F-1 1 d893510df1.htm FORM F-1 Form F-1
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As filed with the United States Securities and Exchange Commission on May 18, 2015.

Registration No. 333-        

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CELYAD SA

(Exact name of registrant as specified in its charter)

 

 

 

Belgium

(State or other jurisdiction of

incorporation or organization)

 

2834

(Primary Standard Industrial

Classification Code Number)

 

Not applicable

(I.R.S. Employer

Identification Number)

Rue Edouard Belin 12

1435 Mont-Saint-Guibert, Belgium

+32 10 394 100

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

 

 

CT Corporation System

111 8th Avenue

New York, New York 10011

(212) 894-8800

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

 

 

 

Mitchell S. Bloom

Michael H. Bison

Laurie A. Burlingame

Goodwin Procter LLP

Exchange Place

53 State Street

Boston, MA 02109

(617) 570-1000

 

Pierre-Olivier Mahieu

Sophie Rutten

Allen & Overy LLP

Avenue de Tervueren 268A

1150 Brussels, Belgium

+ 32 2 780 2222

 

Marc Recht

Divakar Gupta

Richard Segal

Cooley LLP

500 Boylston Street

Boston, MA 02116

(617) 937-2300

  

Laurent Legein

Wim Dedecker

Cleary Gottlieb Steen & Hamilton LLP

57 rue de la Loi

1040 Brussels, Belgium

+ 32 2 287 2000

 

 

Approximate date of commencement of proposed sale to public:

As soon as practicable after this Registration Statement becomes effective.

 

 

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

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

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

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)
 

Amount of

Registration Fee

Ordinary Shares, no nominal value(3)

  $115,000,000   $13,363

 

 

(1)    Includes (a) additional ordinary shares which the underwriters have the option to purchase, and (b) ordinary shares which are being offered in a private placement in Europe and other countries outside of the United States and Canada but which may be resold from time to time in the United States in transactions requiring registration under the Securities Act or an exemption therefrom. The total number of ordinary shares in the U.S. offering and the European private placement is subject to reallocation between them. All or part of these ordinary shares may be represented by American Depositary Shares, or ADSs.
(2)    Estimated solely for the purpose of computing the amount of the registration fee pursuant to Section 457(o) of the Securities Act. Includes the aggregate offering price of additional shares and ADSs that the underwriters have the option to purchase.
(3)    All ordinary shares will be represented by ADSs in the U.S. offering, with each ADS representing one ordinary share. ADSs issuable upon deposit of the ordinary shares registered hereby are being registered pursuant to a separate Registration Statement on Form F-6.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), 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 we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

 

PRELIMINARY PROSPECTUS   Subject to Completion   May 18, 2015

 

Celyad SA

                     Ordinary Shares

Including Ordinary Shares in the Form of American Depositary Shares

 

LOGO

 

 

We are offering                      of our ordinary shares in a global offering.

We are offering                      ordinary shares in the form of American Depositary Shares, or ADSs, through the underwriters named in this prospectus. The ADSs will be evidenced by American Depositary Receipts, or ADRs, and each ADS represents the right to receive one ordinary share. We have granted the underwriters an option to purchase up to an additional                  ordinary shares in the form of ADSs in the U.S. offering.

We are offering                  ordinary shares in Europe and countries outside of the United States and Canada in a concurrent private placement, or the European private placement, through the underwriters named in this prospectus. We have granted the underwriters an option to purchase up to an additional                  ordinary shares in the European private placement.

The closings of the U.S. offering and the European private placement will be conditioned on each other. The total number of ordinary shares in the U.S. offering and the European private placement is subject to reallocation between them.

This is our initial public offering in the United States. We intend to apply to have the ADSs listed on the NASDAQ Global Market under the symbol “CYAD.” Our ordinary shares have been listed on Euronext Brussels and Euronext Paris since July 5, 2013 under the symbol “CYAD.” On             , 2015, the last reported sale price of our ordinary shares on Euronext Brussels was €             per share, equivalent to a price of $             per ADS, assuming an exchange rate of €             per U.S. dollar.

We are an “emerging growth company” as defined under the United States federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

Investing in our ordinary shares or ADSs involves risks. Before buying any ADSs or ordinary shares, you should carefully read the discussion of material risks of investing in our ADSs and our ordinary shares in “Risk Factors” beginning on page 12 of this prospectus.

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

 

 

 

      Per Share    Per ADS    Total
Public offering price                             $                        $                    
Underwriting commissions(1)                             $                        $                    
Proceeds, before expenses to us,                             $                        $                    

 

(1)    We refer you to “Underwriting” beginning on page 206 for additional information regarding total underwriting compensation.

 

(2)    Total gross proceeds from the global offering, including the European private placement, are $            . Such proceeds less underwriting commissions are $            .

The underwriters expect to deliver the ADSs to purchasers on or about                 , 2015 through the book-entry facilities of The Depository Trust Company. The underwriters expect to deliver the ordinary shares to purchasers on or about                 , 2015 through the book-entry facilities of Euroclear Belgium.

 

 

UBS Investment Bank   Piper Jaffray

 

 

            , 2015


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You should rely only on the information contained in this prospectus or contained in any free writing prospectus that we file or authorize to be filed with the United States Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus that we file or authorize to be filed with the United States Securities and Exchange Commission. We and the underwriters are offering to sell, and seeking offers to buy, our securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, or such other dates as are stated in this prospectus, regardless of the time of delivery of this prospectus or of any sale of our securities.

TABLE OF CONTENTS

 

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     12   

FORWARD-LOOKING STATEMENTS

     57   

CURRENCY EXCHANGE RATES

     59   

MARKET INFORMATION

     60   

USE OF PROCEEDS

     61   

DIVIDEND POLICY

     63   

CAPITALIZATION

     64   

DILUTION

     66   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     69   

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

     71   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     95   

BUSINESS

     101   

MANAGEMENT

     140   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     158   

PRINCIPAL SHAREHOLDERS

     164   

DESCRIPTION OF SHARE CAPITAL

     166   

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     182   

SHARES AND ADSs AVAILABLE FOR FUTURE SALE

     191   

MATERIAL INCOME TAX CONSIDERATIONS

     194   

ENFORCEMENT OF CIVIL LIABILITIES

     204   

UNDERWRITING

     206   

EXPENSES OF THE GLOBAL OFFERING

     214   

LEGAL MATTERS

     215   

EXPERTS

     216   

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     217   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

 

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit the global 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 global offering of the ADSs or the ordinary shares and the distribution of this prospectus outside the United States.

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

 

 

 

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

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

 

 

 

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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 the ADSs or the ordinary shares. You should read the entire prospectus carefully, including “Risk Factors” and our consolidated 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, “Celyad,” “the company,” “our company,” “we,” “us” and “our” refer to Celyad SA and its consolidated subsidiaries.

BUSINESS OVERVIEW

We are a leader in engineered cell therapy treatments with clinical programs initially targeting indications in cardiovascular disease and oncology. Our lead drug product candidate in cardiovascular disease is C-Cure, an autologous cell therapy for the treatment of patients with ischemic heart failure, or HF. We completed enrollment in our first Phase 3 clinical trial of C-Cure in Europe and Israel, or CHART-1, in March 2015. On March 30, 2015, we announced that the Data Safety Monitoring Board, or DSMB, reviewed unblinded safety data from CHART-1 and determined that there was no evidence of obvious differences in safety profiles of patients in the two arms of the trial, which means that the data did not support discontinuation of the trial on the basis of safety. The full data readout from this trial is expected in the middle of 2016. We anticipate initiating our second Phase 3 clinical trial of C-Cure in the United States and Europe, or CHART-2, pending U.S. Food and Drug Administration, or FDA, lifting of the existing clinical hold, which we expect in the second half of 2015. Our lead drug product candidate in oncology is CAR-NKG2D, an autologous chimeric antigen receptor, or CAR, an artificial, lab engineered receptor, which is used to graft a given protein onto an immune cell, T lymphocyte, or CAR T-cell, therapy. We are currently enrolling patients with refractory or relapsed acute myeloid leukemia, or AML, or multiple myeloma, or MM, in a Phase 1 clinical trial of CAR-NKG2D in the United States. Interim data from this trial is expected to be reported at various times during the trial, with the full data readout expected in the middle of 2016.

All of our current drug product candidates are autologous cell therapy treatments. In autologous procedures, a patient’s cells are harvested, selected, reprogrammed and expanded, and then infused back into the same patient. A benefit of autologous therapies is that autologous cells are not recognized as foreign by patients’ immune systems. We believe that we are well situated to effectively advance autologous cell therapy treatments for cancer and other indications as a result of the expertise and know-how that we have acquired through our development of C-Cure.

 

 

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OUR PRODUCT CANDIDATE PIPELINE

LOGO

C-CURE FOR ISCHEMIC HEART FAILURE

Cardiovascular diseases, which are diseases of the heart and blood vessels, are the largest cause of mortality in the world and, in 2012, approximately 31% of all global deaths were attributable to cardiovascular diseases according to the World Health Organization. If left untreated, cardiac diseases can lead to HF, a condition in which the heart is unable to pump enough blood to meet the body’s metabolic needs. HF affects 1% to 2% of the adult population in developed countries and approximately 5.7 million patients were diagnosed with HF in the United States in 2012, according to the American Heart Association. HF can either be of ischemic origin, linked to impairment of blood flow to the heart muscle, or non-ischemic origin, linked to other causes such as hypertension and metabolic disorders. In the Bromley heart failure study, 52% of the patients had HF of ischemic origin. Other studies have reported lower rates of ischemic HF, but such differences can be explained by differences in study population, definitions and timing of when the study was completed. The long-term prognosis associated with HF is dire, with approximately 50% mortality at five years following initial diagnosis according to a 2014 report from the American Heart Association. HF is classified according to the severity of the symptoms experienced by the patient. The classification most commonly used in the New York Heart Association, or NYHA, classification, where patients are classified from Class I, where there is no limitation on a patient’s physical activity to Class IV, where the patient is unable to carry on any physical activity without discomfort. Although existing therapies have been somewhat effective in the treatment of HF, there is still great unmet medical need. In particular, in the case of ischemic HF, which is caused by insufficient oxygen to the heart, current treatments fail to address the decrease in the number of functional myocytes, or heart cells, in the heart that result from this lack of oxygen.

Our lead drug product candidate, C-Cure, is an autologous cell therapy that we believe has the potential to treat patients with NYHA, Classes II, III and IV ischemic HF. To guide cardiac tissue formation, our C-Cure therapy reprograms multipotent stem cells harvested from a patient into cardiopoietic cells, cells that can become myocytes, using naturally occurring cytokines, small proteins that play an important role in cell

 

 

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signaling, and growth factors that mimic the signaling that occurs in embryonic heart tissue development. Based on pre-clinical studies, we have identified both direct and indirect modes of action for C-Cure. The direct mode may replace non-functioning myocytes. In the indirect modes, factors secreted by the cardiopoietic cells may cause patients’ resident stem cells to begin pooling, regenerating and differentiating into cardiac cells, with the resulting favorable environment inducing the non-functioning myocytes to regain function. We have developed C-Cure predominantly based on technology that we licensed from the Mayo Foundation for Medical Education and Research, or the Mayo Clinic. To assist in the reinjection of cardiopoietic cells, we have also developed C-Cathez, which we believe will achieve a higher retention rate of cells in the heart relative to the commercial catheter we used in our prior clinical trial.

In the C-Cure process, stem cells are collected from an ischemic HF patient through bone marrow aspiration during an outpatient procedure. The stem cells are then harvested, selected, expanded and differentiated into cardiopoietic cells at our manufacturing facility, yielding a homogeneous and pure cardiopoietic cell population. The cardiopoietic cells are then re-injected into the heart of the ischemic HF patient with our C-Cathez cell injection catheter.

Phase 2 Clinical Trial

The first human clinical Phase 2 trial for C-Cure was completed in 2012. A total of 45 ischemic HF patients were enrolled in this trial, with the primary endpoint being the safety and feasibility of C-Cure. Positive outcomes were observed in this trial. Patients treated with C-Cure showed a 25% relative improvement of median left ventricular ejection fraction, or LVEF, which is the percentage of blood that is pumped out of the heart at each beat, at six months versus baseline, whereas untreated patients showed a relative improvement of 0.7% versus baseline. Patients treated with C-Cure also demonstrated an improved exercise capacity as measured by the six minutes walking distance test, or six minutes WDT, which measures the distance a patient can walk in a six minute period. The C-Cure treatment group’s walking distance improved by 77 meters compared to the control group.

Phase 3 Clinical Program

We are pursuing clinical development of C-Cure through a comprehensive Phase 3 program comprised of two Phase 3 clinical trials, CHART-1 and CHART-2.

CHART-1

CHART-1 is being conducted in the Europe and Israel and was first authorized in November 2012. CHART-1 is a 240 patient prospective controlled randomized double-blinded trial, including NYHA Class III and IV ischemic HF patients, with each patient having a 50% chance of being assigned to the C-Cure treatment group or the control group. The primary endpoint of this trial is an improvement in the composite hierarchical endpoint comprised of mortality, morbidity, quality of life, six minutes WDT, left ventricular end systolic volume and LVEF. Each patient in the C-Cure treatment group will be compared to each patient in the control group and a comprehensive score will be derived to compare one group against the other.

As of the date of this prospectus, we have completed enrollment of all patients in this trial at over 30 trial sites in Europe and Israel. On March 30, 2015, we announced that DSMB reviewed unblinded safety data from CHART-1 and determined that there was no evidence of obvious differences in safety profiles of patients in the two arms of the trial, which means that the data did not support discontinuation of the trial on the basis of safety. The full data readout from this trial is expected in the middle of 2016.

CHART-2

CHART-2 is expected to be conducted in the United States and Europe. CHART-2 is a 240 patient prospective controlled randomized double-blinded trial, including NYHA Class III and IV ischemic HF

 

 

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patients, with each patient having a 50% chance of being assigned to the C-Cure treatment group or the control group. Our Investigational New Drug Application, or IND, for the use of C-Cure in CHART-2 was initially submitted to the FDA in January 2012. This IND became effective in December 2013 for administration of the cells with Myostar, a catheter used for the injection of therapeutic agents into the heart, and manufactured by Biologics Delivery Systems Group, Cordis Corporation, a Johnson & Johnson company. Prior to initiating the trial, in September 2014, we filed an amendment to the IND requesting among other changes to the initial submission, the use of our proprietary cell injection catheter called C-Cathez. In January 2015, the FDA issued a clinical hold on CHART-2. Most of the clinical hold questions request clarifications on the design dossier of C-Cathez, while the remaining questions relate to providing updated safety information on CHART-1, defining CHART-2 stopping rules, and a request to measure troponin, a cardiac marker of injury, at day 30 post baseline procedure. We anticipate responding to the clinical hold questions in the third quarter of 2015 once all safety data from CHART-1 is available, and pending the FDA’s lifting of the clinical hold, initiating CHART-2 during the second half of 2015.

CAR T-CELL THERAPY FOR ONCOLOGY

Our approach to CAR T-cell therapy has the potential to treat a wider range of cancers than other CAR T-cell therapies that target the CD19 antigen, or CD19 CAR Therapy. Our lead CAR T-cell drug product candidate is CAR-NKG2D, which has shown promising data in pre-clinical solid and blood cancer models, including for the treatment of lymphoma, ovarian cancer and myeloma. CAR-NKG2D is constructed using the native sequence of non-engineered natural killer, or NK, cell receptors that target ligands present in numerous cancer cells. Ligands are substances bound together to form a larger complex, such as an antigen bound to other molecules. Accordingly, our technology has the potential to attack and kill a broad range of solid and blood cancers, while CD19 CAR Therapy is typically only effective in treating B lymphocyte, or B-cell, malignancies.

In pre-clinical studies, treatment with CAR-NKG2D significantly increased survival. In some studies, 100% of treated mice survived through the follow-up period of the applicable study, which in one study was 325 days. All untreated mice died during the follow-up period of the applicable study. We are currently enrolling patients with certain types of AML or MM in a Phase1 clinical trial to test the safety and feasibility of single-dose intravenous administration of CAR-NKG2D without prior lymphodepletion conditioning, which is the destruction of lymphocytes and T-cells, normally by radiation. This trial is being conducted at the Dana Farber Cancer Institute in the United States and interim data is expected to be reported throughout the trial, with the full data readout expected in the middle of 2016. On April 20, 2015, we announced that the first patient in this trial had been treated with the first dose of CAR-NKG2D, and that no short term adverse events were observed in this patient. A pre-defined, staggered enrollment of two additional patients at the same dose level is expected to occur after an additional 30-day safety assessment of the first treated patient. We obtained access to our CAR T-cell drug product candidates and related technology, including technology licensed from the Trustees of Dartmouth College, or Dartmouth College, in January 2015, through our purchase of OnCyte, LLC, or OnCyte, a wholly-owned subsidiary of Celdara Medical, LLC, a privately-held U.S. biotechnology company.

OUR STRATEGY

Our goal is to be a leader in engineered cell therapy treatments, initially focused on cardiovascular disease and oncology. The key elements of our strategy are as follows:

 

Ø   Complete our Phase 3 clinical program for C-Cure and thereafter file marketing applications for, and begin commercialization of, C-Cure for patients with ischemic HF;

 

Ø   Rapidly advance CAR-NKG2D through clinical development and into commercialization for the treatment of AML and MM;

 

 

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Ø   Leverage our expertise and knowledge of engineered cell therapies to expand our CAR T-cell therapy drug product candidate pipeline;

 

Ø   Develop our allogeneic CAR T-cell technology; and

 

Ø   Select, develop and advance cell therapies in additional therapeutic areas with high unmet need.

RISKS ASSOCIATED WITH OUR BUSINESS

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

 

Ø   We have incurred net losses in each period since our inception and anticipate that we will continue to incur net losses in the future.

 

Ø   We have generated only limited revenue from sales of C-Cathez to date, and do not expect to generate material revenue until we receive regulatory approval for one of our drug product candidates.

 

Ø   We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities. For example, our IND for C-Cure was originally submitted to the FDA in January 2012 and is now subject to a clinical hold that prevents the initiation of CHART-2.

 

Ø   Our drug product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.

 

Ø   Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials as well as data from any interim analysis of ongoing clinical trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.

 

Ø   Cell-based therapies rely on the availability of specialty raw materials, which may not be available to us on acceptable terms or at all.

 

Ø   We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

 

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

 

Ø   Our future results will suffer if we do not effectively manage our expanded operations as a result of our recent acquisition of OnCyte.

 

Ø   We believe that we were a passive foreign investment company for our 2014 taxable year, and expect that we may be a passive foreign investment company in other future taxable years. U.S. holders of the ADSs may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

Corporate information

We are a public company listed on Euronext Brussels and Euronext Paris. We were incorporated as a limited liability company (naamloze vennootschap / société anonyme) under the laws of Belgium on July 24, 2007 under the name Cardio3 Biosciences SA. Our corporate name was changed to Celyad SA

 

 

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on May 5, 2015. We are registered with the Register of Legal Entities (RPM Nivelles) under the enterprise number 0891.118.115. Our principal executive offices are located at Rue Edouard Belin 12, 1435 Mont-Saint-Guibert, Belgium, and our telephone number is +32 10 394 100. Our agent for service of process in the United States is CT Corporation System. We also maintain a website at www.celyad.com. The reference to our website is an inactive textual reference only and the information contained in, or that can be accessed through, our website is not a part of this prospectus.

We own various trademark registrations and applications, and unregistered trademarks and servicemarks, including CAR-NKG2D, C-Cure®, C-Cathez, Celyad and the Celyad and C-Cathez logos. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Implications of Being an Emerging Growth Company

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

 

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

 

Ø   presenting only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in management’s discussion and analysis of financial condition and results of operations in the registration statement for our U.S. initial public offering; and

 

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

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of (1) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the issuance, in any three-year period, by our company of more than $1.0 billion in non-convertible debt securities held by non-affiliates; and (4) the last day of the fiscal year ending after the fifth anniversary of our U.S. initial public offering. We may choose to take advantage of some but not all of these exemptions. For example, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the U.S. Securities Act of 1933, or the Securities Act, for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under International Financial Reporting Standards as issued by the International Accounting Standards Board, or IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. We have taken advantage of reduced reporting requirements in this prospectus.

 

 

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Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Implications of Being a Foreign Private Issuer

We are also considered a “foreign private issuer.” In our capacity as a foreign private issuer, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, or the Exchange Act, as amended, that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, members of our management team, 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 or the ADSs. 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 foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of the members of our executive team or directors are U.S. citizens or residents, (2) more than 50% of our assets are located in the United States or (3) our business is administered principally in the United States.

We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

 

 

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The offering

 

Global offering

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

 

U.S. offering

                 ADSs representing an equal number of ordinary shares, offered by us pursuant to this prospectus.

 

European private placement

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

 

Ordinary shares to be outstanding after the global offering

                 ordinary shares.

 

Option to purchase additional ADSs in the U.S. offering

                 ADSs representing an equal number of ordinary shares.

 

Option to purchase additional ordinary shares in the European private placement

                 ordinary shares.

 

American Depositary Shares

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

 

Depositary

Citibank, N.A.

 

Use of proceeds

We estimate that we will receive net proceeds from the global offering of approximately $     (€    ) million, assuming a public offering price of $         (€    ) per ADS in the U.S. offering and €         per ordinary share in the European private placement, the closing price of our ordinary shares on

 

 

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Euronext Brussels on                     , 2015, after deducting underwriting commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters’ options to purchase additional ordinary shares and ADSs. We intend to use the net proceeds we receive from the global offering to advance the development of C-Cure through Phase 3 clinical development as a treatment for ischemic HF, to advance the development of CAR-NKG2D through Phase 1 clinical development as a treatment for AML and MM, to advance additional CAR T-cell therapy drug product candidates for the treatment of additional blood cancers and solid tumors, to support our growth globally by expanding general, administrative and operational functions in our headquarters in Belgium and in the United States and for working capital and general corporate purposes. See the section of this prospectus titled “Use of proceeds.”

 

Risk Factors

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

 

Proposed NASDAQ Global Market symbol

“CYAD”

 

Euronext Brussels and Euronext Paris trading symbol

“CYAD”

The number of ordinary shares to be outstanding after the global offering is based on 7,040,387 of our ordinary shares outstanding as of December 31, 2014, and excludes:

 

Ø   296,930 ordinary shares issuable upon the exercise of warrants outstanding as of December 31, 2014 pursuant to our warrant plans, at a weighted-average exercise price of €9.57 per share;

 

Ø   93,087 ordinary shares issued to Celdara on January 21, 2015, as part of the upfront payment for the acquisition of OnCyte;

 

Ø   333 ordinary shares issued on February 7, 2015 upon exercise of warrants; and

 

Ø   713,380 ordinary shares issued on March 3, 2015 in a private placement.

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

 

Ø   no exercise by the underwriters of their option to purchase additional ADSs and ordinary shares;

 

Ø   no issuances of ordinary shares after December 31, 2014; and

 

Ø   no issuance or exercise of warrants after December 31, 2014.

 

 

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Summary financial data

The following tables summarize our historical consolidated financial data. We derived the summary consolidated statement of comprehensive loss data and consolidated statement of financial position data for the years ended December 31, 2013 and 2014 from our audited consolidated financial statements 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 sections of this prospectus titled “Selected historical consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and “Currency exchange rates” and the other financial information included elsewhere in this prospectus.

The restatement of our previously issued consolidated financial statements as of and for the year ended December 31, 2013 relates to errors in our accounting for convertible debentures and for certain share-based payments. For additional information regarding the restatement, see Note 2.36 to our consolidated financial statements included elsewhere in this prospectus.

(€’000)    For the year ended December 31,  
                         2014                             2013  
             (as restated)  

Consolidated statement of comprehensive loss

    

Revenue

     146        —     

Cost of sales

     (115     —     
  

 

 

   

 

 

 

Gross Profit

  31      —     
  

 

 

   

 

 

 

Research and development expenses

  (15,865   (9,046

General and administrative expenses

  (5,016   (3,972

Other operating income

  4,413      64   
  

 

 

   

 

 

 

Operating Loss

  (16,437   (12,954

Financial income

  277      60   

Financial expenses

  (41   (1,595

Share of loss of investments accounted for using the equity method

  (252   —     
  

 

 

   

 

 

 

Loss for the year

  (16,453   (14,489
  

 

 

   

 

 

 

Basic and diluted loss per share(1)

  (2.44   (3.53
  

 

 

   

 

 

 

Number of shares used for computing basic and diluted loss for the year(2)

  6,750,383      4,099,216   
  

 

 

   

 

 

 

 

(1)    Basic and diluted net loss per share are the same in these periods because outstanding warrants would be anti-dilutive due to our net loss in these periods.
(2)   Weighted-average number of shares for the period then ended.

 

 

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(€’000)    For the year ended December 31,  
                         2014                         2013  
             (as restated)  

Consolidated statement of financial position

    

Intangible assets

     10,266        9,400   

Short term investment

     2,671        3,000   

Cash and cash equivalents

     27,633        19,058   
  

 

 

   

 

 

 

Total assets

  43,976      32,386   
  

 

 

   

 

 

 

Share capital and share premium

  77,917      52,612   

Other reserves

  19,982      18,894   

Retained loss

  (71,215   (54,608
  

 

 

   

 

 

 

Total shareholders’ equity

  26,684      16,898   
  

 

 

   

 

 

 

Non-current advances repayable

  10,778      12,072   

Total current liabilities

  6,053      3,389   

Total liabilities

  17,292      15,488   
  

 

 

   

 

 

 

Total equity and liabilities

  43,976      32,386   
  

 

 

   

 

 

 

 

 

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Risk factors

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

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred losses in each period since our inception and anticipate that we will continue to incur losses in the future.

We are not profitable and have incurred losses in each period since our inception. For the years ended December 31, 2014 and 2013, we incurred a loss for the year of €16.5 million and €14.5 million, respectively. As of December 31, 2014, we had a retained loss of €71.2 million. We expect these losses to increase as we continue to incur significant research and development and other expenses related to our ongoing operations, continue to advance our drug product candidates through pre-clinical studies and clinical trials, seek regulatory approvals for our drug product candidates, scale-up manufacturing capabilities and hire additional personnel to support the development of our drug product candidates and to enhance our operational, financial and information management systems.

Even if we succeed in commercializing one or more of our drug product candidates, we will continue to incur losses for the foreseeable future relating to our substantial research and development expenditures to develop our technologies. We anticipate that our expenses will increase substantially if and as we:

 

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

 

Ø   expand the scope of therapeutic indications of our current clinical trials for our drug product candidates;

 

Ø   initiate additional pre-clinical studies or additional clinical trials of existing drug product candidates or new drug product candidates;

 

Ø   further develop the manufacturing processes for our drug product candidates;

 

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

 

Ø   establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval, in the European Union and the United States;

 

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

 

Ø   maintain, protect and expand our intellectual property portfolio; and

 

Ø   create additional infrastructure to support our operations as a U.S. public company.

We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.

Our prior losses and expected future losses have had and will continue to have an adverse effect on our shareholders’ equity and working capital. Further, the losses we incur may fluctuate significantly from

 

 

 

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quarter to quarter and 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.

We have generated only limited revenue from sales of C-Cathez to date, and do not expect to generate material revenue until we receive regulatory approval for one of our drug product candidates.

We have generated only limited revenue from sales of C-Cathez, our proprietary catheter for injecting cells into the heart, to research laboratories and clinical stage companies. We expect that revenue from sales of C-Cathez will remain insignificant as we sell C-Cathez only to research laboratories and clinical stage companies. We have no drug products approved for commercial sale, have not generated any revenue from drug product sales, and do not anticipate generating any revenue from drug product sales until after we have received regulatory approval, if at all, for the commercial sale of a drug product candidate. As of the date of this prospectus, C-Cure, our lead drug product candidate in cardiovascular disease, is in Phase 3 clinical development for the treatment of ischemic heart failure, or HF, while CAR-NKG2D, our lead drug product candidate in oncology, is in Phase 1 clinical development for the treatment of refractory or relapsed acute myeloid leukemia, or AML, and multiple myeloma, or MM. Our ability to generate revenue and achieve profitability depends significantly on our success in many factors, including:

 

Ø   completing research regarding, and pre-clinical and clinical development of, our drug product candidates;

 

Ø   pursuing regulatory approvals and marketing authorizations for drug product candidates for which we complete clinical trials;

 

Ø   developing a sustainable and scalable commercial-scale manufacturing process for our drug product candidates, including establishing our own manufacturing capabilities and infrastructure or establishing and maintaining commercially viable supply relationships with third parties;

 

Ø   launching and commercializing drug product candidates for which we obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor;

 

Ø   obtaining market acceptance of our drug product candidates as viable treatment options;

 

Ø   addressing any competing technological and market developments;

 

Ø   identifying, assessing, acquiring and/or developing new drug product candidates;

 

Ø   negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

 

Ø   maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and

 

Ø   attracting, hiring, and retaining qualified personnel.

