutic indications with an unmet medical need. We believe that Nanobodies represent a leading next generation protein therapeutic technology. We have more than 45 proprietary and partnered Nanobody programs across a range of therapeutic indications including: hematology, inflammation, infectious disease, autoimmune disease, oncology and immuno-oncology. We employ a hybrid business model whereby we pursue our wholly owned programs through to commercialization or key value inflection points while also working with pharmaceutical partners on programs in areas where they bring specific disease expertise and resources. Our lead, wholly owned product candidate, caplacizumab, for the treatment of acquired thrombotic thrombocytopenic purpura, or aTTP, is currently undergoing regulatory review in Europe, and we recently announced positive top line results from a Phase III trial with caplacizumab in October 2017. Submission of a Biologics License Application for caplacizumab in the United States is planned in the first half of 2018 and we received Fast Track Designation from the FDA for caplacizumab in July 2017. Our wholly owned and partnered product pipeline includes three other Nanobody-based product candidates at the Phase II stage of development and four at the Phase I stage of development, and we and our partners are currently planning to initiate Phase I trials for multiple other product candidates over the next few years.

Since our inception in 2001, we have invested most of our financial resources and efforts towards developing our proprietary Nanobody platform and identifying potential product candidates, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing general and administrative support for these operations. We have advanced three internally developed product candidates into clinical development—caplacizumab, ALX-0171 and vobarilizumab—and currently have multiple other programs in clinical and pre-clinical stages. Through June 30, 2017, we raised an aggregate of more than €350 million in gross proceeds, including €85.2 million from our initial public offering on Euronext Brussels in 2007, €50.0 million from a follow-on public offering on Euronext Brussels in 2010, €147.4 million through private placements and €100.0 million through the issuance in 2015 of senior unsecured convertible bonds due 2020, or the Bonds. In addition, we have received upfront payments, milestone payments and research and development service fees from our collaborators totaling €427.5 million as of June 30, 2017. As of June 30, 2017, we had a liquid asset position, including cash, current financial assets, restricted cash and deposits of €204.5 million.

Since our inception, we have incurred significant operating losses due to significant research and development costs. We do not currently have any approved products and have never generated any revenue from product sales. Our ability to generate revenue sufficient to achieve profitability will depend significantly upon the successful development and eventual commercialization of one or more of our product candidates, which may never occur. For the six months ended June 30, 2017 and 2016, we incurred operating losses of €24.8 million and €2.0 million and total comprehensive losses of €25.3 million and total comprehensive profits of €22.8 million, respectively. As of June 30, 2017, we had an accumulated deficit of €288.7 million.

We expect our expenses to increase substantially in connection with our ongoing development activities related to our pre-clinical and clinical programs. In addition, upon the closing of this offering, we expect to incur

 

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additional costs associated with operating as a public company in the United States. We anticipate that our expenses will increase substantially if and as we:

 

    complete the HERCULES three year follow-up study of caplacizumab, our lead product candidate;

 

    establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval, including caplacizumab;

 

    advance our caplacizumab commercialization strategy and continue to prepare for the initial launch of caplacizumab in Europe and the United States;

 

    continue the clinical development of ALX-0171 in infants hospitalized with RSV and patients who have undergone a stem cell transplant and have become infected with RSV;

 

    continue the clinical development of vobarilizumab for both RA and SLE and/or identify new indications for vobarilizumab which we could pursue independently;

 

    start preparation of potential pivotal Phase III trials of ALX-0171;

 

    start preparations for clinical development of certain proprietary Nanobodies currently at the pre-clinical development stage;

 

    continue the research and development program for our other proprietary pre-clinical-stage product candidates and discovery stage programs;

 

    seek to enhance our technology platform and discover and develop additional product candidates;

 

    seek regulatory approvals for any product candidates that successfully complete clinical trials;

 

    obtain, maintain, expand and protect our intellectual property portfolio, including litigation costs associated with defending against alleged patent or other intellectual property infringement claims;

 

    add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts;

 

    experience any delays or encounter any issues with respect to any of the above, including failed studies, ambiguous trial results, safety issues or other regulatory challenges; and

 

    operate as a public company in the United States.

As a result, we will need additional financing to support our continuing operations. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

Collaboration Agreements

We have a disciplined strategy to maximize the value of our pipeline whereby we plan to retain all development and commercialization rights to those product candidates that we believe we can ultimately commercialize successfully, if approved. We have partnered, and plan to continue to partner, product candidates that we believe have promising utility in disease areas or patient populations that are better served by resources of larger biopharmaceutical companies. Below are summaries of our key collaborations. See “Business—Significant Collaborations” for a more detailed description of these agreements.

 

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Merck & Co., Inc.

In October 2012, we entered into a collaboration with Essex Chemie AG, a subsidiary of Merck & Co., Inc., or Essex, to develop and commercialize Nanobody candidates directed towards a voltage gated ion channel with the option to develop and commercialize a Nanobody to a second target. Upon signing, Essex paid us a €6.5 million upfront payment and a €2.0 million fee for research funding. In addition, subject to achieving the milestones specified in the agreement, we are eligible to receive up to €429.0 million in the aggregate in research and commercial milestone payments associated with the progress of multiple candidates as well as tiered percentage royalties on any products derived from the collaboration. In 2015 and then again in 2016, we announced extensions of this research collaboration, increasing funding obligations by Essex, with the latter extension also being accompanied by a €1.0 million milestone payment to us.

In February 2014, we announced that we had entered into a second research collaboration and licensing agreement with Merck & Co., Inc., or Merck. This collaboration and licensing agreement is focused on the discovery and development of several pre-defined Nanobody candidates (including bi- and tri-specifics) directed toward so called “immune checkpoint modulators”, proteins believed to be important potential targets for the development of cancer immunotherapies, a rapidly emerging approach to the treatment of a wide range of tumor types. Under the terms of the agreement, we received an upfront payment of €20.0 million and were eligible to receive research funding during the initial three year research term of the collaboration. In addition, we are eligible to receive development and commercial milestone payments for a number of products with the ultimate potential to accrue as much as €1.7 billion plus tiered percentage royalties. In 2015, we received a €3.5 million pre-clinical milestone payment under this agreement. In July 2015, we announced an expansion of this immuno-oncology collaboration with Merck and received a €13.0 million upfront payment comprising exclusivity fees and full time equivalent, or FTE, payments and are eligible to receive further research funding over the term of the collaboration. In June 2017, we received another €2.5 million in a milestone payment under this collaboration. In addition, we are eligible to receive additional exclusivity fees, depending on the number of programs for which Merck decides to exercise its licensing option, plus tiered percentage royalties on annual net sales upon commercialization of any Nanobody products. Subject to achieving the milestones specified in the agreement, we are eligible to receive up to €338.5 million in development and commercial payments per each program, totaling up to €486.0 million in development milestones and €3.57 billion in commercial milestones in the aggregate for all the programs covered by the agreement.

AbbVie

In September 2013, we entered into a global license agreement with AbbVie, Inc., or AbbVie. Under the agreement, we are eligible to receive, subject to achieving the milestones specified in the agreement, up to an aggregate of $415.0 million in regulatory milestones and $150.0 million in commercial milestones, plus double-digit royalties, relating to the development and commercialization of the anti-IL-6R Nanobody, vobarilizumab, in both RA and SLE. As part of the agreement, we received a $175.0 million upfront payment and assumed responsibility for the execution of Phase II clinical development for vobarilizumab in both RA and SLE. In return, AbbVie received certain rights to opt-in and license vobarilizumab (including, following such opt-in, assuming complete responsibility for Phase III development, registration and commercialization). In October 2016, AbbVie chose to not exercise the opt-in right for vobarilizumab at the time of the RA trial results. Upon the release of the results for our Phase II trial of vobarilizumab in patients with SLE, AbbVie will have the right to opt-in and license vobarilizumab. By doing so, it would be required to make a $25.0 million payment for the SLE indication and would be obligated to use its commercially reasonable efforts to develop vobarilizumab for RA, with a potential $75.0 million payment if it moves forward in that indication.

Boehringer Ingelheim

In September 2007, we announced a strategic alliance with Boehringer Ingelheim International GmbH, or B.I., to discover, develop and commercialize up to 10 different Nanobody therapeutics. We received

 

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€42.9 million in upfront payments, license fees and FTE payments during the research term of the agreement. In 2010, we received a €5.0 million milestone payment when B.I. selected the first Nanobody from this alliance for development. In 2012, we received a second €5.0 million milestone payment under the agreement when B.I. selected a second Nanobody for development. In addition, for each licensed product or B.I. licensed compound which is developed, we may receive up to €125.0 million in the aggregate in potential milestone payments plus tiered percentage royalties on net sales of licensed products worldwide. In 2016, two €8.0 million milestone payments were received under the agreement as a result of a Phase I trial initiation by B.I. of both a bi-specific anti-VEGF/Ang2 Nanobody in patients with solid tumors and a Phase I trial initiation in healthy volunteers with an anti-CX3CR1 Nanobody.

Merck KGaA

In September 2008, we entered into an agreement with Merck Serono, a division of Merck KGaA, to co-discover and co-develop Nanobodies against two therapeutic targets. In 2013, we announced that Merck Serono had initiated a Phase I trial with an anti-Il-17A/F Nanobody arising from this agreement and this resulted in a €2.5 million milestone payment being paid to us.

In November 2011, we signed another agreement with Merck KGaA, to co-discover and develop Nanobodies against two targets in osteoarthritis and received a €20.0 million upfront payment. In May 2017, we announced that Merck KGaA had accepted the pre-clinical package for the first Nanobody under this agreement and this triggered the payment of a €15.0 million milestone payment to us.

Sanofi S.A.

In July 2017, we entered into a research collaboration and global exclusive licensing agreement with Sanofi initially focused on developing and commercializing Nanobody-based therapeutics for the treatment of various immune-mediated inflammatory diseases. This collaboration gives Sanofi access to certain Nanobodies in our existing portfolio as well as to our scientists and proprietary Nanobody platform. Under the terms of the agreement, Sanofi gains exclusive global rights to certain multi-specific Nanobodies against selected targets, with options for similar rights to additional targets, for a total of eight potential selected targets. The financial terms include an upfront payment of €23.0 million to us, comprised of license and option fees. In addition, we will receive research funding, estimated to amount to €8.0 million for the initially selected targets. Upon exercise of options to additional targets, Sanofi will pay us further option exercise fees and research funding. Sanofi will be responsible for the development, manufacturing and commercialization of any products resulting from this agreement. We will be eligible to receive up to €440.0 million in development milestone payments, €200.0 million in regulatory milestone payments and €1.76 billion in commercial milestone payments in the aggregate, subject to achieving the milestones specified in the agreement, plus tiered percentage royalties on the net sales of any products originating from the collaboration.

Basis of Presentation

Revenue and government grants

Revenue

During the years ended December 31, 2016 and 2015, our revenues were €85.2 million and €77.5 million, respectively. To date, our revenue has consisted principally of collaboration revenue consisting of (i) upfront payments, including upfront licensing fees, (ii) milestone payments based on achievement of research and development goals and (iii) research and development service fees related to charges for full time equivalents, or FTEs, at contracted rates and the reimbursement of research and development expenses. We currently have no products approved for sale. Other than additional income from the sources of revenue described above, we do not expect to receive any revenue from any product candidates that we develop, including caplacizumab, vobarilizumab, ALX-0171 and our clinical and pre-clinical product candidates, until we obtain regulatory

 

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approval and commercialize such products, until we enter into collaborative agreements with third parties for the development and commercialization of such candidates and obtained regulatory approval or until we get approval for compassionate use programs for caplacizumab or future product candidates.

See “Critical Accounting Policies and Significant Accounting Judgments, Estimates and Assumptions” for a more detailed description of the revenue recognition.

Government Grants

As a company that carries out extensive research and development activities, we benefit from various grants from certain government agencies. These grants generally aim to partly reimburse approved expenditures incurred in our research and development efforts.

We have received several grants from agencies of the Flemish government to support various research programs focused on technological innovation in Flanders. These grants require us to maintain a presence in the Flemish region for a number of years and invest according to pre-agreed budgets. During the years ended December 31, 2016 and 2015 and the six months ending June 30, 2017 and 2016, we recognized grant income totaling €414,000, €779,000, €45,000 and €391,000 respectively.

See “Critical Accounting Policies and Significant Accounting Judgments, Estimates and Assumptions” for a more detailed description of how we recognize government grants and research and development incentives receivables.

Research and Development Expenses

Research and development expenses consist principally of:

 

    employee benefits expenses related to compensation of research and development staff and related expenses, including salaries, benefits and share-based compensation expenses;

 

    external research and development expenses related to (i) chemistry, manufacturing and control costs for our product candidates, both for pre-clinical and clinical testing, all of which is conducted by specialized contract manufacturers, (ii) costs associated with regulatory submissions and approvals, quality assurance and pharmacovigilance and (iii) fees and other costs paid to contract research organizations in connection with pre-clinical testing and the performance of clinical trials for our product candidates;

 

    research and development tax credits, recognized as a deduction on research and development expenses;

 

    materials and consumables expenses;

 

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

 

    depreciation, amortization, maintenance and insurance costs of tangible and intangible fixed assets used to develop our product candidates;

 

    other operating expenses mainly consisting of allocated facilities costs, travel and conferences, administrative consultancy and costs and technology license fees.

