DRS/A 1 filename1.htm DRS/A
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As confidentially submitted with the United States Securities and Exchange Commission on March 25, 2016 as Amendment No. 3 to the confidential submission.

This draft registration statement has not been publicly filed with the United States Securities and Exchange Commission and all information herein remains strictly confidential.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ERYTECH Pharma S.A.

(Exact name of registrant as specified in its charter)

 

 

 

France   2836   Not applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

ERYTECH Pharma S.A.

Bâtiment Adénine, 60 Avenue Rockefeller

69008 Lyon France

+33 4 78 74 4438

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

 

 

CorpoMax Inc.

2915 Ogletown Road

Newark, Delaware 19713

+1 302 266 8200

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

 

 

Copies to:

 

Marc Recht

Divakar Gupta

Brian Leaf

Cooley LLP

500 Boylston Street

Boston, Massachusetts 02116

+1 617 937 2300

 

Arnaud Duhamel

Karen Noël

Gide Loyrette Nouel A.A.R.P.I.

22, cours Albert ler

75008 Paris France

+33 1 40 75 00 00

 

Eric W. Blanchard

Covington & Burling LLP

The New York Times Building

620 Eighth Avenue

New York, New York 10018-1405

+1 212 841 1111

  Bertrand Sénéchal

Linklaters LLP

25 rue de Marignan

75008 Paris France

+33 1 56 43 56 43

 

 

Approximate date of commencement of proposed sale to the 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, 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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

TITLE OF EACH CLASS OF

SECURITIES TO BE REGISTERED

 

PROPOSED

MAXIMUM

AGGREGATE

OFFERING PRICE (1)(2)

  AMOUNT OF
REGISTRATION FEE

Ordinary shares, 0.10 nominal value per share (3)

  US$               US$            

 

 

(1) Includes ordinary shares represented by American Depositary Shares, or ADSs, that the underwriters have an option to purchase. See “Underwriting.”
(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.
(3) Each ADS represents one ordinary share. ADSs issuable upon deposit of the ordinary shares registered hereby have been 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, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 

 


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

 

SUBJECT TO COMPLETION, DATED                 , 2016

PRELIMINARY PROSPECTUS

                Ordinary Shares

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

LOGO

         per Ordinary Share

$             per American Depositary Share

 

 

ERYTECH Pharma S.A. is offering              ordinary shares, nominal value 0.10 per share, which ordinary shares may be in the form of American Depositary Shares, or ADSs. Each ADS represents the right to receive one ordinary share. The ADSs may be evidenced by American Depositary Receipts, or ADRs.

This is our initial public offering of our ADSs in the United States. We have applied to list our ADSs on the Nasdaq Global Market under the symbol “ERYP.” Our ordinary shares are listed on Euronext Paris under the symbol “ERYP.PA.” The offering price per ordinary share will be determined by reference to the prevailing market prices of our ordinary shares on Euronext Paris after taking into account market conditions and other factors, but will not be lower than a price that is 10% below the volume-weighted average price of our ordinary shares on Euronext Paris for the five business days preceding the day the offering price is determined. On                 , 2016, the last reported sale price of our ordinary shares on Euronext Paris was          per ordinary share, equivalent to a price of $         per ADS, assuming an exchange rate of          per U.S. dollar.

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

Investing in the ADSs involves a high degree of risk. See “Risk Factors” beginning on page 11.

Under the authority granted by our shareholders to conduct this offering, the ADSs and ordinary shares that we are offering may initially only be offered to natural or legal persons under U.S., French or other foreign law regularly investing in securities specific to the field of healthcare.

 

 

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

 

 

 

     PER
ORDINARY
SHARE
     PER ADS      TOTAL  

Offering price

                  $                $            

Underwriting discounts and commissions (1)

                  $         $     

Proceeds, before expenses, to ERYTECH Pharma

                  $         $     

 

 

(1)    The underwriters will also be reimbursed for certain expenses incurred in this offering. See “Underwriting” for details.

We have agreed to issue, at the option of the underwriters, within 30 days from the date of the underwriting agreement, up to an aggregate of                      additional ADSs and                      additional ordinary shares to be sold to subscribers procured by the underwriters, or, as the case may be, to the several underwriters at the offering price. If the underwriters exercise their option in full, the total underwriting commissions payable by us will be $         and the total proceeds to us, before expenses, will be $            .

The underwriters expect to deliver the ADSs to purchasers on or about                 , 2016 through the book-entry facilities of The Depository Trust Company. The underwriters expect to deliver the ordinary shares to purchasers on or about                 , 2016 through the book-entry facilities of Euroclear France.

 

 

 

Jefferies   Leerink Partners
Bryan, Garnier & Co.

 

 

Prospectus dated                 , 2016.


Table of Contents

TABLE OF CONTENTS

 

 

 

     PAGE  

Exchange Rate Information

     ii   

Market, Industry and Other Data

     iii   

Trademarks and Service Marks

     iii   

Prospectus Summary

     1   

Risk Factors

     11   

Special Note Regarding Forward-Looking Statements

     44   

Market Information

     45   

Use of Proceeds

     46   

Dividend Policy

     48   

Capitalization

     49   

Dilution

     50   

Selected Consolidated Financial Data

     52   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     53   

Business

     67   

Management

     97   

Certain Relationships and Related Person Transactions

     106   

Principal Shareholders

     109   

Description of Share Capital

     111   

Limitations Affecting Shareholders of a French Company

     129   

Description of American Depositary Shares

     130   

Shares and ADSs Eligible for Future Sale

     137   

Material Income Tax Considerations

     139   

French Tax Consequences

     144   

Enforcement of Civil Liabilities

     147   

Underwriting

     148   

Expenses Relating to this Offering

     157   

Legal Matters

     158   

Experts

     158   

Where You Can Find More Information

     159   

Index to Consolidated Financial Statements

     F-1   

 

 

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

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

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


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EXCHANGE RATE INFORMATION

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

 

 

 

     YEAR ENDED DECEMBER 31,  
     2011      2012      2013      2014      2015  

High

     1.4875         1.3463         1.3816         1.3927         1.2015   

Low

     1.2926         1.2062         1.2774         1.2101         1.0524   

Rate at end of period

     1.2973         1.3187         1.3779         1.2101         1.0859   

Average rate per period

     1.4002         1.2909         1.3303         1.3297         1.1032   

 

 

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

 

 

 

     SEPTEMBER
2015
     OCTOBER
2015
     NOVEMBER
2015
     DECEMBER
2015
     JANUARY
2016
     FEBRUARY
2016
 

High

     1.1358         1.1437         1.1026         1.1025         1.0964         1.1362   

Low

     1.1104         1.0963         1.0562         1.0573         1.0743         1.0868   

Rate at end of period

     1.1162         1.1042         1.0562         1.0859         1.0832         1.0868   

 

 

On December 31, 2015, the noon buying rate of the Federal Reserve Bank of New York for the euro was 1.00 = $1.0859. Unless otherwise indicated, currency translations in this prospectus reflect the December 31, 2015 exchange rate.

On March 18, 2016, the noon buying rate of the Federal Reserve Bank of New York for the euro was 1.00 = $1.1292.

 

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MARKET, INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size estimates, is based on information from independent industry analysts, third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us based on such data and our knowledge of such industry and market, which we believe to be reasonable. In addition, while we believe the market opportunity information included in this prospectus is generally reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

TRADEMARKS AND SERVICE MARKS

“ERYTECH Pharma,” “ERYCAPS,” “GRASPA,” the ERYTECH logo and other trademarks or service marks of ERYTECH Pharma S.A. appearing in this prospectus are the property of ERYTECH Pharma S.A. or its subsidiary, ERYTECH Pharma, Inc. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are listed 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 right thereto. All other trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners. We do not intend to use or display other companies’ trademarks and trade names to imply any relationship with, or endorsement or sponsorship of us by, any other companies.

 

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PROSPECTUS 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 our ordinary shares (including ordinary shares in the form of 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, “ERYTECH,” “the company,” “our company,” “we,” “us” and “our” refer to ERYTECH Pharma S.A. and its consolidated subsidiary.

Overview

We are a clinical-stage biopharmaceutical company developing innovative therapies for rare forms of cancer and orphan diseases. Leveraging our proprietary ERYCAPS platform, which uses a novel technology to encapsulate therapeutic drug substances inside erythrocytes, or red blood cells, we have developed a pipeline of product candidates targeting markets with high unmet medical needs. Our initial focus is on the treatment of blood cancers, including acute lymphoblastic leukemia, or ALL, and acute myeloid leukemia, or AML, by depriving tumors of nutrients necessary for their survival, which is referred to as tumor starvation.

Our lead product candidate, named GRASPA in Europe and Israel and ERY-ASP in the United States and elsewhere, consists of the enzyme L-asparaginase encapsulated in red blood cells. We have completed a Phase 2/3 pivotal clinical trial of GRASPA in Europe in children and adults with relapsed or refractory ALL and submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, in September 2015. If we receive European marketing approval for GRASPA, we expect to begin commercializing it in 2017. If approved, GRASPA is expected to be marketed in Europe by our commercial partner Orphan Europe, a subsidiary of Recordati S.p.A., an Italian-based pharmaceutical company.

We have also commenced clinical trials of ERY-ASP in the United States as a potential first-line therapy for the treatment of adults with ALL, and we are conducting a Phase 2b clinical trial in Europe evaluating GRASPA as a first-line therapy for the treatment of elderly patients with AML. We believe that ERY-ASP could also be used to treat solid tumors and are conducting a Phase 2 clinical trial in Europe in patients with pancreatic cancer. The EMA has granted orphan drug designation for GRASPA for the treatment of ALL, AML and pancreatic cancer, and the FDA has granted orphan drug designation for ERY-ASP for the same indications. In addition to our current product candidates that focus on using encapsulated enzymes to induce tumor starvation, we are exploring the use of our platform for developing cancer vaccines and enzyme replacement therapies.

As a clinical-stage biopharmaceutical company, we have not yet obtained approval for any products and, as a result, we have not yet generated any revenues and have incurred significant losses since our inception as we continue to invest in the development of our ERYCAPS platform. Please refer to “—Summary Risk Factors” in this prospectus summary as well as “Risk Factors” for more information about these and other risks we face.

Our ERYCAPS Platform

Our ERYCAPS platform technology is designed to use red blood cells to more effectively deliver therapeutics with reduced side effects. Our technology uses transfusion-grade, standard packed red blood cells provided by blood banks. The red blood cells are subjected to osmotic stress, which opens and reseals pores on the surface of the cells and allows therapeutic compounds to be added and trapped inside the cells. Encapsulation offers a number of benefits as compared to free-form compounds. By protecting the therapeutic substance from detection by the body’s immune system, encapsulation reduces the potential for allergic reactions and allows the therapeutic substance to remain in the body longer, which should lead to fewer injections required for treatment and a lower overall dose. The cellular membrane is also designed to protect the body against the direct toxicity of the drug substance, which should result in a decreased incidence of side effects.

 



 

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Our Product Development Pipeline

We have used our ERYCAPS platform to develop a pipeline of product candidates to treat rare forms of cancer and other orphan diseases. The following table summarizes our product development pipeline:

 

LOGO

Our Tumor Starvation Approach for the Treatment of ALL

We are developing ERY-ASP for the treatment of children and adults with ALL in combination with chemotherapy. ERY-ASP consists of an enzyme, L-asparaginase, encapsulated inside donor-derived red blood cells using our proprietary ERYCAPS platform. L-asparaginase depletes asparagine from circulating blood plasma. Asparagine is a naturally occurring amino acid essential for the survival and proliferation of cells within the body, including cancer cells. Unlike normal cells, cancer cells often lack the enzymes necessary to produce asparagine internally and therefore must obtain this nutrient from circulating blood. If L-asparaginase can remain in the body long enough to sufficiently deplete circulating asparagine, it can result in the starvation and ultimately the death of cancerous cells. As a result, L-asparaginase injections have been used for decades as a cancer treatment, particularly for children with ALL.

There are three commercially available forms of unencapsulated, or free-form, L-asparaginases, for which total worldwide sales exceeded $300 million in 2014. However, the administration of free-form L-asparaginase often triggers a response from the body’s immune system that can result in allergic reactions and other adverse side effects, such as clotting disorders and pancreatitis, and it may also be cleared rapidly from the blood,

 



 

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thereby limiting its potential utility as a leukemia treatment. We estimate that over 40% of ALL patients and almost all AML patients receive little or no treatment with currently available forms of L-asparaginase, resulting in a significant unmet medical need.

We have completed three clinical trials in Europe in which 100 patients with ALL have been treated with GRASPA. In 2014, we completed a multi-center, open-label Phase 2/3 pivotal trial in 80 children and adults with relapsed or refractory ALL in which we evaluated the safety and efficacy of GRASPA compared to free-form L-asparaginase derived from the bacteria E. coli, also known as native L-asparaginase. In this trial, patients with a known allergy to native L-asparaginase treatments were treated with standard chemotherapy plus GRASPA, while patients without a history of allergies were randomized to receive standard chemotherapy plus either GRASPA or native L-asparaginase. The patients treated with GRASPA experienced a mean duration of L-asparaginase activity that was more than twice as long as for patients receiving native L-asparaginase. None of the non-allergic patients who received GRASPA experienced an allergic reaction, compared to 46% of non-allergic patients who received native L-asparaginase, and only 12% of patients with a prior L-asparaginase allergy experienced a new allergy after receiving GRASPA, with no patients experiencing a severe allergy. Patients in the GRASPA treatment arm also had overall higher complete remission rates, and GRASPA was also associated with fewer drug-related adverse events.

We submitted an MAA to the EMA in September 2015 for the approval of GRASPA, in combination with chemotherapy, as a treatment for pediatric and adult patients with ALL who have either relapsed or failed first-line treatment, and for the treatment of pediatric and adult patients with ALL and a hypersensitivity to free-form asparaginases. If we receive European marketing approval for GRASPA, then we expect commercialization to begin in 2017. Orphan Europe will then be responsible for the commercial launch in Europe. We believe that GRASPA can become the asparaginase of choice for the treatment of fragile ALL patients, including elderly and other high-risk patients, as well as pediatric and adult ALL patients that have either relapsed or failed first-line treatment or who have an allergic hypersensitivity to free-form L-asparaginases. In the United States, we are conducting a Phase 1 clinical trial of ERY-ASP as first-line therapy in up to 18 adult ALL patients, and we expect to complete this trial in 2016.

Our Tumor Starvation Approach for the Treatment of AML

We are also developing ERY-ASP for the treatment for AML patients, many of whom may respond to L-asparaginase but cannot be treated with it due to its side effects. The American Cancer Society estimates that approximately 20,000 new cases of AML will be diagnosed in the United States in 2016, resulting in over 10,000 deaths. Based on incidence data published in scientific literature, we estimate that there are at least as many new cases of AML diagnosed each year in Europe as there are in the United States. AML is generally a disease of older people and is uncommon before the age of 45, with approximately 95% of new AML cases in the United States occurring in patients over the age of 19. The median age of a patient with AML is approximately 67 years.

In 2013, we initiated a Phase 2b, open-label, randomized, multi-center clinical trial in newly diagnosed patients with AML over 65 years of age and who are unable to receive intensive chemotherapy. The primary objective of this trial is to evaluate the efficacy of ERY-ASP under the trade name GRASPA when added to a low dose of the standard chemotherapy cytarabine. To accomplish this, we expect to compare overall survival, or OS, rates between patients receiving GRASPA in combination with low-dose cytarabine against those of patients receiving only low-dose cytarabine. We plan to enroll 123 patients in this trial, two-thirds of whom will be treated with GRASPA. Patients in the treatment arm will receive one injection of GRASPA per cycle of chemotherapy treatment. The primary OS endpoint will be measured after one year of follow-up. All patients in the trial will undergo follow-up for up to 24 months.

To date, we have enrolled 115 patients in the trial, or over 90% of the minimum patient enrollment, at over 20 sites in Europe. Three safety analyses by the independent data safety monitoring board, or DSMB, have been performed. The first analysis was performed in November 2013 after the first 30 patients were treated; the

 



 

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second analysis in August 2014 after 60 patients had been treated; and the third analysis in December 2015 after 105 patients had been treated. No safety concerns have been identified. We expect to report primary results from this trial in 2017.

Additional ERYCAPS Development Programs

In addition to ALL and AML, we believe that many solid tumors, such as pancreatic cancer, as well as several lymphomas, may be sensitive to asparagine depletion, and we are evaluating ERY-ASP as a potential treatment for those indications. We are currently conducting a Phase 2 clinical trial in Europe in pancreatic cancer patients comparing the efficacy of GRASPA in combination with chemotherapy as compared to chemotherapy alone. Our original target enrollment of approximately 90 patients was recently reached. We have elected to continue patient enrollment in the trial, with the goal of increasing the statistical power of the trial and better evaluating the treatment in subgroups. We expect to report primary results from this trial by the end of 2016. We are also in the process of initiating clinical trials of ERY-ASP in patients with non-Hodgkin lymphoma.

We believe that our ERYCAPS platform has broad potential application and can be used to encapsulate within red blood cells a wide range of therapeutic agents for which long-circulating therapeutic activity or rapid and specific targeting is desired.

In addition to asparaginase, we have identified two other enzymes, methionine-g-lyase, or MGL, and arginine deiminase, or ADI, that degrade amino acids necessary for tumor survival and which we believe can be encapsulated within red blood cells in order to induce tumor starvation. We expect to commence a Phase 1 clinical trial in Europe in the second half of 2016 evaluating the safety of ERY-MET, our encapsulated MGL product candidate, as a potential treatment for cancer patients. We have also initiated a preclinical development program to explore the use of our platform to encapsulate tumor antigens within red blood cells as an innovative approach to cancer immunotherapy. Based on our preclinical research, we believe that encapsulated tumor antigens can be targeted to key organs, such as the liver or spleen, in order to induce an immune response, resulting in sustained activation of the body’s immune system to fight cancers. Outside of the oncology field, we are also studying the use of our ERYCAPS technology to promote long-acting enzyme activity and targeting of specific cells, which we believe may result in attractive product development opportunities for enzyme replacement therapies.

Our Strategy

Our goal is to become the leading biopharmaceutical company focused on developing, manufacturing and commercializing innovative therapies based on our ERYCAPS platform to treat rare forms of cancer and other orphan diseases. The key elements of our strategy to achieve this goal are as follows:

 

  n   Complete the development of and obtain regulatory approval in Europe for GRASPA for the treatment of ALL.

 

  n   Rapidly advance the clinical development of ERY-ASP for other indications.

 

  n   Obtain regulatory approval for and commercialize ERY-ASP in the United States.

 

  n   Leverage our ERYCAPS platform to develop additional innovative and novel therapeutics targeting rare forms of cancer and other orphan diseases.

 

  n   Explore collaborative arrangements and out-licensing opportunities.

Our Collaborations

In 2012, we entered into an exclusive license and distribution agreement with Orphan Europe for the exclusive commercialization and distribution rights to GRASPA for the treatment of ALL and AML in 38 European countries. Under this agreement, we received an upfront payment of 5 million and are entitled to receive up to an aggregate of 37.5 million upon the achievement of specified regulatory and sales milestones. In addition, Orphan Europe will contribute to the development costs of GRASPA for the treatment of AML, and we are also eligible to receive up to 45% of net product sales by Orphan Europe, representing a combined transfer

 



 

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price and royalties. In 2011, we entered into an exclusive distribution agreement with Abic Marketing Limited, an affiliate of Teva Pharmaceutical Industries Ltd., an Israeli pharmaceutical company, which we refer to in this prospectus as Teva. Under the distribution agreement, Teva acquired the exclusive rights to GRASPA in

Israel. Under this agreement, Teva will seek regulatory approval of GRASPA for the treatment of ALL in Israel and will be responsible for marketing and distribution of GRASPA, if it is approved. Net profits from sales of GRASPA in Israel will be shared equally between us and Teva.

We have retained the rights to commercialize ERY-ASP for the treatment of ALL and AML outside of Europe and Israel, including in the United States, and for the treatment of all other indications outside of Israel. We retain the worldwide development and commercialization rights to all of our other product candidates.

Summary Risk Factors

An investment in the ADSs involves a high degree of risk. Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in the ADSs. Among these important risks are the following:

 

  n   We have no approved products, which makes it difficult to assess our future prospects.

 

  n   We are heavily dependent on the success of our most advanced product candidate, ERY-ASP.

 

  n   We have not generated revenue to date and have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

  n   To date, we have relied primarily on the sale of equity securities and convertible bonds, conditional advances, and reimbursements of research tax credit claims to fund our ongoing cash needs. We may need to raise additional funding, which may not be available on acceptable terms, or at all, and failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

 

  n   Our product candidates will need to undergo clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for which there is a high risk of failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the EMA, FDA and other regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.

 

  n   Administration of our product candidates could present risks that exist in relation to blood transfusions.

 

  n   We will be largely dependent on Orphan Europe and Teva for the marketing of GRASPA in Europe and Israel, respectively.

 

  n   Our production capacity could prove insufficient for our needs. In particular, our inability to produce and supply adequate amounts of GRASPA to Orphan Europe and Teva under our distribution agreements would give rise to potential financial liability and termination of our agreements, which would harm our business and financial condition.

 

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

 

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

 

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

 

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

 

  n   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, which may limit the information available to holders of ADSs.

 



 

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  n   We are an “emerging growth company” under the JOBS Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our ADSs less attractive to investors.

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:

 

  n   the ability to present 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;

 

  n   exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal controls over financial reporting; and

 

  n   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 provisions for up to five years or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our capital stock held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. For example, we have presented only two years of audited financial statements and only two years of related ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ disclosure in this prospectus, and have taken advantage of the exemption from auditor attestation on the effectiveness of our internal control over financial reporting. To the extent that we take advantage of these reduced burdens, the information that we provide stockholders may be different than you might obtain from other public companies in which you hold equity interests.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Since International Financial Reporting Standards make no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

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

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

 



 

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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.

Corporate Information

We were incorporated as a société par actions simplifiée, or S.A.S., on October 26, 2004 and changed to a société anonyme, or S.A., on September 29, 2005. Our principal executive offices are located at Bâtiment Adénine, 60 Avenue Rockefeller, 69008 Lyon, France. We are registered at the Lyon Trade and Companies Register (Registre du commerce et des sociétés) under the number 479 560 013. Our telephone number at our principal executive offices is +33 4 78 74 44 38. Our agent for service of process in the United States is CorpoMax Inc. Our website address is www.erytech.com. The reference to our website is an inactive textual reference only and information contained in, or that can be assessed through, our website is not part of this prospectus.

 



 

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THE OFFERING

 

Ordinary shares offered by us

                         ordinary shares (which may be in the form of ADSs).

 

Purchaser restrictions

Under the authority granted by our shareholders, we elected to conduct this offering by way of the issuance of ordinary shares and ADSs that may only be purchased by natural or legal persons under U.S., French or other foreign law regularly investing in securities specific to the field of healthcare. Accordingly, by purchasing ordinary shares or ADSs in this offering you represent that you regularly invest in securities specific to the field of healthcare. To the extent you are unable to make such representation, you are not entitled to purchase ordinary shares or ADSs in this offering and any offer made to you pursuant to this prospectus may be voidable.

 

Offering price

The offering price per ordinary share will be determined by reference to the prevailing market prices of our ordinary shares on Euronext Paris after taking into account market conditions and other factors. However, under the authority granted by our shareholders to conduct this offering, and in accordance with French law, the offering price per ordinary share may not be lower than a price that is 10% below the volume-weighted average price of our ordinary shares on Euronext Paris for the five business days preceding the day the offering price is determined.

 

Ordinary shares to be outstanding after this offering

                ordinary shares (            ordinary shares if the underwriters’ option to purchase additional ordinary shares (which may be in the form of ADSs) is exercised in full).

 

Option to purchase additional ordinary shares

We have agreed to issue, at the option of the underwriters, within 30 days after the date of the underwriting agreement, up to an aggregate of              additional ADSs and              additional ordinary shares.

 

American Depositary Shares

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

 

Depositary

The Bank of New York Mellon

 

Use of proceeds

We estimate that we will receive net proceeds from this offering of approximately          ($            ) million, assuming an offering price of              per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, after deducting estimated underwriting discounts and commissions and estimated offering

 



 

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expenses payable by us. We intend to use the net proceeds from this offering, together with our existing resources, to fund the clinical development of ERY-ASP and our other product candidates through preclinical and clinical development, and for working capital and for general corporate purposes. See “Use of Proceeds” for more information.

 

Dividend policy

We do not expect to pay any dividends on the ordinary shares or ADSs in the foreseeable future.

 

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 ordinary shares or ADSs.

 

Proposed Nasdaq Global Market symbol for our ADSs

“ERYP”

 

Euronext Paris trading symbol for our ordinary shares

“ERYP.PA”

The number of ordinary shares that will be outstanding after this offering is based on 7,924,611 ordinary shares outstanding as of December 31, 2015 and excludes:

 

  n   300,300 ordinary shares issuable upon the exercise of founder’s share warrants (BSPCE) and share purchase warrants (BSA) granted but not exercised as of December 31, 2015 at a weighted average exercise price of 8.56 ($9.29) per ordinary share; and

 

  n   155,030 ordinary shares (including 90,000 ordinary shares issuable upon the exercise of BSA and BSPCE granted to Senior Management but not yet vested) reserved for future issuance under our share-based compensation plans and other delegations of authority from our shareholders.

Except as otherwise noted, the information in this prospectus assumes no exercise by the underwriters of their option to purchase additional ordinary shares (which may be in the form of ADSs).

 



 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize our selected financial data. We derived the summary consolidated statement of income (loss) data for the years ended December 31, 2014 and 2015 from our audited consolidated financial statements as of and for the years ended December 31, 2014 and 2015 included elsewhere in this prospectus. Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read these data together with our consolidated 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.”

 

 

 

Consolidated Statement of Income (Loss) Data:

    
     YEAR ENDED DECEMBER 31,  
     2014     2015  
     (in thousands, except share and
per share data)
 

Revenue

          

Other income

     2,026        2,929   
  

 

 

   

 

 

 

Total operating income

     2,026        2,929   
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     6,613        10,776   

General and administrative

     4,361        7,736   
  

 

 

   

 

 

 

Total operating expenses

     10,974        18,512   
  

 

 

   

 

 

 

Operating loss

     (8,948     (15,583
  

 

 

   

 

 

 

Financial income

     68        567   

Income tax

     20        3   
  

 

 

   

 

 

 

Net loss

   (8,860   (15,013
  

 

 

   

 

 

 

Basic and diluted loss per share

   (1.51   (2.16
  

 

 

   

 

 

 

Weighted number of shares used for computing basic and diluted loss per share

     5,874,794        6,957,654   
  

 

 

   

 

 

 

 

 

 

Consolidated Statement of Financial Position Data:

  

     AS OF DECEMBER 31,  
     2014      2015  
     (in thousands)  

Cash and cash equivalents

     36,988         45,634   

Total assets

     40,607         53,004   

Total shareholders’ equity

     35,824         47,132   

Total non-current liabilities

     525         251   

Total current liabilities

     4,258         5,621   

Total liabilities

     4,783         5,872   

Total liabilities and shareholders’ equity

     40,607         53,004   

 

 

 



 

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RISK FACTORS

Investing in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before deciding whether to purchase the ADSs. If any of the following risks are realized, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the market price of the ADSs could decline, and you could lose part or all of your investment.

Risks Related to Our Business Strategy

We have no approved products, which makes it difficult to assess our future prospects.

A key element of our strategy is to use and expand our proprietary ERYCAPS platform to build a pipeline of innovative product candidates and to progress these drug candidates through clinical development for the treatment of rare forms of cancer and other orphan diseases. The discovery of therapeutic drugs based on encapsulating molecules inside red blood cells is an emerging field, and the scientific discoveries that form the basis for our efforts to discover and develop drug candidates are relatively new. The scientific evidence to support the feasibility of developing drug candidates based on these discoveries is both preliminary and limited. Although our research and development efforts to date have resulted in a pipeline of product candidates, we have not yet obtained approval for any products, we have not yet generated any revenues from the sale of approved products and we may not be able to develop product candidates that are considered to be safe and effective. Our operations to date have been limited to developing our ERYCAPS platform technology and undertaking preclinical studies and clinical trials of our product candidates, including our lead product candidate, ERY-ASP, which is known under the trade name GRASPA in Europe and Israel. However, we have not yet demonstrated an ability to overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical industry. Consequently, the ability to predict our future operating results or business prospects is more limited than if we had a longer operating history or approved products on the market.

We are heavily dependent on the success of our most advanced product candidate, ERY-ASP.

Our business and future success depends on our ability to obtain regulatory approval for and, together with third-party collaborators, to successfully commercialize our lead product candidate ERY-ASP for oncology indications. We completed a Phase 2/3 pivotal clinical trial of GRASPA in Europe for the treatment of specified populations of ALL patients and we applied for European marketing approval in September 2015. We have only commenced early-stage clinical trials of ERY-ASP for ALL in the United States and have not yet undertaken large pivotal trials of ERY-ASP for other indications in the United States or Europe, such as AML and pancreatic cancer. All of our product candidates, including ERY-ASP, will require additional clinical and non-clinical development, regulatory review and approval in multiple jurisdictions, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. In addition, because ERY-ASP is our most advanced product candidate, and because our other product candidates are based on the same ERYCAPS platform technology, if ERY-ASP encounters safety or efficacy problems, developmental delays or regulatory issues or other problems, our development plans and business would be significantly harmed.

We may not be successful in our efforts to use and expand our ERYCAPS platform to develop marketable products.

We believe that our ERYCAPS platform has broad potential application and can be used to encapsulate a wide range of therapeutic agents within red blood cells for which long-circulating therapeutic activity and rapid and specific targeting is desired. However, we are at an early stage of development and our platform has not yet, and may never, lead to approved or marketable products. Even if we are successful in continuing to build our product pipeline, the potential product candidates that we identify may not be suitable for clinical development, including for reasons related to their harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. Use of red blood cells as the basis for our ERYCAPS platform may result in similar risks that affect the ability of our products to receive marketing approval 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 harm our business and our prospects.

 

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

The biopharmaceuticals industry is highly competitive. Numerous biopharmaceutical laboratories, biotechnology companies, institutions, universities and other research entities are actively involved in the discovery, research, development and marketing of therapeutics to treat rare forms of cancer and orphan diseases, making it a highly competitive field. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have.

There are three forms of L-asparaginase currently available on the market. These products are marketed by large pharmaceutical companies, including Jazz Pharmaceuticals and Baxalta International. In addition to currently available forms of L-asparaginase and new forms in development, our product candidates also compete with other products that could be used in the treatment of ALL or AML. These potential treatments include monoclonal antibodies, bispecific monoclonal antibodies and chimeric antigen receptor T-cell, or CAR-T, approaches. Several large pharmaceutical and biotechnology companies, including Amgen, Pfizer, Juno Therapeutics and Novartis, are developing these types of therapies for the treatment of AML and ALL.

Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, convenience, tolerability and safety to be commercially successful. Any of our product candidates that are approved in the future will also face other competitive factors, including generic competition, which could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to our product candidates. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

Administration of our product candidates could present risks that exist in relation to blood transfusions.

Our product candidates must be intravenously injected and are therefore subject to risks associated with blood transfusions and the blood type compatibility of the donor. We currently acquire red blood cells from blood donations prepared and tested by blood banks, notably the Établissement Français du Sang and the American Red Cross. However, using donor-derived red blood cells presents risks associated with the potential transmission of infectious agents, such as viruses, bacteria, prions and parasites, as well as risks associated with the development of allergies or other complications, such as post-transfusion graft-versus-host disease. Although the blood banks that supply our red blood cells follow a strict preparation process, approved by health authorities, to detect and reduce possible risks for contamination by infectious agents, we cannot guarantee that our product candidates will not be contaminated, which could be detrimental to our product development and commercialization efforts.

