F-1/A 1 vectivbiof-1a2.htm F-1/A Document


As filed with the Securities and Exchange Commission on April 7, 2021
Registration No. 333-254523
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2
to
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VectivBio Holding AG
(Exact name of registrant as specified in its charter)
Switzerland2836Not applicable
(State or other jurisdiction of incorporation or organization)(Primary Standard Industrial Classification Code Number)(I.R.S. Employer Identification Number)
Aeschenvorstadt 36
4051 Basel
Switzerland
Telephone: +41 61 551 30 30
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
VectivBio US, Inc.
60 Broad St. Suite 3502
New York, New York 10004
Telephone: +1 800 811 9520
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Ryan Sansom
Brandon Fenn
Divakar Gupta
Cooley LLP
55 Hudson Yards
New York, NY 10001
+1 212 479 6000
Andreas Müller
Homburger AG
Prime Tower
Hardstrasse 201
CH-8005 Zurich
Switzerland
+41 43 222 10 00
Philippe Weber
Thomas Brönnimann
Niederer Kraft Frey AG
Bahnhofstrasse 53
CH-8001 Zurich
Switzerland
+41 58 800 8000
Nathan Ajiashvili
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
+ 1 212 906 1200
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ¨ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED
AMOUNT TO BE REGISTERED (1)
PROPOSED MAXIMUM OFFERING PRICE PER SHARE
PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(1)
AMOUNT OF REGISTRATION FEE(2)
Ordinary Shares, CHF 0.05 nominal value per share
8,625,000$18.00$155,250,000.00$16,937.78
_________________
(1)Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes the aggregate offering price of 1,125,000 additional ordinary shares, which the underwriters have the option to purchase to cover over-allotments, if any. See “Underwriting.”
(2)Calculated pursuant to Rule 457(a) under the Securities Act of 1933, as amended, based on an estimate of the proposed maximum aggregate offering price. A registration fee of $16,937.78 was previously paid in connection with the registration statement.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended (the “Securities Act”), or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.



The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated April 7, 2021.
PROSPECTUS
7,500,000 Ordinary Shares
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VectivBio Holding AG
This is an initial public offering of 7,500,000 ordinary shares of VectivBio Holding AG. We have applied to list our ordinary shares on The Nasdaq Global Market under the symbol “VECT.” All of the ordinary shares are being sold by us.
It is currently estimated that the initial public offering price per share will be between $16.00 and $18.00.
Currently, no public market exists for our ordinary shares. After the pricing of the offering, we expect that the ordinary shares will trade on The Nasdaq Global Market under the symbol “VECT.”
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company” and “Prospectus Summary—Implications of Being a Foreign Private Issuer” for additional information.
Investing in our ordinary shares involves risks that are described in the “Risks Factors” section beginning on page 13 of this prospectus.
Per ordinary shareTotal
Initial public offering price$$
Underwriting discount(1)
$$
Proceeds to us, before expenses$$
(1)We have agreed to reimburse the underwriters for certain expenses in connection with this offering. We refer you to “Underwriting” beginning on page 202 for additional information regarding underwriting compensation.
The underwriters may also exercise their option to purchase up to an additional 1,125,000 ordinary shares from us, at the public offering price, less the underwriting commission, for 30 days after the date of this prospectus.
None of the Securities and Exchange Commission, any state securities commission, nor any other foreign securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The ordinary shares will be ready for delivery on or about                , 2021.
BofA SecuritiesSVB LeerinkCredit Suisse
LifeSci Capital
The date of this prospectus is                , 2021



TABLE OF CONTENTS
Page
We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize. We and the underwriters have not authorized anyone to provide you with different information, and we and the underwriters take no responsibility for any other information others may give you. We and the underwriters are not making an offer to sell securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
For investors outside the United States: neither we nor any of the underwriters have done anything that would permit the 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
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prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ordinary shares and the distribution of this prospectus outside the United States.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “VectivBio,” “VectivBio Holding,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to VectivBio Holding AG and its consolidated subsidiaries.
In this prospectus, unless otherwise specified, all monetary amounts are in U.S. dollars, all references to “U.S. dollars,” “$,” “US$” and “USD” mean United States dollars and all references to “CHF” mean Swiss francs.
Basis of Presentation in the Consolidated and Carve-Out Financial Statements
We historically did not operate as an independent, standalone company, but rather as a part of a larger group of companies controlled by Therachon Holding AG, or THAG, and reported our results as part of THAG prior to July 1, 2019, when THAG distributed the shares of VectivBio Holding AG to the existing THAG shareholders, referred to as the Spin-off. The financial information for the period prior to July 1, 2019 has been derived from THAG’s historical financial records as if the Apraglutide Business (as defined in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) had been a standalone business. Accordingly, the financial information for the periods prior to the Spin-off has been prepared on a “carve-out” basis to present the results of operations and the costs of doing business. There are limitations inherent in the preparation of the carve-out financial statements since the Company’s business was previously part of a larger organization. The basis of preparation included in our consolidated and carve-out financial statements provides a detailed description of the treatment of historical transactions in the period prior to the Spin-off.
During this period, our net loss was impacted by the following consequences of carve-out accounting and the Spin-off: an allocation of expenses for the services provided by THAG and its subsidiaries for research and development costs, shared corporate costs for professional services, legal services, other administrative support, and employee-related costs for senior management and other shared employees. The amounts of these allocations may not necessarily be indicative of the similar costs we would incur as an independent, standalone company. The total amount allocated to us from THAG related to the expenses described above was $4.8 million during the six months ended June 30, 2019. Subsequent to the Spin-off on July 1, 2019, the financial information for the Apraglutide Business was prepared on a consolidated basis. For further information on the basis of presentation refer to Note 2 to our consolidated and carve-out financial statements beginning on page F-1 of this prospectus.
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Table of Contents
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our ordinary shares and it is qualified in its entirety by, and should be read with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus and the registration statement of which this prospectus is a part carefully and in their entirety, including the information discussed under “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated and carve-out financial statements and the related notes included elsewhere in this prospectus, before deciding to buy our ordinary shares.
Overview
We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of innovative treatments for severe rare conditions for which there is a significant unmet medical need. We are led by an experienced management team with a strong track record in the biotechnology and pharmaceutical industry. Our goal is to become a leading, patient-centric, fully integrated global rare disease company. Our current product pipeline is focused on rare gastrointestinal, or GI, disorders, and we intend to license or acquire additional transformational, differentiated rare disease assets. Our product candidate, apraglutide, is a next generation, long-acting synthetic peptide analog of glucagon-like peptide-2, or GLP-2, which we are developing as a differentiated therapeutic for a range of rare GI diseases, with an initial focus on short bowel syndrome, or SBS. Based on our preclinical and clinical data to date, we believe that apraglutide has the potential to advance the treatment of SBS intestinal failure, or SBS-IF, by establishing less frequent dosing and improve clinical outcomes. Apraglutide is currently being evaluated in a global Phase 3 clinical trial for the treatment of patients with SBS-IF. We also plan to evaluate apraglutide’s therapeutic potential in additional rare GI conditions, such as graft versus host disease, that could benefit from GLP-2 activation.
SBS is a malabsorption disorder caused by the loss of functional small intestine, with symptoms that include diarrhea, dehydration, malnutrition and weight loss. SBS typically occurs in adults as a consequence of irreparable GI damage caused by physical trauma, Crohn’s disease, ulcerative colitis, ischemia or cancer requiring surgeries that result in the removal of large portions of the small intestine or colon. In infants and children, SBS is typically a consequence of congenital defects or decreases in intestinal absorptive capacity secondary to surgical procedures. The symptoms and severity of SBS can vary depending upon the length and function of the remaining portion of the intestine. Patients suffer from SBS-IF when their gut function is reduced below the minimum function necessary for the absorption of macronutrients or water and electrolytes required to survive and, in the case of infants and children, to maintain health and growth.
In order to survive, patients with SBS-IF require parenteral support, or PS, which is the intravenous delivery of essential nutrients and fluids through a central line catheter. The frequent infusions of PS, which can last up to 10 to 15 hours per day, combined with the inability to sustain adequate oral nutrition, cause increased mortality and morbidity, a decrease in the quality of life of the patient, and a significant burden to the healthcare system. Reduction of the dependence on PS, with the ultimate goal of eliminating the central catheter and achieving enteral autonomy, defined as greater than three consecutive months without requirement of parenteral nutrition, is the most important goal for patients suffering from SBS-IF. The primary pharmacological treatment for adult patients with SBS-IF is teduglutide, a GLP-2 analog that is marketed as Gattex in the United States and Revestive in Europe. We believe that teduglutide has several limitations, such as a short half-life that requires patients to receive daily subcutaneous injections, and a lengthy and complex administration procedure that requires the administrator to perform a multi-step reconstitution process, including calculating the exact dose for each patient based on the patient's individual body weight. Trial reports done by third-party investigators who conducted a Phase 3 clinical trial have indicated that teduglutide demonstrated a suboptimal efficacy and tolerability profile, characterized by the frequent occurrence of adverse events such as injection site reactions and abdominal pain, no statistically significant impact on patients’ quality of life and no demonstrated benefit in the subset of patients characterized by the colon-in-continuity anatomy, or CIC, which represents approximately 55% of the overall SBS-IF population. Additionally, in real-world utilization of teduglutide based on a study we commissioned of U.S. insurance claims, a meaningful portion of patients are not persistent with therapy—approximately 25% of patients discontinue teduglutide by month
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three, 40% by month six, 50% by month twelve and 65% by month twenty-four. Collectively, we believe these factors demonstrate a need for improving treatments for SBS-IF patients.
Our product candidate, apraglutide, is a next generation, long-acting, synthetic GLP-2 analog that is designed to increase nutrient absorption in the intestine and reduce the burden of PS, thereby improving patient quality of life. Apraglutide has been rationally designed to have unique properties to address the known issues with native GLP-2 and teduglutide. In our preclinical studies and completed clinical trials, apraglutide has shown a significantly longer half-life and more consistent on-target drug exposure, potentially allowing for once-weekly dosing versus once-daily dosing for teduglutide, and enhanced trophic effects on the small intestine when compared to other GLP-2 analogs. We believe that these properties have the potential to translate into increased pharmacological activity and improved patient adherence to treatment relative to other GLP-2 analogs, thereby allowing a subset of patients who currently receive PS to achieve enteral autonomy. In addition, we have designed a development strategy that will allow us to adapt the use of apraglutide to treat different SBS patient subtypes based on their GI anatomy.
The following table summarizes our clinical plans regarding apraglutide. We have retained global rights to commercialize apraglutide.
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(1)Our planned pediatric SBS-IF and acute graft versus host disease clinical trials rely on clinical trial data from our completed healthy volunteer Phase 1 and adult SBS-IF patient Phase 2 clinical trials. To date, we have not completed any dedicated clinical trials in pediatric SBS-IF and acute graft versus host disease.
To date, we have conducted three randomized, double-blind, placebo-controlled clinical trials and one non-controlled, open label clinical trial and in which we administered apraglutide to a total of 66 healthy volunteers and 16 patients with SBS. Apraglutide is the only GLP-2 analog to-date which has demonstrated therapeutically relevant pharmacological activity in SBS patients after a once-weekly treatment regimen. In our Phase 2 open label, metabolic balance clinical trial in patients with SBS we observed that apraglutide significantly improved intestinal absorption of wet weight, urinary output and energy. To our knowledge, this is the first time that a GLP-2 analog demonstrated increased intestinal absorption in SBS patients after a once-weekly treatment regimen, an effect that is of therapeutic significance in SBS patients who present with severely impaired intestinal absorption capacity. Importantly, in this study we observed a statistically significant effect of apraglutide on improving energy absorption, an observation that was not previously reported with other GLP-2 analogs in Phase 2 studies. In each of our four clinical trials, we observed that once weekly administration of apraglutide was well tolerated, with safety results that are consistent with the safety profile observed with other GLP-2 analogs and reduced frequency of injection site reactions.