 

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During the years ended December 31, 2016 and 2015, and the six months ended June 30, 2017 and 2016 we spent approximately €100.3 million, €83.1 million, €50.5 million and €49.0 million, respectively, on research and development activities which can be allocated between our key programs as follows:

 

     Year ended
December 31,
     Six months ended
June 30,
 
(€ in thousands)    2016      2015      2017      2016  

Caplacizumab

     22,425        13,694        13,610        9,779  

ALX-0171 (RSV)

     15,188        7,857        8,181        6,880  

Vobarilizumab (ALX-0061) with AbbVie

     37,440        41,311        14,134        20,807  

Other

     25,262        20,222        14,592        11,549  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     100,315        83,084        50,517        49,015  
  

 

 

    

 

 

    

 

 

    

 

 

 

Caplacizumab, RSV and vobarilizumab accounted for 75% and 75% of total research and development expenses for the years ended December 31, 2016 and December 31, 2015, respectively, and 71% and 76% of total research and development expenses for the six months ended June 30, 2017 and June 30, 2016, respectively. Research and development costs shown under other programs, relate to spending in our own funded discovery and development programs, and in our technology platform as well as costs related to other collaborations.

We incur various external expenses under our collaboration agreements for material and services consumed in the discovery and development of our partnered product candidates. Under some of the agreements with Merck KGaA and under the agreement with AbbVie, an upfront payment was made to either cover our future research and development expenses or require us to commence certain research and development activities. Research and development expenses are recognized in the period in which they are incurred.

As a company with research and development activities in Belgium, we have benefited from certain research and development incentives including the research and development tax credit, which are recognized as a deduction on research and development expenses. This tax credit can be offset against Belgian corporate income tax due. The excess portion may be refunded at the end of a five-year fiscal period for the Belgian research and development incentive. The research and development incentives are based on the amount of eligible research and development expenditure. We recognized research and development tax credits of €5.1 million and €3.8 million for the years ended December 31, 2016 and 2015, respectively, and €2.6 million and €2.3 million for the six months ended June 30, 2017 and 2016, respectively.

We also benefit from payroll withholding tax incentives for eligible scientific personnel which are recognized as a deduction on research and development expenses. We recognized payroll tax withholding incentives of €3.7 million and €3.4 million for the years ending December 31, 2016 and 2015, respectively, and €2.0 million and €1.8 million for the six months ended June 30, 2017 and 2016, respectively.

We typically utilize our employee, consultant and infrastructure resources across all of our research and development programs.

Our research and development expenses may fluctuate substantially depending on the timing of our research and development activities, including the timing of the initiation of clinical trials, the enrollment of patients in clinical trials and the production of product batches. Research and development expenses are expected to increase as we advance the clinical development of caplacizumab, vobarilizumab, ALX-0171 and our clinical and pre-clinical product candidates. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which material net cash inflows may commence from, any of our product candidates. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

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

 

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    the successful enrollment in, and completion of clinical trials;

 

    the successful completion of pre-clinical studies necessary to support investigational new drug, or IND, applications in the United States or similar applications in other countries;

 

    establishing and maintaining a continued acceptable safety profile for our product candidates;

 

    the terms, timing and receipt of regulatory approvals from applicable regulatory authorities;

 

    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 caplacizumab or any other product candidate that we may develop in the future, if approved.

Any of these variables with respect to the development of caplacizumab or any other product candidate that we may develop could result in a significant change in the costs and timing associated with, and the viability of, the development of such product candidates. For example, if the FDA, the EMA or other regulatory authority were to require us to conduct pre-clinical studies or clinical trials beyond those we currently anticipate will be required for the completion of clinical development or if we experience significant delays in enrolment in any clinical trials, we could be required to expend significant additional financial resources and time on the completion of our clinical development programs and the viability of the product candidate in question could be adversely affected.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses relating to salaries and related costs for personnel, including share-based compensation, of our employees in executive, finance, commercial, business development and other support functions, consulting fees relating to professional fees for accounting, business development, IT, audit and legal services and investor relations costs, board expenses consisting of directors’ fees, travel expenses and share-based compensation for non-executive board members, allocated facilities costs and other general and administrative expenses, including software maintenance, insurance, travel and other administrative costs.

We expect our general and administrative expenses to increase as we are preparing the commercialization of caplacizumab and as we prepare to become and operate as a public company in the United States. Such costs include increases in our finance, legal and commercialization personnel, additional external legal and audit fees, and expenses and costs associated with compliance with the regulations governing public companies. We also expect to incur increased costs for directors’ and officers’ liability insurance and an enhanced investor relations function.

Net financial result

The net financial result comprises finance income/expenses resulting from a decrease/increase in the fair value of the derivative associated with the Bonds (following a decrease/increase in our share price at year-end compared to that at the previous year-end), and finance costs, mainly related to the amortization of the debt component of the Bonds. Financial income also includes interest earned on cash, other investments, restricted cash and deposits.

The net financial result also includes exchange rate gains (losses) related to transactions denominated in foreign currencies, mainly in U.S. dollar and British pounds.

Income taxes

We have a history of losses. We expect to continue incurring losses as we continue to invest in our clinical and pre-clinical development programs and our discovery platform. Consequently, we do not have any deferred tax asset on our statement of financial position.

 

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Results of Operations

Comparison of Years Ended December 31, 2016 and 2015

 

     Years ended
December 31,
 
(in thousands; except share and per share information)    2016      2015  

Revenue

     €84,773        €76,761  

Grant income

     414        779  
  

 

 

    

 

 

 

Total revenue and grant income

     85,187        77,540  

Research and development expenses

     (100,315      (83,084

General and administrative expenses

     (13,472      (11,411
  

 

 

    

 

 

 

Operating loss

     (28,600      (16,955

Financial income

     34,761        1,768  

Financial expenses

     (7,248      (39,360
  

 

 

    

 

 

 

Loss before taxes

     €(1,087      €(54,547

Income taxes

     0        0  
  

 

 

    

 

 

 

Loss for the period

     (1,087      (54,547

Other comprehensive income

     0        0  
  

 

 

    

 

 

 

Total comprehensive loss

     €(1,087      €(54,547
  

 

 

    

 

 

 

Basic

     (0.02      (1.00

Diluted loss per share

     (0.43      (1.00

Weighted average number of shares(1)

     58,499,545        54,382,147  

 

(1) See Note 3 in the notes to our financial statements appearing at the end of this prospectus for a description of the method used to calculate basic and diluted net loss per share.

Revenue and grant income

 

     Years ended
December 31,
 
(in thousands)    2016      2015  

Upfront fees

   52,311      58,559  

Research and development service fees

     13,875        14,403  

Milestone payments

     18,400        3,500  

License fees & other revenue

     187        299  

Grant income

     414        779  
  

 

 

    

 

 

 

Total revenue and grant income

   85,187      77,540  
  

 

 

    

 

 

 

Our revenue and grant income increased by €7.6 million for the year ended December 31, 2016 to €85.2 million, compared to €77.5 million for the year ended December 31, 2015. The increase in revenue was primarily related to an increase of €14.9 million in milestone payments for the year ended December 31, 2016, mainly resulting from two €8.0 million milestone payments received under the agreement with B.I. as a result of the initiation of two Phase I trials, partially offset by a decrease of recognized upfront fees of €6.3 million in the year ended December 31, 2016 compared to the year ended December 31, 2015. The recognition of upfront fees decreased €6.3 million in the year ended December 31, 2016 to €52.3 million, from €58.6 million for the year ended December 31, 2015. Upfront fees recognized in the year ended December 31, 2016 were primarily related to the revenue recognition of payments from AbbVie and Merck for an amount of €37.8 million and €10.2 million, respectively. Upfront fees recognized in the year ended December 31, 2015 were primarily related to payments from AbbVie and Merck for an amount of €42.5 million and €9.2 million, respectively.

 

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Research and development expenses

 

     Years ended
December 31,
 
(in thousands)    2016      2015  

Consumables

     €5,916        €4,448  

Outsourcing

     65,925        53,897  

Patent costs

     2,134        2,177  

Employee expenses

     26,707        22,799  

Share-based compensation expense

     808        751  

Other operating expenses

     5,825        5,281  

Reduction withholding tax for scientists

     (3,702      (3,381

Research and development incentives

     (5,078      (3,873
  

 

 

    

 

 

 

Subtotal

     €98,535      82,099  

Depreciation and amortization expenses

     1,780        985  
  

 

 

    

 

 

 

Total research and development expenses

   100,315      83,084  

Our research and development expenses totaled €100.3 million and €83.1 million for the years ended December 31, 2016 and 2015, respectively. The increase of €3.6 million in personnel related expenditure for the year ended December 31, 2016 compared to the year ended December 31, 2015 was principally related to costs of additional research and development personnel. For the period ending December 31, 2016, we employed an average of 321 full time employees within research and development compared to 284 full time employees on December 31, 2015.

Our external research and development expenses (outsourcing) for the year ended December 31, 2016 totaled €65.9 million, compared to €53.9 million for the year ended December 31, 2015. This increase was primarily related to higher costs of clinical trials for our late-stage wholly owned product candidates.

Together with the increase in overall research and development expenditure, our research and development incentives (tax credit) increased to €5.1 million for the year ended December 31, 2016 from €3.9 million for the year ended December 31, 2015.

General and administrative expenses

 

     Years ended
December 31,
 
(in thousands)    2016      2015  

Employee benefit expenses

     €3,588        €3,091  

Share-based compensation expense

     1,764        1,069  

Executive Committee compensation(1)

     3,406        3,341  

Consultancy

     2,414        1,870  

Other operating expenses

     2,055        1,887  

Reduction withholding tax for scientists

     (220      (204

Subtotal

   13,007      11,054  
  

 

 

    

 

 

 

Depreciation and amortization expenses

     466        357  
  

 

 

    

 

 

 

Total general and administrative expenses

   13,473      11,411  

 

 

  (1) The Executive Committee consists of key management members and entities controlled by them.

Our general and administrative expenses totaled €13.5 million and €11.4 million for the years ended December 31, 2016 and 2015, respectively. The increase in our general and administrative expenses in the year

 

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ended December 31, 2016 was principally driven by pre-commercialization expenditure, mainly through external consultancy, for caplacizumab and higher share-based compensation expenses related to the grant of stock options to our employees and consultants. For the period ending December 31, 2016, we employed an average of 43 full time employees and on December 31, 2015 we employed 41 full time employees.

Net financial result

For the year ended December 31, 2016, our net financial income was €27.5 million compared to a net financial loss of €37.6 million for the year ended December 31, 2015.

The net financial income of €27.5 million consists of finance income of €34.7 million, resulting from a decrease in the fair value of the derivative associated with the Bonds, resulting from a decrease in our share price at year-end compared to that at the end of 2015), and finance costs of €7.2 million, mainly related to the amortization of the debt component of the Bonds.

Comparison of Six Months Ended June 30, 2017 and 2016

 

     Six months ended
June 30,
 

(in thousands; except share and per share information)

   2017      2016  

Revenue

   34,665      53,116  

Grant income

     45        391  
  

 

 

    

 

 

 

Total revenue and grant income

     34,710        53,507  

Research and development expenses

     (50,517      (49,015

General and administrative expenses

     (8,950      (6,516
  

 

 

    

 

 

 

Operating loss

     (24,757      (2,024

Financial income

     3,124        28,387  

Financial expenses

     (3,691      (3,535)  
  

 

 

    

 

 

 

Profit/(Loss) before taxes

     (25,324      22,828  

Income taxes

     0        0  
  

 

 

    

 

 

 

Profit/(Loss) for the period

     (25,324      22,828  

Other comprehensive income

     0        0  
  

 

 

    

 

 

 

Total comprehensive income/(loss)

     (25,324      22,828  
  

 

 

    

 

 

 

Basic gain/(loss) per share

     (0.42      0.41  

Diluted loss per share

     (0.42      (0.03

Weighted average number of shares(1)

     61,018,945        55,327,730  

 

See Note 3 in the notes to our annual financial statements appearing at the end of this prospectus for a description of the method used to calculate basic and diluted net loss per share.

Revenue and grant income

 

     Six months ended
June 30,
 
(in thousands)    2017      2016  

Upfront fees

   10,438      29,696  

Research and development service fees

     6,671        6,832  

Milestone payments

     17,500        16,400  

License fees & other revenue

     55        188  

Grant income

     45        391  
  

 

 

    

 

 

 

Total Revenue and grant income

  
34,710
 
   53,507  
  

 

 

    

 

 

 

 

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Our revenue and grant income decreased by €18.8 million for the six months ended June 30, 2017 to €34.7 million, compared to €53.5 million for the six months ended June 30, 2016. The decrease in revenue was primarily related to a decrease of €19.3 million in recognized upfront fees for the six months ended June 30, 2017, mainly resulting from lower recognition of payments from AbbVie and Merck compared to the six months ended June 30, 2016, partially offset by €1.1 million in higher milestone payments. Upfront fees recognized in the six months ended June 30, 2017 were primarily related to payments from AbbVie and Merck for an amount of €7.9 million and €1.8 million, respectively. Upfront fees recognized in the six months ended June 30, 2016 were primarily related to payments from AbbVie and Merck for an amount of €21.9 million and €5.2 million, respectively.