Risks Related to our Financial Position and Capital Needs

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

We have not yet generated significant revenues and have incurred significant operating losses since our inception. We incurred net losses of 8.9 million and 15.0 million for the years ended December 31, 2014 and 2015, respectively. These losses are principally the result of our research expenditures and development costs for conducting preclinical studies and clinical trials, as well as general and administrative expenses associated with our operations. We anticipate that our operating losses will continue for at least the next several years as we continue our research and development activities and until we generate substantial revenues from approved product candidates. As of December 31, 2015, we had an accumulated deficit of 49.6 million.

We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financed our operations primarily through the sale of equity securities and convertible bonds, obtaining public assistance in support of innovation, such as conditional advances and subsidies from the Banque Publique d’Investissement, or BPI France, and reimbursements of research tax credit claims. The amount of our future net losses will depend, in part, on the pace and amount of our future expenditures and our

 

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ability to obtain funding through equity or debt financings, strategic collaborations or additional grants or tax credits. We have not yet received marketing approval for any of our product candidates. Even if we obtain regulatory approval to market a product candidate, our future revenues will depend upon the size of any markets in which our product candidates have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for our product candidates in those markets.

We anticipate that our expenses will increase substantially as we:

 

  n   continue the preclinical and clinical development of our product candidates;

 

  n   expand the scope of our current clinical trials for our product candidates;

 

  n   expand our commercial manufacturing capabilities for our product candidates;

 

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

 

  n   establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval, especially in North America, for which we have not entered into a third-party collaboration;

 

  n   seek to identify and validate additional product candidates;

 

  n   acquire or in-license other product candidates and technologies;

 

  n   make milestone, royalty or other payments under in-license or collaboration agreements;

 

  n   maintain, protect and expand our intellectual property portfolio;

 

  n   attract new and retain existing skilled personnel; and

 

  n   create additional infrastructure to support our operations as a U.S. reporting company with foreign private issuer status.

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

We may need to raise additional funding, which may not be available on acceptable terms, or at all, and failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

We are currently advancing our product candidates through preclinical and clinical development. Developing product candidates is expensive, lengthy and risky, and we expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates toward commercialization.

As of December 31, 2015, our cash and cash equivalents were 45.6 million. We estimate that the net proceeds from this offering will be approximately          ($            ) million, assuming an offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect that the net proceeds from this offering and our existing cash and cash equivalents will be sufficient to fund our current operations for at least the next 24 months. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we will require additional capital to pursue preclinical and clinical activities, obtain regulatory approval for and commercialize our product candidates. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any

 

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financing may adversely affect the holdings or the rights of our shareholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of the ADSs to decline. The sale of additional equity or convertible securities would be dilutive to our shareholders. The incurrence of indebtedness would result in increased fixed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could impair our growth prospects.

We may be forced to repay conditional advances prematurely if we fail to comply with our contractual obligations under the applicable innovation grant agreements.

Since inception through December 31, 2015, we have received 2.3 million in non-refundable grants and 0.9 million in conditional advances from BPI France. If we fail to comply with our contractual obligations under the applicable innovation grant agreements, including if we lose our exclusive right to commercially develop our product candidates, we could be forced to repay the conditional advances (amounting to 0.6 million at December 31, 2015) ahead of schedule. Such premature repayment could adversely affect our ability to finance our research and development projects, in which case we would need to locate alternative sources of capital, which may not be available on commercially reasonable terms or at all.

Risks Related to the Discovery and Development of and Obtaining Regulatory Approval for our Product Candidates

If our product candidates are not approved for marketing by applicable government authorities, we will be unable to commercialize them.

The European Commission (following review by the EMA) in Europe, the FDA in the United States and comparable regulatory authorities in other jurisdictions must approve new drug or biologic candidates before they can be commercialized, marketed, promoted or sold in those territories. We must provide these regulatory authorities with data from preclinical studies and clinical trials that demonstrate that our product candidates are safe and effective for a defined indication before they can be approved for commercial distribution. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We must provide data to ensure the identity, strength, quality and purity of the drug substance and drug product. Also, we must assure the regulatory authorities that the characteristics and performance of the clinical batches will be replicated consistently in the commercial batches. We have focused our development and planned commercialization efforts on Europe and the United States. In September 2015, we submitted an MAA to the EMA for the approval of GRASPA as a treatment for ALL. However, the processes by which regulatory approvals are obtained from the EMA and FDA to market and sell a new product are complex, require a number of years and involve the expenditure of substantial resources. We cannot assure you that GRASPA, ERY-ASP or any of our future product candidates will receive EMA or FDA approval. Even if we obtain marketing approval of any of our product candidates in a major pharmaceutical market such as the United States or Europe, we may never obtain approval or commercialize our products in other major markets, due to varying approval procedures or otherwise, which would limit our ability to realize their full market potential.

Our product candidates will need to undergo clinical trials that are time-consuming and expensive, the outcomes of which are unpredictable, and for which there is a high risk of failure. If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the EMA, FDA and other regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.

Preclinical testing and clinical trials are long, expensive and unpredictable processes that can be subject to extensive delays. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. It may take several years to complete the preclinical testing and clinical development necessary to commercialize a product candidate, and delays or failure can occur at any stage. Interim results of clinical trials do not necessarily predict final results, and success in preclinical testing and early clinical trials does not ensure that

 

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later clinical trials will be successful. A number of companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials even after promising results in earlier trials, and we cannot be certain that we will not face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. An unfavorable outcome in one or more trials would be a major setback for our product candidates and for us. Due to our limited financial resources, an unfavorable outcome in one or more trials may require us to delay, reduce the scope of, or eliminate one or more product development programs, which could have a material adverse effect on our business and financial condition and on the value of our securities.

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

 

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

 

  n   patients may die or suffer other adverse effects for reasons that may or may not be related to the product candidate being tested;

 

  n   extension studies on long-term tolerance could invalidate the use of our product;

 

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

 

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

The results of preclinical studies do not necessarily predict clinical success, and larger and later-stage clinical trials may not produce the same results as earlier-stage clinical trials. Our clinical trials of ERY-ASP conducted to date have generated favorable safety and efficacy data; however, we may have different enrollment criteria in our future clinical trials. As a result, we may not observe a similarly favorable safety or efficacy profile as in our prior clinical trials. In addition, we cannot assure you that in the course of potential widespread use in future, we will not suffer setbacks in maintaining production quality or stability. Frequently, product candidates developed by pharmaceutical, biopharmaceutical and biotechnology companies have shown promising results in early preclinical studies or clinical trials, but have subsequently suffered significant setbacks or failed in later clinical trials. In addition, clinical trials of potential products often reveal that it is not possible or practical to continue development efforts for these product candidates.

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

Delays, suspensions and terminations in our clinical trials could result in increased costs to us and delay or prevent our ability to generate revenues.

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

 

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

 

  n   reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;

 

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

 

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

 

  n   manufacturing sufficient quantities of a product candidate;

 

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  n   obtaining approval of applications from regulatory authorities for the commencement of a clinical trial;

 

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

 

  n   determining dosing and clinical trial design; and

 

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

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

 

  n   lack of effectiveness of product candidates during clinical trials;

 

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

 

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

 

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

 

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

 

  n   our failure to conduct clinical trials in accordance with regulatory requirements;

 

  n   our inability to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials;

 

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

 

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

 

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

 

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

For example, our Investigational New Drug application, or IND, submitted to the FDA for ERY-ASP was on clinical hold from its original submission in July 2011 until March 21, 2013, and we cannot assure you that our current IND for ERY-ASP or any future IND will not be subject to clinical holds.

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

Changes in regulatory requirements, guidance from regulatory authorities or unanticipated events during our clinical trials of our product candidates could necessitate changes to clinical trial protocols or additional clinical trial requirements, which would result in increased costs to us and could delay our development timeline.

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

 

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The United States and European (GRASPA) formulations of ERY-ASP differ, and regulatory authorities in each jurisdiction may not accept data from alternative ERY-ASP formulations in other jurisdiction(s), which may result in delays and additional costs in order to conduct additional comparability studies or the need to repeat nonclinical and clinical studies in order to obtain approval in each jurisdiction in which we intend to commercialize ERY-ASP.

We use different formulations of ERY-ASP in our United States and European manufacturing processes, including the use of different preservative solutions for the storage and transportation of red blood cells and L-asparaginase encapsulated in red blood cells, an additional washing step that is used in our United States formulation in order to meet lower free hemoglobin standards in the United States, and separate sourcing of the active substance starting material of L-asparaginase. Although we have conducted in vitro comparability studies designed to demonstrate the equivalence of both formulations, additional comparability studies may be required by regulatory authorities. Even with additional comparability studies, regulatory authorities may not accept nonclinical or clinical data generated using an alternative formulation of ERY-ASP, including GRASPA, which may result in delays and costly requirements to repeat nonclinical and clinical studies in order to obtain marketing approval.

In the United States, our product candidates will be regulated as biological products, or biologics, which may subject them to competition sooner than we currently anticipate.

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, was enacted as part of the 2010 enactments of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, to establish an abbreviated licensure pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed biological reference product. “Biosimilarity” means that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components and there are no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency of the product. To meet the higher standard of “interchangeability,” an applicant must provide sufficient information to show biosimilarity and demonstrate that the biological product can be expected to produce the same clinical result as the reference product in any given patient and, if the biological product is administrated more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between the use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch.

Under the BPCIA, an application for a biosimilar or interchangeable product cannot be approved by the FDA until 12 years after the reference product was first licensed, and the FDA will not even accept an application for review until four years after the date of first licensure. The law is evolving, complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

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

In the European Union, GRASPA will only benefit from regulatory data exclusivity if the EMA determines that it contains a new active substance.

We believe that GRASPA contains a “new active substance” that has not been approved previously in its current form in the European Economic Area. If this is the case, we would qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market protection thereafter. Data exclusivity refers to the period of time during which another company cannot use our data in support of its marketing authorization. This exclusivity prevents some kinds of pharmaceutical products, such as generics, hybrids and biosimilars, from being approved for marketing by the EMA during the period of data exclusivity. The subsequent market protection refers to the period of time during which the generic, hybrid or biosimilar cannot be placed on the market, even if the product has already received a marketing authorization. If the EMA concludes that the active ingredient in GRASPA is not a new active substance, any applicant for the approval of a generic or similar biological product may be able to file applications that refer to our data in support of its application. This would undermine the regulatory data exclusivity

 

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for GRASPA, as well as its market protection. However, if we still have orphan drug designation for GRASPA at the time we receive marketing approval, we would still benefit from 10 years of market exclusivity.

We rely on third parties to assist in our discovery and development activities, and the loss of any of our relationships with research institutions could hinder our product development prospects.

We currently have and expect to continue to depend on collaborations with public and private research institutions to conduct some of our early-stage drug discovery activities. If we are unable to enter into research collaborations with these institutions, or if any one of these institutions fails to work efficiently with us, the research, development or marketing of our product candidates planned as part of the research collaboration could be delayed or canceled. In the event a research agreement is terminated or we become no longer in a position to renew the arrangement under acceptable conditions, our drug discovery and development activities may also be delayed.

We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing our product candidates.

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

 

  n   the third parties do not devote a sufficient amount of time or effort to our activities or otherwise fail to successfully carry out their contractual duties or to meet regulatory obligations or expected deadlines;

 

  n   we replace a third party; or

 

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

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

We have in the past, and in the future may, enter into collaboration agreements with third parties for the development and commercialization of our product candidates, which may affect our ability to generate revenues.

We have limited capabilities for product development and may seek to enter into collaborations with third parties for the development and potential commercialization of our product candidates. Should we seek to collaborate with a third party with respect to a prospective development program, we may not be able to locate a suitable collaborator and may not be able to enter into an agreement on commercially reasonable terms or at all. Even if we succeed in securing collaborators for the development and commercialization of our product candidates, such as the arrangements we have entered into related to the commercialization of GRASPA for the treatment of ALL and AML in Europe and Israel, we have limited control over the amount and timing that our collaborators may dedicate to the development or commercialization of our product candidates. These collaborations pose a number of risks, including the following:

 

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

 

  n   collaborators may believe our intellectual property is not valid or is unenforceable or the product candidate infringes on the intellectual property rights of others;

 

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

 

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

 

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

 

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

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

 

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

Due to our limited resources and access to capital, our decisions to prioritize development of certain product candidates may adversely affect our business prospects.

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. As such, we are currently primarily focused on the development of ERY-ASP for the treatment of ALL and AML. 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 more promising opportunities. Similarly, our potential decisions to delay, terminate or collaborate with third parties with respect to some of our product development programs may also prove not to be optimal and could cause us to miss valuable opportunities. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the pharmaceutical industry, our business prospects could be harmed.

Risks Related to the Commercialization of Our Product Candidates

We will be largely dependent on Orphan Europe and Teva for the marketing of GRASPA in Europe and Israel, respectively.

We have entered into exclusive distribution agreements with Orphan Europe and Teva with respect to the commercialization of GRASPA in Europe and Israel, respectively. If approved, the marketing and commercial success of GRASPA in these countries will be largely driven by the efforts of Orphan Europe and Teva and will depend on marketing and commercial efforts deployed by these third parties.

Our exclusive license and distribution agreement requires Orphan Europe to commercialize GRASPA for the treatment of ALL and AML in 38 countries in Europe, including every country in the EU. In addition, Orphan Europe is responsible for seeking regulatory approval for GRASPA in the treatment of ALL in the 11 countries that are not part of the EU. Although our agreement requires Orphan Europe to submit periodic marketing plans to estimate the future sales of GRASPA, Orphan Europe is not subject to any minimum sales requirements, and we cannot assure you that they will be successful in commercializing GRASPA, if it is approved. In addition, if Orphan Europe’s sales of GRASPA fail to meet our expectations, we have limited recourse and may be subject to a substantial penalty should we choose not to renew our agreement at the end of its term.

Our exclusive distribution agreement requires Teva to seek regulatory approval for GRASPA in Israel for the treatment of ALL and, if approved, to market and distribute GRASPA within Israel. Although our agreement requires Teva to meet minimum sales objectives each year after GRASPA’s launch, our only remedy for Teva’s failure to meet those objectives is termination of the agreement, which would require us to spend considerable time and resources either developing our own marketing capabilities in Israel or identifying a suitable alternative distributor, if one exists. We cannot guarantee that Teva will be successful in obtaining regulatory approval for or commercializing GRASPA, and any failure of Teva to do so would negatively impact our business and our future revenues.

In addition to our dependence on the marketing efforts of Orphan Europe and Teva, we also face the risk of noncompliance by these and other future distributors with local anti-corruption laws, the U.S. Foreign Corrupt Practices Act, and other local and international regulations, and we have limited ability to control their actions to ensure they are in compliance. Noncompliance by these or future distributors could expose us to civil or criminal liability, fines and/or prohibitions on selling our products in certain countries.

We expect that our product revenues would be adversely impacted with the loss or transition of these or any future distributors of our products. If we choose to terminate any of our distribution agreements, we would either need to reach agreement with, qualify, train and supply a replacement distributor or supply and service customer accounts in those territories ourselves. Although our existing distribution agreements generally provide that the distributor will

 

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promptly and efficiently transfer its existing customer agreements to us, there can be no assurance that this will happen in a timely manner or at all. These factors may be disruptive for our customers, and our reputation may be damaged as a result. Our distributors may have more established relationships with potential customers than a new distributor or we may have in particular territories, which could adversely impact our ability to successfully commercialize GRASPA in these territories. In addition, it may take longer for us to be paid if payment timing and terms in these new arrangements are less favorable to us than those in our existing distribution arrangements. If we service customers directly rather than through distributors, we will incur additional expense and our working capital may be negatively impacted due to longer periods from cash collection from direct sales customers when compared to the timing of cash collection from distributors. Current or transitioning distributors may irreparably harm relationships with local existing and prospective customers and our standing with the biopharmaceutical community in general. In the event that we are unable to find alternative distributors or mobilize our own sales efforts in the territories in which a particular distributor operates, customer supply, our reputation and our operating results may be negatively impacted.

Even if we successfully complete clinical trials of our product candidates, those candidates may not be commercialized successfully for other reasons.

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

 

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

 

  n   being subject to proprietary rights held by others;

 

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

 

  n   being difficult or expensive to manufacture on a commercial scale;

 

  n   having adverse side effects that make their use less desirable;

 

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

 

  n   failing to show that the long-term benefits of our products exceed their risks.

Even if any of our product candidates are commercialized, they may fail to achieve the degree of market acceptance by physicians, patients, third-party payors or the medical community in general necessary for commercial success.

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

 

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

 

  n   the approved labeling for the product and any required warnings;

 

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

 

  n   our ability to educate the medical community about the safety and effectiveness of the product;

 

  n   the experience of clinicians with other potential treatments that use red blood cells to deliver therapeutics;

 

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

 

  n   the market price of our product relative to competing treatments.

If we are unable to establish sales, marketing and distribution capabilities for our product candidates, whether it be an internal infrastructure or an arrangement with a commercial partner such as the ones that we have entered into for commercialization of GRASPA in Europe and Israel, we may not be successful in commercializing those product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical drugs. Under our arrangements with Orphan Europe and Teva, these third parties are responsible for the commercialization of ERY-ASP under the brand name GRASPA in Europe and Israel, respectively, if GRASPA receives regulatory approval in such country. To achieve commercial success for ERY-ASP outside of those countries, including in the United States, for the treatment of ALL and AML, as well as ERY-ASP for the treatment of other indications and any other product candidates for which we may obtain marketing approval, we will need to establish

 

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a sales and marketing organization to market or co-promote those products. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, 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 products on our own include:

 

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

 

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

 

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

 

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

If we are unable to establish our own sales, marketing and distribution capabilities and enter into arrangements with third parties to perform these services, our revenue and our profitability, if any, are likely to be lower than if we were to sell, market and distribute any products that we develop ourselves.

Even though we have obtained orphan drug designation from the EMA for GRASPA for the treatment of ALL, AML and pancreatic cancer and from the FDA for ERY-ASP for the same indications, we may not be able to obtain orphan drug marketing exclusivity for GRASPA, ERY-ASP or any of our other product candidates for other indications.

Regulatory authorities in some jurisdictions, including the United States and the EU, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. Similarly, in Europe, a medicinal product may receive orphan designation under Article 3 of Regulation (EC) 141/2000. This applies to products that are intended for a life-threatening or chronically debilitating condition and either the condition affects no more than five in 10,000 persons in the European Union when the application is made or the product, without the benefits derived from orphan status, would unlikely generate sufficient return in the European Union to justify the necessary investment. Moreover, in order to obtain orphan designation in the European Union, it is necessary to demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition authorized for marketing in the European Union, or if such a method exists, that the product will be of significant benefit to those affected by the condition. The EMA will reassess whether GRASPA continues to meet the criteria for orphan drug designation in the European Union at the time it reviews a marketing authorization application for the product. If the EMA considers that GRASPA no longer meets these criteria, for example, because it does not offer a significant benefit over existing therapies, it may revoke GRASPA’s orphan drug designation prior to approval.

The EMA has granted orphan drug designation for GRASPA for the treatment of ALL, AML and pancreatic cancer, and the FDA has granted orphan drug designation for ERY-ASP for the same indications. We may seek orphan drug designation for our other product candidates, and with respect to other indications. Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for that time period or the EMA or any other medicines regulator in the European Union from approving a similar medicinal product. The applicable period is 7 years in the United States and 10 years in the European Union. The European Union exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the candidate from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the applicable regulatory authority can subsequently approve another drug for the same condition

 

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if it concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. Similarly, if our competitors are able to obtain orphan product exclusivity for their products in the same indications for which we are developing our product candidates, we may not be able to have our products approved by the applicable regulatory authority for a significant period of time.

Even if we obtain marketing approvals for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we or they market our products, which could materially impair our ability to generate revenues.

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

Government restrictions on pricing and reimbursement, as well as other healthcare payor cost-containment initiatives, may negatively impact our ability to generate revenues even if we obtain regulatory approval to market a product.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes, and are challenging the prices charged for medical products. In addition, in the United States, federal programs impose penalties on drug manufacturers in the form of mandatory additional rebates and/or discounts if commercial prices increase at a rate greater than the Consumer Price Index-Urban, and these rebates and/or discounts, which can be substantial, may impact our ability to raise commercial prices. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. 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 payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

The continuing efforts of governments, insurance companies, managed care organizations and other payors of healthcare costs to contain or reduce costs of healthcare may negatively affect our commercialization prospects, including:

 

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

 

  n   our ability to obtain and maintain market acceptance by the medical community and patients;

 

  n   our ability to generate revenues and achieve profitability; and

 

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  n   the availability of capital.

We cannot be sure that coverage and reimbursement will be available for any potential product candidate that we may commercialize and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing approval.

In the United States, the ACA is significantly impacting the provision of, and payment for, healthcare. Various provisions of the ACA were designed to expand Medicaid eligibility, subsidize insurance premiums, provide incentives for businesses to provide healthcare benefits, prohibit denials of coverage due to pre-existing conditions, establish health insurance exchanges, and provide additional support for medical research. With regard to pharmaceutical products specifically, the ACA, among other things, expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare prescription drug benefit. More recently, both the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012, or the ATRA, have instituted, among other things, mandatory reductions in Medicare payments to certain providers. Additional legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could influence the purchase of medicines and reduce reimbursement and/or coverage of our product candidates, if approved. Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. For example, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drug products. These legislative proposals and initiatives could harm our ability to market any product candidates and generate revenues. Cost containment measures that healthcare payors and providers are instituting and the effect of further healthcare reform could significantly reduce potential revenues from the sale of any of our product candidates approved in the future, and could cause an increase in our compliance, manufacturing, or other operating expenses.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product candidate. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs. Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future.

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

We believe that pricing pressures at the federal and state levels in the United States, as well as internationally, will continue and may increase, which may make it difficult for us to sell our potential product candidates that may be approved in the future at a price acceptable to us or any third parties with whom we may choose to collaborate.

 

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Any of our product candidates for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to substantial penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products following approval.

Any of our product candidates for which we obtain marketing approval, as well as the manufacturing processes, post-approval studies and measures, labeling, advertising and promotional activities for such products, among other things, will be subject to continual requirements of and review by the EMA, FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including the FDA requirement to implement a REMS to ensure that the benefits of a drug or biological product outweigh its risks.

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

The EMA, FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of drugs for off-label uses. If we are found to have improperly promoted off-label use, we may become subject to significant liability.

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

Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

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

 

  n   economic weakness, including inflation, or political instability in particular economies and markets;

 

  n   the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements, many of which vary between countries;

 

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

 

  n   tariffs and trade barriers;

 

  n   other trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or foreign governments;

 

  n   longer accounts receivable collection times;

 

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  n   longer lead times for shipping;

 

  n   compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

  n   workforce uncertainty in countries where labor unrest is common;

 

  n   language barriers for technical training;

 

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

 

  n   foreign currency exchange rate fluctuations and currency controls;

 

  n   differing foreign reimbursement landscapes;

 

  n   uncertain and potentially inadequate reimbursement of our products; and

 

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

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

Adverse market and economic conditions may exacerbate certain risks associated with commercializing our product candidates.

Future sales of our product candidates, it they are approved, will be dependent on purchasing decisions of and reimbursement from government health administration authorities, distributors and other organizations. As a result of adverse conditions affecting the global economy and credit and financial markets, including disruptions due to political instability or otherwise, these organizations may defer purchases, may be unable to satisfy their purchasing or reimbursement obligations, or may delay payment for ERY-ASP or any of our product candidates that are approved for commercialization in the future. In addition, there have been concerns for the overall stability and suitability of the euro as a single currency given the economic and political challenges facing individual Eurozone countries. Continuing deterioration in the creditworthiness of Eurozone countries, the withdrawal of one or more member countries from the European Union, or the failure of the euro as a common European currency or an otherwise diminished value of the euro could materially and adversely affect our future product revenue from European sales of our products.

Risks Related to the Production and Manufacturing of our Product Candidates

Our production capacity could prove insufficient for our needs. In particular, our inability to produce and supply adequate amounts of GRASPA to Orphan Europe and Teva under our distribution agreements would give rise to potential financial liability and termination of our agreements, which would harm our business and financial condition.

Our production capacity may prove insufficient in the future to meet the growth of our business, including producing sufficient quantities of product candidates for preclinical studies, clinical trials and, ultimately, our customers and distributors. Our distribution agreement with Teva provides that if we are unable to supply Teva with sufficient quantities of GRASPA for specified lengths of time, after notice and cure periods, Teva will be able to terminate our agreement and we could be required to reimburse Teva for all milestone payments we received prior to termination. Our distribution agreement with Orphan Europe requires us to use commercially reasonable efforts to supply them with their requested quantities of GRASPA, and our failure to do so could result in Orphan Europe’s ability to terminate our agreement. Termination of either agreement, including any financial penalties associated with termination, would negatively impact our financial condition. Also, if we must increase production capacity for any reason, we may need to make considerable investments that could lead to significant financing needs or require us to enter into subcontracting agreements in order to outsource part of the production.

We may not have access to the raw materials and other components necessary for the manufacturing of our product candidates.

We are dependent on third parties for the supply of various materials that are necessary to produce our product candidates for clinical trials. With respect to ERY-ASP, we rely on medac GmbH, or Medac, for the supply of asparaginase and on the American Red Cross in the United States and the Établissement Français du Sang in Europe for the supply of red blood cells. Although we have entered into agreements with these parties related to the supply of those materials, the supply could be reduced or interrupted at any time. In such case, we may not be able to find other suppliers of acceptable materials in appropriate quantities at an acceptable cost. If we lose key suppliers or the supply of materials is diminished or discontinued, we may not be able to continue to develop, manufacture and market our product candidates or products in a timely and competitive manner. In addition, these materials are subject to stringent manufacturing processes and rigorous testing. Delays in the completion and

 

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validation of facilities and manufacturing processes of these materials could adversely affect our ability to complete trials and commercialize our products in a cost-effective and timely manner. If we encounter difficulties in the supply of these materials, chemicals or biological products, or if we were not able to maintain our supply agreements or establish new supply agreements in the future, our product development and our business prospects could be significantly compromised.

Our manufacturing facilities are subject to significant government regulations and approvals. If we or our third-party manufacturers fail to comply with these regulations or maintain these approvals, our business will be materially harmed.

We currently manufacture our product candidates for use in Europe in our facility in Lyon, France. In addition, we have entered into an agreement with the American Red Cross to produce ERY-ASP for use in our clinical trials in the United States, and we have an agreement with Medac to provide us with L-asparaginase for use in our production of ERY-ASP. We and our third-party manufacturers are subject to ongoing regulation and periodic inspection by the EMA, FDA and other regulatory bodies to ensure compliance with current Good Manufacturing Practices, or cGMP. Any failure to follow and document our or their adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of products for commercial sale or clinical trials, may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for our products.

Failure to comply with applicable regulations could also result in the EMA, FDA or other applicable regulatory authorities taking various actions, including:

 

  n   levying fines and other civil penalties;

 

  n   imposing consent decrees or injunctions;

 

  n   requiring us to suspend or put on hold one or more of our clinical trials;

 

  n   suspending or withdrawing regulatory approvals;

 

  n   delaying or refusing to approve pending applications or supplements to approved applications;

 

  n   requiring us to suspend manufacturing activities or product sales, imports or exports;

 

  n   requiring us to communicate with physicians and other customers about concerns related to actual or potential safety, efficacy, and other issues involving our products;

 

  n   mandating product recalls or seizing products;

 

  n   imposing operating restrictions; and

 

  n   seeking criminal prosecutions.

Any of the foregoing actions could be detrimental to our reputation, business, financial condition or operating results. Furthermore, our key suppliers may not continue to be in compliance with all applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all. In addition, before any additional products would be considered for marketing approval in the United States, Europe or elsewhere, our suppliers will have to pass an audit by the applicable regulatory agencies. We are dependent on our suppliers’ cooperation and ability to pass such audits, and the audits and any audit remediation may be costly. Failure to pass such audits by us or any of our suppliers would affect our ability to commercialize our product candidates in the United States, Europe or elsewhere.

Our production costs may be higher than we currently estimate.

We manufacture our product candidates according to manufacturing best practices applicable to drugs for clinical trials and to specifications approved by the applicable regulatory authorities. If any of our products are found to be non-compliant, we would be required to manufacture the product again, which would entail additional costs and may prevent delivery of the product to patients on time.

Other risks inherent in the production process may have the same effect, such as:

 

  n   contamination of the controlled atmosphere area;

 

  n   unusable premises and equipment;

 

  n   new regulatory requirements requiring a partial and/or extended stop to the production unit to meet the requirements;

 

  n   unavailable qualified personnel;

 

  n   power failure of extended duration; and

 

  n   logistical error.

 

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In addition, a rise in direct or indirect energy rates may increase product manufacturing and logistical costs. Any of these risks, should they occur, could disrupt our activities and compromise our financial position, results, reputation or growth.

Risks Related to Our Operations

We may encounter difficulties in managing our growth, which could disrupt our operations.

As of December 31, 2015, we had 56 full-time employees, and we expect to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, including the potential commercialization of our product candidates in Europe and the United States, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these development activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our company.

We depend on qualified management personnel and our business could be harmed if we lose key personnel and cannot attract new personnel.

Our success depends to a significant degree upon the technical and management skills of our senior management team, including in particular, Gil Beyen, our chairman and chief executive officer, Iman El-Hariry, our chief medical officer, and Jérôme Bailly, our director of pharmaceutical operations and qualified person. The loss of the services of any of these individuals would likely have a material adverse effect on us. Our success also will depend upon our ability to attract and retain additional qualified management, marketing, technical, and sales executives and personnel. We compete for key personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess. There can be no assurance that we will be successful in attracting or retaining such personnel, and the failure to do so, could harm our operations and our growth prospects.

Our failure to maintain certain tax benefits applicable to French biopharmaceutical companies may adversely affect our results of operations.

As a French biopharmaceutical company, we have benefited from certain tax advantages, including, for example, the CIR, which is a French tax credit aimed at stimulating research and development. The CIR can be offset against French corporate income tax due and the portion in excess, if any, may be refunded. The CIR is calculated based on our claimed amount of eligible research and development expenditures in France and represented 1.5 million and 2.2 million as of December 31, 2014 and 2015, respectively. The French tax authorities, with the assistance of the Research and Higher Education Ministry, may audit each research and development program in respect of which a CIR benefit has been claimed and assess whether such program qualifies in its view for the CIR benefit. The French tax authorities may challenge our eligibility for, or our calculation of, certain tax reductions or deductions in respect of our research and development activities and, should the French tax authorities be successful, our credits may be reduced, which would have a negative impact on our results of operations and future cash flows. Furthermore, if the French Parliament decides to eliminate, or to reduce the scope or the rate of, the CIR benefit, either of which it could decide to do at any time, our results of operations could be adversely affected.

Our business may be exposed to foreign exchange risks.

We incur some of our expenses, and may in the future derive revenues, in currencies other than the euro. In particular, as we expand our operations and conduct clinical trials in the United States, we will incur expenses in U.S. dollars. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the euro. Therefore,

 

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for example, an increase in the value of the euro against the U.S. dollar could have a negative impact on our revenue and earnings growth as U.S. dollar revenue and earnings, if any, are translated into euros at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows. The ADSs being sold in this offering will be quoted in U.S. dollars on the Nasdaq Global Market, while our ordinary shares, including those sold in this offering, trade in euros on the Euronext Paris exchange. Our financial statements are prepared in euros. Therefore, fluctuations in the exchange rate between the euro and the U.S. dollar will also affect, among other matters, the value of our ordinary shares and ADSs.

We may use hazardous chemicals and biological materials in our business. Any claims relating to improper handling, storage or disposal of these materials could be time-consuming and costly.

Our research and development processes involve the controlled use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed any insurance coverage and our total assets. French and U.S. federal, state, local or foreign laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. Compliance with environmental laws and regulations may be expensive and may impair our research and development efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. In addition, we cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced.

Product liability and other lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our product candidates.

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

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

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

Despite the implementation of security measures, our internal computer systems and those of our third-party contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the lost data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed.

 

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We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

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

Risks Related to Other Legal Compliance Matters

We are subject to healthcare laws and regulations which may require substantial compliance efforts and could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings, among other penalties.