We have devised an innovative development approach for apraglutide, which capitalizes both on our proprietary know-how and our executive team’s previous clinical and regulatory experience with GLP-2 analogs. We initiated a Phase 3 clinical trial to assess the safety and efficacy of apraglutide for the treatment of SBS-IF in January 2021, expect to report topline results from the trial in the second half of 2023. We expect to initiate a Phase 2 clinical trial to evaluate the effects of apraglutide on intestinal absorption in SBS-IF subjects with CIC in the second quarter of 2021 and expect to report preliminary results in the first half of 2022.
We plan to assess the safety and efficacy of apraglutide in pediatric SBS-IF and in other conditions where we believe the mechanism of action of GLP-2 has the potential to provide therapeutic benefit due to its potential impact on intestinal growth and absorption, GI blood flow and GI barrier function and immunity. We are evaluating the potential of apraglutide in each of these areas with a focus on rare diseases with no approved therapies or with
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significant unmet needs that we believe would benefit from apraglutide’s unique pharmacology. A priority area of focus is the prevention and treatment of the serious gastrointestinal manifestations of acute graft versus host disease, or GVHD, a common and life-threatening consequence of allogenic hematopoietic stem cell transplants, or HSCT. Most approaches targeting GVHD today involve modulation or suppression of immune mechanisms. We believe GLP-2 activation offers a novel approach which directly targets intestinal mucosal biology, intestinal barrier function, and the gut microbiota with the potential to improve outcomes in GVHD. Expanding to additional indications could potentially be achieved through proof-of-concept studies or by leveraging our Phase 2 clinical trial data in the SBS population to initiate additional clinical trials in indications other than SBS-IF, such as for GVHD. We plan to initiate a clinical proof of concept study of apraglutide in acute steroid refractory GVHD on top of best available therapy.
We were founded in 2019 through a spin-off of our apraglutide program from Therachon Holding AG, a rare disease focused company, following its acquisition by Pfizer for an upfront payment of $340 million and additional milestone payments of up to $470 million. To date, we have raised approximately $144 million in private financings from leading biotechnology investors, including OrbiMed Advisors, Versant Ventures, Novo Holdings, Bpifrance, Cowen Healthcare Investments, Tekla Capital Management, Surveyor Capital (a Citadel company), Cormorant Capital and Eventide Asset Management.
Our expertise lies in rare disease research, development and commercialization, and our current clinical programs reflect our strategy of pursuing product candidates with a clear and understood mechanism of action that have a high probability of transforming the lives of patients. We believe this approach benefits from our ability to select objective clinical endpoints and to leverage validated regulatory pathways.
We are led by Luca Santarelli, M.D., our founder, and CEO, who has more than 20 years of experience in research and development and business development. Dr. Santarelli previously served as the Senior Vice President and Head of Neuroscience, Ophthalmology, and Rare Diseases at Roche, where he advanced more than twenty new product candidates into clinical trials, resulting in multiple pivotal clinical trials and product approvals. Our leadership team includes our Chief Financial Officer, Claudia D’Augusta, Ph.D. (previously Chief Financial Officer at Therachon), our Chief Development Officer, Christian Meyer, M.D., Ph.D. (previously Chief Development Officer at Therachon), our Chief Commercial Officer, Kevin Harris (previously Group VP, Global Product Strategy at Incyte), Chief Technical Officer, Alain Bernard (previously VP Biopharma Process Sciences at UCB), and Chief Business Officer, Sarah Holland, Ph.D. (previously VP, Global Head of Licensing at Lonza).
Our Strategy
Our mission is to build a leading, fully integrated global rare disease company using our patient-centric approach to identify and develop transformative medicines for the treatment of severe rare diseases. We are focused on developing highly innovative therapies that target the physiological root causes of a disease to significantly improve the lives of patients. Our approach leverages our unique scientific and clinical insight into the design and development of treatments that specifically target the molecular and physiological processes associated with the disease. This approach has the potential to alter the natural course of diseases and overcome the limitations of available treatments.
The key elements of our strategy include:
Advance apraglutide through clinical development in patients with SBS-IF.
Maximize the potential of apraglutide in additional indications where GLP-2 is central to the disease pathophysiology.
Retain commercialization rights for our product candidates in the United States and Europe and opportunistically evaluate strategies to maximize the commercial potential of our product candidates outside these jurisdictions.
Combine our accomplished business development team with our experienced rare disease research and development capabilities to expand our product portfolio.
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Continue to expand our strong collaborative relationships with key stakeholders to address the needs of patients in increasingly effective ways and shape the future standard-of-care for devastating rare diseases.
Strengthen and expand our intellectual property to protect apraglutide.
Our Competitive Differentiation
We believe that apraglutide has several potential advantages when compared to native GLP-2 and other GLP-2 analogs that are approved or in development:
Improved Half-Life: As highlighted in the figure below, in head-to-head preclinical studies comparing the pharmacokinetic profile of apraglutide, teduglutide, glepaglutide and native human GLP-2 in rats after a single intravenous administration, we observed a notably longer half-life for apraglutide, suggesting improved pharmacokinetic properties. We believe that the stable exposure after once-weekly dosing of apraglutide observed in our Phase 1 and Phase 2 clinical trials may improve patient tolerability, compliance and adherence to treatment.
Pharmacokinetic profile of apraglutide, teduglutide, glepaglutide and native human GLP-2 in rats after a single intravenous administration
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Greater Intestinotrophic Activity: In preclinical studies, we observed that apraglutide resulted in dose-dependent growth of small and large intestines in rats at a dose of apraglutide as low as 3 nmol/kg. Head-to-head preclinical studies of apraglutide were also conducted to examine whether its longer half-life translated to increased pharmacodynamic effects when directly compared to teduglutide and glepaglutide at comparable doses. In this study, apraglutide demonstrated a greater increase in intestinal wet weight when compared to teduglutide and glepaglutide at doses of 30 and 300 nmol/kg, suggesting that apraglutide’s longer half-life contributes to superior intestinotrophic effects in rats.
Once-weekly Effects Observed Across Key Clinical Parameters: We believe apraglutide is the only GLP-2 analog to date that has demonstrated therapeutically relevant pharmacological effects with weekly dosing, including statistically significant increases in clinically relevant parameters such as urinary output (a measure of increased fluid absorption) (p=0.0374), intestinal absorption of wet weight (p=0.0150) and energy absorption (p=0.0236). In the description of our preclinical studies above and elsewhere in this prospectus, p or p-values represent the probability that random chance caused the result. For instance, a p-value of 0.001 means that there is a 0.1% probability that the difference between the placebo group and the treatment group is purely due to random chance. A p-value of less than or equal to 0.05 is a commonly used threshold for identifying statistically significant outcomes.
Enhanced Energy Absorption: In our Phase 2 metabolic balance study, designed with the primary objective being safety, we demonstrated a statistically significant enhancement in energy absorption (p=0.0236) in SBS patients after a four-week treatment with apraglutide. Historically, metabolic balance
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assessments represent an established and accepted methodology used in Phase 2 studies to assess the effects of GLP-2 analogs on internal absorption capacity, including the evaluation of fluid and nutrient absorption. To our knowledge, this is the first time that a GLP-2 analog has demonstrated a robust and statistically significant improvement in energy absorption in a Phase 2 clinical study. We believe that enhancing the energy absorption could result in better outcomes for patients through reduction of PS.
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Administration Convenience: Designed to offer simple drug reconstitution and administration via a dual-chamber syringe, allowing for convenient and administration via self-injection, thereby potentially improving dosing accuracy and convenience for prescribers and patients. We have designed the Phase 3 trial to employ a bracketed dose method, where one of two doses would be administered to a patient based on a body weight threshold in lieu of an individualized calculation on a patient-by-patient basis. We believe our product candidate, if approved, will be commercialized through this bracketed dose method, and ultimately there will only be two doses available for the entire adult patient population.
Differentiated Clinical and Regulatory Strategy: Leveraging existing research and real-world experience with teduglutide, we were able to design a Phase 3 clinical trial which takes into account remnant bowel anatomy and individualizes assessment of caloric needs during weaning. We believe this will help us improve outcomes such as PS volume reduction, days off PS and a likelihood of achieving full enteral autonomy, especially in patients with CIC. We believe these outcomes, which we plan to assess across the full spectrum of SBS-IF patients, may more fully characterize the potential benefit of apraglutide in this heterogenous condition.
Risk Factor Summary
Investing in our ordinary shares involves a high degree of risk because our business is subject to numerous risks and uncertainties, as fully described below. The principal factors and uncertainties that make investing in our ordinary shares risky include, among others:
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur substantial and increasing losses for the foreseeable future.
We have never generated any revenue from product sales and may never be profitable.
Even if this offering is successful, we will need substantial additional funding to pursue our business objectives.
We are heavily dependent on the success of our product candidate, apraglutide, for which we have not completed a pivotal trial. We cannot give any assurance that apraglutide or any future product candidates will receive regulatory approval, which is necessary before they can be commercialized.
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The regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable.
Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes.
We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases for which our product candidate is being studied, the availability of competing trials and the availability of already marketed products. Difficulty in enrolling patients could delay or prevent clinical trials of our product candidate.
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.
If the market opportunities for our product candidate are smaller than we believe they are, our revenue may be adversely affected and our business may suffer.
We are working in a competitive area with rapidly evolving scientific progress. If our competitors develop therapies that are similar, more advanced or more effective than ours, our commercial opportunity and financial position could be adversely impacted.
We currently have limited marketing and sales organization. If we are unable to establish broad sales, marketing and distribution capabilities or enter into additional agreements with third parties to market and sell our product candidate, we may not be successful in commercializing any approved products and may be unable to generate any revenue.
If we are unable to maintain effective proprietary rights for our product candidate or any future product candidates, we may not be able to compete effectively in our target markets.
We may not be successful in our efforts to identify, license, acquire, discover, develop or commercialize additional product candidates or additional indications that apraglutide may prove effective in treating.
We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weakness, we may not be able to report our financial results accurately or to prevent fraud.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the U.S. 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 generally applicable to public companies. These provisions include:
the ability to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced disclosure in management’s discussion and analysis of financial condition and results of operations in the registration statement for the offering of which this prospectus is a part;
exemption from the auditor attestation requirements in the assessment of our internal control over financial reporting of Section 404 of the Sarbanes-Oxley Act of 2002;
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; and
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an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotations.
We may take advantage of these provisions for up to five years after the closing of the initial public offering or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in total annual gross revenue, have more than $700 million in market value of our equity securities held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these available exemptions. For example, we have presented only two years of audited consolidated financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in this prospectus, and will take advantage of the exemption from the auditor attestation on the effectiveness of our internal control over financial reporting. To the extent that we take advantage of these exemptions, the information that we provide to shareholders may be different than the information you might obtain from other public companies in which you hold equity interests.
In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Since International Financial Reporting Standards, or IFRS, make no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.
Implications of Being a Foreign Private Issuer
We are also considered a “foreign private issuer” under U.S. securities laws. In our capacity as a foreign private issuer, we are exempt from certain rules under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.
We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We will remain a foreign private issuer until such time that more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are U.S. citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States.
We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold equity securities.
Corporate History and Information
Our corporate name is VectivBio Holding AG. We were incorporated as a Swiss corporation (Aktiengesellschaft, or AG) on May 22, 2019. Our principal executive offices are located at Aeschenvorstadt 36, 4051 Basel, Switzerland. We are registered with the commercial register of the Canton of Basel-City under number CHE-289.024.902. Our telephone number at our principal executive offices is +41 61 551 30 30. Our agent for service of process in the United States is VectivBio US, Inc. Our website address is https://vectivbio.com. The reference to our website is an inactive textual reference only and information contained in, or that can be accessed through, our website or any other website cited in this registration statement is not part of this prospectus and you should not consider any information contained on, or that can be accessed through, our website or any other website cited in this registration statement in deciding whether to purchase our ordinary shares.