Even if one or more of the drug product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved drug product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, European Medicines Agency, or EMA, or other applicable regulatory agencies, to change our manufacturing processes or assays, or to perform clinical, pre-clinical, or other types of studies in addition to those that we currently anticipate. If we are successful in obtaining regulatory approvals to market one or more of our drug product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the drug product, the ability to get coverage and adequate reimbursement, and whether we own the commercial rights for that territory. If the number of our addressable disease

 

 

 

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patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved drug products, we may never become profitable.

If we fail to obtain additional financing, we will be unable to complete the development and commercialization of our drug product candidates.

Our operations have required substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical development of our drug product candidates, including our ongoing and planned clinical trials for C-Cure, CAR-NKG2D and any of our future drug product candidates. If approved, we will require significant additional amounts in order to launch and commercialize our drug product candidates.

As of December 31, 2014, we had €27.6 million in cash and €2.7 million in short term investments. In March 2015, we raised an additional €31.7 million though a private placement. We estimate that our net proceeds from the global offering will be approximately $         million (€         million), assuming a public offering price of $         (€        ) per ADS in the U.S. offering and €         per ordinary share in the European private placement, the last reported sale price of our ordinary shares on Euronext Brussels on                 , 2015, after deducting the underwriting commissions and estimated offering expenses payable by us. We expect to use the net proceeds from the global offering to advance the development of C-Cure through Phase 3 clinical development as a treatment for ischemic HF, to advance the development of CAR-NKG2D through Phase 1 clinical development as a treatment for AML and MM, to advance additional CAR T-cell therapy drug product candidates for the treatment of additional blood cancers and solid tumors, to support our growth globally by expanding general, administrative and operational functions in our headquarters in Belgium and in the United States, and the remainder for working capital and other general corporate purposes.

We believe that such proceeds, together with our existing cash, will be sufficient to fund our operations until at least the end of 2017. However, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may require additional capital for the further development and commercialization of our drug product candidates and may need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate.

We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our drug product candidates or other research and development initiatives. Our licenses may also be terminated if we are unable to meet the payment obligations under the agreements. We could be required to seek collaborators for our drug product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our drug product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. Any these events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our American Depositary Shares, or ADSs, or ordinary shares to decline.

 

 

 

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Risk factors

 

 

Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our drug product candidates or technologies.

We may seek additional funding through a combination of equity offerings, debt financings, collaborations and/or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a holder of the ADSs or the ordinary shares. The incurrence of indebtedness and/or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur additional debt and/or issue additional equity, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility of such issuance, may cause the market price of the ADSs or the ordinary shares to decline. In the event that we enter into collaborations and/or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on unfavorable terms our rights to technologies or drug product candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.

Risks Related to Product Development, Regulatory Approval and Commercialization

We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Before obtaining regulatory approval or marketing authorization from regulatory authorities for the sale of our drug product candidates, if at all, we must conduct extensive clinical trials to demonstrate the safety and efficacy of the drug product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:

 

Ø   delays in raising, or inability to raise, sufficient capital to fund the planned clinical trials;

 

Ø   delays in reaching a consensus with regulatory agencies on trial design;

 

Ø   identifying, recruiting and training suitable clinical investigators;

 

Ø   delays in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites;

 

Ø   delays in obtaining required Investigational Review Board, or IRB, approval at each clinical trial site;

 

Ø   delays in recruiting suitable patients to participate in our clinical trials;

 

Ø   delays due to changing standard of care for the diseases we are studying;

 

Ø   adding new clinical trial sites;

 

Ø   imposition of a clinical hold by regulatory agencies, after an inspection of our clinical trial operations or trial sites;

 

Ø   failure by our CROs, other third parties or us to adhere to clinical trial requirements;

 

Ø   catastrophic loss of drug product candidates due to shipping delays or delays in customs in connection with delivery to foreign countries for use in clinical trials;

 

 

 

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Risk factors

 

 

 

Ø   failure to perform in accordance with the FDA’s good clinical practices, or GCPs, or applicable regulatory guidelines in other countries;

 

Ø   delays in the testing, validation, manufacturing and delivery of our drug product candidates to the clinical sites;

 

Ø   delays in having patients complete participation in a trial or return for post-treatment follow-up;

 

Ø   clinical trial sites or patients dropping out of a trial;

 

Ø   occurrence of serious adverse events associated with the drug product candidate that are viewed to outweigh its potential benefits; or

 

Ø   changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

For example, our Investigational New Drug Application, or IND, for the use of C-Cure in our planned Phase 3 clinical trial of C-Cure for the treatment of ischemic HF in the United States and Europe, or CHART-2, was initially submitted to the FDA in January 2012. This IND became effective in December 2013 for administration of the cells with Myostar, a Biologics catheter used for the injection of therapeutic agents into the heart, and manufactured by Biologics Delivery Systems Group, Cordis Corporation, a Johnson & Johnson company. Prior to initiating the trial, in August 2014, we filed an amendment to the IND requesting among other changes to the initial submission, the use of our proprietary cell injection catheter called C-Cathez. In January 2015, the FDA issued a clinical hold on CHART-2. Most of the clinical hold questions request clarifications on the design dossier of C-Cathez, while the remaining questions relate to providing updated safety information on CHART-1, defining CHART-2 stopping rules, and a request to measure troponin, a cardiac marker of injury, at day 30 post baseline procedure. We anticipate responding to the clinical hold questions in the third quarter of 2015 once all safety data from CHART-1 is available, and pending the FDA’s lifting of the clinical hold, initiating CHART-2 during the second half of 2015. However, we cannot be certain that FDA will accept our response and lift the clinical hold.

Any inability to successfully complete pre-clinical and clinical development could result in additional costs to us or impair our ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our drug product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our drug product candidates and may harm our business and results of operations.

If the results of our clinical trials are inconclusive or if there are safety concerns or adverse events associated with our drug product candidates, we may:

 

Ø   be delayed in obtaining marketing approval for our drug product candidates, if at all;

 

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

 

Ø   obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

 

Ø   be subject to changes in the way the product is administered;

 

Ø   be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

 

Ø   have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a risk evaluation and mitigations strategy, or REMS, plan;

 

Ø   be subject to the addition of labeling statements, such as warnings or contraindications;

 

Ø   be sued; or

 

Ø   experience damage to our reputation.

 

 

 

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Our drug product candidates could potentially cause other adverse events that have not yet been predicted. As described above, any of these events could prevent us from achieving or maintaining market acceptance of our drug product candidates and impair our ability to commercialize our products if they are ultimately approved by applicable regulatory authorities.

Our drug product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.

As with most biological drug products, use of our drug product candidates could be associated with side effects or adverse events which can vary in severity from minor reactions to death and in frequency from infrequent to prevalent. Undesirable side effects or unacceptable toxicities caused by our drug product candidates could cause us or regulatory authorities to interrupt, delay, or halt clinical trials. The FDA, EMA, or comparable foreign regulatory authorities could delay or deny approval of our drug product candidates for any or all targeted indications and negative side effects could result in a more restrictive label for any product that is approved. Side effects such as toxicity or other safety issues associated with the use of our drug product candidates could also require us or our collaborators to perform additional studies or halt development or sale of these drug product candidates.

Treatment-related side effects could also affect patient recruitment or the ability of enrolled subjects to complete the trial, or could result in potential product liability claims. In addition, these side effects may not be appropriately or timely recognized or managed by the treating medical staff. Any of these occurrences may materially and adversely harm our business, financial condition and prospects.

Additionally, if one or more of our drug product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, including during any long-term follow-up observation period recommended or required for patients who receive treatment using our products, a number of potentially significant negative consequences could result, including:

 

Ø   regulatory authorities may withdraw approvals of such product;

 

Ø   regulatory authorities may require additional warnings on the label;

 

Ø   we may be required to create a REMS plan which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;

 

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

 

Ø   our reputation may suffer.

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

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the trial until its conclusion. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons, including:

 

Ø   the size and nature of the patient population;

 

Ø   the patient eligibility criteria defined in the protocol;

 

 

 

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Risk factors

 

 

 

Ø   the size of the study population required for analysis of the trial’s primary endpoints;

 

Ø   the proximity of patients to trial sites;

 

Ø   the design of the trial;

 

Ø   our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

Ø   competing clinical trials for similar therapies;

 

Ø   clinicians’ and patients’ perceptions as to the potential advantages and side effects of the drug product candidate being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating;

 

Ø   our ability to obtain and maintain patient consents; and

 

Ø   the risk that patients enrolled in clinical trials will not complete a clinical trial.

In addition, our clinical trials will compete with other clinical trials for drug product candidates that are in the same therapeutic areas as our drug product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Because the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Moreover, because our drug product candidates represent a departure from more commonly used methods for ischemic HF and cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, rather than enroll patients in our clinical trials.

Even if we are able to enroll a sufficient number of patients in our clinical trials, delays in patient enrollment may result in increased costs or may affect the timing or outcome of our clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our drug product candidates.

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials as well as data from any interim analysis of ongoing clinical trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Although drug product candidates may demonstrate promising results in early clinical (human) trials and pre-clinical (animal) studies, they may not prove to be effective in subsequent clinical trials. For example, testing on animals may occur under different conditions than testing in humans and therefore the results of animal studies may not accurately predict human experience. Likewise, early clinical trials may not be predictive of eventual safety or effectiveness results in larger-scale pivotal clinical trials. The results of pre-clinical studies and previous clinical trials as well as data from any interim analysis of ongoing clinical trials of our drug product candidates, as well as studies and trials of other products with similar mechanisms of action to our drug product candidates, may not be predictive of the results of ongoing or future clinical trials. For example, the positive results generated in our Phase 2 clinical trial of C-Cure for the treatment of patients with ischemic HF do not ensure that our ongoing Phase 3 clinical trial of C-Cure for the treatment of patients with ischemic HF in Europe and Israel, or CHART-1, will demonstrate similar results or observations. Drug product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and earlier clinical trials. In addition to the safety and efficacy traits of any drug product candidate, clinical trial failures

 

 

 

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may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials, and it is possible that we will as well. Based upon negative or inconclusive results, we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or pre-clinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval.

The regulatory approval processes of the FDA, EMA and other comparable regulatory authorities is lengthy, time-consuming, and inherently unpredictable, and we may experience significant delays in the clinical development and regulatory approval, if any, of our drug product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing, and distribution of drug products, including biologics, are subject to extensive regulation by the FDA, EMA and other comparable regulatory authorities. We are not permitted to market any biological drug product in the United States until we receive a Biologics License Application, or BLA, from the FDA or a marketing authorization application, or MAA, from the EMA. We have not previously submitted a BLA to the FDA, MAA to the EMA, or similar approval filings to comparable foreign authorities. A BLA must include extensive pre-clinical and clinical data and supporting information to establish that the drug product candidate is safe, pure, and potent for each desired indication. The BLA must also include significant information regarding the chemistry, manufacturing, and controls for the product, and the manufacturing facilities must complete a successful pre-license inspection. We expect the nature of our drug product candidates to create further challenges in obtaining regulatory approval. For example, the FDA and EMA have limited experience with commercial development of genetically modified T-cell therapies for cancer. The FDA may also require a panel of experts, referred to as an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support licensure. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain licensure of the drug product candidates based on the completed clinical trials. Accordingly, the regulatory approval pathway for our drug product candidates may be uncertain, complex, expensive, and lengthy, and approval may not be obtained.

Obtaining and maintaining regulatory approval of our drug product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our drug product candidates in other jurisdictions.

If we obtain and maintain regulatory approval of our drug product candidates in one jurisdiction, such approval does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a drug product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the drug product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional pre-clinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a drug product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

 

 

 

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Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our drug product candidates will be harmed.

A Breakthrough Therapy Designation by the FDA for our drug product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our drug product candidates will receive marketing approval.

We may seek a Breakthrough Therapy Designation for some of our drug product candidates. A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drug product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drug product candidates designated as breakthrough therapies by the FDA are also eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our drug product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a drug product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our drug product candidates qualify as breakthrough therapies, the FDA may later decide that the drug product candidates no longer meet the conditions for qualification.

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

We may seek Fast Track Designation for some of our drug product candidates. If a product is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to address unmet medical needs for this condition, the product sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular drug product candidate is eligible for this designation, we cannot assure you that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from our clinical development program.

We may seek Orphan Drug Designation for some of our drug product candidates, and we may be unsuccessful or may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity.

As part of our business strategy, we may seek Orphan Drug Designation for some of our drug product candidates, and we may be unsuccessful. Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate products for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a

 

 

 

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product 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, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the product will be recovered from sales in the United States. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.

Similarly, in the European Union, the EMA’s Committee for Orphan Medicinal Products grants Orphan Drug Designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the product in the European Union would be sufficient to justify the necessary investment in developing the product. In the European Union, Orphan Drug Designation entitles a party to financial incentives such as reduction of fees or fee waivers.

Generally, if a drug product candidate with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same product and indication for that time period, except in limited circumstances. The applicable period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.

Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition or the same products can be approved for different conditions. If one of our drug product candidates that receives an orphan drug designation is approved for a particular indication or use within the rare disease, the FDA may later approve the same product for additional indications or uses within that rare disease that are not protected by our exclusive approval. Even after an orphan drug is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition or if another product with the same active moiety is determined to be safer, more effective, or represents a major contribution to patient care. Orphan Drug Designation neither shortens the development time or regulatory review time of a product nor gives the product any advantage in the regulatory review or approval process. While we intend to seek Orphan Drug Designation for some of our drug product candidates, we may never receive such designations. Even if we do receive such designations, there is no guarantee that we will enjoy the benefits of those designations.

 

 

 

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Even if we receive regulatory approval of our drug product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our drug product candidates.

If our drug product candidates are approved, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to comply with extensive FDA, and comparable foreign regulatory authority, requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, and in certain cases Good Tissue Practices, or cGTP, regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance, to the extent applicable, with cGMP and adherence to commitments made in any BLA, other marketing application, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control.

Any regulatory approvals that we receive for our drug product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials and surveillance to monitor the safety and efficacy of the drug product candidate. The FDA may also require a REMS program as a condition of approval of our drug product candidates, which could entail requirements for long-term patient follow-up, a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves our drug product candidates, we will have to comply with requirements including submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval.

The FDA may impose consent decrees or withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with our drug product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:

 

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

 

Ø   fines, warning letters, or holds on clinical trials;

 

Ø   refusal by the FDA to approve pending applications or supplements to approved applications filed by us or suspension or revocation of license approvals;

 

Ø   product seizure or detention, or refusal to permit the import or export of our drug product candidates; and

 

Ø   injunctions or the imposition of civil or criminal penalties.

 

 

 

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The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

We will need to obtain FDA approval of any proposed product trade names, and any failure or delay associated with such approval may adversely impact our business.

Any trade name we intend to use for our drug product candidates will require approval from the FDA, regardless of whether we have secured a formal trademark registration from the United States Patent and Trademark Office, or USPTO. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names and/or medication or prescribing errors. The FDA may also object to any product name we submit if it believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product names, we may be required to adopt an alternative name for our drug product candidates. If we adopt an alternative name, we would lose the benefit of our existing trademark applications for such drug product candidate, and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our drug product candidates.

Even if we obtain regulatory approval of our drug product candidates, the products may not gain market acceptance among physicians, patients, hospitals and others in the medical community.

Our autologous engineered-cell therapies may not become broadly accepted by physicians, patients, hospitals, and others in the medical community. Numerous factors will influence whether our drug product candidates are accepted in the market, including:

 

Ø   the clinical indications for which our drug product candidates are approved;

 

Ø   physicians, hospitals, and patients considering our drug product candidates as a safe and effective treatment;

 

Ø   the potential and perceived advantages of our drug product candidates over alternative treatments;

 

Ø   the prevalence and severity of any side effects;

 

Ø   product labeling or product insert requirements of the FDA, EMA, or other regulatory authorities;

 

Ø   limitations or warnings contained in the labeling approved by the FDA or EMA;

 

Ø   the timing of market introduction of our drug product candidates as well as competitive products;

 

Ø   the cost of treatment in relation to alternative treatments;

 

 

 

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Ø   the availability of adequate coverage, reimbursement and pricing by third-party payors and government authorities;

 

Ø   the willingness of patients to pay out-of-pocket in the absence of coverage by third-party payors and government authorities;

 

Ø   relative convenience and ease of administration, including as compared to alternative treatments and competitive therapies; and

 

Ø   the effectiveness of our sales and marketing efforts.

In addition, although we are not utilizing embryonic stem cells in our drug product candidates, adverse publicity due to the ethical and social controversies surrounding the therapeutic use of such technologies, and reported side effects from any clinical trials using these technologies or the failure of such trials to demonstrate that these therapies are safe and effective may limit market acceptance our drug product candidates due to the perceived similarity between our drug product candidates and these other therapies. If our drug product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, or others in the medical community, we will not be able to generate significant revenue.

Even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

Coverage and reimbursement may be limited or unavailable in certain market segments for our drug product candidates, which could make it difficult for us to sell our drug product candidates profitably.

Successful sales of our drug product candidates, if approved, depend on the availability of adequate coverage and reimbursement from third-party payors. In addition, because our drug product candidates represent novel approaches to the treatment of ischemic HF and cancer, we cannot accurately estimate the potential revenue from our drug product candidates. Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors are critical to new product acceptance.

Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:

 

Ø   a covered benefit under its health plan;

 

Ø   safe, effective and medically necessary;

 

Ø   appropriate for the specific patient;

 

Ø   cost-effective; and

 

Ø   neither experimental nor investigational.

In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to

 

 

 

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provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of our products. Patients are unlikely to use our drug product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our drug product candidates. Because our drug product candidates have a higher cost of goods than conventional therapies, and may require long-term follow up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.

We intend to seek approval to market our drug product candidates in the United States, European Union, and in selected other foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our drug product candidates, we will be subject to rules and regulations in those jurisdictions. For example, in the countries of the European Union, the pricing of biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of a drug product candidate. In addition, market acceptance and sales of our drug product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our drug product candidates and may be affected by existing and future health care reform measures.

Healthcare legislative reform measures and constraints on national budget social security systems may have a material adverse effect on our business and results of operations.

Third-party payors, whether domestic or foreign, or governmental or private, are developing increasingly sophisticated methods of controlling healthcare costs. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the ACA, was enacted, which, among other things, subjected biologic products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations, subjected manufacturers to new annual fees and taxes for certain branded prescription drugs, and provided incentives to programs that increase the federal government’s comparative effectiveness research. We cannot predict the full impact of the ACA on bio-pharmaceutical companies as many of the ACA reforms require the promulgation of additional detailed regulations implementing the statutory provisions which has not yet completely occurred. Further, new litigation is currently pending before the U.S. Supreme Court seeking to invalidate certain provisions of the ACA.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per

 

 

 

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fiscal year, which went into effect in April 2013, and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012, was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

Ø   the demand for our drug product candidates, if we obtain regulatory approval;

 

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

 

Ø   our ability to generate revenue and achieve or maintain profitability;

 

Ø   the level of taxes that we are required to pay; and

 

Ø   the availability of capital.

Any denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar denial or reduction in payments from private payors, which may adversely affect our future profitability.

Our drug product candidates are biologics, which are complex to manufacture, and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities. If we or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our drug product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

Our drug product candidates are biologics and the process of manufacturing our products is complex, highly-regulated and subject to multiple risks. The manufacture of our drug product candidates involves complex processes, including harvesting cells from patients, selecting and expanding certain cell types, engineering or reprogramming the cells in a certain manner to create either cardiopoietic cells or CAR T-cells, expanding the cell population to obtain the desired dose, and ultimately infusing the cells back into a patient’s body. As a result of the complexities, the cost to manufacture our drug product candidates, is higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce. Our manufacturing process is susceptible to product loss or failure due to logistical issues associated with the collection of blood cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product, manufacturing issues associated with the differences in patient starting materials, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. For example, we were only able to produce C-Cure for 70% of the patients that we attempted to produce drug product candidate for in our Phase 2 clinical trial. If for any reason we lose a patient’s starting material or later-developed product at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’s outcome. If microbial, viral, or other contaminations are discovered in our drug product candidates or in the manufacturing facilities in which

 

 

 

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our drug product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Because our drug product candidates are manufactured for each particular patient, we are required to maintain a chain of identity with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process, and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as drug product candidates are developed through pre-clinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our drug product candidates to perform differently and affect the results of ongoing clinical trials or other future clinical trials.

We are currently manufacturing C-Cure for CHART-1 in our pilot manufacturing plant in Belgium. We are also planning to build a pilot manufacturing facility in the United States to reduce our overall logistical costs for CHART-2 and to allow redundancy between manufacturing sites. The cells for our ongoing Phase 1 clinical trial of CAR-NKG2D are being manufacturing at the Dana Farber Cancer Institute’s cell manufacturing facility. In the future, we plan to operate two commercial manufacturing sites, one in the United States and one in the European Union. We believe this will allow increased flexibility and reduced logistical costs and will allow for the necessary redundancy in case of site or geography-related failure. However, we are very early in the process of locating sites for these commercial manufacturing facilities and may be unsuccessful in our ability to find appropriate sites for such facilities.

Although we are working, or will be working, to develop commercially viable processes for the manufacture of our drug product candidates, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for later-stage clinical trials and commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. We may ultimately be unable to reduce the cost of goods for our drug product candidates to levels that will allow for an attractive return on investment if and when those drug product candidates are commercialized.

In addition, the manufacturing process that we develop for our drug product candidates is subject to FDA and foreign regulatory authority approval process, and we will need to make sure that we or our contract manufacturers, or CMOs, if any, are able to meet all FDA and foreign regulatory authority requirements on an ongoing basis. If we or our CMOs are unable to reliably produce drug product candidates to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such drug product candidates. Even if we obtain regulatory approval for any of our drug product candidates, there is no assurance that either we or our CMOs will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could have an adverse effect on our business, financial condition, results of operations and growth prospects.

We may face competition from biosimilars, which may have a material adverse impact on the future commercial prospects of our drug product candidates.

Even if we are successful in achieving regulatory approval to commercialize a drug product candidate faster than our competitors, we may face competition from biosimilars. The Biologics Price Competition and Innovation Act of 2009, or BPCI Act, created an abbreviated approval pathway for biological products that

 

 

 

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are demonstrated to be biosimilar to, or interchangeable with, an FDA-approved biological 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.

A reference biological product is granted 12 years of exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after first licensure. First licensure typically means the initial date the particular product at issue was licensed in the United States. This does not include a supplement for the biological product or a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength, unless that change is a modification to the structure of the biological product and such modification changes its safety, purity, or potency. Whether a subsequent application, if approved, warrants exclusivity as the first licensure of a biological product is determined on a case-by-case basis with data.

This data exclusivity does not prevent another company from developing a product that is highly similar to the innovative product, generating its own data, and seeking approval. Data exclusivity only assures that another company cannot rely upon the data within the application for the reference biological product to support the biosimilar product’s approval.

In the European Union, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In the European Union, a competitor may reference data supporting approval of an innovative biological product, but will not be able do so until eight years after the time of approval of the innovative product and to get its biosimilar on the market until ten years from the aforementioned approval. This 10-year marketing exclusivity period will be extended to 11 years if, during the first eight of those ten years, the marketing authorization holder obtains an approval for one or more new therapeutic indications that bring significant clinical benefits compared with existing therapies. In addition, companies may be developing biosimilars in other countries that could compete with our products.

If competitors are able to obtain marketing approval for biosimilars referencing our products, our products may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences.

We currently have no marketing and sales organization and have no experience in marketing products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our drug product candidates, we may not be able to generate product revenue.

We currently have no sales, marketing, or commercial product distribution capabilities and have no experience in marketing products. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have

 

 

 

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to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. If we are unable or decide not to establish internal sales, marketing and commercial distribution capabilities for any or all products we develop, we will likely pursue collaborative arrangements regarding the sales and marketing of our products. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our drug product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our drug product candidates.

There can be no assurance that we will be able to develop in-house sales and commercial distribution capabilities or establish or maintain relationships with third-party collaborators to successfully commercialize any product in the United States, the European Union, overseas, and as a result, we may not be able to generate product revenue.

We face intense competition and rapid technological change and the possibility that our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our financial condition and our ability to successfully commercialize our drug product candidates.

We face competition both in the United States and internationally, including from major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. In addition, many universities and private and public research institutes are active in our target disease areas. As of the date of this prospectus, our main competitors for C-Cure include Aldagen, Inc., Athersys, Inc., Cytori Therapeutics, Inc., Mesoblast Ltd and Vericel Corporation. As of the date of this prospectus, our main competitors for CAR-NKG2D and our other CAR T-cell product candidates include Bellicum Pharmaceuticals, Inc., bluebird bio, Inc., Cellectis S.A., Juno Therapeutics, Inc., Kite Pharma Inc., Novartis AG and Ziopharm Oncology, Inc.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, products that are more effective or less costly than any drug product candidate that we may develop, or achieve earlier patent protection, regulatory approval, product commercialization and market penetration than we do. Additionally, technologies developed by our competitors may render our potential drug product candidates uneconomical or obsolete, and we may not be successful in marketing our drug product candidates against competitors.

In addition, as a result of the expiration or successful challenge of our patent rights, we could face litigation with respect to the validity and/or scope of patents relating to our competitors’ products. The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any products that we may develop and commercialize.

Risks Related to our Reliance on Third Parties

Cell-based therapies rely on the availability of specialty raw materials, which may not be available to us on acceptable terms or at all.

Engineered-cell therapies require many specialty raw materials, some of which are manufactured by small companies with limited resources and experience to support a commercial product. The suppliers may be

 

 

 

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ill-equipped to support our needs, especially in non-routine circumstances like an FDA inspection or medical crisis, such as widespread contamination. We also do not have contracts with many of these suppliers, and may not be able to contract with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercial manufacturing.

In addition, some raw materials are currently available from a single supplier, or a small number of suppliers. We cannot be sure that these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose.

We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug product candidates and our business could be substantially harmed.

We rely on CROs and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual performance. We will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities.

We and our CROs are required to comply with the GCPs for conducting, recording and reporting the results of clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA, the Competent Authorities of the Member States of the EEA, and comparable foreign regulatory authorities, enforce these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA, the EMA, or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications. Upon inspection, the FDA may determine that our clinical trials did not comply with GCPs. In addition, our future clinical trials will require a sufficient number of test subjects to evaluate the safety and effectiveness of our drug product candidates. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat such clinical trials, which would delay the regulatory approval process.

Our CROs are not our employees, and we are therefore unable to directly monitor whether or not they devote sufficient time and resources to our clinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product development activities that could harm our competitive position. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our drug product candidates. If any such event were to occur, our financial results and the commercial prospects for our drug product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Further, switching or

 

 

 

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

Risks Related to Intellectual Property

We depend on intellectual property licensed from third parties and termination of any of these licenses could result in the loss of significant rights, which would harm our business.

We are dependent on patents, know-how, and proprietary technology, both our own and licensed from others. We license technology from the Mayo Foundation for Medical Education and Research, or the Mayo Clinic, and the Trustees of Dartmouth College, or Dartmouth College. The Mayo Clinic may terminate our license agreement with them, or the Mayo License, on a product-by-product basis or licensed invention-by-licensed invention basis if we default in making payment when due and payable or under other circumstances specified in the Mayo License, subject to 120 days’ prior written notice and opportunity to cure. The Mayo Clinic may also terminate the Mayo License if we deliberately make false statements in reports delivered to the Mayo Clinic. Further, the Mayo Clinic may terminate the Mayo License immediately for our insolvency or bankruptcy. Dartmouth College may terminate either our 2010 license or 2014 license, if we fail to meet a milestone within the specified time period, unless we pay the corresponding milestone payment. Dartmouth College may terminate either the 2010 license or 2014 license in the event we default or breach any of the provisions of the applicable license, subject to 30 days’ prior notice and opportunity to cure. In addition, each of the 2010 license and 2014 license automatically terminates in the event we become insolvent, make an assignment for the benefit of creditors or file, or have filed against us, a petition in bankruptcy. Furthermore, Dartmouth College may terminate our 2010 license, after April 30, 2024, if we fail to meet the specified minimum net sales obligations for any year, unless we pay to Dartmouth College the royalty we would otherwise be obligated to pay had we met such minimum net sales obligation. Any termination of these licenses could result in the loss of significant rights and could harm our ability to commercialize our drug product candidates. Disputes may also arise between us and our licensors regarding intellectual property subject to a license agreement, including those relating to:

 

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

 

Ø   whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the license agreement;

 

Ø   our right to sublicense patent and other rights to third parties under collaborative development relationships;

 

Ø   the amount and timing of milestone and royalty payments;

 

Ø   whether we are complying with our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our drug product candidates; and

 

Ø   the allocation of ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and by us and our partners.