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

 

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

 

  n   U.S. federal civil and criminal false claims laws and civil monetary penalties laws, including the civil False Claims Act, which impose criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government;

 

  n   the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that impose criminal and civil liability for, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or knowingly and willingly falsifying, concealing or covering up a material fact or making false statements relating to healthcare matters;

 

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

 

  n   U.S. federal transparency requirements under the Physician Payments Sunshine Act, enacted as part of the ACA, that require applicable manufacturers of covered drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to track and annually report to the Centers for Medicare & Medicaid Services, or CMS, payments and other transfers of value provided to physicians and teaching hospitals, and certain ownership and investment interests held by physicians or their immediate family members; and

 

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  n   analogous state or foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state marketing and/or transparency laws applicable to manufacturers that may be broader in scope than the federal requirements, state laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect as HIPAA, thus complicating compliance efforts.

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

Our employees may engage in misconduct or other improper activities, including violating applicable regulatory standards and requirements or engaging in insider trading, which could significantly harm our business.

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

Risks Related to Intellectual Property

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  n   our or our licensors’ compositions and methods may not be patentable;

 

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

 

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

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

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

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

Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.

If we initiate legal proceedings against a third party to enforce a patent covering our product candidate or technology, the defendant could counterclaim that the patent covering our product candidate or technology is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review and/or inter partes review and equivalent proceedings in foreign jurisdictions, and opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal

 

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assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates.

Biopharmaceutical patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.

The patent positions of biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions. The interpretation and breadth of claims allowed in some patents covering biopharmaceutical compositions may be uncertain and difficult to determine, and are often affected materially by the facts and circumstances that pertain to the patented compositions and the related patent claims. The standards of the U.S. Patent and Trademark Office, or USPTO, are evolving and could change in the future. Consequently, we cannot predict the issuance and scope of patents with certainty. Patents, if issued, may be challenged, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, and U.S. patents may be subject to reexamination proceedings, post-grant review and/or inter partes review in the USPTO. Foreign patents may be subject also to opposition or comparable proceedings in the corresponding foreign patent office, which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, reexamination, post-grant review, inter partes review and opposition proceedings may be costly. Accordingly, rights under any issued patents may not provide us with sufficient protection against competitive products or processes.

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

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

Developments in patent law could have a negative impact on our business.

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

If we 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.

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 Amendments, and similar legislation in the EU. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to

 

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apply prior to expiration of relevant patents or otherwise fail 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 be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

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

In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, our competitive position could be harmed.

We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.

Filing, prosecuting and defending patents on our product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.

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

 

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Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Third parties may assert ownership or commercial rights to inventions we develop.

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

If we fail to comply with our obligations under license or technology agreements with third parties, we could lose license rights that are critical to our business.

We license intellectual property that is critical to our business, including licenses underlying the technology in our diagnostic tests, and in the future we may enter into additional agreements that provide us with licenses to valuable intellectual property or technology. These licenses impose various royalty payments, milestones, and other obligations on us. If we fail to comply with any of these obligations, the licensor may have the right to terminate the license. Termination by the licensor would cause us to lose valuable rights, and could prevent us from distributing our current tests, or inhibit our ability to commercialize future test candidates. Our business would suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensors fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

We employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, and no such claims against us are currently pending, we may be subject to claims that we or our employees, consultants or independent contractors have used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

A dispute concerning the infringement or misappropriation of our proprietary rights or the proprietary rights of others could be time-consuming and costly, and an unfavorable outcome could harm our business.

There is significant litigation in the biopharmaceutical industry regarding patent and other intellectual property rights. While we are not currently subject to any pending intellectual property litigation, and are not aware of any such threatened litigation, we may be exposed to future litigation by third parties based on claims that our product

 

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

 

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

 

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

 

  n   us or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all.

Any of these outcomes could hurt our cash position and financial condition and our ability to develop and commercialize our product candidates.

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

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 will 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, we may not be able to compete effectively.

Risks Related to This Offering, Ownership of our Ordinary Shares and ADSs and Our Status as a Non-U.S. Company with Foreign Private Issuer Status

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

Prior to this offering, while our ordinary shares have been traded on Euronext Paris since May 2013 and we have ADRs that trade on the U.S. over-the-counter market, there has been no public market on a U.S. national securities exchange for the ADSs or our ordinary shares in the United States. Although we anticipate our ADSs will be approved for listing on the Nasdaq Global Market, an active trading market for our ADSs may never develop or be sustained following this offering. The offering price of our ADSs will be determined through negotiations between us and the underwriters. This offering price may not be indicative of the market price of our ADSs or ordinary shares after this offering. In the absence of an active trading market for our ADSs or ordinary shares, investors may not be able to sell their ADSs at or above the offering price or at the time that they would like to sell.

The trading price of our equity securities may be volatile, and purchasers of our ordinary shares or ADSs could incur substantial losses.

Our stock price may be volatile. The stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their ADSs or ordinary shares at or above the price originally paid for the security. The market price for our ADSs and ordinary shares may be influenced by many factors, including:

 

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

 

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

 

  n   competition from existing products or new products that may emerge;

 

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

 

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

 

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

 

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

 

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

 

  n   additions or departures of key management or scientific personnel;

 

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

 

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

 

  n   announcement or expectation of additional debt or equity financing efforts;

 

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

 

  n   general economic and market conditions.

These and other market and industry factors may cause the market price and demand for our ordinary shares and ADSs to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their ordinary shares or ADSs and may otherwise negatively affect the liquidity of the trading market for the ordinary shares and ADSs.

If we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, our business will be harmed and the price of our securities could decline as a result.

We sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies, clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these

milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

 

  n   our available capital resources or capital constraints we experience;

 

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

 

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

 

  n   other actions, decisions or rules issued by regulators;

 

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

 

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

 

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

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

After the completion of this offering, we may be at an increased risk of securities class action litigation.

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

 

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After this offering, our share ownership will remain concentrated in the hands of our principal shareholders and management, who will continue to be able to exercise a direct or indirect controlling influence on us.

We anticipate that our executive officers, directors, current 5% or greater shareholders and affiliated entities, including Auriga Ventures III FCPR, Baker Bros. Advisors LP, JPMorgan Asset Management (UK) Limited and Recordati Orphan Drugs s.a.s., will together beneficially own approximately             % of our ordinary shares outstanding after this offering, assuming no exercise of the underwriters’ option to purchase additional ADSs and ordinary shares. As a result, these shareholders, acting together, will have significant influence over all matters that require approval by our shareholders, including the election of directors and approval of significant corporate transactions. Corporate action might be taken even if other shareholders, including those who purchase ordinary shares or ADSs in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other shareholders may view as beneficial.

We have broad discretion in the use of the net proceeds from this offering and may use them in ways with which you do not agree and in ways that may not increase the value of your investment.

Our management will have broad discretion in the application of the net proceeds that we receive from this offering. We may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from the offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

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

The trading market for the ADSs and ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover our company, the trading price for the ADSs and ordinary shares would be negatively impacted. If one or more of the analysts who covers us downgrades our equity securities 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 our securities, demand for the ordinary shares and ADSs could decrease, which could cause the price of the ordinary shares and ADSs or their trading volume to decline.

We do not currently intend to pay dividends on our securities and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ordinary shares and ADSs. In addition, French law may limit the amount of dividends we are able to distribute.

We have never declared or paid any cash dividends on our ordinary shares and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ordinary shares and ADSs for the foreseeable future and the success of an investment in ordinary shares and ADSs will depend upon any future appreciation in its value. Consequently, investors may need to sell all or part of their holdings of ordinary shares and ADSs after price appreciation, which may never occur, as the only way to realize any future gains on their investment. There is no guarantee that the ordinary shares and ADSs will appreciate in value or even maintain the price at which our shareholders have purchased them. Investors seeking cash dividends should not purchase the ADSs or ordinary shares.

Further, under French law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared and presented in accordance with accounting standards applicable in France. In addition, payment of dividends may subject us to additional taxes under French law. Please see the section of this prospectus titled “Description of Share Capital—Key Provisions of Our Bylaws and French Law Affecting Our Ordinary Shares—Rights, Preferences and Restrictions Attaching to Ordinary Shares” for further details on the limitations on our ability to declare and pay dividends and the taxes that may become payable by us if we elect to pay a dividend. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France.

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

 

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If you purchase ordinary shares in this offering, you will experience substantial and immediate dilution.

If you purchase ordinary shares in this offering (including in the form of ADSs), you will experience substantial and immediate dilution of          ($        ) per ordinary share in the net tangible book value after giving effect to the offering at an assumed offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on             , 2016, because the price that you pay will be substantially greater than the net tangible book value per ordinary share that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the offering price when they purchased their ordinary shares. You will experience additional dilution upon exercise of any outstanding warrants to purchase ordinary shares or if we otherwise issue additional shares or ADSs below the offering price. For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus titled “Dilution.”

Future sales of ordinary shares or ADSs by existing shareholders could depress the market price of the ADSs.

If our existing shareholders sell, or indicate an intent to sell, substantial amounts of ordinary shares or ADSs in the public market after the 90-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of the ADSs could decline significantly and could decline below the offering price. Upon completion of the offering, we will have outstanding                 ordinary shares (including ordinary shares represented by ADSs), approximately             of which are subject to a contractual restriction on selling for up to 90 days, subject to customary exceptions. The underwriters may permit our officers, directors, employees and current shareholders to sell shares prior to the expiration of the lock-up agreements. See the section of this prospectus titled “Underwriting.”

After the lock-up agreements pertaining to this offering expire, and based on the number of ordinary shares outstanding upon completion of this offering (including ordinary shares represented by ADSs),                 additional shares will be eligible for sale in the public market, all of which shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act. In addition, the ordinary shares subject to outstanding warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Following this offering, we intend to file one or more registration statements with the SEC covering the ordinary shares issuable upon exercise of outstanding warrants. Upon effectiveness of such registration statements, any shares subsequently issued will be eligible for sale in the public market, except to the extent that they are restricted by the lock-up agreements referred to above and subject to compliance with Rule 144 in the case of our affiliates. Sales of a large number of the shares in the public market could have an adverse effect on the market price of the ADSs. See the section of this prospectus titled “Shares and ADSs Eligible for Future Sale” for a more detailed description of sales that may occur in the future. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of the ADSs could decline substantially.

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

We are a French company with limited liability. Our corporate affairs are governed by our bylaws and by the laws governing companies incorporated in France. The rights of shareholders and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. For example, in the performance of its duties, our board of directors is required by French law to consider the interests of our company, its shareholders, its employees and other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder or holder of ADSs. See the sections of this prospectus titled “Management—Corporate Governance Practices” and “Description of Share Capital.”

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

Certain members of our board of directors and senior management and certain experts named in this prospectus are non-residents of the United States, and all or a substantial portion of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign courts may refuse to hear a U.S. securities law

 

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claim because foreign courts may not be the most appropriate forums in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which the foreign court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. In particular, there is some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered but is intended to punish the defendant. The enforceability of any judgment in France will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and France do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. See the section of this prospectus titled “Enforcement of Civil Liabilities.”

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

  n   our shares are nominative or bearer, if the legislation so permits, according to the shareholder’s choice;

 

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

 

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

 

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

 

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

 

  n   pursuant to French law, our bylaws, including the sections relating to the number of directors and election and removal of a director from office, may only be modified by a resolution adopted by two-thirds of the votes of our shareholders present, represented by a proxy or voting by mail at the meeting.

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

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

You may instruct the depositary of your ADSs to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you withdraw the ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary, upon timely notice from us, will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares so that you can vote them yourself. If the depositary does not receive timely voting instructions from you, it may give a proxy to a person designated by us to vote the ordinary shares underlying your ADSs. In addition, the depositary and its

agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your ADSs are not voted as you requested.

You may not be directly holding our ordinary shares.

If you are an ADS holder, you will not be treated as one of our shareholders and will not have direct shareholders rights. French law governs shareholders rights. The depositary will be the holder of the ordinary shares underlying your ADSs. As a holder of ADSs, you will have ADS holder rights. The deposit agreement among us, the depositary and you, as an ADS holder, and all other persons directly and indirectly holding ADSs, sets out ADS holders rights, as well as the rights and obligations of the depositary.

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

According to French law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these securities on a pro rata basis unless they waive those rights at an extraordinary meeting of our shareholders (by a two-thirds majority vote) or individually by each shareholder. However, our ADS holders in the United States will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a

registration statement with respect to any such rights or securities or to endeavor to cause such a registration

 

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

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

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

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company. This may limit the information available to holders of ADSs.

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

As a foreign private issuer, we are permitted and we expect to follow certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq’s corporate governance standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the corporate governance standards of the Nasdaq Global Market.

As a foreign private issuer listed on the Nasdaq Global Market, we will be subject to Nasdaq’s corporate governance standards. However, Nasdaq rules provide that foreign private issuers are permitted to follow home country corporate governance practices in lieu of Nasdaq’s corporate governance standards as long as notification is provided to Nasdaq of the intention to take advantage of such exemptions. We intend to rely on exemptions for foreign private issuers and follow French corporate governance practices in lieu of Nasdaq’s corporate governance standards, to the extent possible. Certain corporate governance practices in France, which is our home country, may differ significantly from Nasdaq corporate governance standards. For example, as a French company, neither the corporate laws of France nor our bylaws require a majority of our directors to be independent and we can include non-independent directors as members of our remuneration committee, and our independent directors are not required to hold regularly scheduled meetings at which only independent directors are present.

We are also exempt from provisions set forth in Nasdaq rules which require an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock. Consistent with French law, our bylaws provide that a quorum requires the presence of shareholders having at least

 

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(1) 20% of the shares entitled to vote in the case of an ordinary shareholders’ general meeting or at an extraordinary shareholders’ general meeting where shareholders are voting on a capital increase by capitalization of reserves, profits or share premium, or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general meeting.

As a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Under French law, the audit committee may only have an advisory role and appointment of our statutory auditors, in particular, must be decided by the shareholders at our annual meeting.

For an overview of our corporate governance practices, see “Management—Corporate Governance Practices.” Therefore, our shareholders may be afforded less protection than they otherwise would have under Nasdaq’s corporate governance standards applicable to U.S. domestic issuers.

We are an “emerging growth company” under the JOBS Act and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our ADSs less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. We will not take advantage of the extended transition period provided under Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

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

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

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2016. In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if more than 50% of our securities are held by U.S. residents and more than 50% of our executive officers or members of our board of directors are residents or citizens of the United States, we could lose our foreign private issuer status. Immediately following the closing of this offering, approximately     % of our outstanding ordinary shares will likely be held by U.S. residents (assuming that all purchasers in the U.S. offering are residents of the United States).

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

 

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conversion of our financial statements to U.S. GAAP would involve significant time and cost. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.

U.S. holders of 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 Income Tax Considerations—Certain Material U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.”

Our status as a PFIC will depend on the composition of our income (including whether we receive certain non-refundable grants or subsidies and whether such amounts and reimbursements of certain refundable research tax credits will constitute gross income for purposes of the PFIC income test) and the composition and value of our assets, which may be determined in large part by reference to the market value of the ADSs and our ordinary shares, which may be volatile, from time to time. Our status may also depend, in part, on how quickly we utilize the cash proceeds from the offering in our business. Based on certain estimates of our gross income and assets, and on the nature of our business, we do not expect to be characterized as a PFIC for our taxable year ending December 31, 2016; however, there can be no assurance that we will not be considered a PFIC for any taxable year.

We must maintain effective internal control over financial reporting, and if we are unable to do so, the accuracy and timeliness of our financial reporting may be adversely affected, which could hurt our business, lessen investor confidence and depress the market price of our securities.

We must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. In addition, as a public company listed in the United States, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, will require, among other things, that we assess the effectiveness of our internal control over financial reporting at the end of each fiscal year. We anticipate being first required to issue management’s annual report on internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act, in connection with issuing our consolidated financial statements as of and for the year ending December 31, 2017 and the filing of our second annual report with the SEC.

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

 

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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 position, 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:

 

  n   our ability to attain, maintain and expand marketing approval for ERY-ASP, which is known under the trade name GRASPA in Europe and Israel;

 

  n   the initiation, timing, progress and results of our preclinical studies and clinical trials;

 

  n   our ability to successfully develop our ERYCAPS platform and advance our pipeline of product candidates;

 

  n   our ability to develop sales and marketing capabilities;

 

  n   the regulatory and commercialization goals for GRASPA in our agreements with Orphan Europe and Teva, including the timing and amount of anticipated milestone and royalty payments;

 

  n   our ability to produce adequate supplies of our product candidates for preclinical and clinical testing and to fulfill our contractual obligations to third-party distributors;

 

  n   the effects of increased competition as well as innovations by new and existing competitors in our industry;

 

  n   our ability to obtain funding for our operations;

 

  n   our ability to maintain, protect and enhance our intellectual property rights and propriety technologies and to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

 

  n   regulatory developments in the United States, Europe and other foreign countries;

 

  n   statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance;

 

  n   our expected use of proceeds of this offering; and

 

  n   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 with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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MARKET INFORMATION

Our ordinary shares have been trading on Euronext Paris under the symbol “ERYP.PA” since May 2013.

The following table sets forth for the periods indicated the reported high and low sale prices per ordinary share on Euronext Paris in euros as well as the average daily trading volume for these periods.

 

 

 

PERIOD

   HIGH      LOW      AVERAGE DAILY
TRADING VOLUME
 

Annual

        

2013

   12.07       8.58         3,444   

2014

     34.97         10.16         39,665   

2015

     40.20         23.04         42,163   

Quarterly

        

First Quarter 2014

     18.36         10.16         43,191   

Second Quarter 2014

     15.87         13.00         8,073   

Third Quarter 2014

     28.39         12.12         26,638   

Fourth Quarter 2014

     34.97         22.70         80,234   

First Quarter 2015

     32.99         25.20         58,926   

Second Quarter 2015

     37.00         25.93         51,097   

Third Quarter 2015

     40.20         28.15         37,280   

Fourth Quarter 2015

     32.80         23.04         22,447   

First Quarter 2016 (through March 21, 2016)

     25.54         17.62         34,162   

Month Ended

        

October 2015

     32.80         27.57         21,521   

November 2015

     29.75         27.81         18,941   

December 2015

     28.88         23.04         26,922   

January 2016

     25.54         17.62         36,843   

February 2016

     24.31         18.15         29,589   

March 2016 (through March 21, 2016)

     23.18         20.10         36,988   

 

 

On March 21, 2016, the last reported sale price of our ordinary shares on Euronext Paris was 22.80 per share.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately          ($        ) million, assuming an offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on             , 2016, 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 (which may be in the form of ADSs). If the underwriters exercise in full their option to purchase additional ordinary shares (which may be in the form of ADSs) in this offering, we estimate that we will receive net proceeds from the offering of approximately          ($        ) million, assuming an offering price of          per ordinary share in the offering, the closing price of our ordinary shares on Euronext Paris on             , 2016, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Each 1.00 ($        ) increase (decrease) in the assumed offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on             , 2016, would increase or decrease our net proceeds from the offering by          ($        ) million, assuming the number of ordinary shares offered by us (which may be in the form of ADSs), 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 we are offering. An increase or decrease of 1,000,000 ordinary shares offered by us would increase or decrease the net proceeds to us from the sale of the ordinary shares we are offering by          ($        ) million, assuming that the assumed offering price remains the same and after deducting underwriting discounts and commissions. The actual net proceeds payable to us will adjust based on the actual number of ordinary shares (including in the form of ADSs) offered by us, the actual offering price and other terms of the offering determined at pricing.

We currently expect to use the net proceeds from this offering as follows:

 

  n   approximately          ($        ) million to complete the pivotal clinical trials of ERY-ASP for the treatment of ALL in the United States;

 

  n   approximately          ($        ) million to complete the pivotal clinical trials of ERY-ASP for the treatment of ALL in Europe;

 

  n   approximately          ($        ) million to advance the development of ERY-ASP and potential follow-on products for other indications; and

 

  n   approximately          ($        ) million to fund overall development of our ERYCAPS platform technology and other preclinical development programs.

We believe that our existing cash, cash equivalents and short-term investments will be sufficient to fund our clinical trials that have already commenced, including our Phase 1 clinical trial in the United States of ERY-ASP for the treatment of ALL, our Phase 2b clinical trial in Europe of ERY-ASP for the treatment of AML, our Phase 2 clinical trial in Europe of ERY-ASP for the treatment of pancreatic cancer, as well as three clinical trials we are currently in preparations for, including a pivotal Phase 2 clinical trial in the United States of ERY-ASP for the treatment of double-allergic ALL patients, a Phase 2 clinical trial of ERY-ASP for the treatment of non-Hodgkin lymphoma, or NHL, and a Phase 1 clinical trial of ERY-MET for the treatment of solid tumors. We also believe that the net proceeds of this offering, combined with our existing cash, cash equivalents and short-term investments, will be sufficient to progress our clinical trials for ERY-ASP through Phase 3 and evaluate its potential as a first-line therapy for the treatment of ALL and through Phase 2/3 for the treatment of NHL in both the United States and Europe. We do not expect that material amounts of other funds will be necessary to accomplish these purposes.

Although it is difficult to predict additional capital requirements, we believe that the net proceeds from this offering, along with the additional clinical trial funding we expect to receive from Orphan Europe, will allow us to commence clinical trials of ERY-ASP for other indications and evaluate expansion opportunities in new geographic markets outside Europe and the United States. We expect to use the remainder of the net proceeds of this offering for working capital and other general corporate purposes.

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

 

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

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

 

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DIVIDEND POLICY

We have never declared or paid any 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, given our state of development.

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

 

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 2015 on an actual and on a pro forma as adjusted basis to reflect (i) the issuance and sale of                       ordinary shares (including in the form of ADSs) in this offering at an assumed offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on             , 2016, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and (ii) the application of net proceeds from this offering described under “Use of Proceeds.”

Our capitalization following this offering will be adjusted based on the actual offering price and other terms of this offering determined at pricing, including the amount by which actual offering expenses are higher or lower than estimated. The table should be read in conjunction with the information contained in “Use of Proceeds,” “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

 

 

     AS OF
DECEMBER 31, 2015
 
     ACTUAL      PRO FORMA
AS ADJUSTED (1)
 
     (in thousands)  

Conditional advances

   563                          

Debt and capital lease obligations including current portion

     144      
  

 

 

    

 

 

 

Total debt

     707      
  

 

 

    

 

 

 

Equity attributable to shareholders:

     

Ordinary shares, 0.10 nominal value: 7,924,611 shares issued and outstanding actual;              shares issued and outstanding pro forma as adjusted

     792      

Additional paid-in capital

     95,931      

Reserves

     (34,578)      

Net loss for the period

     (15,013)      
  

 

 

    

 

 

 

Total equity attributable to shareholders

     47,132      
  

 

 

    

 

 

 

Total capitalization

   47,839           
  

 

 

    

 

 

 

 

 

(1)    Each 1.00 ($            ) increase or decrease in the assumed offering price of              ($            ) per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, would increase or decrease each of, total equity attributable to our shareholders and total capitalization by approximately              ($            ) million, assuming that the number of ordinary shares offered by us (including in the form of ADSs), 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 we are offering. Each increase or decrease of 1,000,000 ordinary shares offered by us would increase or decrease each of, total equity attributable to our shareholders and total capitalization by approximately              ($            ) million, assuming that the assumed offering price remains the same, and after deducting underwriting discounts and commissions. Each increase of 1,000,000 ordinary shares offered by us together with an associated 1.00 ($            ) increase in the assumed offering price of              per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, would increase each of, 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 offered by us together with an associated 1.00 ($            ) decrease in the assumed offering price of              per ordinary share, the closing price of our ordinary shares on Euronext Paris on             , 2016, would decrease each of, 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 offering price, the actual number of ordinary shares offered by us (including in the form of ADSs), and other terms of the offering determined at pricing.

The number of ordinary shares that will be outstanding after this offering is based on 7,924,611 ordinary shares outstanding as of December 31, 2015 and excludes:

 

  n   300,300 ordinary shares issuable upon the exercise of founder’s share warrants (BSPCE) and share purchase warrants (BSA) granted but not exercised as of December 31, 2015 at a weighted average exercise price of 8.56 ($9.29) per ordinary share; and

 

  n   155,030 ordinary shares (including 90,000 ordinary shares issuable upon the exercise of BSA and BSPCE granted to Senior Management but not yet vested) reserved for future issuance under our share-based compensation plans and other delegations of authority from our shareholders.

 

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DILUTION

If you invest in the ordinary shares (including ADSs) in this offering, your ownership interest will be diluted to the extent of the difference between the offering price per ordinary share in this offering and the pro forma as adjusted net tangible book value per share after this offering. Our net tangible book value as of December 31, 2015 was 47.1 million ($51.1 million), or 5.94 ($6.45) per ordinary share, based on the exchange rate in effect as of December 31, 2015. Net tangible book value per share is determined by dividing (1) our total assets less our intangible assets and our total liabilities by (2) the number of shares outstanding as of December 31, 2015, or 7,924,611 ordinary shares.

After giving effect to our sale of                  ordinary shares, including ordinary shares represented by ADSs, in this offering, assuming an offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of the estimated net proceeds therefrom as described under “Use of Proceeds,” our pro forma as adjusted net tangible book value at December 31, 2015 would have been approximately          ($        )         , or          ($        )          per share. This represents an immediate increase in net tangible book value per share of          ($        )          to existing shareholders and an immediate dilution in net tangible book value per share of          ($        )         to new investors.

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

 

 

 

Assumed offering price per ordinary share

          

Historical net tangible book value per share as of December 31, 2015

     5.94      

Increase in net tangible book value per share attributable to new investors participating in this offering

     
  

 

 

    

Pro forma net tangible book value per share after this offering

     
     

 

 

 

Dilution per share to new investors participating in this offering

          
     

 

 

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual offering price and other terms of the offering determined at pricing. Each 1.00 ($        ) increase or decrease in the assumed offering price of          ($        ) per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, would increase or decrease our as adjusted net tangible book value by approximately          ($        ) million, or approximately          ($        ) per ordinary share, and the dilution to new investors participating in the offering would be approximately          ($        ) per ordinary share, assuming that the number of ordinary shares offered by us (which may be in the form of ADSs), 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 we are offering. An increase of 1,000,000 ordinary shares offered by us would increase the as adjusted net tangible book value by approximately          ($        ) million, or          ($        ) per ordinary share, and the dilution to new investors participating in the offering would be          ($        ) per ordinary share, assuming that the assumed offering price remains the same, and after deducting underwriting discounts and commissions. Similarly, a decrease of 1,000,000 ordinary shares offered by us would decrease the as adjusted net tangible book value by approximately          ($        ) million, or          ($        ) per ordinary share, and the dilution to new investors participating in the offering would be          ($        ) per ordinary share, assuming that the assumed offering price remains the same, and 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 actual number of ordinary shares offered by us (including in the form of ADSs), and other terms of the offering determined at pricing.

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

 

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The following table sets forth, as of             , 2016, consideration paid to us in cash for ordinary shares purchased from us by our existing shareholders and by new investors participating in this offering (including ordinary shares represented by ADSs), based on an assumed offering price of          per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, and before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

 

     ORDINARY SHARES/ADSS
PURCHASED FROM US
    TOTAL CONSIDERATION     AVERAGE PRICE
PER ORDINARY

SHARE / ADS
 
     NUMBER    PERCENT     AMOUNT      PERCENT    

Existing shareholders

                                                                  

New investors

            

Total

        100.0             100.0       

 

 

Each 1.00 ($        ) increase or decrease in the assumed offering price of              ($            ) per ordinary share, the closing price of our ordinary shares on Euronext Paris on                 , 2016, would increase or decrease the total consideration paid by new investors participating in the offering by          ($            ) million, assuming that the number of ordinary shares offered by us (which may be in the form of ADSs), as set forth on the cover page of the prospectus, remains the same and before deducting underwriting discounts and commissions. We may also increase or decrease the number of ordinary shares we are offering. An increase or decrease in 1,000,000 ordinary shares offered by us would increase or decrease the total consideration paid by new investors participating in the offering by          ($            ) million, assuming that the assumed offering price remains the same and before 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 actual number of ordinary shares offered by us (including in the form of ADSs) and other terms of the offering determined at pricing.

In addition, if the underwriters exercise their option to purchase additional ordinary shares and ADSs in full, the number of shares held by the existing shareholders after this offering would be reduced to                 , or         % of the total number of ordinary shares (including ordinary shares represented by ADSs) outstanding after this offering, and the number of shares held by new investors participating in this offering (including ordinary shares represented by ADSs) would increase to                 , or         % of the total number of ordinary shares outstanding after this offering (including ordinary shares represented by ADSs).

The tables and calculations above are based on the number of ordinary shares that will be outstanding after this offering is based on 7,924,611 ordinary shares outstanding as of December 31, 2015 and excludes:

 

  n   300,300 ordinary shares issuable upon the exercise of founder’s share warrants (BSPCE) and share purchase warrants (BSA) granted but not exercised as of December 31, 2015 at a weighted average exercise price of 8.56 ($9.29) per ordinary share; and

 

  n   155,030 ordinary shares (including 90,000 ordinary shares issuable upon the exercise of BSA and BSPCE granted to Senior Management but not yet vested) reserved for future issuance under our share-based compensation plans and other delegations of authority from our shareholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statements of income (loss) data for the years ended December 31, 2014 and 2015 and the selected consolidated statement of financial position data as of December 31, 2014 and 2015 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements as of and for the years ended December 31, 2014 and 2015 have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.

The following selected financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction with our consolidated financial statements and related notes beginning on page F-1 of this prospectus, as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.

 

 

Consolidated Statement of Income (Loss) Data:

 

     YEAR ENDED DECEMBER 31,  
     2014     2015  
     (in thousands, except share and
per share data)
 

Revenue

          

Other income

     2,026        2,929   
  

 

 

   

 

 

 

Total operating income

     2,026        2,929   
  

 

 

   

 

 

 

Operating expenses:

    

Research and development

     6,613        10,776   

General and administrative

     4,361        7,736   
  

 

 

   

 

 

 

Total operating expenses

     10,974        18,512   
  

 

 

   

 

 

 

Operating loss

     (8,948     (15,583
  

 

 

   

 

 

 

Financial income

     68        567   

Income tax

     20        3   
  

 

 

   

 

 

 

Net loss

   (8,860   (15,013

Basic and diluted loss per share

   (1.51   (2.16
  

 

 

   

 

 

 

Weighted number of shares used for computing basic and diluted loss per share

     5,874,794     

 

6,957,654

  

  

 

 

   

 

 

 

 

 

 

Consolidated Statement of Financial Position Data:

 

     AS OF DECEMBER 31,  
     2014      2015  
     (in thousands)  

Cash and cash equivalents

   36,988       45,634   

Total assets

     40,607         53,004   

Total shareholders’ equity

     35,824         47,132   

Total non-current liabilities

     525         251   

Total current liabilities

     4,258         5,621   

Total liabilities

     4,783         5,872   

Total liabilities and shareholders’ equity

     40,607         53,004   

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the “Selected Consolidated Financial Data” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. In addition to historical information, the following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” The audited consolidated financial statements as of and for the years ended December 31, 2014 and 2015 are prepared pursuant to International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As permitted by the rules of the SEC for foreign private issuers, we do not reconcile our financial statements to U.S. generally accepted accounting principles.

Overview

We are a clinical-stage biopharmaceutical company developing innovative therapies for rare forms of cancer and orphan diseases. Leveraging our proprietary ERYCAPS platform, which uses a novel technology to encapsulate therapeutic drug substances inside red blood cells, we have developed a pipeline of product candidates targeting markets with high unmet medical needs. Our initial focus is on the treatment of blood cancers, including ALL and AML.

Our lead product candidate, named GRASPA in Europe and Israel and ERY-ASP in the United States and elsewhere, consists of the enzyme L-asparaginase encapsulated in red blood cells. We have completed a Phase 2/3 pivotal clinical trial of GRASPA in Europe in children and adults with relapsed or refractory ALL and submitted an MAA to the EMA in September 2015. If we receive European marketing approval for GRASPA, we expect to begin commercializing it in 2017. We have also commenced clinical trials of ERY-ASP in the United States, and we are conducting a Phase 2b clinical trial in Europe evaluating GRASPA as a first-line therapy for the treatment of elderly patients with AML.