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Our consolidated and carve-out financial statements are presented in U.S. dollars and in accordance with IFRS, as issued by the International Accounting Standards Board, or IASB. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
We have filed trademark registrations for “VectivBio” and “Vectiv” in Switzerland, the European Union, Canada and the United States.
All 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.
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THE OFFERING
Ordinary shares offered by us7,500,000 ordinary shares.
Ordinary shares to be outstanding immediately after this offering34,014,593 ordinary shares (or 35,139,593 ordinary shares if the underwriters exercise in full their option to purchase an additional 1,125,000 ordinary shares).
Underwriters’ option to purchase additional ordinary sharesThe underwriters have an option, exercisable within 30 days from the date of this prospectus, to purchase up to 1,125,000 additional ordinary shares.
Use of proceedsWe estimate the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, to be approximately $115.3 million, or $132.9 million if the underwriters exercise their option in full to purchase additional ordinary shares, based on an assumed initial public offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents, to advance our ongoing clinical program for apraglutide and for general corporate purposes including the development of other potential product candidates and working capital requirements.

See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.
Risk FactorsSee “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ordinary shares.
ListingWe have applied to list the ordinary shares on The Nasdaq Global Market, or Nasdaq, under the symbol “VECT.”
The number of ordinary shares to be outstanding after this offering is based on 26,514,593 of our ordinary shares outstanding prior to giving effect to this offering, which consists of (i) 12,319,805 ordinary shares outstanding as of December 31, 2020, including 2,896,725 restricted ordinary shares which under certain circumstances are subject to a repurchase option by us, (ii) the conversion of all of our outstanding preferred shares into 13,753,612 ordinary shares immediately prior to the completion of this offering, and (iii) 441,176 ordinary shares to be issued pursuant to a simple agreement for future equity, or SAFE, based on an assumed initial public
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offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, upon the closing of this offering, and excludes:
1,252,900 ordinary shares issuable upon the exercise of options outstanding under our 2019 Equity Incentive Plan, or the 2019 Plan, and our 2020 Equity Incentive Plan, or the 2020 Plan, as of December 31, 2020, with a weighted average exercise price of approximately $0.05 per share;
234,500 ordinary shares issuable upon vesting of restricted share units, or RSUs, issued under the 2019 Plan and the 2020 Plan as of December 31, 2020;
105,000 ordinary shares issuable upon the exercise of options issued after December 31, 2020 under the 2020 Plan, with a weighted‑average exercise price of approximately $0.05 per share;
6,760,000 ordinary shares that may be issued from our share capital for future grants under our 2021 Equity Incentive Plan, or the 2021 Plan, which include 2,220,800 ordinary shares underlying the grants to be issued in connection with this offering shortly after the closing of this offering to certain of our executive officers, directors, employees and consultants under our 2021 Plan, either in the form of options with an exercise price of $4.80 per share or RSUs (currently estimated to be 1,784,800 options and 436,000 RSUs);
400,000 ordinary shares reserved for issuance under our 2021 Employee Stock Purchase Plan, or the ESPP; and
722,275 ordinary shares we hold in treasury.
Except as otherwise indicated, all information in this prospectus assumes:
no exercise of the underwriters’ option to purchase up to an additional 1,125,000 ordinary shares;
the conversion of all our outstanding preferred shares into 13,753,612 ordinary shares immediately prior to the completion of this offering;
the issuance of 441,176 ordinary shares pursuant to the SAFE, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, upon the closing of this offering;
no exercise of outstanding options or vesting of RSUs subsequent to December 31, 2020;
the completion of a five-to-one reverse split of our registered shares effected on April 1, 2021; and
the filing and effectiveness of the amendment and restatement of our articles of association immediately prior to the completion of this offering.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth our summary consolidated financial data for the period indicated. We have derived the summary consolidated and carve-out statement of operations and other comprehensive loss data for the years ended December 31, 2020 and 2019 and the summary consolidated statement of financial position data as of December 31, 2020 and 2019 from our audited consolidated and carve-out financial statements included elsewhere in this prospectus.
Our consolidated financial statements are prepared and presented in accordance with IFRS, as issued by the IASB. IFRS differ in certain significant respects from U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.
The summary consolidated financial data set forth below should be read together with our audited consolidated and carve-out financial statements and the related notes to those statements included elsewhere in this prospectus, as well as the sections of this prospectus titled “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our functional currency is Swiss francs. However, our consolidated and carve-out financial statements are presented in U.S. dollars.
Consolidated and Carve-Out Statement of Operations and Other Comprehensive Loss Data:
Year ended
December 31,
 20202019
(in thousands, except per share data)
Research and development expenses$(43,035)$(15,980)
General and administrative expenses(14,226)(8,335)
Operating loss(57,261)(24,315)
Finance income15 
Finance expense(1,118)(50)
Foreign exchange differences, net(1,565)869 
Loss before income taxes(59,943)(23,481)
Income taxes— — 
Net loss(59,943)(23,481)
Total comprehensive loss$(60,000)$(23,821)
Basic and diluted loss per share(1)
$(6.24)$(2.49)
Weighted average number of ordinary shares issued and outstanding(1)
9,599,7049,425,578
Pro forma net loss per share, basic and diluted(1)
$(2.57)
Pro forma weighted average number of ordinary shares issued and outstanding(1)
23,353,316
__________________
(1)See Note 11 to our audited consolidated and carve-out financial statements included elsewhere in this prospectus for further details regarding the calculation of basic and diluted loss per share and pro forma net loss per share, basic and diluted.
Consolidated Statement of Financial Position Data:
As of December 31, 2020
(in thousands)Actual
Pro Forma(1)
Pro Forma as Adjusted(2)(3)
Cash and cash equivalents$40,172 $47,597 $162,930 
Total assets70,562 77,987 193,320 
Total liabilities38,324 38,324 38,324 
Total equity32,238 39,663 154,996 
__________________
(1)Gives effect to (i) the filing and effectiveness of the amendment and restatement of our articles of association immediately prior to the completion of this offering, (ii) the conversion of all of our outstanding preferred shares into 13,753,612 ordinary shares immediately prior
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to the completion of this offering and (iii) the issuance of 441,176 ordinary shares pursuant to the SAFE, based on an assumed initial public offering of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus.
(2)Gives further effect to the sale of 7.5 million ordinary shares in this offering at the assumed initial public offering price of $17.00  per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3)The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, each of cash and cash equivalents, total assets and total equity by $6.9 million, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each 1.0 million share increase or decrease in the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, at the assumed initial public offering price would increase or decrease, as applicable, each of cash and cash equivalents, total assets and total equity by $15.6 million, assuming the assumed initial public offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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RISK FACTORS
An investment in our ordinary shares involves a high degree of risk. You should carefully consider the following information about these risks, together with the information appearing elsewhere in this prospectus, including our consolidated and carve-out financial statements and related notes thereto, before deciding to invest in our ordinary shares. The occurrence of any of the following risks could have an adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our ordinary shares could decline, and you may lose all or part of your investment.
Risks Related to Our Financial Condition and Capital Requirements
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur substantial and increasing losses for the foreseeable future.
We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred net losses in each year since our inception, including net losses of $23.5 million and $59.9 million for the years ended December 31, 2019 and 2020, respectively. Since our inception through December 31, 2020, we had accumulated net losses of $71.1 million.
We have devoted substantially all of our financial resources to identify, acquire and develop our product candidate, apraglutide, including by conducting clinical trials and pre-clinical studies and product candidate development and by providing general and administrative support for these operations. The amount of our future net losses will depend, in part, on the rate of our future expenditures and our ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is highly speculative and involves a substantial degree of risk. We expect it will be several years, if ever, before we complete pivotal clinical trials and have a product candidate approved for commercialization. If we obtain regulatory approval to market our product candidate or other potential product candidates, our future revenue will depend upon the size of any target markets for which our product candidate may receive approval, our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors and adequate market share for our product candidate in those target markets. However, even if we obtain adequate market share for our product candidate, because the potential markets for which our product candidate may ultimately receive regulatory approval is very small, we may never become profitable despite obtaining such market share and acceptance of our products.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future, which may fluctuate from period to period. We anticipate that our expenses will increase substantially if and as we:
continue our product candidate research and nonclinical and clinical development of our product candidate;
expand the scope of our current clinical trials for our product candidate;
advance our future product candidates and programs into pivotal clinical trials;
initiate additional nonclinical, clinical or other trials for our product candidate or potential future product candidates or indications;
change or add additional manufacturers or suppliers;
require additional manufacturing capacity;
seek regulatory approvals for our product candidate upon successful completion of the clinical trials;
establish commercial manufacturing, sales, marketing and distribution infrastructure to commercialize any product candidates that we may obtain marketing approval for;
seek to identify, assess, acquire and develop other product candidates;
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make milestone or other payments under the GlyPharma Share Purchase Agreement, our licensing agreements with Ferring International Center S.A., or Ferring, or any potential future collaboration or license agreements;
file, prosecute and maintain, or fund the filing, prosecution and maintenance of, patents and patent applications, and defend and enforce our patent and other intellectual property rights;
defend, in litigation or otherwise, any intellectual property, including claims that we infringe third-party patents or other intellectual property rights;
attract and retain skilled personnel;
create additional infrastructure to support our operations as a public company, product development and planned future commercialization efforts; and
experience any delays or encounter issues with any of the above.
Because of the numerous risks and uncertainties associated with developing our product candidate, we are unable to predict the extent of any future losses or the financial periods in which we will be profitable, if at all.
We have never generated any revenue from product sales and may never be profitable.
We have no products approved for commercialization and have never generated any revenue. Our ability to generate revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners, to successfully complete the development of our product candidate and obtain the regulatory approvals necessary to commercialize our current product candidate. We do not anticipate generating revenue from product sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily on our success in many areas, including but not limited to:
completing research and clinical development of our product candidate;
obtaining regulatory approvals for our product candidate upon the completion of clinical trials;
developing a sustainable and scalable manufacturing process for any approved product candidates and establishing and maintaining supply and manufacturing relationships with third parties that can conduct the process and provide adequate and sufficient products to support clinical development and the market demand for our product candidate, if approved;
launching and commercializing our current product candidate if and when a regulatory approval is obtained, either directly or with a collaborator or distributor;
obtaining market acceptance of our product candidate, if approved as a viable treatment option;
addressing any competing product, technological and market developments;
identifying, assessing, acquiring or developing new product candidates or pursuing other indications for our existing product candidate;
negotiating favorable terms in any collaboration, licensing or other arrangements that we may enter into;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
attracting, hiring and retaining qualified personnel.
Even if our current product candidate is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Because of the numerous risks and uncertainties with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased
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expenses or when, or if, we will be able to achieve profitability. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, the European Medicines Agency, or the EMA, or other regulatory agencies, whether Swiss or foreign, to change our manufacturing processes or trials, or to perform clinical, nonclinical or other types of studies in addition to those that we currently anticipate. In cases where we are successful in obtaining regulatory approvals to market our current product candidate or any future product candidates, our revenue will be dependent, in part, upon the size of the addressable markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price and whether we own the commercial rights for that territory. If the number of our addressable rare disease patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably expected target patient population for treatment is narrowed by competition, physician choice, payor specifications or treatment guidelines, we may not generate significant revenue from sales of our product candidate, even if approved. The development of apraglutide is an important part of our current business strategy. If we are unable to obtain regulatory approval for the desired indications or do not maintain orphan exclusivity for apraglutide for the treatment of SBS-IF, our business may suffer. If we are not able to generate revenue from the sale of any approved products for the foregoing or for other reasons, we may never become profitable.
Even if this offering is successful, we will need substantial additional funding to pursue our business objectives.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time- consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue to develop our product candidate and, if approved, to market it commercially.