Research and development expenses

 

     Six months ended
June 30,
 
(in thousands)    2017      2016  

Consumables

   2,931      2,952  

Outsourcing

     30,431        32,031  

Patent costs

     1,207        936  

Employee expenses

     15,530        13,191  

Share-based compensation expense

     392        408  

Other operating expenses

     3,416        2,943  

Reduction withholding tax for scientists

     (2,040      (1,837

Research and development incentives

     (2,568      (2,277
  

 

 

    

 

 

 

Subtotal

     49,299        48,347  

Depreciation and amortization expenses

     1,218        668  
  

 

 

    

 

 

 

Total research and development expenses

   50,517      49,015  

Our research and development expenses totaled €50.5 million and €49.0 million for the six months ended June 30, 2017 and 2016, respectively. The increase of €2.1million in personnel related expenditure for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 was principally related to costs of additional research and development personnel. As of June 30, 2017, we employed 356 full time employees within research and development compared to 329 full time employees on June 30, 2016.

Our external research and development expenses (outsourcing) for the six months ended June 30, 2017 totaled €30.4 million, compared to €32.0 million for the six months ended June 30, 2016. This decrease was primarily related to lower costs of clinical trials for our late-stage wholly owned product candidates.

Together with the increase in overall research and development expenditure, our research and development incentives (tax credit) increased to €2.6 million for the six months ended June 30, 2017 from €2.3 million for the six months ended June 30, 2016.

 

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General and administrative expenses

 

     Six months ended
June 30,
 
(in thousands)    2017      2016  

Employee expenses

   1,973      1,840  

Share-based compensation expense

     898        899  

Executive Committee compensation(1)

     2,010        1,660  

Consultancy

     2,553        945  

Other operating expenses

     1,359        1,048  

Reduction withholding tax for scientists

     (78      (93
  

 

 

    

 

 

 

Subtotal

     8,715        6,299  

Depreciation and amortization expenses

     235        217  
  

 

 

    

 

 

 

Total general and administrative expenses

   8,950      6,516  

 

 

  (1) The Executive Committee consists of key management members and entities controlled by them.

Our general and administrative expenses totaled €9.0 million and €6.5 million for the six months ended June 30, 2017 and 2016, respectively. The increase in our general and administrative expenses in the six months ended June 30, 2017 was principally driven by pre-commercialization expenditure, mainly through external consultancy, for caplacizumab and pre-IPO costs. As of June 30, 2017, we employed 50 full time employees and on June 30, 2016 we employed 44 full time employees.

Net financial result

For the six months ended June 30, 2017, our net financial income was €(0.6) million compared to a net financial income of €24.9 million for the six months ended June 30, 2016.

The net financial income of €(0.6) million consists of finance income of €3.1 million, resulting from a decrease in the fair value of the derivative associated with the Bonds, and finance costs of €3.7 million, mainly related to the amortization of the debt component of the Bonds.

Liquidity and Capital Resources

Sources of Funds

Since our inception in 2001, we have invested most of our resources and efforts towards developing our proprietary Nanobody platform and identifying potential product candidates, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing general and administrative support for these operations. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have funded our operations through public and private placements of equity securities and convertible debt securities, upfront, milestone and expense reimbursement payments received from our collaborators, funding from governmental bodies and interest income from the investment of our cash, other investments, restricted cash and deposits. Through June 30, 2017, we have raised an aggregate of more than €350.0 million, including €85.2 million from our initial public offering on Euronext Brussels in 2007, €50.0 million from a follow-on public offering on Euronext in 2010, €147.4 million through private placements and €100.0 million through the placement of Bonds in 2015. In addition, we have received upfront payments, milestone payments and research and development service fees from our collaborators totaling €427.5 million as of June 30, 2017.

Our cash flows may fluctuate and are difficult to forecast and will depend on many factors. On June 30, 2017, we had a cash position, including cash, other investments, restricted cash and deposits of €204.5 million.

 

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Our Bonds pay a coupon of 3.25% per annum, payable semi-annually in arrears on November 27th and May 27th of each year, beginning on November 27, 2015. The annual yield to maturity of the Bonds is 3.25%. The Bonds will mature on May 27, 2020. The Bonds are initially convertible into an aggregate of 7,733,952 ordinary shares, at a conversion price of €12.93 per ordinary share. The conversion ratio is subject to the adjustments set forth in the Bond.

The Bonds are redeemable upon the option of the Holder at any time until the close of the seventh close of business prior to the stated maturity date. Upon redemption of the bonds, we will have the option to deliver cash, ordinary shares or a combination thereof. We may redeem all, but not some, of the Bonds at any time (i) after June 17, 2018 and prior to the maturity date if the volume weighted average price of our ordinary shares is at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period or (ii) at least 85% of the original principal amount of the Bonds shall have been converted at the option of the holders. See Description of Share Capital—Share Capital—Other Outstanding Securities”.

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

Cash Flows

The table below summarizes our cash flows for the years ended December 31, 2016 and 2015:

 

     As at December 31,     As at June 30,  

(in thousands)

   2016     2015     2017     2016  
Net cash flows (used in) provided by operating activities    (66,599   (68,960   (29,291   (17,190
Net cash flows (used in) provided by investing activities      45,941       (39,678     2,539       31,606  
Net cash flows provided by financing activities      70,412       100,579       (214     71,861  
Net (decrease)/increase in cash and cash equivalents      49,754       (8,059     (26,966     86,277  

Net Cash Flows Used In Operating Activities

Cash used in operating activities for the six months ended June 30, 2017 was €29.2 million, compared to €17.2 million for the six months ended June 30, 2016.

For the six months ended June 30, 2017, our operating expenditure amounted to €59.5 million compared to €55.5 million for the six months ended June 30, 2016. The increase in operating expenditure is primarily related to higher pre-commercialization expenditure for caplacizumab, pre-IPO costs and higher personnel related expenditure.

For the six months ended June 30, 2017, our research and development cash and grant income amounted to €24.8 million compared to €28.3 million for the six months ended June 30, 2016. The decrease is primarily related to lower upfront payments.

Cash used in operating activities for the year ended December 31, 2016 was €66.6 million, compared to €69.0 million for the year ended December 31, 2015.

For the year ended December 31, 2016, our operating expenditure amounted to €113.8 million compared to €94.5 million for the year ended December 31, 2015. The increase in operating expenditure is primarily related to higher costs of clinical trials for our late-stage wholly owned product candidates.

For the year ended December 31, 2016, our research and development cash and grant income amounted to €36.2 million compared to €24.8 million for the year ended December 31, 2015. The increase is primarily related to two €8.0 million milestone payments received in 2016 under the agreement with Boehringer Ingelheim as a result of two Phase I trial initiations.

 

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Net Cash Flows (Used in)/from Investing Activities

Investing activities consist primarily of purchase of laboratory equipment and sale/(purchase) of short-term financial assets. Cash provided by investing activities was €2.5 million for the six months ended June 30, 2017, compared to cash provided by investing activities of €31.6 million for the six months ended June 30, 2016. The cash provided by investing activities for the six months ended June 30, 2017 primarily related to the €40.5 million sale of current financial assets, consisting of term deposits held in euro with banks with an original maturity exceeding one month, partially offset by the €36.5 million purchase of current financial assets and the €1.4 million purchase of property, plant and equipment. The cash provided by investing activities for the six months ended June 30, 2016 primarily corresponded to the €78.8 million sale of current financial assets, consisting of term deposits held in euro with banks with an original maturity exceeding one month, partially offset by the €45.1 million purchase of current financial assets and the €2.2 million purchase of property, plant and equipment.

Cash provided by investing activities was €45.9 million for the year ended December 31, 2016, compared to cash used in investing activities of €39.7 million for the year ended December 31, 2015. The cash provided by investing activities for the year ended December 31, 2016 primarily related to the €73.3 million purchase of current financial assets, consisting of term deposits held in euro with banks with an original maturity exceeding one month and the €2.9 million purchase of property, plant and equipment, partially offset by the €123.9 million sale of current financial assets. The cash used in investing activities for the year ended December 31, 2015 primarily corresponded to more purchases than sales of financial assets, consisting of term deposits held in euro with banks with an original maturity exceeding one month.

Net Cash Flows from Financing Activities

Financing activities consist of net proceeds from the issue of ordinary shares (net of share issue costs), proceeds from exercise of warrants, interest paid on convertible bonds and repayment of borrowings. The cash used in financing activities was €0.2 million for the six months ended June 30, 2017, compared to cash provided by financing activities of €71.9 million for the six months ended June 30, 2016. The decrease for the six months ended June 30, 2017 was attributed to €71.4 million lower proceeds from issuance of ordinary shares (net of share issue costs) compared to the six months ended June 30, 2016.

Financing activities consist of net proceeds from the issue of ordinary shares (net of share issue costs), proceeds from exercise of warrants, proceeds from issuance of convertible bonds (net of transaction costs) for the year ended December 31, 2015, interest paid on convertible bonds and repayment of borrowings. The cash provided by financing activities was €70.4 million for the year ended December 31, 2016, compared to €100.6 million for the year ended December 31, 2015. The decrease for the year ended December 31, 2016 was attributed to lower net proceeds raised from the sale of our securities in the year ended December 31, 2016, compared to the net proceeds from the issue of convertible bonds in the year ending December 31, 2015.

Operating and Capital Expenditure Requirements

We have never achieved profitability. As of December 31, 2016 and June 30, 2017, we had accumulated losses of €263.4 million and €288.7 million, respectively. We expect to continue to incur significant operating losses for the foreseeable future as we continue our research and development efforts, seek to obtain regulatory approval for our product candidates and start the commercialization of caplacizumab.

In the opinion of the Company, the working capital available to it on the date hereof is sufficient to continue the Company’s operations, as planned, for the next 12 months following the date of this prospectus. Because of the numerous risks and uncertainties associated with the development of caplacizumab, ALX-0171, vobarilizumab, early-stage clinical programs and our pre-clinical programs and because the extent to which we may enter into collaborations with third parties for development of these product candidates is unknown, we are

 

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unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements for caplacizumab, ALX-0171, vobarilizumab, our early-stage clinical programs and our pre-clinical programs will depend on many factors, including:

 

    our ability to successfully commercialize caplacizumab, if approved for commercial sale;

 

    the progress, timing and completion of pre-clinical testing and clinical trials for our current or any future product candidates;

 

    the maintenance of our existing collaboration agreements and the entry into new collaboration agreements;

 

    our ability to reach milestones under our existing collaboration arrangements;

 

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

 

    the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current and future product candidates;

 

    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 product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of our product candidates;

 

    selling and marketing activities undertaken in connection with the potential commercialization of our current or any future product candidates, if approved, and costs involved in the creation of an effective sales and marketing organization; and

 

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

Identifying potential product candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.

Adequate additional funds may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute your ownership interest.

If we raise additional funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

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Contractual Obligations and Commitments

The table below summarizes our contractual obligations at December 31, 2016.

 

     Payments due by Period  
     Total      Less than
1 year
     2–5 years  
(in thousands)       

Operating lease commitments

   16,451      3,853      12,598  

Purchase obligations

   52,873      32,998      19,875  

We have entered into numerous agreements with universities, medical centers and external researchers for research and development work and for the validation of our technology and products. These agreements typically have durations of one to three years. We must pay fixed and variable fees to these collaborators, who, in exchange, grant us access and rights to the results of the work performed by them.

The purchase obligations relate to signed contracts for outsourced research and development activities.

We lease our main office and laboratory space, which is located in Ghent/Zwijnaarde, Belgium, and which consists of approximately 8,800 square meters. The lease is fixed until 2019 and after this period both parties are entitled to terminate the agreement with a notice period of a minimum of two years. We were granted by KBC Bank NV a credit commitment of €1.6 million for the guarantee clause, which is mentioned in the contract.

In 2017, we also extended our lease agreement with Incubatie- en Innovatiecentrum Universiteit Gent NV, or IIC UGent, for a storage space of 42 square meters in Ghent/Zwijnaarde, Belgium. This lease agreement is for a period of three years, commencing on March 1, 2017. We can terminate the lease agreement after the one year anniversary of the lease commencement date upon two months’ notice. If we terminate the lease, we are required to pay three months rent as a termination fee. IIC UGent can terminate the lease under certain conditions, including our gross negligence, upon two months’ notice.

We lease an additional 970 square meters of laboratory and office space also in Ghent/Zwijnaarde, Belgium. The lease for this facility expires in 2021, after which we have the option to extend. The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including 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.

We have received various governmental grants that may need to be repaid if certain conditions related to these grants are not met. We believe that it is uncertain whether we will be required to repay these grants and, accordingly, have not included them in the table above.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Quantitative and Qualitative Disclosure about Market Risks

We are exposed to a variety of financial risks, including interest rate risk and foreign exchange risk.

 

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Interest Rate Risk

We have a significant interest-bearing liability related to the private placement of €100.0 million senior unsecured bonds with a 3.25% coupon rate and a conversion price of €12.93. We do not have any floating rate financial instruments. We are currently not exposed to significant interest rate risk. Given the short-term nature of these investments, the sensitivity towards interest rate fluctuations is deemed not to be significant. Therefore, the effect of an increase or decrease in interest rates would only have an immaterial effect on our financial results.

Foreign Exchange Risk

We undertake transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Our functional currency is the euro and the majority of our operating expenses are paid in euro, but we also receive payments from our main business partners in U.S. dollars and we regularly acquire services, consumables and materials in U.S. dollars, British pounds and the euro. We currently do not seek to hedge this exposure to fluctuations in exchange rates.