We believe that ERY-ASP could also be used to treat solid tumors and are conducting a Phase 2 clinical trial in Europe in patients with pancreatic cancer. In addition to our current product candidates that focus on using encapsulated enzymes to induce tumor starvation, we are exploring the use of our platform for developing cancer vaccines and enzyme replacement therapies. In 2012, we entered into an exclusive license and distribution agreement with Orphan Europe, a subsidiary of Recordati S.p.A., for the exclusive commercialization and distribution rights to GRASPA for the treatment of ALL and AML in 38 European countries. Under this agreement, we received an upfront payment of 5 million and are entitled to receive up to an aggregate of 37.5 million upon the achievement of specified regulatory and sales milestones. In addition, Orphan Europe will contribute to the development costs of GRASPA for the treatment of AML, and we are also eligible to receive up to 45% of net product sales by Orphan Europe, representing a combined transfer price and royalties. In 2011, we entered into an exclusive distribution agreement with Abic Marketing Limited, a subsidiary of Teva Pharmaceutical Industries Ltd., under which Teva acquired the exclusive rights to GRASPA in Israel for the treatment of ALL.

We maintain a commercial-scale, cGMP- and ISO-certified production facility in Lyon, France that we believe will be sufficient to supply our commercial requirements for at least two years following sales launch in Europe. We also maintain a smaller production facility in Philadelphia, Pennsylvania, on the premises of the American Red Cross, which is currently used for clinical trial production.

We have retained the rights to commercialize ERY-ASP for the treatment of ALL and AML outside of Europe and Israel, including in the United States, and for the treatment of all other indications outside of Israel. We retain the worldwide development and commercialization rights to all of our other product candidates.

 

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We have never generated any revenues from product sales. We do not expect to generate material revenue from product sales unless and until we successfully complete development of, obtain marketing approval for and commercialize our product candidates. Clinical development, regulatory approval and commercial launch of a product candidate can take several years and are subject to significant uncertainty. Historically, we have financed our operations and growth through issuances of share capital and convertible bonds and through conditional advances and subsidies from Bpifrance Financement (formerly Oséo), part of BPI France, a French public investment bank. In May 2013, we completed the initial public offering of our ordinary shares on Euronext Paris, from which we raised 17.7 million in gross proceeds. In October 2014 and December 2015, we raised an additional 30.0 million and 25.4 million, respectively, in gross proceeds from the issuances of additional ordinary shares.

Since our inception in October 2004, we have incurred significant operating losses. We had an accumulated deficit of 49.6 million as of December 31, 2015, and we expect to incur significant expenses and substantial operating losses over at least the next several years as we continue our research and development efforts and advance our clinical development program for AML and ALL in Europe and the United States. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, the receipt of milestone payments, if any, under our collaborations with Orphan Europe and Teva, and our expenditures on other research and development activities. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:

 

  n   initiate and conduct our planned clinical trials of GRASPA in Europe and ERY-ASP in the United States;

 

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

 

  n   seek to discover and develop additional product candidates;

 

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

 

  n   scale up our manufacturing capabilities to support the launch and commercialization of our product candidates, if approved;

 

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

 

  n   maintain, expand and protect our intellectual property portfolio;

 

  n   hire additional clinical, quality control and scientific personnel; and

 

  n   add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts and our operations as a public company listed in the United States.

Until such time that we can generate substantial revenue from product sales, we expect to finance these expenses and our operating activities through a combination of our existing liquidity and the proceeds of this offering. If we are unable to generate revenue from product sales, in particular from GRASPA for ALL in Europe, in accordance with our expected timeframes, we will need to raise additional capital through the issuance of our shares, through other equity or debt financings or through collaborations or partnerships with other companies. However, we may be unable to raise additional funds or enter into other funding arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves.

Although it is difficult to predict future liquidity requirements, we believe that our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations for at least the next 24 months. However, our ability to successfully transition to profitability will be dependent upon achieving a level of revenues adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

As indicated in Note 3 of our consolidated financial statements for the years ended December 31, 2014 and 2015, due to the listing of our ordinary shares on Euronext Paris and in accordance with the European Union’s regulation No. 1606/2002 of July 19, 2002, statutory consolidated financial statements were prepared in accordance with

 

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IFRS, as issued by the European Union, or EU, for the years ended December 31, 2014 and 2015. Those statutory consolidated financial statements were approved and authorized for issuance by our board of directors on March 26, 2015 and on February 19, 2016, respectively.

The consolidated financial statements as of and for the years ended December 31, 2014 and 2015 included in this prospectus have been prepared in accordance with IFRS as issued by the IASB with no difference with the statutory consolidated financial statements and were approved and authorized for issuance by our board of directors on March 23, 2016.

Financial Operations Overview

Operating Income

Our operating income consists of other income.

Revenues

To date, we have not generated any revenue from the sale of products. Our ability to generate product revenue and to become profitable will depend upon our ability to successfully develop and commercialize GRASPA and our other product candidates. Because of the numerous risks and uncertainties associated with product development and regulatory approval, we are unable to predict the amount or timing of product revenue. We submitted an MAA to the EMA in September 2015 for the approval of GRASPA, in combination with chemotherapy, as a treatment for pediatric and adult patients with ALL who have either relapsed or failed first-line treatment, and for the treatment of pediatric and adult patients with ALL and a hypersensitivity to free-form asparaginases. If we receive European marketing approval for GRASPA, we expect to begin commercializing it in 2017.

Other Income

Our other income consists of research tax credits, grants from BPI France for our preclinical research programs and reimbursements from Orphan Europe for some of the internal costs we incur under our distribution agreement with them.

Research Tax Credits

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

The main characteristics of the CIR are the following:

 

  n   the CIR results in a cash inflow from the tax authorities paid directly to us as we are not subject to corporate income tax;

 

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

 

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

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

As of December 31, 2015, we had not recovered the 2014 CIR in the amount of 1.5 million as a result of an ongoing tax audit from the tax authorities. The tax audit was concluded in February 2016 with no major reassessment from the tax authorities. As a result, we expect to recover the 2014 CIR in the coming months and have received payment of other 2014 tax receivables. We have also requested the reimbursement of the 2015 CIR under the community tax rules for small and medium firms in compliance with the current regulations.

 

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Subsidies and Conditional Advances

We have received financial assistance from BPI France and other governmental organizations in connection with the development of our product candidates. BPI France’s mission is to provide assistance and support to emerging French enterprises to facilitate the development and commercialization of innovative technologies. Such funding, in the form of non-refundable subsidies and conditional advances, is intended to finance our research and development efforts and the recruitment of specific personnel.

We account for non-refundable subsidies as other income ratably over the duration of the funded project. Funds are recognized in other income in our consolidated statement of income (loss) for the fiscal year in which the financed expenses were recorded. Since our inception in October 2004 through December 31, 2015, we have received 2.3 million in nonrefundable subsidies, mainly from BPI France. For the years ended December 31, 2014 and 2015, we recorded 0.3 million and 0.4 million, respectively, as other income in the consolidated statement of income (loss) based on research and development expenses incurred for the period. We record the remaining balance of subsidies received but not yet expended as deferred revenue on our consolidated statement of financial position. The deferred revenue balance was 0.4 million as of December 31, 2014 and there was no deferred revenue as of December 31, 2015.

Funds received from BPI France in the form of conditional advances are recognized as financial liabilities, as we are obligated to reimburse BPI France for such conditional advances in cash based on a repayment schedule if specified conditions are met. Our advances from BPI France are summarized below under “Liquidity and Capital Resources— Non-refundable Subsidies and Conditional Advances from BPI France.”

Reimbursements from Orphan Europe

Under our distribution agreement with Orphan Europe, we are reimbursed by Orphan Europe for some of our internal clinical costs, such as personnel costs associated with the management of clinical trials, or personnel involved in the production of batches necessary for our ongoing clinical trial of GRASPA for AML patients. These invoiced internal costs are classified as “other income” in our consolidated statement of income and amounted to 0.2 million and 0.3 million for the years ended December 31, 2014 and 2015, respectively.

Operating Expenses

Since our inception in October 2004, our operating expenses have consisted primarily of research and development activities and general and administrative costs.

Research and Development

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

 

  n   sub-contracting, collaboration and consultant expenses, that primarily include the cost of third-party contractors such as contract research organizations, or CROs, who conduct our non-clinical studies and clinical trials;

 

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

 

  n   licensing and intellectual property costs;

 

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

 

  n   depreciation and amortization.

During 2014 and 2015, our research and development related primarily to our Phase 2/3 pivotal clinical trial of GRASPA for ALL, which we completed in 2014, as well as our other ongoing clinical trials of GRASPA for ALL, AML and pancreatic cancer.

Our direct research and development expenses consist principally of external costs, such as manufacturing expenses, non-clinical studies, fees paid to consultants, laboratories and CROs in connection with our clinical trials, and costs related to our collaborations, which we allocate to our specific research programs. We also allocate some personnel-related costs, depreciation and other indirect costs to specific programs, although costs for some scientific personnel associated with the development of our ERYCAPS platform generally are not allocated to specific programs.

 

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Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we initiate clinical trials for certain product candidates and pursue later stages of clinical development of other product candidates.

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

 

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

 

  n   clinical trial and early-stage results;

 

  n   the terms and timing of regulatory approvals;

 

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

 

  n   the ability to market, commercialize and achieve market acceptance for ERY-ASP or any other product candidate that we may develop in the future.

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

Agreement with Orphan Europe

Under our exclusive license and distribution agreement with Orphan Europe related to the development of GRASPA for the treatment of AML, we re-invoice, with no margin, some of the clinical costs that we incur from external providers. In application of IAS 18, Revenue, we consider that, within the context of our agreement with Orphan Europe, we act as agent regarding these re-invoiced external costs, as:

 

  n   We do not have primary responsibility for provision of the goods or services, and the majority of services are provided by third parties. Costs of CROs are the most significant external costs, and such costs are directly invoiced to Orphan Europe. We are directly invoiced only for secondary services.

 

  n   We bear no inventory risk.

 

  n   We have no capacity to determine prices, all of the external costs are re-invoiced for the exact amount of the initial invoice, with no margin, and we are not affected by any price changes applied by the suppliers.

 

  n   We bear a credit risk that we do not consider to be significant.

Consequently, the re-invoicing of these external costs to Orphan Europe is presented as a decrease in corresponding research and development expenses incurred by us. For the years ended December 31, 2014 and 2015, the amount of external costs re-invoiced within the context of our agreement with Orphan Europe totaled 0.6 million and 0.3 million, respectively.

General and Administrative

General and administrative expense consists primarily of personnel costs including share-based compensation for personnel other than employees engaged in scientific research and development functions. General and administrative expense also consists of fees for professional services, mainly related to audit, IT, accounting, recruitment and legal services, communication and travel costs, real-estate leasing costs, office furniture and equipment costs, allowance for amortization and depreciation, directors’ attendance fees, insurance costs and overhead costs, such as postal and telecommunications expenses.

 

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We anticipate that our general and administrative expenses will increase in the future as we grow our support functions for the expected increase in our research and development activities and the potential commercialization of our product candidates. We also anticipate increased expenses associated with being a public company in the United States, including costs related to audit, legal, regulatory and tax-related services associated with maintaining compliance with U.S. exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs.

Finance Income (Expense)

Finance income (expense) relates primarily to interest and other expense for loans and other financial debts, including leases, offset by income received from cash and cash equivalents, as well as foreign exchange gains and losses related to our purchases of services in U.S. dollars.

Our cash and cash equivalents have been deposited primarily in savings, money market and time deposit accounts with short maturities and therefore generate only a modest amount of interest income. We expect to continue this investment philosophy in the future.

Results of Operations

Comparisons of the Years Ended December 31, 2014 and 2015

Operating Income

We generated operating income of 2.0 million in 2014 and 2.9 million in 2015, an increase of 44.6%. The components of our operating income are set forth in the table below. Other income was primarily generated by the CIR and by subsidies received from BPI France for our research projects.

 

 

 

     FOR THE YEAR ENDED
DECEMBER 31,
 
     2014      2015  
     (in thousands)  

Revenues

           

Other income

     

Research Tax Credit

     1,524         2,219   

Subsidies

     271         368   

Other income

     231         341   
  

 

 

    

 

 

 

Total operating income

   2,026       2,929   
  

 

 

    

 

 

 

 

 

As no research and development expenditure is capitalized before obtaining a marketing authorization, the CIR related to a research program is entirely recognized as operating income.

Due to the ongoing tax audit by tax authorities related to the 2014 CIR, at December 31, 2015, the amount of 1.5 million of CIR recognized in 2014 could not be collected in 2015 and is expected to be paid in cash in the first half of 2016. The CIR recognized for the year ended December 31, 2015 is expected to be paid in cash in 2016.

Grants recorded in operating income represents non-reimbursable subsidies. The amounts recorded in 2014 and 2015 relate to grants associated with the pre-clinical research programs in partnership with BPI France.

Other income totaled 0.2 million and 0.3 million in 2014 and 2015, respectively. These amounts represent the sum of internal costs incurred by us within the context of the AML study and re-invoiced to Orphan Europe.

Research and Development Expenses

From 2014 to 2015, the total amount recorded by us for research and development activities increased from 6.6 million to 10.8 million, an increase of 63.0%. While the majority of our research and development expenses related to completed and ongoing clinical trials of ERY-ASP, we have also incurred preclinical costs in connection

 

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with the discovery of additional enzymes beyond L-asparaginase for development as potential therapies to treat cancers. This research program, known as TEDAC, has resulted in the identification of our early-stage product candidate, ERY-MET. We intend to commence a Phase 1 clinical trial of ERY-MET in 2016 and have incurred preclinical costs associated with its development.

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

 

 

 

     FOR THE YEAR ENDED
DECEMBER 31,
        
     2014      2015      %
CHANGE
 
     (in thousands)         

ERY-ASP

   1,310       1,805         38

TEDAC (ERY-MET / ERY-ADI)

     221         1,523         589   
  

 

 

    

 

 

    

Total direct research and development expenses

     1,531         3,067         100   
  

 

 

    

 

 

    

Consumables

     313         805         157   

Rental and maintenance

     492         304         (38

Services, subcontracting, and consulting fees

     1,531         1,896         24   

Personnel expenses (1)

     2,443         3,977         63   

Other

     81         216         166   

Depreciation and amortization expense

     222         250         13   
  

 

 

    

 

 

    

Total indirect research and development expenses

     5,082         7,709         52   
  

 

 

    

 

 

    

Total R&D expenses (2)

   6,613       10,776         63   
  

 

 

    

 

 

    

 

 

(1)    Includes 0.4 million and 0.8 million related to share-based compensation expense for 2014 and 2015, respectively.
(2)    Of which 3.9 million and 6.7 million related to clinical studies for 2014 and 2015, respectively.

The increase in direct research and development expenditures from 2014 to 2015 was primarily the result of a 1.3 million increase for the costs related to the TEDAC program. Personnel expenses increased by 1.5 million mainly due to wages and share-based payments issued to research and development personnel. Services, subcontracting, and consulting fees include third-party fees for service providers for our manufacturing and clinical trials conducted in 2015 and increased by 0.4 million compared to 2014. We also experienced a 0.5 million increase in consumables costs, which was primarily the result of increased production batches for use in clinical development.

 

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General and Administrative Expenses

Our general and administrative expenses were as follows:

 

 

 

     FOR THE YEAR ENDED
DECEMBER 31,
        
     2014      2015      %
CHANGE
 
     (in thousands)         

Consumables

   28       36         29

Rental and maintenance

     291         304         4   

Services, subcontracting, and consulting fees

     1,045         3,022         189   

Personnel expenses (1)

     2,368         1,627         (31

Other

     601         2,627         337   

Depreciation and amortization expense

     28         120         329   
  

 

 

    

 

 

    

Total general and administrative expenses

   4,361       7,736         77   
  

 

 

    

 

 

    

 

 

(1)    Includes 0.9 million and 0.3 million related to share-based compensation expense for 2014 and 2015, respectively.
(2)    For 2015, includes 1.6 million related to share-based compensation for warrants granted to directors.

From 2014 to 2015, our general and administrative expenses increased from 4.4 million to 7.7 million, an increase of 77.4%. The increase of 3.4 million in general and administrative expenses was primarily due to an increase of 2.0 million in services, subcontracting, and fees associated with the development of our regulatory and commercialization strategy in the United States, which included an increase in third-party legal, accounting and advisory fees of 1.2 million incurred for the preparation of the Nasdaq offering in 2015. We also experienced an increase of 2.0 million in other costs, primarily the result of 1.6 million of share-based compensation for warrants granted to our directors.

Financial Income (Loss)

Our financial income resulted in a profit of 0.6 million in 2015, as compared to 0.1 million in 2014 and is broken down as follows:

 

 

 

     FOR THE
YEAR ENDED

DECEMBER 31,
 
     2014     2015  
     (in thousands)  

Financial expense

   (73   (64

Financial income

     142        631   
  

 

 

   

 

 

 

Net financial income (loss)

   68      567   
  

 

 

   

 

 

 

 

 

In 2015, our financial income consisted of 0.5 million of interest earned on interest-bearing accounts, following the receipt of net proceeds from the issuance of our ordinary shares in October 2014, as well as 0.1 million of foreign exchange rate gains related to our purchases of services in U.S. dollars. In 2014, our financial income consisted of 0.1 million of interest income.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with IFRS. Some of the accounting methods and policies used in preparing our consolidated financial statements under IFRS are based on complex and subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our earnings could differ from the value derived from these estimates if conditions change and these changes

 

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had an impact on the assumptions adopted. We believe that the most significant management judgments and assumptions in the preparation of our consolidated financial statements are described below. See Note 4 to our consolidated financial statements for a description of our other significant accounting policies.

Share-Based Compensation

We have two share-based compensation plans for employees and non-employees, the 2012 Plan and the 2014 Plan.

Under these plans, we have granted share warrants to members of the board of directors, to certain employees, as well as to members of the board of directors in the form of share warrants (Bons de Souscription d’Actions, or BSA) and founder’s share warrants (Bons de Souscription de Parts de Créateur d’Entreprise, or BSPCE) with the following exercise prices for each of the grant dates reflected in the table below. As disclosed in “Management—Equity Incentives,”our shareholders or, pursuant to a delegation by our shareholders, our board of directors, may determine the recipients of the warrants, the dates of grant, the number and exercise prices of the founder’s share warrants (BSA) or share warrants (BSPCE) to be granted, the number of shares issuable upon exercise and certain other terms and conditions of the warrants, including the period of their exercisability and their vesting schedule.

 

 

 

WARRANTS

   GRANT DATE    NUMBER OF
WARRANTS
GRANTED
    EXERCISE PRICE
PER SHARE
     ORDINARY SHARE
FAIR MARKET
VALUE PER SHARE
AT GRANT DATE (1)
 

BSA 2012

   May 31, 2012      2,027        7.362           

BSPCE 2012

   May 31, 2012      7,434        7.362           

BSA 2012

   August 3, 2012      1,539        7.362           

BSA 2012

   July 18, 2013      459        7.362         10.27   

BSPCE 2012

   July 18, 2013      13,177        7.362         10.27   

BSPCE 2014

   January 22, 2014      12,000  (2)      12.250         12.77   

BSA 2012

   July 17, 2014      1,000        7.362         14.90   

BSPCE 2012

   July 17, 2014      13,176        7.362         14.90   

BSA 2012

   April 29, 2015      2,150        7.362         31.19   

BSA 2014

   June 23, 2015      3,000        12.250         32.75   

BSPCE 2014

   June 23, 2015      2,500        12.250         32.75   

BSA 2012

   August 31, 2015      3,585        7.362         37.52   

 

(1)   For grants prior to our initial public offering on Euronext Paris, we have not indicated fair market value per share. For grants after our initial public offering on Euronext Paris completed in May 2013, the fair market value per share has been determined by reference to the closing sales price per ordinary share as quoted on Euronext Paris on the date of grant.
(2)   3,000 of these BSPCE were forfeited following the resignation of two of our former officers. 2,000 of the forfeited BSPCE warrants were reallocated to a new executive officer on September 1st, 2015.

 

 

We account for share-based compensation in accordance with the authoritative guidance on share-based compensation, IFRS 2 Share-based payment, or IFRS 2. Under the fair value recognition provisions of IFRS 2, share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

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

Fair Value of Our Ordinary Shares. As our ordinary shares are publicly traded on Euronext Paris, for purposes of determining the fair value of our ordinary shares we have established a policy of using the closing sales price per ordinary share as quoted on Euronext Paris on the date of the grant by the Conseil d’Administration or the shareholders’ meeting.

 

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

Expected Volatility. We use the historical volatility of the Next Biotech index observed on Euronext Paris.

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

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

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

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

 

 

 

    2012 PLAN     2014 PLAN  
    YEAR ENDED DECEMBER 31,     YEAR ENDED DECEMBER 31,  
    2014     2015     2014     2015  

Volatility

    20.37     20.5% - 22.5     18.98     19.59% - 21.55

Risk free interest rate

    0.18     (0.07)% - (0.08 )%     1.12% - 1.70     0.21% - 0.40

Expected life (in years)

    2.9        2.4 - 2.5        5.6 - 5.7        4.3 - 5.3   

Dividend yield

    0     0     0     0

 

 

For 2014 and 2015, we recorded employee share-based compensation expense of 1.2 million and 2.7 million, respectively.

Liquidity and Capital Resources

We have financed our operations since our inception in October 2004 through several rounds of public and private financings. Through 2012, we raised an aggregate of 17.7 million from the issuances of ordinary and preference shares and an additional 9.0 million from the issuance of convertible bonds. In 2013, we issued ordinary shares in our initial public offering on Euronext Paris, raising net proceeds of 14.7 million, and in 2014, we issued additional ordinary shares, raising net proceeds of 28.4 million. In December 2015, we issued ordinary shares in a private placement, raising net proceeds of 22.8 million, and we also received proceeds of 0.8 million upon the exercise of warrants by our employees.

We have also financed our operations through an aggregate of 3.0 million in research tax credits since our inception in October 2004 through December 31, 2015, as well as 2.3 million in non-refundable grants received from BPI France since 2005 and 0.9 million in conditional advances received from BPI France since our inception in October 2004 through December 31, 2015. Due to the ongoing tax audit by tax authorities related to the 2014 CIR, at December 31, 2015, the amount of 1.5 million of CIR recognized in 2014 could not be collected in 2015 and is expected to be paid in cash in the first half of 2016. The CIR recognized for the year ended December 31, 2015 is expected to be paid in cash in 2016.

With the exception of a loan from BPI France of 15 thousand in 2013, which was repaid in full in 2014, we have not incurred any bank debt.

We are potentially eligible to earn a significant amount of milestone payments and royalties under our agreement with Orphan Europe in the event that we are able to obtain European marketing approval for GRASPA. However, our ability to earn these payments and their timing will, in part, be dependent upon the outcome of Orphan Europe’s activities which is uncertain at this time.

 

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Cash Flows

The tables below summarize our sources and uses of cash for the years ended December 31, 2014 and 2015:

 

 

 

     FOR THE YEAR ENDED
DECEMBER 31,
 
     2014     2015  
     (in thousands)  

Net cash flows used in operating activities

   (7,246   (14,578

Net cash flows used in investing activities

     (420     (284

Net cash flows from financing activities

     29,542        23,524   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

   21,876      8,646   
  

 

 

   

 

 

 

 

 

Our net cash flows used in operating activities were 7.2 million and 14.6 million for 2014 and 2015, respectively. During 2015, our net cash flows used in operating activities increased due to our efforts in advancing our research and development programs in both preclinical and clinical research as well as increased general and administrative expenses. In 2015, our net cash flows used in operating activities also included 1.2 million of expenses in connection with preparations of the Nasdaq offering in 2015, as well as a non-recurring increase in tax receivables of 2.3 million related to the 2014 CIR and other 2014 tax receivables that we were not able to collect in 2015 due to the tax audit that was ongoing at December 31, 2015. We expect to collect the 1.5 million related to the 2014 CIR in the first half of 2016. The 0.8 million related to other tax receivables have been paid in cash in March 2016

Our net cash flows used in investing activities were 0.4 million and 0.3 million in 2014 and 2015, respectively. This decrease mainly reflects lower amounts of equipment purchases for our production facility in Lyon, France and our laboratory and other research and development facilities.

Our net cash flows from financing activities decreased to 23.5 million in 2015 from 29.5 million in 2014. The amounts in both years were primarily the result of capital raises through the issuance of ordinary shares.

Liquidity Agreement with Bryan Garnier

Consistent with customary practice in the French securities market, we entered into a liquidity agreement (contrat de liquidité) with Bryan Garnier & Co., dated April 30, 2013. The liquidity agreement complied with applicable laws and regulations in France. The liquidity agreement authorized Bryan Garnier to carry out market purchases and sales of our shares on Euronext Paris. We initially contributed an aggregate of 0.6 million to the liquidity account, which amount was reduced to 0.2 million in April 2014. The amounts invested in treasury shares are presented as a debit to shareholders’ equity on our statement of financial position. The cash held under the liquidity agreement which was not invested in treasury shares was included in cash on our statement of financial position. Following the termination of the liquidity agreement on December 23, 2015, Bryan Garnier transferred back 0.4 million in cash and 2,500 of our ordinary shares. We now hold these 2,500 shares as treasury shares, which will be allocated to our employee share-based compensation plan.

Non-refundable Subsidies and Conditional Advances from BPI France

Since our inception in October 2004 through December 31, 2015, we have received non-refundable subsidies from BPI France in the amount of 2.3 million in connection with our preclinical research programs.

Since our inception, we have also received three conditional advances from BPI France in relation to the development of our encapsulation platform technology. The program will be funded according to a specified schedule set forth in the contract, subject to completion of milestones. As the program advances, we will provide BPI France with interim progress reports and a final report when the funded project ends. Based on these reports, we are entitled to conditional advances, each award of an advance being made to help fund a specific development milestone. The total amount of the conditional advances to be granted is 5.8 million, of which we had received an aggregate of 0.9 million through December 31, 2015. During the years ended December 31, 2014 and 2015, we repaid advances in the amount of 0.2 million and 9,000, respectively. The remaining fixed term amounts are due

 

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in 2016. We recognize advances as current or non-current liabilities, as applicable, in the statement of financial position, based on the repayment schedule.

The remaining milestones that we may achieve generally relate to development of product candidates such as ERY-MET under the TEDAC research program. If and to the extent that we earn these conditional advances, we will be obligated to make repayments based on the achievement of specified sales levels as well as a percentage of sales.

Contractual Obligations

The following table discloses aggregate information about our material contractual obligations and the periods in which payments are due as of December 31, 2015. Future events could cause actual payments and timing of payments to differ from the amounts set forth below.

 

 

 

     LESS THAN
1 YEAR
     1 TO 3 YEARS      3 TO 5 YEARS      MORE THAN
5 YEARS
     TOTAL  
     (in thousands)  

Conditional advances

   507       63                   570   

Pension and employee benefits

                             100         100   

Finance lease agreements

     59         91                         150   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   566       153                   820   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

The amounts of contractual obligations set forth in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, 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 and does not include items presented below as “Off Balance Sheet Arrangements.”

Operating Capital Requirements

We believe that the net proceeds of this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 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.

Until we can generate a sufficient amount of revenue from our product candidates, if ever, we expect to finance our operating activities through our existing liquidity and the proceeds of this offering.

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

 

  n   the size, progress, timing and completion of our clinical trials for ERY-ASP and any other current or future product candidates;

 

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

 

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

 

  n   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 these product candidates;

 

  n   selling and marketing activities undertaken in connection with the anticipated commercialization of ERY-ASP and any other current or future product candidates, including other product candidates in preclinical development, together with the costs involved in the creation of an effective sales and marketing organization; and

 

  n   the amount of revenues, if any, we may derive either directly, or in the form of royalty payments from any future potential collaboration agreements, from our ERYCAPS platform technology or relating to our other product candidates.

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

 

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Capital Expenditures

Our main capital expenditures in 2014 and 2015 were related primarily to the buildup of our fixed assets for our pharmaceutical facility and laboratory and to a lesser extent to the purchase of office and computer equipment. We do not capitalize clinical research and development costs until we obtain marketing authorization for a product candidate.

Our non-current assets are broken down as follows:

 

 

 

     AS OF DECEMBER 31,  
     2014      2015  
     (in thousands)  

Licenses and software

   31       61   

Property, plant and equipment

     967         918   

Non-current financial assets

     82         97   
  

 

 

    

 

 

 

Total

   1,080       1,076   
  

 

 

    

 

 

 

 

 

In 2014, we invested in laboratory equipment and other tooling, recording an investment in property, plant and equipment of 0.4 million.

In 2015, we acquired computer software in the amount of 49,000, which has been recognized as intangible assets as of December 31, 2015, and property, plant and equipment items mainly related to the acquisition of office and building equipment and computers in the amount of 0.2 million.

Non-current financial assets relate to deposits paid on the operating lease for our premises in Lyon, France for all periods presented.

Off-Balance Sheet Arrangements

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

We have committed costs in relation to clinical trials that are not recorded in our financial statements and are monitored as off balance-sheet items. We recognize the costs associated with clinical trials as expenses as they are committed. The remainder of the costs to be incurred until the end of the clinical trial is monitored as off-balance sheet commitments. As of December 31, 2014 and 2015, the estimated future costs of clinical trials amount to 5.5 million and 4.5 million, respectively.

The off-balance sheet commitments related to operating leases as of December 31, 2015 amounted to 0.9 million, of which 0.3 million is due within a year and the balance between one and five years. These commitments relate primarily to leases of buildings.

Quantitative and Qualitative Disclosures about Market Risk

Liquidity Risk

We do not believe that we are exposed to short-term liquidity risk, considering the cash and cash equivalents that we had available as of December 31, 2015, amounting to 45.6 million, which was primarily cash and term deposits that are convertible into cash in approximately 30 days without penalty. Historically, we have financed our growth by strengthening our shareholders’ equity in the form of capital increases and the issuance of convertible bonds. We believe that the capital increase associated with our initial public offering completed on Euronext Paris in May 2013, as well as the capital increases completed in 2014 and 2015, enable us to continue as a going concern.

 

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Foreign Currency Exchange Risk

We use the euro as our functional currency for our financial communications. However, a portion of our operating expenses is denominated in U.S. dollars as a result of our clinical trials performed in the United States and our production facility in Philadelphia in conjunction with the American Red Cross. During 2014 and 2015, these expenses in U.S. dollars totaled approximately $1.0 million and $3.1 million, respectively, based on the exchange rate in effect at December 31, 2014 and 2015, respectively, or approximately 7% and 16% of our operating expenses for the periods presented. As a result, we are exposed to foreign exchange risk inherent in operating expenses incurred. Due to the relatively low level of these expenditures, the exposure to foreign exchange risk is unlikely to have a material adverse impact on our results of operations or financial position. In addition, we do not currently have revenues in euros, dollars or any other currency. As we advance our clinical development in the United States and potentially commercialize our product candidates in that market, we expect to face greater exposure to exchange rate risk and would then consider using exchange rate hedging techniques at that time.

Interest Rate Risk

We believe we have very low exposure to interest rate risk. Such exposure primarily involves our money market funds and time deposit accounts. Changes in interest rates have a direct impact on the rate of return on these investments and the cash flows generated.

We have no loans or other credit facilities. The repayment flows of the conditional advances from BPI France are not subject to interest rate risk.

Credit Risk

We believe that the credit risk related to our cash and cash equivalents is not significant in light of the quality of the financial institutions at which such funds are held.

JOBS Act Exemptions and Foreign Private Issuer Status

We qualify as an “emerging growth company” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. This includes an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act. We may take advantage of this exemption for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if we have more than US$1.0 billion in annual revenue, have more than US$700.0 million in market value of our ordinary shares held by non-affiliates or issue more than US$1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens.