As of December 31, 2020, our cash and cash equivalents were $40.2 million. We expect, based on our current plans, that our existing cash and cash equivalents, together with the proceeds from this offering, will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. However, we expect that we will require additional capital prior to obtaining regulatory approval for, and commercializing, our product candidate. In addition, our operating plans may change as a result of many factors that are currently unknown to us, and we may need to seek additional funds sooner than planned. Changes may occur beyond our control that would cause us to expend our available capital before that time, including changes in and progress of our development activities and changes in regulation. Our future capital requirements will depend on many factors, including:
the scope, rate of progress, results and cost of our ongoing and planned clinical trials and preclinical studies and other related activities;
the cost of formulating and developing new product candidates;
the cost of manufacturing clinical and commercial supplies of our product candidate and any approved products that we may develop;
the cost, timing and outcomes of regulatory approvals;
the cost and timing of establishing sales, marketing and distribution capabilities; and
the terms and timing of any collaboration, licensing or other arrangements that we may establish, including any required milestone and royalty payments thereunder.
Even if this offering is successful, we will require additional capital to complete our planned clinical development programs for our current product candidate to seek regulatory approval. If we receive regulatory approval for our current product candidate, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved.
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In addition, we cannot guarantee that future financing will be available on a timely basis, in sufficient amounts or on terms acceptable to us, if at all. Our access to capital will depend on the timing of such capital needs and prevailing conditions in the global capital markets. Further, as a Swiss corporation we have less flexibility to raise capital, particularly in a quick and efficient manner, compared to U.S. corporations. See “—Risks Related to This Offering and Our Ordinary Shares—Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.” As a result, once we are a listed company in the United States, we may not be able to access the capital markets as frequently as comparable U.S. companies. If we are unable to obtain funding on a timely basis on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our current or future research or development programs or the commercialization of any current of future product candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired.
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.
Until such time as we can generate substantial product revenue, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and license and development agreements in connection with any future collaborations. We do not have any committed external source of funds. If we raise additional capital through the sale of equity or convertible debt securities, you and our existing shareholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our ordinary shares. Debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include restrictive covenants, such as limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could negatively impact our ability to conduct our business. We may also be required to seek funds through collaborations, strategic alliances, or marketing, distribution or licensing arrangements with third parties and we may be required to relinquish rights to our intellectual property, research program or product candidate, or grant licenses that may not be favorable to us, any of which may harm our business, operating results and prospects. Even if we believe we have sufficient funds for our current and future operating plans, we may seek additional capital if market conditions are favorable or in order to accomplish future strategic goals.
Our operating results may fluctuate significantly and may be difficult to predict, which could cause our operating results to fall below expectations.
Our operating results are difficult to predict and will likely fluctuate from year to year and from period to period. If we receive regulatory approval for our current product candidate, our product sales will be difficult to predict from period to period and as a result, you should not rely on sales results in any period as being indicative of future performance and sales may be below the expectation of securities analysts or investors in the future. We believe that our results of operations may be affected by a variety of factors, including:
the level of demand and prices for our current or future product candidates, if approved, and of products with which we compete;
the extent to which coverage and adequate reimbursement is available from third-party payors, including government and health administration authorities, private health insurers, managed care programs and other organizations;
rebates, discounts, other pricing concessions and fees that we may provide to integrated delivery networks, group purchasing organizations, pharmacy benefits managers, other third-party payors and national and regional government reimbursement authorities;
the timing, cost and level of investment in our marketing efforts to support sales;
the timing, cost and level of investment in our research and development activities involving approved products, if any, and our current or future product candidates;
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the cost of manufacturing and distribution;
the amount of legally mandated discounts to government entities, product returns and other gross-to-net deductions;
the risk/benefit profile, cost, coverage and reimbursement of existing and potential future drugs that compete with any approved product; and
expenditures that we will or may incur to acquire or develop additional product candidates and technologies.
In addition, from time to time, we may enter into collaboration agreements with other companies that include development funding and upfront payments and milestone payments. These upfront and milestone payments may vary significantly from year to year and any such variance could cause a significant fluctuation in our operating results from one year to the next.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also cause us to fail to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our ordinary shares could decline substantially.
The pricing of our product candidate, if and when approved for marketing, will depend in part on pricing strategies adopted by our competitors.
The pricing of our current product candidate, if and when approved for marketing, will depend, in part, on the pricing strategies adopted by our competitors. We compete with companies that are producing drugs for SBS, such as Takeda which currently distributes the GLP-2 analog teduglutide, marketed as Gattex in the United States and Revestive in Europe, or Zealand Pharma, which is developing the GLP-2 analog glepaglutide for the treatment of SBS. Our competitors may also succeed in obtaining FDA or other regulatory approvals more rapidly than us, which could place us at a significant competitive disadvantage or deny us marketing exclusivity rights. If these or other companies enact pricing strategies that impact the price we can charge for our product candidate, if approved, we may reduce our prices and our revenue and results of operations could be affected.
Fluctuations in exchange rates may adversely affect our results of operations.
Our reporting currency is in U.S. dollars, but the results of operations and the financial position of our operations in Switzerland are reported in Swiss francs and some operations are in Canada and are reported in Canadian dollars, both then translated into U.S. dollars for reporting purposes. Our financial results are, therefore, impacted primarily by currency fluctuations between U.S. dollars, Swiss francs, Canadian dollars and the Euro. Moreover, a change in the concentration of our business activities could result in an increased effect of exchange rates on our financial position and results of operations. See the section in this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosures about Financial Risks” for more information regarding our exposure to currency fluctuations. There is no assurance that we will, in the future, be successful in adequately hedging our currency risk.
Our ability to use tax loss carryforwards may be limited.
As of December 31, 2020, we reported $63.5 million in tax loss carryforwards, of which $59.4 million was in Switzerland and $4.1 million was in Canada. In Switzerland, such tax loss carryforwards could, with certain limitations, be used to offset future taxable income. However, if not used, Swiss tax loss carryforwards generated in Switzerland expire seven years after the tax year in which they were incurred. Canadian tax loss carryforwards expire after twenty years. Due to our limited income, there is a high risk that our Swiss tax loss carryforwards will
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expire in part or in their entirety and will not be used to offset future taxable income for Swiss corporate income tax purposes.
Furthermore, any Swiss tax loss carryforwards that we report in our tax returns are subject to review and confirmation by the competent Swiss tax authorities in their tax assessment of the tax year for which the tax loss carryforwards are used to offset taxable income. Consequently, we are exposed to the risk that the competent Swiss tax authorities may not accept the reported tax loss carryforwards in part or in their entirety. Any limitations in our ability to use tax loss carryforwards to offset taxable income could adversely affect our financial condition.
Risks Related to the Discovery and Development of Our Product Candidates
We are heavily dependent on the success of our product candidate, apraglutide, for which we have not completed a pivotal trial. We cannot give any assurance that apraglutide or any future product candidates will receive regulatory approval, which is necessary before they can be commercialized.
To date, we have invested substantially all of our efforts and financial resources to identify, acquire and develop our product candidate, including by conducting pharmacology and non-clinical safety studies and clinical trials, and providing general and administrative support for these operations. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and commercialize one or more of our current or future product candidates. We may never be able to develop or commercialize a marketable drug.
Our current product candidate will require extensive clinical development, management of nonclinical, clinical and manufacturing activities, regulatory approval, adequate manufacturing supply, building of a commercial organization, and significant marketing efforts before we generate any revenue from product sales. To date we have conducted several clinical trials in which we evaluated apraglutide in healthy volunteers and patients with SBS-IF, but have not yet completed a pivotal trial for our product candidate. We are not permitted to market or promote our product candidate before we receive regulatory approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never receive any such regulatory approval or may not receive all such regulatory approvals for any of our current or future product candidates. We cannot be certain that our product candidate will be successful in clinical trials or receive regulatory approval. Further, our product candidate may not receive regulatory approval even if it is successful in clinical trials. If we do not receive regulatory approvals for apraglutide or for any product candidates at all, we may not be able to continue our operations, and you may lose some or all of your investment.
The regulatory approval processes of the FDA, EMA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are ultimately unable to obtain regulatory approval for our product candidate, our business will be substantially harmed.
The time required to obtain approval by the FDA, EMA and other comparable regulatory authorities is unpredictable, typically takes many years following the commencement of clinical trials and depends upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval of or may result in the decision not to approve our product candidate. We have not obtained regulatory approval for our current product candidate, and it is possible that our product candidate or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Our product candidate could fail to receive regulatory approval for many reasons, including the following:
the FDA, EMA or other comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials or with our interpretation of data from our pre-clinical studies or clinical trials;
the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;
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the data collected from clinical trials of our product candidate may not be sufficient to support the submission of an NDA, MAA, or other submission or to obtain regulatory approval in the United States, Europe or elsewhere;
serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidate;
the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
we may be unable to demonstrate to the FDA, EMA or other comparable foreign regulatory authorities that our product candidate’s risk-to-benefit ratio for its proposed indication is acceptable;
the FDA, EMA or the applicable foreign regulatory authority may disagree regarding the formulation, labeling and/or the specifications of our product candidates;
the FDA, EMA or other comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA, EMA or other comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
In addition, we plan to develop a proprietary injection device for apraglutide, which would cause it to be regulated as drug and device combination product by FDA, EMA and comparable regulatory authorities. Combination products require coordination within the FDA, EMA and comparable regulatory agencies for review of their device and device components. Although the FDA, EMA and comparable foreign agencies have systems in place for the review and approval of combination products such as, we may experience additional delays in the development and commercialization of our product candidate due to regulatory timing constraints and uncertainties in the product development and approval process. Moreover, although we expect that the device component will be reviewed in connection with the review of the drug marketing application for apraglutide, and that no separate marketing application for the drug component will be required, the FDA, EMA or comparable regulatory authorities may disagree and require that we obtain a separate clearance or approval of the device component, which could further delay or prevent marketing approval of apraglutide.
This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failure to obtain regulatory approval to market our product candidate, which would significantly harm our business, results of operations, and prospects.
Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, results of earlier preclinical and clinical trials may not be predictive of results of future clinical trials.
The risk of failure for our product candidate is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive clinical trials that our product candidate is safe and effective in humans.
Clinical testing is expensive, can take many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trials process. For example, the results of our clinical studies could demonstrate an unfavorable risk-to-benefit ratio or fail to demonstrate sufficient clinical efficiency. Further, results of non-clinical safety and toxicology studies could cause the discontinuation of clinical trials or prevent us from initiating new clinical trials evaluating our product candidates.
Commencing clinical trials in the United States for apraglutide or any other product candidate, is subject to authorization to proceed under an investigational new drug application, or IND, with respect to each such product candidate.
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In addition, the results generated from our completed Phase 2 clinical trials do not ensure that later clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and earlier stage clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in later-stage clinical trials due to results indicating lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials, and we may face similar setbacks. Moreover, preclinical and clinical data are susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products based on those results.
There can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including differences in clinical trial design and procedures set forth in protocols, differences in the size and type of the target patient populations, adherence to the dosing regimen and other clinical trial procedures, and the rate of dropout among clinical trials participants. In particular, variability is common in data collection and reporting between patients participating in inpatient and outpatient clinical trials. For example, with respect to apraglutide, SBS-IF patients suffer from a range of symptoms, the anatomy and size of the small intestine and severity of the disease in these patients can vary significantly. This may result in considerable variability in the results from our clinical trials for apraglutide.
We may find it difficult to enroll patients in our clinical trials given the limited number of patients who have the diseases for which our product candidate is being studied. Difficulty in enrolling patients could delay or prevent clinical trials of our product candidate.
Identifying and qualifying patients to participate in clinical trials of our current product candidate is critical to our success. The timing of our clinical trials depends in part on the speed at which we can recruit patients to participate in testing our current product candidate, and we may experience delays in our clinical trials if we encounter difficulties in enrollment.