If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and

 

 

 

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commercialize the affected drug product candidates. We are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own, which are described below. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.

We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our drug product candidates.

The patent application process is expensive and time-consuming, and we and our current or future licensors and licensees may not be able to apply for or prosecute patents on certain aspects of our drug product candidates or deliver technologies at a reasonable cost, in a timely fashion, or at all. It is also possible that we or our current licensors, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, our patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. Under our existing license agreements with the Mayo Foundation for Medical Education and Research and the Trustees of Dartmouth College, we have the right, but not the obligation, to enforce our licensed patents. If our current licensors, or any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised and we might not be able to prevent third parties from making, using, and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications may be invalid and unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods, and know-how. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business, financial condition and operating results.

We currently have issued patents and patent applications directed to our drug product candidates and medical devices, and we anticipate that we will file additional patent applications both in the United States and in other countries, as appropriate. However, we cannot predict:

 

Ø   if and when any patents will issue from patent applications;

 

Ø   the degree and range of protection any issued patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent our patents;

 

Ø   whether others will apply for or obtain patents claiming aspects similar to those covered by our patents and patent applications; or

 

Ø   whether we will need to initiate litigation or administrative proceedings to defend our patent rights, which may be costly whether we win or lose.

We cannot be certain, however, that the claims in our pending patent applications will be considered patentable by the USPTO or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid and enforceable by courts in the United States or foreign countries.

The strength of patents in the biotechnology and pharmaceutical field can be uncertain, and evaluating the scope of such patents involves complex legal and scientific analyses. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our drug product candidates or uses thereof in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability, or scope thereof, which may result in such patents

 

 

 

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being narrowed, invalidated, or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing their products to avoid being covered by our claims. If the breadth or strength of protection provided by the patent applications we hold with respect to our drug product candidates is threatened, this could dissuade companies from collaborating with us to develop, and could threaten our ability to commercialize, our drug product candidates. Further, because patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our drug product candidates. Furthermore, for U.S. applications in which all claims are entitled to a priority date before March 16, 2013, an interference proceeding can be provoked by a third party or instituted by the USPTO to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. For U.S. applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law in view of the passage of the America Invents Act, which brought into effect significant changes to the U.S. patent laws, including new procedures for challenging pending patent applications and issued patents.

Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Further, the extensive period of time between patent filing and regulatory approval for a drug product candidate limits the time during which we can market a drug product candidate under patent protection, which may particularly affect the profitability of our early-stage drug product candidates. If we encounter delays in our clinical trials, the period of time during which we could market our drug product candidates under patent protection would be reduced. Without patent protection for our drug product candidates, we may be open to competition from biosimilar versions of our drug product candidates.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on drug product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we 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.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. For example, an April 2014 report from the Office of the United States Trade Representative identified a number of countries, including India and China, where challenges to the procurement and enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989. 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,

 

 

 

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could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our product discovery and development processes that involve proprietary know-how, information, or technology that is not covered by patents. Trade secrets, however, may be difficult to protect. We seek to protect our proprietary processes, in part, by entering into confidentiality agreements with our employees, consultants, outside scientific advisors, contractors and collaborators. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, outside scientific advisors, contractors, and collaborators might intentionally or inadvertently disclose our trade secret information to competitors. In addition, competitors may otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent unauthorized material disclosure of our intellectual property to third parties, or misappropriation of our intellectual property by third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results and financial condition.

Third-party claims of intellectual property infringement against us or our collaborators may prevent or delay our product discovery and development efforts.

Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. This reform adds uncertainty to the possibility of challenge to our patents in the future.

Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we are developing our drug product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our drug product candidates may give rise to claims of infringement of the patent rights of others.

Although we have conducted analyses of the patent landscape with respect to our drug product candidates, and based on these analyses, we believe that we will be able to commercialize our drug product candidates, third parties may nonetheless assert that we infringe their patents, or that we are otherwise employing their proprietary technology without authorization, and may sue us. There may be third-party patents of which we are currently unaware with claims to compositions, formulations,

 

 

 

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methods of manufacture, or methods of use or treatment that cover our drug product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our drug product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies or the manufacture, use, or sale of our drug product candidates infringes upon these patents. If any such third-party patents were held by a court of competent jurisdiction to cover our technologies or drug product candidates, the holders of any such patents may be able to block our ability to commercialize the applicable drug product candidate unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, our ability to commercialize our drug product candidates may be impaired or delayed, which could in turn significantly harm our business.

Third parties asserting their patent rights against us may seek and obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our drug product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties, or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our drug product candidates, which could harm our business significantly.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming, and unsuccessful.

Competitors may infringe our patents or the patents of our licensors. To cease such infringement or unauthorized use, we may be required to file patent infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding or a declaratory judgment action against us, a court may decide that one or more of our patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceeding could put one or more of our patents at risk of being invalidated, held unenforceable, interpreted narrowly, or amended such that they do not cover our drug product candidates. Such results could also put our pending patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. Interference or derivation proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to, or the correct inventorship of, our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation, interference, or derivation proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results

 

 

 

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of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares.

Issued patents covering our drug product candidates could be found invalid or unenforceable if challenged in court or before the USPTO or comparable foreign authority.

If we or one of our licensing partners initiate legal proceedings against a third party to enforce a patent covering one of our drug product candidates, the defendant could counterclaim that the patent covering our drug product candidate is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. 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, inter partes review, post-grant review, and equivalent proceedings in foreign jurisdictions, such as opposition or derivation proceedings. Such proceedings could result in revocation or amendment to our patents in such a way that they no longer cover and protect our drug product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior art of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our drug product candidates. Such a loss of patent protection could have a material adverse impact on our business.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves, both technological and legal complexity, and is therefore costly, time-consuming, and inherently uncertain. Numerous recent changes to the patent laws and proposed changes to the rules of the USPTO may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act, or AIA, enacted in 2011 involves significant changes in patent legislation. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a ‘‘first-to-file’’ system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.

Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and provide opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

 

 

 

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In addition, recent court rulings in cases such as Association for Molecular Pathology v. Myriad Genetics, Inc. (Myriad I); BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litig.,(Myriad II); and Promega Corp. v. Life Technologies Corp. have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. For example, in a recent case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to naturally-occurring substances are not patentable. Although we do not believe that any of the patents owned or licensed by us will be found invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress, or the USPTO may impact the value of our patents.

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

We have received confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees.

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

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. In any such event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

Risks Related to Our Organization, Structure and Operation

Our future results will suffer if we do not effectively manage our expanded operations as a result of our recent acquisition of OnCyte.

We obtained access to our CAR T-cell drug product candidates and related technology, including technology licensed from Dartmouth College, in January 2015, through our acquisition of OnCyte, LLC, or OnCyte, from Celdara Medical, LLC, a privately-held U.S. biotechnology company. Our acquisition of OnCyte significantly changed the composition of our operations, markets and drug product candidate

 

 

 

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mix. Our future success depends, in part, on our ability to address these changes, and, where necessary, to attract and retain new personnel that possess the requisite skills called for by these changes.

Our failure to adequately address the financial, operational or legal risks of the OnCyte acquisition, or any future acquisitions, license arrangements, other strategic transactions could harm our business. Financial aspects of these transactions that could alter our financial position, reported operating results or ADS or ordinary share price include:

 

Ø   use of cash resources;

 

Ø   higher than anticipated acquisition costs and expenses;

 

Ø   potentially dilutive issuances of equity securities;

 

Ø   the incurrence of debt and contingent liabilities, impairment losses or restructuring charges;

 

Ø   large write-offs and difficulties in assessing the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount that must be amortized over the appropriate life of the asset; and

 

Ø   amortization expenses related to other intangible assets.

Operational risks that could harm our existing operations or prevent realization of anticipated benefits from these transactions include:

 

Ø   challenges associated with managing an increasingly diversified business;

 

Ø   disruption of our ongoing business;

 

Ø   difficulty and expense in assimilating the operations, products, technology, information systems or personnel of the acquired company;

 

Ø   diversion of management’s time and attention from other business concerns;

 

Ø   entry into a geographic or business market in which we have little or no prior experience;

 

Ø   inability to maintain uniform standards, controls, procedures and policies;

 

Ø   the assumption of known and unknown liabilities of the acquired business or asset, including intellectual property claims; and

 

Ø   subsequent loss of key personnel.

Our future success depends, in part, upon our ability to manage our expansion opportunities. Integrating new operations into our existing business in an efficient and timely manner, successfully monitoring our operations, costs, regulatory compliance and customer relationships, and maintaining other necessary internal controls pose substantial challenges for us. As a result, we cannot assure you that our expansion or acquisition opportunities will be successful, or that we will realize our expected operating efficiencies, cost savings, revenue enhancements, synergies or other benefits.

We are highly dependent on our Chief Executive Officer and members of our executive management team, and if we are not successful in motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract, motivate and retain highly qualified managerial, scientific and medical

 

 

 

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personnel. We are highly dependent on members of our executive management team, particularly our chief executive officer, Christian Homsy. We do not maintain “key man” insurance on the life of Christian Homsy, or the lives of any of our other employees. The loss of the services of any members of our executive management team, and our inability to find suitable replacements, could result in delays in product development and harm our business.

Competition for skilled personnel in the biotechnology and pharmaceutical industries is intense and the turnover rate can be high, which may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided warrants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in our share price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.

We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.

As of March 26, 2015, we had 82 full-time and three part-time employees. As our drug product candidates move into later stage clinical development and towards commercialization, we must add a significant number of additional managerial, operational, sales, marketing, financial, and other personnel. Future growth will impose significant added responsibilities on members of management, including:

 

Ø   identifying, recruiting, integrating, maintaining, and motivating additional employees;

 

Ø   managing our internal development efforts effectively, including the clinical and FDA review process for our drug product candidates, while complying with our contractual obligations to contractors and other third parties; and

 

Ø   improving our operational, financial and management controls, reporting systems, and procedures.

Our future financial performance and our ability to commercialize our drug product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our drug product candidates and, accordingly, may not achieve our research, development, and commercialization goals.

If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.

We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

 

Ø   increased operating expenses and cash requirements;

 

Ø   the assumption of additional indebtedness or contingent liabilities;

 

Ø   the issuance of our equity securities;

 

 

 

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Ø   assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;

 

Ø   the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;

 

Ø   retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

 

Ø   risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or drug product candidates and regulatory approvals; and

 

Ø   our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. We do not currently carry biological or hazardous waste insurance coverage.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities.

 

 

 

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Risks from the improper conduct of employees, agents, contractors, consultants or collaborators could adversely affect our reputation and our business, prospects, operating results, and financial condition.

We cannot ensure that our compliance controls, policies, and procedures will in every instance protect us from acts committed by our employees, agents, contractors, or collaborators that would violate the laws or regulations of the jurisdictions in which we operate, including, without limitation, healthcare, employment, foreign corrupt practices, environmental, competition, and patient privacy and other privacy laws and regulations. Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely impact our ability to conduct business, operating results, and reputation. In particular, our business activities may be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments.

Additionally, in many other countries, the health care providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers are subject to regulation under the FCPA. Recently the Securities and Exchange Commission, or SEC, and Department of Justice have increased their FCPA enforcement activities with respect to pharmaceutical companies. There is no certainty that all of our employees, agents, contractors, consultants or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.

Our relationships with health care professionals, customers, independent contractors, consultants and third-party payors may be subject, directly or indirectly, to applicable anti-kickback laws, fraud and abuse laws, false claims laws, health information privacy and security laws, transparency laws and other healthcare laws and regulations, which could expose us to penalties, and could result in contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Our arrangements with health care professionals, customers, independent contractors, consultants and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships.

In addition, we may be subject to health information privacy and security regulation of the European Union, the United States and other jurisdictions in which we conduct our business. For example, the laws that may affect our ability to operate include:

 

Ø  

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, directly or indirectly, to

 

 

 

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induce, or in return for, either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs;

 

Ø   U.S. federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, 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;

 

Ø   the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

 

Ø   HIPAA, as amended by the Health Information Technology and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, which imposes certain obligations, including mandatory contractual terms, on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

Ø   the federal Open Payments Program that was created under the ACA, which requires certain manufacturers of covered pharmaceutical drugs, biologics, devices and medical supplies to track and report annually all payments or other transfers of value provided to physicians and teaching hospitals and certain ownership and investment interests held by physicians or their family members in applicable manufacturers and group purchasing organizations; and

 

Ø   analogous state and laws and regulations in other jurisdictions, such as state anti-kickback and false claims laws, which may be broader in scope and also apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and state and laws in other jurisdiction governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may 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 and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations or other sanctions. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws and regulations, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.

Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.

As a public company, we will operate in an increasingly demanding regulatory environment that requires us to comply with, among things, the Sarbanes-Oxley Act of 2002, and related rules and regulations of the Securities and Exchange Commission’s substantial disclosure requirements, accelerated reporting

 

 

 

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requirements and complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.

We have limited accounting personnel and other resources to address our internal controls and procedures. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the reaudit of our consolidated financial statements as of and for year ended December 31, 2013 and audit of our consolidated financial statements as of and for the year ended December 31, 2014, we identified three material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, such that there is reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis by our employees. The material weaknesses identified were related to a lack of:

 

Ø   accounting resources required to fulfill the reporting requirements of International Financial Reporting Standards, or IFRS, and financial reporting requirements;

 

Ø   comprehensive knowledge of IFRS accounting policies and financial reporting procedures; and

 

Ø   segregation of duties given the size of our finance and accounting team.

As described in Note 2.36 of our consolidated financial statements included elsewhere in this prospectus, we have restated our consolidated financial statements as of and for the year ended December 31, 2013 as a result of errors in the accounting treatment of shareholders convertible loans and share-based payments. We believe that the material weaknesses identified contributed to the restatement.

We have taken several remedial actions to address these material weaknesses, which are described under “Management’s discussion and analysis of financial condition and results of operations – Internal control over financial reporting.”

Furthermore, we believe it is possible that if we had performed a formal assessment of our internal control over financial reporting, or if our independent registered public accounting firm had performed an audit of our internal control over financial reporting, other material weaknesses may have been identified. Upon the completion of the global offering, Section 404 of the Sarbanes-Oxley Act, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2016. However, until we cease to be an “emerging growth company,” as that term is defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm will not be required to attest to and report on the effectiveness of our internal control over financial reporting. This may increase the risk that deficiencies in our internal control over financial reporting will go undetected and may make it more difficult for investors and securities analysts to evaluate our company.

Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting

 

 

 

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obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation, testing and any required remediation.

During the course of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, we may identify other material weaknesses in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could experience material misstatements in our consolidated financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ordinary shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from The NASDAQ Global Market, or NASDAQ, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.

Our business and operations would suffer in the event of system failures.

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

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations, and those of our third-party research institution collaborators, CROs, CMOs, suppliers, and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, and other natural or man-made disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Damage or extended periods of interruption to our corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, unauthorized entry or other events could cause us to cease or delay development of some or all of our drug product candidates. Although we maintain property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under such circumstances and our business may be seriously harmed by such delays and interruption.

 

 

 

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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our drug product candidates.

We face an inherent risk of product liability as a result of the clinical testing of our drug product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our drug product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our drug product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

Ø   decreased demand for our products;

 

Ø   injury to our reputation;

 

Ø   withdrawal of clinical trial participants and inability to continue clinical trials;

 

Ø   initiation of investigations by regulators;

 

Ø   costs to defend the related litigation;

 

Ø   a diversion of management’s time and our resources;

 

Ø   substantial monetary awards to trial participants or patients;

 

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

 

Ø   loss of revenue;

 

Ø   exhaustion of any available insurance and our capital resources;

 

Ø   the inability to commercialize any drug product candidate; and

 

Ø   a decline in our share price.

Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. Although we currently carry €100,000 of clinical trial insurance, the amount of such insurance coverage may not be adequate, we may be unable to maintain such insurance, or we may not be able to obtain additional or replacement insurance at a reasonable cost, if at all. Our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations.

We face significant operational risks as a result of doing business internationally, such as:

 

Ø   fluctuations in foreign currency exchange rates;

 

 

 

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Ø   potentially adverse and/or unexpected tax consequences, including penalties due to the failure of tax planning or due to the challenge by tax authorities on the basis of transfer pricing and liabilities imposed from inconsistent enforcement;

 

Ø   potential changes to the accounting standards, which may influence our financial situation and results;

 

Ø   becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations;

 

Ø   reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries;

 

Ø   difficulties in attracting and retaining qualified personnel;

 

Ø   restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modification of contracts; and

 

Ø   rapid changes in global government, economic and political policies and conditions, political or civil unrest or instability, terrorism or epidemics and other similar outbreaks or events, and potential failure in confidence of our suppliers or customers due to such changes or events; and tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers.

We are subject to certain covenants as a result of certain non-dilutive financial support we have received to date.

We have received non-dilutive financial support totaling €18.7 million as of December 31, 2014, to support various research programs from the Walloon Region, or the Region. The support has been granted in the form of recoverable cash advances, or RCAs, and subsidies.

In the event we decide to exploit any discoveries or products from the research funded by under an RCA, the relevant RCA becomes refundable, otherwise the RCA is not refundable. We own the intellectual property rights which result from the research programs partially funded by the Region, unless we decide not to exploit, or cease to exploit, the results of the research in which case the results and intellectual property rights are transferred to the Region. Subject to certain exceptions, however, we cannot grant to third parties, by way of license or otherwise, any right to use the results without the prior consent of the Region. We also need the consent of the Region to transfer an intellectual property right resulting from the research programs or a transfer or license of a prototype or installation. Obtaining such consent from the Region could give rise to a review of the applicable financial terms. The RCAs also contain provisions prohibiting us from conducting research for any other person which would fall within the scope of a research program of one of the RCAs. Most RCAs provide that this prohibition is applicable during the research phase and the decision phase but a number of RCAs extend it beyond these phases.

Subsidies received from the Region are dedicated to funding research programs and patent applications and are not refundable. We own the intellectual property rights which result from the research programs or with regard to a patent covered by a subsidy. Subject to certain exceptions, however, we cannot grant to third parties, by way of license, transfer or otherwise, any right to use the patents or research results without the prior consent of the Region. In addition, certain subsidies require that we exploit the patent in the countries where the protection was granted and to make an industrial use of the underlying invention. In case of bankruptcy, liquidation or dissolution, the rights to the patents covered by the patent subsidies will be assumed by the Region by operation of law unless the subsidy is reimbursed. Furthermore, we would lose our qualification as a small or medium-sized enterprise, the patent subsidies will terminate and no additional expenses will be covered by such patent subsidies.

 

 

 

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We may be exposed to significant foreign exchange risk.

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

The requirements of being a U.S. public company may strain our resources and divert management’s attention.

We will be required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, the Securities and Exchange Act of 1934, as amended, or the Exchange Act, and the rules and regulations adopted by the Securities and Exchange Commission and the Public Corporation Accounting Oversight Board. Further, compliance with various regulatory reporting requires significant commitments of time from our management and our directors, which reduces the time available for the performance of their other responsibilities. Our failure to track and comply with the various rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, lead to additional regulatory enforcement actions, and could adversely affect the value of the ADSs or the ordinary shares.

The investment of our cash and cash equivalents may be subject to risks that may cause losses and affect the liquidity of these investments.

As of December 31, 2014, we had cash and cash equivalents of €27.6 million and short term investments of €2.7 million. We historically have invested substantially all of our available cash and cash equivalents in corporate bank accounts. Pending their use in our business, we intend to invest the net proceeds of the global offering in investments that may include corporate bonds, commercial paper, certificates of deposit and money market funds. These investments may be subject to general credit, liquidity, and market and interest rate risks. We may realize losses in the fair value of these investments or a complete loss of these investments, which would have a negative effect on our financial statements.

Risks Related to the Global Offering and Ownership of the ADSs

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

Prior to the global offering, while our ordinary shares have been traded on Euronext Brussels and Euronext Paris since July 5, 2013, there has been no active public market for the ADSs in the United States. Although we anticipate the ADSs being approved for listing on NASDAQ, an active trading market for the ADSs may never develop or be sustained following the global offering. The initial public offering price of the ADSs will be based on and determined through negotiations between us and the underwriters. This initial public offering price may not be indicative of the market price of the ADSs after the global offering. In the absence of an active trading market for the ADSs, investors may not be able to sell their ADSs at or above the initial public offering price or at the time that they would like to sell. The market price of the ADSs could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

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

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Ø   additions or departures of key management or scientific personnel;

 

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

 

Ø   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;

 

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

 

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

 

Ø   general economic and market conditions.

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

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

Our shares currently trade on Euronext Brussels and Euronext Paris in euros, while the ADSs will trade on NASDAQ in U.S. dollars. Fluctuations in the exchange rate between the U.S. dollar and the euro may result in temporary differences between the value of the ADSs and the value of our ordinary shares, which may result in heavy trading by investors seeking to exploit such differences. In addition, as a result of fluctuations in the exchange rate between the U.S. dollar and the euro, the U.S. dollar equivalent of the proceeds that a holder of the ADSs would receive upon the sale in Belgium of any shares withdrawn from the depositary and the U.S. dollar equivalent of any cash dividends paid in euros on our shares represented by the ADSs could also decline.

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

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

 

 

 

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

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

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

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

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

We have no present intention to pay dividends in the foreseeable future. Any recommendation by our board of directors to pay dividends will depend on many factors, including our financial condition (including losses carried-forward), results of operations, legal requirements and other factors. Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory accounts prepared in accordance with Belgian accounting rules. In addition, in accordance with Belgian law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our non-consolidated statutory accounts to a legal reserve until the reserve equals 10% of our share capital. Therefore, we are unlikely to pay dividends or other distributions in the foreseeable future. If the price of the ADSs or the ordinary shares declines before we pay dividends, you will incur a loss on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.

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

Any dividends or other distributions we make to shareholders will, in principle, be subject to withholding tax in Belgium at a rate of 25%, except for shareholders which qualify for an exemption of withholding tax such as, among others, qualifying pension funds or a company qualifying as a parent company within the meaning of the Council Directive (90/435/EEC) July 23, 1990, known as the Parent-Subsidiary Directive, or that qualify for a lower withholding tax rate or an exemption by virtue of a tax treaty. Various conditions may apply and shareholders residing in countries other than Belgium are advised to consult their advisers regarding the tax consequences of dividends or other distributions made by us. Our shareholders residing in countries other than Belgium may not be able to credit the amount of such withholding tax to any tax due on such dividends or other distributions in any other country than

 

 

 

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Belgium. As a result, such shareholders may be subject to double taxation in respect of such dividends or other distributions. Belgium and the United States have concluded a double tax treaty concerning the avoidance of double taxation, or the U.S.-Belgium Tax Treaty. The U.S.-Belgium Tax Treaty reduces the applicability of Belgian withholding tax to 15%, 5% or 0% for U.S. taxpayers, provided that the U.S. taxpayer meets the limitation of benefits conditions imposed by the U.S.-Belgium Tax Treaty. The Belgian withholding tax is generally reduced to 15% under the U.S.-Belgium Tax Treaty. The 5% withholding tax applies in case where the U.S. shareholder is a company which holds at least 10% of the shares in the company. A 0% Belgian withholding tax applies when the shareholder is a company which has held at least 10% of the shares in the company for at least 12 months, or is, subject to certain conditions, a U.S. pension fund. The U.S. shareholders are encouraged to consult their own tax advisers to determine whether they can invoke the benefits and meet the limitation of benefits conditions as imposed by the U.S.-Belgium Tax Treaty.

We believe that we were a passive foreign investment company for our 2014 taxable year, and expect that we may be a passive foreign investment company in other future taxable years. U.S. holders of the ADSs may suffer adverse tax consequences if we are characterized as a passive foreign investment company.

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

Our status as a PFIC will depend on the composition of our income and the composition and value of

our assets (which, if we are not a “controlled foreign corporation” under Section 957(a) of the Code or

we are publicly traded for the entire year being tested, may be determined in large part by reference to

the market value of the ADSs and ordinary shares, which may be volatile) from time to time. Our status

may also depend, in part, on how quickly we utilize the cash proceeds from the global offering in our business.

We believe we were a PFIC for our 2014 taxable year, and with respect to our 2015 taxable year and possibly other taxable years, we expect that we will be a PFIC based upon the expected value of our assets, including any goodwill, and the expected composition of our income and assets. However, our status as a PFIC is a fact intensive determination made on an annual basis and we cannot provide any assurances regarding our PFIC status for the current or future taxable years.

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

If you purchase the ADSs in the U.S. offering or ordinary shares in the European private placement, you will experience substantial and immediate dilution of $             (€             ) per ADS/ordinary share in the net tangible book value after giving effect to the global offering at an assumed public offering price of $                 (€             ) per ADS or per ordinary share, the closing price of our ordinary shares on Euronext Brussels on,                 2015, because the price that you pay will be substantially greater than the net tangible book value per ADS or per ordinary share that you acquire. This dilution is due in large part to the

 

 

 

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fact that our earlier investors paid substantially less than the public offering price when they purchased their ordinary shares. You will experience additional dilution upon exercise of any outstanding warrants to subscribe for newly issued ordinary shares under our equity incentive plans (i.e., our warrant plans), or if we otherwise issue additional shares below the public offering price. For a further description of the dilution that you will experience immediately after the global offering, see the section of this prospectus titled “Dilution.”

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

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 and the ordinary shares could decline significantly and could decline below the public offering price. Upon completion of the global offering, we will have outstanding ordinary shares, approximately              of which are subject to the 90-day contractual lock-up referred to above. The representatives of the underwriters may permit us, our directors and members of our management team to sell shares prior to the expiration of the lock-up agreements. See “Underwriting.” After the lock-up agreements pertaining to the global offering expire, and based on the number of ordinary shares outstanding upon completion of the global offering, additional shares will be eligible for sale in the public market, all of which shares are held by directors and members of the management team and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. In addition, the ordinary shares subject to outstanding warrants under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.

Following the global offering, we intend to file one or more registration statements with the SEC covering ordinary shares available for future issuance under our equity incentive plans. Upon effectiveness of such registration statements, any shares subsequently issued under such plans will be eligible for sale in the public market, except to the extent that they are restricted by the lock-up agreements referred to above and subject to compliance with Rule 144 in the case of our affiliates. Sales of a large number of the shares issued under these plans in the public market could have an adverse effect on the market price of the ADSs and the ordinary shares. See the section of this prospectus titled “Shares and ADSs available for future sale” for a more detailed description of sales that may occur in the future. If these additional shares or ADSs are sold, or if it is perceived that they will be sold, in the public market, the trading price of the ADSs and the ordinary shares could decline substantially.

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

We are a public limited liability company incorporated under the laws of Belgium. Our corporate affairs are governed by Belgian corporate and securities law. The rights provided to our shareholders under Belgian corporate law and our articles of association differ in certain respects from the rights that you would typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws. Under Belgian corporate law, other than certain information that we must make public and except in certain limited circumstances, our shareholders may not ask for an inspection of our corporate records, while under Delaware corporate law any shareholder, irrespective of the size of its shareholdings, may do so. Shareholders of a Belgian corporation have more limited rights to initiate a derivative action, a remedy typically available to shareholders of U.S. companies, in order to enforce a right of our Company, in case we fail to enforce such right ourselves.

A liability action can be instituted for our account by one or more of our shareholders who, individually or together, hold securities representing at least 1.0% of the votes or a part of the capital worth at least

 

 

 

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€1.25 million and have not approved of the discharge from liability that was granted to the directors. If the court orders the directors to pay damages, they are due to us, though the amounts advanced by the minority shareholders (for example attorney’s fees) are to be reimbursed by us. If the action is disallowed, the minority shareholders may be ordered to pay the costs, and, should there be grounds therefor, to pay damages to the directors, for example for having conducted provocative and reckless legal proceedings.