We will not take advantage of the extended transition period provided under Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

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

 

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

 

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

 

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

 

  n   Regulation FD, which regulates selective disclosures of material information by issuers.

 

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BUSINESS

Overview

We are a clinical-stage biopharmaceutical company developing innovative therapies for rare forms of cancer and orphan diseases. Leveraging our proprietary ERYCAPS platform, which uses a novel technology to encapsulate therapeutic drug substances inside erythrocytes, or red blood cells, we have developed a pipeline of product candidates targeting markets with high unmet medical needs. Our initial focus is on the treatment of blood cancers, including acute lymphoblastic leukemia, or ALL, and acute myeloid leukemia, or AML, by depriving tumors of nutrients necessary for their survival. Our lead product candidate, named GRASPA in Europe and Israel and ERY-ASP in the United States and elsewhere, consists of the enzyme L-asparaginase encapsulated in red blood cells. We have completed a Phase 2/3 pivotal clinical trial of GRASPA in Europe in children and adults with relapsed or refractory ALL and submitted a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, in September 2015. If we receive European marketing approval for GRASPA, we expect to begin commercializing it in 2017. If approved, GRASPA is expected to be marketed in Europe by our commercial partner Orphan Europe, a subsidiary of Recordati S.p.A., an Italian-based pharmaceutical company. We have also commenced clinical trials of ERY-ASP in the United States as a potential first-line therapy for the treatment of adults with ALL, and we are conducting a Phase 2b clinical trial in Europe evaluating GRASPA as a first-line therapy for the treatment of elderly patients with AML. We believe that ERY-ASP could also be used to treat solid tumors and are conducting a Phase 2 clinical trial in Europe in patients with pancreatic cancer. In addition to our current product candidates that focus on using encapsulated enzymes to induce tumor starvation, we are exploring the use of our platform for developing cancer vaccines and enzyme replacement therapies.

ERY-ASP consists of L-asparaginase encapsulated inside donor-derived red blood cells using our proprietary ERYCAPS platform. L-asparaginase depletes asparagine from circulating blood plasma. Asparagine is a naturally occurring amino acid essential for the survival and proliferation of cells within the body, including cancer cells. Unlike normal cells, cancer cells often lack the enzymes necessary to produce asparagine internally and therefore must obtain this nutrient from circulating blood. If L-asparaginase can remain in the body long enough to sufficiently deplete circulating asparagine, it can result in the starvation and ultimately the death of cancerous cells. As a result, L-asparaginase injections have been used for decades as a cancer treatment, particularly for children with ALL. There are three commercially available forms of unencapsulated, or free-form, L-asparaginases, for which total worldwide sales exceeded $300 million in 2014. However, the administration of free-form L-asparaginase often triggers a response from the body’s immune system that can result in allergic reactions and other adverse side effects, such as clotting disorders and pancreatitis, and it may also be cleared rapidly from the blood, thereby limiting its potential utility as a leukemia treatment. We estimate that over 40% of ALL patients and almost all AML patients receive little or no treatment with currently available forms of L-asparaginase.

To address this unmet medical need, we have developed our innovative ERYCAPS platform technology designed to use red blood cells to more effectively deliver therapeutics with reduced side effects. Our technology uses transfusion-grade, standard packed red blood cells provided by blood banks. The red blood cells are subjected to osmotic stress, which opens and reseals pores on the surface of the cells and allows therapeutic compounds to be added and trapped inside the cells. Encapsulation offers a number of benefits as compared to free-form compounds. By protecting the therapeutic substance from detection by the body’s immune system, encapsulation is designed to reduce the potential for allergic reactions and to allow the therapeutic substance to remain in the body longer. The cellular membrane also protects the body against the direct toxicity of the drug substance, which should result in a decreased incidence of side effects. In the case of L-asparaginase, encapsulation has been shown to extend the half-life of free-form L-asparaginase from one day to approximately 30 days, which should lead to fewer injections required for treatment and a lower overall dose. We believe that these features make ERY-ASP a promising therapy for patients who may not be able to tolerate currently available free-form L-asparaginases.

We have completed three clinical trials in Europe in which 100 patients with ALL have been treated with GRASPA. In 2014, we completed a multi-center, open-label Phase 2/3 pivotal trial in 80 children and adults with relapsed or refractory ALL in which we evaluated the safety and efficacy of GRASPA compared to free-form L-asparaginase derived from the bacteria E. coli, also known as native L-asparaginase. In this trial, patients with a known allergy to native L-asparaginase treatments were treated with standard chemotherapy plus GRASPA, while patients without a history of allergies were randomized to receive standard chemotherapy plus either GRASPA or native L-asparaginase.

 

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The patients treated with GRASPA experienced a mean duration of L-asparaginase activity that was more than twice as long as for patients receiving native L-asparaginase. None of the non-allergic patients who received GRASPA experienced an allergic reaction, compared to 46% of non-allergic patients who received native L-asparaginase, and only 12% of patients with a prior L-asparaginase allergy experienced a new allergy after receiving GRASPA, with no patients experiencing a severe allergy. Patients in the GRASPA treatment arm also had overall higher complete remission rates, and GRASPA was also associated with fewer drug-related adverse events. We submitted an MAA to the EMA in September 2015 for the approval of GRASPA, in combination with chemotherapy, as a treatment for pediatric and adult patients with ALL who have either relapsed or failed first-line treatment, and for the treatment of pediatric and adult patients with ALL and a hypersensitivity to free-form asparaginases. We believe that GRASPA can become the asparaginase of choice for the treatment of these and other fragile ALL patients, including elderly and other high-risk patients.

In 2012, we entered into an exclusive license and distribution agreement with Orphan Europe for the exclusive commercialization and distribution rights to GRASPA for the treatment of ALL and AML in 38 European countries. Under this agreement, we received an upfront payment of 5 million and are entitled to receive up to an aggregate of 37.5 million upon the achievement of specified regulatory and sales milestones. In addition, Orphan Europe will contribute to the development costs of GRASPA for the treatment of AML, and we are also eligible to receive up to 45% of net product sales by Orphan Europe, representing a combined transfer price and royalties. In 2011, we entered into an exclusive distribution license agreement with Abic Marketing Limited, an affiliate of Teva Pharmaceuticals, Ltd., an Israeli pharmaceutical company, which we refer to in this prospectus as Teva. Under this agreement, Teva acquired the exclusive rights to GRASPA in Israel, will seek regulatory approval of GRASPA for ALL in Israel and will be responsible for marketing and distribution of GRASPA, if it is approved. We will receive a transfer price equal to half of total sales of GRASPA in Israel.

Building on our experience with the development of GRASPA for ALL in Europe, we are conducting or have planned several additional clinical trials with ERY-ASP in multiple oncology indications. We are currently conducting an Expanded Access Program, or EAP, in which we are providing GRASPA to ALL patients, either newly diagnosed or in relapse, with a history of allergies to both E. coli-derived L-asparaginase as well as L-asparaginase derived from the bacteria Erwinia chrysanthemi, marketed under the name Erwinaze. We refer to patients who are allergic to both sources of L-asparaginase as double-allergic patients. We have enrolled 13 of these double-allergic patients in the EAP to date. In the United States, we are conducting a Phase 1 clinical trial of ERY-ASP as first-line therapy in up to 18 adult ALL patients, and we expect to complete this trial in 2016. We intend to commence further pivotal trials in ALL patients that could become the basis for seeking approval of ERY-ASP in the United States from the Food and Drug Administration, or FDA.

We believe that the safety profile of ERY-ASP may also allow it to be developed as a potential treatment for AML patients, many of whom may respond to asparaginase but cannot be treated with L-asparaginase due to its side effects. We are conducting a multinational, randomized Phase 2b clinical trial in Europe in approximately 123 elderly AML patients. To date, we have enrolled 115 patients in the trial, or over 90% of minimum patient enrollment. We expect to report primary results from this trial in 2017. In addition to ALL and AML, we believe that many solid tumors, such as pancreatic cancer, as well as several lymphomas, may be sensitive to asparagine depletion, and we are evaluating ERY-ASP as a potential treatment for those indications. We are currently conducting a Phase 2 clinical trial in Europe in pancreatic cancer patients comparing the efficacy of ERY-ASP in combination with chemotherapy as compared to chemotherapy alone. Our original target enrollment of approximately 90 patients was recently reached. We have elected to continue patient enrollment in the trial, with the goal of increasing the statistical power of the trial and better evaluating the treatment in subgroups. We expect to report primary results from this trial by the end of 2016. We are also in the process of initiating clinical trials of ERY-ASP in patients with non-Hodgkin lymphoma, or NHL.

The EMA has granted orphan drug designation for GRASPA for the treatment of ALL, AML and pancreatic cancer. The FDA has also granted orphan drug designation for ERY-ASP for these same indications. Orphan drug designation provides manufacturers with research grants, tax credits and eligibility for marketing exclusivity of up to 7 years in the United States and 10 years in Europe.

We believe that our ERYCAPS platform has broad potential application and can be used to encapsulate within red blood cells a wide range of therapeutic agents for which long-circulating therapeutic activity or rapid and specific targeting is desired. In addition to asparaginase, we have identified two other enzymes, methionine-g-lyase, or MGL,

 

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and arginine deiminase, or ADI, that degrade amino acids necessary for tumor survival and which we believe can be

encapsulated within red blood cells in order to induce tumor starvation. We expect to commence a Phase 1 clinical trial in Europe in the second half of 2016 evaluating the safety of ERY-MET, our encapsulated MGL product candidate, as a potential treatment for cancer patients. We have also initiated a preclinical development program to explore the use of our platform to encapsulate tumor antigens within red blood cells as an innovative approach to cancer immunotherapy. Based on our preclinical research, we believe that encapsulated tumor antigens can be targeted to key organs, such as the liver or spleen, in order to induce an immune response, resulting in sustained activation of the body’s immune system to fight cancers. Outside of the oncology field, we are also studying the use of our ERYCAPS technology to promote long-acting enzyme activity and targeting of specific cells, which we believe may result in attractive product development opportunities for enzyme replacement therapies.

We have retained the rights to commercialize ERY-ASP for the treatment of ALL and AML outside of Europe and Israel, including in the United States, and for the treatment of all other indications outside of Israel. We retain the worldwide development and commercialization rights to all of our other product candidates.

We have automated our encapsulation process to allow for rapid turnaround and high reproducibility. The process for delivering ERY-ASP to patients, including the encapsulation of L-asparaginase into red blood cells, typically takes less than 24 hours from end of production to delivery of the product candidate to the hospital. We maintain a commercial-scale, GMP- and ISO-certified production facility in Lyon, France that we believe will be sufficient to supply our commercial requirements for at least two years following the sales launch and commercialization of GRASPA in Europe. We also maintain a smaller production facility in Philadelphia, Pennsylvania, on the premises of the American Red Cross, which is currently used for clinical trial production requirements.

Our intellectual property portfolio contains issued patents and patent applications in the United States and internationally, including 13 patent families directed to our production process, our ERYCAPS platform, our product candidates and related diagnostic tests. Our core patent covers ERY-ASP in the United States until 2030, with potential extension to 2035, and in Europe until 2025, with potential extension to 2030.

We were founded in 2004 and are headquartered in Lyon, France. In February 2016, we opened our U.S. office in Cambridge, Massachusetts. In May 2013, we completed the initial public offering of our ordinary shares on Euronext Paris, raising 17.7 million in gross proceeds. In October 2014 and December 2015, we raised 30.0 million and 25.4 million, respectively, in gross proceeds from the issuances of additional ordinary shares. Our shares are listed on Euronext Paris under the trading symbol “ERYP.PA.”

Our Strategy

Our goal is to become the leading biopharmaceutical company focused on developing, manufacturing and commercializing innovative therapies based on our ERYCAPS platform to treat rare forms of cancer and other orphan diseases. The key elements of our strategy to achieve this goal are to:

 

  n   Complete the development of and obtain regulatory approval in Europe for GRASPA for the treatment of ALL. We submitted an MAA to the EMA in September 2015 for the approval of GRASPA, in combination with chemotherapy, as a treatment for pediatric and adult patients with ALL who have either relapsed or failed first-line treatment, and for the treatment of pediatric and adult patients with ALL and a hypersensitivity to asparaginases. If we receive European marketing approval of GRASPA, then we expect commercialization to begin in 2017. Orphan Europe will then be responsible for the commercial launch in Europe. We will also seek to broaden the potential label of GRASPA for the treatment of ALL in Europe by transitioning our ongoing EAP into a global pivotal trial in double-allergic patients and by conducting a global, randomized pivotal trial of GRASPA as a first-line ALL treatment.

 

  n   Rapidly advance the clinical development of ERY-ASP for other indications. We plan to complete our ongoing Phase 2 clinical trials of ERY-ASP for the treatment of pancreatic cancer and AML in 2016 and 2017, respectively, as well as to commence and complete additional clinical trials for other cancer indications. We are also preparing to commence clinical trials of ERY-ASP for the treatment of some forms of NHL, such as diffuse large B-cell lymphoma, or DLBCL, and Natural Killer T-cell lymphoma, or NKTCL.

 

  n  

Obtain regulatory approval for and commercialize ERY-ASP in the United States. Our goal is to rapidly obtain approval for ERY-ASP in the United States, first for double-allergic ALL patients and then for broader

 

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ALL populations, based on the results of our planned global pivotal clinical trials. We have commenced clinical trials of ERY-ASP in the United States for treatment of adults with ALL, and we also plan to seek regulatory approval of ERY-ASP in the United States for other indications, including AML and solid tumors. We have retained all rights to commercialize our product candidates in the United States. While we believe we would be able to commercialize our product candidates, if approved, in the United States with a small, targeted sales force, we may consider collaborations with third parties for the distribution and marketing of any approved products.

 

  n   Leverage our ERYCAPS platform to develop additional innovative and novel therapeutics targeting rare forms of cancer and other orphan diseases. In addition to L-asparaginase, the active ingredient in ERY-ASP, we plan to leverage the broad applicability of our ERYCAPS platform to develop additional product candidates that use other therapeutic drug substances. Based on our preclinical research, we have identified two other enzymes, MGL and ADI, which can be encapsulated within red blood cells in order to induce tumor starvation. We expect to commence a Phase 1 clinical trial in Europe in the first half of 2016 evaluating the safety of administering encapsulated MGL in cancer patients. We also plan to expand our product pipeline to include other therapeutic approaches, such as cancer vaccination and enzyme replacement therapies. To support this strategy, we intend to continue to seek robust worldwide intellectual property protection for our platform technology and our resulting product candidates.

 

  n   Explore collaborative arrangements and out-licensing opportunities. We will seek to maximize shareholder value from our unique platform technology through a combination of in-house development and well-selected partnering opportunities. In some instances we may elect to continue development and commercialization activities through the expansion of our in-house capabilities, but where we believe it to be appropriate we will evaluate and pursue collaborative arrangements with third parties for the development and commercialization of our product candidates for specified indications and in specified territories. We believe that we will benefit in this regard from our prior experience negotiating distribution arrangements with Orphan Europe and Teva for ALL and AML in Europe and Israel. We may also explore co-development or out-licenses of our platform technology to third parties and the creation of spin-out companies.

Our ERYCAPS Platform Technology

Our ERYCAPS platform uses our proprietary technology to entrap active drug substances inside red blood cells using reversible hypotonic and hypertonic osmotic stress. Our platform technology uses transfusion-grade, standard packed red blood cells, taken from blood donors with a specific blood type and compatible with the blood type of the patient to be treated. To allow the therapeutic compounds to enter into the red blood cells, we subject the red blood cells to a hypotonic solution that causes water movement into the cells, which leads to swelling and opening of the pores on the cellular membrane. Once the desired concentration of molecules is reached inside the red blood cells, we subject the red blood cells to a hypertonic solution to restore the osmotic pressure to normal. This step causes water to flow out of the cell and the pores to close, rendering the cellular membrane impermeable to molecules above a specific size, including the molecules that have been trapped inside the cell.

The extent to which a red blood cell can swell, known as osmotic fragility, is not uniform and varies between packages of red blood cells. When we obtain a package of red blood cells from a blood bank, we identify a number of key hematological parameters, including the osmotic fragility of the particular sample. Based on the level of osmotic fragility measured, we are able to calculate the specific amount of osmotic pressure to apply in order to achieve the desired concentration of drug substance in each production batch. Our process allows us to reduce variations in the amount of drug substance to be encapsulated, which ensures that quantifiable amounts of drug substance can be captured in each batch.

We believe that our ERYCAPS platform technology is an innovative approach that offers several key benefits:

 

  n   Prolonged duration of activity. Red blood cells are biocompatible carriers that have a half-life of approximately one month in the body. This long half-life, coupled with the protection of the cellular membrane, allows encapsulated therapeutic drug substances to remain in the body longer, thereby increasing the duration of their therapeutic activity and their potential efficacy with lower dosages and fewer injections.

 

  n   Decreased risk of side effects. The red blood cell membrane protects the body from toxicities associated with the trapped drug substance, which reduces the potential for adverse side effects from the drug.

 

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  n   High reproducibility with rapid turnaround on commercial scale. Our encapsulation process is automated and is designed to produce batches of loaded red blood cells in a highly reproducible, reliable and rapid manner, regardless of the initial characteristics and origin of the red blood cells used. At our GMP-compliant and ISO-certified production facility, we can deliver the product candidate to the hospital typically within 24 hours of initiating production. We have produced over 500 bags of ERY-ASP to date for use in clinical trials, and we estimate that our current production facility will be sufficient for at least the first two years of commercial-scale production of GRASPA following launch.

 

  n   Stability and ease of administration. Once shipped from our production facility to the hospital, ERY-ASP has been shown to remain stable for 72 hours in refrigeration plus six hours at room temperature. This allows hospital staff to administer the required blood transfusion at an optimal time and to retain control over the administration process. Based on stability studies we have performed, we believe we may be able to extend the shelf life of ERY-ASP to at least five days.

 

  n   Broad applicability. Our initial efforts have focused on encapsulating enzymes, such as L-asparaginase, that deplete nutrients necessary for the growth and proliferation of tumor cells, resulting in their starvation and death. Based on our preclinical studies and initial clinical experience in the area of hemato-oncology, we believe that a variety of additional therapeutic molecules can be encapsulated within red blood cells to induce tumor starvation, both for blood cancers and solid tumors, and to develop cancer vaccines and enzyme replacement therapies.

Our Product Development Pipeline

We have used our ERYCAPS platform to develop a pipeline of product candidates to treat rare forms of cancer and other orphan diseases. The following table summarizes our product development pipeline:

 

LOGO

 

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Our Lead Product Candidate ERY-ASP—A Unique Approach to Cancer Treatment

Our first product candidate developed using our ERYCAPS platform is ERY-ASP, which is known under the trade name GRASPA in Europe and Israel, consists of the enzyme L-asparaginase encapsulated inside an erythrocyte, or red blood cell. L-asparaginase breaks down asparagine, a naturally occurring amino acid, into L-aspartic acid and ammonia. Asparagine is produced by healthy cells in the body for their own use in protein synthesis. Cancer cells also need asparagine to grow and proliferate, even more than normal cells, but most cancer cells do not produce asparagine and must rely on circulating asparagine in order to survive. Because L-asparaginase is capable of destroying circulating asparagine, thereby depriving the ALL cancer cells of a key nutrient and causing them to die, the use of L-asparagine has become a well-established treatment for ALL patients, and L-asparaginase has been a common component of pediatric ALL treatment protocols for several decades. However, the use of L-asparaginase outside of the pediatric ALL setting is limited, due primarily to the toxicity of and allergies associated with free-form asparaginases, which inhibits their use in adult and elderly ALL patients, as well as in children with relapsed ALL. We believe that encapsulating L-asparaginase in red blood cells will expand the population of ALL patients that may be able to be treated with L-asparaginase.

ERY-ASP is administered by intravenous infusion. Once administered, the red blood cells containing L-asparaginase circulate in the bloodstream and remove asparagine through a mechanism of active transportation of asparagine into the red blood cells. Normal red blood cells contain two to three times more asparagine than in the surrounding plasma. When L-asparaginase is encapsulated in the red blood cells, the inner concentration of asparagine goes down quickly, which activates the natural mechanism of the red blood cell to bring in circulating asparagine from the blood plasma. The asparagine is rapidly degraded inside the red blood cells as well. When maintained long enough, this pumping and degradation activity leads to a systemic depletion of asparagine levels that induces starvation of the cancer cells without release of the L-asparaginase into the bloodstream. The red blood cell membrane also protects the encapsulated L-asparaginase from antibodies present in the patient’s blood that would substantially lessen or neutralize the enzyme’s activity or cause an allergic reaction. As a result, the enzyme can remain active and potentially effective in the red blood cell for a longer period of time, while at the same time reducing the potential for toxicity and related side effects. Our research indicates that the encapsulation process does not significantly alter the life span of the red blood cell.

The following diagram illustrates the mode of action of ERY-ASP:

 

LOGO

ERY-ASP for the Treatment of Acute Lymphoblastic Leukemia (ALL)

We are developing ERY-ASP for the treatment of children and adults with ALL in combination with chemotherapy. We have completed three clinical trials in Europe in which a total of 100 patients with ALL have been treated with GRASPA. We submitted an MAA to the EMA in September 2015 for GRASPA for the treatment of ALL. If we receive European marketing approval for GRASPA, then we expect to begin commercializing it in 2017. If approved, we believe that GRASPA can become the asparaginase of choice for the treatment of fragile ALL patients, including elderly and other high-risk patients, as well as pediatric and adult ALL patients that have either relapsed or failed first-line treatment or who have an allergic hypersensitivity to free-form L-asparaginases.

 

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Background and Market for ALL

Leukemia is a cancer of the bone marrow cells, sometimes called cancer of the blood. Leukemia is characterized by an abnormal and excessive proliferation of blood components that, in the absence of treatment, invade the bone marrow and then the blood. When the leukemia is characterized by a rapid proliferation of abnormal cells in bone marrow, requiring urgent treatment, it is known as acute leukemia. On the other hand, chronic leukemia has a slow proliferation, with a clinical tolerance of cancer cells and a development that may take place over months or years.

ALL is a blood cancer affecting the lymphoid progenitor cells. ALL patients have excess cells derived from the lymphoid lineage, such as lymphoblasts, B-cells, T-cells, and natural killer cells. Some mutations in bone marrow progenitors have been directly linked to the development of ALL, although the exact molecular alteration responsible for the disease is often unknown. In general, the development of ALL is difficult to anticipate and few major risk factors are known.

ALL is most prevalent for children between the ages of two and five, although adults are also affected. The American Cancer Society estimates that approximately 6,590 new cases of ALL will be diagnosed in the United States in 2016, resulting in over 1,400 deaths. Based on incidence data published in scientific literature, we estimate that there are at least as many new cases of ALL diagnosed each year in Europe as in the United States. The risk for developing ALL declines slowly after the age of five until the mid-20s and then begins to rise again slowly after the age of 50. Overall, approximately 40% of ALL cases occur in adults. Although most cases of ALL occur in children, approximately 80% of deaths from ALL occur in adults. Pediatric ALL patients have a five-year survival rate of approximately 90%, while the five-year survival rate for adults drops to approximately 30% and for seniors to approximately 15%.

L-asparaginase for the Treatment of ALL

The treatment of childhood ALL relies heavily on chemotherapy regimens and the use of L-asparaginase due to a high rate of complete responses observed with these therapies. Adults are also treated with chemotherapy, but L-asparaginase use has generally been limited due to its toxicity, and elderly patients especially cannot tolerate L-asparaginase treatment. Children typically respond better to ALL treatment due to differences in the disease itself and the ability to better handle aggressive treatment regimens. Treatment of children with modern chemotherapy regimens can lead to complete response rates in the 90% range, although that rate significantly drops as patients age. The identification of chromosomal translocations can also narrow down the exact disease subtype and lead to more targeted treatment options. One of these genetic anomalies, known as the Philadelphia chromosome, is present in approximately 5% of children with ALL and 20% to 25% of adults and seniors. For Philadelphia-negative patients, the administration of L-asparaginase has become the standard of care and is used as first-line therapy in conjunction with traditional chemotherapy regimens.

L-asparaginase is currently available in three forms, each described below. The use of each form depends upon the risk profile and age of the patient and the availability of a product in a specific market.

Native L-asparaginase

L-asparaginase purified from E. coli bacteria, also known as native L-asparaginase, has been part of the standard treatment for pediatric ALL patients since the 1970s. Native L-asparaginase has a half-life of about one day and is typically administered twice per week during the induction phase of chemotherapy treatment. Native L-asparaginase remains the first-line, first-intention treatment for newly diagnosed pediatric ALL patients in many European countries. However, because of its general toxicity, this native form is rarely used in fragile patients. Native L-asparaginase is marketed outside of the United States under the brand names Kidrolase, Leunase and Asparaginase medac. In the United States, the native form, with the brand name Elspar, was removed from the market in 2013 due to production problems and competition from other forms of L-asparaginase.

PEG-asparaginase

PEG-asparaginase is native L-asparaginase that has been pegylated in order to reduce its toxicity and increase its half-life. Pegylation refers to the attachment of a polytethylene glycol group to the enzyme, which creates a protective shell around the enzyme to partially protect it from immune cell destruction. This pegylation extends the half-life of the L-asparaginase from one day to approximately five to seven days. PEG-asparaginase, currently marketed under the brand name Oncaspar, was approved by the FDA in 1994 for the treatment of ALL patients with a hypersensitivity to native L-asparaginase. Oncaspar is typically administered twice per month, with one injection

 

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replacing four injections of native L-asparaginase. The label was expanded in 2006 to include first-line treatment of ALL in combination with chemotherapy. In some countries, including the United States and the United Kingdom, PEG-asparaginase has almost completely replaced native L-asparaginase as the first-line, first-intention treatment for pediatric ALL patients, although its use for adults in conjunction with a chemotherapy regimen is still uncommon due to toxicity concerns. Worldwide sales of Oncaspar were approximately $100 million in 2014.

Erwinaze

L-asparaginase can also be produced from the bacteria E. chrysanthemi. This form of L-asparaginase is typically considered as an alternative treatment in cases of hypersensitivity reactions to either the native or pegylated forms of E. coli L-asparaginase. The product has been present in some European countries since 1985 and was approved in the United States in 2011. This form of L-asparaginase is marketed by Jazz Pharmaceuticals in Europe and in the United States under the brand names Erwinase and Erwinaze, respectively. Worldwide sales of Erwinaze were approximately $200 million in 2014.

In the United States, for both newly diagnosed as well as relapsed or refractory ALL patients, clinicians typically prescribe Oncaspar as first-line treatment, and then Erwinaze if Oncaspar cannot be tolerated. In Europe, either native L-asparaginase or Oncaspar, depending on the country, is typically the initial treatment for both newly diagnosed and relapsed or refractory ALL patients, with Erwinaze similarly used in cases where one of the other forms cannot be tolerated.

Limitations of Free-form L-asparaginase Administration

Despite its long history as a treatment for ALL, the direct administration of free-form L-asparaginase suffers from several limitations, including:

 

  n   Allergic reactions. The use of native L-asparaginase has been associated with the onset of serious and potentially fatal allergic reactions. In addition to safety concerns, allergies can lead to medical costs associated with treating the allergic reaction and switching to another L-asparaginase product. Oncaspar and Erwinaze were created to reduce the incidence of these allergic reactions. While these products have reduced the frequency of allergic reactions, they have not eliminated them completely.

 

  n   Multiple injections required. With a half-life of approximately one day, native L-asparaginase requires up to eight injections per month at high doses. In addition, free-form L-asparaginase is often attacked by the body’s immune system before it has had the opportunity to significantly deplete L-asparagine levels, thereby limiting the duration of its therapeutic activity. With its longer half-life, PEG-asparaginase has reduced the number of necessary injections, but despite its longer treatment duration, Oncaspar has not achieved progression-free survival rates that are superior to native L-asparaginase. The half-life of Erwinaze is less than that of native L-asparaginase, requiring up to 12 injections each month.

 

  n   Toxicities and other side effects. A significant number of ALL patients suffer from other adverse effects from administration of free-form L-asparaginase, including clotting disorders, pancreatitis, liver damage and brain damage.

Despite these limitations, the current worldwide market size for L-asparaginase treatments exceeds $300 million, distributed among the three currently available options. However, current L-asparaginase treatment options effectively target only a small portion of ALL patients, and we believe that a large number of additional patients would benefit from an improved L-asparaginase product.

 

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Clinical Development of ERY-ASP for the Treatment of ALL

We have completed three clinical trials to date of ERY-ASP under the trade name GRASPA in Europe in patients with ALL, the results of which are summarized in the table below.

 

INDICATION

  

CLINICAL TRIAL PHASE

   NUMBER OF
PATIENTS TREATED
  

KEY FINDINGS

Relapsed ALL in children and adults    Phase 1/2    24    GRASPA was generally well tolerated even at the highest dose; one injection resulted in asparagine depletion at a level similar to that achieved with eight injections of native L-asparaginase
Relapsed ALL in children and adults    Phase 2/3    80    Primary efficacy and safety endpoints achieved; secondary endpoints also indicate favorable safety and efficacy profile for the clinical efficacy of GRASPA; favorable results also observed in patients with histories of allergies to E. coli-derived L-asparaginase
First-line ALL patients over 55 years of age    Phase 2    30    GRASPA was generally well tolerated in this fragile population and a complete remission rate of approximately 70% was observed

Based on the results of our completed clinical trials, we submitted an MAA in September 2015 for GRASPA for the treatment of ALL in Europe. In addition to our three completed clinical trials, we are currently conducting additional clinical trials in Europe and in the United States to broaden the potential label for GRASPA and to expand its potential use.

The EMA and the FDA have granted orphan drug designation for ALL, providing us the potential for marketing exclusivity of up to seven and 10 years, respectively, upon obtaining marketing approval.

Completed Phase 2/3 Pivotal Clinical Trial in Europe in Adults and Children with Relapsed ALL

In 2014, we completed an open-label, randomized, multi-center Phase 2/3 clinical trial known as the GRASPIVOTALL trial in 80 children and adults with relapsed ALL. The trial began in 2009 and was transitioned into a Phase 3 portion in 2013 upon the positive review by an independent data safety monitoring board, or DSMB, of the safety results from the first 60 patients. The trial was conducted at 58 investigator sites in France, Belgium and Spain.

Trial Design

Patients between the ages of one year and 55 years who had experienced a first relapse of Philadelphia-negative ALL after treatment with native L-asparaginase were eligible to participate in the trial. There were 52 males and 28 females enrolled. The 80 patients in the trial were divided into three treatment arms depending on whether or not the patients had a known allergy to native L-asparaginase. The 26 patients enrolled in the trial with a known allergy were treated with chemotherapy plus GRASPA. Of the remaining 54 patients in the trial, 26 patients were treated with chemotherapy plus GRASPA, while a control group consisting of the other 28 patients received chemotherapy plus Kidrolase, a native E. coli L-asparaginase. The chemotherapy regimen for all patients was a standard protocol known as COOPRALL. During the induction phase of chemotherapy, patients received one or two injections of GRASPA depending on the severity of disease. During the consolidation phase of chemotherapy, patients received an injection of GRASPA at each time that a block of chemotherapy was given, for up to eight cycles. For patients randomized to the control group, native L-asparaginase was administered up to eight times per month during the induction phase of chemotherapy, and up to four times per month during the consolidation phase, for up to eight cycles.

Endpoints

The primary endpoints of the trial were the duration of L-asparagine activity and the incidence of allergic reactions with GRASPA as compared to the native L-asparaginase control group. The threshold for L-asparaginase activity was

 

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established at 100 International Units, or IU, per liter, and the number of continuous days with at least that level of activity in the blood was measured. Secondary efficacy endpoints included complete remission rates, existence of minimal residual disease, progression-free survival rates and overall survival rates.