SBS-IF is a rare disease and the target patient population that is eligible for such trials is both limited in number and difficult to accurately estimate and recruit. We estimate that there are 16,000 SBS-IF patients in the U.S. and a combined approximately 16,000 patients in Germany, the United Kingdom, Italy, Spain and France who are eligible for treatment with apraglutide. The eligibility criteria of our clinical trials will further limit the pool of available study participants as we will require that, in the case of SBS-IF, patients have specific characteristics that we can measure to confirm their disease is both severe enough and not too advanced to include them in a given study. Patient enrollment depends on many factors, including:
the size and nature of the patient population;
the severity of the disease under investigation;
eligibility criteria for the trial;
the proximity of patients to clinical sites;
the design of the clinical protocol;
the ability to recruit clinical trial investigators with the appropriate competencies and experience;
the risk that patients enrolled in clinical trials will drop out of the trials before the administration of our product candidate or trial completion;
the availability of competing clinical trials;
the availability of new drugs approved for the indication the clinical trial is investigating; and
clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies.
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Additionally, patients may not be willing or able to participate in our clinical trials due to the COVID-19 pandemic. If patients are unwilling to participate in our clinical trials for any reason, the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products may be delayed.
If we experience delays in the completion of, or termination of, the clinical trials of our product candidate, the commercial prospects of our product candidate will be harmed and our ability to generate product revenue from our current product candidate could be delayed or prevented. In addition, any delays in completing our clinical trials will increase our costs, slow down our current product candidate development and approval process, and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may harm our business, financial condition and prospects significantly.
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 marketing approval from regulatory authorities for the sale of our current product candidate, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidate 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, and our future clinical trials may not be successful.
Events that may prevent successful or timely completion of clinical development include but are not limited to:
inability to generate sufficient toxicology, or other in vivo or in vitro data to support the further development of apraglutide;
generation of new preclinical toxicology or other data that precludes further clinical testing in humans;
delays in reaching a consensus with regulatory agencies on study design, including the primary endpoints for a clinical trial and the appropriate ages of the patient populations;
delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;
delays in identifying, recruiting and training suitable clinical investigators;
delays in obtaining required Institutional Review Board, or IRB, approval at each clinical trial site;
imposition of a clinical hold by regulatory agencies after review of an IND application or amendment, or equivalent application or amendment, or an inspection of our clinical trial operations or study sites;
delays in recruiting suitable patients to participate in our clinical trials;
difficulty collaborating with patient groups and investigators;
failure by our CROs, other third parties, or us to adhere to clinical trial requirements;
failure to perform in accordance with the FDA's good clinical practice requirements, and/or with the EMA's guidelines for clinical trials and the standards set out in both the EU clinical trial directive 2001/20/EC and the EU good clinical practice directive 2005/28/EC, or applicable regulatory guidelines in other countries;
delays in patients completing participation in a study or returning for post-treatment follow-up;
patients dropping out of a study;
adverse events associated with the product candidate that are found to outweigh its potential benefits;
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results from clinical studies demonstrating that our product candidate is ineffective, inferior to existing approved products for the same indications, unacceptably toxic or has unacceptable side effects;
changes to the clinical trial protocols;
changes in regulatory requirements, guidance or the standard of care that require amending or submitting new clinical protocols;
selection of clinical endpoints that require prolonged periods of observation or analyses of resulting data;
delays in establishing the appropriate dosage levels;
lack of funding to continue a trial;
clinical studies of our current product candidate producing negative or inconclusive results, which may result in us deciding, or regulators requiring us, to conduct additional clinical trials or abandon drug development programs; and
delays in manufacturing, testing, releasing, validating or importing or exporting sufficient, stable quantities of our product current candidate for use in clinical trials or the inability to do any of the foregoing.
In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. Any inability to successfully initiate or complete clinical trials could result in additional costs to us or impair our ability to generate revenue from product sales. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may seriously harm our business.
Clinical trials must be conducted in accordance with the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and Ethics Committees or IRBs at the medical institutions where the clinical trials are conducted. We could encounter delays if a clinical trial is suspended or terminated by us, by the data safety monitoring board for such trial or by the FDA or any other regulatory authority, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Further, conducting clinical trials in foreign countries, as we may do for our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with adhering to good clinical practices, or GCP, regulations and other foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
Moreover, principal investigators for our clinical trials may serve and have served as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable
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foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of our product candidates.
Any inability to successfully complete clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidate, we may need to conduct additional clinical trials to bridge our modified product candidate to earlier versions. Clinical trial delays could also shorten any periods during which our products have patent protection or exclusivity and may allow our competitors to bring products to market before we do. Any of these events may harm our business and results of operations.
Even if we complete the necessary clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize our product candidate.
We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate in the relevant jurisdictions in which we desire to commercialize such product. Even if we believe our product candidate has demonstrated safety and efficacy in clinical studies, FDA, EMA and other regulatory authorities may not complete their review processes in a timely manner, or may disagree with our interpretation of results, which could delay or prevent us from obtaining regulatory approvals. Additional delays may occur if an FDA Advisory Committee, the EMA’s Committee for Medicinal Products for Human Use, or CHMP, or other comparable regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical studies and the review process. Regulatory authorities also may approve a product for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidate. If we are unable to obtain necessary regulatory approvals, our business, results of operations and prospects may suffer a negative impact.
Our current product candidate may cause undesirable side effects and safety issues or have other properties that could delay or prevent its development, create unpredictable clinical trial results, impact its regulatory approval or limit the commercial profile of an approved label.
Undesirable side effects caused by our product candidate could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, EMA or other comparable foreign regulatory authorities. For example, patients treated with apraglutide may experience well known class-specific adverse events, including, but not limited to, abdominal pain, injection site reactions, nausea, headaches, abdominal distension, upper respiratory tract infection, vomiting and fluid overload. There may be additional mechanistic side effects that only reveal themselves upon the completion of larger studies. Additionally, our product candidate has been designed to have a long half-life, creating uncertainty about its long-term safety profile. For example, the increased pleiotropic activity of apraglutide will need to be assessed in longer-term non-clinical safety studies. Results of our studies are not predictable and could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our studies could be suspended or terminated, and the FDA, EMA or other comparable foreign regulatory authorities could order us to cease further development of, or deny or withdraw approval of, our product candidate for any or all targeted indications.
Drug-related side effects could affect patient recruitment, the ability of enrolled patients to complete the study or result in potential product liability claims. We currently carry product liability insurance that we believe to be sufficient in light of our current clinical programs. However, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. A successful product liability claim or series of claims brought against us could cause the price of our shares to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical trial participants, costs due to related litigation, distraction of management’s attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the
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inability to commercialize our product candidate and decreased demand for our product candidate, if approved for commercial sale.
Additionally, if our current product candidate receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:
regulatory authorities may suspend, limit or withdraw approvals of such product, seek an injunction against its manufacture or distribution or require additional warnings on any applicable label;
we may be required to create a Risk Evaluation and Mitigation Strategy, or 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 or other elements to assure safe use;
we may be required to change the way the product is administered to patients;
we could be required to conduct expensive post-marketing studies;
we could lose commercial market opportunity and our revenues could decrease substantially;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer and physicians or patients might be less likely to use our product or may refer patients to products produced by our competitors.
Any of these events could prevent us from achieving or maintaining market acceptance of our current product candidate, if approved, and could significantly harm our business, results of operations, and prospects.
Interim, “topline” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or top-line data from our preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, preliminary or top-line data should be viewed with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our ordinary shares after this offering.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular preclinical or clinical study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, top-line, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and
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commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.
Even if we obtain regulatory approval for our product candidate, we may have additional development commitments and our products will remain subject to regulatory scrutiny.
If our product candidate is approved, it 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-marketing 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, EMA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA or MAA. Accordingly, we and others with whom we work, must continue, after any marketing approval, 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 product candidate may be subject to limitations on the approved indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, REMS development, and/or surveillance to monitor the safety and efficacy of the product candidate. We will be required to report certain adverse reactions and production problems, if any, to the FDA, EMA and other comparable foreign regulatory authorities. Any new legislation or regulatory requirements addressing product safety issues could result in delays in product development or commercialization or increased costs to assure compliance.
We will have to comply with advertising and promotion requirements for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. For example, a company may not promote “off-label” uses for its drug products. An off-label use is the use of a product for an indication that is not described in the product’s FDA-approved label in the U.S. or for uses in other jurisdictions that differ from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physician’s choice of drug treatment made in the physician’s independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA approved labeling. Violations, including actual or alleged promotion of our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA, the U.S. Department of Justice, and comparable foreign bodies. Any actual or alleged failure to comply with labeling and promotion requirements may result in fines, warning letters, mandates to corrective information to healthcare practitioners, injunctions, or civil or criminal penalties. As such, we may not promote our products for indications or uses for which they do not have approval. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency or problems with the facility where the product is manufactured, or if an agency disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including by requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
issue warning letters;
impose civil or criminal penalties;
suspend, limit or withdraw regulatory approval;
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suspend any of our ongoing or planned clinical trials;
refuse to approve pending applications or supplements to approved applications submitted by us;
impose restrictions on our operations, including closing our contract manufacturers’ facilities or imposing new manufacturing requirements; or
seize or detain products, or require a product recall.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products, if approved. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. The FDA’s and other regulatory authorities' policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. 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 may be unable to maintain the benefits associated with orphan drug designation, including market exclusivity, which may harm our business.
We have obtained orphan designation for apraglutide for the treatment of SBS-IF. Under the Orphan Drug Act, the FDA may designate a drug product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. Orphan drug designation must be requested before submitting an NDA.
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 application fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA.
In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity for the orphan patient population. Exclusive marketing rights in the United States may also be unavailable if we or our collaborators seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective.
Even if we obtain orphan drug designation, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. Further, even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or
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modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products, and on March 18, 2020 the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products globally.
In order to market our future products in the European Economic Area, or EEA, Asia Pacific, or APAC, or other foreign jurisdictions, we must obtain separate regulatory approvals.
In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA that applies to that jurisdiction. If a centralized MA is applied for, which would result in one MA applying across the entire EEA, then the EMA will make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. There are other routes to obtaining MA’s in Europe, which would involve one or more of the competent authorities of the member states of the EEA making their own assessment. In Japan, the Pharmaceuticals and Medical Devices Agency, or PMDA, of the Ministry of Health, Labour and Welfare, or MHLW, must approve an application under the Pharmaceutical Affairs Act before a new drug product may be marketed in Japan.
We have had limited interactions with regulatory authorities outside of the United States and the European Union. Approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA or EMA approval. Moreover, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA or EMA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA or EMA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA or EMA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and even if we file we may not receive necessary approvals to commercialize our product candidate in any market. We may expend our limited resources to pursue a potential product candidate or indication and fail to capitalize on our product candidate or indications that may be more profitable or for which there is a greater likelihood of success.
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We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with any other product candidates that we may develop in the future or for any other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial opportunities of our product or profitable market opportunities. Our spending on our current product candidate and other future research and development programs and any future product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for our current product candidate, we may relinquish valuable rights to other product candidates that we may develop through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to our current product candidate.
Risks Related to our Reliance on Third Parties
We rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or comply with regulatory requirements, we may not be able to continue the development of our product candidate, obtain regulatory approval for or commercialize our product candidate and our business could be harmed.
We have relied upon and plan to continue to rely upon third-party CROs to execute our ongoing clinical trial programs. We control only certain aspects of the CROs’ activities. Nevertheless, we are responsible for ensuring that each of our studies and 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, our CROs and other vendors are required to comply with cGMP, GCP, and Good Laboratory Practices, or GLP, which are regulations and guidelines enforced by the FDA, the competent authorities of the EEA and comparable foreign regulatory authorities for our current product candidate in clinical development. Regulatory authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and other contractors. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our clinical trials may be deemed unreliable and the FDA, EMA, or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with the relevant regulations.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether they devote sufficient time and resources to our clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidate. CROs may also generate higher costs than anticipated.
Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result of switching CROs, delays may occur, which could 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 in their implementation of our clinical studies or that these challenges will not have an adverse impact on our business, results of operations and prospects.