In addition, a majority of our shareholders present or represented at our meeting of shareholders may release a director from any claim of liability we may have, provided that the financial position of the company is accurately reflected in the annual accounts. This includes a release from liability for any acts of the directors beyond their statutory powers or in breach of the Belgian Company Code, provided that the relevant acts were specifically mentioned in the convening notice to the meeting of shareholders deliberating on the discharge. In contrast, most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if he or she has acted in bad faith or has breached his or her duty of loyalty to the company. Finally, Belgian corporate law does not provide any form of appraisal rights in the case of a business combination. See “Description of share capital.” As a result of these differences between Belgian corporate law and our articles of association, on the one hand, and the U.S. federal and state laws, on the other hand, in certain instances, you could receive less protection as an ADS holder of our company than you would as a shareholder of a listed U.S. company.

Takeover provisions in the national law of Belgium may make a takeover difficult.

Public takeover bids on our shares and other voting securities, such as warrants or convertible bonds, if any, are subject to the Belgian Act of April 1, 2007 on public takeover bids, as amended and implemented by the Belgian Royal Decree of April 27, 2007, or Royal Decree, and to the supervision by the Belgian Financial Services and Markets Authority, or FSMA. Public takeover bids must be made for all of our voting securities, as well as for all other securities that entitle the holders thereof to the subscription to, the acquisition of or the conversion into voting securities. Prior to making a bid, a bidder must issue and disseminate a prospectus, which must be approved by the FSMA. The bidder must also obtain approval of the relevant competition authorities, where such approval is legally required for the acquisition of our company. The Belgian Act of April 1, 2007 provides that a mandatory bid will be required to be launched for all of our outstanding shares and securities giving access to ordinary shares if a person, as a result of its own acquisition or the acquisition by persons acting in concert with it or by persons acting on their account, directly or indirectly holds more than 30% of the voting securities in a company that has its registered office in Belgium and of which at least part of the voting securities are traded on a regulated market or on a multilateral trading facility designated by the Royal Decree. The mere fact of exceeding the relevant threshold through the acquisition of one or more shares will give rise to a mandatory bid, irrespective of whether or not the price paid in the relevant transaction exceeds the current market price.

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

You will not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement. The deposit agreement provides that,

 

 

 

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

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to your right to cancel your ADSs and withdraw the underlying 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 “Description of American Depositary Shares—Your Right to Receive the Shares Underlying Your ADSs.”

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

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find the ADSs or the ordinary shares less attractive because we may rely on these exemptions. If some investors find the ADSs or the ordinary shares less attractive as a result, there may be a less active trading market for the ADSs or the ordinary shares and the price of the ADSs or the ordinary shares may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of (1) the last day of the fiscal year in

 

 

 

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

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation. We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.

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

We are a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the 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 Brussels and Euronext Paris, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. Accordingly, there will be less publicly available information concerning our company than there would be if we were not a foreign private issuer.

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

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

 

 

 

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

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

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

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

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

 

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

 

Ø   the judgment did not violate the rights of the defendant;

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

Ø   the judgment submitted to the Belgian court is authentic.

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

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

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

We have notified the Belgian Financial Services and Markets Authority that we have elected to settle its investigation.

The Belgian Financial Services and Markets Authority, or the FMSA, opened an investigation against us on April 22, 2014. Such investigation was related to whether we had failed to timely disclose inside information to the market. In April 2015, we notified the FMSA that we have elected to settle its investigation by paying the proposed fine of €175,000. Our settlement agreement still needs to be approved by the executive committee of the FMSA, but such committee typically accepts the recommendation of FMSA auditor who initially proposed the €175,000 settlement. It is possible that the settlement accepted by the executive committee of the FMSA will differ from the proposed €175,000 settlement, and the decision of the executive committee of the FMSA is not appealable. Although such settlement did not provide for any admission of guilt on our part, the fact that we have entered into a settlement with the FMSA could cause investors to have a negative perception of our governance structure, which would have a material adverse effect on our business.

 

 

 

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Forward-looking statements

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

 

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

 

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

 

Ø   our reliance on the success of our drug product candidates;

 

Ø   the timing or likelihood of regulatory filings and approvals;

 

Ø   our ability to develop sales and marketing capabilities;

 

Ø   the commercialization of our drug product candidates, if approved;

 

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

 

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

 

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

 

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

 

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

 

Ø   regulatory development in the United States, the European Union and other jurisdictions;

 

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

 

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

 

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

 

Ø   the rate and degree of market acceptance of our drug product candidates;

 

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

 

Ø   our ability to effectively manage our anticipated growth;

 

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

 

Ø   our ability to build our finance infrastructure, improve our accounting systems and controls and remedy the material weaknesses identified in our internal control over financial reporting;

 

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

 

 

 

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

 

Ø   our expected use of proceeds of the global offering;

 

Ø   our expectations regarding our PFIC status;

 

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

 

Ø   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.

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

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

 

 

 

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Currency exchange rates

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

 

      2010      2011      2012      2013      2014  

High

     1.4536         1.4875         1.3463         1.3816         1.3927   

Low

     1.1959         1.2926         1.2062         1.2774         1.2101   

Rate at end of period

     1.3269         1.2973         1.3186         1.3779         1.2101   

Average rate per period

     1.3262         1.3931         1.2859         1.3281         1.3297   

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.

 

      November
2014
     December
2014
     January
2015
     February
2015
     March
2015
     April
2015
 

High

     1.2554         1.2504         1.2015         1.1462         1.1212         1.1174   

Low

     1.2394         1.2101         1.1279         1.1197         1.0524         1.0582   

Rate at end of period

     1.2438         1.2101         1.1290         1.1197         1.0741         1.1162   

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

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

 

 

 

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Market information

Our ordinary shares have been trading on Euronext Brussels and Euronext Paris under the symbol “CYAD” since July 5, 2013.

The following table sets forth for the periods indicated the reported high and low closing sale prices per ordinary share on Euronext Brussels in euros, as well as the average trading volume for our ordinary shares for such periods.

 

Period

   High      Low      Average trading
volume
 

Annual

        

2013 (beginning July 5, 2013)

     €32.80         €12.43         14,317   

2014

     €54.86         €24.67         20,056   

Quarterly

        

Third Quarter 2013 (beginning July 5, 2013)

     €21.45         €13.99         5,397   

Fourth Quarter 2013

     €26.30         €12.50         14,317   

First Quarter 2014

     €54.86         €24.67         40,944   

Second Quarter 2014

     €48.75         €32.00         13,308   

Third Quarter 2014

     €43.00         €34.00         17,260   

Fourth Quarter 2014

     €39.89         €28.01         8,916   

Month Ended

        

November 2014

     €35.96         €33.01         6,619   

December 2014

     €35.97         €28.01         8,093   

January 2015

     €44.00         €33.615         30,609   

February 2015

     €47.85         €39.50         43,436   

March 2015

     €47.59         €40.63         21,547   

April 2015

     €56.43         €43.545         61,014   

On                     2015, the last reported sale price of our ordinary shares on Euronext Brussels was €         per share.

 

 

 

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Use of proceeds

We estimate that we will receive net proceeds from the global offering of approximately $             (€            ) million, assuming a public offering price of $         (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, after deducting underwriting commissions and estimated offering expenses payable by us, and assuming no exercise of the underwriters’ option to purchase additional ordinary shares and ADSs. If the underwriters exercise in full their options to purchase additional ordinary shares and ADSs in the global offering , we estimate that we will receive net proceeds from the global offering of approximately $             (€            ) million, assuming a public offering price of $              (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on                 , 2015, after deducting underwriting commissions and estimated offering expenses payable by us.

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

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

 

Ø   approximately $         million to advance the development of C-Cure through Phase 3 clinical development as a treatment for ischemic HF;

 

Ø   approximately $         million to advance the development of CAR-NKG2D through Phase 1 clinical development as a treatment for AML and MM;

 

Ø   approximately $         million to advance additional CAR T-cell therapy drug product candidates for the treatment of additional blood cancers and solid tumors;

 

Ø   approximately $         million to support our growth globally by expanding general, administrative and operational functions in our headquarters in Belgium and in the United States.

 

 

 

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Use of proceeds

 

 

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

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

Based on our current operation plans and assumptions, we believe that such proceeds, together with our existing cash, will be sufficient to fund our operations until at least the end of 2017. However, changing circumstances may cause us to increase our spending significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may require additional capital for the further development and commercialization of our drug product candidates and may need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate. We cannot be certain that additional funding will be available on acceptable terms, or at all. We have no committed source of additional capital and if we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of our drug product candidates or other research and development initiatives. Our licenses may also be terminated if we are unable to meet the payment obligations under the agreements. We could be required to seek collaborators for our drug product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our drug product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves. Any these events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our ADSs and our ordinary shares to decline.

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

This expected use of the net proceeds from the global offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of the global offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development efforts, the status of and results from pre-clinical studies and any ongoing clinical trials or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our drug product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from the global offering.

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

 

 

 

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Dividend policy

We have never declared or paid any cash dividends on our ordinary shares. We do not anticipate paying cash dividends on our equity securities in the foreseeable future and intend to retain all available funds and any future earnings for use in the operation and expansion of our business. All of the ordinary shares, including in the form of the ADSs, offered by this prospectus will have the same dividend rights as all of our other outstanding ordinary shares. In general, distributions of dividends proposed by our board of directors require the approval of our shareholders at a meeting of shareholders with a simple majority vote, although our board of directors may declare interim dividends without shareholder approval, subject to the terms and conditions of the Belgian Company Code. See ‘‘Description of share capital.’’

Pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated statutory financial accounts prepared under Belgian GAAP, and not on the basis of IFRS consolidated accounts. In addition, under the Belgian Company Code, we may declare or pay dividends only if, following the declaration and issuance of the dividends, the amount of our net assets on the date of the closing of the last financial year according to our statutory annual accounts (i.e., the amount of the assets as shown in the balance sheet, decreased with provisions and liabilities, all as prepared in accordance with Belgian accounting rules), decreased with the non-amortized costs of incorporation and expansion and the non-amortized costs for research and development, does not fall below the amount of the paid-up capital (or, if higher, the called capital), increased with the amount of non-distributable reserves. Finally, prior to distributing dividends, we must allocate at least 5% of our annual net profits (under our non-consolidated statutory accounts prepared in accordance with Belgian accounting rules) to a legal reserve, until the reserve amounts to 10% of our share capital.

For information regarding the Belgian withholding tax applicable to dividends and related U.S. reimbursement procedures, see ‘‘Material income tax considerations—Belgian Tax Consequences.’’

 

 

 

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Capitalization

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2014 on:

 

Ø   an actual basis;

 

Ø   as adjusted to give effect to the acquisition of Oncyte in January 2015;

 

Ø   as further adjusted for the private placement conducted in March 2015; and

 

Ø   as further adjusted basis to reflect: (1) our issuance and sale of              ordinary shares (including ordinary shares in the form of ADSs) in the global offering at an assumed public offering price of $         (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on                 , 2015, after deducting underwriting commissions and estimated offering expenses payable by us; and (2) the application of our net proceeds of the global offering as described under the section of this prospectus titled “Use of proceeds.”

You should read this table together with our 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” and the other financial information included elsewhere in this prospectus.

 

      As of December 31, 2014
      Actual     As
Adjusted(1)
    As Further
Adjusted(2)
    As Further
Adjusted(3)

Cash and cash equivalents

     €27,633        €22,452        €54,197     

Short term investments

     €2,671        €2,671        €2,671     
  

 

 

   

 

 

   

 

 

   

 

Advances repayable

  €10,778      €10,778      €10,778   
  

 

 

   

 

 

   

 

 

   

 

Share capital:

Ordinary shares, par value €3.50: 7,040,387 shares             issued and outstanding, actual; shares issued and outstanding, as adjusted

  24,615      24,940      27,437   

Premiums related to the share capital

  53,302      56,428      85,676   

Other reserves

  19,982      19,982      19,982   

Retained earnings

  (71,215   (71,215   (71,215
  

 

 

   

 

 

   

 

 

   

 

Total equity attributable to our shareholders

  26,684      30,135      61,880   

Total capitalization

  €37,462      40,913      72,658   
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)    As adjusted for the acquisition of Oncyte in January 2015.

 

(2)    As adjusted for the private placement conducted in March 2015.

 

(3)   

Each $1.00 (€            ) increase or decrease in the assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, would increase or decrease each of as further adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $             (€            ) million, assuming that the number of ADSs and ordinary shares offered by us, as set forth on the cover page of this prospectus,

 

 

 

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remains the same and after deducting underwriting commissions. We may also increase or decrease the number of ADSs and ordinary shares we are offering. Each increase or decrease of             ADSs and ordinary shares in the number of ADSs and ordinary shares, offered by us would increase or decrease each of as further adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $             (€            ) million, assuming that the assumed public offering price remains the same, and after deducting underwriting commissions. Each increase of             ADSs and ordinary shares in the number of ADSs and ordinary shares offered by us together with a concomitant $1.00 (€            ) increase in the assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, would increase each of as further adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $             (€            ) million, after deducting underwriting commissions. Each decrease of                     ADSs and ordinary shares in the number of ADSs and ordinary shares offered by us together with a concomitant $1.00 (€            ) decrease in the assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on            , 2015, would decrease each of as further adjusted cash and cash equivalents, total equity attributable to our shareholders and total capitalization by approximately $             (€            ) million, after deducting underwriting commissions. The as further adjusted information discussed above is illustrative only and will adjust based on the actual public offering price, the actual number of shares and ADSs offered by us, and other terms of the global offering determined at pricing.

The number of ordinary shares that will be outstanding after the global offering is based on the number of shares outstanding as of December 31, 2014 and excludes:

 

Ø   296,930 ordinary shares issuable upon the exercise of warrants outstanding as of December 31, 2014 pursuant to our warrant plans, at a weighted-average exercise price of €9.57 per share;

 

Ø   93,087 ordinary shares issued to Celdara on January 21, 2015, as part of the upfront payment for the acquisition of OnCyte;

 

Ø   333 ordinary shares issued on February 7, 2015 upon exercise of warrants, and

 

Ø   713,380 ordinary shares issued on March 3, 2015 in a private placement.

 

 

 

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Dilution

If you invest in the ordinary shares or the ADSs, your ownership interest will be diluted to the extent of the difference between the public offering price per ADS/ordinary shares paid by purchasers of the ADSs or the ordinary shares and the as adjusted net tangible book value per ADS/ordinary shares after the global offering. Our net tangible book value as of December 31, 2014 was €26.7 ($32.3) million, or €3.79 ($4.59) per ADS/ordinary share. Net tangible book value per ADS/ordinary share is determined by dividing (1) our total assets less our intangible assets and our total liabilities by (2) the number of ordinary shares outstanding as of December 31, 2014, or             ordinary shares.

After giving effect to the issuance of 93,087 of our ordinary shares to Celdara as part of the upfront payment for the acquisition of OnCyte in January 2015, our as adjusted net tangible book value as of December 31, 2014 would have been €              ($            ) million, or €             ($            ) per ADS/ordinary share. After giving effect to the issuance of 713,380 of our ordinary shares in a private placement in March 2015, our as further adjusted net tangible book value as of December 31, 2014 would have been €             ($            ) million, or €             ($            ) per ADS/ordinary share.

After giving effect to our sale of             ordinary shares (including ordinary shares in the form of ADSs) at an assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, and after deducting underwriting commissions and estimated offering expenses payable by us, our as further adjusted net tangible book value as of December 31, 2014 would have been €             ($             ) million, or €             ($             ) per ADS/ordinary share. This amount represents an immediate increase in net tangible book value of €             ($             ) per ADS/ordinary share to our existing shareholders and an immediate dilution in net tangible book value of €             ($             ) per ADS/ordinary share to new investors.

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

 

Assumed public offering price per ADS/ordinary share

  €               

Historical net tangible book value per ADS/ordinary share as of December 31, 2014

  €3.79   

Increase in net tangible book value per ADS/ordinary share attributable to the adjustment transactions described in the preceding paragraphs

  €           

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

    
  

 

 

    

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

  €               
     

 

 

 

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

  €               
     

 

 

 

The dilution information discussed above is illustrative only and will change based on the actual public offering price and other terms of the global offering determined at pricing. Each $1.00 (€            ) increase or decrease in the assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, would increase or decrease our as adjusted net tangible book value by approximately €             ($             ) million, or approximately €             ($             ) per ADS/ordinary share, and the dilution to new investors participating in the global offering would be approximately €             ($             ) per ADS/ordinary share, assuming that the number of ADSs and ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting commissions. We may also increase or decrease the number of ADSs and

 

 

 

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ordinary shares we are offering. An increase in the number of ADSs and ordinary shares offered by us by              ADSs and ordinary shares would increase the as adjusted net tangible book value by approximately €             ($             ) million, or €             ($             ) per ADS/ordinary share, and the dilution to new investors participating in the global offering would be €             ($             ) per ADS/ordinary share, assuming that the assumed public offering price remains the same, and after deducting underwriting commissions. Similarly, a decrease in the number of ADSs and ordinary shares offered by us by              ADSs and ordinary shares would decrease the as adjusted net tangible book value by approximately €             ($             ) million, or €             ($             ) per ADS/ordinary share, and the dilution to new investors participating in the global offering would be €             ($             ) per ADS/ordinary share, assuming that the assumed public offering price remains the same, and after deducting underwriting commissions. Each increase of              ADS and ordinary shares in the number of ADSs and ordinary shares offered by us together with a concomitant $1.00 (€            ) increase in the assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, would increase our as adjusted net tangible book value by approximately €             ($             ) million, or approximately €             ($             ) per ADS/ordinary share, and the dilution to new investors participating in the global offering would be approximately €             ($             ) per ADS/ordinary share, after deducting underwriting commissions. Each decrease of              ADSs and ordinary shares in the number of ADSs and ordinary shares offered by us together with a concomitant $1.00 (€            ) decrease in the assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement, the closing price of our ordinary shares on Euronext Brussels on             , 2015, would decrease our as adjusted net tangible book value by approximately € ($             ) million, or approximately €             ($             ) per ADS/ordinary share, and the dilution to new investors participating in the global offering would be approximately €             ($             ) per ADS/ordinary share, after deducting underwriting commissions. The as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price, the number of ADSs and ordinary shares offered by us and other terms of the global offering determined at pricing.

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

The following table sets forth as of December 31, 2014 consideration paid to us in cash for ordinary shares and ADSs purchased from us by our existing shareholders and by new investors participating in the global offering, based on an assumed public offering price of $             (€            ) per ADS in the U.S. offering and €             per ordinary share in the European private placement,, the closing price of our ordinary shares on Euronext Brussels on             , 2015, and before deducting underwriting 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   €               
 

 

  

 

 

   

 

 

    

 

 

   

 

 

 

 

 

 

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Dilution

 

 

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

The tables and calculations above are based on the number of ordinary shares outstanding as of December 31, 2014, but excludes:

 

Ø   296,930 ordinary shares issuable upon the exercise of warrants outstanding as of December 31, 2014 pursuant to our warrant plans, at a weighted-average exercise price of €9.57 per share;

 

Ø   93,087 ordinary shares issued to Celdara on January 21, 2015, as part of the upfront payment for the acquisition of OnCyte;

 

Ø   333 ordinary shares issued on February 7, 2015 upon exercise of warrants, and

 

Ø   713,380 ordinary shares issued on March 3, 2015 in a private placement.

 

 

 

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Selected historical consolidated financial data

You should read the following selected historical consolidated financial data in conjunction with our audited consolidated financial statements and related notes beginning on page F-1 and the sections of this prospectus titled “Management’s discussion and analysis of financial condition and results of operations” and “Currency exchange rates.” We derived the consolidated statement of comprehensive loss data for the years ended December 31, 2014 and 2013 and consolidated statement of financial position data as of December 31, 2014 and 2013 from our audited consolidated financial statements beginning on page F-1. Our audited consolidated financial statements have been prepared in accordance with IFRS, as issued by the IASB. Our historical results are not necessarily indicative of the results to be expected in the future.

The restatement of our previously issued consolidated financial statements as of and for the year ended December 31, 2013 relates to errors in our accounting for convertible debentures and certain share-based payments. For additional information regarding the restatement, see Note 2.36 to our consolidated financial statements included elsewhere in this prospectus.

 

(€’000)

   For the year ended December 31,  
             2014                     2013          
    

 

    (as restated)  

Consolidated statement of comprehensive loss

  

Revenue

     146        —     

Cost of sales

     (115     —     
  

 

 

   

 

 

 

Gross Profit

  31      —     
  

 

 

   

 

 

 

Research and development expenses

  (15,865   (9,046

General and administrative

  (5,016   (3,972

Other operating income

  4,413      64   
  

 

 

   

 

 

 

Operating loss

  (16,437   (12,954

Financial income

  277      60   

Financial expenses

  (41   (1,595

Share of loss of investments accounted for using the equity method

  (252   —     
  

 

 

   

 

 

 

Loss for the year

  (16,453   (14,489
  

 

 

   

 

 

 

Basic and diluted loss per shares(1)

  (2.44   (3.53
  

 

 

   

 

 

 

Number of shares used for computing basic and diluted loss for the year(2)

  6,750,383      4,099,216   
  

 

 

   

 

 

 

 

(1)    Basic and diluted net loss per share are the same in these periods because outstanding warrants would be anti-dilutive due to our net loss in these periods.
(2)    Weighted-average number of shares for the period then ended.

 

 

 

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Selected historical consolidated financial data

 

 

 

(’000)

   For the year ended December 31,  
             2014                     2013          
    

 

    (as restated)  

Consolidated statement of financial position

    

Intangible assets

     10,266        9,400   

Short term investment

     2,671        3,000   

Cash and cash equivalents

     27,633        19,058   
  

 

 

   

 

 

 

Total assets

  43,976      32,386   
  

 

 

   

 

 

 

Share capital and share premium

  77,917      52,612   

Other reserves

  19,982      18,894   

Retained loss

  (71,215   (54,608
  

 

 

   

 

 

 

Total shareholders’ equity

  26,684      16,898   
  

 

 

   

 

 

 

Non-current advances repayable

  10,778      12,072   

Total current liabilities

  6,053      3,389   

Total liabilities

  17,292      15,488   
  

 

 

   

 

 

 

Total equity and liabilities

  43,976      32,386   
  

 

 

   

 

 

 

 

 

 

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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 our audited consolidated financial statements and related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that involve certain risks and uncertainties. Our actual results could differ materially from those discussed in these statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly under the “Risk factors” and “Forward-looking statements” sections.

All amounts included herein with respect to the years ended December 31, 2013 and 2014 are derived from our audited consolidated financial statements. The audited consolidated financial statements for the years ended December 31, 2013 and 2014 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 leader in engineered cell therapy treatments with clinical programs initially targeting indications in cardiovascular disease and oncology. Our lead drug product candidate in cardiovascular disease is C-Cure, an autologous cell therapy for the treatment of patients with ischemic heart failure, or HF. We completed enrollment in our first Phase 3 clinical trial of C-Cure in Europe and Israel, or CHART-1, in March 2015. On March 30, 2015, we announced that the Data Safety Monitoring Board, or DSMB, reviewed unblinded safety data from CHART-1 and determined that there was no evidence of obvious differences in safety profiles of patients in the two arms of the trial, which means that the data did not support discontinuation of the trial on the basis of safety. The full data readout from this trial is expected in the middle of 2016. We anticipate initiating our second Phase 3 clinical trial of C-Cure in the United States and Europe, or CHART-2, pending U.S. Food and Drug Administration, or FDA, lifting of the existing clinical hold, which we expect in the second half of 2015. Our lead drug product candidate in oncology is CAR-NKG2D, an autologous chimeric antigen receptor, or CAR, an artificial, lab engineered receptor, which is used to graft a given protein onto an immune cell, T lymphocyte, or CAR T-cell, therapy. We are currently enrolling patients with refractory or relapsed acute myeloid leukemia, or AML, or multiple myeloma, or MM, in a Phase 1 clinical trial of CAR-NKG2D in the United States. Interim data from this trial is expected to be reported at various times during the trial, with the full data readout expected in the middle of 2016.

All of our current drug product candidates are autologous cell therapy treatments. In autologous procedures, a patient’s cells are harvested, selected, reprogrammed and expanded, and then infused back into the same patient. A benefit of autologous therapies is that autologous cells are not recognized as foreign by patients’ immune systems. We believe that we are well situated to effectively advance autologous cell therapy treatments for cancer and other indications as a result of the expertise and know-how that we have acquired through our development of C-Cure. We also believe that there are numerous operational synergies between our product platforms, including that, prior to commercialization, our existing pilot manufacturing plant can accommodate both of our cell therapy programs without significant capital expenditure.

On November 5, 2014, we acquired CorQuest Medical, Inc., a private U.S. company, or CorQuest, for a single cash payment of €1.5 million and a potential earn-out payment to the sellers if the intellectual

 

 

 

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property acquired from CorQuest is sold, in whole or in part, to a third party within ten years of November 5, 2014. The earn-out payment shall be 2.0% of the value of the cash and non-cash consideration from such sale, or Net Revenue, if the Net Revenue is €10.0 million or less, and 4.0% of the Net Revenue, if the Net Revenue is greater than €10.0 million.

On January 21, 2015, we purchased OnCyte, LLC, or OnCyte, a wholly-owned subsidiary of Celdara Medical, LLC, a privately-held U.S. biotechnology company for an upfront payment of $10.0 million, of which, $6.0 million was paid in cash and $4.0 million was paid in the form of 93,087 of our ordinary shares. Additional contingent payments with an estimated fair value of $42.0 million are payable upon the attainment of various clinical and sales milestones. As a result of this transaction we acquired our CAR T-cell drug product candidates and related technology, including technology licensed from the Trustees of Dartmouth College.

As of December 31, 2014, we have been funded through the following transactions:

 

Ø   proceeds of €42.0 million from private financing rounds;

 

Ø   proceeds of €26.5 million from an initial public offering of our ordinary shares on Euronext Brussels and Euronext Paris, or the Euronext IPO;

 

Ø   proceeds of €25.0 million from a private financing by Medisun International Limited, or Medisun; and

 

Ø   proceeds of €18.7 million from non-dilutive financing sources, such as government grants and recoverable cash advances, or RCAs.

As of December 31, 2014, we had cash and cash equivalents of €27.6 million and short term investments of €2.7 million. In March 2015, we completed a €31.7 million private placement of 713,380 ordinary shares to institutional investors in the United States, bringing our total cash and cash equivalents after this financing as of March 31, 2015, to €46.6 million.

We have incurred net losses in each year since our inception. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administration expenses associated with our operations. For the years ended December 31, 2014 and 2013, we incurred a loss for the year of €16.5 million and €14.5 million, respectively. As of December 31, 2014, we had a retained loss of €71.2 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:

 

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

 

Ø   conduct additional research and development for drug product candidate discovery and development;

 

Ø   seek regulatory approvals for our drug product candidates;

 

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

 

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

 

Ø   in-license or acquire additional drug product candidates or technologies;

 

Ø   build-out additional manufacturing capabilities; and

 

Ø   hire additional personnel, including personnel to support our drug product development and commercialization efforts and operations as a U.S. public company.

 

 

 

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We generate limited revenue from sales of C-Cathez, our proprietary catheter for injecting cells into the heart. We believe that C-Cathez revenue will remain immaterial in the future as we intend to sell C-Cathez to research laboratories and clinical-stage companies only.

We do not expect to generate material revenue from drug product sales unless and until we successfully complete development of, and obtain marketing approval for, one or more of our drug product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital, in addition to the net proceeds from the global offering, prior to commercialization of C-Cure. Until such time that we can generate substantial revenue from drug product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, including government grants and RCAs, and collaborations and licensing arrangements. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market drug product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full.

Financial Operations Overview

The successful development of research programs and drug product candidates is uncertain and we expect to continue to incur operating losses for the foreseeable future as we develop C-Cure and our other drug product candidates. At this time, we cannot reasonably estimate the precise timing or detailed costs of the efforts that will be necessary to complete the remainder of the development of our drug product candidates and their research and development programs. We are also unable to predict when material cash inflows will commence from sales of C-Cure or any of our other drug product candidates.

Set forth below is a discussion of factors that we believe will materially impact our results of operations in future periods.