Efficacy Results

After one year of patient monitoring, researchers concluded that GRASPA had achieved both of its primary endpoints for the trial:

 

  n   Lower Incidence of Allergic Reactions. Among the non-allergic patients, none of the 26 patients treated with GRASPA experienced an allergic reaction during the induction phase, compared to 13 patients out of 28, or 46%, of those treated with native L-asparaginase in the control group. This result had a statistically significant p-value of less than 0.001. P-value is a conventional statistical method for measuring the statistical significance of clinical results. A p-value of 0.05 or less is generally considered to represent statistical significance, meaning that there is a less than 1-in-20 likelihood that the observed results occurred by chance. Among the 26 patients with known allergies to L-asparaginase, only three patients, or 12%, experienced an allergy, none of which was determined to be at or above Grade 3 severity.

 

  n   Superior Duration of L-Asparaginase Activity. Among the non-allergic patients, the patients treated with GRASPA maintained a mean duration of L-asparaginase activity above 100 IU/l for 20.5 days, and a standard deviation of 5.2 days, with at most two injections during the first month of treatment. This result compared to a mean duration of activity of 9.4 days, with a standard deviation of 7.4 days, in the control group, who received up to eight injections of native L-asparaginase. This comparative result was also statistically significant, with a p-value of less than 0.001. The duration of activity was similar in the allergic patient group, with those patients receiving GRASPA having a mean duration of activity of 18.6 days, with a standard deviation of 6.3 days.

GRASPA was also observed to have an improved clinical benefit as compared to native L-asparaginase based on its achievement of the secondary efficacy endpoints:

 

  n   Higher Complete Remission Rate. At the end of the induction phase, 17 of the 26 non-allergic patients in the GRASPA treatment, or 65%, had achieved complete remission, or the disappearance of all signs of cancer in response to treatment, as compared to 11 patients, or 39%, of the non-allergic patients in the control arm. This result was statistically significant, with a p-value of 0.026. Among the allergic patients, 14 of the 26, or 54%, achieved complete remission after treatment with GRASPA.

 

  n   Improved Minimal Residual Disease Rate. Among the non-allergic patients, nine out of 26, or 35%, achieved low levels of residual leukemic cells classified as minimal residual disease, or MRD, at the end of the induction phase, as compared to seven out of 28, or 25%, of those in the control group. Among the allergic patients, six out of 26, or 23%, achieved MRD after treatment with GRASPA.

 

  n   Improved Overall Survival Rates. Twelve month overall survival rates among the non-allergic patients treated with GRASPA were 92.3% at six months and 76.9% at one year, compared to 78.6% and 67.9%, respectively, for those in the control group and 73.1% and 50.0%, respectively, among the allergic group of patients.

 

  n   Improved Progression-Free Survival Rates. Twelve month progression-free survival rates among the non-allergic patients treated with GRASPA were 75.7% at six months and 64.9% at one year, compared to 60.7% and 48.6%, respectively, for those in the control group and 60.4% and 50.3%, respectively, among the allergic group of patients.

Safety Results

Treatment with GRASPA was generally well tolerated. Drug-related adverse events generally consisted of allergic reactions, clotting problems, liver toxicities and pancreas disorders. None of the 52 patients receiving GRASPA during the trial had an adverse event leading to discontinuation of the trial, as compared to 12 out of the 28 patients, or 43%, in the control arm. A total of three patients out of the 52 patients treated with GRASPA during the trial experienced serious adverse events determined to be drug-related.

Among the non-allergic patients in the GRASPA treatment arm, nine out of 26, or 35%, experienced study drug-related clotting problems, compared to 23 out of 28, or 82%, in the non-allergic patients in the control group.

 

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Similarly, only nine out of the 26 allergic patients, or 35%, experienced clotting problems. Among the non-allergic patients in the GRASPA treatment arm, seven out of 26, or 27%, experienced study drug-related pancreatitis events, compared to 14 out of 28, or 50%, in the non-allergic patients in the control group. Similarly, only seven out of the 26 allergic patients, or 27%, experienced pancreatitis. Among the non-allergic patients in the GRASPA treatment arm, five out of 26, or 19%, experienced study drug-related liver problems, compared to 12 out of 28, or 43%, in the non-allergic patients in the control group. Similarly, only seven out of the 26 allergic patients, or 27%, experienced liver problems.

We believe the safety and efficacy profile of GRASPA, as observed in the Phase 2/3 clinical trial, offers an attractive alternative option for patients who have received prior L-asparaginase therapy and were unable to tolerate it or who have a hypersensitivity to free-form L-asparaginase. Based on the results of our clinical development program, we submitted an MAA in September 2015 for GRASPA for the treatment of ALL in Europe.

Completed Phase 1/2 Clinical Trial in Europe in Adults and Children with Relapsed ALL

Between 2006 and 2009, we conducted an open-label, multi-center, randomized Phase 1/2 clinical trial of GRASPA in 24 children and adults up to age 55 with relapsed ALL. The trial was conducted at 24 investigator sites in Europe.

Trial Design

In this trial, we compared the use of GRASPA and native L-asparaginase in adults and children with relapsed ALL. The trial was designed to evaluate the efficacy of GRASPA compared to native L-asparaginase in terms of duration of L-asparagine depletion, as well as the safety of GRASPA by examining the side effects associated with treatment. Duration was calculated from the start of treatment until the last point when L-asparagine was below a pre-specified level.

Patients were randomly distributed into four groups of six subjects, three of which were children and three of which were adults. Three groups received a single injection of GRASPA at a dose of 50, 100 or 150 IU/kg, in parallel and on a randomized basis in addition to chemotherapy. The fourth group received up to eight injections of native L-asparaginase every three days in combination with a standard chemotherapy regimen. Successive blocks of chemotherapy were given to patients depending on their stage of relapse.

Efficacy Results

Patients treated with native L-asparaginase had an average L-asparagine depletion duration of 20.6 days after eight injections. Among the patients treated with GRASPA, those receiving the dose of 150 IU/kg experienced a mean depletion duration of 18.6 days after a single injection. The other GRASPA doses resulted in lower durations. Based on these results, we selected a GRASPA dose of 150 IU/kg for further clinical evaluation in subsequent clinical trials.

Safety Results

Among the 18 patients receiving GRASPA in this trial, none experienced an allergic reaction, compared to three of the six patients treated with native L-asparaginase. Two of these three allergic reactions were of Grade 3 or 4, and in both cases the patient had detectable levels of anti-asparaginase antibodies. Three of the 18 patients receiving GRASPA, or 17%, experienced clotting disorders, compared to four of the six patients, or 67%, receiving native L-asparaginase, while seven of the 18 patients receiving GRASPA, or 38%, experienced liver disorders, compared to three of the six patients, or 50%, receiving native L-asparaginase. No patients in either treatment arm experienced a case of clinical pancreatitis.

The results of this Phase 1/2 clinical trial supported our hypothesis that GRASPA could deplete circulating L-asparagine at a similar level as free-form L-asparaginase but with fewer injections and potentially reduced side effects. The trial supported our launch of the pivotal Phase 2/3 trial in this same patient population, the results of which are described above.

Completed Phase 2 Clinical Trial in France in Elderly ALL Patients as First-Line Treatment

In 2009, we commenced a Phase 2, dose-escalation clinical trial with GRASPA as a first-line treatment in 30 patients over the age of 55 with newly diagnosed, Philadelphia-negative ALL. This trial was conducted at 20 sites in France and was completed in 2012.

 

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Trial Design

The main objective of this trial was to determine the maximum tolerated and effective dose of GRASPA in combination with chemotherapy. The trial also evaluated the side effects related to treatment with GRASPA, as well as its pharmacokinetic and pharmacodynamic parameters and the rate of complete remission after treatment. The study was an open-label study in which patients received one of three escalating doses of GRASPA. Patients could transition to a higher dose after review by an independent monitoring board. Three patients received a highest dose of 50 IU/kg, 13 patients received a highest dose of 100 IU/kg and 14 patients received a highest dose of 150 IU/kg. All patients received a standard chemotherapy regimen, which consisted of an initial treatment with dexamethasone followed by two induction cycles with additional therapies. GRASPA was infused on the third day of each of the two induction cycles. Patients were monitored every three to four weeks after treatment and then every two to three months to collect data pertaining to survival.

The primary efficacy endpoint of this trial was the number of patients with L-asparagine depletion for at least seven days following GRASPA treatment. The primary safety endpoint was the presence or absence of toxicity or allergies above a specified severity. Secondary endpoints included complete remission rates, overall survival rates and progression-free survival rates.

Efficacy Results

GRASPA doses of 50 IU/kg were too low to induce L-asparagine depletion, although the two higher doses did induce sufficient depletion in 85% and 71% of the patients dosed at 100 and 150 IU/kg, respectively. Patients in these two higher dose treatment groups achieved complete remission rates of 77% and 64%, respectively, median overall survival rates of 15.8 months and 9.7 months, respectively, and median progression-free survival rates of 11.8 months and 3.8 months, respectively.

Safety Results

GRASPA was generally well tolerated, and the frequency of adverse events was similar to what was expected in this fragile population of senior patients. The most frequently reported adverse events were elevated pancreatic enzyme levels and coagulation disorders. No allergic reactions were reported in any of the GRASPA treatment groups.

Ongoing Expanded Access Program in Europe for Double-Allergic ALL Patients

In the course of conducting our European clinical trials in pediatric and adult ALL patients, several clinical investigators identified ALL patients who were unable to be treated in our clinical trials due to allergies to both native L-asparaginase and Erwinaze. After discussion with French regulatory authorities, in 2013 we commenced a clinical trial in France to allow these double-allergic patients to be treated with GRASPA as part of an EAP. Patients up to 55 years of age, with either newly diagnosed or relapsed or refractory ALL, are eligible to participate in the EAP. In the EAP, patients will receive GRASPA in conjunction with a standard chemotherapy regimen and will be followed for 12 months after completion of chemotherapy.

We have enrolled 13 patients to date in the EAP and have received a favorable DSMB review of the first seven patients treated. We expect to hold enrollment open in the EAP until we start a global pivotal clinical trial in double-allergic patients.

Ongoing Phase 1 Clinical Trial in the United States in Adult ALL Patients as First-line Treatment

In March 2013, our Investigational New Drug application, or IND, with the FDA became effective and we initiated a Phase 1 clinical trial in the United States evaluating ERY-ASP in escalating doses as a potential first-line therapy in patients over the age of 40 with Philadelphia-negative ALL. We expect to enroll between 12 and 18 patients at approximately five sites. In this trial, ERY-ASP is being administered starting at 50 IU/kg, and the dose will increase to 100 IU/kg and 150 IU/kg in later cohorts. The primary endpoint of this trial is the number of dose-limiting toxicities. Secondary endpoints include safety, tolerability and serum concentrations of L-asparagine and L-asparaginase.

Safety data of the first cohort of three patients dosed at 50 IU/kg was reviewed in June 2015 by a steering committee consisting of members of the DSMB and investigators in the trial. No safety concerns were identified, and the steering committee recommended escalating the dose to 100 IU/kg. Further, the study was also amended to lower the age for patient inclusion from 40 to 18 years of age, and remove the waiting periods between each patient. The protocol amendments have been submitted to the respective IRBs for approval. We expect this study to be completed in 2016.

 

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Future Development and Commercialization Plans

Based on the results of these clinical trials, we submitted an MAA to the EMA in September 2015 for GRASPA for the treatment of patients with ALL, and we expect to obtain European marketing approval by the end of 2016. If approved, we believe that GRASPA can become the asparaginase of choice for the treatment of fragile ALL patients, including elderly and other high-risk patients, as well as pediatric and adult ALL patients that have either relapsed or failed first-line treatment or who have an allergic hypersensitivity to free-form L-asparaginases.

We intend to commence two pivotal clinical trials in ALL patients that could become the basis for seeking approval of ERY-ASP in the United States and for label extension of GRASPA in Europe. We expect that the first new pivotal trial would be a single-arm trial in double-allergic patients, similar to those enrolled in our ongoing EAP. We expect the second pivotal trial to be a randomized trial in newly diagnosed ALL patients who have developed allergies or intolerance to the L-asparaginase product used as initial treatment.

In 2012, we entered into an exclusive license and distribution agreement with Orphan Europe for the exclusive commercialization and distribution rights to GRASPA for the treatment of ALL and AML in 38 European countries. In 2011, we entered into an exclusive distribution agreement under which Teva acquired the exclusive rights to GRASPA in Israel. We have retained the rights to commercialize ERY-ASP for the treatment of ALL and AML outside Europe and Israel, including in the United States, and for the treatment of all other indications outside of Israel.

ERY-ASP for the Treatment of Acute Myeloid Leukemia (AML)

We believe that the safety profile of ERY-ASP may also allow it to be developed a potential treatment for AML, which is believed to be sensitive to asparaginase but is typically not treated with L-asparaginase due to intolerance among the predominantly elderly AML population. We are conducting a multinational, randomized Phase 2b clinical trial in Europe in approximately 123 AML patients over the age of 65 who are unfit for treatment with intensive chemotherapy. More than 90% of the patients in this trial have been enrolled. We expect to report primary results from this trial in 2017.

Background and Market for AML

AML is an aggressive cancer of the blood and bone marrow that is particularly fatal if left untreated. AML patients have an outgrowth of cells from the myeloid lineage that accumulate in the bone marrow. The myeloid cells are predominantly immature platelet cells called myeloblasts, or blasts, which are the leukemia cells. Bone marrow cell dysfunction is caused by genetic mutations that impact the normal differentiation of stem cells. Previous treatment with cytotoxic chemotherapeutic agents and radiation exposure are common factors associated with AML, since exposure to mutagenic agents may induce genetic alterations in bone marrow stem cells.

The American Cancer Society estimates that approximately 20,000 new cases of AML will be diagnosed in the United States in 2016, resulting in over 10,000 deaths. Based on incidence data published in scientific literature, we estimate that there are at least as many new cases of AML diagnosed each year in Europe as there are in the United States. AML is generally a disease of older people and is uncommon before the age of 45, with approximately 95% of new AML cases in the United States occurring in patients over the age of 19. The median age of a patient with AML is approximately 67 years.

Treatment programs for AML patients are highly individualized and depend on several variables, including age, AML subtype and whether the disease is newly formed, recurrent or resistant. The first-line treatment for AML, which has not changed for three decades, is a chemotherapy regimen intended to reduce leukemic blasts and return the bone marrow to functionality. Due to the damaging effects of induction therapy, mortality from high-intensity chemotherapy ranges from 5% to 15% in younger AML patients to as high as 20% to 50% in elderly patients. Because of the harsh nature of the treatment, a substantial portion of patients over 65 years of age opt for palliative care only, underscoring the unmet need for safe and effective therapies in AML. The ultimate goal with current AML treatment protocols is to bridge patients to a hematopoietic stem cell transplant, or HSCT. However, not all patients are eligible for HSCT or matching donors cannot be found. The process of identifying eligible patients and matching donors is so rigorous that the treatment is not feasible for most AML patients.

L-asparaginase as a Potential Treatment for AML

Even though AML blasts are not consider to be as widely responsive to L-asparaginase as ALL blasts, a significant portion of AML blasts are deficient in asparagine synthetase, or ASNS, the enzyme necessary to produce asparagine

 

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internally, and have been observed in research studies to be sensitive to L-asparaginase as an adjunct therapy to chemotherapy. However, the use of L-asparaginase for the treatment of AML patients has been very limited, primarily due to the product’s potential toxicity in this fragile patient population. We believe that encapsulated L-asparaginase in the form of ERY-ASP might be a potentially effective combination treatment with low-dose chemotherapy for AML patients who are unfit to receive intensive chemotherapy, and we have commenced a clinical development program for this indication. We have also licensed from the U.S. National Institutes of Health, or NIH, the rights to a diagnostic test to measure the presence of ASNS, which will assist in identifying whether a patient’s cancer cells are likely to respond to L-asparaginase treatment with ERY-ASP. We are using this diagnostic test on the biopsy samples that we collect in our ongoing Phase 2b trial in AML patients.

Ongoing Phase 2b Clinical Trial in Europe in Elderly AML Patients

In 2013, we initiated a Phase 2b, open-label, randomized, multi-center clinical trial in newly diagnosed patients with AML over 65 years of age and who are unable to receive intensive chemotherapy. The primary objective of this trial is to evaluate the efficacy of ERY-ASP under the trade name GRASPA when added to a low dose of the standard chemotherapy cytarabine. To accomplish this, we expect to compare overall survival, or OS, rates between patients receiving GRASPA in combination with low-dose cytarabine against those of patients receiving only low-dose cytarabine. We plan to enroll 123 patients in this trial, two-thirds of whom will be treated with GRASPA. Patients in the treatment arm will receive one injection of GRASPA per cycle of chemotherapy treatment. The primary OS endpoint will be measured after one year of follow-up. All patients in the trial will undergo follow up for up to 24 months.

To date, we have enrolled 115 patients in the trial, or over 90% of the minimum patient enrollment, at over 20 sites in Europe. Three safety analyses by the independent DSMB have been performed. The first analysis was performed in November 2013 after the first 30 patients were treated; the second analysis in August 2014 after 60 patients had been treated; and the third analysis in December 2015 after 105 patients had been treated. No safety concerns have been identified. We expect to report primary results from this trial in 2017.

Depending on the results of the trial, we will determine the next steps for the development of this clinical program. The EMA and the FDA have each granted orphan drug designation to GRASPA/ERY-ASP for the treatment of AML, offering us the potential for marketing exclusivity upon obtaining marketing approval.

ERY-ASP for the Treatment of Solid Tumors

We are seeking to expand the reach of ERY-ASP to include solid tumor indications. In preclinical studies, we have observed that many solid tumors also lack ASNS, creating the possibility of using ERY-ASP in these indications. Building on our preclinical studies and favorable safety data from a Phase 1 clinical trial, in 2014 we commenced a Phase 2 clinical trial of ERY-ASP in pancreatic cancer patients.

Background and Potential for L-asparaginase as a Treatment for Pancreatic Cancer

We estimate there are approximately 150,000 new cases of pancreatic cancer diagnosed each year in Europe and the United States. Pancreatic cancer is a particularly aggressive cancer, with a five-year survival rate of less than 10%. We believe pancreatic cancer is a suitable indication for ERY-ASP because it involves a large proportion of tumors that are believed to be sensitive to L-asparaginase depletion, allowing our product candidate to potentially have an impact. In preclinical studies, we evaluated the presence of ASNS in over 600 human biopsies and the impact of administering L-asparaginase to pancreatic tumor in mouse models. Based on these preclinical studies, in which we observed a response in a significant percentage of pancreatic tumors, we began a clinical development program in humans.

Ongoing Clinical Development Program for ERY-ASP for the Treatment of Pancreatic Cancer

In 2011, we completed an open-label Phase 1 clinical trial in 12 patients with pancreatic cancer at four sites in France. The enrolled patients were separated into four cohorts of three subjects each. ERY-ASP was administered as one injection of four different doses, 25 IU/kg, 50 IU/kg, 100 IU/kg or 150 IU/kg. The primary endpoint of the trial was determination of the maximum tolerated dose. Secondary endpoints included assessments of safety and exploratory measures of efficacy. No dose-limiting toxicities were reported, even at the highest dose administered in the trial. The treatment led to L-asparagine depletion, and there was a trend toward longer depletion with an increasing dose. The results of this trial supported further clinical investigation at a dose of 150 IU/kg.

 

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In 2014, we commenced a Phase 2, multi-center, open-label, randomized clinical trial to evaluate the efficacy of ERY-ASP as a second-line treatment for patients with metastatic pancreatic cancer. We reached our original recruitment objective of 90 patients and are continuing to enroll patients to increase the statistical power of the study. In this trial, ERY-ASP, in addition to current standard of chemotherapy consisting of Gemcitabine or FOLFOX, will be compared to treatment with the standard of care alone. Patients will be randomized at a 2:1 ratio to receive combination therapy or standard of care alone. We are using the diagnostic test that we have licensed from the NIH to assist in identifying whether a patient’s cancer cells are likely to respond to L-asparaginase treatment with ERY-ASP in this trial, and we are stratifying the patient population according to the test results. The primary endpoint of the trial is progression-free survival rates at four months following treatment for the patients with ASNS-deficient tumors.

DSMB safety reviews have been performed with respect to the first three patients treated with both treatment combinations, Gemcitabine and FOLFOX, and a third, larger DSMB review was performed with respect to the first 24 patients. In each case, no safety concerns have been identified by the DSMB. We expect to report primary results from this trial in 2016. Depending on the results of this trial, we will determine the next steps for this clinical program.

Planned Clinical Development Program in Non-Hodgkin Lymphoma

Based on preclinical studies and early-stage clinical trials, we believe that ERY-ASP could also be effective against some lymphomas, for which therapeutic options are currently limited. NHL represents a particularly large unmet medical need, with approximately 170,000 new cases per year in the United States and Europe combined. We are in the process of initiating Phase 2 clinical trials of ERY-ASP in patients with the DLBCL and NKTCL forms of NHL. We believe that we will be able to use the safety data from our other clinical trials conducted to date as a basis for proceeding directly to Phase 2 testing.

Other ERYCAPS Development Programs

In addition to our product pipeline centered on L-asparaginase treatment, we are using our ERYCAPS technology to identify additional enzymes that could induce tumor starvation. We have received funding from BPI France for a research program, known as the TEDAC program, intended to identify additional tumor starvation agents and to identify companion diagnostic tests. In preclinical studies performed under the TEDAC program, we have identified two other amino acids and their respective enzymes, MGL and ADI, that we believe may be promising treatments when encapsulated inside red blood cells. We are planning to start a Phase 1 clinical trial in 2016 with our product candidate ERY-MET, which consists of MGL in red blood cells, and a subsequent trial with our product candidate ERY-ADI, which consists of ADI in red blood cells, as early as 2017. We believe our platform also offers attractive development opportunities for enzyme replacement therapies, or ERT, outside of the oncology field. We have performed preclinical research with enzymes like phenylalanine hydroxylase, or PAH, in phenylketonuria, or PKU, in collaboration with Genzyme, and we are investigating other potential ERT applications as collaboration opportunities.

In addition to the use of our ERYCAPS platform to encapsulate enzymes to increase their circulating activity and reduce their toxicity, we believe that we can expand the use of our ERYCAPS technology to develop cancer vaccines. By loading red blood cells with specific antigens and modifying the membrane of the cells subsequently to make them target specific antigen-presenting cells in the liver or spleen, we believe we have promising preclinical research in cancer vaccination applications. In preclinical studies with three different antigens loaded in red blood cells, we have observed promising proof-of-concept data in three different tumor models. In these studies, we observed significantly increased antigen-specific T-cell responses and delays in tumor growth when the encapsulated antigens, modified to target the liver or spleen, were injected in mice with tumors, as compared to the injection of the unloaded antigens alone. We plan to continue incubating this platform in order to confirm our earlier preclinical data and to determine our development strategy for these earlier-stage programs. Among other possibilities, we may consider the creation of a spin-off company for this technology if we believe it can optimize shareholder value.

Manufacturing and Supply

In the case of ERY-ASP, we have the manufacturing and logistics in place to deliver our product candidate to hospitals or other treatment centers typically within 24 hours of commencing production. Once a prescription is written, we receive an order for ERY-ASP from the hospital. We then purchase a pack of red blood cells compatible with the patient’s blood type from a blood bank. We identify the key parameters of the red blood cell sample,

 

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including number of cells, blood type, osmotic fragility and other hematological parameters, in order to achieve the desired concentration of L-asparaginase. We encapsulate the L-asparaginase into the red blood cells using an automated process that takes three to eight hours, depending on the number of washing steps required. Before release, the product must meet a number of quality control specifications, including the number of red blood cells in the packed product, the level of L-asparaginase activity, the amount of extracellular L-asparaginase in the blood and the integrity of the container holding the red blood cells. We then deliver the product to the hospital using a third-party commercial overnight delivery service. We ship the product at a refrigerated temperature of between two and eight degrees Celsius, or approximately 36 to 46 degrees Fahrenheit. At this temperature, the product has been shown to remain stable for three days. Once removed and ready for administration, the product remains stable for six hours at room temperature. Based on stability studies we have performed, we believe we may be able to extend the shelf life of ERY-ASP to at least five days.

We have developed our encapsulation technology to be able to produce loaded red blood cells in a reproducible, reliable and economical way on a large scale, regardless of the initial characteristic and origin of the red blood cells used. We have produced and transfused more than 500 bags of ERY-ASP in our clinical trials conducted to date. Our primary production facility is based in Lyon, France. This production facility complies with European good manufacturing practices, or GMP, and is ISO 9001 certified. We estimate that our current manufacturing capacity in Lyon is approximately four thousand bags annually, which we believe will be adequate for at least the first two years after commercial launch of GRASPA in Europe. For our current and future clinical trials to be conducted in the United States, we use a qualified production unit in Philadelphia, Pennsylvania in conjunction with the American Red Cross. Our operations at our U.S. production facility are similar to those at our French production facility and are in compliance with FDA regulations. We oversee production and controls for this unit jointly with the American Red Cross.

In Europe, we purchase packed red blood cells from Ėtablissement Français du Sang, the French National Blood Service. In the United States, we buy the packed red blood cells from the American Red Cross.

For the supply of the L-asparaginase, we entered into an exclusive, worldwide supply agreement with medac GmbH, or Medac, in December 2008, which we refer to as the 2008 Medac Agreement. The 2008 Medac Agreement has a term of 20 years and provides for the supply of free-form L-asparaginase at tiered pricing, including a maximum annual number of units at a reduced price for use in our clinical trials. In May 2011, we entered into a second exclusive, worldwide supply agreement, which we refer to as the 2011 Medac Agreement, under which Medac has agreed to supply us with a new, recombinant free-form L-asparaginase that Medac is developing. We have begun using this new recombinant formulation of L-asparaginase in ERY-ASP for new indications, including our ongoing clinical trials for pancreatic cancer. If Medac’s new recombinant form of L-asparaginase is approved for marketing, we and our distribution partners will be prohibited from marketing ERY-ASP that is manufactured using the new formulation as a first-line treatment for patients who can tolerate the new free-form recombinant L-asparaginase. The term of the 2011 Medac Agreement with respect to the clinical supply of L-asparaginase continues for 10 years from the effective date of the agreement and, with respect to the commercial supply of L-asparaginase, has a term of five years from the date of first supply.

Commercialization

We have not yet established a sales, marketing or product distribution infrastructure. With the exception of ERY-ASP under the brand name GRASPA in Europe and Israel, to which we have granted certain marketing and distribution rights to Orphan Europe and Teva, respectively, as described below, we generally expect to retain commercial rights to our product candidates.

Subject to receiving marketing approvals, we expect to commence commercialization activities by building a focused sales and marketing organization in the United States and abroad to sell our products. We believe that such an organization will be able to target the community of physicians who are the key specialists in treating the patient populations for which our product candidates are being developed. We may enter into additional marketing and distribution agreements with third parties in select geographic territories for any of our product candidates that obtain marketing approval.

 

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We also plan to build a marketing and sales management organization to create and implement marketing strategies for any products that we market through our own sales organization and to oversee and support our sales force. The responsibilities of the marketing organization would include developing educational initiatives with respect to approved products and establishing relationships with thought leaders in relevant fields of medicine.

Agreement with Orphan Europe

In November 2012, we entered into a marketing agreement with Orphan Europe to market and distribute GRASPA for the treatment of ALL and AML in 38 countries in Europe, including all of the countries in the European Union, or EU. Under this agreement, we are responsible for obtaining regulatory approval for GRASPA for the treatment of ALL in the EU, and Orphan Europe is responsible for regulatory activities for the 11 countries not part of the EU. In addition, Orphan Europe will seek marketing approval for GRASPA in the treatment of AML in all 38 countries. If GRASPA is approved, Orphan Europe will be responsible for obtaining pricing and reimbursement approvals, subject to our reasonable input. Orphan Europe has agreed to, at its expense, use commercially reasonable efforts to market and promote GRASPA after it has been approved We have agreed to use commercially reasonable efforts to manufacture and supply GRASPA in the quantities requested by Orphan Europe, based on forecasts that Orphan Europe will provide to us. We are responsible for delivering GRASPA to the customers directly.

We received a payment of 5 million upon signing the agreement. In addition, in 2012, we issued 5 million in convertible bonds to Recordati which, along with accrued interest, converted into 945,018 of our ordinary shares at the time of our 2013 initial public offering on Euronext Paris. Our agreement with Orphan Europe provides for sharing in the development costs for GRASPA in AML, and we may be entitled to receive future payments of up to 37.5 million, subject to our achievement of specified clinical, regulatory and commercial milestones. Once on the market, we will receive a combined supply price and royalties up to 45% of net product sales.

We have granted Orphan Europe rights of first negotiation for the commercialization of GRASPA in additional indications beyond ALL and AML in Europe, and for the commercialization of GRASPA in all indications in additional territories consisting of Turkey, Russia, specified countries in the Middle East and all countries in Africa. Orphan Europe has agreed not to be involved in the development or marketing of any competing products containing L-asparaginase for the treatment of ALL and AML.

The term of the agreement varies on a country-to-country basis. For countries that are part of the EU, the term is 10 years from the date of marketing approval for GRASPA for the treatment of ALL, and will automatically be extended to 10 years from the date of marketing approval for the treatment of AML if that occurs by the end of 2019. For countries that are not part of the EU, the term is 10 years from the date of marketing approval for GRASPA in the treatment of either ALL or AML, but not longer than three years after the expiration of the term for the countries in the EU. At the end of the term, Orphan Europe is entitled to request additional 10-year renewals as long as it is in material compliance with the agreement. If we refuse to renew the agreement in specified circumstances, we may be subject to financial penalties as set forth in the agreement. In addition, the agreement provides that Orphan Europe may automatically terminate the agreement, recoup certain expenses and reduce milestone payments in the event that the intellectual property we license to them under the agreement is deemed invalid.

Agreement with Teva

In March 2011, we entered into an exclusive distribution agreement with Teva under which we granted Teva an exclusive license to seek regulatory approval for and commercialize GRASPA in Israel. We are responsible for the manufacturing and for transporting any products directly to the customer. Teva is responsible for all regulatory and commercial efforts and has agreed to reimburse us for part of our transportation expenses. We do not expect Teva to pursue regulatory approval in Israel until we have obtained marketing approval for GRASPA in the EU. If we receive European marketing approval for GRASPA in indications other than ALL, Teva may choose to extend its commercial rights within Israel to those additional indications.

Under the agreement, we received an upfront payment of 40,000 upon signing the agreement and are eligible to earn up to 45,000 in potential milestone payments upon achievement of specified regulatory milestones as well as a share of Teva’s operating profit if Teva extends its distribution rights to other indications. We will receive a transfer price equal to half of total sales of GRASPA in Israel, calculated as set forth in the agreement. The agreement has a term of 10 years and will automatically renew for successive five-year terms unless either party gives at least six months’ notice of non-renewal.

 

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Intellectual Property

Our patent portfolio includes pending patent applications and issued patents in the United States and foreign countries. These patents and applications include 13 patent families we own in our own name, summarized below:

 

 

 

TECHNOLOGY

   NUMBER OF
PATENT
FAMILIES
  

EARLIEST EXPIRATION YEAR OF
EACH PATENT FAMILY *

  

COUNTRIES IN WHICH PATENTS ARE
ISSUED

Our production process    2   

2024 / 2030

2033 / 2034

   Issued: Japan, Europe, Australia, China, United States, Korea, India, Canada
ERY-ASP    3   

2027 / 2029

2032 / 2033

2028 / 2029

   Issued: Europe, United States, Australia, Singapore, Israel
Other tumor starvation enzymes    3   

2026

2034 / 2035

2033 / 2036

   Issued: Europe, Japan, China, Canada, Korea, Australia, United States
Immune modulation platform    2   

2030

2027 / 2028

  

Issued: Australia, Singapore, France, China, Israel

Allowed: United States

Other technologies/candidates    3   

2028

2028 / 2029

2033 / 2034

   Issued: Europe, Israel, France, China, Australia, Hong Kong, Japan

 

 

*   This expiration year does not take into account supplementary patent protection that could be obtained for some of our patents in the United States, Europe and other countries. Expiration dates for U.S. patents not yet granted may be subject to patent term adjustment.

Of our 13 patent families, nine currently include at least one issued patent.