Manufacturing apraglutide is an inherently uncertain activity in a highly regulated environment which could impact our timelines, budgets, and ability to conduct clinical trials and commercialize our product candidate.
Our current product candidate has never been manufactured on a commercial scale, and there are risks associated with developing the manufacturing processes to commercial scale including cost overruns, potential problems with process performance, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for apraglutide, there is no assurance that
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our manufacturer will be able to manufacture the approved product to specifications acceptable to the FDA, EMA 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. If our manufacturers are unable to produce sufficient quantities of any approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, results of operations and prospects.
The process of manufacturing our product candidate is complex, highly regulated and subject to several risks, including:
the manufacturing process for apraglutide is extremely susceptible to product loss due to contamination, operator error and equipment failures. Even minor deviations from normal manufacturing processes for our current product candidate could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidate or in the manufacturing facilities in which our product candidate is made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination; and
the manufacturing facilities in which our product candidate is made could be adversely affected by equipment failures, labor shortages, natural disasters, power failures and numerous other factors.
Any adverse developments affecting manufacturing operations for our product candidate may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls. The COVID-19 pandemic may also adversely affect the supply our product candidate. We may also have to take inventory write-offs and incur other charges and expenses for our current product candidate that fails to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives.
We rely on third parties to manufacture supplies of our current product candidate, and the drug substance and drug product for our product candidate are currently acquired from a limited number of suppliers. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product, or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our product candidate’s supplies for use in the conduct of our clinical trials. Reliance on third-party manufacturers may expose us to different risks than if we were to manufacture product candidates ourselves. We also rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidate, including the drug substance and drug product for our product candidate.
There are a limited number of suppliers for raw materials, including the drug substance and drug product, that third parties use to manufacture our product candidate, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidate for our clinical trials, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete such study, any significant delay or discontinuity in the supply of our current product candidate, or the raw material components thereof, for an ongoing clinical trial, including due to the COVID-19 pandemic, or the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing, and potential regulatory approval of our product candidate, which could harm our business, results of operations and prospects.
In addition, we expect that apraglutide may be regulated by the FDA as a drug/device combination product. Our third-party manufacturers may not be able to comply with cGMP regulations applicable to drug/device combination products, including applicable provisions of the FDA’s drug cGMP regulations and device cGMP requirements embodied in the Quality System Regulation, or similar regulatory requirements outside the United States.
We do not have complete control over all aspects of the manufacturing process of, and are dependent on, our contract manufacturing partners for compliance with cGMP regulations for manufacturing both active drug substances and finished drug products and the device components. Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside of the United States. If our contract
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manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, they will not be able to secure and/or maintain marketing approval for their manufacturing facilities. In addition, we do not have control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or drugs and harm our business and results of operations.
We and our collaborators and contract manufacturers are subject to significant regulation with respect to formulating, manufacturing and finishing our product candidate. The manufacturing facilities on which we rely may not continue to meet regulatory requirements or may not be able to meet our supply demands.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our product candidate, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidate that may not be detectable in final product testing.
We, our collaborators, or our contract manufacturers must supply all necessary documentation in support of an NDA, or MAA on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. The facilities and quality systems of some or all of our collaborators and third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidate or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidate or our future potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for detailed compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time, audit the manufacturing facilities of our collaborators and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies require additional studies if a new manufacturer is relied upon for clinical or commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals or commercialization of our product candidate. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or, if our product candidate is approved, we could lose potential revenue.
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Our reliance on third parties requires us to share our confidential information, which increases the possibility that a competitor will discover our confidential information or that our confidential information will be misappropriated or disclosed.
Because we rely on third parties to develop and manufacture our product candidate, we must, at times, share confidential information with such third parties. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements, or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets, intellectual property, data from clinical studies and future development plans. Despite the contractual provisions employed when working with third parties, the need to share confidential information increases the risk that such confidential information become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our confidential information, a competitor’s discovery of our confidential information or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business.
We may wish to form collaborations in the future with respect to our current or future product candidates, but may not be able to do so or to realize the potential benefits of such transactions, which may cause us to alter or delay our development and commercialization plans.
The development and potential commercialization of our current or future product candidates will require substantial additional capital to fund expenses. We may, in the future, decide to collaborate with other biopharmaceutical companies for the development and potential commercialization of those product candidates. We will face significant competition in seeking appropriate collaborators. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidate because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidate as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third party for development and commercialization of one of our future product candidates, we can expect to relinquish some or all of the control over the future success of that product candidate to the third-party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of our technologies, current of future product candidates and market opportunities. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators.
Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of our product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for our product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our current or future product candidates or bring them to market and generate product revenue.
Our product candidate may also require specific components to work effectively and efficiently, and rights to those components may be held by others. We may be unable to in-license any compositions, methods of use, processes or other third party intellectual property rights from third parties that we identify. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, which would harm our business. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies
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licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology.
Risks Related to Commercialization of Our Current Product Candidate
If the market opportunities for our product candidate are smaller than we believe they are, our revenue may be adversely affected and our business may suffer. Because the target patient populations of our product candidate are small, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.
We currently focus our research and product development on treatments for rare diseases, specifically SBS-IF. Given the small number of patients who have the diseases that we are targeting, it is critical to our ability to grow and become profitable that we successfully identify patients with these rare diseases generally, and patients with SBS-IF specifically. Our projections of both the number of people who have these diseases and the subset of people with these diseases who have the potential to benefit from treatment with our product candidate are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases and the number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population for our product candidate may be limited or may not be amenable to treatment with our product candidate, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for our product candidate, because the potential target populations are very small, and because our product candidate may not be readily affordable to the potential target populations, we may never achieve profitability.
We are working in a competitive area with rapidly evolving scientific progress. If our competitors develop therapies that are similar, more advanced or more effective than ours, our commercial opportunity and financial position could be adversely impacted.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We are currently aware of various existing therapies that may compete with our product candidate. For example, SBS-IF, for which we are developing apraglutide, is currently treated with PS, teduglutide, growth hormones and, may potentially compete with glepaglutide, if approved. We cannot be certain that existing or future therapies, or some combination thereof, will not increase in efficacy or be safer than we currently envision. Furthermore, new therapies and innovations may treat SBS more successfully than our product candidate.
The information we include in this prospectus regarding teduglutide and glepaglutide is based, in some cases, on information disclosed publicly by Takeda Pharmaceutical Company and Zealand Pharma A/S, respectively, and in other cases, on preclinical studies that we or Ferring have conducted comparing those compounds to apraglutide. In the past we and one of our competitors have disagreed about the manner in which we and they have presented information regarding the other’s compound. Our competitors may also in the future claim that information included in this prospectus regarding their compounds mischaracterize the attributes of their compounds or that their compounds are superior to apraglutide in one or more ways. In addition, our competitors may in the future disclose preclinical or clinical data regarding their compounds that is, or is perceived to be, more favorable than the data we disclose regarding apraglutide. Any such disagreements, claims or disclosures could negatively impact our business, financial prospects or share price.
We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include Takeda Pharmaceutical Company and Zealand Pharma A/S, and other smaller companies or biotechnology startups and large multinational pharmaceutical companies. 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. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in
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even more resources being concentrated in our competitors. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. 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 our product candidate, or achieve earlier patent protection, regulatory approval, product commercialization, and market penetration than we do. Additionally, technologies developed by our competitors may render our product candidate uneconomical or obsolete, and we may not be successful in marketing our product candidate against competitors.
We currently have limited marketing and sales organization. If we are unable to establish broad sales, marketing and distribution capabilities or enter into additional agreements with third parties to market and sell our product candidate, we may not be successful in commercializing our products and may be unable to generate any revenue.
We are in the early stages of developing our sales and marketing infrastructure. Although our employees may have sold similar products in the past while employed at other companies, we as a company have no experience selling and marketing our product candidate and we currently have established a very limited marketing or sales infrastructure. To successfully commercialize any products that may result from our development programs, we will need to further develop these capabilities, either on our own or with additional third parties. If our product candidate receives regulatory approval, we intend to establish a broad and wide sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidate in major markets, which will be expensive, difficult and time consuming. Any failure or delay in the development of our internal sales, marketing, and distribution capabilities would adversely impact the commercialization of our products.
Further, given our lack of prior experience in marketing and selling biopharmaceutical products, our initial estimate of the size of the required sales force may be more or less than the size of the sales force actually required to effectively commercialize our product candidate. As such, we may be required to hire substantially more sales representatives to adequately support the commercialization of our product candidate or we may incur excess costs as a result of hiring more sales representatives than necessary. With respect to certain geographical markets, we may enter into collaborations with other entities to utilize their local marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If our future collaborators do not commit sufficient resources to commercialize our future products, if any, and we are unable to develop the necessary marketing capabilities on our own, we will be unable to generate sufficient product revenue to sustain our business. We may be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
Third-party payor coverage and reimbursement for newly-approved products are uncertain. Failure to obtain or maintain coverage and adequate reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue.
Our target patient populations are small and, accordingly, the pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support our commercial infrastructure and sufficient to recover our development and manufacturing costs to potentially achieve profitability. The availability of coverage and adequacy of reimbursement by third-party payors are essential for most patients to be able to afford expensive treatments such as ours, assuming approval. Sales of our product candidate, if approved, will depend substantially, both in the United States and internationally, on the extent to which the costs of our product candidate will be covered and reimbursed for by third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our product candidate. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on our investment. Coverage and reimbursement may impact the demand for, or the price of, our current product candidate if and when we obtain marketing approval. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because
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of the higher prices often associated with such drugs. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize our product candidate if and when we obtain marketing approval.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors, and coverage and reimbursement can differ significantly from payor to payor. It is difficult to predict what third-party payors will decide with respect to coverage and reimbursement for our products, if approved. As a result, the coverage determination process is often time-consuming and costly. This process will require us to provide scientific and clinical support for the use of our products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
Outside the United States, the commercialization of therapeutics is generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of our product candidate. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In some of these countries, pricing negotiations with governmental authorities can take considerable time after a product receives marketing approval. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In general, product prices under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicinal products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidate. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by third-party payors in the United States, the EEA and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for our product candidate. We expect to experience pricing pressures in connection with the sale of our product candidate due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drug pricing and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical product candidates. There may be especially significant delays in obtaining coverage and reimbursement for newly approved drugs. Third-party payors may limit coverage to specific product candidates on an approved list, known as a formulary, which might not include all FDA-approved drugs for a particular indication.
If we are unable to establish or sustain coverage and adequate reimbursement for our product candidate from third-party payors, the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability to market or sell our product candidate, if approved. Coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
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Risks Related to Our Intellectual Property
We rely on external intellectual property counsel to advise and prosecute our intellectual property portfolio. If we are unable to obtain and maintain effective patent rights for our product candidate or any future product candidates, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, orphan drug exclusivity periods, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and current or future product candidates. We have also sought to protect our own proprietary position by licensing intellectual property from third parties. Our success depends in large part on our and our licensors’ ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to our proprietary technology and products. It is possible that our licensors have not or will not prosecute all necessary or desirable patent applications, or actions taken by us or our licensors will negatively impact the scope of protection obtained or maintained for our product candidate or future product candidates. We refer to the intellectual property that we own or in-license as our intellectual property rights.
We have sought to protect our proprietary position by pursuing patent applications in the United States and abroad related to our novel technologies and our product candidate that are important to our business. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to timely identify patentable aspects of our research and development before it is too late to obtain patent protection.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidate in the United States or in other foreign countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product candidate, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidate, or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
We, independently or together with our licensors, have filed several patent applications covering various aspects of our product candidate. We cannot offer any assurances about which, if any, of these applications will issue as a patent, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful challenge to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
Patent policy and rule changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents, if granted, or narrow the scope of our patent protection, if obtained. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States and the laws of the United States may not protect our rights to the same extent as the laws of such foreign countries. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. We therefore cannot be certain that we or our licensors were the first to make the invention claimed in our owned and licensed patents or pending applications, or that we or our licensors were the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a
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patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act, or the AIA, enacted on September 16, 2011, the United States has moved to a first to file system. The AIA also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are uncertain, as the USPTO and the courts have yet to address many of the provisions of the AIA. The applicability of the act and new regulations on the specific patents and patent applications discussed herein have not been determined and would need to be reviewed. In general, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
If we are unable to maintain effective proprietary rights for our product candidate or any future product candidates, we may not be able to compete effectively in our markets.