Revenue

For the periods presented in this prospectus, the only revenue we generated was for third-party sales of C-Cathez in 2014 that are immaterial in comparison to our operating expenses. We expect revenue from C-Cathez sales to remain immaterial compared to our operating expenses for the foreseeable future.

Cost of Sales

For the periods presented in this prospectus, costs of sales are related to the cost of manufacturing C-Cathez.

We expect the costs of sales related to sales of C-Cathez will remain immaterial compared to our operating expenses for the foreseeable future.

Recoverable cash advances

RCAs support specific development programs and are typically granted by regional governmental entities, and in our case, the Walloon Region. RCA contracts consist of three phases: the research phase, the decision phase and the exploitation phase. During the research phase, we receive funds from the Walloon Region based on statements of expenses.

RCAs are recognized as “Other operating income” on a systematic basis over the periods in which we recognize the costs compensated by the RCAs as expenses.

 

 

 

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At the end of the research phase, we generally decide within a period of six months whether or not to exploit the results of the research phase; this phase is known as the decision phase. If we elect to exploit the results achieved under a RCA, we enter the exploitation phase, which may have a duration of up to ten years. If we elect to exploit the results under an RCA, the relevant RCA becomes contingently refundable, and we recognize a liability when it is probable that all or a portion of the RCA will be refunded and the amount to be refunded is estimable. The provision of the liability for amounts to be refunded under our RCA programs are recognized as a reduction of other operating income in the income statement.

In 2015, we will be required to make exploitation decisions on our remaining outstanding RCAs. As a result, we may potentially recognize an additional undiscounted liability of €2.5 million. This amount is based on the amount effectively perceived by us as of December, 31 2014.

When we decide not to exploit, or cease to exploit, the results under an RCA, we notify the Walloon Region of our decision. The RCA related to such decision will no longer be refundable as of the calendar year following such decision, and the research data and intellectual property rights related to such results are transferred to the Walloon Region. Also, when we decide to renounce our rights to patents which may result from the research, title to such patents are transferred to the Walloon Region.

When we decide to discontinue the development program for which a financial liability has been accounted for, or decide not to exploit, or cease to exploit, the results of a program previously recognized as a financial liability, the outstanding liability is derecognized at the end of the period and credited to the income statement as other operating income.

We are now in the exploitation phase with of RCAs paid related to C-Cathez and C-Cure. As of December 31, 2014, the total cumulative reimbursements associated with the RCAs related to C-Cathez and C-Cure amounted to €0.5 million.

Other government grants

Since inception through December 31, 2014, we received grants totaling €1.7 million and we expect to continue to apply for grants from FP7 and Walloon Region authorities. These grants are used to partially finance early stage projects such as fundamental research, applied research and prototype design.

As of the date of this prospectus, none of the grants received are subject to any conditions. As per our agreements with these governmental authorities, grants are paid upon our submission of a statement of expenses. We incur project expenses first and ask for partial reimbursement according to the terms of the agreements.

The government grants are recognized in profit or loss on a systematic basis over the periods in which we recognize as expenses the related costs for which the grants are intended to compensate.

Research and development expenses

The following expenses are aggregated and presented under the caption “Research and development expenses”:

 

Ø   Manufacturing expenses;

 

Ø   Clinical, quality and regulatory expenses; and

 

Ø   Other research and development expenses.

 

 

 

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Manufacturing expenses

Manufacturing expenses represented 25% and 19% of our total operating expenses for the years ended December 31, 2014 and 2013, respectively. For the periods presented in this prospectus, manufacturing expenses only included the costs to manufacture C-Cure, but will include the cost of manufacturing our other clinical-stage drug product candidates in the future. These costs are mainly comprised of the salaries of the manufacturing team, production raw material and supplies, maintenance and calibration charges of equipment and the rental of Good Manufacturing Practices laboratory facilities. Raw materials are the main component to the current cost of production of C-Cure and will remain as such in the future as they are closely associated to the production of clinical batches. Most of our raw material suppliers are large companies, and pursuant to our internal procedures, we are trying to have an alternative supplier for each critical material, to limit risk of disruption and price sensitivity. The second largest caption in manufacturing expenses is the salaries of our production team. We expect salaries will increase in 2015 and plateau thereafter. We lease our production facility from Biological Manufacturing Services SA. Manufacturing expenses are mostly driven by the number and the size of clinical trials that we conduct on our drug product candidates. We expect these expenses will remain significant in the near future and will increase as our clinical trials include a greater number of patients and we potentially commence commercialization of our drug product candidates, if approved.

Clinical, quality and regulatory expenses

Our clinical, quality and regulatory expenses relate to our C-Cure clinical trial activities and represented 37% and 34% of our total operating expenses for the years ended December 31, 2014 and 2013, respectively.

Our clinical, quality and regulatory expenses include employee expenses, costs of setting up quality procedures, as well as the preparation and supervision of our clinical trials. These expenses also include the costs of maintaining and overseeing our intellectual property portfolio, such as the costs of intellectual property legal counsel and associated filing and maintenance fees. We expect that these expenses will increase in the near future given the expected clinical trial activities associated with our drug product candidates, including our CAR T-cell drug product candidates.

All clinical, quality and regulatory costs related to our C-Cure clinical program incurred to date have been expensed as incurred, and we have not capitalized any such costs. We may review this policy in the future depending on the outcome of our current development programs.

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

 

Ø   per patient clinical trial costs;

 

Ø   the number of patients that participate in clinical trials;

 

Ø   the drop-out or discontinuation rates of patients;

 

Ø   the duration of patient follow-up;

 

Ø   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;

 

 

 

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Ø   clinical trial and early-stage results;

 

Ø   the terms and timing of regulatory approvals;

 

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

 

Ø   the ability to market, commercialize and achieve market acceptance of C-Cure or any of our other product candidates.

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

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 have not received regulatory approval from the FDA, EMA or any other regulatory authority to market any of our drug product candidates. The successful development of our drug product candidates is highly uncertain. Our drug product candidates are tested in numerous pre-clinical studies for safety, pharmacology and efficacy. We then conduct clinical trials for those drug product candidates that are determined to be the most promising. We fund these trials ourselves or through non-dilutive funding. As we obtain results from clinical trials, we may elect to discontinue or delay trials for some drug product candidates in order to focus resources on drug product candidates that we believe are more promising. Completion of clinical trials may take several years or more, and the length of time generally varies substantially according to the type, complexity, novelty and intended use of a drug product candidate. The cost of clinical trials for a particular drug product candidate may vary significantly.

At this time we cannot reasonably estimate the time and costs necessary to complete the development of any of our drug product candidates or the period, if any, in which we will generate drug product revenue. There are numerous risks and uncertainties associated with drug product development, including:

 

Ø   terms and timing of regulatory approvals and authorizations; and

 

Ø   the number, the design and the size of the clinical trials required by the regulatory authorities to seek marketing approval.

Other research and development expenses

Other research and development expenses represented 14% and 17% of our total operating expenses for the years ended December 31, 2014 and 2013, respectively.

Other research and development expenses reflect costs incurred for our research and development projects related to our pre-clinical drug product candidates. These expenses include the salaries of scientists and technicians, our laboratory supplies, depreciation of our license with the Mayo Foundation

 

 

 

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for Medical Education and Research, or Mayo License, and the costs of our outsourced research and development studies and services. With the exception of the Mayo License, which has been capitalized and amortized over 20 years, and C-Cathez development costs capitalized since May 2012, we expense all research and development costs as they are incurred. The €0.9 million development costs of C-Cathez have been capitalized since May 1, 2012, the month following our receipt of the CE mark for C-Cathez.

We utilize our research and development staff and infrastructure resources across projects in our programs and many of our costs historically have not been specifically attributable to a single project. Accordingly, we cannot state precisely our total costs incurred on a project-by-project basis. In addition, our research and development expense may vary substantially from period to period based on the timing and scope of our research and development activities, the timing of regulatory approvals or authorizations and the rate of commencement and enrollment of patients in clinical trials.

Other research and development activities are central to our business. We expect that our other research and development expenses will continue to grow in the future with our development of drug product candidates from our cardiovascular disease program and our CAR T-cell program.

The expected increase in research and development expenditures will mostly relate to higher personnel costs, outsourcing costs and additional in house pre-clinical studies.

General and administrative expenses

General and administrative expenses represented 24% and 31% of our total operating expenses for the years ended December 31, 2014 and 2013, respectively.

Our general and administrative expenses consist of salaries and other share-based compensation costs not related to research and development activities for personnel in executive, finance, accounting and communication functions. It also includes costs related to professional fees for auditors and lawyers and consulting fees not related to research and development operations and fees related to functions that are outsourced by us such as information technology, or IT. General and administrative expenses are expected to increase in the near future with the expansion of our executive management team to include new personnel responsible for legal, IT, sales and marketing, as well as with the additional responsibilities related to becoming a U.S. public company.

Other operating income

During the periods presented in this prospectus, our other operating income is primarily generated from (i) government grants received from the European Commission under the Seventh Framework Program, or FP7, and (ii) government grants received from the Regional government, or Walloon Region, in the form of RCAs.

From inception through December 31, 2014, we have received subsidies totaling €1.7 million and RCAs totaling €17.0 million. In the future, we expect to generate income from a combination of subsidies, RCAs, products sales and upfront fees, research and development support, milestone payments from potential collaborations and royalties from the licensing of intellectual property. We expect that future income will continue to fluctuate from period to period as a result of the timing of future regional funding, the terms and timing of potential collaboration agreements and, to the extent that any drug products are approved and successfully commercialized, the volume and timing of drug product sales.

 

 

 

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Finance Income

Finance income relates to interest income earned on bank accounts and from currency exchange rate differences. Our cash and cash equivalents have been deposited primarily in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate a modest amount of interest income. We expect to continue this investment philosophy.

Finance Expenses

Finance expenses relate to interest payable on shareholder loans and finance leases, as well as interest on overdrafts and current exchange rate differences.

Restatement of 2013 Financial Statements

Our financial statements for the year ended December 31, 2013 were restated to reflect errors in the IFRS recognition and measurement of shareholders convertible loans and share-based payments. The restatement of the shareholders convertible loans is a result of classifying such loans as financial debt, instead of equity, previously called ‘quasi equity’, as originally posted in our 2013 financial statements. We decided that the shareholders convertible loans should have been accounted for as a financial debt, because the loans were convertible into a variable number of shares. The restatement of the share-based payment is a result of recognizing the fair value of the warrants issued under our May 2013 warrants plan based on the initial public offering price of our ordinary shares in the Euronext IPO. For further details on these adjustments, see Note 2.36 of our consolidated financial statements.

Consolidated financial data

The following is a summary of our consolidated financial data.

Revenue

 

(€’000)    For the year ended December 31,  
          2014         

    2013    

(as restated)

 

C-Cathez Sales

     146         —     
  

 

 

    

 

 

 

Total Revenue

  146      —     
  

 

 

    

 

 

 

In the year ended December 31, 2014, the total revenue generated through sales of C-Cathez was € 0.1 million. No revenue was generated from sales of C-Cathez in 2013.

Cost of Sales

 

(€’000)    For the year ended December 31,  
          2014        

    2013    

(as restated)

 

C-Cathez Cost of Sales

     (115     —     
  

 

 

   

 

 

 

Total Cost of Sales

  (115   —     
  

 

 

   

 

 

 

In 2014, the total cost of sales associated with sales of C-Cathez amounted to €0.1 million. There were no costs of sales in 2013 as there were no sales of C-Cathez.

Research and development expenses

The following is a summary of manufacturing expenses, clinical, quality and regulatory expenses and other research and development expenses, which are aggregated and presented as research and development expenses in our consolidated financial statements.

 

 

 

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Manufacturing expenses

 

(€’000)    For the year ended December 31,  
         2014              2013      
              (as restated)  

Employee expenses

     1,501         842   

Contractor fees

     402         76   

Pilot Plan consulting fees

     348         289   

Raw materials

     2,060         988   

Rent & utilities

     234         133   

Other manufacturing costs

     591         87   

Total manufacturing expenses

     5,136         2,415   
  

 

 

    

 

 

 

Manufacturing expenses increased by €2.7 million in 2014 as compared to 2013. In 2014, manufacturing expenses were primarily related to the production of clinical lots of C-Cure for CHART-1, which was initiated in 2013. The first clinical lots were produced in the middle of 2013 with a slow ramp-up over the second part of 2013, whereas in 2014, all our production resources were used at full capacity.

The employee expenses increase year over year is a result of the hiring of 13 additional employees in 2014 due to higher production needs.

Increase of production associated with the ramp-up of CHART-1 also explained the increase of €1.1 million of raw materials cost year over year. This increase is mostly related to the volume of raw materials consumed during CHART-1 as purchase prices remained stable throughout 2014.

The contractor fees are comprised primarily of the supply of C-Cathez, manufactured by Creganna. The increase in such fees in 2014 compared to 2013 is due to the number of catheters used in CHART-1.

Clinical, quality and regulatory expenses

 

(€’000)    For the year ended December 31,  
         2014              2013      
              (as restated)  

Employee expenses

     1,780         1,460   

Study cost

     4,924         2,169   

IP filing & maintenance fees

     351         360   

Travel & living

     249         180   

Consulting fees

     436         269   

Other costs

     12         34   
  

 

 

    

 

 

 

Total clinical, quality and regulatory expenses

  7,752      4,472   
  

 

 

    

 

 

 

All clinical, quality and regulatory expenses for the periods presented relate to CHART-1. The €3.3 million increase in these expenses in 2014 as compared to 2013 is primarily related to the initiation of CHART-1 in the middle of 2013, resulting in only six months of trial expenses in 2013, as compared to 12 months of trial expenses in 2014. Trial costs are mainly driven by the costs of clinical vendors and investigators associated with clinical trial management. Trial management costs increased year over year due to the higher number of patients enrolled in CHART-1 in 2014.

The employee expenses increase between 2013 and 2014 is due to an increase in the number of employees in our clinical and quality teams.

 

 

 

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The increased number of patients in CHART-1 also explained the increase in consulting fees. Such fees are mainly comprised of fees paid to regulatory affairs and quality assurance consultants, and the outsourced quality control testing performed on incoming materials and in process-controls.

Clinical, quality and regulatory expenses are expected to grow in the near future with the initiation of CHART-2 and our Phase 1 clinical trial of CAR-NKG2D.

Other research and development expenses

 

(€’000)    For the year ended December 31,  
         2014             2013      
             (as restated)  

Employee expenses

     954        898   

Mayo research project

     751        4   

Pre-clinical studies

     273        275   

Delivery systems

     51        459   

Other costs

     121        67   

R&D consultant fees

     13        29   

Capitalization C-Cathez development costs

     (50     (459

Subtotal

     2,113        1,273   

Depreciation and amortization

     864        886   
  

 

 

   

 

 

 

Total other research and development expenses

  2,977      2,159   
  

 

 

   

 

 

 

For 2014 and 2013, our other research and development expenses reflect costs incurred for research and development projects related to C-Cure, including the salaries of scientists and technicians, our laboratory supplies, depreciation of the Mayo License and the costs of the outsourced research and development services.

In 2014, pre-clinical research and development expenses increased by €0.8 million as compared to 2013 primarily related to direct research that we funded at the Mayo Clinic for €0.7 million. Under the Mayo License, we participate in a three year direct research program. Payments are triggered by initiation of research programs agreed upon by us and Mayo Clinic. This ongoing research was limited in 2013 and was reactivated in 2014.

As a result of our acquisition of Oncyte and CAR T-cell technology, pre-clinical research and development expenses are expected to increase significantly in future periods.

General and Administrative

 

(€’000)    For the year ended December 31,  
          2014         

2013

(as restated)

 

Employee expenses

     1,408         910   

Share-based payment

     1,528         1,258   

Rent

     315         323   

Communication & Marketing

     394         206   

Consulting fees

     741         975   

Travel & Living

     399         147   

Post employment benefits

     28         —     

Other

     203         153   
  

 

 

    

 

 

 

Total General and administration

  5,016      3,972   
  

 

 

    

 

 

 

 

 

 

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General and administrative expenses increased by €1.0 million in 2014 as compared in 2013 primarily related to our recruitment of additional employees to strengthen our executive management team and other support functions such as finance, accounting and investor relations. In addition, there was an increase in our share-based payments in 2014 as compared to 2013, as a result of warrants granted to new employees, members of our executive management team and directors under our May 2014 warrant plan.

Consulting fees are composed of legal, audit, human resources and other fees. The decrease in consulting fees in 2014 as compared to 2013 is due to fees related to the Euronext IPO in 2013.

Other operating income

 

(€’000)    For the year ended December 31,  
          2014         

    2013    

(as restated)

 

Recoverable cash advances (RCA)

     2,791         955   

Subsidies

     636         129   

Recognition of provision for reimbursement RCA

     —           (1,020

Reversal of provision for reimbursement RCA

     507         —     

Realized gain on contribution of IP into joint venture

     312         —     

Other movements

     167         —     
  

 

 

    

 

 

 

Total Other Operating Income

  4,413      64   
  

 

 

    

 

 

 

Other operating income increased by €4.3 million in 2014 as compared to 2013.

The increase in other operating income in 2014 compared to 2013 is mainly due to the receipt of funds from RCA contracts and subsidies. We received funding and notification of funding from RCAs amounting to €2.8 million in 2014, mainly related to RCAs for the use of C-Cathez as an investigational device in the United States and additional pre-clinical studies of C-Cure, compared to €1.0 million in 2013. We also received subsidies and grants from the Walloon Region for a total of €0.6 million in 2014 compared to €0.1 million in 2013. Such subsidies and grants support our research and development projects.

During the year ended December 31, 2014, we abandoned one RCA program previously recognized as a liability, resulting in a reversal of a provision of €0.5 million.

In 2013, we elected to exploit an RCA, triggering the recognition of a €1.0 million liability.

In 2014, we recorded another liability for €0.2 million reflecting amounts to reimburse the Walloon Region under grant contract 6305, corresponding to the amount received but not expensed by us at the time of entry into the grant agreement.

We expect to receive the remainder of the existing cash advance agreements outstanding as of December, 31, 2014, of approximately €1.7 million in 2015 and 2016. We also plan to submit further applications for additional Walloon Region non-dilutive funding in 2015 and thereafter to partially finance new research and development programs.

In 2015, we will decide whether to exploit one of our RCAs, triggering a potential recognition of an additional liability of €2.5 million.

 

 

 

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Operating loss

As a result of the foregoing, our operating loss increased by €3.5 million in 2014 as compared to 2013, totaling €16.4 million in 2014.

Financial income and Financial expenses

 

(€’000)    For the year ended December 31,  
      2014     

2013

(as restated)

 

Interest shareholders convertibles loans

     —           401   

Interest finance leases

     6         6   

Interest on overdrafts and other finance costs

     16         19   

Fair value convertible loans

     —           1,158   

Exchange differences

     19         11   

Finance expenses

     41         1,595   
  

 

 

    

 

 

 

Interest income bank account

  277      47   

Exchange differences

  —        12   

Other

  —        1   

Finance income

  277      60   
  

 

 

    

 

 

 

Financial expenses represent interest paid, bank charges and the fair value of convertible loans. Most of the financial expenses in 2013 related to shareholder convertible loans. An expense of €1.2 million was posted on such loans to reflect their fair value at the time of their conversion in May 2013.

Interest income on short term deposits increased significantly from 2013 to 2014, reflecting the increase of our average cash position over the periods, primarily resulting from the Euronext IPO.

Income tax expense

As we incurred losses in all of the relevant periods, we had no taxable income and therefore incurred no corporate taxes.

Loss for the year

As a result of the foregoing, our loss for the year increased by €2.0 million from €14.5 million in 2013 to €16.5 million in 2014.

Operating Capital Requirements

We believe that the net proceeds of the global offering, together with our existing cash and cash equivalents, and short term investments will enable us to fund our operating expenses and capital expenditure requirements, based on the current scope of our activities, until at least the end of 2017. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. In any event, we will require additional capital to pursue pre-clinical and clinical activities, obtain regulatory approval for, and to commercialize our drug product candidates.

Until we can generate a sufficient amount of revenue from our drug product candidates, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, government, including RCAs and subsidies, or other third-party financings and collaborations. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional

 

 

 

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capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our drug product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and these securities may have rights senior to those of our ordinary shares. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.

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

 

Ø   the size, progress, timing and completion of our clinical trials for any current or future drug product candidates, including C-Cure and CAR-NKG2D;

 

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

 

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

 

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

 

Ø   selling and marketing activities undertaken in connection with the anticipated commercialization of C-Cure and any other current or future drug product candidates and costs involved in the creation of a sales and marketing organization; and

 

Ø   the amount of revenue, if any, we may derive either directly or in the form of royalty payments from future potential partnership agreements on our technology platforms.

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

Liquidity and capital resources

Our liquidity requirements primarily relate to the funding of manufacturing expenses, clinical quality and regulatory expenses, research and development expenses, general and administrative expenses, capital expenditures, repayments of finance leases and working capital requirements.

We monitor our risk to a shortage of funds using a recurring liquidity planning tool. Our objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and finance leases.

Since May 2012, we have expensed all our clinical and research and development costs with the exception of the development costs for C-Cathez, which were capitalized following our receipt of the CE mark for C-Cathez,.

As of December 2014, we have funded our operations through several private investments for a total of €42.0 million, the Euronext IPO which resulted in proceeds of €26.5 million, and a private placement of €25.0 million conducted in June 2014. We also received non-dilutive funding from governmental bodies and received cash proceeds from subsidies and RCAs totaling €18.7 million.

 

 

 

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As of December 31, 2014, we had cash and cash equivalents of €27.6 million and short term investments of €2.7 million. Our cash and cash equivalents have been deposited primarily in savings and deposit accounts that have original maturities of three months or less and generate only minimal interest income.

On January 21, 2015, we purchased of OnCyte, for an upfront payment of $10.0 million, of which $6.0 million was paid in cash and $4.0 million was paid in the form of 93,087 our ordinary shares. Additional contingent payments with an estimated fair value of $42.0 million are payable upon the attainment of various clinical and sales milestones.

We are exposed to liabilities and contingent liabilities as a result of the RCAs we have received from the Walloon Region. Out of the RCAs contracted as of December 31, 2014, €17.0 million has been effectively paid out.

In 2015 and 2016, we will have to make an exploitation decision on the remaining RCAs with a potential recognition of an additional liability of €3.5 million based on the advances effectively paid out as of December 31, 2014.

Please see our consolidated financial statements included elsewhere in this prospectus for an analysis of our non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

The following table sets forth our consolidated cash flows information for the years ended December 31, 2014 and 2013.

 

(’000)    Year ended December 31,  
         2014             2013      
             (as restated)  

Net cash used in operations

     (17,414     (10,638

Net cash used in investing activities

     (1,768     (3,532

Net cash from financing activities

     27,757        31,583   

Net increase in cash and cash equivalents

     8,575        17,413   

 

 

Cash flow from operating activities represented at year end 2014 a net cash outflow of €17.4 million. Compared to the period ended December 31, 2013, the net cash outflow from operating activities increased by €6.8 million. This increase primarily resulted from the initiation of CHART-1 in the middle of 2013, which significantly increased our expenditures for our manufacturing and clinical operations by €2.7 million and €3.3 million, respectively.

Cash flow from investing activities represented a net cash outflow amounting to €1.8 million in 2014 mainly due to the acquisition of CorQuest for a cash payment of €1.5 million. In 2013, most of the cash outflow from investing activities resulted from a €3.0 million investment in a three-year short term deposit account.

Cash flow from financing activities represented a net cash inflow of €27.8 million in 2014 compared to €31.6 million in 2013. In 2014, the proceeds we received from our issuance of our shares were less than in 2013, €25.3 million compared to €30.6 million, respectively, whereas the proceeds received from RCAs and subsidies from the Walloon Region increased in 2014 compared to 2013, €2.4 million compared to €1.1 million, respectively.

 

 

 

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Cash and Funding Sources

During 2013 and 2014, we obtained new financing mostly through the issuance of our shares. A summary of our financing activities during 2014 and 2013 is as follows:

 

(’000)    Total      Equity capital      Finance leases      Other debt  

2013

     31,643         30,623         —           1,020   

2014

     25,749         25,305         444         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Financing

  57,392      55,928      444      1,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

In March 2015, we completed a €31.7 million capital increase via a private placement subscribed by qualified institutional investors in the United States and Europe at a price of €44.50 per share. The net proceeds, after deduction of the placement fees amounted to €29.8 million.

During 2014, our capital was increased in June 2014 by way of a capital increase of €25.0 million, represented by 568,180 new shares. Our capital was also increased by way of exercise of warrants. Over four different exercise periods, 139,415 warrants were exercised resulting in the issuance of 139,415 new shares. Our capital and share premium were therefore increased respectively by €0.5 million each. Also, we financed part of our capital expenditures with a bank lease of €0.4 million.

Over the course of 2013, we conducted a private placement of €7.0 million in May 2013 and closed our Euronext IPO in July 2013 for proceeds of €26.5 million. Net proceeds from these capital increases amounted to €30.6 million. We also recognized a new cash advance of €1.0 million from a RCA from the Walloon Region as we decided to exploit a RCA related to C-Cathez development.

Since inception, we have not incurred any bank debt. Some of our capital expenditures related to laboratory and office equipment are financed with 3-year maturity finance leases.

In 2013, we decided to exploit the results associated with an RCA related to C-Cathez and therefore recognized a €1.0 million debt.

Amounts due to the Walloon Region, booked as advances repayable, at the end of 2014 correspond to funding received under several RCAs, dedicated to supporting specific development programs related to C-Cure and C-Cathez.

 

 

 

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The movements of the advances repayable recorded in 2014 and 2013 are summarized in the table below:

 

(’000)        

Balance of January 1, 2013

     11,842   

+ liability recognition

     +1,020   

-repayments

     -211   

+/- other transactions

     -150   
  

 

 

 

Balance at December 31, 2013

  12,501   
  

 

 

 

Balance of January 1, 2014

  12,501   
  

 

 

 

+ liability recognition

  —     

-repayments

  -272   

+/- other transactions

  -674   

Balance at December 31, 2014

  11,555   
  

 

 

 

Contractual Obligations and Commitments

The following table discloses aggregate information about material contractual obligations and periods in which payments were due as of December 31, 2014. Future events could cause actual payments to differ from these estimates.

 

(’000)    Total      Less than
one year
     One to three
years
     Three to
five years
     More than
five years
 

As of December 31, 2014

              

Finance leases

     413         134         245         34         —     

Operating leases

     1,683         751         679         88         165   

Pension obligations

     182         —           —           —           182   

Advances repayable (current and non-current)

     11,555         777         1,570         1,846         7,362   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  13,833      1,662      2,494      1,968      7,709   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

On January 21, 2015, we acquired OnCyte from Celdara for an upfront payment of $10.0 million, of which $6.0 million was paid in cash and $4.0 million was paid in the form of 93,087 our ordinary shares. Additional contingent payments with an estimated fair value of $42.0 million are payable upon the attainment of various clinical and sales milestones. The liability for the estimated contingent consideration is not reflected in the consolidated statement of financial position as of December 31, 2014.

Capital Expenditures

We do not capitalize our research and development expenses until we receive marketing authorization for the applicable product candidate. As of end of 2014, all clinical, research and development expenditures related to the development of C-Cure and are accounted for as operating expenses.

 

 

 

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Our capital expenditures were €0.6 million and €0.1 million for the years ended December 31, 2014 and 2013, respectively. There are no material capital projects planned in 2015. In addition, we completed the acquisition of CorQuest in November 2014, resulting in recognition of patent intangible assets of €1.5 million.

 

(’000)    As of December 31,  
         2014              2013      
              (as restated)  

Intangible assets

     10,266         9,400   

Property, plant and equipment

     598         243   

Other long term financial assets

     109         140   
  

 

 

    

 

 

 

Total

  10,973      9,783   
  

 

 

    

 

 

 

Off-Balance Sheet Arrangements

As of the date of this prospectus and also for the periods presented, we did not have any off-balance sheet arrangements.

Critical accounting estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our audited financial statements, which we have prepared in accordance with IFRS as issued by the IASB. The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities, at the end of the reporting period.