As of June 30, 2017, if the euro had weakened 10% against the pound and strengthened 10% against the U.S. dollar with all other variables held constant, the loss for the period would have been €81,597 lower. Conversely, if the euro had strengthened 10% against the pound and weakened 10% against the U.S. dollar with all other variables held constant, the loss of the period would have been €147,752 higher.

Critical Accounting Policies and Significant Accounting Judgments, Estimates and Assumptions

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

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

The following elements are areas where key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Convertible Bond

We determine the fair value of the share conversion option (i.e., the derivative instrument embedded in our convertible bond) at each reporting date. The fair value of the share conversion option is the difference between the fair value of the convertible bond as a whole and the fair value of the host debt instrument. We receive estimates of the fair value of the convertible bond and the host debt instrument from a reputable data provider.

Revenue Recognition

Evaluating the criteria for revenue recognition with respect to our collaboration agreements requires management’s judgment to ensure that all criteria have been fulfilled prior to recognizing any amount of revenue in accordance with International Accounting Standard 18. In particular, such judgments are made with respect to determination of the nature of transactions, whether simultaneous transactions shall be considered as one or more revenue-generating transactions, and allocation of the contractual price (upfront and milestone payments in connection with a collaboration agreement) to several elements included in an agreement. All of our revenue-generating transactions have been subject to such evaluation by management.

 

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We generate revenue under our collaboration agreements and recognize this revenue as follows:

Upfront Payments

Non-refundable upfront fees for access to prior research results and databases are recognized when earned, if we have no continuing performance obligations and all conditions and obligations are fulfilled (this means after the delivery of the required information). If we have continuing performance obligations towards the client (i.e. continuing involvement), the upfront fee received is deferred and recognized over the estimated period of involvement, based on the costs incurred under the related project (with adjustment to the actual performance period at the end of the contract or at the actual termination date). Periodically we reassess the estimated time and cost to complete the project phase and adjust the period over which the revenue is deferred accordingly.

Milestone Payments

Revenue associated with performance milestones is recognized based upon the achievement of the milestone event if the event is substantive, objectively determinable and represents an important point in the development life cycle of the product candidate.

Research and Development Services Fees

Research and development service fees are recognized as revenue over the life of the research agreement as the required services are provided and costs are incurred. These services are usually in the form of a defined number of FTEs at a specified rate per FTE.

Research and Development Incentives

We accounted for a total tax receivable of €19.5 million following a research and development incentive scheme in Belgium under which the tax can be refunded after five years if not offset against taxable basis over that period. The research and development incentives are recorded net against the relating research and development expenses in the statement of comprehensive income.

We expect to receive this amount progressively over 5 years. €1.2 million was refunded in 2016 and €1.9 million was refunded in the six months ended June 30, 2017. We expect the remaining amount of €17.6 million in the following years.

The collection of the outstanding non-current research and development tax credit receivable remains dependent upon the completeness of the necessary formalities and the quality of the documentation available to support tax credit claimed. Tax legislation in Belgium might also change over time.

Share-Based Compensation

We used the Black & Scholes model for share-based compensation calculation purposes and based the volatility parameter on the volatility of our ordinary shares. Rotation of employees as a parameter for share-based compensation calculations is considered to be limited.

 

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Below is an overview of the parameters used in relation to the options granted from January 1, 2016 through June 30, 2017:

 

Number of options granted

     527,061  

Average fair value of options

     €5.11  

Share price

     €12.60  

Exercise price

     €12.33  

Expected volatility

     39.06

Maturity at valuation date

     7 years  

Risk-free interest rate

     0.21

Expected dividends

     0

The grant date fair value of the options in the above table is estimated using the following assumptions:

 

    The expected volatility corresponds to the calculated annual volatility of our ordinary shares since our initial public offering on Euronext Brussels on November 7, 2007 until the date of grant of the options.

 

    Maturity at valuation date is 7 years.

 

    Risk-free interest rate equals the Belgium 7-Year Bond Yield at the date of grant.

 

    Expected dividends is considered 0% as we have no plan for distributing dividends and have no history of distributing dividends to shareholders.

The total share-based compensation expense recognized in the statement of profit and loss and other comprehensive income was €2.6 million for the year ended December 31, 2016 and €1.8 million for the year ended December 31, 2015.

Deferred Income Tax

We have unused tax loss carry forwards, without expiry date of €242.1 million for the year ending December 31, 2016. This, combined with the other temporary differences, results in a net deferred tax asset position. We have accounted for a total research and development tax credit receivable of €19.5 million in accordance with Belgium’s tax incentive scheme under which the tax incentive can be refunded after five years if not offset against taxable basis over that period. These research and development incentives are recorded net against the relating research and development expense in our statement of comprehensive income. We expect to receive the entire amount progressively over five years. Due to the uncertainty surrounding our ability to realize taxable profits in the near future, we have not recognized any deferred tax assets.

JOBS Act Transition Period

In April 2012, the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act 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 for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. 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 for other public companies.

We intend to rely on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including

 

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without limitation, (1) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. 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 $1.07 billion in annual gross revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (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 the global offering. 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 late-stage clinical biopharmaceutical company utilizing our proprietary Nanobody platform to develop treatments for a broad range of therapeutic indications with an unmet medical need. We believe that Nanobodies represent a leading next generation protein therapeutic technology. We have more than 45 proprietary and partnered Nanobody programs across a range of therapeutic indications including: hematology, inflammation, infectious disease, autoimmune disease, oncology and immuno-oncology. We employ a hybrid business model whereby we pursue our wholly owned programs through to commercialization or key value inflection points while also working with pharmaceutical partners on programs in areas where they bring specific disease expertise and resources. Our lead, wholly owned product candidate, caplacizumab, for the treatment of acquired thrombotic thrombocytopenic purpura, or aTTP, is currently undergoing regulatory review in Europe, and we recently announced positive top line results from a Phase III trial with caplacizumab in October 2017. Submission of a Biologics License Application for caplacizumab in the United States is planned in the first half of 2018 and we received Fast Track Designation from the FDA for caplacizumab in July 2017. Our wholly owned and partnered product pipeline includes three other Nanobody-based product candidates at the Phase II stage of development and four at the Phase I stage of development, and we and our partners are currently planning to initiate Phase I trials for multiple other product candidates over the next few years.

Our most advanced wholly owned product candidate is caplacizumab for the treatment of aTTP, which is a rare, potentially fatal, blood clotting disorder, with an aggregate of 7,500 episodes estimated to occur each year in North America, Europe and Japan. We first communicated the results from our worldwide Phase II trial of caplacizumab in aTTP patients in 2014, and based on these encouraging data, we submitted a Marketing Authorization Application, or MAA, for caplacizumab in this indication to the European Medicines Agency, or EMA, in February 2017. We recently announced positive top line results from a 145 patient Phase III worldwide clinical trial of caplacizumab for the treatment of aTTP, and we expect these data will drive the registration process for caplacizumab in both Europe and the United States. Our second most advanced wholly owned product candidate is ALX-0171 for the treatment of respiratory syncytial virus, or RSV. We commenced a Phase IIb trial in 180 hospitalized infants in January 2017 and expect top line results in the second half of 2018. A third partnered Nanobody-based asset in Phase II trials is vobarilizumab for the treatment of rheumatoid arthritis, or RA, as well as for the treatment of systemic lupus erythematosus, or SLE. We have completed two Phase IIb clinical trials in approximately 600 RA patients and have had end-of-Phase II meetings with the U.S. Food and Drug Administration, or FDA, and EMA. We are also currently conducting a Phase II trial with vobarilizumab in 312 patients with SLE and expect top line results in the first half of 2018.

There are numerous potential therapeutic applications for our Nanobody technology. We are using our platform to advance wholly owned and partnered programs in areas which have an unmet medical need and where we believe there is a particular advantage in using our Nanobody technology. We have partnered strategically to maximize the breadth of our product pipeline. Our partnering strategy has allowed us to leverage the specific disease-area expertise of our collaborators, obtain significant funding to help build and advance our Nanobody product pipeline and further validate our technology platform. We currently have collaborations with nine pharmaceutical partners covering a broad range of clinical and pre-clinical programs. To date, we have received an aggregate of €453.5 million in upfront, full time equivalent, or FTE, and milestone payments from these collaborators and are eligible to receive more than €10.6 billion in additional milestone payments, plus sales royalties, subject to the achievement of clinical milestones, regulatory approvals, and other specified conditions.

Nanobodies are a class of novel therapeutic proteins that are based on the smallest functional fragments of “heavy-chain only” antibodies, which occur naturally in the Camelidae family, including llamas and alpacas. We believe that Nanobody-based product candidates combine many of the benefits of conventional monoclonal antibodies, or mAbs, with some of the advantages of small molecule drugs.

Traditional small molecule drugs have several favorable characteristics for drug development, including being generally stable, relatively easy to manufacture and capable of being administered through multiple routes;

 

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however, they tend to bind off-target, resulting in unwanted side-effects, and require long lead times for optimization to improve efficacy. mAbs have been developed which exhibit high affinities and are very specific for a particular target, thereby addressing some of the key deficiencies of small molecules as therapeutic candidates. However, the application of mAbs has been limited by several factors, including their large and complex structures, their relative lack of stability, which generally limits their mode of administration to either intravenous or subcutaneous injections, and their expensive manufacturing processes.

We believe Nanobody technology has the potential to provide the foundation for the next generation of biologics, combining some of the most important advantages of mAbs and small molecules, as well as offering some unique features. Nanobodies have similar affinities and specificities to mAbs but they are much smaller and more stable with the additional advantages of being able to be delivered via multiple administration routes and capable of being produced in a simple microbial fermentation. Our Nanobody technology allows us to rapidly develop binders to a broad range of targets, including challenging and complex proteins such as G-protein coupled receptors, or GPCRs, and ion channels, as well as to develop multi-functional molecules. We are also able to modulate the half-life of a Nanobody product candidate to optimize treatment for the indication being pursued. To date, we have generated Nanobodies against more than 150 potential disease targets, have shown proof-of-concept in more than 50 animal disease models and we have administered Nanobodies to over 2,000 patients and volunteers with encouraging safety and efficacy data.

Our Nanobody product pipeline is outlined below:

LOGO

We have assembled a team of over 400 highly qualified employees. We believe that we have the necessary research and development capabilities to successfully advance our wholly owned and partnered programs, and the business development skills to strategically engage with pharmaceutical collaborators. We are also actively expanding our commercial team in anticipation of regulatory approval of caplacizumab. The current commercial team has worked on the launch of more than 25 medicines over the last 25 years, on a national, regional and global level. Members of our Board of Directors and Executive Management Team have significant experience in the life sciences industry and have previously served at companies including GlaxoSmithKline plc, Merck & Co., Inc., Roche, UCB SA, Celltech Group plc and Swedish Orphan Biovitrum AB.

 

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Our Competitive Strengths

We believe that the combination of our technologies, expertise and business strategy will allow us to deliver impactful therapies to patients suffering from a broad range of diseases. Our competitive strengths include:

 

    A wholly owned, lead product candidate undergoing regulatory review in Europe based on Phase II trial results and with recently announced positive top line Phase III results. Caplacizumab is our first-in-class product candidate for the treatment of aTTP. In 2014, we reported results from a Phase II trial of caplacizumab involving 75 aTTP patients, which we refer to as the TITAN trial. Treatment with caplacizumab resulted in a 39% reduction in time to platelet count response compared to placebo and a 71% reduction in aTTP exacerbations when compared to placebo. Based on these results, we submitted a MAA to the EMA in February 2017. In October 2017, we announced positive top line results from a Phase III multinational, randomized, double-blind, placebo-controlled trial, which we refer to as the HERCULES trial, of caplacizumab in 145 aTTP patients. In this trial, treatment with caplacizumab resulted in a statistically significant reduction in time to platelet count response. At any given time patients treated with caplacizumab are 50% more likely to achieve platelet count response. In addition, there was a 74% relative reduction in the percentage of patients with aTTP-related death, a recurrence of aTTP or at least one major thromboembolic event during the trial period and a 67% relative reduction in the percentage of patients with an aTTP recurrence during the overall trial period. We expect these data to support the MAA review process and a Biologics License Application, or BLA, in the United States, which we currently expect to file in the first half of 2018. We received Fast Track Designation from the FDA for caplacizumab in July 2017. We plan to launch caplacizumab ourselves in Europe in the second half of 2018 and in the United States in the first half of 2019, assuming regulatory approval. If approved, caplacizumab would be the first pharmaceutical specifically indicated for the treatment of aTTP, and we estimate the total market opportunity in North America, Europe and Japan to be in excess of €800.0 million, based on the yearly incidence rate of aTTP in those markets. We have received orphan drug designation for caplacizumab from the FDA and EMA and we have issued patents covering caplacizumab that will expire in Europe in 2034 and in the United States in 2026. In addition, we have filed patent applications in various jurisdictions covering caplacizumab, which, if granted would be expected to expire in 2035.