In addition to the protection afforded by patents, we rely on trade secret protection, orphan drug exclusivity, 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 candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.
Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Although we are not currently involved in any litigation related to our intellectual property, third parties may in the future initiate legal proceedings alleging that we are infringing their intellectual property rights or challenging the inventorship of our intellectual property, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidate and use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. We may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology. Third parties, including potential competitors, may assert infringement claims against us based on existing or future intellectual property rights and we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. As we continue to develop and, if approved, commercialize our product candidate in its current or updated forms, launch new products and enter new markets, competitors or other third parties may claim that one or more of our products infringe their intellectual property rights as part of business strategies designed to impede our successful commercialization and entry into new markets. The large number of patents, the rapid rate of new patent applications and issuances, the complexities of the technology involved and the uncertainty of litigation may increase the risk of business resources and management’s attention being diverted to patent litigation. We may, in the future, receive letters or other threats or claims from third parties inviting us to take licenses under, or alleging that we infringe, their patents. We cannot be certain that we have identified all pending or issued patents of potential
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relevance to our product candidate or technologies. We may fail to identify relevant patent rights, or incorrectly conclude that an issued patent is invalid or not infringed by our activities. If any third-party patents were asserted against us, even if we believe such claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability or priority. A court of competent jurisdiction could hold that the asserted third-party patents are valid, enforceable and infringed, which could materially and adversely affect our ability to commercialize our products.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. We may also elect to enter into such a license in order to avoid or settle pending or threatened litigation. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and could require us to pay significant royalties and other fees. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorney’s fees, if we are found to have willfully infringed the intellectual property in question.
A finding of infringement could delay or prevent us from commercializing our product candidate or force us to cease some of our business operations, which could materially harm our business. Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. These and other claims that we have misappropriated the confidential information or trade secrets of third parties can have a negative impact on our business similar to the infringement claims discussed above.
Even if we are successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our ordinary shares. Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation or other intellectual property related proceedings could have a material adverse effect on our ability to compete in the marketplace.
We may face competition from generic drugs, which may have a material adverse impact on the future commercial prospects of apraglutide.
Even if we are successful in achieving regulatory approval to commercialize a product candidate faster than our competitors, we may face competition from generic drugs with respect to apraglutide. In the United States, the Hatch-Waxman Amendments created a generic drug approval pathway.
If competitors are able to obtain marketing approval for generic and biosimilar versions of our products, our products may become subject to additional, low-cost competition, with the attendant competitive pressure and consequences.
The patent protection and patent prosecution for our current product candidate is dependent on third parties.
In some circumstances, we may not have the right to control the preparation, filing, prosecution of patent applications or to maintain, defend and enforce patents that we license to or from third parties, and we may have to rely on our partners to fulfill these responsibilities. For example, under our license agreement with Ferring, Ferring is solely responsible for the prosecution, maintenance, defense, and enforcement of patents and patent applications licensed to us for apraglutide, and is not obligated to consult with us in connection with its prosecution and maintenance decisions. Although Ferring is obligated to consult with us in connection with its defense and
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enforcement of the patents and patent applications it licenses to us, Ferring maintains ultimate decision making control. Consequently, any such licensed patents and patent applications may not be prepared, filed, prosecuted, maintained, enforced, or defended in a manner consistent with the best interests of our business. If Ferring or any of our future licensing partners fails to appropriately prepare, file, prosecute, maintain, enforce, or defend licensed patents and other intellectual property rights covering our product candidate, such rights may be reduced or eliminated, and our ability to develop and commercialize our product candidate may be adversely affected and we may not be able to prevent competitors from making, using, and selling competing products.
If we fail to comply with our obligations in current or future agreements under which we license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensor, we could lose license rights that are important to our business.
We are a party to an amended and restated intellectual property license agreement with Ferring that is important to our business and expect to enter into additional license agreements in the future. Our existing license agreement imposes, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, and other obligations on us. These milestone payments, and other payments associated with the license, will make it less profitable for us to develop our product candidate. If we fail to comply with our obligations under the agreement, or we are subject to a bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license. If this agreement is terminated, we could lose intellectual property rights that are important to our business, be liable for damages to the licensor or be prevented from developing and commercializing our product candidate. Termination of the agreement or reduction or elimination of our rights under the agreement may also result in us being required to negotiate a new or reinstated agreement with less favorable terms, and it is possible that we may be unable to obtain any such additional license at a reasonable cost or on reasonable terms, if at all. In that event, we may be required to spend significant time and resources to redesign our product candidate or the method for manufacturing it or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis.
In some cases, patent prosecution of our licensed technology is controlled solely by the licensor. If our licensor fails to obtain or maintain a patent or other protection for the proprietary intellectual property we license from them, we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe intellectual property of the licensor that is not subject to the licensing agreement;
the sublicensing of patent and other rights;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors, our collaborators and us;
the priority of invention of patented technology; and
the fulfilment of our obligations under the license.
Apraglutide is subject to licensing agreements with third parties. If disputes over intellectual property and other rights 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 commercialize our product candidate.
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Our intellectual property in-licenses with third parties may be subject to disagreements over contract interpretations, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.
The agreements under which we currently in-license intellectual property from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could harm our business, financial condition, results of operations and prospects. If any of our current or future licenses or material relationships or any in-licenses upon which our current or future licenses are based are terminated or breached, we may:
lose our rights to develop and market our current product candidate or any future product candidates;
lose patent protection for our current product candidate or any future product candidates;
experience significant delays in the development or commercialization of our current product candidate or any future product candidates;
not be able to obtain any other licenses on acceptable terms, if at all; or
incur liability for damages.
If we experience any of the foregoing, it could harm our business, financial condition and results of operations.
Obtaining and maintaining patent protection depends on our compliance with various procedural deadlines, as well as maintenances and annuity fee payment requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned or licensed patents and applications. In certain circumstances, we rely on our licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. We are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in complete and irrevocable loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidate, we may not be able to stop a competitor from marketing drugs that are the same as or similar to our product candidate, which would have a material adverse effect 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 biotechnology industry involves both technological and legal complexity. Therefore, obtaining and enforcing biotechnology patents is costly, time consuming, and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations.
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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 future actions 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.
Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. The AIA also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a potentially lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim 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. In addition, a third party may be incentivized to use USPTO proceedings because of the relative speed and lower costs compared to district court actions. Therefore, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidate throughout the world would be prohibitively expensive to us and to our licensors. Competitors may use our technologies in jurisdictions where we or our licensors 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 where enforcement is not as strong as in the United States. These products may compete with our products in jurisdictions where we or our licensors do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so 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 and other intellectual property protection, particularly those relating to biopharmaceuticals, 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. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:
others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of any patents that have, or may, issue from our patent applications;
we or our licensors might not have been the first to make the inventions covered by a pending patent application that we have rights in or to;
we or our licensors might not have been the first to file patent applications covering an invention;
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others may independently develop similar or alternative technologies without infringing our intellectual property rights;
pending patent applications that we own or license may not lead to issued patents;
patents, if issued, that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
we may not be able to obtain and/or maintain necessary or useful licenses on reasonable terms or at all;
third parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property;
we may not develop or in-license additional proprietary technologies that are patentable; and
the patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business and results of operations.
Risks Related to Our Business Operations
The COVID-19 pandemic could adversely impact our business, including the timing or results of our clinical trials.
Since December 2019, a novel strain of coronavirus, COVID-19, has spread to multiple countries, including countries, where we have planned or ongoing clinical trials. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended. If COVID-19 continues to spread, we may experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:
delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in securing clinical trial site locations, and delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
delays in clinical sites receiving the supplies and materials, such as batch deliveries, needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials;
changes in local regulations as part of a response to COVID-19 which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue such clinical trials altogether;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state or foreign governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;
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risk that participants enrolled in our clinical trials will contract COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events;
risk that patients may not be willing or able to participate in our clinical trials, which could delay the timeline for recruiting patients, conducting trials and obtaining regulatory approval of potential products;
interruptions in preclinical studies due to restricted or limited operations at our research and development laboratory facility;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
refusal of the FDA, EMA or of other comparable regulatory authorities to accept data from clinical trials in these affected geographies; and
interruption or delays to our clinical activities.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing practices, business closures or business disruptions and the effectiveness of actions taken in the United States, Europe and other countries to contain and treat the disease. In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity in the future. Moreover, to the extent the COVID-19 pandemic adversely affects our business, financial condition and results of operations, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our future success depends in part on our ability to retain our Chief Executive Officer and to attract, retain, and motivate other qualified personnel.
We are highly dependent on Dr. Luca Santarelli, our Chief Executive Officer, the loss of whose services may adversely impact the achievement of our objectives. Dr. Santarelli could leave our employment with a notice period of twelve months. Recruiting and retaining other qualified employees, consultants, and advisors for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled personnel in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in clinical trials may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of Dr. Santarelli, may impede the progress of our research, development, and commercialization objectives.
Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, legislation affecting public companies is in force that, among other things, (1) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of our executive committee and board of directors, (2) generally prohibits severance, advances, transaction premiums and similar payments to members of our executive committee and board of directors, and (3) requires companies to specify certain compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote. In addition, the competition for qualified personnel in the biopharmaceutical field is intense, and our future success depends upon our ability to attract, retain
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and motivate highly-skilled scientific, technical and managerial employees. Because the Swiss legislation affecting public companies will apply to operations in the United States and are more onerous and restrictive than comparable laws and regulations applying to U.S. domiciled companies, recruiting and retaining members of our executive committee and board of directors in the United States will be even more difficult as compared to companies domiciled in the United States. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement our business strategy, which could harm our business.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
We may be unable to maintain the benefits associated with orphan drug designation, including market exclusivity, which may harm our business.
In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.
Because the extent and scope of patent protection for our products may in some cases be limited, orphan drug designation is especially important for our products for which orphan drug designation may be available. For eligible drugs, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for our drug product candidate that does not have a broad patent protection, our competitors may then sell the same drug to treat the same condition sooner than if we had obtained orphan drug exclusivity and our revenue will be reduced.
Even though we have orphan drug designation for apraglutide in Europe and in the United States, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. For example, teduglutide, sold as Gattex in the United States and as Revestive in Europe, has been granted orphan drug status in Europe and the United States. In July 2018, the FDA initially denied a request for orphan drug designation for apraglutide for the treatment of SBS-IF by asserting that apraglutide is the “same drug” as teduglutide and asserting that a plausible hypothesis of the clinical superiority over teduglutide for the treatment of SBS-IF would need to be provided in order to obtain orphan drug designation. We responded to the FDA in October 2018, and on December 20, 2018, the FDA granted orphan drug designation for apraglutide for the treatment of SBS-IF. Orphan drug applicability will be reassessed by health authorities upon completion of clinical studies and submission of our marketing application.
Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition. Even after an orphan drug is approved, the FDA or EMA can subsequently approve the same drug with the same active moiety for the same condition if the FDA or EMA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.
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We may not be successful in our efforts to identify, license, acquire, discover, develop or commercialize additional product candidates or additional indications for apraglutide.
Although a substantial amount of our effort will focus on the continued clinical testing, potential approval and commercialization of our product candidate, the success of our business also depends upon our ability to successfully develop apraglutide for the treatment of additional indications and to identify, license, acquire, discover, develop and commercialize additional product candidates. Research programs to identify new indications or product candidates require substantial technical, financial, and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Our research programs, licensing and acquisition efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:
our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
our product candidate may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
competitors may develop alternatives that render our product candidate obsolete or less attractive;
the product candidate that we develop may be covered by third parties’ patents or other exclusive rights;
we may not be able to acquire product candidates on favorable terms, if at all;
the market for our product candidate may change during our program so that such a product may become unreasonable to continue to develop;
we may not be successful in expanding our product candidate into new indications;
our product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
our product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors.