Our significant accounting policies are more fully described in Note 2.2 to our consolidated financial statements appearing elsewhere in this prospectus. We have identified these policies as critical to understanding and evaluating the estimates and judgments important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that we believe are reasonable under the circumstances. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

In the process of applying our accounting policies, management has made judgments and has used estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

Advances received from the Walloon Region: recognition of a liability

The advances received only become contingently reimbursable if certain conditions are met. Assessing if these conditions are met (or not) can only reasonably be performed at the end of the research phase. At the end of this research phase, we should, within a period of six months, decide whether or not to exploit the results of the research programs. In the event we decide to exploit the results under a RCA, the relevant RCA becomes contingently refundable to the Walloon Region and we apply the recognition and measurement criteria of IAS 37 related to liability recognition, with any amounts being recognized as a reduction of other operating income in our statement of comprehensive income (loss).

 

 

 

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The total estimated amount to be reimbursed includes the sales-independent reimbursements as well as the sales-dependent reimbursements and interest (if applicable) if the reimbursement of these amounts is probable. The contingent liability is discounted using a discount rate made up of two components: a risk free rate reflecting the maturity of the advances repayable and the spread reflecting our credit risk.

At the time of a liability recognition, an estimate is made of the amount to be reimbursed including the sales-independent reimbursements (an annual lump-sum), the sales-dependent reimbursements and the interest to be paid. These estimated future (outgoing) cash flows are discounted as the liability is a long-term liability.

When a liability is recognized, significant estimates are required to determine the discount rate used to calculate the present value of those liabilities as well as the determination of the estimated cash flow relating to the exploitation. The estimates triggering the discount rate are the assessment of own credit risk as well as the risk profile of the financial instruments. At the end of 2014, we estimated the total liabilities using a discount rate of 12.5%.

After initial recognition this liability is measured at amortized cost using the effective interest method. An interest expense is recognized based on the discount rate used.

Each year, we reassess the amounts to be reimbursed based upon (i) progress made in the pre-clinical and clinical development of all projects partially financed by RCAs and, (ii) on the updated sales projections over the reimbursement period.

In 2014 no new advances were recognized as contingently repayable.

In 2014, we notified the Walloon Region of our decision to not exploit the outcome of two RCAs related to the industrialization of the C-Cure production process in bioreactors, resulting in a decrease of estimated amounts to be reimbursed of €0.5 million.

Share-based payment transactions

We have established share-based compensation plans as an incentive for our employees, members of our executive management team and independent directors, as well as certain consultants and advisors. Warrants are granted by the board of directors in accordance with authorizations given by our shareholders. Warrant grants are based on the merits of the individual grantee and no employee is entitled to receive warrants simply by virtue of being employed.

Under the terms of our warrant programs, warrants are granted at an exercise price equal to the market price as determined by our board of directors on the grant date. The vesting of warrants is generally conditioned on the grantee completing a period of service. Each warrant grant vests in installments after the date of grant, subject to continued service of the grantee. Warrant exercises are settled with the delivery of shares.

For all plans issued before July 2013, warrants were granted at an exercise price equal to share price used at the occasion of the last capital increase as determined by the board of directors on the grant date. Before becoming a public company, we issued warrants in 2008, 2010 and 2013.

In May 2013 and May 2014, respectively, we issued 266,641 and 100,000 warrants to our employees, members of our executive management team and directors. Out of the warrants issued, 302,150 were granted and 282,750 were outstanding as of December 31, 2014.

 

 

 

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We measure the cost of these equity-settled transactions by reference to the fair value of the equity instruments at the date on which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.

The variables, used in this model are:

Fair Value of Our Ordinary Shares: In connection with our listing on Euronext Brussels and Euronext Paris in July 2013, we established a policy to determine the fair value of our warrants. Pursuant to Belgian law, the exercise price of warrants is established at the lower of a) the 30 days average closing stock price and b) the closing stock price for the day preceding the issuance of warrants. Prior to our listing on Euronext Brussels and Euronext Paris, the fair value of the respective warrant plans was determined as the price paid for our shares during the last private financing round. For the warrants issued in May 2013, because of the proximity to our Euronext IPO, the warrants were valued using price as which our ordinary shares were sold in the Euronext IPO.

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

Expected Volatility: We are using the volatility of our share price on Euronext Brussels and Euronext Paris observed since the Euronext IPO. Prior to the Euronext IPO, we used the volatility of our peers.

Risk-Free Interest Rate: The risk-free interest rate is based on the yields of Belgian 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 used an expected dividend yield of zero.

For the purpose of estimating the fair value per share of the warrants, we believe the expected volatility and the estimated fair value per underlying share are the most critical assumptions. Changes in these assumptions could significantly affect the fair value of warrants and, as a result, the amount of share-based compensation that we recognize in our consolidated financial statements. If any of the assumptions used in the Black-Scholes option-pricing model changes significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.

The fair value of warrants granted to the participants is recorded as an expense against a credit in equity. The total amount to be expensed is determined by reference to the fair value, using the Black-Scholes option-pricing model, of the warrants at the time of grant. For allocation of the share-based compensation expenses to be recorded, we treat each installment of a graded vesting award as a separate grant.

 

 

 

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

 

     As of December 31,  
          2014             2013      

Expected dividend yield

     —          —     

Expected share value volatility

     68     36% - 40

Risk-free interest rate

     1     2

Expected life (in years)

     10        10   

 

 

For 2014 and 2013, the share-based compensation expenses recorded in our income statement amounted to €1.5 million and €1.3 million, respectively.

Consolidation

We periodically undertake transactions that may involve obtaining control, joint control or significant influence of other companies. These transactions include equity acquisitions and asset purchases. In all such cases management makes an assessment as to whether we have control, joint control or significant influence of the other company, and whether such company should be consolidated as a subsidiary or accounted for as a joint venture or as an associated company. In making this assessment management considers the underlying economic substance of the transaction in addition to the contractual terms.

At year end 2014, an assessment was completed to decide if we had obtained control or joint control of Cardio3 Biosciences Asia. Our subscription and joint venture agreement with Medisun stipulates that:

 

Ø   We acquired 40% of the share capital of Cardio3 BioSciences Asia in return for an outlicense for the development of C-Cure in Greater China.

 

Ø   Medisun acquired 60% of the shares of Cardio3 Biosciences Asia for HK$ 5 million. Medisun will make additional cash contributions for additional shares over the next three years to fund research.

 

Ø   The agreement stipulates that unanimous consent is required from both parties to the agreements over relevant activities, for example approving budgets and business plans, declaring dividends, borrowing money, applying for registration of intellectual property, etc.

 

Ø   Our arrangement is structured as a limited company and provides us and the parties to the agreements with rights to the net assets of the limited company under the arrangements.

Based on the above, we have assessed there is joint control and that Cardio3 Bioscienes Asia is a joint venture.

Business combinations

In respect of acquired businesses by us, significant judgment is made to determine whether these acquisitions are to be considered as an asset deal or as a business combination. Determining whether a particular set of assets and activities is a business should be based on whether the integrated set is capable of being conducted and managed as a business by a market participant. Moreover, management judgment is particularly involved in the recognition and fair value measurement of the acquired assets, liabilities, contingent liabilities and contingent consideration. In making this assessment management considers the underlying economic substance of the items concerned in addition to the contractual terms.

 

 

 

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Contingent consideration provisions

We make provision for the estimated fair value of contingent consideration arrangements arising from business combinations. The estimated amounts are the expected payments, determined by considering the possible scenarios of forecast sales and other performance criteria, the amount to be paid under each scenario, and the probability of each scenario, which is then discounted to a net present value. The estimates could change substantially over time as new facts emerge and each scenario develops.

Deferred Tax Assets

Deferred tax assets for unused tax losses are recognised to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Once we will obtain market approval for C-Cure, or another drug product candidate, and when we will have more certainty on the generation of taxable income, we will recognize deferred tax assets accordingly.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. Our overall risk management program focuses on preservation of capital given the unpredictability of financial markets.

Foreign exchange risk

We are exposed to foreign exchange risk as certain collaborations or supply agreements of raw materials are denominated in USD. Moreover we have also investments in foreign operations, whose net assets are exposed to foreign currency translation risk (USD). So far, because of the materiality of the exposure, we did not enter into any currency hedging arrangements. No sensitivity has been performed on the foreign exchange risk as up till now we still consider this risk as immaterial.

We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD. Our functional currency is the Euro, but we have several of our product suppliers and clinical vendors invoicing US in USD or in other currencies. In addition, we plan to convert a substantial portion of the proceeds from the global offering to Euro.

We have not established any formal practice to manage the foreign exchange risk against our functional currency. As of December 31, 2014, we had no trade receivables denominated in USD and had trade payables denominated in USD of $0.9 million.

Foreign exchange rate movements had no material effect on our results for the years ended December 31, 2014 and 2013. Because of our growing activities in the United States, the foreign exchange risk may increase in the future.

Liquidity risk

Based on our current operating plans, we believe that the anticipated net proceeds of the global offering, together with our existing cash and cash equivalents and short term investments, will be sufficient to fund our operations through at least the end of 2017.

 

 

 

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JOBS Act Exemptions

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce reporting requirements for an “emerging growth company.” We are qualified as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we are electing to take advantage of the following exemptions:

 

Ø   including disclosure of two years of audited financial statements, as opposed to three years, in addition to any required interim financial statements;

 

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

 

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

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of (1) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; (2) the date we are qualified as a “large accelerated filer,” with at least $700 million of equity securities; (3) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities held by non-affiliates; and (4) the last day of the fiscal year ending after the fifth anniversary of our U.S. initial public offering. We may choose to take advantage of some but not all of these exemptions. For example, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Internal Control Over Financial Reporting

We have determined the existence of three material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of our annual consolidated financial statements will not be prevented or detected on a timely basis by our employees. The material weakness identified were a lack of knowledge of:

 

Ø   accounting resources required to fulfill the reporting requirements of International Financial Reporting Standards, or IFRS, and financial reporting requirements;

 

Ø   comprehensive IFRS accounting policies and financial reporting procedures; and

 

Ø   segregation of duties given the size of our finance and accounting team.

As described in Note 2.36 of our consolidated financial statements included elsewhere in this prospectus, we have restated our consolidated financial statements as of and for the year ended December 31, 2013 as a result of errors in the accounting treatment of shareholders convertible loans and share-based payments. We believe that the material weaknesses identified contributed to the restatements.

 

 

 

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We have not yet undertaken and our independent registered public accounting firm has not yet conducted a comprehensive assessment of our internal control over financial reporting for purposes of identifying and reporting material weaknesses, significant deficiencies and control deficiencies in our internal control over financial reporting. 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, 2016.

We believe it is possible that, if we had performed a formal assessment of our internal control over financial reporting, or if our independent registered public accounting firm had performed an audit of our internal control over financial reporting, other material weaknesses, significant deficiencies or control deficiencies may have been identified.

We have taken several remedial actions to address the material weaknesses identified. In particular, we have hired additional staff for the finance department, including a corporate controller, and we are planning to hire a compliance financial officer with experience with external financial reporting, IFRS and establishing appropriate financial reporting policies, controls and procedures.

The process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments, as well as to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See “Risk Factors – Risks Related to Our Business Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.”

Change in Certifying Accountant

Under Belgium corporate law, the shareholders of companies elect their locally registered independent public accounting firm for a mandate of three years. At the end of each mandate, the shareholders may renew the mandate for another mandate of three years, or opt for another firm.

On May 5, 2014, our annual shareholder’s meeting decided not to renew the independent public accounting firm mandate of Ernst & Young. At the time of shareholders decision, Ernst & Young had been our auditor for six years.

Ernst & Young’s reports (under International Standards on Auditing) on our consolidated financial statements for the years ended December 31, 2013 and 2012 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with the audits of our financial statements for each of the years ended December 31, 2013 and 2012 there were no disagreements with Ernst & Young on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the two years ended December 31, 2013 and 2012, that if not resolved to the satisfaction of Ernst & Young, would have caused it to make reference to the subject matter of the disagreements in connection with its report.

During the two years ended December 31, 2013, and the interim period January 1, 2014 to May 5, 2014, none of the reportable events described in paragraphs (A) through (D) of Item 16F(a)(1)(v) of Form 20-F occurred.

We engaged PricewaterhouseCoopers Reviseurs d’Entreprises scrl, or PwC, as our new independent registered public accounting firm as of May 5, 2014. During the two years ended December 31, 2013, and the interim period January 1, 2014 to May 5, 2014, neither we nor anyone on our behalf, has

 

 

 

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consulted with PwC on the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements or any matter that was the subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions to Item 16F of Form 20-F, or a reportable event, as that term is defined in Item 16F(a)(1)(v).

We have provided Ernst & Young with a copy of these disclosures prior to the filing hereof and have requested that Ernst & Young furnish to us a letter addressed to the Securities and Exchange Commission stating whether Ernst & Young agrees with the statements made by us in this item. Ernst & Young has furnished such letter, which letter is filed hereto as required by Item 16F(a)(3) of Form 20-F.

 

 

 

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Unaudited pro forma condensed combined financial information

On January 21, 2015, we acquired the outstanding membership interests in Oncyte LLC (“Oncyte”) the oncology division of Celdara Medical, LLC (“Celdara”), a privately-held biotechnology company based in Lebanon, New Hampshire, USA. The acquisition establishes our entry into the field of immuno-oncology with a portfolio of drug product candidates including three autologous CAR T-cell therapy products and an allogeneic T-cell platform, targeting a broad range of cancer indications. Pursuant to the terms of the Stock Purchase Agreement and the Asset Purchase Agreement, we made a cash payment of $6.0 million at closing and issued new shares to Celdara with a value of $4.0 million. Additional contingent payments with an estimated fair value of $42.0 million may be due upon reaching various clinical and sales milestones. We financed the acquisition with existing cash and authorized share capital.

The unaudited pro forma condensed combined financial information gives effect to the acquisition as if it had been completed on January 1, 2014 for purposes of the statement of operations and December 31, 2014 for purposes of the statement of financial position. The historical consolidated financial information of us and Oncyte has been adjusted in the unaudited pro forma condensed combined financial information to give effect to events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma adjustments are based upon currently available information and assumptions that we believe to be reasonable. The pro forma adjustments and related assumptions are described in the notes accompanying the unaudited pro forma condensed combined financial information.

The pro forma financial information and adjustments are preliminary and have been made solely for purposes of providing these unaudited pro forma condensed combined statements of operations and balance sheet. Differences between these preliminary estimates and the final acquisition accounting may occur and these differences could have a material impact on the pro forma financial information presented and the combined company’s future results of operations and financial position. The actual results reported in future periods may differ significantly from that reflected in these pro forma financial information for a number of reasons, including but not limited to differences between the assumptions used to prepare this pro forma financial statements and actual amounts, as well as cost savings from operating and expense efficiencies and potential income enhancements.

The unaudited pro forma condensed combined statement of operations does not reflect any prospective income enhancements or operating synergies that the combined company may achieve as a result of the acquisition or the costs to integrate the operations or the costs necessary to achieve these income enhancements and operating synergies. In addition, the unaudited pro forma condensed combined statements of operations do not give effect to the consummation of the global offering. As a result, the pro forma information does not purport to be indicative of what the financial condition or results of operations would have been had the transactions been completed on the applicable dates of this pro forma financial information. The unaudited pro forma condensed combined statements of operations and balance sheet are for informational purposes only and do not purport to project the future financial condition and results of operations after giving effect to the transactions.

The following unaudited pro forma condensed financial information is derived from the audited historical consolidated financial statements of us as of and for the year-ended December 31, 2014

 

 

 

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prepared in accordance with IFRS as issued by the IASB and the audited financial statements of the OnCyte Clinical Trials Program as of and for the year-ended December 31, 2014 prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, each included elsewhere in this prospectus. You should read this unaudited pro forma condensed combined financial information in conjunction with the accompanying notes, the audited financial statements of us and Oncyte referred to above, as well as with “Management’s discussion and analysis of financial condition and results of operations”, included elsewhere in this prospectus.

 

Statement of Financial Position   Cardio3
Biosciences SA
    Oncyte            Proforma
combined
 
(€’000)   As of
December 31,
2014
    As of
December 31,
2014
    Reclassification
(Note 2)
     Pro Forma
Adjustment
(Note 4)
    As of
December 31,
2014
 

NON-CURRENT ASSETS

    11,041        83        —           44,817        55,941   

Intangible assets

    10,266        61        —           44,839 (a)(b)      55,166   

Property, Plant and Equipment

    598        22           (22 )(b)      598   

Investment accounted for using the equity method

    68        —             —          68   

Other non-current assets

    109        —             —          109   

CURRENT ASSETS

    32,935        145        —           (5,326     27,754   

Trade and Other Receivables

    830        141           (141 )(b)      830   

Grant receivables

    1,009        —               1,009   

Other current assets

    792        4           (4 )(b)      792   

Short-term investment

    2,671        —               2,671   

Cash and cash equivalents

    27,633        —             (5,181 )(c)      22,452   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL ASSETS

  43,976      228      —        39,491      83,695   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EQUITY

  26,684      20      —        3,431      30,135   

Share Capital

  24,615      208      —        117 (b)(d)    24,940   

Share premium

  53,302      —        3,126 (d)    56,428   

Other reserves

  19,982      (16   16 (b)    19,982   

Retained loss

  (71,215   (172   172 (b)    (71,215
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

NON-CURRENT LIABILITIES

  11,239      24      —        36,244      47,507   

Financial leases

  279      —        —        279   

Advances repayable

  10,778      —        —        10,778   

Other non-current liabilities

  182      24      (24 )(b)    182   

Contingent liabilities

  —        —        36,268 (e)    36,268   

CURRENT LIABILITIES

  6,053      184      —        (184   6,053   

Financial leases

  134      —        —        134   

Advances repayable

  777      —        —        777   

Trade payables

  4,042      —        —        4,042   

Other current liabilities

  1,100      184      (184 )(b)    1,100   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

TOTAL EQUITY AND LIABILITIES

  43,976      228      —        39,491      83,695   
 

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

 

 

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IFRS Statement of operations    Cardio3
Biosciences SA
    Oncyte                    Proforma
combined
 
(€’000)    For the year
ended
December 31,
2014
    For the year
ended
December 31,
2014
    Reclassification
(Note 2)
   

Pro Forma
Adjustment

(Note 4)

     For the year
ended
December 31,
2014
 

Revenue

     146        —          —          —           146   

Grant income

     —          756        (756     —           —     

Cost of sales

     (115            (115
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

  31      31   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Costs of Operations

  —        (928   928      —        —     

Research and Development

  (15,865   —        (928   —        (16,793

General and administrative

  (5,016   —        —        —        (5,016

Other operating income

  4,413      —        756      —        5,169   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating Loss

  (16,437   (172   —       
—  
  
  (16,609
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financial (income)

  277      —        —        —        277   

Financial expenses

  (41   —        —        —        (41

Share of Loss of investment accounted for using the equity method

  (252   —        —        —        (252
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loss before taxes

  (16,453   (172   —       
—  
  
  (16,625
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income taxes

  —        —        —        —     

Loss for the year

  (16,453   (172   —        —        (16,625
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Basic and diluted loss per share
(in €)

  (2.44   (2.43
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Oncyte LLC—Notes to Unaudited Pro Forma Condensed Combined Financial Information

Note 1: Basis of preparation

The acquisition is accounted for in accordance with the acquisition method of accounting for business combinations with Cardio3 Biosciences SA as the acquiring entity. The unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of the Cardio3 Biosciences SA and Oncyte after giving effect to the consideration paid by Cardio3 Biosciences SA to consummate the acquisition, as well as pro forma adjustments as described in Note 4. In accordance with the acquisition method of accounting for business combinations, tangible and intangible assets acquired and liabilities assumed are required to be recorded at their respective fair market values as of the date of the acquisition, with any excess purchase price allocated to goodwill.

The unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2014 is presented as if the acquisition had occurred on January 1, 2014. The unaudited pro forma condensed combined statement of financial position is presented as if the acquisition had occurred on December 31, 2014.

The fair values assigned to the intangible assets acquired from Oncyte are based on management’s estimates and assumptions with the assistance of an independent valuation specialist. The estimated fair values of these assets acquired are considered preliminary. We believe that the information provides a reasonable basis for estimating the fair values of assets acquired; however, the provisional measurements

 

 

 

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of fair value are subject to change. We expect to finalize the valuation of the intangible assets as soon as practicable, but not later than one-year from the acquisition date.

The Oncyte’ balance sheet positions initially expressed in USD have been translated in EUR by using the closing EUR/USD exchange rate as at December 31, 2014 (1EUR = 1.21548USD); whereas the Oncyte’ statement of operations positions initially expressed in USD have been translated in EUR by using the average EUR/USD exchange rate over the year 2014 (1EUR = 1.32947USD).

Under the acquisition method, acquisition-related transaction costs (e.g. advisory, legal, valuation and other professional fees) are not included as consideration transferred but are accounted for as expenses in the periods in which the costs are incurred. These costs are not presented in the unaudited pro forma combined consolidated statements of operations because they will not have a continuing impact on the combined results. Total acquisition-related transaction costs of the combined company were immaterial.

Note 2. Accounting Policies

The historical financial information extracted from the financial statements of Oncyte is prepared in accordance with US GAAP. For the purpose of presenting the historical information of Oncyte in a reporting format that is consistent with that of us, certain components of Oncyte’s statement of operations and comprehensive income have been reclassified. The following reclassifications have been made in the unaudited proforma combined statement of operations for the year ended December 31, 2014:

Amounts historically included in Grant income on Oncyte’s statements of operations and comprehensive income (loss) have been reclassified to Other operating income in order to conform with our financial statement presentation. Amounts historically included in Cost of Operations on Oncyte’s statements of operations and comprehensive income (loss) have been reclassified to Research and Development in order to conform with our financial statement presentation. The unaudited pro forma condensed combined financial information does not assume any differences in accounting policies. We believe there are no differences between US GAAP and IFRS as issued by the IASB that would have a material impact on the unaudited pro forma condensed combined financial information.

Note 3. Calculation of Estimated Consideration Transferred and Preliminary Allocation of Consideration to Net Assets Acquired

The following table summarizes the preliminary reconciliation of upfront payment in accordance to the Share Purchase Agreement and the total purchase price:

 

Cash consideration according to the Share Purchase Agreement

$ 6.0 million    5.2 million [1] 

Issuance of ordinary shares of the Group according to the Share Purchase Agreement

$ 4.0 million    3.4 million [1] 

Preliminary estimate of fair value of contingent consideration

$ 42.0 million    36.3 million [1] 
  

 

 

    

 

 

 

Total Purchase Price

$ 52.0 million    44.9 million   

 

[1]   Converted using the following exchange rate as of January 21, 2015: 1EUR = 1,15806USD

The value of the 93,087 ordinary shares issued as part of the consideration paid for Oncyte was based on a share price of €37.08, our share price at the date of the acquisition.

 

 

 

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The preliminary fair value estimate of contingent consideration of $42.0 million (€36.3 million) relates to the achievement of certain regulatory and sales milestones and are based on the contractual terms defined in the Share Purchase Agreement. The preliminary fair value estimate of contingent consideration was obtained using several discount rates and probability rates of success over the different products candidates acquired and is subject to change.

Following the terms of the Share Purchase Agreement, assuming successful development of the lead product CAR-NKG2D, Celdara could receive up to $45.0 million in development and regulatory milestones until market approval. Celdara will also be eligible to additional payments on the other products in development upon achievement of development and regulatory milestones totaling up to $21.0 million per product. In addition, the seller will receive per product up to $80.0 million in sales milestones when total net sales will exceed $1 billion and royalties ranging from 5% to 8% on net sales.

The transaction was accounted for as a business combination under the acquisition method of accounting.

For purposes of these unaudited pro forma condensed financial statements, the above consideration transferred will be assigned to the fair value of acquired assets and is based on preliminary estimates and is subject to change. The following table summarizes the estimated fair values of the assets acquired as if the transaction occurred on December 31, 2014:

 

In-process research and development

$ 52.0 million      €44.9 million (1) 

Assets acquired

$ 52.0 million      €44.9 million (1) 

Liabilities assumed

  —     
  

 

 

    

 

 

 

Net assets acquired

$ 52.0 million      €44.9 million   

 

[1]   Converted using the following exchange rate as of January 21, 2015: 1EUR = 1.15806USD

No deferred tax liability has been recorded on the fair value of the intangible assets acquired. The company intends to make an election to treat the share acquisition as the acquisition of assets for U.S. federal income tax purposes resulting in tax deductible amortization of the intangible assets acquired.

The fair value of the acquired assets and liabilities assumed was determined on a provisional basis. The provisional fair value of acquired assets and liabilities assumed can change when the final fair value of the acquired assets and liabilities assumed is established.

Note 4. Pro Forma Adjustments

 

  a)   To consider the estimated fair value of the intangible asset of Oncyte. The acquired assets have been recognized at an estimated fair value determined by us with the assistance of an independent valuation specialist in an amount of €44.9 million—$52.0 million translated by using the closing EUR/USD exchange rate as at January 21, 2015 (1EUR = 1.15806USD).

 

  b)   The Oncyte business has been acquired through a special purpose vehicle especially created for this transaction which only the intangible assets related to the CAR T-cell technology have been transferred in. We have not acquired the underlying property, plant and equipment, working capital and long term liabilities of the Oncyte business. The historical figures reflected in the unaudited condensed consolidated statement of financial position is a carve-out of the financial statements of the Sellers’ activities related to CAR T-cell technology as at December 31, 2014 including all the assets and liabilities. Consequently, the elements not related to the intangible assets have been eliminated in the pro forma combined financial information.

 

 

 

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  c)   To record the use of cash and cash equivalents to fund the cash consideration paid according the Share Purchase Agreement amounting to €5.2 million—$6.0 million translated by using historical exchange rate (1 EUR = 1.15806USD) as at the acquisition date (January 21, 2015).

 

  d)   To record the issuance of our new shares for a total value of €3.4 million—$4.0 million translated by using historical exchange rate (1 EUR = 1.15806USD) as at the acquisition date (January 21, 2015), split between the share capital (€0.3 million) and the share premium (€3.1 million).

 

  e)   To reflect the preliminary fair value estimate of the contingent consideration: €36.3 million—$42.0 million translated by using the closing EUR/USD exchange rate as at January 21, 2015 (1EUR = 1.15806USD).

 

 

 

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Business

Overview

We are a leader in engineered cell therapy treatments with clinical programs initially targeting indications in cardiovascular disease and oncology. Our lead drug product candidate in cardiovascular disease is C-Cure, an autologous cell therapy for the treatment of patients with ischemic heart failure, or HF. We completed enrollment in our first Phase 3 clinical trial of C-Cure in Europe and Israel, or CHART-1, in March 2015. On March 30, 2015, we announced that the Data Safety Monitoring Board, or DSMB, reviewed unblinded safety data from CHART-1 and determined that there was no evidence of obvious differences in safety profiles of patients in the two arms of the trial, which means that the data did not support discontinuation of the trial on the basis of safety. The full data readout from this trial is expected in the middle of 2016. We anticipate initiating our second Phase 3 clinical trial of C-Cure in the United States and Europe, or CHART-2, pending U.S. Food and Drug Administration, or FDA, lifting of the existing clinical hold, which we expect in the second half of 2015. Our lead drug product candidate in oncology is CAR-NKG2D, an autologous chimeric antigen receptor, or CAR, an artificial, lab engineered receptor, which is used to graft a given protein onto an immune cell, T lymphocyte, or CAR T-cell, therapy. We are currently enrolling patients with refractory or relapsed acute myeloid leukemia, or AML, or multiple myeloma, or MM, in a Phase 1 clinical trial of CAR-NKG2D in the United States. Interim data from this trial is expected to be reported at various times during the trial, with the full data readout expected in the middle of 2016.

All of our current drug product candidates are autologous cell therapy treatments. In autologous procedures, a patient’s cells are harvested, selected, reprogrammed and expanded, and then infused back into the same patient. A benefit of autologous therapies is that autologous cells are not recognized as foreign by patients’ immune systems. We believe that we are well situated to effectively advance autologous cell therapy treatments for cancer and other indications as a result of the expertise and know-how that we have acquired through our development of C-Cure. We also believe that there are numerous operational synergies between our product platforms, including that, prior to commercialization, our existing pilot manufacturing plant can accommodate both of our cell therapy programs without significant capital expenditure.

HF is a condition in which the heart is unable to pump enough blood to meet the body’s metabolic needs, affects 1% to 2% of the adult population in developed countries and approximately 5.7 million patients were diagnosed with HF in the United States in 2012, according to the American Heart Association. The long-term prognosis associated with HF is dire, with approximately 50% mortality at five years following initial diagnosis, according to a report from the American Heart Association. Although existing therapies have been somewhat effective in the treatment of HF, there is still great unmet medical need. In particular, in the case of ischemic HF, which is caused by insufficient oxygen to the heart, current treatments fail to address the decrease in the number of functional myocytes, or heart cells, in the heart that result from this lack of oxygen. Over time this functional decrease modifies the dynamics of cardiac contractions leading to tissue remodeling and loss of cardiac function. We believe that cellular therapies have the potential to repair or replace the non-functioning myocytes of ischemic HF patients.