The term of a U.S. patent may be eligible for patent term restoration under the Hatch-Waxman Act to account for at least some of the time the drug or method of manufacture is under development and regulatory review after the patent is granted. With regard to a drug or method of manufacture for which FDA approval is the first permitted marketing of the active ingredient, the Hatch-Waxman Act allows for extension of the term of one U.S. patent. The extended patent term cannot exceed the shorter of five years beyond the non-extended expiration of the patent or 14 years from the date of the FDA approval of the drug or method of manufacture. Some foreign jurisdictions have analogous patent term extension provisions that allow for extension of the term of a patent that covers a device approved by the applicable foreign regulatory agency. In the future, if and when our product candidates receive FDA approval, we expect to apply for patent term extensions on the patents that we believe will provide the best exclusivity position if extended.

In addition to patent protection, we have trademark protection in many countries for our name, logo and several product candidates. None of our trademarks are subject to a third-party license, except under our distribution agreements with Teva and Orphan Europe with respect to the trademark GRASPA.

Patent License from U.S. Public Health Service

In August 2012, we entered into a license agreement with the Public Health Service of the Department of Health and Human Services of the United States, or PHS, under which PHS has granted us an exclusive license to a patent family including one U.S. patent and two patent applications directed to ASNS and asparaginase therapies in the United States. We intend to use the patent rights licensed from PHS to develop a companion diagnostic test for ERY-ASP and other product candidates we may develop based on our ERYCAPS platform.

Competition

The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change as researchers learn more about diseases and develop new technologies and treatments.

 

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Significant competitive factors in our industry include product efficacy and safety; quality and breadth of an organization’s technology; skill of an organization’s employees and its ability to recruit and retain key employees; timing and scope of regulatory approvals; government reimbursement rates for, and the average selling price of, products; the availability of raw materials and qualified manufacturing capacity; manufacturing costs; intellectual property and patent rights and their protection; and sales and marketing capabilities. We cannot ensure you that any of our products that we successfully develop will be clinically superior or scientifically preferable to products developed or introduced by our competitors.

Our competitors may also succeed in obtaining EMA, FDA or other regulatory approvals for their product candidates more rapidly than we are able to do, which could place us at a significant competitive disadvantage or deny us marketing exclusivity rights. Market acceptance of our product candidates will depend on a number of factors, including:

 

  n   potential advantages over existing or alternative therapies or tests;

 

  n   the actual or perceived safety of similar classes of products;

 

  n   the effectiveness of our sales, marketing, and distribution capabilities; and

 

  n   the scope of any approval provided by the FDA or foreign regulatory authorities.

Although we believe our product candidates possess attractive attributes, we cannot ensure that our product candidates will achieve regulatory or market acceptance, or that we will be able to compete effectively in the biopharmaceutical drug markets. If our product candidates fail to gain regulatory approvals and acceptance in their intended markets, we may not generate meaningful revenues or achieve profitability.

The current market for free-form L-asparaginase primarily includes three products:

 

  n   native E. coli L-asparaginase, marketed under the names Kidrolase, Leunase and L-asparaginase medac, all of which are produced by the Japanese pharmaceutical company Kyowa Hakko Kirin and distributed in Europe by Jazz Pharmaceuticals and Medac;

 

  n   PEG-asparaginase, marketed under the name Oncaspar by Baxalta International; and

 

  n   L-asparaginase expressed in E. chrysanthemi bacteria, marketed under the names Erwinase and Erwinaze by Jazz Pharmaceuticals.

Each of these products corresponds to a different formulation or different production process and, as a result, has a separate profile, particularly in terms of activity duration, frequency of injections and side effects. We currently do not intend to compete directly with native L-asparaginase or Oncaspar where such treatments are prescribed as first-line treatments for newly diagnosed or relapsed or refractory patients. Our initial target market is for patients who have either relapsed or failed first-line treatment with current forms of asparaginases or who have developed an allergic hypersensitivity to those forms of L-asparaginase.

Medac is developing a recombinant L-asparaginase which has recently been granted marketing approval in Europe. Medac’s recombinant product has been observed in late-stage clinical trials to have efficacy, a life span and a side effect profile similar to that of native L-asparaginase. Medac is also developing a PEG-asparaginase product candidate that is currently in early clinical trials. In addition, Jazz Pharmaceuticals is developing a pegylated form of Erwinaze, although its clinical development is currently on hold.

In addition to currently available forms of L-asparaginase or new forms in development, our product candidates also compete with other products that could be used in the treatment of ALL or AML. These potential treatments include monoclonal antibodies, bispecific monoclonal antibodies and chimeric antigen receptor T-cell, or CAR-T, approaches. Several large pharmaceutical and biotechnology companies, including Amgen, Pfizer, Juno Therapeutics and Novartis, are developing these types of therapies for the treatment of AML and ALL. In December 2014, the FDA granted accelerated approval of Amgen’s product candidate BLINCYTO (blinatumomab), for the treatment of Philadelphia-negative patients with relapsed or refractory B-cell precursor ALL. Continued approval for this indication may be contingent upon verification of clinical benefit in subsequent trials. Amgen has also recently been granted a conditional MAA from the EMA for BLINCYTO. Other products in later-stage clinical trials include immunotherapy drugs targeting multiple immune mechanisms, such as inotuzumab, an antibody-drug conjugate from Pfizer, and CAR-T cell

 

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products from Juno Therapeutics, Kite Pharma and Novartis. These product candidates consist of patients’ own immune cells, engineered to recognize and attack their tumors. These new treatments have yielded positive results when used as salvage therapy, but their use has been restricted to small clinical trials to date.

Many of the companies against which we are competing, or against which we may compete in the future, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products, or biologics, such as our product candidates. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.

U.S. Biological Product Development

In the United States, the FDA regulates biologics under the Federal Food, Drug, and Cosmetic Act, or FDCA, and the Public Health Service Act, or PHSA, and their implementing regulations. Biologics are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement, reputational harm, and/or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Our product candidates must be approved by the FDA through the Biologics License Application, or BLA, process before they may be legally marketed in the United States. The process required by the FDA before a biologic may be marketed in the United States generally involves the following:

 

  n   completion of extensive nonclinical, sometimes referred to as pre-clinical laboratory tests, pre-clinical animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice, or GLP, regulations;

 

  n   submission to the FDA of an IND, which must become effective before human clinical trials may begin;

 

  n   performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-related regulations, sometimes referred to as good clinical practices, or GCPs, to establish the safety and efficacy of the proposed product candidate for its proposed indication;

 

  n   submission to the FDA of a BLA;

 

  n   satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the product is produced to assess compliance with the FDA’s cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality, purity and potency;

 

  n   potential FDA audit of the pre-clinical and clinical trial sites that generated the data in support of the BLA; and

 

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  n   FDA review and approval of the BLA prior to any commercial marketing or sale of the product in the United States.

The data required to support a BLA is generated in two distinct development stages: pre-clinical and clinical. The pre-clinical development stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The conduct of the pre-clinical studies must comply with federal regulations, including GLPs. The sponsor must submit the results of the pre-clinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a product candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated.

The clinical stage of development involves the administration of the product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.

There are also requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries. Sponsors of clinical trials of FDA-regulated products, including biologics, are required to register and disclose certain clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.

Clinical trials are generally conducted in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials. Phase 1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the product candidate and, if possible, to gain early evidence on effectiveness. Phase 2 clinical trials typically involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. Phase 3 clinical trials generally involve large numbers of patients at multiple sites, in multiple countries, from several hundred to several thousand subjects, and are designed to provide the data necessary to demonstrate the efficacy of the product for its intended use and its safety in use, and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase 3 clinical trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of a BLA.

 

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Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In some instances, FDA may condition approval of a BLA on the sponsor’s agreement to conduct additional clinical trials to further assess the biologic’s safety and effectiveness after BLA approval.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated intervals based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

BLA and FDA Review Process

Following trial completion, trial data is analyzed to assess safety and efficacy. The results of preclinical studies and clinical trials are then submitted to the FDA as part of a BLA, along with proposed labeling for the product and information about the manufacturing process and facilities that will be used to ensure product quality, results of analytical testing conducted on the chemistry of the product candidate, and other relevant information. The BLA is a request for approval to market the biologic for one or more specified indications and must contain proof of safety, purity, potency and efficacy, which is demonstrated by extensive pre-clinical and clinical testing. The application includes both negative or ambiguous results of preclinical and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a use of a product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of a BLA must be obtained before a biologic may be offered for sale in the United States.

Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee, which is adjusted on an annual basis. PDUFA also imposes an annual product fee for human drugs and an annual establishment fee on facilities used to manufacture prescription drugs. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business.

Once a BLA has been accepted for filing, which occurs, if at all, sixty days after the BLA’s submission, the FDA’s goal is to review BLAs within 10 months of the filing date for standard review or six months of the filing date for priority review, if the application is for a product intended for a serious or life-threatening disease or condition and the product, if approved, would provide a significant improvement in safety or effectiveness. The review process is often significantly extended by FDA requests for additional information or clarification.

After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product candidate is safe and effective for its intended use, and whether the product candidate is being manufactured in accordance with cGMP to assure and preserve the product candidate’s identity, strength, quality, purity and potency. The FDA may refer applications for novel drug product candidates or drug product

 

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candidates which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA will likely re-analyze the clinical trial data, which could result in extensive discussions between the FDA and us during the review process. The review and evaluation of a BLA by the FDA is extensive and time consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at all.

Before approving a BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. In addition, before approving a BLA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter usually describes all of the specific deficiencies in the BLA identified by the FDA. The Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3 clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, pre-clinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.

There is no assurance that the FDA will ultimately approve a product for marketing in the United States, and we may encounter significant difficulties or costs during the review process. If a product receives marketing approval, the approval may be significantly limited to specific populations, severities of allergies, and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling or may condition the approval of the BLA on other changes to the proposed labeling, development of adequate controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of approved products. For example, the FDA may require Phase 4 testing, which involves clinical trials designed to further assess the product’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy, or REMS, to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

Other U.S. Regulatory Matters

Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments. In the United States, sales, marketing and scientific or educational programs must comply with state and federal fraud and abuse laws, data privacy and security laws, transparency laws, and pricing and reimbursement requirements in connection with governmental payor programs, among others. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subject to federal and state consumer

 

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protection and unfair competition laws. The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.

The failure to comply with regulatory requirements subjects entities to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow an entity to enter into supply contracts, including government contracts. In addition, even if an entity complies with FDA and other regulatory requirements, new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements, and/or our commercial operations; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping and/or documentation requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

U.S. Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specifics of the FDA approval of our product candidates, some 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, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration of patent term for our currently owned or licensed patents to add patent life beyond their current expiration dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant BLA.

An abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product was created by the Biologics Price Competition and Innovation Act of 2009, which was part of the Affordable Care Act. This amendment to the PHSA attempts to minimize duplicative testing. Biosimilarity, which requires that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components and that there be no clinically meaningful differences between the product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical trial or trials. Interchangeability requires that a biological product is biosimilar to the reference product and the product can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the product and the reference product may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biological product. However, complexities associated with the larger, and often more complex, structure of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.

A reference biological product is granted 12 years of exclusivity from the time of first licensure of the reference product. The first biological product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product has exclusivity against other biologics submitting applications under the abbreviated approval pathway for the lesser of one year after the first commercial marketing, 18 months after approval if there is no legal challenge, 18 months after the resolution in the applicant’s favor of a lawsuit challenging the biologic’s patents if an application has been submitted, or 42 months after the application has been approved if a lawsuit is ongoing within the 42-month period.

 

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Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.

European Union Drug Development

In the European Union, our product candidates may also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if a marketing authorization from the competent regulatory agencies has been obtained.

Similar to the United States, the various phases of pre-clinical and clinical research in the European Union are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the European Union clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in the European Union, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to significant variations in the Member State regimes. To improve the current system, a new Regulation (EU) No 536/2014 on clinical trials on medicinal product candidates for human use, which repealed Directive 2001/20/EC, was adopted on April 16, 2014 and published in the European Official Journal on May 27, 2014. The new Regulation aims at harmonizing and streamlining the clinical trials authorization process, simplifying adverse event reporting procedures, improving the supervision of clinical trials, and increasing their transparency. The new Clinical Trials Regulation entered into force on June 16, 2014, but will apply no earlier than May 28, 2016. Until then the Clinical Trials Directive 2001/20/EC will still apply. In addition, the transitional provisions of the new Clinical Trials Regulation offer sponsors the possibility to choose between the requirements of the Directive and the Regulation for one year from the entry into application of the Regulation.

Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU Member States where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions, or SUSARs, to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred.

European Union Drug Review and Approval

In the European Economic Area, or EEA (which is comprised of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. Marketing authorizations may be granted either centrally or nationally:

The Community MA is issued centrally by the European Commission through the Centralized Procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the European Union.

National MAs are issued nationally by the competent authorities of the Member States of the EEA and only cover their respective territory. National MAs are available for products not falling within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in other Member States through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MA is sought, one of which is selected by the applicant as the Reference Member State, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SmPC, and a draft of the labeling and package leaflet, which are sent to the other Member States, referred to as the Concerned Member States, or CMSs, for their approval. If the CMSs raise no objections, based on a potential serious risk to public

 

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health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the Member States (i.e. in the RMS and the CMSs).

Under the above-described procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

Orphan Drugs

In the European Union, Regulation (EC) No 141/2000, as amended, states that a drug will be designated as an orphan drug if its sponsor can establish:

 

  n   that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or that it is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that the marketing of the drug in the European Union would generate sufficient return to justify the necessary investment; and

 

  n   that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Union or, if such method exists, that the drug will be of significant benefit to those affected by that condition.

Regulation (EC) No 847/2000 sets out further provisions for implementation of the criteria for designation of a drug as an orphan drug. An application for the designation of a drug as an orphan drug must be submitted at any stage of development of the drug before filing of a MA application.

If a Community MA in respect of an orphan drug is granted pursuant to Regulation (EC) No 726/2004, regulatory authorities will not, for a period of 10 years, accept another application for a MA, or grant a MA or accept an application to extend an existing MA, for the same therapeutic indication, in respect of a similar drug. This period may however be reduced to six years if, at the end of the fifth year, it is established, in respect of the drug concerned, that the criteria for orphan drug designation are no longer met, in other words, when it is shown on the basis of available evidence that the product is sufficiently profitable not to justify maintenance of market exclusivity. Notwithstanding the foregoing, a MA may be granted, for the same therapeutic indication, to a similar drug if:

 

  n   the holder of the MA for the original orphan drug has given its consent to the second applicant;

 

  n   the holder of the MA for the original orphan drug is unable to supply sufficient quantities of the drug; or

 

  n   the second applicant can establish in the application that the second drug, although similar to the orphan drug already authorized, is safer, more effective or otherwise clinically superior.

Regulation (EC) No 847/2000 lays down definitions of the concepts ‘similar drug’ and ‘clinical superiority’. Other incentives available to orphan drugs in the European Union include financial incentives such as a reduction of fees or fee waivers and protocol assistance. Orphan drug designation does not shorten the duration of the regulatory review and approval process.

Other European Regulatory Matters

French Regulatory Framework

In the European Union, the regulation governing clinical trials is currently based on Directive 2001/20/EC of April 4, 2001 relative to the implementation of good clinical practices in the conduct of clinical trials on medicinal products for human use. Each Member State of the European Union had to transpose this Directive into national law, which resulted in Member States adapting it to their own regulatory framework.

In France, for example, Directive No. 2001/20/EC has been implemented by Act Law 2004-806 of August 9, 2004 regarding the public health policy and Decree 2006-477 of April 26, 2006, modifying the section of the Public Health Code, or PHC, on biomedical research. Law 2004-806 abolishes the prior notification procedure introduced by the Law Huriet-Sérusclat of December 20, 1988. Indeed, Article L. 1121-4 PHC, as amended by Law 2004-806, establishes a system of prior authorization. This authorization is granted by the French Medicines Agency, or ANSM, provided that the competent Ethics Committee issued a favorable opinion. Under Article L. 1123-7 PHC, the Ethics

 

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Committee shall assess whether the conditions in which the trial will be conducted are valid. This assessment should be based on whether: adequate protection is offered to individuals, in particular to participants; adequate information is provided to the participants and appropriate procedure is in place to obtain their informed consent; the project is relevant; the benefits/risks assessment is satisfactory; the objectives of the trial are adequate to the means implemented; the qualification of the investigator(s) is satisfactory; the conditions and amount of patients’ remuneration is compliant; and the method for recruiting participants is adequate. The ANSM, after submission of the complete file containing not only information on the clinical protocol, but also specific product data and its quality control, as well as results of pre-clinical studies, may inform the sponsor that it objects to the implementation of the research. The sponsor can then modify the contents of its research project and submit this amended or supplemented request to the ANSM; this procedure may not, however, be applied more than once. If the sponsor does not alter the content of its request, the request is considered rejected. Under R. 1123-32 PHC, the time limit for the examination of a request for authorization cannot exceed 60 days from the receipt of the complete file. Finally, under Article L. 1123-11, in the event of risk to public health or if the ANSM considers that the conditions in which the research is implemented no longer correspond to the conditions indicated in the request for authorization or does not comply with the provisions of the Public Health Code, it may at any time request changes to procedures for the realization of research, and suspend or ban this research. The decision of November 24, 2006 sets the rules for Good Clinical Practice for clinical trials on medicines for human use as referred to in Article L. 1121-3 of the Public Health Code. Good Clinical Practice rules, or GCPs, aim to ensure both the reliability of data arising from clinical trials and the protection of the persons participating in these clinical trials. GCPs shall apply to all clinical trials, including pharmacokinetics, bioavailability and bioequivalence studies in healthy volunteers as well as Phase 2 to Phase 4 clinical trials.

Personal data collected during clinical trials should be declared in simplified form to the French Data Protection Agency (Commission Nationale de l’Informatique et des Libertés, or CNIL). Patients then have a right to access and rectify this data pursuant to Law 78-17 of January 6, 1978, as amended, on data protection.

The main French regulatory texts concerning the conduct of clinical trials are as follows:

 

  n   Law 2004-806 of August 9, 2004 related to the public health policy;

 

  n   Decision of November 24, 2006 establishing the rules for Good Clinical Practice;

 

  n   Decision of January 13, 2011 establishing the rules of Good Manufacturing Practice;

 

  n   Law 78-17 of January 6, 1978, as amended, on data protection and its implementing decrees;

 

  n   Law 2002-3003 of March 4, 2002 and its implementing decrees regarding patient’s rights and the quality of the healthcare system;

 

  n   Decision of January 5, 2006 concerning the approval of a standard methodology for the processing of personal data carried out within the context of clinical trials (standard methodology MR-001);

 

  n   Law 2011-2012 of December 29, 2011 strengthening the safety of medicines and health products; and

 

  n   Law 2000-230 of March 13, 2000, Decree 2001-272 of March 30, 2001 as amended, and Decree 2002-535 of April 18, 2002, relative on electronic signature.

French Pharmaceutical Company Status

We have the regulated status of pharmaceutical establishment and operating company, which allows us to manufacture and market our product candidates. Obtaining a pharmaceutical establishment license, either as a distributor or as a manufacturer requires the submission of an application dossier to the ANSM. The application package will vary depending on the type of application (distribution license or manufacturing license). The ANSM grants such license after verifying that the company has adequate premises, the necessary personnel and adequate procedures to carry out the proposed pharmaceutical activities.

Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the case of GRASPA, we have entered into distribution arrangements with Orphan Europe and Teva for marketing in Europe and Israel, respectively, and those third parties will be responsible for obtaining coverage and reimbursement for GRASPA in those territories if it is approved. Sales of our products will depend, in part, on the extent to which our products, once approved, will be covered and reimbursed by third-party

 

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payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly reducing reimbursement levels for medical products and services. The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that a payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the approved drugs for a particular indication.

To secure coverage and reimbursement for any product candidate that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product candidate, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Whether or not we conduct such studies, our product candidates may not be considered medically necessary or cost-effective. A third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage, and adequate reimbursement, for the product. Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement, utilization management and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of the product candidates and could have a material adverse effect on our sales, results of operations and financial condition.

For example, the Patient Protection and Affordable Care Act, or ACA, enacted in the United States in March 2010, has already had, and is expected to continue to have, a significant impact on the health care industry. The ACA has expanded coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare Part D program. We cannot predict the full impact of the ACA on pharmaceutical companies, as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, on August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. Specifically, the Joint Select Committee on Deficit Reduction was created to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, started in April 2013 and which, due to subsequent legislative amendments, will stay in effect through 2025 unless additional Congressional action is taken. Additionally, on January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which delayed for another two months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. The ATRA, among other things, also reduced Medicare payments to several 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. Recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. For example, there have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drug products. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.

 

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In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its Member States to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A Member State may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. For example, in France, effective market access will be supported by agreements with hospitals and products may be reimbursed by the Social Security Fund. The price of medicines is negotiated with the Economic Committee for Health Products, or CEPS. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our product candidates. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower.

Other Healthcare Laws and Compliance Requirements

Our business operations in the United States and our arrangements with clinical investigators, healthcare providers, consultants, third party payors and patients may expose us to broadly applicable federal and state fraud and abuse and other healthcare laws. These laws may impact, among other things, our research, proposed sales, marketing and education programs of our product candidates that obtain marketing approval. The laws that may affect our ability to operate include, among others:

 

  n   the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration (including any kickback, bribe or rebate), directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order, or recommendation of, an item, good, facility or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

 

  n   federal civil and criminal false claims laws and civil monetary penalty laws, including the federal civil False Claims Act, which impose penalties and provide for civil whistleblower or qui tam actions against individuals and entities for, among other things, knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government, including for example, providing inaccurate billing or coding information to customers or promoting a product off-label;

 

  n   the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willingly falsifying, concealing or covering up a material fact or making materially false statements, fictitious, or fraudulent statements in connection with the delivery of or payment for healthcare benefits, items, or services;

 

  n   the federal Physician Payments Sunshine Act, enacted as part of the ACA, which requires applicable manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to track and annually report to CMS payments and other transfers of value provided to physicians and teaching hospitals and certain ownership and investment interests held by physicians or their immediate family members;

 

  n   HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, which imposes certain requirements on covered entities and their business associates relating to the privacy, security and transmission of individually identifiable health information; and

 

  n  

State and/or foreign equivalents of each of the above federal laws and regulations, such as: state anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state marketing and/or transparency laws applicable to manufacturers that may be broader in scope than the federal requirements; state laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; and state and/or foreign laws governing the

 

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privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect as HIPAA, thus complicating compliance efforts.

The ACA broadened the reach of the federal fraud and abuse laws by, among other things, amending the intent requirement of the federal Anti-Kickback Statute and certain federal criminal healthcare fraud statutes. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act or the civil monetary penalties statute.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws will involve substantial costs. 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. 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, for example, significant administrative, civil, and/or criminal penalties, damages, fines, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, individual imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to administrative, civil, and/or criminal sanctions, including exclusions from government funded healthcare programs.

Employees

As of December 31, 2015, we had 56 full-time employees. We consider our labor relations to be positive. At each date shown, we had the following full-time equivalents, broken out by department and geography:

 

 

 

     AT DECEMBER 31,  
     2013      2014      2015  

Function:

        

Research and preclinical development

     13         14         17   

Clinical, medical and regulatory affairs

     4         5         9   

Manufacturing operations

     6         9         14   

Management and administration

     12         15         16   
  

 

 

    

 

 

    

 

 

 

Total(1)

     36         43         56   
  

 

 

    

 

 

    

 

 

 

Geography:

        

France

     36         43         52   

United States

                     4   

 

 

(1)    Totals may not sum due to rounding.

Facilities

We lease office and laboratory space, which together consist of approximately 1,800 square meters, in Lyon, France. The lease for this facility expires in June 2024, and we have the ability to terminate the lease early in either June 2019 or June 2021. We believe our current leased space is sufficient to meet our current needs in Europe. In addition, we have an agreement with the American Red Cross that provides us with a production facility in Philadelphia, Pennsylvania. We lease approximately 2,152 square feet of office space in Cambridge, Massachusetts under a lease that expires in 2019. We anticipate leasing additional office and manufacturing space in the United States in connection with expanding our clinical trials and preparing for commercialization activities.

Legal Proceedings

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information concerning our executive officers and directors as of March 1, 2016:

 

 

 

NAME

   AGE     

POSITION(S)

Executive Officers

     

Gil Beyen

     54       Chief Executive Officer and Chairman of the Board

Eric Soyer

     49       Chief Financial Officer and Chief Operating Officer

Iman El-Hariry, M.D., Ph.D. (1)

     56       Chief Medical Officer

Jérôme Bailly, Pharm. D.

     37       Director of Pharmaceutical Operations and Qualified Person

Non-Employee Directors

     

Sven Andréasson (2)(3)(4)

     64       Director

Philippe Archinard, Ph.D. (2)(3)

     57       Director

Luc Dochez, Pharm.D.

     42       Director

Martine Ortin George, M.D.

     67       Director

Hilde Windels (2)(3)

     50       Director

 

 

(1)   Employee of our wholly-owned U.S. subsidiary, ERYTECH Pharma, Inc.

 

(2)   Member of the audit committee.

 

(3)   Member of the remunerations and appointment committee.

 

(4)   As representative of Galenos SPRL, the legal entity that holds this board seat.

Executive Officers

Gil Beyen has served as our Chief Executive Officer since May 2013 and Chairman of the Board since August 2013. Prior to his appointment as Chief Executive Officer, he assisted our company in a consulting role as of 2012 and also served as Chairman of our supervisory board from August 2012 until May 2013. Between 2000 and 2013, Mr. Beyen was Chief Executive Officer and director of TiGenix (Euronext: TIG), a company he co-founded. He previously served as the head of the Life Sciences division of Arthur D. Little, an international management consulting firm, in Brussels. Mr. Beyen received an M.S. in Bioengineering from the University of Leuven (Belgium) and an M.B.A. from the University of Chicago.

Eric Soyer has served as our Chief Financial Officer and Chief Operating Officer since September 2015. Prior to his appointment as our Chief Financial Officer, he served for eight years as Chief Financial Officer of EDAP TMS S.A., a French therapeutic ultrasound company. He also was Managing Director of the French affiliate of EDAP TMS from May 2012 to August 2015, and previously was EDAP TMS’s Executive Vice President of Finance, Human Resources and Administration from December 2006 to May 2012. From 2005 to 2006, he served as Chief Financial Officer for Medica, a company operating nursing homes and post-care clinics throughout France and Italy. From 1999 to 2005, he served in various positions of increasing responsibility for April Group, an insurance services company. He has international experience as a controller and cost accountant for Michelin Group in France, the United States and Africa. Mr. Soyer graduated from the ESC Clermont School of Management (France) and holds an M.B.A. from the University of Kansas and an Executive M.B.A. from the HEC Paris School of Management (France).

Iman El-Hariry, M.D., Ph.D. has served as our Chief Medical Officer and employee of our wholly-owned U.S. subsidiary, ERYTECH Pharma, Inc., since June 2015. Prior to her appointment as Chief Medical Officer, she served as President of Azure Oncology Consulting from July 2014 to June 2015 and also assisted us in a consulting role from November 2014 to June 2015. Dr. El-Hariry served as Vice President of Clinical Research at Synta Pharmaceuticals from November 2010 to July 2014 and as Global Head of Oncology at Astellas Pharma, Inc. from June 2009 to July 2010. From 2001 to 2009, she served as Director of Clinical Development, Oncology at Glaxo Smith Kline. Dr. El-Hariry is a licensed oncologist with an M.D. from Alexandria Medical School (Egypt) and a Ph.D. in Cancer Research from Imperial College of Science and Medicine (United Kingdom).

 

 

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Jérôme Bailly, Pharm.D. has served as our Qualified Person since December 2011, and has served as our Director of Pharmaceutical Operations since 2007. Prior to 2007, he was the Director of QA/Production at Skyepharma and Laboratoire Aguettant. Dr. Bailly holds a Pharm.D. and a degree in Chemical Engineering, specializing in Biopharmaceutical Engineering and Cellular Production from École Polytechnique de Montréal (Canada).

Non-Employee Directors

Sven Andréasson has served as a member of our board of directors since 2013 and has served as representative of Galenos SPRL, the legal entity that holds this board seat, since 2014. He also served as a member of our supervisory board from 2009 to May 2013. Mr. Andréasson has served as Senior Vice President, Corporate Development for Novavax, Inc., a pharmaceutical company, since June 2014. From 2012 to 2013, he served as Chief Executive Officer of Isconova AB, a leading international vaccine adjuvant company acquired by Novavax in 2013, currently operating as Novavax AB. Prior to his role at Novavax AB, he served as Chief Executive Officer of Beta-Cell N.V. from 2008 to 2012 and as Chief Executive Officer of Active Biotech AB from 1999 to 2008. Mr. Andréasson spent a number of years in roles at Pharmacia Corporation (merged with Pfizer Inc.), including President of Pharmacia SA, France, President of KabiPharmacia International and President of Pharmacia Arzneimittel GmbH. Mr. Andréasson received his B.S. in Business Administration and Economics from the Stockholm School of Economics (Sweden).

Philippe Archinard, Ph.D. has served as a member of our board of directors since 2013. Dr. Archinard was appointed General Manager, Chief Executive Officer and director of Transgene in December 2004, after spending 15 years in various senior positions with bioMérieux, a multinational biotechnology company, including directing its U.S. subsidiary. He has served as a member of bioMérieux’s board of directors since 2005. He also serves as Chief Executive Officer of Innogenetics N.V., a position he has held since March 2000. Dr. Archinard is a chemical engineer, holds a Ph.D. in biochemistry from the University of Lyon (France), and completed Harvard Business School’s Program of Management PMD.

Luc Dochez, Pharm.D. has served as a member of our board of directors since 2015. He recently became Chief Executive Officer of Tusk Therapeutics N.V., a private company focused on developing novel immuno-oncology products. Mr. Dochez has over 15 years of experience in the biotechnology industry. He served as the Chief Business Officer and Senior Vice President of Business Development of Prosensa Holding N.V., a biotechnology company, from November 2008 until its acquisition by BioMarin Pharmaceutical Inc. in January 2015. Before joining Prosensa, he served as Vice President of Business Development at TiGenix, Director Business Development at Methexis Genomics, and a consultant at Arthur D. Little. Mr. Dochez holds a Pharm.D. degree and a postgraduate degree in business economics from the University of Leuven (Belgium) and an M.B.A. degree from Vlerick Management School (Belgium).

Martine Ortin George, M.D. has served as a member of our board of directors since 2014. She currently serves as principal and senior executive consultant-life sciences for Global Development Inc. Dr. George most recently held the position of Vice President in charge of Global Medical Affairs for Oncology at Pfizer from 2010 to 2015. Previously, Dr. George held the positions of Senior Vice President and Chief Medical Officer at GPC Biotech and Senior Vice President, Head of the Oncology Department at Johnson & Johnson. She is a qualified gynecologist and oncologist, trained in France and in Montreal. Dr. George began her career as Chief of Service at the Institut Gustave Roussy (France), was a visiting professor at the Memorial Sloan Kettering Cancer Center, and then held positions of increasing responsibility at Lederle Laboratories (a predecessor company to Pfizer Inc.), Sandoz (now a division of Novartis AG) and Rhône-Poulenc Rorer (today part of Sanofi).

Hilde Windels has served as a member of our board of directors since 2014. She serves as Chief Financial Officer and Managing Director of Biocartis (Euronext: BCART), a molecular diagnostics company based in Belgium. Ms. Windels served as Chief Financial Officer of Devgen (Euronext: DEVG) from 1999 to 2008 and as a member of its board of directors from 2001 to 2008. From early 2009 to mid-2011, she worked as an independent chief financial officer for several private biotechnology companies and served as a director of MDX Health (Euronext: MDXH) from June 2010 until August 2011. She holds a degree in Economics from the University of Leuven (Belgium).

 

 

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Family Relationships

There are no family relationships among any of our executive officers or directors.