 

    A second, wholly owned clinical product candidate, ALX-0171, in a Phase IIb trial. ALX-0171, our second most advanced wholly owned product candidate, utilizes an advantage of Nanobodies over mAbs in that the former can be nebulized, and therefore be administered by inhalation, while retaining their biological activity. The safety and tolerability of ALX-0171 were evaluated in a first-in-infant Phase I/IIa trial in 53 hospitalized RSV-infected infants, aged one to twenty-four months, in multiple clinical centers in Europe and the Asia-Pacific region. The trial met its primary endpoint, demonstrating the favorable safety and tolerability profile of ALX-0171, with no treatment-related serious adverse events reported. Treatment with inhaled ALX-0171 had a rapid impact on viral replication and also reduced viral load, as compared to placebo. There was also an encouraging initial indication of a therapeutic effect. In January 2017, the first patient was dosed in the Phase IIb trial of ALX-0171 in 180 infants hospitalized with a RSV infection, which we refer to as the RESPIRE trial, and top line data from this study are expected to be available in the second half of 2018. With only one drug treatment currently indicated for RSV in infants, and with this product not being widely adopted, we believe there is a greater than €1.0 billion opportunity for an effective RSV therapeutic in North America, Europe and Japan, in the aggregate. We have patent protection on ALX-0171 in the United States that will expire in 2030. In addition, we have filed patent applications in various jurisdictions covering ALX-0171, which, if granted, would be expected to expire in 2037.

 

    A balanced risk approach, with more than 45 wholly owned and partnered programs. We have built a broad pipeline by developing our wholly owned programs, while also entering into strategic collaborations. This approach has allowed us to recover the cost of some of our discovery and development programs from our partners and allows us to pursue additional indications ourselves. Our Nanobody pipeline covers a broad range of therapeutic areas including hematology, inflammation, infectious disease, autoimmune disease, oncology and immuno-oncology.

 

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    Broadly applicable technology with advantages over many other platforms. Our Nanobody technology has several key features which we believe increase its potentially successful applicability across a variety of therapeutic indications:

 

    Extensive pre-clinical and clinical validation with encouraging efficacy and safety data: Although our Nanobody technology is relatively new compared to classic antibody technology, we have accumulated extensive pre-clinical and clinical experience with Nanobodies which have now been administered to more than 2,000 volunteers and patients, with encouraging efficacy and safety data.

 

    Highly effective across a broad range of targets: To date, we have been able to develop functionally binding Nanobodies for every protein class we have worked on, including GPCRs and ion channels, which have proved particularly challenging for other technology platforms.

 

    Ability to engineer substantial increases in potency and multiple modes of action—“Mix and Match” formatting: Nanobodies can be easily linked together to generate multi-valents (the same Nanobody linked together) and multi-specifics (Nanobodies to different targets linked together). Multi-valents allow us to rapidly increase the potency of our product candidates as a result of increased avidity; multi-specifics combine different mechanisms of action in one molecule for an enhanced therapeutic effect.

 

    Differentiated efficacy and safety profile: Nanobodies have a unique physical structure and do not have an Fc domain. The result is that they can have differentiated efficacy and safety profiles compared to mAbs to the same target which may then give rise to important clinical benefits.

 

    Ability to modulate half-life: We are able to create Nanobodies with physiological half-lives from just a few hours to several weeks, allowing us to target both acute and chronic indications.

 

    Multiple administration routes: As a result of their physical properties, Nanobodies can potentially be administered using a number of additional routes, including inhalation, orally and topically. This provides Nanobodies with a key advantage over mAbs which are typically limited in their modes of administration to intravenous and subcutaneous injection.

 

    Ease and flexibility of manufacture: In contrast to mAbs, Nanobodies can be produced at high expression levels in simple micro-organisms such as E. coli or yeast, although like mAbs, they can also be produced in mammalian cell systems, which are often used for large-scale production of biologicals by pharmaceutical companies.

 

    Multiple collaborations with strategic partners with the potential for us to receive more than €10.6 billion in future milestone payments. We currently have nine pharmaceutical partners: AbbVie Inc., Boehringer Ingelheim, Eddingpharm, Merck & Co., Inc., Merck KGaA, Novartis Pharma AG, Novo Nordisk A/S, Taisho Pharmaceutical Co. and Sanofi S.A. Some collaborations, such as those with AbbVie and Taisho, involve us identifying programs ourselves, taking them through pre-clinical and clinical development and then entering into a licensing agreement with a partner who is subsequently responsible for the completion of clinical development and the commercialization of the product. Other collaborations are early discovery partnerships, such as those with Boehringer Ingelheim and Merck & Co., Inc., where we agree on protein targets with the partner and then generate and characterize Nanobodies against these targets before transferring them to the partner for further development and commercialization. We believe that our collaborations with leading pharmaceutical companies validate the potential of our technology. To date, we have received a total of €453.5 million in upfront, FTE, and milestone payments as part of our collaborations and have the potential to receive more than €10.6 billion in additional milestone payments, plus sales royalties, subject to the achievement of clinical milestones, regulatory approvals, and other specified conditions.

 

   

Intellectual property portfolio protecting product candidates as well as various aspects of our Nanobody platform. Our accumulated pre-clinical and clinical experience with Nanobodies has

 

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allowed us to establish an intellectual property portfolio that currently has more than 50 issued U.S. patents, more than 180 issued foreign patents, and over 400 U.S. and foreign patent applications, in more than 100 patent families. Our two lead wholly owned product candidates, caplacizumab and ALX-0171, are expected to have patent protection that will expire in 2035 and 2037, respectively, assuming that the patent applications we have filed for such product candidates are granted. The patents and patent applications within our intellectual property portfolio include claims directed to the composition-of-matter of our product candidates and their methods of use, as well as various aspects of the Nanobody platform that are used to generate, optimize and manufacture product candidates. The patents and patent applications within our intellectual property portfolio include claims directed to the composition-of-matter of our product candidates and their methods of use, as well as various aspects of the Nanobody platform that are used to generate, optimize and manufacture product candidates.

Our Strategy

In order to maximize the value of our Nanobody platform, we plan to:

 

    Create a fully integrated biopharmaceutical company. Our vision is to be a biopharmaceutical company with end-to-end capabilities in research, development and commercialization. We intend to commercialize product candidates on our own where we believe the target market can be addressed with a relatively small and specialized salesforce strategy, otherwise we will evaluate potential partnerships at key inflection points. We believe that this approach will allow us to maximize the potential value of our Nanobody platform and the product candidates we generate from it.

 

    Obtain registration for caplacizumab in the treatment of aTTP and commercialize the product ourselves in the major European markets and North America. We have filed a MAA in Europe for the use of caplacizumab in the treatment of aTTP based on our Phase II TITAN clinical data. We intend to use the data from the Phase III HERCULES trial, which we reported in October 2017, to support the MAA filing and to provide the basis of a BLA filing in the United States in the first half of 2018. Assuming we are successful with our registration applications, our intent is to commercialize caplacizumab ourselves in North America and Europe with the support of a Contract Sales Organization, or CSO, while commercializing in Japan with a pharmaceutical partner, and in other geographies with specialized local distributors. In anticipation of regulatory approval, we have begun to build the necessary internal commercial infrastructure by appointing a Chief Commercial Officer and establishing a supporting team. In addition, we have already hired the first Medical Science Liaisons for France, Germany and the United Kingdom, and we are in advanced negotiations with our preferred CSO. We expect a regulatory decision in Europe in the second half of 2018, and if approved, the first sales would be expected in Germany shortly afterwards. In the United States, a regulatory decision is anticipated in the first half of 2019, and if approved, sales in the United States would occur shortly thereafter.

 

    Advance our wholly owned product candidate, ALX-0171, through the Phase IIb RESPIRE trial in infants and in parallel investigate the use of ALX-0171 in hematopoietic stem cell transplant, or HSCT, patients who have contracted RSV. Seek to secure a partner after the results of the RESPIRE trial. We are conducting a 180 patient worldwide Phase IIb trial of ALX-0171 in infants hospitalized with a RSV infection. This trial began in January 2017 and is expected to produce top line data in the second half of 2018. If this trial is successful, we plan to explore partnering options and potentially collaborate with a pharmaceutical company to support commencement of a Phase III trial in infants hospitalized with RSV and explore the use of ALX-0171 in primary healthcare for RSV-infected infants and the elderly, as well as hospitalized elderly with RSV. We plan to also commence a Japanese trial in RSV-infected infants in 2018. In addition, we are planning to start a trial of ALX-0171 in the first half of 2018 in patients who have undergone HSCT and who have contracted RSV.

 

   

Evaluate the development options for vobarilizumab upon the outcome of our SLE trial. In July and August 2016, we released encouraging efficacy data from two Phase IIb trials (monotherapy and

 

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combination studies) of vobarilizumab in a total of approximately 600 RA patients. Under an agreement signed with AbbVie in 2013, AbbVie had an opt-in right at the time of the RA results to license vobarilizumab in exchange for milestone payments and royalties. AbbVie chose to not exercise that opt-in right. We are completing a Phase II trial of vobarilizumab in 312 SLE patients with data expected in the first half of 2018. AbbVie will have another opt-in right to license vobarilizumab at the time the data from the SLE trial become available, upon payment of $25.0 million. If AbbVie exercises this right, it will also have an obligation to use commercially reasonable efforts to advance vobarilizumab in RA. If AbbVie does not opt-in at this next opportunity then all rights to vobarilizumab revert unencumbered to us.

 

    Focus our internal proprietary discovery and development activities on therapeutic targets where Nanobodies have the potential for clear and promotable advantages over other technologies. We plan to use the characteristics of our platform technology, such as our “mix and match” formatting capabilities and the ability to administer our product candidates using multiple routes of administration, to pursue targets and indications where other technologies have not provided satisfactory solutions. These targets also include GPCRs and ion channels, which have proven to be difficult protein classes for which to develop viable product candidates using other technologies.

 

    Selectively leverage our technology platform to secure strategic collaborations to create additional value. Given the numerous potential therapeutic applications for Nanobodies, in addition to our proprietary programs, we have also strategically partnered with leading pharmaceutical companies, which has enabled us to access their specific disease-area expertise, capabilities and resources. This has also allowed us to recover the cost of some of our discovery and development programs and to broaden the indications we can pursue with Nanobodies, which would otherwise be outside our current capabilities. We expect to continue this collaborative strategy, focusing on the quality of the partnerships and the value they create for our pipeline. We also have, and will continue to, seek to identify external technologies which we believe can be combined with our Nanobody technology to improve its capabilities and address additional indications.

Our Technology Platform

Background

The pharmaceutical industry originally developed drugs based on the use of small synthetic organic molecules with molecular weights in the range of 300-500 Daltons. Several characteristics of small molecules, including their stability, ease of manufacturing and ability to be delivered through multiple routes of administration, have allowed their broad application to a wide range of biological targets and disease indications. The majority of pharmaceutical products currently marketed are small molecules. Despite their widespread use, small molecules have some key disadvantages, including off-target binding which results in unwanted side-effects and the requirement for lengthy lead optimization to improve their affinity and selectivity.

The limitations of small molecule drugs was a driver in efforts to develop other types of therapeutic molecules. As part of their natural defense system against pathogens and tumor cells, the immune system of vertebrates naturally produces molecules called antibodies, which are very specific and have high affinities to a particular target. In the 1970s, technology was developed to produce mAbs, which evolved to create potential drug candidates to start to address the shortcomings of small molecules. mAbs have been a growing segment of the pharmaceutical industry and accounted for 10% of global pharmaceutical sales in 2016. More than 50 mAbs have been approved to treat a variety of diseases, including cancer, inflammation, auto-immune diseases and infectious diseases. The sales growth of mAbs is outpacing that of small molecule drugs by a factor of nearly eight, and mAbs are expected to have nearly $125.0 billion in annual sales by 2020.

Despite their considerable commercial success, mAbs still have some significant limitations when compared to small molecules. mAbs are large (approximately 150,000 Daltons), which restricts their ability to be developed

 

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for some biological targets. mAbs have complex structures which makes rapid development of multi-valent and multi-specific drugs challenging. They are also relatively unstable compared to small molecules, which has generally limited administration routes to intravenous or subcutaneous injection. In addition, mAbs are difficult and expensive to manufacture. These limitations have created a demand to identify the next generation of therapeutics which would ideally combine the advantages of small molecules with the beneficial characteristics of mAbs.

We believe that Nanobodies have the potential to be a leading next generation protein therapeutic technology platform. They have similar specificities and affinities as mAbs and, because they are derived from naturally occurring single domain-binding structures, they also have a number of biophysical properties which make them particularly well-suited for drug development, including their stability, solubility and ease of manufacture.

Monoclonal antibodies

Antibodies are Y-shaped proteins used by the immune system to target and clear foreign bodies, including pathogens, such as bacteria and viruses, and tumor cells. Antibodies are composed of two structurally independent parts, the variable domain, or V-domain, and the constant domain, or Fc, domain. Antibodies are composed of two heavy and two light chains that combine to form the structure of a conventional antibody. There are V-domains at the tip of both the heavy and light chain that together are responsible for targeting a specific antibody to an antigen and are different for every type of antibody. The Fc domain does not interact with antigens, but rather interacts with components of the immune system through a variety of receptors on immune and other cells. These interactions allow antibodies to regulate the immune response and levels of cell-killing ability, or cytotoxicity, as well as their persistence in circulation and tissues. Fc domains are the same and interchangeable from antibody to antibody. In mounting an immune response to a foreign body or antigen, the immune system generates a wide panel of antibodies that bind to the antigen and which all differ slightly in their V-domains. A particular mAb originates from a single antibody clone and mAbs form the basis for the vast majority of antibody-based drugs.