To guide cardiac tissue formation, our C-Cure therapy reprograms multipotent stem cells harvested from a patient into cardiopoietic cells, cells that can become myocytes, using naturally occurring cytokines, small proteins that play an important role in cell signaling, and growth factors that mimic the signaling that occurs in embryonic heart tissue development. Based on pre-clinical studies, we have identified both direct and indirect possible modes of action for C-Cure. The direct mode may replace non-functioning myocytes.

 

 

 

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In the indirect modes, factors secreted by the cardiopoietic cells may cause patients’ resident stem cells to begin pooling, regenerating and differentiating into cardiac cells, with the resulting favorable environment inducing the non-functioning myocytes to regain function. We have developed C-Cure predominantly on technology that we licensed from the Mayo Foundation for Medical Education and Research, or the Mayo Clinic. To assist in the reinjection of cardiopoietic cells, we have also developed C-Cathez, which we believe may be able to achieve a higher retention rate of cells in the heart relative to the commercial catheter we used in our prior clinical trial.

Positive outcomes were observed in ischemic HF patients treated with C-Cure in our Phase 2 clinical trial in Europe. Patients treated with C-Cure showed a 25% relative improvement of median left ventricular ejection fraction, or LVEF, which is the percentage of blood that is pumped out of the heart at each beat, at six months versus baseline, whereas untreated patients showed a relative improvement of 0.7% versus baseline. Patients treated with C-Cure also demonstrated an improved exercise capacity as measured by the six minutes walking distance test, or six minutes WDT, which measures the distance a patient can walk in a six-minute period. The C-Cure treatment group’s walking distance improved by 77 meters compared to the control group.

Cancer is the second leading cause of death in the United States after cardiovascular diseases, according to the U.S. Centers for Disease Control and Prevention. According to the American Cancer Society, in 2014, there were an estimated 1.6 million new cancer cases diagnosed and over 550,000 cancer deaths in the United States alone. In the past decades, the cornerstones of cancer therapies have been surgery, chemotherapy and radiation therapy. Since 2001, small molecules that specifically target cancer cells have emerged as standard treatments for a number of cancers. For example, Gleevec is marketed by Novartis AG for the treatment of leukemia, and Herceptin is marketed by Genentech, Inc. for the treatment of breast and gastric cancer. Although these targeted therapies have significantly improved the outcomes for certain patients with these cancers, there is still a high unmet need for the treatment of these and many other cancers.

While the immune system has a natural response to cancer, automatically recognizing and eliminating cancer cells, cancer cells can develop the ability to evade immune response, resulting in the formation of potentially dangerous cancerous tumors and blood cancers. CAR T-cell therapy is a new technology that broadly involves engineering patients’ own T-cells to express CARs so that these re-enginerred cells recognize and kill cancer cells, overcoming cancer cells’ ability to evade immune response.According to a January 2015 review article published in Immunological Reviews, several early clinical trials involving CAR T-cell therapies have suggested potentially high clinical responses in difficult to treat relapsed or refractory B lymphocyte, or B-cell, malignancies. For example, results of a clinical trial reported in the New England Journal of Medicine in October 2014 demonstrated that CAR T-cell therapy that targets the CD19 antigen, or CD19 CAR Therapy, was effective in treating patients with relapsed and refractory acute lymphoblastic leukemia. Treatment was associated with a complete remission rate of 90% and sustained remissions of up to two years after treatment.

Our lead CAR T-cell drug product candidate is CAR-NKG2D, which has shown promising data in pre-clinical solid and blood cancer models, including for the treatment of lymphoma, ovarian cancer and myeloma. CAR-NKG2D is constructed using the native sequence of non-engineered natural killer, or NK, cell receptors that target ligands, which are antigens or antigens complexed with other molecules, present on numerous cancer cells. Ligands are substances bound together to form a larger complex, such as an antigen bound to other molecules. Accordingly, our technology has the potential to attack and kill a broad range of solid and blood cancers, while CD19 CAR Therapy is typically only effective in B-cell malignancies. In pre-clinical studies, treatment with CAR-NKG2D significantly increased survival. In some studies, 100% of treated mice survived through the follow-up period of the applicable study, which

 

 

 

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in one study was 325 days. All untreated mice died during the follow-up period of the applicable study. We obtained access to our CAR T-cell drug product candidates and related technology, including technology licensed from the Trustees of Dartmouth College, or Dartmouth College, in January 2015, through our purchase of OnCyte, LLC, a wholly-owned subsidiary of Celdara Medical, LLC, or Celdara, a privately-held U.S. biotechnology company.

Strategy

Our goal is to be a leader in engineered cell therapy treatments, initially focused on cardiovascular disease and oncology. The key elements of our strategy are as follows:

 

Ø   Complete our Phase 3 clinical program for C-Cure and thereafter file for, marketing applications and begin commercialization, of C-Cure for patients with ischemic HF. Based on the favorable safety and efficacy profile demonstrated in our Phase 2 clinical trial, we believe that C-Cure is a promising candidate for the treatment of ischemic HF. We completed enrollment in CHART-1 in March 2015 and, pending FDA clearance of the existing clinical hold, anticipate initiating CHART-2 in the second half of 2015. If our Phase 3 clinical program for C-Cure is successful, we plan to submit a marketing authorization application to the European Medicines Agency, or EMA, and a biologics license application to the FDA and thereafter to actively pursue commercialization of C-Cure.

 

Ø   Rapidly advance CAR-NKG2D through clinical development and into commercialization for the treatment of AML and MM. CAR T-cell therapy is an emerging therapy for the treatment of some cancers, such as B-cell malignancies. We are currently enrolling patients with refractory or relapsed AML or MM in a Phase 1 clinical trial of CAR-NKG2D in the United States. If this clinical trial is successful, we intend to progress CAR-NKG2D into later clinical trials. We believe that the knowledge that we have gained through the development of C-Cure will allow us to more efficiently progress CAR-NKG2D through clinical development.

 

Ø   Leverage our expertise and knowledge of engineered-cell therapies to expand our CAR T-cell therapy drug product candidate pipeline. The NKG2D receptor has ligands that are expressed in numerous types of cancer cells, including those associated with ovarian, bladder, breast, lung and liver cancers, as well as leukemia, lymphoma and myeloma, while CD19 CAR Therapy is typically only effective in treating B-cell malignancies. Accordingly, we plan to also target the treatment of cancers beyond AML and MM, where the cancer cells express NKG2D receptor ligands, with CAR-NKG2D, in the near future. We are currently conducting pre-clinical studies to determine which other cancers to pursue with CAR-NKG2D. In addition, we are continuing pre-clinical studies of our other pre-clinical product candidates, NKp30, which is another activating receptor of NK cells, and B7H6, which is a NKp30 ligand expressed on cancer cells.

 

Ø   Develop our allogeneic CAR T-cell technology. We also have technology that we believe may enable the development of an allogeneic CAR T-cell therapy, where T-cells harvested from one patient are engineered into CAR T-cells that can be used in the treatment other patients without triggering an immune response. This could allow for the manufacture of an off the shelf CAR T-cell therapy product, which has the potential to transform the treatment of cancer.

 

Ø   Select, develop and advance cell therapies in additional therapeutic areas with high unmet need. We believe that we are well situated to effectively advance cell therapy treatments for additional indications, such as acute myocardial infraction, or heart attack, and congestive non-ischemic HF, as a result of the expertise and know-how that we have acquired through the development of C-Cure. Additional new indications may be identified through our relationship with the Mayo Clinic, and we will consider developing autologous cell therapy treatments for additional indications in which there is high unmet medical need.

 

 

 

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Drug product candidates

We are a leader in engineered cell therapy treatments with clinical programs initially targeting indications in cardiovascular disease and oncology. We currently hold worldwide rights to all of our drug product candidates, which are summarized in the table below.

 

LOGO

Cardiovascular Disease

Cardiovascular diseases, which are diseases of the heart and blood vessels, are the largest cause of mortality in the world and, in 2012, approximately 31% of all global deaths were attributable to cardiovascular diseases, according to the World Health Organization. A subset of cardiovascular diseases, cardiac diseases, which are diseases of the heart, represent the single largest cause of death in the cardiovascular diseases population, according to the American Heart Association. If left untreated, cardiac diseases can lead to HF, a condition in which the heart is unable to pump enough blood to meet the body’s metabolic needs.

HF affects 1% to 2% of the adult population in developed countries and approximately 5.7 million patients were diagnosed with HF in the United States in 2012, according to the American Heart Association. HF can either be of ischemic origin, linked to impairment of blood flow to the heart muscle, or non-ischemic origin, linked to other causes such as hypertension and metabolic disorders. In the Bromley heart failure study, 52% of the patients had HF of ischemic origin. Other studies have reported lower rates of ischemic HF, but such differences can be explained by differences in study population, definitions and timing of when the study was completed. The prevalence of HF is increasing due to an aging population and the increasing prevalence of major cardiovascular risk factors, such as obesity and diabetes. Population studies published in Nature Reviews Cardiology have estimated that one in five people over the age of 40 will develop HF during his or her lifetime. The long-term prognosis associated with heart failure is dire, with approximately 50% mortality at five years following initial diagnosis, according to a 2014 report from the American Heart Association.

 

 

 

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HF is classified according to the severity of the symptoms experienced by the patient. The classification most commonly used is the New York Heart Association, or NYHA, classification. The table below summarizes the NYHA Functional Classification.

 

NYHA
Functional
Classification*

  

Functional Capacity

Class I

  

No limitation of physical activity. Ordinary physical activity does not cause undue breathlessness, fatigue, or palpitations.

Class II

  

Slight limitation of physical activity. Comfortable at rest, but ordinary physical activity results in breathlessness, fatigue, or palpitations.

Class III

  

Marked limitation of physical activity. Comfortable at rest, but less than ordinary physical activity causes breathlessness, fatigue, or palpitations.

Class IV

  

Unable to carry on any physical activity without discomfort. Symptoms at rest can be present. If any physical activity is undertaken, discomfort is increased.

 

*   In addition, the level of objective evidence of the cardiovascular disease is also classified as A, B, C, or D, representing, no evidence of disease, evidence of minimal disease, evidence of moderate disease, and evidence of severe disease, respectively.

Hospitalizations of HF patients are expensive and are particularly problematic, as the risk of death is increased with each recurrent HF-related hospitalization, according to an article in the Journal of American College of Cardiology. As of 2013, there were one million primary HF-related hospitalizations annually in the United States, according to a report in the Journal of American College of Cardiology. The estimated direct cost of HF in the United States in 2012 was $60.2 billion, half of which was related to hospitalizations, according to a 2014 review article published in Clinical Cardiology. By 2030, the total cost of HF in the United States is projected to increase to $70 billion, according to a Policy Statement from the American Heart Association.

Current Treatments of Heart Failure

Patients with HF are treated with medications such as angiotensin-converting enzyme inhibitors, angiotensin-2 receptor blockers, beta blockers and diuretics. Patients with HF may also be equipped with certain implantable devices, such as Implantable Cardioverter Defibrillators, or ICDs, or Cardiac Resynchronization Therapy Devices. Current treatment options for patients in severe stages of the disease include heart transplant surgery or implantation of a left ventricular assist device, or LVAD, a battery operated mechanical circulatory device used to partially or completely replace the function of the left ventricle of the heart. Both of these end-stage treatment options require invasive open-chest surgery, can be associated with numerous complications, including risk of thrombosis and infection in the case of LVADs, and can require lifetime immunosuppressive therapy in the case of transplant. In 2012, approximately 2,300 HF patients in the United States underwent heart transplant according to a report from the American Heart Association. In 2013, approximately 2,500 patients had a primary LVAD implanted, according to the Sixth INTERMACS annual report.

Although existing therapies have been somewhat effective in the treatment of HF, there is still great unmet medical need. In particular, in the case of ischemic HF, which is caused by insufficient oxygen to the heart, current treatments fail to address the decrease in the number of functional myocytes in the heart that result from this lack of oxygen. Over time this functional decrease modifies the dynamics of cardiac contractions

 

 

 

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leading to tissue remodeling and loss of cardiac function. We believe that cellular therapies have the potential to repair or replace the non-functioning myocytes of ischemic HF patients.

Our Approach

Our lead drug product candidate, C-Cure, is an autologous cell therapy that we believe has the potential to treat patients with NYHA Classes II, III and IV ischemic HF through both direct and indirect modes of action. The direct mode may replace non-functioning myocytes. In the indirect modes, factors secreted by the cardiopoietic cells may cause patients’ resident stem cells to begin pooling, regenerating and differentiating into cardiac cells, with the resulting favorable environment inducing the non-functioning myocytes to regain function. We have developed C-Cure based predominantly on technology that we licensed from the Mayo Clinic.

Since the heart does not harbor large quantities of stem cells, it cannot rely on self-repair mechanisms to address damage to the myocardium. Accordingly, in order to repair or replace non-functioning myocytes, the introduction of cardiopoietic cells is necessary. To guide cardiac tissue formation, our C-Cure therapy reprograms multipotent stem cells harvested from a patient into cardiopoietic cells using naturally occurring cytokines and growth factors that mimic the signaling that occurs in embryonic heart tissue development. In the C-Cure process, stem cells are collected from an ischemic HF patient through bone marrow aspiration during an outpatient procedure. The stem cells are then harvested, selected, expanded and differentiated into cardiopoietic cells at our manufacturing facility, yielding a homogeneous and pure cardiopoietic cell population. The cardiopoietic cells are then re-injected into the heart of the ischemic HF patient with our C-Cathez cell injection catheter.

Graphic representation of the C-Cure technology.1

 

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Clinical Development

Phase 2 Clinical Trial

The first human clinical Phase 2 trial for C-Cure was completed in 2012. This trial was initially designed as a Phase 2/3 trial, but only the Phase 2 portion of this trial was completed. The Phase 2 portion was a prospective, randomized, open, parallel two-arm study and consisted of 45 ischemic HF patients, with the primary endpoint being the safety and feasibility of C-Cure. Safety was assessed based on occurrence of cardiovascular events and arrhythmias. Feasibility was assessed based on assessment of cell expansion, manufacturing, phenotye release, in addition to catheter-based delivery. Measures of efficacy included cardiac function and structure as assessed by LVEF, left ventricular end systolic volume, left ventricular end diastolic volume, as well as clinical exercise capacity as assessed by the six minutes WDT and quality-of-life measures.

Patients between 18 and 75 years of age with NYHA Class II or III ischemic HF, an LVEF >15% and <40%, and who had not experienced a heart attack within two months prior to enrollment were candidates for the trial. The 45 patients enrolled in the trial were randomly assigned to either the control group or the C-Cure treatment group, with each patient having a 67% chance of being assigned to the C-Cure treatment group and a 33% chance of being assigned to the control group. Baseline data demonstrated a similar distribution of age, sex, body mass index, prevalence of cardiovascular risk factors and cardiac disease history in both the C-Cure treatment group and control group, and no difference in medications or hemodynamics was observed. Both groups received optimal standard of care as defined by the American College of Cardiology guidelines and the European Society of Cardiology guidelines, including the implantation of an ICD if the patient did not already have one. Patients assigned to the C-Cure treatment group received C-Cure in addition to the optimal standard of care. Where patient factors such as medications and co-morbidities prevented us from producing sufficient cells to obtain the C-Cure dose necessary for treatment, patients were assigned to the control group per the trial protocol. This trial was performed at nine clinical trial sites located in Europe.

At six months following treatment, patients treated with C-Cure showed a 25% relative improvement of median LVEF versus baseline (p<0.0001), whereas patients in the control group showed a relative improvement of 0.7% versus baseline. Furthermore, all patients in the C-Cure treatment group showed improved LVEF beyond the optimal standard of care, with 76% of patients demonstrating an absolute increase of over 3% and 57% showing an absolute increase of over 5%. Patients in the C-Cure treatment group also had a significant reduction in left ventricular end systolic volume as compared to patients in the control group, with patients in the C-Cure treatment groups showed a reduction of -24.8 ml, while patients in the control group showed a reduction of -8.8 ml (p < 0.001). In addition, patients in the C-Cure treatment group demonstrated an improved exercise capacity as measured by the six minutes WDT. The C-Cure treatment group’s walking distance improved by 77 meters compared to the control group (p<0.01). Patients in the C-Cure treatment group also had a reduction in end diastolic volume as compared to patients in the control group, and patients in the C-Cure treatment group also demonstrated a reduction in heart mass as compared to patients in the control group, although neither of these results reached statistical significance.

The Minnesota Living with Heart Failure Quality-of-Life questionnaire was used to score the extent to which patients’ lives were affected by ischemic HF. A higher score on the test represents a lower quality-of-life, with the maximum score being 105. Over the course of six months, the score of the patients in the C-Cure treatment group improved by 7.1 points, whereas the score of the control group patients improved by 0.4 points. In addition, the C-Cure treatment group had 30% of patients improve by a 10 point difference or more while no patients in the control group improved by that difference. These results did not reach statistical significance.

 

 

 

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A result is considered to be statistically significant when the probability of the result occurring by random chance, rather than from the efficacy of the treatment, is sufficiently low. The conventional method for measuring the statistical significance of a result is known as the “p-value”, which represents the probability that random chance caused the result (e.g., a p-value = 0.001 means that there is a 0.1% or less probability that the difference between the control group and the treatment group is purely due to random chance). A p-value = 0.05 is a commonly used criterion for statistical significance, and may be supportive of a finding of efficacy by regulatory authorities. However, regulatory authorities, including the FDA and EMA, do not rely on strict statistical significance thresholds as criteria for market approval and maintain the flexibility to evaluate the overall risks and benefits of a treatment. Accordingly, treatments may receive market approval from the FDA or EMA even if the p-value of the primary endpoint is greater than 0.05, or may fail to receive market approval from the FDA or EMA even if the p-value of the primary endpoint is less than 0.05.

No unanticipated serious adverse events definitely attributed to C-Cure or the trial procedure were reported in this trial. One patient experienced a serious adverse reaction, migraine with aura, one day post-procedure, but was subject to similar migraine episodes in the past. Another patient experienced rapid and irregular heartbeat resolved by applying an electrical stimulation to the heart during the procedure. A third patient experienced atrial fibrillation approximately a year and a half after the study procedure, but records of arrhythmia prior to treatment support that atrial fibrillation was a pre-existing condition.

We produced C-Cure for 21 out of the 30 patients attempted as patient factors such as medications and co-morbidities prevented us from producing sufficient cells for certain patients in the trial. However, we have made improvements to our manufacturing process, which we believe will allow us to have a greater than 80% manufacturing success rate in our Phase 3 clinical trials. These changes include:

 

Ø   adopting cryopreserved, a process whereby cells that are susceptible to damage caused by time are preserved by cooling to sub-zero temperatures, product storage to extend the shelf life of the cells;

 

Ø   improving the release criteria to ensure that desirable cells are not incorrectly rejected. In our Phase 2 trial of C-Cure, some production lots were rejected because the tests used identified the presence of impurities such as osteoblasts, or bone precursor cells, adipocytes, or fat cells, or chondrocytes, or cartilage cells. Upon further examination, it appeared that the methods used were overly sensitive. New methods have been developed that are more specific, while at the same time remaining as sensitive; and

 

Ø   developing predictive tests that allow us to reject patient bone marrow, that is unsuitable to yield the required number of cells for effective treatment. In CHART-1, patients bone marrow that does not reach 24 million cells are rejected from the manufacturing process, resulting in such patients not being randomized for treatment and discontinued from the trial. Therefore, only bone marrow that is capable of good cell expansion proceeds to the next culture phase, leading to randomization of the patient in the trial.

Phase 3 Clinical Program

We are pursuing clinical development of C-Cure through a comprehensive Phase 3 program comprised of two Phase 3 clinical trials, CHART-1 and CHART-2.

CHART-1

CHART-1 is being conducted in Europe and Israel and was first authorized in November 2012. CHART-1 is a 240 patient prospective controlled randomized double-blinded trial, including NYHA Class III and IV ischemic HF patients, with each patient having a 50% chance of being assigned to the C-Cure treatment group or the control group. The primary endpoint of this trial is an improvement in the

 

 

 

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composite hierarchical endpoint using the Finkelstein-Schoenfeld statistical method. The elements of this endpoint are, in hierarchical order, mortality, morbidity, quality of life, six minutes WDT, left ventricular end systolic volume and LVEF. Each patient in the C-Cure treatment group will be compared to each patient in the control group and a comprehensive score will be derived to compare one group against the other.

We received a pediatric waiver across all subsets of the pediatric population for C-Cure for the treatment of ischemic HF from the EMA in February 2015, therefore all clinical trials of C-Cure will be restricted to the adult population. In April 2014, the EMA issued a certificate of quality data for C-Cure. This Advanced Therapy Medicinal Products, or ATMP, certification recognizes that the data generated for C-Cure in its development programs to date meet the standards imposed by the EMA. The ATMP’s certificate for quality data will facilitate the EMA’s review of our anticipated future application for marketing authorization for C-Cure. On March 30, 2015, we announced that DSMB reviewed unblinded safety data from CHART-1 and determined that there was no evidence of obvious differences in safety profiles of patients in the two arms of the trial, which means that the data did not support discontinuation of the trial on the basis of safety. The full data readout from this trial is expected in the middle of 2016.

As of the date of this prospectus, we have completed enrollment of all patients in this trial at over 30 trial sites in Europe and Israel. We anticipate reporting interim futility data from this trial in the second quarter of 2015, with the full data readout expected in the middle of 2016.

CHART-2

On January 27, 2012, we, as the sponsor, filed our Investigational New Drug Application, or IND, for the use of C-Cure in CHART-2 with the FDA (NCT02317458). The subject of the IND is the efficacy and safety of bone marrow-derived mesenchymal cardiopoietic cells for improving exercise capacity in subjects with advanced chronic ischemic HF.

CHART-2 is expected to be conducted in the United States and Europe. CHART-2 is a 240 patient prospective controlled randomized double-blinded trial, including NYHA Class III and IV ischemic HF patients, with each patient having a 50% chance of being assigned to the C-Cure treatment group or the control group. The primary efficacy endpoint of CHART-2 is the change in the six-minutes WDT from pre-procedure to nine months. Our IND became effective in December 2013 for administration of the cells with Myostar, a catheter used for the injection of therapeutic agents into the heart, and manufactured by Biologics Delivery Systems Group, Cordis Corporation a Johnson & Johnson company. Prior to initiating the trial, in September 2014, we filed an amendment to the IND requesting among other changes to the initial submission, the use of our proprietary cell injection catheter called C-Cathez. In January 2015, the FDA issued a clinical hold on CHART-2. Most of the clinical hold questions request clarifications on the design dossier of C-Cathez, while the remaining questions relate to providing updated safety information on CHART-1, defining CHART-2 stopping rules, and a request to measure troponin, a cardiac marker of injury, at day 30 post baseline procedure. We anticipate responding to the clinical hold questions in the third quarter of 2015 once all safety data from CHART-1 is available, and pending the FDA’s lifting of the clinical hold, initiating CHART-2 during the second half of 2015.

Oncology

Cancer is the second leading cause of death in the United States after cardiovascular diseases, according to the U.S. Centers for Disease Control and Prevention. Cancer accounts for nearly one out of every four deaths in the United States, according to the American Cancer Society. In 2014, there were an estimated 1.6 million new diagnosed cancer cases and over 550,000 cancer deaths in the United States alone.

 

 

 

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According to the Leukemia and Lymphoma Society, the approximate prevalence of AML in the United States as of January 1, 2011 was 37,726 and the incidence rate of MM in the United States as from 2007 to 2011 was 7.7 per 100,000 population for men and 4.9 per 100,000 population for women.

CAR T-Cell Therapy

The immune system has a natural response to cancer, as cancer cells express antigens that can be recognized by cells of the immune system. Upon recognition of an antigen, activated T-cells release substances that kill cancer cells and attract other immune cells to assist in the killing process. However, cancer cells can develop the ability to release inhibitory factors that allow them to evade immune response, resulting in the formation of potentially dangerous cancerous tumors and blood cancer.

CAR T-cell therapy is a new technology that broadly involves engineering patients’ own T-cells to express CARs so that these re-engineered cells recognize and kill cancer cells, overcoming cancer cells’ ability to evade the immune response. CARs are comprised of the following elements:

 

Ø   binding domains that encode proteins, such as variable fragments of antibodies that are expressed on the surface of a T-cell and allow the T-cell to recognize specific antigens on cancer cells;

 

Ø   intracellular signaling domains derived from T-cell receptors that activate the signaling pathways responsible for the immune response following binding to cancer cells; and

 

Ø   costimulatory and adaptor domains, which enhance the effectiveness of the T-cells in their immune response.

Once activated, CAR T-cells proliferate and kill cancer cells directly through the secretion of cytotoxins that destroy cancer cells, and these cytokines attract other immune cells to the tumor site to assist in the killing process.

Illustration of CAR T-cell binding to a ligand, triggering mechanisms to eliminate cancer cells.

 

LOGO

The CAR T-cell therapeutic process starts with collecting cells from a patient’s bone marrow. T-cells are then harvested and selected from the collected cells, following which the CAR is introduced into the T-cells using retrovirus vectors, a widely used technology to transfer genes into immune cells using the

 

 

 

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natural capacity of a retrovirus to deliver genes into cells. The CAR T-cells are then expanded prior to injection back into the patient.

Current Investigational Treatments of Cancer using CAR T-Cells

In the past decades, the cornerstones of cancer therapies have been surgery, chemotherapy and radiation therapy. Since 2001, small molecules that specifically target cancer cells have emerged as standard treatments for a number of cancers. For example, Gleevec is marketed by Novartis AG for the treatment of leukemia, and Herceptin is marketed by Genentech, Inc. for the treatment of breast and gastric cancer. Although these targeted therapies have significantly improved the outcomes for certain patients with these cancers, there is still a high unmet need for the treatment of these and many other cancers. CAR T-cell therapy is an emerging therapy for the treatment of some cancers, such as B-cell malignancies.

CAR19 is a widely used CAR, which has an antigen binding domain that recognizes the normal B-cell marker CD19. CD19 CAR Therapies have demonstrated high clinical responses in difficult to treat refractory B-cell malignancies. For example, results of a clinical trial reported in the New England Journal of Medicine in October 2014 demonstrated that CD19 CAR Therapy was effective in treating patients with relapsed and refractory acute lymphoblastic leukemia. Treatment was associated with a complete remission rate of 90% and sustained remissions of up to two year after treatment. Despite its promise, CD19 CAR Therapy is inherently limited to the treatment of B-cell malignancies.

Our Approach to CAR T-Cell Therapy

Our approach to CAR T-cell therapy has the potential to treat a wider range of cancers than CD19 CAR Therapy because, in certain cases, we employ natural receptors that target multiple ligands, at least one of which is found in numerous cancers, as opposed to targeting a single ligand. Our primary CAR technologies use activated receptors of NK cells, lymphocytes of the innate immune system that kill cancer cells directly and also secrete cytokines that attract other immune cells to assist in the killing process. The receptors used in our therapies target ligands that are activated in cancer cells, but are absent or expressed at low levels in normal cells, resulting in therapies that are intended to be less destructive to normal cells.

Our lead CAR T-cell drug product candidate is CAR-NKG2D. CAR-NKG2D uses the native sequence of NKG2D in the CAR construct, thereby avoiding linker sequences that could be recognized as “non-self” by the immune system and thereby trigger an immune response. Accordingly, CAR-NKG2D does not require re-engineering to allow it to bind to cancer cell ligands with high affinity. CAR-NKG2D also makes use of DAP10, a naturally occurring adaptor molecule that is normally is expressed by T-cells, to aid in the immune response.

Ligands for the NKG2D receptor are expressed either individually or together with other ligands at the surface of cancer cells, allowing for the targeting of multiple tumor types given the higher likelihood of expression of at least one ligand. NKG2D receptor ligands, such as ULBP, MICA and MICB, are expressed in numerous solid tumors and blood cancers, including ovarian, bladder, breast, lung and liver cancers, as well as leukemia, lymphoma and myeloma. MICA and MICB may be induced in association with cell stress, infection or malignant transformation. Within a given cell population, we have shown in vitro effectiveness of CAR-NKG2D even when as few as 7% of the cancer cells expressed a NKG2D receptor ligand.