Board Composition

Until May 2013, our company had a two-tier corporate governance system: an executive board was responsible for managing the company and a supervisory board oversaw and advised the executive board. We have now established a board of directors. Our board of directors currently consists of seven members, less than a majority of whom are citizens or residents of the United States. As permitted by French law, one of our directors is Galenos SPRL, a legal entity. The entity has designated an individual, Sven Andréasson, to represent it and to act on its behalf at meetings of our board of directors. This representative has the same responsibilities to us and to our shareholders as he would have if he had been elected to our board of directors in his individual capacity.

Under French law and our bylaws, our board of directors must be comprised of between three and 18 members, without prejudice to the derogation established by law in the event of merger. Within this limit, the number of directors is determined by our shareholders. Directors are appointed, reappointed to their position, or removed by the company’s ordinary general meeting. Their term of office, in accordance with our bylaws, is three years. In the event the board of directors would be comprised of less than three directors as a result of a vacancy, the remaining directors shall immediately convene a shareholders’ general meeting to elect one or several new directors so there are at least three directors serving on the board of directors, in accordance with French law.

The following table sets forth the names of our directors, the years of their initial appointment as directors of the board and the expiration dates of their current term.

 

 

 

     CURRENT POSITION    YEAR OF INITIAL
APPOINTMENT
     TERM
EXPIRATION YEAR
 

Gil Beyen

   Chairman      2013         2016   

Galenos SPRL (1)

   Director      2014         2016   

Philippe Archinard

   Director      2013         2016   

Luc Dochez (2)

   Director      2015         2016   

Martine Ortin George

   Director      2014         2017   

Hilde Windels

   Director      2014         2017   

 

 

(1)   Galenos SPRL has designated an individual, Sven Andréasson, to represent it and to act on its behalf at meetings of our board of directors. Mr. Andréasson previously served as a member of our board from May 2013 to January 2014. Galenos SPRL is a company controlled by Mr. Andréasson.

 

(2)   Mr. Dochez was appointed following the resignation of a director whose term was scheduled to expire in 2016.

Director Independence

As a foreign private issuer, under the listing requirements and rules of the Nasdaq Global Market, we are not required to have independent directors on our board of directors, except to the extent that our audit committee is required to consist of independent directors, subject to certain phase-in schedules. Nevertheless, our board of directors has undertaken a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from, and provided by, each director concerning such director’s background, employment and affiliations, including family relationships, our board of directors determined that                                          are “independent directors” as defined under applicable rules of the Nasdaq Global Market and the independence requirements contemplated by Rule 10A-3 under the Exchange Act. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our ordinary shares by each non-employee director (if any).

 

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Role of the Board in Risk Oversight

Our board of directors is primarily responsible for the oversight of our risk management activities and has delegated to the audit committee the responsibility to assist our board in this task. While our board oversees our risk management, our management is responsible for day-to-day risk management processes. Our board of directors expects our management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the board of directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face.

Corporate Governance Practices

As a French société anonyme, we are subject to various corporate governance requirements under French law. In addition, as a foreign private issuer listed on the Nasdaq Global Market, we will be subject to Nasdaq corporate governance listing standards. However, the corporate governance standards provide that foreign private issuers are permitted to follow home country corporate governance practices in lieu of Nasdaq rules, with certain exceptions. We intend to rely on these exemptions for foreign private issuers and follow French corporate governance practices in lieu of the Nasdaq corporate governance rules, which would otherwise require that (1) a majority of our board of directors consist of independent directors; (2) we establish a nominating and corporate governance committee; and (3) our remuneration committee be composed entirely of independent directors.

As a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Rule 10A-3 provides that the audit committee must have direct responsibility for the nomination, compensation and choice of our auditors, as well as control over the performance of their duties, management of complaints made, and selection of consultants. However, if the laws of a foreign private issuer’s home country require that any such matter be approved by the board of directors or the shareholders, the audit committee’s responsibilities or powers with respect to such matter may instead be advisory. Under French law, the audit committee may only have an advisory role and appointment of our statutory auditors, in particular, must be decided by the shareholders at our annual meeting.

In addition, Nasdaq rules require that a listed company specify that the quorum for any meeting of the holders of common stock be at least 33 1/3% of the outstanding shares of the company’s voting stock. Consistent with French law, our bylaws provide that a quorum requires the presence of shareholders having at least (1) 20% of the shares entitled to vote in the case of an ordinary shareholders’ general meeting or at an extraordinary shareholders’ general meeting where shareholders are voting on a capital increase by capitalization of reserves, profits or share premium, or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general meeting. If a quorum is not present, the meeting is adjourned. There is no quorum requirement when an ordinary general meeting is reconvened, but the reconvened meeting may consider only questions which were on the agenda of the adjourned meeting. When an extraordinary general meeting is reconvened, the quorum required is 20% of the shares entitled to vote, except where the reconvened meeting is considering capital increases through capitalization of reserves, profits or share premium. For these matters, no quorum is required at the reconvened meeting. If a quorum is not present at a reconvened meeting requiring a quorum, then the meeting may be adjourned for a maximum of two months. See the section of this prospectus titled “Description of Share Capital—Key Provisions of Our Bylaws and French Law Affecting Our Ordinary Shares.”

Board Committees

The board of directors has established an audit committee and a remuneration and appointments committee, which operate pursuant to rules of procedure adopted by our board of directors. Subject to available exemptions, the composition and functioning of all of our committees will comply with all applicable requirements of the French Commercial Code, the Exchange Act, the Nasdaq Global Market and SEC rules and regulations.

In accordance with French law, committees of our board of directors will only have an advisory role and can only make recommendations to our board of directors. As a result, decisions will be made by our board of directors taking into account non-binding recommendations of the relevant board committee.

 

 

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Audit Committee. Our audit committee assists our board of directors in its oversight of our corporate accounting and financial reporting and submits the selection of our statutory auditors, their remuneration and independence for approval. Mr. Andréasson, Dr. Archinard and Ms. Windels currently serve on our audit committee. Ms. Windels is the chairperson of our audit committee. Our board has determined that each of                 is independent within the meaning of the applicable listing rules and the independence requirements contemplated by Rule 10A-3 under the Exchange Act and                     does not satisfy the independence requirements of listing rules and Rule 10A-3 under the Exchange Act. Our board of directors has further determined that                      is an “audit committee financial expert” as defined by SEC rules and regulations and that each of the members qualifies as financially sophisticated under the applicable exchange listing rules. We intend to comply with the applicable independence requirements with respect to our audit committee within the applicable time frame under the applicable transition rules of the SEC. The principal responsibility of our audit committee is to monitor the existence and efficacy of the company’s financial audit and risk control procedures on an ongoing basis.

Our board of directors has specifically assigned the following duties to the audit committee:

 

  n   examining the corporate and consolidated annual and interim financial statements;

 

  n   validating the relevance of the company’s accounting methods and choices;

 

  n   verifying the relevance of financial information published by the company;

 

  n   ensuring the implementation of internal control procedures;

 

  n   verifying the correct operation of internal controls with the assistance of internal quality audits;

 

  n   examining the schedule of work for internal and external audits;

 

  n   examining any subject likely to have a significant financial and accounting impact;

 

  n   examining the state of significant disputes;

 

  n   examining off-balance sheet commitments and risks;

 

  n   examining the relevance of risk monitoring procedures;

 

  n   establishing and overseeing procedures for the treatment of complaints or submissions identifying concerns regarding accounting, internal accounting controls, or auditing matters;

 

  n   examining any regulated agreements;

 

  n   directing the selection of statutory auditors, their remuneration, and ensuring their independence;

 

  n   ensuring proper performance of the statutory auditors’ mission; and

 

  n   establishing the rules for the use of statutory auditors for work other than auditing of the accounts and verifying the correct execution thereof.

Remuneration and Appointments Committee. Mr. Andréasson, Dr. Archinard and Ms. Windels currently serve on our remuneration and appointments committee. Dr. Archinard is the chairperson of our remuneration and appointments committee.

Our board of directors has specifically assigned the following duties to the remuneration and appointments committee:

 

  n   formulating recommendations and proposals concerning (i) the various elements of the remuneration, pension and health insurance plans for executive officers and directors, (ii) the procedures for establishing the terms and conditions for setting the variable portion of their remunerations, and (iii) a general policy for awarding share warrants and founder’s warrants;

 

  n   examining the amount of attendance fees and the system for distributing such fees amongst the directors, taking into account their dedication and the tasks performed within the board of directors;

 

  n   advising and assisting the board of directors as necessary in the selection of senior executives and the establishment of their remuneration;

 

  n   assessing any increases in capital reserved for employees;

 

  n   assisting the board of directors in the selection and recruitment of new directors;

 

  n   ensuring the implementation of structures and procedures to allow the application of good governance practices within the company;

 

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  n   preventing conflicts of interest within the board of directors; and

 

  n   implementing the procedure for evaluating the board of directors.

Code of Business Conduct and Ethics

In connection with this offering, we intend to adopt a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and directors. Following the closing of this offering, the Code of Conduct will be available on our website at www.erytech.com. The audit committee of our board of directors will be responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees, executive officers and directors. We expect that any amendments to the Code of Conduct, or any waivers of its requirements, will be disclosed on our website.

Compensation of Directors and Executive Officers

The aggregate compensation paid and benefits in kind granted by us to our current executive officers and directors, including share-based compensation, for the year ended December 31, 2015 was 3.1 million. For the year ended December 31, 2015, we did not allocate any amounts to be set aside or accrued to provide pension, retirement or similar benefits to our directors or executive officers.

Director Compensation

At our ordinary general meeting of shareholders held on June 23, 2015, shareholders set the total annual attendance fees to be distributed among non-employee directors at 176,000. The following table sets forth information regarding the compensation earned by our non-employee directors for service on our board of directors during the year ended December 31, 2015.

 

 

 

NAME

   FEES EARNED
(€) 
     WARRANTS
(€)
     TOTAL (€)  

Galenos SPRL

     38,000         335,208         373,208   

Philippe Archinard

     40,000        
335,208
  
     375,208   

Martine Ortin George

     32,000         335,208         367,208   

Hilde Windels 

     36,000         335,208         371,208   

Luc Dochez

     25,671         335,208         360,879   

 

 

Executive Director Compensation

The following table sets forth information regarding compensation earned by Gil Beyen, our Chairman and Chief Executive Officer, during the year ended December 31, 2015.

 

 

 

NAME AND PRINCIPAL POSITION

   SALARY
(€)
    BONUS
(€)
     EQUITY
AWARDS
(€)
     ALL OTHER
COMPENSATION
(€)
    TOTAL
(€)
 

Gil Beyen

Chief Executive Officer and Chairman of the Board

     270,000  (1)      135,000  (2)       62,991         9,037  (3)      477,028   

 

 

(1)    Reflects gross remuneration before taxes.
(2)    Reflects compensation received for achievement of strategic goals related to (i) the MAA application procedure; (ii) the acceleration of activities in the United States; and (iii) the launch and development of other clinical programs.
(3)    Reflects vehicle rental, gas cards and an unemployment insurance policy with the Garantie Sociale des Chefs et Dirigeants d’Entreprise.

 

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The following table sets forth information regarding compensation earned by Pierre-Olivier Goineau, our former Vice Chairman, director and Chief Operating Officer, during the year ended December 31, 2015. Mr. Goineau resigned on January 11, 2015.

 

NAME AND PRINCIPAL POSITION

   SALARY
(€)
    BONUS
(€)
     EQUITY
AWARDS
(€)
     ALL OTHER
COMPENSATION
(€)
    TOTAL
(€)
 

Pierre-Olivier Goineau

Former Chief Operating Officer and Vice Chairman of the Board

     5,742  (1)                      3,837  (2)      9,579   

 

 

(1)    Reflects gross remuneration before taxes.
(2)    Reflects vehicle rental, gas cards and an unemployment insurance policy with the Garantie Sociale des Chefs et Dirigeants d’Entreprise.

Executive Compensation Arrangements

For a discussion of our employment arrangements with our executive officers, see the section of this prospectus titled “Certain Relationships and Related Person Transactions—Arrangements with Our Directors and Executive Officers.” Except for the arrangements described in such section, there are no arrangements or understanding between us and any of our other executive officers that provide for benefits upon termination of their employment, other than as required by applicable law.

Limitations on Liability and Indemnification Matters

Under French law, provisions of bylaws that limit the liability of directors are prohibited. However, French law allows sociétés anonymes to contract for and maintain liability insurance against civil liabilities incurred by any of their directors and officers involved in a third-party action, provided that they acted in good faith and within their capacities as directors or officers of the company. Criminal liability cannot be indemnified under French law, whether directly by the company or through liability insurance.

We have liability insurance for our directors and officers, and intend to obtain insurance coverage for liability under the Securities Act. We also intend to enter into agreements with our directors and executive officers to provide contractual indemnification. With certain exceptions and subject to limitations on indemnification under French law, these agreements will provide for indemnification for damages and expenses including, among other things, attorneys’ fees, judgments and settlement amounts incurred by any of these individuals in any action or proceeding arising out of his or her actions in that capacity. We believe that this insurance and these agreements are necessary to attract qualified directors and executive officers.

These agreements may discourage shareholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and executive officers, even though such an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these insurance agreements.

Equity Incentives

We believe our ability to grant equity incentives are a valuable and necessary compensation tool that allows us to attract and retain the best available personnel for positions of substantial responsibility, provides additional incentives to employees and promotes the success of our business. Due to French corporate law and tax considerations, we have historically granted several different equity incentive instruments to our directors, executive officers, employees and other service providers, including:

 

  n   founder’s share warrants (otherwise known as bons de souscription de parts de créateurs d’entreprise, or BSPCE), which are granted to our officers and employees; and

 

  n   share warrants (otherwise known as bons de souscription d’actions, or BSA), which have historically only been granted to non-employee directors.

 

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Our board of directors’ authority to grant these warrants and the aggregate amount authorized to be granted must be approved by a two-thirds majority of the votes held by our shareholders present, represented or voting by authorized means, at the relevant extraordinary shareholders’ meeting. Once approved by our shareholders, our board of directors can continue to grant such awards for 18 months for founder’s share warrants (BSPCE) and share warrants (BSA) authorized by the shareholders.

We have not historically issued any options, employee shares or free shares to our directors or executive officers.

We have two share-based compensation plans for our executive officers, non-employee directors and employees, the 2012 Plan and the 2014 Plan. In general, founder’s share warrants and share warrants no longer continue to vest following termination of the employment, office or service of the holder and all vested shares must be exercised within post-termination exercise periods set forth in the grant documents. In the event of certain changes in our share capital structure, such as a consolidation or share split or dividend, French law and applicable grant documentation provides for appropriate adjustments of the numbers of shares issuable and/or the exercise price of the outstanding warrants.

The number of ordinary shares that will be outstanding after this offering is based on 7,924,611 ordinary shares outstanding as of December 31, 2015 and excludes:

 

  n   300,300 ordinary shares issuable upon the exercise of founder’s share warrants (BSPCE) and share purchase warrants (BSA) granted but not exercised as of December 31, 2015 at a weighted average exercise price of 8.56 ($9.29) per ordinary share; and

 

  n   155,030 ordinary shares (including 90,000 ordinary shares issuable upon the exercise of BSA and BSPCE granted to Senior Management but not yet vested) reserved for future issuance under our share-based compensation plans and other delegations of authority from our shareholders.

Founder’s Share Warrants (BSPCE)

Founder’s share warrants have traditionally been granted to certain of our employees who were French tax residents because the warrants carry favorable tax and social security treatment. Similar to options, founder’s share warrants entitle a holder to exercise the warrant for the underlying vested shares at an exercise price per share determined by our board of directors and at least equal to the fair market value of an ordinary share on the date of grant. However, unlike options, the exercise price per share is fixed as of the date of implementation of the plans pursuant to which the warrants may be granted, rather than as of the date of grant of the individual warrants.

We have issued two types of founder’s share warrants as follows:

 

Plan Title

  

BSPCE 2014

  

BSPCE 2012

Meeting date    April 2, 2013    May 21, 2012
Dates of allocation   

January 22, 2014

June 23, 2015

  

May 31, 2012

July 18, 2013

July 17, 2014

Total number of BSPCEs authorized    19,500(1)    33,787
Total number of BSPCEs granted    13,500(2)    33,787
Start date for the exercise of the BSPCEs    For senior management, three-year vesting period; for other employees, immediately upon grant    May 6, 2013
BSPCE expiry date    January 22, 2024    May 20, 2020
BSPCE exercise price per share    12.250    7.362
Number of shares subscribed as of December 31, 2015   

1,400

   163,520
Total number of BSPCEs granted but not exercised as of December 31, 2015    13,360    17,435
Total number of shares available for subscription as of December 31, 2015    133,600    174,350
Maximum number of new shares that can be issued    193,600    174,350

 

(1)  22,500 BSPCE2014 were originally allocated by the board of directors on January 22, 2014. On December 4, 2014, the board of directors approved the conversion of 3,000 BSPCE2014 into 3,000 BSA2014.
(2)  Excluding 1,000 BSPCE initially allocated to Yann Godfrin which are forfeited following his resignation in January 2016.

 

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Our shareholders, or pursuant to delegations granted by our shareholders, our board of directors, determines the recipients of the warrants, the dates of grant, the number and exercise price of the founder’s share warrants to be granted, the number of shares issuable upon exercise and certain other terms and conditions of the founder’s share warrants, including the period of their exercisability and their vesting schedule.

Share Warrants (BSA)

Share warrants have historically only been granted to our non-employee directors. Similar to options, share warrants entitle a holder to exercise the warrant for the underlying vested shares at an exercise price per share determined by our board of directors and at least equal to the fair market value of an ordinary share on the date of grant. However, unlike options, the exercise price per share is fixed as of the date of implementation of the plans pursuant to which the warrants may be granted, rather than as of the date of grant of the individual warrants.

We have issued two types of share warrants as follows:

 

Plan title

  

BSA 2014

  

BSA 2012

Meeting date    April 2, 2013    May 21, 2012
Dates of allocation   

June 23, 2015

  

May 31, 2012

August 3, 2012

July 18, 2013

July 17, 2014

April 29, 2015

      August 31, 2015
Total number of BSAs authorized    3,000(1)    11,263
Total number of BSAs granted    3,000   

10,760

Start date for the exercise of the BSAs   

Three-year vesting period for senior management

   May 6, 2013
BSA expiry date    January 22, 2024    May 20, 2020
BSA exercise price per share    12.25    7.362
Number of shares subscribed as of December 31, 2015   

0

   55,250
Total number of BSAs granted but not exercised as of December 31, 2015    3,000   

5,235

Total number of shares available for subscription as of December 31, 2015    30,000   

52,350

Maximum number of new shares that can be issued    30,000   

57,380

 

(1)  Reflects conversion of 3,000 BSPCE2014 into 3,000 BSA2014 pursuant to a decision of the board of directors on December 4, 2014.

Our shareholders, or pursuant to delegations granted by our shareholders, our board of directors, determines the recipients of the warrants, the dates of grant, the number and exercise price of the share warrants to be granted, the number of shares issuable upon exercise and certain other terms and conditions of the share warrants, including the period of their exercisability and their vesting schedule.

 

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Since January 1, 2013, we have engaged in the following transactions with our directors, executive officers and holders of more than 5% of our outstanding voting securities and their affiliates, which we refer to as our related parties.

Transactions with Our Principal Shareholders

Initial Public Offering

On April 30, 2013, we issued 1,524,334 ordinary shares in connection with our initial public offering of our ordinary shares on Euronext Paris, for an aggregate purchase price of 17.7 million at a purchase price per share of 11.60. The following table summarizes the ordinary shares acquired in connection with this offering by our executive officers, directors and holders of more than 5% of our outstanding voting securities.

 

 

 

NAME OF SHAREHOLDER

   NUMBER OF ORDINARY SHARES
PURCHASED
     AGGREGATE PURCHASE
PRICE (€)
 

Auriga Ventures III FCPR

     257,392         2,985,747   

Recordati Orphan Drugs s.a.s.

     257,392         2,985,797   

Idinvest Partners

     431,034         4,999,994   

 

 

On April 30, 2013, in connection with our initial public offering, Auriga Partners and Idinvest Partners each converted their convertible bonds into an aggregate of 862,068 ordinary shares. Auriga Partners and Idinvest Partners were also entitled to receive accrued interest on their convertible bonds and elected to convert the accrued interest thereon into additional ordinary shares. In consideration of their election to convert the outstanding accrued interest into shares, we paid 120,000 to each of them.

December 2015 Offering

In December 2015, we issued an aggregate of 940,000 ordinary shares in an offering to institutional investors in the United States and Europe at an issue price of 27.00 per share for a total aggregate purchase price of 25.4 million. Baker Brothers Advisors LP, a holder of more than 5% of our outstanding voting securities, purchased 90,678 ordinary shares in the offering for an aggregate purchase price of 2,448,306. No other securities were purchased in the offering by our executive officers, directors or a holder of more than 5% of our outstanding voting securities.

Arrangements with our Directors and Executive Officers

Severance Pay

On May 24, 2013, the board of directors approved terms for severance pay to be awarded under certain conditions to our then-executive officers: Messrs. Beyen and Goineau and Dr. Godfrin. Mr. Goineau resigned effective January 11, 2015 and Dr. Godfrin resigned effective January 18, 2016. The agreement provided that, in the event of expiration of the executive’s term of office (except where renewal is rejected by the executive) or in the event of revocation (unless the executive has been revoked for gross negligence or willful misconduct as that term is defined by the labour chamber of the French Supreme Court), the executive is entitled to severance equal to 12 times the average of monthly remuneration (bonuses included) received during the 12 months preceding the revocation decision or the expiration of the executive’s term of office. The payment of the compensation shall be subject to the performance of the following conditions: (i) respect of our company’s budget and expenditures and (ii) at least one of the following conditions: (a) an agreement of collaboration or a current license, and (b) one product in an active phase of clinical development by the company. No related expense has been recorded to date.

Profit-Sharing Agreement

On November 29, 2013, we implemented a profit-sharing agreement covering the period from January 1, 2014 to December 31, 2016 for the benefit of certain employees and for the benefit of Messrs. Beyen and Goineau and Dr. Godfrin. Mr. Goineau resigned effective January 11, 2015 and Dr. Godfrin resigned effective January 18, 2016. They are no longer participants in such plan. Under the terms of the agreement, a percentage of each executive’s

 

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gross annual remuneration at December 31 of each year is distributed (i) to the executive’s beneficiaries (subject to certain ceilings) and (ii) upon completion of certain performance objectives. The profit-sharing percentage of the gross annual remuneration was set at 2.5% in 2014 and increased to 4% in 2015.

Employment Agreement with Jérôme Bailly

In January 2014, we entered into an employment agreement with Dr. Bailly, which was amended as of January 2015. He is entitled to an annual base salary set at 90,000, and variable compensation upon achievement of specified performance objectives.

Employment Agreement with Eric Soyer

In September 2015, we entered into an employment agreement with Mr. Soyer that provides for an annual base salary and variable compensation, up to 35% of his base salary, based upon achievement of specified performance objectives. This employment agreement also provides for severance pay to Mr. Soyer in specified situations. In the event of his termination in the absence of gross negligence or willful misconduct, Mr. Soyer will be entitled to an amount equal to six months’ base salary, plus an additional three months’ base salary for each full year Mr. Soyer has worked for us, up to a maximum of 12 months’ base salary in total, in addition to any additional indemnity as provided for by French law. In connection with a change of control of our company, if Mr. Soyer is terminated in the absence of gross negligence or willful misconduct or resigns pursuant to suffering a diminution of his job duties, or in the event of a mutually agreed termination (rupture conventionnelle) under French law, he will be entitled to an amount equal to 12 times the average of monthly remuneration, including bonuses, received during the 12 months preceding the termination.

Other Arrangements

We have entered into other compensatory arrangements with Messrs. Beyen, Soyer and Goineau and Drs. Bailly and Godfrin, which have been ratified by our board of directors. The primary arrangements are summarized in the table below.

 

NAME

   SAVINGS
PLAN
(PEE)
     RETIREMENT
SAVINGS
PLAN
(PERCO)
     FINANCIAL
ASSISTANCE
FOR THE
MANAGEMENT
OF
SECURITIES
     TAX
ASSISTANCE
 

Gil Beyen

     X         X         X         X   

Yann Godfrin (1)

     X         X         X      

Eric Soyer

     X         X         

Pierre-Olivier Goineau (2)

           X      

Jérôme Bailly

     X         X         

 

(1)  Dr. Godfrin resigned effective January 18, 2016 and no longer receives the benefits of the above arrangements.
(2)  Mr. Goineau resigned effective January 11, 2015 and no longer receives the benefits of the above arrangements.

Indemnification Agreements

In connection with this offering, we intend to enter into indemnification agreements with each of our directors and executive officers. See the section of this prospectus titled “Management—Limitations on Liability and Indemnification Matters.”

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Related Person Transaction Policy

We comply with French law regarding approval of transactions with related parties. Prior to the closing of this offering, we expect to adopt a related person transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions. The policy will become effective immediately upon the closing of this offering. For purposes of our policy only, a related person transaction is defined as (i) any transaction, arrangement or relationship (or any series of similar transactions, arrangements or

 

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relationships) in which we and any related person are, were or will be participants in and the amount involved exceeds $120,000, or (ii) any agreement or similar transaction under French law which falls within the scope of Article L. 225-38 of the French Commercial Code. A related person is any executive officer, director or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.

Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our board of directors for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant shareholder to enable us to identify any existing or potential related-person transactions and to effectuate the terms of the policy.

In addition, under our Code of Business Conduct and Ethics, which we intend to adopt in connection with this offering, our employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest.

In considering related person transactions, our board of directors will take into account the relevant available facts and circumstances including, but not limited to:

 

  n   the risks, costs and benefits to us;

 

  n   the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

 

  n   the availability of other sources for comparable services or products; and

 

  n   the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.

The policy requires that, in determining whether to approve, ratify or reject a related person transaction, our board of directors must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our shareholders, as our board of directors determines in the good faith exercise of its discretion.

All of the transactions described above were entered into prior to the adoption of the written policy, but all were approved by our board of directors in compliance with French law.

 

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PRINCIPAL SHAREHOLDERS

The following table and accompanying footnotes sets forth, as of February 29, 2016, information regarding beneficial ownership of our ordinary shares by:

 

  n   each person, or group of affiliated persons, known by us to beneficially own more than 5% of our ordinary shares;

 

  n   each of our executive officers;

 

  n   each of our directors; and

 

  n   all of our executive officers and directors as a group.

Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options and warrants that are currently exercisable or exercisable within 60 days of February 29, 2016. Shares subject to warrants currently exercisable or exercisable within 60 days of February 29, 2016 are deemed to be outstanding for computing the percentage ownership of the person holding these warrants and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage of any other person.

Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named in the table below have sole voting and investment power with respect to all shares shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Sections 13(d) and 13(g) of the Securities Act.

Our calculation of the percentage of beneficial ownership prior to this offering is based on 7,931,781 of our ordinary shares outstanding as of February 29, 2016. We have based our calculation of the percentage of beneficial ownership after this offering on                     of our ordinary shares outstanding immediately after the closing of this offering, assuming no exercise of the underwriters’ option to purchase additional ADSs and ordinary shares.

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o ERYTECH Pharma S.A., Bâtiment Adénine, 60 Avenue Rockefeller, 69008 Lyon, France.

 

 

 

NAME OF BENEFICIAL OWNER

  NUMBER OF
SHARES
BENEFICIALLY
OWNED
    PERCENTAGE OF SHARES
BENEFICIALLY OWNED
    BEFORE
OFFERING
    AFTER
OFFERING

5% Shareholders:

     

Auriga Ventures III FCPR (1)

    1,147,522        14.5  

Baker Bros. Advisors LP (2)

    764,705        9.6     

JPMorgan Asset Management (UK) Limited

    539,712        6.8     

Recordati Orphan Drugs s.a.s. (3)

    431,034        5.4     

Directors and Executive Officers:

     

Gil Beyen (4)

    98,630        1.2     

Eric Soyer

               

Iman El-Hariry (4)

    10,000        *     

Jérôme Bailly (5)

    15,880        *     

Galenos SPRL (6)

    16,670        *     

Philippe Archinard

    15,170        *     

Luc Dochez (4)

    8,670        *     

Martine Ortin George (4)

    12,170        *     

Hilde Windels (4)

    12,170        *     

All directors and executive officers as a group (9 persons) (7)

    189,360        2.3     

 

 

 

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*   Represents beneficial ownership of less than 1%.

 

(1)   Jacques Chatin, Bernard Daugeras and Patrick Bamas are managers of Auriga Ventures III FCPR, or Auriga, and exercise voting and investment power with respect to shares held by Auriga. The managers disclaim beneficial ownership of all shares held by Auriga Ventures, III FCPR, except to the extent of their pecuniary interest therein. The address of Auriga is c/o Auriga Partners, 18 avenue Matignon—75008 Paris, France.

 

(2)   The address of Baker Bros. Advisors LP is 667 Madison Ave., 21st Floor, New York, NY 10065. Julian C. Baker and Felix J. Baker are the managing partners of Baker Bros. Advisors LP and may be deemed to be beneficial owners of securities of the company directly held by Baker Bros. Advisors LP, and may be deemed to have the power to vote or direct the vote of and the power to dispose or direct the disposition of such securities. Julian C. Baker and Felix J. Baker disclaim beneficial ownership of the securities held directly by Baker Bros. Advisors LP, except to the extent of their pecuniary interest.

 

(3)   Recordati Orphan Drugs s.a.s. is an affiliate of Recordati S.p.A. Recordati Orphan Drugs is controlled by Recordati S.A. Chemical and Pharmaceutical Company, which is a wholly owned subsidiary of Recordati Chimica E Farmaceutica S.p.A., a public company listed on the Italian Stock Exchange. The address of Recordati Orphan Drugs is 70 avenue du Général de Gaulle—92800 Puteaux, France.

 

(4)    Consists of shares issuable upon exercise of warrants that are exercisable within 60 days of February 29, 2016.

 

(5)    Consists of 2,040 ordinary shares and 13,840 shares issuable upon exercise of warrants that are exercisable within 60 days of February 29, 2016.

 

(6)    Consists of 4,500 ordinary shares and 12,170 shares issuable upon exercise of warrants that are exercisable within 60 days of February 29, 2016. These shares and warrants are held by Galenos SPRL, the legal entity that holds this board seat. Galenos SPRL is controlled by Sven Andréasson, who currently serves as its representative on our board of directors.

 

(7)    Consists of 21,710 ordinary shares and 167,650 shares issuable upon exercise of warrants that are exercisable within 60 days of February 29, 2016.

 

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DESCRIPTION OF SHARE CAPITAL

General

The following description of our share capital summarizes certain provisions of our bylaws. Such summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of our bylaws, a copy of which has been filed as an exhibit to the registration statement of which this prospectus forms a part.

As of December 31, 2015, our outstanding share capital consisted of a total of 7,924,611 ordinary shares, with nominal value 0.10 per share.

As of February 29, 2016, to our knowledge, approximately 796,334, or 10%, of our outstanding ordinary shares were held by 19 shareholders of record in the United States.

Under French law, our bylaws set forth only our issued and outstanding share capital as of the date of the bylaws. Our fully diluted share capital represents all issued and outstanding shares, as well as all potential shares which may be issued upon exercise of outstanding founder’s share warrants and share warrants, as approved by our shareholders and granted by our board of directors.

Upon closing of the offering, our outstanding share capital will consist of                     ordinary shares, nominal value 0.10 per share (or                 if the underwriters exercise their option to purchase ADSs and ordinary shares in full).

Reconciliation of the Shares Outstanding Prior to This Offering

 

 

 

Shares outstanding at December 31, 2014

     6,882,761   

Number of shares issued in connection with the exercise of founder’s share warrants and share warrants

     101,850   

Number of ordinary shares issued on December 7, 2015 in connection with the share capital increase authorized on December 3, 2015……………

     940,000   
  

 

 

 

Shares outstanding at December 31, 2015

     7,924,611   

 

 

History of Securities Issuances

From January 1, 2013 through March 25, 2016, the following events have changed the number and classes of our issued and outstanding shares:

 

  n   On April 30, 2013, in connection with