Description of Nanobodies

The basis for Nanobody technology was originally discovered at the Free University of Brussels, Belgium. The patents covering the technology were based on the observation that Camelidae, the animal family which includes camels, llamas and alpacas, in addition to generating conventional antibodies, also possess antibodies that lack light chains, but still have the full antigen-binding capacity of conventional antibodies. In these “heavy-chain only” antibodies, antigen binding occurs through a single variable domain (VHH), which is the smallest functional fragment of a naturally occurring heavy-chain antibody. Due to their unique structure, Nanobodies have several inherent advantages over conventional antibodies that can be used to potentially create differentiated product candidates. Because of this, there has been considerable academic and industry-based research into VHH domains and Nanobodies over the last 25 years as illustrated by more than 1,200 peer-reviewed related scientific publications. This research activity supports our belief that the Nanobody technology platform is well-validated.

 

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LOGO

The figure above is a schematic representation of conventional antibodies (left) and “heavy-chain only” antibodies (right).

Our Nanobody Technology Platform

Despite being based on a relatively new technology, Nanobodies have been well validated in pre-clinical and clinical studies, by us and third parties, and we believe that they represent a leading next generation protein therapeutic technology. We have produced Nanobodies against more than 150 different targets and have shown proof-of-concept in over 50 animal disease models, as well as having administered Nanobodies to over 2,000 patients and volunteers with encouraging safety and efficacy data.

 

LOGO

Illustration of the Nanobody drug discovery process at Ablynx.

 

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We generate Nanobodies using two different methods to give access to as diverse a range of “heavy-chain only” antibodies as possible. One method involves immunizing outbred llamas or alpacas with the target antigen and subsequently isolating from the blood of the immunized animals the target-specific “heavy-chain only” antibodies and then generating the respective VHH domains. The other method uses our proprietary synthetic Nanobody phage library to identify the specific VHH domains. The required VHH domains are then selected using a range of different methodologies, including phage display, yeast surface display or next generation DNA sequencing. These VHH domains are formatted to achieve the desired pharmaceutical properties, including multi-valent and multi-specific constructs, and if desired, their in vivo half-life is modified. Once appropriate leads are identified, these are further sequence optimized to improve pharmacological properties. To reduce the risk of immunogenicity, we routinely humanize our Nanobodies. This is a straightforward procedure because Nanobodies already display relatively high sequence homology to human heavy-chain variable domains, typically between 80% and 90% when comparing the framework regions. Certain “humanizing” mutations may be introduced into these framework regions without losing the desired structural and functional properties that are the defining features of Nanobodies. Sequence optimization is not only used to effect “humanization” but is also used to improve the overall biophysical characteristics of the Nanobody.

We can manufacture our Nanobodies in a range of host systems, including microbial expression systems, such as E. coli and Pichia Pastoris, and mammalian systems, such as Chinese Hamster Ovary cells, or CHO cells. We are generally able to produce Nanobody leads suitable for in vivo testing within 12-18 months of accessing a biological target. Based on our experience, we expect to be able to advance new Nanobody product candidates from initial discovery to clinical development within an average of about 48 months.

We are constantly working to further optimize our Nanobody technology. One example of this is that we recently identified and patented specific mutations in the conserved framework and c-terminal regions of our Nanobodies which significantly reduce binding of pre-existing antibodies, or pre-Abs. Pre-Abs are found to exist in a significant proportion of people and these antibodies generally bind to the “back-end” region of the VHH domain, which is typically not exposed in conventional antibodies. We have found that pre-Ab binding to our Nanobodies does not affect clinical efficacy, safety or the pharmacokinetics of our product candidates, but can make bioanalysis more difficult; however, others have reported unwanted effects of pre-Ab binding to single domain antibodies. By identifying a proprietary method to significantly reduce pre-Ab binding, we have not only further optimized our Nanobody platform capabilities and our ability to produce Nanobody product candidates, but in doing so, we believe we have gained an additional important layer of intellectual property protection.

 

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Nanobody Advantages

We believe that our Nanobody platform offers several distinct advantages over conventional mAb technology including the following:

 

LOGO

 

    Highly Effective Across a Broad Range of Targets As a result of their smaller size and unique binding interface, Nanobodies can effectively bind to the binding sites on antigens, or epitopes, not easily recognized by or accessible to conventional antibodies. They have been shown to have functional activity, meaning the ability to bind to and act on, targets such as GPCRs and ion channels, where the development of mAbs has proved very challenging. As examples, we have discovered a GPCR-targeted Nanobody (anti-CX3CR1) currently in clinical development with Boehringer Ingelheim, and we have discovered Nanobodies directed to six ion channel targets with encouraging in vivo efficacy results already generated in three of these pre-clinical programs.

 

    Ability to Increase Potency and Modes of Action –“Mix and Match” Formatting The small size, monomeric structure, and robust nature of VHH units make them ideally suited for generating product candidates with superior pharmacological profiles, formed by linking Nanobodies together, a process we refer to as formatting. Single Nanobody units may be genetically linked together into multi-valent or multi-specific constructs.

Two or more building blocks with the same specificity can be linked together using a flexible linker, which is usually comprised of glycine-serine units, to produce bi- or multi-valent Nanobodies, often showing higher affinity for the target molecule and significantly increased potency compared with the corresponding monovalent Nanobody. We have demonstrated the increased potency resulting from multi-valent Nanobodies in several of our programs, including ALX-0171, where the trivalent Nanobody has a greater than 6,000 fold increase in potency compared to the monovalent form.

The ability to link different Nanobodies together using a linker to make multi-specifics can be used to make drugs that can: (i) block different pathways, examples of this are the anti-VEGF-Ang2 Nanobody in clinical trials with our partner Boehringer Ingelheim and the anti-IL17A/F Nanobody in clinical

 

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trials with our partner Merck KGaA; (ii) target two different epitopes on one molecule to create superior pharmacological properties; (iii) dramatically increase target or tissue specificity of a Nanobody drug candidate; and (iv) bring two targets or cells together to promote a new biological function such as T-cell mediated killing of tumors. We also have the capability to produce and develop more complex constructs that can interact with more than two targets. The most complex Nanobody we have in research has seven Nanobody building blocks linked together and we find that even these more complex molecules generally retain good pharmaceutical development characteristics.

The modular nature of our platform also allows us to use a library-based approach to rapidly make and screen hundreds of novel bi-specifics at once, and thus further increase the likelihood of obtaining best-in-class drugs. This is more difficult to achieve with traditional mAb-based bi-specifics, where the molecular engineering required to make them is determined more on a case-by-case basis and often results in unwanted drug variants which need to be removed through expensive and complex purification approaches.

 

    Potential For Differentiated Efficacy and Safety Profiles. Nanobodies have a unique physical structure and do not have an Fc domain. The result is that they can have differentiated efficacy and safety profiles compared to mAbs directed towards the same target and this may give rise to important clinical benefits.

 

    Ability to Modulate Half-Life. The small size and lack of an Fc moiety allows Nanobodies to be rapidly cleared from the bloodstream, with a typical serum half-life of several hours. This makes Nanobodies good candidates for the development of drugs for acute indications. An example of such a Nanobody is our lead candidate, caplacizumab, a bivalent Nanobody that binds to the A1 domain of von Willebrand Factor. In contrast, chronic diseases will benefit from treatment with compounds having a longer serum half-life. For this purpose, Nanobody product candidates can have their in vivo half-life extended by linking the Nanobody directed to the therapeutic protein target to a Nanobody which binds to human serum albumin, a main constituent and long-lived protein present in blood plasma. Incorporation of our proprietary anti-albumin Nanobody into our Nanobody product candidates results in a circulation half-life in humans of several weeks. This half-life extension technology is currently being used in six of our clinical stage Nanobody programs.

 

    Multiple Administration Routes. The favorable biophysical properties of Nanobodies and their stability make them excellent candidates for delivery using routes in addition to intravenous or subcutaneous injection. ALX-0171, our anti-RSV Nanobody, currently in Phase II trials, has been formulated for nebulized delivery by inhalation directly to the lungs, which presents the potential therapeutic directly at the site of action, thereby potentially increasing efficacy, reducing the required dose, and minimizing unnecessary systemic exposure. Delivery by inhalation has not been successfully achieved with mAbs due to the fact that their structure and therefore activity are generally destroyed by the nebulization process.

Using Nanobodies we also expect to be able to deliver a potential therapeutic to the intestinal system by oral administration, due to the unusual stability of these molecules even in very acidic conditions. Other delivery routes are also being explored, such as intra-ocular and intra-articular administration, where the Nanobody’s high solubility allows effective doses to be delivered in small volumes.

 

    Ease of Manufacture. Nanobodies, including multi-specific and multi-valent constructs, are encoded by a single gene and are efficiently produced in high yields in prokaryotic and eukaryotic hosts, including bacteria, yeast, and mammalian cells. They can be formulated at high concentrations and still exhibit low viscosities.

 

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Our Clinical Programs

Caplacizumab (anti-von Willebrand Factor Nanobody)

We are developing our wholly owned lead product candidate, caplacizumab, an anti-von Willebrand Factor, or vWF, Nanobody, for the treatment of patients with acquired thrombotic thrombocytopenic purpura, or aTTP, which is a rare, life-threatening blood clotting disorder. Caplacizumab has received orphan drug designation in the United States and Europe for treatment of aTTP, and we announced positive top line results from a Phase III trial in aTTP patients in October 2017. In February 2017, we submitted a MAA to the EMA for the use of caplacizumab in the treatment of aTTP based on our Phase II TITAN clinical data. We expect to file a BLA for caplacizumab with the FDA in the first half of 2018.

Overview of aTTP

aTTP is a rare, life-threatening, autoimmune blood clotting disorder manifested by microvascular occlusions and consequent thrombocytopenia, or low blood platelet count, hemolytic anemia, or abnormal breakdown of red blood cells, and organ ischemia, or insufficient blood supply. It is an orphan disease with a reported incidence of two to eleven cases per million per year. Based on our own research, which includes investigation of aTTP studies, registries and insurance claims data, we estimate that there are a total of approximately 7,500 episodes of aTTP in North America, Europe and Japan per year. Discussions with key opinion leaders in the field of aTTP and experts in pricing and reimbursement lead us to the conclusion that the total potential market for caplacizumab in the treatment of aTTP in those geographies is approximately €800.0 million, based on the yearly incidence rate of aTTP in those markets.

TTP exists in two forms: a congenital and an acquired form, with the latter accounting for more than 90% of the patients. aTTP is caused by inhibitory autoantibodies to the enzyme ADAMTS13, which is a plasma protein that regulates the interaction of platelets with vWF, a blood glycoprotein involved in hemostasis. Decreased ADAMTS13 activity leads to an accumulation of ultra-large vWF multimers, or ULvWF, which bind to platelets and cause aggregation. The consumption of platelets into these microthrombi causes severe thrombocytopenia, or a deficiency in platelets in the blood, tissue ischemia, which is a lack of blood flow to the tissues, and organ dysfunction, commonly involving the brain, heart, and kidneys, which ultimately result in acute thromboembolic events such as stroke, myocardial infarction, venous thrombosis and early death. The tissue and organ damage resulting from the ischemia lead to increased levels of certain biomarkers, including lactate dehydrogenase, troponins and creatinine. Faster response of platelet count and organ damage markers is assumed to be linked to faster resolution of the ongoing microthrombotic process and the associated tissue ischemia, and related morbidities.

In addition to the acute risks of the disease, patients experiencing an episode of aTTP may suffer long-term consequences such as cognitive deficits, depression, and arterial hypertension, and are at risk for recurrence of aTTP.

Current Treatment Options For aTTP and Their Limitations

There are currently no approved therapeutic drugs for the treatment of aTTP. The current standard-of-care is plasma exchange, or PEX, in conjunction with immunosuppressants, such as corticosteroids and increasingly also rituximab. PEX is a process in which the patient’s blood plasma is removed and is replaced with donor plasma in order to remove ULvWF and the circulating autoantibodies against ADAMTS13, and replenish blood levels of the enzyme. The optimal window to start PEX is within 24 hours of presentation, as delays decrease the chance of response.

PEX is often associated with significant complications. These may be related to the central venous catheter, such as infections, thrombosis and catheter insertion complications, or may be plasma-related, including allergic reactions, alkalosis, volume depletion complications and infections. According to the Oklahoma TTP-HUS

 

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Registry, 24% of patients receiving PEX followed between 1996 and 2011 experienced major PEX related complications. An even greater frequency of serious PEX related complications was observed among patients with ADAMTS13 activity of less than 10%, which may be related to the greater number of days that PEX treatment is required in these subjects. As a result, we believe that treatment options that result in a reduction in the days of PEX treatment and volume of plasma exchanged could offer an advantage from a safety perspective.

Glucocorticoids are often administered as an adjunct to PEX in the initial treatment of aTTP and are maintained for a period of one to two weeks after its discontinuation. Other immunosuppressive agents such as rituximab, a monoclonal anti-CD20 antibody that targets B-cell populations and reduces formation of inhibitory autoantibodies to ADAMTS13, are increasingly used as these are considered to address the underlying autoimmune process. Nevertheless, we believe that rituximab treatment for aTTP is suboptimal because of its delayed onset of effect, with at least three to seven days needed to achieve adequate B-cell depletion, and the length of time it takes to restore ADAMTS13 levels. In an acute disease setting, where immediate and effective intervention may be critical for survival and prevention of short-term and long-term damage, rapidly acting medicines that offer immediate protection are needed.