Pre-Clinical Development

CAR-NKG2D has been tested in pre-clinical models of solid and blood cancers, including lymphoma, ovarian cancer and myeloma. In pre-clinical studies, treatment with CAR-NKG2D significantly increased survival. In some studies, 100% of treated mice survived through the follow-up period of the applicable study, which in one study was 325 days. All untreated mice died during the follow-up period of the applicable study.

 

 

 

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In one representative study, as shown in the figure below, the treatment with CAR-NKG2D completely prevented tumor development in mice injected with ovarian cancer cells and followed over a period of 225 days. In contrast, all mice injected with ovarian cancer cells that were treated with unmodified T-cells developed cancerous tumors and died during that period.

 

LOGO

Our pre-clinical models have also shown that treatment with CAR-NKG2D is followed by changes in a tumor’s micro-environment resulting from the local release of chemokines, a family of small cytokines. In a pre-clinical study, mice that had been injected with 5T33MM cancer cells and treated with CAR-NKG2D were rechallenged either with the 5T33MM cancer cells or a different tumor type (RMA lymphoma cells). The mice that were rechallenged with the same tumor type survived, while the mice that were challenged with a different tumor type died, as shown in the figure below.

 

LOGO

We believe that the mechanism by which the mice in the former group survived may be linked to T-cell memory against the tumor antigen, independent of the continued presence of CAR-NKG2D. We believe that this continued protection may be a result of the type of chemokines released at the time of the initial CAR-NKG2D treatment, and we do not believe that this effect has been demonstrated with other CARs.

 

 

 

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Moreover, pre-clinical studies have suggested that CAR-NKG2D could potentially have a direct effect on tumor vasculature. Tumor vessels express ligands for the NKG2D receptor that are not generally expressed by normal vessels. We believe that this expression may be linked to genotoxic stress, hypoxia and reoxygenation in tumors and therefore that CAR-NKG2D could potentially inhibit tumor growth by decreasing tumor vasculature, which could possibly render it effective in the treatment of NKG2D-negative tumors.

Pre-clinical studies also demonstrate that CAR-NKG2D is effective without lymphodepletion conditioning, which is the destruction of lymphocytes and T-cells, normally by radiation. We believe this absence of a pre-conditioning regimen may expand the range of patients eligible for CAR T-cell treatment, reduce costs, reduce toxicity and thereby improve patient experience and acceptance.

No significant toxicology findings were reported from pre-clinical multiple-dose studies at dose levels below 10,000,000 CAR-NKG2D per animal. Some temporary weight loss was noted in animals treated with CAR-NKG2D. At this dose, histology showed there was no accumulation of infused cells in any organ other than the lungs. We believe that this accumulation of infused cells in the lungs was likely due to the large number of cells infused into the animals.

Clinical Development

On June 9 2014, Celdara filed an IND with the FDA (NCT02203825) related to the CAR-NKG2D trial. The subject of the IND is evaluating the safety and feasibility of administering a single intravenous dose of CAR-NKG2D to patients with AML, Myelodysplastic Syndrome and MM.

We are currently enrolling patients with (i) AML who are not in remission and for which standard therapy options are not available or (ii) relapsed or refractory progressive MM, in a Phase 1 clinical trial to test the safety and feasibility of single-dose intravenous administration of CAR-NKG2D T-cells without prior lymphodepletion conditioning. This is a dose escalation trial to test four different dose levels. Patients may receive doses anywhere from 1,000,000 up to 30,000,000 CAR-NKG2D T-cells in a single intravenous injection. For each dose level, three patients, one with AML, one with MM, and one with either AML or MM, will be recruited, until a toxicological response is demonstrated or we reach a dose of 30,000,000 cells. Once a dose has been selected, an additional 12 patients, six AML patients and six MM patients, will be included in the dose expansion part of the trial, to probe efficacy signals. This trial is being conducted at the Dana Farber Cancer Institute in the United States. Interim data is expected to be reported throughout this trial, with the full data readout expected in the middle of 2016. On April 20, 2015, we announced that the first patient in this trial had been treated with the first dose of CAR-NKG2D, and that no short term adverse events were observed in this patient. A pre-defined, staggered enrollment of two additional patients at the same dose level is expected to occur after an additional 30-day safety assessment of the first treated patient.

We are currently conducting pre-clinical studies to determine which other cancers to pursue with CAR-NKG2D.

Other CAR T-Cell Development

Allogeneic Platform

Autologous CAR T-cells must be manufactured for each individual patient. As a result this form of treatment presents cost and logistical challenges. We have technology that we believe may enable the development of an allogeneic CAR T-cell therapy, where T-cells harvested from one patient, the donor, are engineered into CAR T-cells that can be used in the treatment of other patients, the host, without triggering an immune response. Functioning T-cell receptors on a donor T-cell are responsible for

 

 

 

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eliciting an adverse immune reaction in the host, which is known as a graft-versus-host response. The goal of our allogeneic platform is to eliminate the graft-versus host response. Our allogeneic platform is based on the engineering of T-cells that lack expression of a functional T-cell receptor, while at the same time expressing a CAR that can trigger the killing of cancer cells. We believe that our allogeneic platform may allow us to manufacture an off the shelf CAR T-cell therapy product, which has the potential to transform the treatment of cancer.

Additional Autologous Programs

We also have two additional autologous CAR T-cell programs that are in pre-clinical development. The first program involves the use of a CAR T-cell expressing NKp30, another activated receptor of NK cells. CAR T-cells expressing NKp30 target ligands, which are expressed on many types of cancer cells, including lymphoma, leukemia and gastrointestional stromal tumors. The primary ligand of NKp30 is B7H6. Previous pre-clinical studies performed at Dartmouth College and reported in the Journal of Immunology in 2012 demonstrated that CAR-T cells expressing NKp30 were able to kill cancer cells expressing NKp30 ligands both in vitro and in vivo. The second program involves the specific targeting of B7H6 to kill cancer cells that express B7H6. Previous pre-clinical studies performed at Dartmouth College and reported in the Journal of Immunology in 2015 demonstrated that therapy targeting B7H6 decreased tumor burden of melanoma- and ovarian cancer-bearing mice.

Comparison of our CAR T-cell therapy approach to CD19 CAR Therapy.

 

LOGO

Our Complementary Devices

We developed C-Cathez, which is CE-marked, with the goal of overcoming limitations of existing cell injection devices that we discovered during our development of C-Cure. Due to continuous heart

 

 

 

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movements, we believe that injecting cells into the heart requires a stable needle that anchors into the tissue during injection. In addition, excess pressure on cells during injection has an adverse impact on cell retention. To respond to these challenges, C-Cathez features a curved needle that provides stability during the injection and multiple holes along the needle that increase the exit surface, reducing the pressure exerted on cells during the injection procedure. In pre-clinical studies, we obtained a higher retention rate of injected cells through the use of C-Cathez as compared to other commercially available catheters. In a pre-clinical study of C-Cathez, use of C-Cathez did not cause myocardial perforation or clinically relevant increases in the blood levels of cardiac enzymes were observed in pigs or dogs. We also market C Cathez in the European Union as a stand-alone medical device for delivery of diagnostic and therapeutic agents indicated for delivery into the heart to research laboratories and clinical-stage companies only.

In addition, we believe our heart access technology will enable cardiologists to take a unique access route directly to the patient’s left atrium, which may potentially enable the deployment of catheters or other necessary instruments for use in the treatment of various indications such as mitral valve disorders and structural heart diseases, conditions often linked to HF. This heart access technology includes the heart access sheath, mitral valve neo-chordae, and closure device. These devices are either in the discovery phase or pre-clinical development.

Manufacturing

We plan to use our pilot manufacturing facility, located in Belgium, for the manufacture of C-Cure until commercial launch. This facility has a production capacity of approximately 250 patients per year. We are also building a second pilot manufacturing facility in Rochester, Minnesota to reduce our overall logistical costs for patients in CHART-2 and to provide redundancy.

In the future, we plan to operate two commercial manufacturing sites, one in the United States and one in the European Union. We believe that this will provide us with increased flexibility, reduced logistical costs and necessary redundancy, as well as allowing us to comply with contractual obligations that require us to manufacture in the European Union.

We have been working on the optimization of our manufacturing processes to reduce our cost of production. For example, we are currently developing a closed system that may allow for the manufacture of C-Cure in vessels that prevent contact with the environment, which we expect will reduce our need for Class B clean rooms and the associated expense.

The cells for our ongoing Phase 1 clinical trial of CAR-NKG2D are being manufactured at the Dana Farber Cancer Institute’s cell manufacturing facility.

Commercialization

We currently intend to market C-Cure using a sales model focused on leading catheterization laboratories and referral networks. We believe that C-Cure would first be adopted by high-volume key-opinion-leader catheterization laboratories, and progressively by a broader segment of the market. We expect to establish or acquire a specialty sales force to increase physician familiarity with our treatments and field technicians to assist sites during adoption. While we maintain all commercial rights to our C-Cure technology and currently intend to commercialize C-Cure directly, we may in the future adopt a partnering strategy for C-Cure in the United States and/or the European Union.

Given the developmental stage our CAR T-cell platform, we have not yet developed a commercialization plan for our CAR T-cell drug product candidates.

Licensing and Collaboration Agreements

Academic and clinical collaborations

We have core relationships and collaborations with the Mayo Foundation for Medical Education and Research, or the Mayo Clinic, and the Trustees of Dartmouth College, or Dartmouth.

 

 

 

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Mayo Clinic

C-Cure is based on technology discovered at the Molecular Pharmacology and Experimental Therapeutics lab at the Mayo Clinic, led by Dr. Andre Terzic. Under our technology license agreement with the Mayo Clinic entered into in June 2007 and amended in July 2008 and October 2010, or Mayo License, we were granted an exclusive, worldwide license to make, use, modify, enhance, promote, market and/or sell the “Cardiogenic Cocktail for the production of Cardiac Cells” and “Stem Cell Based Therapy for Non-ischemic Cardiomyopathic Heart Failure” within the field of cardiovascular regeneration or protection, including certain related patents. In addition, we were granted a non-exclusive, worldwide license to licensed know-how in connection with the licensed inventions within the same field. The exclusive license is subject to the Mayo Clinic’s right to make and use the licensed inventions and licensed know-how within its affiliates’ own programs, and to the rights, if any, of the United States government. The Mayo Clinic has the right to purchase quantities of licensed invention from us at cost to meet its and its affiliates’ internal needs.

In consideration for the rights granted to us under the Mayo License, we were required to pay an upfront fee to Mayo Clinic of €9,500,000 upon the initial agreement and $3,193,125 upon the execution of the second amendment, which were subsequently converted into our share capital. We also paid the Mayo Clinic $337,000 for the purchase of equipment for research purposes. Additionally, we are required to pay to the Mayo Clinic a low single-digit royalty on net commercial sales by us or by our permitted sublicensees from the commercialization of licensed products, on a licensed product-by-licensed product basis, beginning on the date of the first commercial sale of the relevant licensed product and extending until the earlier of (i) the 15 year anniversary of the first commercial sale of such licensed product, (ii) the date on which the licensed product is no longer covered by a valid claim of a licensed patent in the applicable territory, or (iii) termination of the Mayo License. The Mayo License permits a reduction of these royalties, not to exceed a specified floor, for amounts payable to third parties as required to in-license necessary third-party technology.

Under the Mayo License, we are responsible for the development, manufacture and commercialization of the licensed inventions. We committed to provide the Mayo Clinic with $500,000 of directed research funding per year for the years 2012 through 2014. Any results of this research will automatically be included as licensed inventions under the Mayo License. We will also fund research at the Mayo Clinic in the amount of $1,000,000 per year for four years in the area of regeneration or protection for cardiovascular applications. Such payments will begin once we have achieved both commercial sale of a licensed product and a positive cash flow from operations in the previous financial year. We will have an exclusive right of first negotiation to acquire an exclusive license to inventions that are the direct result of work carried out under these grants, in accordance with the mechanism described in the Mayo License. The Mayo Clinic provided us with directed research and conducted a dose finding study for us at no additional cost. Subject to pre-existing obligations, until October 18, 2015, we also have an exclusive right of first negotiation to obtain an exclusive license from the Mayo Clinic on any guided cardiopoiesis technology developed by Dr. Andre Terzic or developed or co-developed by Dr. Atta Behfar, the senior investigator involved in the discovery of the cardiopoiesis technology. With respect to both of the foregoing rights of first negotiation, if we and the Mayo Clinic do not reach agreement for a license for the applicable invention within the prescribed negotiation period or permitted extension, the Mayo Clinic is prohibited from entering into a license agreement for such invention with a third party for a period of nine months.

The Mayo License will continue until the later of ten years or as long as the Mayo Clinic has any rights to any part of the licensed inventions. The Mayo Clinic may terminate the license on a product-by-product basis or licensed invention-by-licensed invention basis if we default in making payment when due and payable or under other circumstances specified in the Mayo License, subject to 120 days’ prior

 

 

 

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written notice and opportunity to cure. The Mayo Clinic may also terminate the Mayo License if we deliberately make false statements in reports delivered to Mayo Clinic. Additionally, Mayo Clinic may convert the license to non-exclusive or terminate the license upon final decision of an arbitral tribunal that we breached our diligence obligations under the Mayo License. Further, Mayo Clinic may terminate the agreement immediately for our insolvency or bankruptcy, as described in the Mayo License.

In November 2014, we entered into a Preferred Access Agreement with the Mayo Clinic. Pursuant to this agreement, the Mayo Clinic will review with us, on a quarterly basis, technologies arising from the Mayo Center for Regenerative Medicine, and we may review certain other technologies upon request. If, as a result of such reviews, we and the Mayo Clinic decide to advance a certain technology, we will enter into a separate exclusive license agreement with respect to such technology. This agreement remains in effect until December 2017, and may be extended by mutual agreement.

Dartmouth College and Celdara

In January 2015, we entered into a stock purchase agreement, or the Celdara Agreement, with Celdara Medical, LLC, or Celdara, pursuant to which we purchased all of the outstanding membership interests of OnCyte, LLC, or OnCyte, for a $10.0 million upfront payment to Celdara, $6.0 million of which was paid in cash and $4.0 million of which was paid in the form of 93,087 of our ordinary shares. After this transaction we, Celdara and OnCyte entered into an asset purchase agreement, or OnCyte APA, pursuant to which Celdara sold to OnCyte, data, protocols, regulatory documents and intellectual property, including the rights and obligations under license agreements between Celdara and Dartmouth College, related to our CAR T-cell therapy programs, or the Transferred Assets. Pursuant to the OncCyte APA, we are obligated to make development-based milestone payments to Celdara of $40.0 million for clinical products and of $36.5 million for pre-clinical products, as well as sales-based milestone payments of up to $80.0 million for products based on the Transferred Assets, or CAR Products. The OnCyte APA also requires us to make tiered single-digit royalty payments to Celdara in connection with the sales of CAR Products. Such royalties are payable on a CAR Product-by CAR Product and country-by-country basis until the later of (i) the last day that at least one valid patent claim covering the CAR Product exists, or (ii) the tenth anniversary of the day of the first commercial sale of the CAR Product in such country. Under the OnCyte APA, we can opt out of the development of any CAR Product if the data does not meet the scientific criteria of success. We may also opt out of development of any CAR Product for any other reason upon payment of a termination fee of $2.0 million to Celdara.

2010 Dartmouth License Agreement

Under the exclusive license agreement with Dartmouth College entered into in April 2010 and amended in February 2012, July 2013 and January 2015, Dartmouth College granted us (as successor in interest to Celdara) an exclusive, worldwide, royalty-bearing license to certain know-how and patent rights to make, have made, use, and/or sell any product or process for human therapeutics, the manufacture, use or sale of which, is covered by such patent rights. Dartmouth College reserves the right to use the licensed patent rights and licensed know-how, in the same field, for education and research purposes only. The patent rights covered by this agreement are related, in part, to methods for treating cancer involving chimeric NK and NKP30 receptor targeted therapeutics and T cell receptor-deficient T cell compositions in treating tumor, infection, GVHD, transplant and radiation sickness.

In consideration for the rights granted to us under the agreement, we are required to pay to Dartmouth College an annual license fee of $20,000 as well as a low single-digit royalty based on annual net sales of the licensed products by us and by our permitted sublicensees, with certain minimum net sales obligations beginning April 30, 2024 and continuing for each year of sales thereafter. We are also obligated to pay to Dartmouth College a certain tiered percentage of sublicensing income ranging from

 

 

 

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the mid-single digits to the mid-teens based on the development stage of the technology at the time the sublicense is granted. We are not required to pay sublicensing income on transactions in which we form a new spin-off entity and transfer at least a portion of our assets. Additionally, the agreement requires that we exploit the licensed products, and we have agreed to meet certain developmental and regulatory milestones. Upon successful completion of such milestones, we are obligated to pay to Dartmouth College certain milestone payments up to an aggregate amount of $1.5 million. We are responsible for all expenses in connection with the preparation, filing, prosecution and maintenance of the patents covered under the agreement.

After April 30, 2024, Dartmouth College may terminate the license if we fail to meet the specified minimum net sales obligations for any year, unless we pay to Dartmouth College the royalty we would otherwise be obligated to pay had we met such minimum net sales obligation. Dartmouth College may also terminate the license if we fail to meet a milestone within the specified time period, unless we pay the corresponding milestone payment. Either party may terminate the agreement in the event the other party defaults or breaches any of the provisions of the agreement, subject to 30 days’ prior notice and opportunity to cure. In addition, the agreement automatically terminates in the event we become insolvent, make an assignment for the benefit of creditors or file, or have filed against us, a petition in bankruptcy. Absent early termination, the agreement will continue until the expiration date of the last to expire patent right included under the agreement in the last to expire territory. We expect that the last to expire patent right included under this agreement will expire in 2033, absent extensions or adjustments.

2014 Dartmouth License Agreement

Under the exclusive license agreement with Dartmouth College entered into in June 2014 and amended in January 2015, Dartmouth College granted us (as successor in interest to Celdara) an exclusive, worldwide, royalty-bearing license under certain know-how and patent rights to make, have made, use, modify, exploit, distribute, and/or sell any product or process for human therapeutics, the manufacture, use or sale of which, is covered by such patent rights. Our license is subject to any rights that may be required to be granted to the government of the United States, and Dartmouth College reserves the right to use the licensed patent rights and licensed know-how, in the same field, for education and research purposes only. The patent rights covered by this agreement are related, in part, to anti-B7-H6 antibody, fusion proteins and methods of using the same.

In consideration for the rights granted to us under the agreement, we are required to pay to Dartmouth College a license maintenance fee of $10,000 upon the first anniversary of the agreement and an annual license maintenance fee of $20,000 thereafter. We are also required to pay to Dartmouth College a low single-digit royalty based on annual net sales of the licensed products by us and by our permitted sublicensees, with a specified minimum royalty payment for each year of sales. We are obligated to pay to Dartmouth College a certain tiered percentage of sublicensing income ranging from the mid-single digits to the mid-teens based on the time or development stage of the technology at the time the sublicense is granted. We are not required to pay sublicensing income on transactions in which we form a new spin-off entity and transfer at least a portion of our assets. Additionally, the agreement requires that we exploit the licensed products, and we have agreed to meet certain developmental and regulatory milestones. Upon successful completion of such milestones for each licensed product, we are obligated to pay to Dartmouth College certain milestone payments up to an aggregate amount of $1.6 million. We are responsible for all expenses in connection with the preparation, filing, prosecution and maintenance of the patents covered under the agreement.

Dartmouth College may, at its option, terminate the license, upon thirty days written notice, if we fail to pay at least the minimum royalty payment amount or make such minimum payment within such thirty day period. In addition, Dartmouth College has the right to terminate if we fail to meet a milestone

 

 

 

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within the specified time period or fail to make the corresponding milestone payment, subject to 30 days’ prior written notice and opportunity to cure. We may unilaterally terminate the agreement by giving three months advance written notice to Dartmouth College and paying a termination fee of $2,500. Either party may terminate the agreement in the event the other party defaults or breaches any of the provisions of the agreement, subject to 30 days’ prior notice and opportunity to cure. In addition, the agreement automatically terminates in the event we become insolvent, make an assignment for the benefit of creditors or file, or have filed against us, a petition in bankruptcy. Absent early termination, the agreement will continue until the expiration date of the last to expire patent right included under the agreement in the last to expire territory. We expect that the last to expire patent right included under this agreement will expire in 2033, absent extensions or adjustments.

Intellectual Property

Patents and patent applications

Patents, patent applications and other intellectual property rights are important in the sector in which we operate. We consider on a case-by-case basis filing patent applications with a view to protecting certain innovative products, processes, and methods of treatment. We may also license or acquire rights to patents, patent applications or other intellectual property rights owned by third parties, academic partners or commercial companies which are of interest to us.

Our patent portfolio includes pending patent applications and issued patents in the United States and in foreign countries. These patents and applications generally fall into four broad categories:

 

Ø   patents and pending patent applications relating to cardiopoiesis, a subset of which are licensed from the Mayo Clinic;

 

Ø   patents and pending applications we own that relate to cardiac injection catheter technology;

 

Ø   patent applications owned by our subsidiary Corquest that relate to cardiac medical device technology; and

 

Ø   patents and patent applications licensed from Dartmouth that relate to our CAR-T platform.

The term of a U.S. patent may be eligible for patent term extension under the Hatch-Waxman Act to account for at least some of the time the drug or device is under development and regulatory review after the patent is granted. With regard to a drug or device 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 device. 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.

Cardiopoiesis Platform Patents

As of March 31, 2015, our cardiopoiesis platform portfolio includes seven patent families, four of which are owned by the Mayo Clinic, which we refer to as the Mayo Cardiopoiesis Patents and are exclusively licensed to us, and three of which are owned by us, which we refer to as the Cardio3 Cardiopoiesis Patents.

The Mayo Cardiopoiesis Patents include three issued U.S. patents; 16 foreign patents issued in jurisdictions including Australia, China, Europe, Hong Kong, Israel, Mexico, New Zealand, Russia, Singapore and South Africa; three pending U.S. patent applications; and 25 foreign patent applications pending in jurisdictions including Europe, Australia, Brazil, Canada, China, Israel, India, Japan, Mexico, New Zealand, Singapore, South Africa, South Korea, Taiwan, and Thailand. These patents and patent

 

 

 

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applications relate to compositions and methods for inducing cardiogenesis in embryonic stem cells, methods of identifying cardiopoietic stem cells, and methods of using cardiopoietic stem cells to treat cardiovascular tissue. The Mayo Cardiopoiesis Patents will begin to expire in 2025, absent any adjustments or extensions. We expect that any patents that eventually issue from currently pending applications in the Mayo Cardiopoiesis patent portfolio will begin to expire in 2025, absent any adjustments or extensions.

Our Cardiopoiesis Patents include an issued patent in New Zealand; a pending U.S. patent application; and 17 foreign patent applications pending in jurisdictions including Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Mexico, New Zealand, Russia, Singapore, South Korea, Taiwan, and Thailand, as well as an application filed under the Patent Cooperation Treaty. These patents and patent applications relate to pharmaceutical compositions containing cardiopoietic stem cells and methods of their production, as well as therapeutic targets and agents for treating ischemia reperfusion injury. Our Cardiopoiesis Patents will begin to expire in 2030, absent any adjustments or extensions. We expect that any patents that eventually issue from currently pending applications in our Cardiopoiesis patent portfolio will begin to expire in 2030, absent any adjustments or extensions.

CAR T-cell Platform Patents

As of March 31, 2015, our CAR T-cell portfolio includes three patent families exclusively licensed to us by Dartmouth. This portfolio includes two issued U.S. patents; four pending U.S. patent applications; and 12 foreign patent applications pending in jurisdictions including Australia, Brazil, Canada, China, Europe, India, Japan, Mexico, and Russia. These patents and patent applications relate to particular chimeric antigen receptors and to T-cell receptor-deficient T-cells. One pending U.S. patent application relating to T-cell receptor-deficient T-cells has been allowed, and we intend to submit additional prior art references to the U.S. Patent and Trademark Office to assess whether they are relevant to the claimed invention. Patents in our CAR T-cell portfolio will begin to expire in 2025, absent any adjustments or extensions. We expect that any patents that eventually issue from currently pending applications in the CAR T-cell Platform patent portfolio will begin to expire in 2025, absent any adjustments or extensions.

Cardiac Injection Catheter Technology Patents

As of March 31, 2015, our cardiac injection catheter technology portfolio includes two patent families we own. This portfolio includes a pending U.S. patent application; five patents issued in jurisdictions including Belgium, Europe, Israel, Mexico, and New Zealand; and 13 foreign patent applications pending in jurisdictions including Australia, Brazil, Canada, China, Hong Kong, India, Japan, Russia, Singapore, South Korea, Taiwan, and the United Kingdom, as well as an application filed under the Patent Cooperation Treaty. These patents and patent applications relate to injection catheters and processes for their use. Patents in this portfolio, if issued, will begin to expire in 2025, absent any adjustments or extensions. We expect that any patents that eventually issue from currently pending applications in the Cardiac Injection Catheter Technology patent portfolio will begin to expire in 2029, absent any adjustments or extensions.

Heart Access Technology Patents

As of March 31, 2015, our heart access technology portfolio includes five patent families owned by Corquest, our wholly owned subsidiary. This portfolio includes ten pending U.S. patent applications and ten foreign patent applications pending in various jurisdictions. Patents in this portfolio, if issued, will begin to expire in 2032, absent any adjustments or extensions. jurisdictions including Brazil, Canada, Europe, Mexico, Russia, and the Republic of Korea, as well as applications filed under the Patent Cooperation Treaty. These patents and patent applications relate to devices, assemblies and methods for treating cardiac injuries and defects.

 

 

 

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Trade secrets

In addition to our patents and patent applications, we keep certain of our proprietary information as trade secrets, which we seek to protect by confidentiality agreements with our employees and third parties, and by fragmenting know-how between different individuals, in accordance with standard industry practices.

Competition

The industry in which we operate is subject to rapid technological change. We face competition from pharmaceutical, biopharmaceutical and medical devices companies, as well as from academic and research institutions. Some of these competitors are pursuing the development of medicinal products and other therapies that target the same diseases and conditions that we are targeting.

Some of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and gene therapy 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.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety and convenience.

C-Cure

We have identified several companies that are active in cardiac cell therapy as of the date of this prospectus, including Aldagen, Inc., Athersys, Inc., Cytori Therapeutics, Inc., Mesoblast Ltd and Vericel Corporation.

CAR T-Cell Therapy

Early results from clinical trials have fueled continued interest in CAR T-cell therapies and our competitors include Bellicum Pharmaceuticals, Inc., bluebird bio, Inc., Cellectis S.A., Juno Therapeutics, Inc., Kite Pharma Inc., Novartis AG and Ziopharm Oncology, Inc.

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 drug 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 for each regulatory authority, submitted for review and an application for marketing authorization must be approved by the regulatory authority.

 

 

 

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Certain products may be comprised of components that are regulated under separate regulatory authorities and by different centers at the FDA. These products are known as combination products. A combination product is comprised of a combination of a drug and a device; a biological product and a device; a drug and a biological product; or a drug, a device, and a biological product. Under regulations issued by the FDA, a combination product includes:

 

Ø   a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and produced as a single entity;

 

Ø   two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products;

 

Ø   a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device or biological where both are required to achieve the intended use, indication, or effect and where upon approval of the proposed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or

 

Ø   any investigational drug, device, or biological packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.

One of our drug product candidates is a combination product that is comprised of a biologic and a device (an endocardial injection catheter) that is used for delivery of the biologic. Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. That determination is based on the “primary mode of action” of the combination product, which means the single mode of action that provides the most important therapeutic action of the combination product, i.e., the mode of action expected to make the greatest contribution to the overall intended therapeutic effects of the combination product. Thus, if the primary mode of action of a device-biologic combination product is attributable to the biologic product, that is, if it acts by means of a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product, the FDA center responsible for premarket review of the biologic product (the Center for Biologics Evaluation and Research, or CBER) would have primary jurisdiction for the combination product. CBER is the agency component with primary jurisdiction for the premarket review and regulation for our C-Cure investigational product. Because C-Cure utilizes a catheter as a delivery system to the heart, CBER may consult or collaborate with the agency center that is responsible for the premarket review of that device, the Center for Devices and Radiological Health, or CDRH.

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, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

 

 

 

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Our drug 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:

 

Ø   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;