In addition to the potential complications associated with PEX treatment combined with immunosuppressants, PEX has been shown to be an inadequate treatment option, with episodes of aTTP treated with PEX reported to still be associated with an acute mortality of up to 20%, with most deaths occurring within 30 days of diagnosis, and a recurrence rate of approximately 36%. The incidence of refractoriness to PEX treatment is approximately 17% and is associated with a mortality rate reported to be as high as 42%.

Caplacizumab for the Treatment of aTTP

We believe that there remains an unmet need for a novel treatment option that results in faster resolution of an acute episode of aTTP and reduces related organ damage, risk of mortality and thromboembolic events, and risk of refractoriness to treatment, as well as reducing dependency on PEX. We are developing caplacizumab to address this unmet need.

Caplacizumab is a bivalent Nanobody which is produced in E. coli. It consists of two identical building blocks, genetically linked by an amino acid linker, targeting the A1 domain of vWF and inhibiting the interaction between ULvWF and platelets. It thereby has an immediate effect on platelet aggregation and the ensuing formation and accumulation of the micro-clots which cause the severe thrombocytopenia and organ damage associated with aTTP. This immediate effect potentially protects the patient from the manifestations of aTTP while the underlying disease process resolves. Importantly, in clinical studies to date, the results demonstrate that caplacizumab is generally well-tolerated and the principal safety risk is mucocutaneous bleeding that is self-limited and is related to the pharmacological activity of the molecule.

 

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The figure below depicts the mechanism of action of caplacizumab:

 

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Caplacizumab is a drug-device combination product, which is comprised of caplacizumab powder for solution for injection, water for injection provided in a prefilled syringe, a vial adapter, a hypodermic needle with safety device and two alcohol pads.

Clinical Development of Caplacizumab

We have completed seven clinical trials with caplacizumab and we recently announced top line results from our Phase III HERCULES trial. Our HERCULES three year follow-up study is currently on-going pursuant to an IND sponsored and filed by us in October 2010 for aTTP. To date, a total of 397 patients have received caplacizumab in the completed trials.

Two Phase I trials in an aggregate of 100 healthy volunteers were conducted to characterize the pharmacokinetics, pharmacodynamics, safety and tolerability of caplacizumab when administered as a single dose by intravenous infusion and as single and multiple doses by subcutaneous injection. In these studies, no deaths or treatment-related serious adverse events, or SAEs, were reported and no subject discontinued administration of caplacizumab. From the safety data collected and assessed in these studies we concluded that administration by (i) single intravenous infusion of up to 12 mg caplacizumab, (ii) single subcutaneous injection of up to 16 mg caplacizumab and (iii) multiple subcutaneous injections of 10 mg caplacizumab for 14 days were each well tolerated. In addition, a Phase I trial in healthy volunteers was conducted to evaluate the bioequivalence of a reconstituted lyophilized, or freeze-dried, formulation (used as of Phase III and intended for marketing) with the liquid formulation of caplacizumab. In this study, the incidence and frequency of treatment emergent adverse events, or TEAEs, and treatment-related TEAEs were lower following dosing with the lyophilized formulation compared with the liquid formulation.

The efficacy and safety of caplacizumab in conjunction with PEX were evaluated in the randomized, single-blind, placebo-controlled Phase II TITAN trial in 75 patients with aTTP during the period from January 2011 to January 2014. Caplacizumab was well-tolerated in this trial and the primary endpoint of reduction in time to confirmed platelet count response was met (p=0.005). Compared to patients treated with placebo, those treated with caplacizumab were 2.2 times more likely to achieve platelet count response at any given time point (i.e., a faster resolution of thrombocytopenia which is generally associated with reduced use of PEX). Moreover, during treatment, caplacizumab reduced aTTP exacerbations by 71% compared to placebo. Exacerbations of aTTP within 30 days of the last day of initial daily PEX occurred in three subjects in the caplacizumab treatment group and in 11 subjects in the placebo treatment group. Eight subjects in the caplacizumab treatment group had a relapse of aTTP (defined as an event of aTTP that occurred later than 30 days after the last daily PEX) compared to zero subjects in the placebo group. A post-hoc analysis of the data revealed that in seven of the eight subjects in the caplacizumab group with a relapse, the recurrence occurred within 4-10 days after stopping caplacizumab treatment. In these subjects, ADAMTS13 activity levels were <10% at baseline, during, and near the end of the treatment period, indicating that the underlying autoimmune activity had not resolved. This analysis supports the

 

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extension of treatment with caplacizumab together with an increase in the intensity of immunosuppression in this subpopulation. The TITAN trial was originally planned to enroll 110 patients but was stopped early after three years due to slow recruitment. Results from the Phase II TITAN trial were published in February 2016 in The New England Journal of Medicine.

The figure below shows the time to platelet count response of caplacizumab versus placebo in our Phase II TITAN trial.

 

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A p-value of 0.05 or less represents statistical significance, meaning that there is a less than 1-in-20 likelihood that the observed results occurred by chance. A p-value of 0.01 or less means that there is a less than 1-in-100 likelihood that the observed results occurred by chance.

In the TITAN trial, a total of 574 treatment emergent adverse events, or TEAEs, were reported in 34 patients (97.1%) in the caplacizumab treatment group compared with 545 TEAEs in 37 patients (100.0%) in the placebo treatment group. A TEAE was defined as an adverse event, or AE, with an onset after the first dose of the study drug. The proportion of subjects with at least one study drug-related TEAE was higher in the caplacizumab treatment group (20 subjects (57.1%)) compared with the placebo treatment group (5 subjects (13.5%)). The most common drug related TEAEs, or TEAEs that were assessed as possibly drug-related, were bleeding of the gums, injection site swelling, contusion and nosebleeds. The proportion of subjects with any bleeding-related TEAE was higher in the caplacizumab treatment group (54.3%) than in the placebo treatment group (37.8%). Most bleeding-related TEAEs were mild (83%) or moderate (14%) in severity. Two subjects in the caplacizumab and two subjects in the placebo arm experienced serious bleeding related TEAEs. Two subjects in the placebo treatment group and no subjects in the caplacizumab treatment group had TEAEs with death as the outcome. A total of 20 subjects (57.1%) in the caplacizumab group and 19 subjects (51.4%) in the placebo group experienced at least one serious adverse event, or SAE. In the single-blind study, drug-related SAEs were reported in seven subjects (20.0%) in the caplacizumab group and no subjects in the placebo treatment group. The most common drug related SAE, or SAE that was assessed as possibly drug related, was aTTP. Other SAEs assessed as at least possibly drug related included anemia, increased transaminases (elevated levels of liver function enzymes),

 

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headache, subarachnoid hemorrhage (bleeding in the space between the brain and the tissue covering the brain), metrorrhagia (bleeding from the uterus), and allergic dermatitis. Seven subjects (20.0%) in the caplacizumab treatment group had at least one TEAE leading to interruption or discontinuation of study drug compared with six subjects (16.2%) in the placebo treatment group.

 

The table below summarizes the safety analysis of our Phase II TITAN trial:

 

     Caplacizumab
N=35
   Placebo
N=37
     Events    Patients with
Events (%)
   Events    Patients with
Events (%)

Subjects with

           

At least one TEAE

   574    34(97.1)    545    37(100)

At least one study drug-related TEAE

   72    20(57.1)    15    5(13.5)

At least one TEAE leading to death

   0    0    2    2(5.4)

At least one SAE

   44    20(57.1)    36    19(51.4)

At least one drug-related SAE

   12    7(20.0)    0    0

At least one TEAE leading to discontinuation of study drug

   10    4(11.4)    2    2(5.4)

At least one TEAE leading to interruption of study drug

   5    3(8.6)    5    4(10.8)

At least one TEAE leading to interruption or discontinuation of study drug

   15    7(20.0)    7    6(16.2)

In summary, the safety profile of caplacizumab was similar to that of placebo in terms of the frequency and nature of TEAEs. There were no deaths in the caplacizumab group and two aTTP-related deaths in the placebo group. SAEs were reported in over half of the subjects in both treatment groups and were reflective of the underlying disease. These results support our conclusion that caplacizumab was well-tolerated in the Phase II TITAN trial.

Post-hoc analyses of the TITAN trial data were performed to assess the impact of caplacizumab on major thromboembolic events and aTTP-related mortality, as well as on refractoriness to standard treatment. The results demonstrated that a clinically meaningful lower proportion of subjects treated with caplacizumab experienced one or more major thromboembolic events, or died, as compared to placebo (11% versus 43%). These data are shown in the table below.

 

     Caplacizumab
(N=35)
    Placebo
(N=37)
 
     #
Subjects
    % of
Subjects
    #
Subjects
    % of
Subjects
 
Embolic and thrombotic events         

Acute myocardial infarction

     0       0       2       (5.4%)  

Deep vein thrombosis

     0       0       1       (2.7%)  

Venous thrombosis

     0       0       1       (2.7%)  

Pulmonary embolism

     1       (2.9%)       1       (2.7%)  

Ischemic stroke

     0       0       1       (2.7%)  

Hemorrhagic stroke

     0       0       1       (2.7%)  

Thrombotic thrombocytopenic purpura (1)

     3(2)       (8.6%)       11       (29.7%)  
aTTP-related mortality         

Deaths related to aTTP

     0       0       2       (5.4%)  
Total      4(3)       (11.4%)       16(3)       (43.2%)  

 

(1)  This preferred term consisted of recurrences of aTTP during the treatment period, defined in the protocol as exacerbations of aTTP
(2)  One adverse event reported as “Thrombocytopenia” was not considered in this analysis, as this event was reported as part of the presenting disease

 

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(3)  A subject may have experienced more than one event:
    ischemic and hemorrhagic stroke occurred in the same subject;
    AMI and exacerbation occurred in the same subject;
    pulmonary embolism and 2 exacerbations occurred in the same subject; and
    venous thrombosis and exacerbation occurred in the same subject.

In addition, another post-hoc analysis showed a reduction in refractoriness to PEX treatment was observed in caplacizumab-treated patients compared to those who received placebo, 5.7% versus 21.6%, respectively. Refractoriness is an indicator of a poor prognosis for survival in patients with aTTP. It has been defined as a failure to elicit a platelet response after 7 days despite daily PEX therapy. These results support our belief that caplacizumab has the potential to reduce morbidity and mortality associated with aTTP.

The efficacy and safety of caplacizumab in conjunction with PEX have also been evaluated in the randomized, double-blind, placebo-controlled Phase III HERCULES trial in 145 patients with aTTP, with patient recruitment taking place during the period from September 2015 to May 2017. The study design is illustrated in the figure below.

 

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Top line results from the HERCULES trial were communicated in October 2017. Treatment with caplacizumab in addition to standard-of-care resulted in a statistically significant reduction in time to platelet count response (p<0.01), the trial’s primary endpoint. Platelet count response is defined as initial platelet count greater than 150,000 per microliter of blood with subsequent stop of daily plasma exchange within five days. Compared to patients treated with placebo, those treated with caplacizumab were 1.5 times more likely to achieve platelet count response at any given time point. The statistical significance (p<0.01) is depicted in the figure below.

 

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The HERCULES trial’s first two key secondary endpoints were also met. The table below shows that treatment with caplacizumab resulted in a 74% reduction in the percentage of patients with aTTP-related death, recurrence of aTTP, or a major thromboembolic event during study drug treatment (p<0.0001). Of note, based on the proof-of-concept established in the Phase II TITAN trial, in the HERCULES trial, patients who experienced a recurrence of aTTP during the study drug treatment period were switched to open-label treatment with caplacizumab for the duration of the daily plasma exchange period and for 30 days thereafter. This may have impacted the occurrence of treatment emergent major thromboembolic events in the placebo group.

 

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As depicted in the table below, the proportion of patients with a recurrence of aTTP in the overall trial period (including the 28 day follow-up period after completion of treatment) was 67% lower in the caplacizumab

 

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arm as compared to the placebo arm (p<0.001), demonstrating the durability of the treatment effect. Of note, ADAMTS13 activity levels were <10% at the end of the study drug treatment period in all 6 caplacizumab-treated patients who experienced a recurrence during the follow-up period. Four of these patients were treated with caplacizumab for the maximum duration permitted per protocol. For the other two patients, in spite of ADAMTS13 activity levels <10% at the end of the study drug treatment period, at the discretion of the investigator, treatment with study drug was not extended. We believe that these data confirm that treatment with caplacizumab prevents aTTP recurrences. They also highlight the importance of continuing treatment with caplacizumab until there is evidence of the resolution of disease activity.

 

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The third key secondary endpoint, refractoriness to treatment, defined in the trial as the absence of platelet count doubling after four days of standard treatment and lactate dehydrogenase greater than the upper limit of normal, is a predictive marker for worse outcomes and higher mortality. As shown in the table below, no caplacizumab-treated patients had refractory disease while three patients on placebo were refractory to standard-of care-treatment. Due to the small number of patients with refractory disease, the difference between treatment groups did not reach statistical significance. Nevertheless, in both our Phase II and Phase III trials, no caplacizumab-treated patients were refractory to therapy.

 

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The fourth key secondary endpoint was the time to normalization of three organ damage markers: lactate dehydrogenase, cardiac troponin I, and serum creatinine. To be included in this analysis, subjects had to have at least one abnormal organ damage marker value at baseline. As shown in the figure below, there is a trend to faster normalization of these organ damage markers in patients treated with caplacizumab compared to patients treated with placebo.

 

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In the HERCULES trial, a total of 532 TEAEs were reported in 71 patients (97.3%) in the placebo treatment group compared with 571 TEAEs in 69 patients (97.2%) in the caplacizumab treatment group. The percentage of subjects with at least one study drug-related TEAE was lower in the placebo treatment group (32 subjects (43.8%)) compared with the caplacizumab treatment group (41 subjects (57.7%)). In the caplacizumab group, the most common study drug related TEAEs, or TEAEs that were assessed as possibly drug-related, were nosebleeds, bleeding of the gums and bruising. TEAEs leading to study drug discontinuation were reported for nine patients in the placebo treatment group and five patients in the caplacizumab treatment group.

At least one SAE was reported for 39 subjects (53.4%) in the placebo group and 28 subjects (39.4%) in the caplacizumab group. In the placebo group, this was driven by the 28 subjects with recurrence of aTTP. Study drug-related SAEs were reported in four subjects (5.5%) in the placebo group and 10 subjects (14.1%) in the caplacizumab group. In the caplacizumab group, the most common SAE assessed as at least possibly study drug related were nosebleeds. Other SAEs assessed as at least possibly drug related included menorrhagia (bleeding from the uterus), upper gastrointestinal bleeding, hematemesis, gingival bleeding, subarachnoid hemorrhage (bleeding in the space between the brain and the tissue covering the brain), ventricular fibrillation, and pain in the extremities. Three subjects in the placebo treatment group and one subject in the caplacizumab treatment group had TEAEs with death as the outcome. The latter subject experienced a SAE of cerebral ischemia during the follow-up period of the trial. This event was assessed by the investigator as not related to study drug treatment. The table below summarizes the safety analysis of our Phase III HERCULES trial:

 

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In October 2016, we initiated a three-year follow-up study for patients who had completed the HERCULES trial. The objectives of this study are to evaluate the long-term safety and efficacy of caplacizumab, the safety and efficacy of repeated use of caplacizumab, and to characterize the long-term impact of aTTP. Enrolled patients attend twice-yearly hospital visits and undergo a number of clinical, cognitive, and quality-of-life assessments. Safety laboratory parameters, immunogenicity associated with repeated treatment with caplacizumab, and disease-related markers are being evaluated. Upon any recurrence of aTTP, standard-of-care, consisting of daily PEX and immunosuppression, will be initiated together with open-label caplacizumab. Patients will receive an intravenous bolus injection of caplacizumab at the start of PEX treatment, followed by daily subcutaneous injections for the duration of the period in which they receive daily PEX, and for 30 days after the cessation of PEX. Treatment with caplacizumab may be extended in the case of persistent signs and symptoms of underlying disease (e.g., no sustained response of ADAMTS13 activity levels).

In June 2017, we initiated a Phase I study with caplacizumab in healthy Japanese volunteers and expect results in the fourth quarter of 2017.

Regulatory Status for Caplacizumab

Caplacizumab was granted orphan drug designation for treatment of aTTP by both the FDA and EMA in 2009 and an application for orphan drug designation is pending in Japan. Based on the results of the Phase II TITAN trial, we submitted a MAA to the EMA in February 2017. The submission was validated by the EMA and is currently under review. We have received initial feedback from EMA which confirms our understanding that positive results from the Phase III HERCULES trial will be required to support approval of our MAA by establishing a favorable benefit-risk profile and guiding the development of the package insert. A decision is expected in the first half of 2018. In a 2015 end-of-Phase II meeting, the FDA stated that the results of the TITAN trial alone were not sufficient to file a BLA due to concerns regarding the clinical meaningfulness of the observed decrease in median time to platelet response in the caplacizumab group, the similar proportion of patients in each study group who had an exacerbation and/or relapse of aTTP (defined as recurrences from the first study drug administration up to the one month follow-up visit), the proportion of patients who experienced an aTTP relapse (defined as recurrences from the day of discontinuation of study drug administration up to the one-month follow up visit) which disfavored treatment with caplacizumab, and the proportion, types and severity of bleeding adverse events in this single-blind study. To address the FDA’s concerns, additional post hoc analyses were conducted on the TITAN data and showed that treatment with caplacizumab resulted in clinically meaningful improvement in several relevant parameters. Endpoints reflecting these parameters were incorporated into the design of our Phase III HERCULES trial, further addressing the FDA’s requests. In addition, efforts to prevent early relapses after stopping treatment with caplacizumab in patients with unresolved underlying disease activity have been incorporated in the design of the Phase III study. In December 2016, we submitted a meeting request to the FDA to further discuss the key endpoints and statistical analysis plan as well as the totality of the clinical data that will be available to support a BLA. In its April 2017 written feedback, the FDA stated that the proposed key composite secondary endpoint appears to be acceptable and provided further input on the statistical analysis plan. We believe, based on the recently communicated top line results from the Phase III HERCULES trial, that we now have data to address the key outstanding concerns raised by the FDA and expect to present these data to the FDA in advance of filing a BLA. We expect to file a BLA for caplacizumab with the FDA in the first half of 2018. In July 2017, the FDA designated the investigation of caplacizumab for the treatment of adult patients who are experiencing an episode of aTTP as a Fast Track development program.

ALX-0171 (anti-RSV Nanobody)

In January 2017, we commenced dosing of infants in a Phase IIb RESPIRE trial of our wholly owned product candidate, ALX-0171, for the treatment of respiratory syncytial virus, or RSV. RSV-associated bronchiolitis results in substantial mortality in children less than five years of age worldwide and also has implications for long-term respiratory health as infection has been associated with prolonged wheezing and an increased risk of asthma development later in life. Nearly all children will be infected with RSV by the age of

 

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two and it is the leading cause of infant hospitalization, with more than three million hospitalizations per year worldwide. There is, however, only one therapeutic drug approved for the treatment of RSV infections in infants, which we believe has not been widely adopted, and so we believe that a large unmet medical need still exists.

Overview of Respiratory Syncytial Virus Infections

RSV is an enveloped, single stranded ribonucleic acid, or RNA, paramyxovirus responsible for annual seasonal epidemics worldwide and is the most common virus that causes lung and airway infections in infants and young children. Transmission occurs through inhalation of infectious droplets or through contact with items carrying the virus. Since the virus can live for half an hour or more on hands and for several hours on countertops or used tissues, it can spread very quickly in crowded households and daycare centers.

As a respiratory virus, RSV may present as an upper respiratory tract infection, but in infants and young children it more commonly presents as a lower respiratory tract infection, including acute bronchiolitis or pneumonia. RSV lower respiratory tract infection results in hospitalization in about 3% of RSV-infected infants less than one year old, and in about 0.5% of RSV-infected children aged between one and two years. In 2015, there were an estimated 33.1 million worldwide episodes of RSV-related acute lower respiratory infections which resulted in an estimated 3.2 million hospitalizations. Globally, there were between 48,000 and 74,500 in-hospital deaths of children under the age of five caused by RSV-related acute lower respiratory infections and overall mortality could be as high as 118,200. It is estimated that on average, each year in the seven major markets (United States, France, Germany, Italy, Spain, United Kingdom, and Japan) roughly 390,000 children under the age of five are hospitalized as a result of an RSV infection. We estimate that the current market opportunity for the treatment of RSV in hospitalized infants in the seven major markets is in excess of €1.0 billion based on annual hospitalizations and our assumptions on the potential reduction in the average hospital stay as the result of an effective therapy and the concomitant saving in costs.

RSV can also result in serious lower respiratory tract infections in the elderly. There are more than 170,000 RSV-related hospital admissions of elderly patients in the United States alone each year and some 14,000 RSV-related deaths.

There is also a considerable need for a therapeutic to treat RSV infections in immune-compromised patients. For example, approximately 50,000 people a year undergo allogeneic hematopoietic stem cell transplant, or HSCT, globally. Due to treatment with immuno-suppressive regimens, recipients of HSCT are particularly susceptible to severe RSV infections and about 12% become infected with RSV within one year of transplantation. Approximately 40% of those infected by RSV develop pneumonia and lower respiratory tract infections with an associated mortality rate of 20-30%.

Current Treatment Options for RSV Infections; Products in Development

The only product currently approved for the treatment of RSV infection is ribavirin, which is marketed as Virazole by Valeant Pharmaceutical. This is only approved for treatment of hospitalized infants and young children with severe lower respiratory tract infections due to RSV. Ribavirin has been reported to have limited efficacy and limited anti-viral activity against RSV. Moreover, administration of the drug is complicated since it requires environmental reclamation devices due to the potential harmful effects on health care personnel exposed to the drug. It is therefore not widely adopted for the treatment of RSV-infected infants. Despite a number of companies pursuing treatments for RSV, there are no other therapeutic approved for the treatment of this infection. Currently, supportive care, in the form of hydration and oxygenation, remains the cornerstone of clinical management of this disease.

Therapeutics in clinical development for infants include: Lumicitabine, which is being developed by Johnson & Johnson/Alios, which is in a Phase II trial; AK0529, which is being developed by Ark Biosciences which is in Phase II trials; RV521, which is being developed by ReViral Ltd., and is in Phase I trials; and JNJ-

 

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53718678, which is being developed by Johnson & Johnson and is in Phase I trials. At present, we believe we have the most advanced clinical program for the development of a therapeutic for RSV in infants.

In RSV-infected adults who have undergone HSCT or lung transplantation, Presatovir is being developed by Gilead, and is at the Phase II stage of development.

In addition to therapeutics in development, there is one approved prophylactic drug being marketed and a number of others in development. Synagis, a marketed monoclonal antibody from AstraZeneca plc, is administered prophylactically by injection to infants at high risk for RSV due to chronic lung disease or congenital heart disease, and to a narrowly defined group of those born prematurely. Two other monoclonal antibodies being developed as prophylactics for RSV are suptavumab, being developed by Regeneron Pharmaceuticals, Inc. and currently in Phase III trials, and MEDI8897, being developed by AstraZeneca plc/Medimmune, LLC, or MedImmune, and currently in Phase II trials. We are not aware of any current studies to evaluate these prophylactic agents for the treatment of infants already infected with RSV.

A number of RSV vaccines with different approaches are also in clinical development, the most advanced being the RSV-F subunit vaccine from Novavax, Inc., or Novavax, which did not meet its primary endpoint in its Phase III trial in infants. Novavax’s Phase III maternal immunization trial is currently ongoing. The Phase II trial of MEDI7510, being developed by MedImmune was halted based on initial efficacy results. Other vaccines in development include GSK3389245A and GSK3003891A, by GlaxoSmithKline plc, or GlaxoSmithKline, which are in Phase II trials; MVABNRSV, by Bavarian Nordic, which is in Phase II trials; and a number of other compounds which are in Phase I trials with Janssen Pharmaceuticals, Inc., or Janssen, ImmunoVaccine Inc., GlaxoSmithKline, Vaxart Inc. and Mucosis BV. The low immune responsiveness of infants is a potentially limiting factor for vaccines targeting this population. For the maternal vaccination approach, the degree of placental transfer, limited half-life of transferred antibodies and safety in pregnant woman may also pose hurdles for development.

ALX-0171 for the Treatment of RSV

ALX-0171 is our wholly owned trivalent product candidate, which consists of three identical Nanobody units that each recognize antigenic site II of the trimeric F protein on the surface of RSV. Its mechanism of action is to inhibit the infection of RSV by interfering with viral penetration of respiratory epithelial cells. ALX-0171 is administered using a nebulizer manufactured by the Vectura Group plc, or Vectura, and is not 510(k)-cleared or approved for use in the administration of ALX-0171.

The physical robustness of Nanobodies allows administration by inhalation, directly to the site of infection, which in the case of RSV is the respiratory tract. The effective delivery of ALX-0171 locally to the lungs was confirmed in two distinct studies using animal models of RSV infection. For the initial ALX-0171 studies, the hispid cotton rat RSV infection model was selected for the assessment of the pharmacodynamics properties of the drug following either intranasal, intratracheal, or whole-body exposure administration. These initial studies showed that ALX-0171 treatment, when delivered either prophylactically or therapeutically, significantly reduced both nasal and lung viral loads.

ALX-0171 was then tested in a colostrum-deprived neonatal lamb model. We believe this is a highly relevant model for the study of RSV infections for several reasons, including the fact that lambs: (i) are naturally susceptible to RSV disease; (ii) show anatomical, physiological and developmental similarities to those of human infants; and (iii) are susceptible to infection by the same RSV strains that infect humans. In addition to the pathophysiological similarities of their RSV disease to that in human infants, lambs are also good model systems due to their comparable size. In these neonatal lambs, ALX-0171 was administered once daily using a facemask linked to a mesh nebulizer for three consecutive days, with treatment initiated three days after infection with RSV, a time point shown to correspond to peak viral concentrations. Pharmacokinetic data obtained from analysis of plasma and bronchoalveolar lavage fluid from the treated lambs indicated that targeted concentrations

 

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of ALX-0171 in lung epithelial lining fluid were readily attainable when administered by nebulization. Administration of ALX-0171 reduced viral concentrations and lung viral antigen expression. There was also a reduction in gross lung viral lesions and histopathological changes, as well as a positive effect on general malaise caused by the RSV infection.

The figure below depicts the results of the neonatal lamb study.

 

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* The malaise score is a composite assessment of disease parameters such as weakness, lethargy, drooping of ears and not eating.

Clinical Development of ALX-0171

The safety and tolerability of ALX-0171 were evaluated in a first-in-infant Phase I/IIa trial in 53 hospitalized RSV-infected infants, aged one to 24 months, in multiple clinical centers in Europe and the Asia-Pacific region, from December 2014 to May