If any of these events occur, we may be forced to abandon our acquisition or development efforts for a program or programs, or we may not be able to identify, license, acquire, discover, develop or commercialize additional product candidates, which would have an adverse effect on our business and could potentially cause us to cease operations.
Risks Related to the Regulatory Approval of Our Product Candidate
Legislative developments may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidate and may affect the prices we may set.
In the United States, the European Union, and other foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed reforms to the healthcare system that could affect our future results of operations. In particular, a number of initiatives at the United States federal and state levels seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was enacted, which substantially changed the way healthcare is financed by both
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governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include:
an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs agents, which is apportioned among these entities according to their market share in certain government healthcare programs;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively and a cap of the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;
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;
extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and
establishment of a Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. By way of example, the Tax Cuts and Jobs Act of 2017, or Tax Act, included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and not severable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA, which also include numerous reforms not specifically related to health insurance, are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is unclear when or how the Supreme Court will rule. It is also unclear how other efforts to challenge, repeal or replace the ACA will impact the ACA or our business.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional
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Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other health care funding, which could have an adverse effect on our customers and accordingly, our financial operations.
In addition, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, on July 24, 2020 and September 13, 2020, President Trump announced several executive orders related to prescription drug pricing that seek to implement several of the administration's proposals. As a result, the FDA released a final rule on September 24, 2020, effective November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Although a number of these, and other proposed measures may require additional authorization to become effective, the probability of their success is uncertain, particularly in light of the new Presidential administration. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.
We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidate or additional pricing pressures. It is also possible that additional governmental action is taken in response to the COVID-19 pandemic.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our product candidate, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidate, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S., particularly as a result of the recent U.S. presidential election, or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption
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of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidate may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
We are subject, directly and indirectly, to U.S. federal and state healthcare fraud and abuse laws, false claims laws, physician payment transparency laws and other healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Our operations are directly and indirectly through our relationships with healthcare professionals, principal investigators, consultants, third-party payors and customers, subject to broadly applicable U.S. fraud and abuse and other healthcare laws and regulations, which may constrain the business or financial arrangements and relationships through which we research, as well as, sell, market and distribute any products for which we obtain marketing approval. These laws may impact, among other things, our clinical research programs, proposed sales, marketing, and education programs. The applicable U.S. federal, state and foreign healthcare laws and regulations that may affect our ability to operate include, but are not limited to:
The federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or paying remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection. Additionally, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The federal civil and criminal false claims laws including, without limitation, the civil False Claims Act, which can be enforced by private citizens on behalf of the U.S. government, through civil whistleblower or qui tam actions, and the federal civil monetary penalties law, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. Several pharmaceutical and other health-care companies have been prosecuted under these laws for alleged off-label promotion of drugs, purportedly concealing price concessions in the pricing information submitted to the government for government price reporting purposes, and allegedly providing free product to customers with the expectation that the customers would bill federal healthcare programs for the product. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, among other things, knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
The federal physician payment transparency requirements, sometimes referred to as the “Physician Payments Sunshine Act,” which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
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Program (with certain exceptions) to report annually to CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), and teaching hospitals, as well as ownership and investment interests held by these physicians and their immediate family members. Beginning in 2022, these reporting obligations will extend to include payments and transfers of value made to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and anesthesiologist assistants, and certified nurse midwives during the previous year.
The analogous state and non-U.S. law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or that apply regardless of payor; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and other potential referral sources; state and local laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that require the reporting of information related to drug pricing; and state and local laws requiring the registration of pharmaceutical sales representatives.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that governmental authorities may conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government health care programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. If any of the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to significant civil, criminal and administrative sanctions, including exclusion from government funded healthcare programs.
In the future, activities in the United States may subject us to various laws relating to foreign investment and the export of certain technologies, and our failure to comply with these laws or adequately monitor the compliance of our suppliers and others we do business with could subject us to substantial fines, penalties and even injunctions, the imposition of which on us could have a material adverse effect on the success of our business.
We may become subject to U.S. laws that regulate foreign investments in U.S. businesses and access by foreign persons to technology developed and produced in the United States. These laws include section 721 of the Defense Production Act of 1950, as amended by the Foreign Investment Risk Review Modernization Act of 2018, and the regulations at 31 C.F.R. Parts 800 and 801, as amended, administered by the Committee on Foreign Investment in the United States; and the Export Control Reform Act of 2018, which is being implemented in part through Commerce Department rulemakings to impose new export control restrictions on “emerging and foundational technologies” yet to be fully identified. Application of these laws, including as they are implemented through regulations being developed, may negatively impact our business in various ways, including by restricting our access to capital and markets; limiting the collaborations we may pursue; regulating the export our products, services, and technology from the United States and abroad; increasing our costs and the time necessary to obtain required authorizations and to ensure compliance; and threatening monetary fines and other penalties if we do not.
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Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that violates (1) the laws and regulations of the FDA, EMA and other similar regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad and (4) laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter misconduct by employees, consultants and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations.
Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
We and any potential collaborators may be subject to U.S. federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing regulations. Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative penalties if we knowingly obtain, use, or disclose individually identifiable health information in a manner that is not authorized or permitted by HIPAA.
Several jurisdictions, including Switzerland, the EU, its member states, the United Kingdom and Australia, among others, have adopted legislation and regulations that govern, increase or change the requirements governing the collection, use, disclosure and transfer of the personal information of individuals in these jurisdictions. In the United States, the state of California enacted legislation, the California Consumer Privacy Act, or CCPA, effective January 1, 2020, which increases the requirements governing the collection, use, disclosure and transfer of the personal information of individuals in the state of California. Further, California voters recently passed the California Privacy Rights Act (CPRA), which will impose additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for
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higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the provisions will go into effect on January 1, 2023. These laws and regulations are complex and change frequently, at times due to changes in political climate, and existing laws and regulations are subject to different and conflicting interpretations, which adds to the complexity of processing personal data from these jurisdictions. These laws have the potential to increase costs of compliance, risks of noncompliance and penalties for noncompliance.
EU Regulation 2016/679, known as the General Data Protection Regulation, or GDPR, as well as EU member state implementing legislation, apply to the collection and processing of personal data, including health-related information, in certain circumstances, by companies located outside of the EU and processing personal information of individuals located in the EU. EU member states are also able to legislate separately on health and genetic data, and we must comply with these local laws where we operate. In addition to the GDPR, we will be subject to a similar legal regime in the United Kingdom following its departure from the EU and the end of the transition period, by virtue of its national legislation that imposes obligations and penalties similar to the GDPR; the United Kingdom may also implement new or amended data protection legislation. The Swiss Federal Act on Data Protection, or DPA, also applies to the collection and processing of personal data, including health-related information, by companies located in Switzerland, or in certain circumstances, by companies located outside of Switzerland. The DPA has been revised and adopted by the Swiss Parliament, and the revised version and its revised ordinances are expected to enter into force in 2022. This revised law may result in an increase of costs of compliance, risks of noncompliance and penalties for noncompliance.
These data privacy and security laws impose strict obligations on the ability to process personal data, including health-related information, in particular in relation to their collection, use, disclosure and transfer. This includes several requirements relating to (i) obtaining, in some situations, the consent of the individuals to whom the personal data relates, (ii) the information provided to the individuals about how their personal data is used, (iii) ensuring the security and confidentiality of the personal data, (iv) the obligation to notify regulatory authorities and affected individuals of personal data breaches, (v) extensive internal privacy governance obligations, and (vi) obligations to honor rights of individuals in relation to their personal data (for example, the right to access, correct and delete their personal data). The GDPR prohibits the transfer of personal data to countries outside of the EEA, such as the United States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar restrictions under the DPA. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to the United States, they are subject to legal challenges and uncertainty about compliance with EU and Swiss data protection laws remains. There are similar uncertainties around data transfers to and from the United Kingdom following its departure from the EU and the end of the transition period.
Potential pecuniary fines for noncompliant companies may be up to the greater of €20 million or 4% of annual global revenue for GDPR breaches, and separately £17.5 million or 4% of annual global revenue for UK law breaches. The GDPR and UK data protection law have increased our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional potential mechanisms to ensure compliance with the EU, UK and Swiss data protection rules.
Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.
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Risks Related to this Offering and Our Ordinary Shares
The price of our ordinary shares is likely to be volatile and may fluctuate due to factors beyond our control.
The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future. The market price of our ordinary shares may fluctuate significantly due to a variety of factors, including:
positive or negative results of clinical trials reported by us, strategic partners or competitors;
any delay in the commencement, enrollment and the ultimate completion of clinical trials;
technological innovations or commercial product introductions by us or competitors;
failure to successfully develop and commercialize our product candidate;
developments, announcements or changes in government regulations relating to drug products, including related to drug pricing, reimbursement and healthcare coverage;
delays in in-licensing or acquiring additional complementary product candidates;
developments concerning proprietary rights, including patents and litigation matters;
public concern relating to the commercial value or safety of our product candidate;
financing or other corporate transactions, or inability to obtain additional funding;
failure to meet or exceed expectations of the investment community;
announcements of significant licenses, acquisitions, strategic partnerships or joint ventures by us or our competitors;
publication of research reports or comments by securities or industry analysts;
general market or regulatory conditions in the pharmaceutical industry or in the economy as a whole; or
other events and factors, many of which are beyond our control.
These and other market and industry factors may cause the market price and demand for our securities to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their ordinary shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our ordinary shares. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Some companies that have experienced volatility in the trading price of their shares have been the subject of securities class action litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Defending against litigation is costly and time-consuming and could divert our management’s attention and resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our ordinary shares.
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We will incur increased costs as a result of operating as a public company, and our management and board of directors will be required to devote substantial time to existing and new compliance initiatives and corporate governance practices.
As a public company listed in the United States, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Market, and other applicable securities rules and regulations impose various requirements on non-U.S. reporting public companies, including the establishment and maintenance of effective disclosure and financial controls and corporate governance practices. In Switzerland, certain legislation affecting public companies will impose additional disclosure and compliance requirements on us, including in respect of executive compensation. Our executive committee, board of directors and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our executive committee and board of directors. In addition, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
There has been no public market for our ordinary shares prior to this offering, and an active market in the shares may not develop in which investors can resell our ordinary shares.
Prior to this offering, there has been no public market for our ordinary shares. We cannot predict the extent to which an active market for our ordinary shares will develop or be sustained after this offering, or how the development of such a market might affect the market price for our ordinary shares. The initial public offering price of our ordinary shares in this offering will be agreed upon between us and the underwriters based on a number of factors, including market conditions in effect at the time of the offering, which may not be indicative of the price at which our shares will trade following completion of the offering. If an active market for our ordinary shares does not develop or is not sustained, it may be difficult for you to sell shares you purchased in this offering at an attractive price or at all.
Concentration of ownership of our ordinary shares among our existing executive officers, directors and principal shareholders may prevent new investors from influencing significant corporate decisions.
Based upon our ordinary shares outstanding as of December 31, 2020, upon the closing of this offering, our executive officers, directors and shareholders who owned more than 5% of our outstanding share capital before this offering will, in the aggregate, beneficially own approximately 55.5% of our outstanding ordinary shares, after giving effect to the issuance of shares in this offering but without giving effect to any purchases by such persons or entities in this offering. These shareholders, acting together, will be able to significantly influence all matters requiring shareholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
In addition, our articles of association will contain provisions stating that if an individual or legal entity acquires ordinary shares and, as a result, directly or indirectly, has voting rights with respect to more than 18% of the share capital registered in the commercial register, the ordinary shares exceeding the limit of 18% shall be entered in the share register as shares without voting rights.
Some of these persons or entities may have interests different than yours. For example, because many of these shareholders purchased their shares at prices substantially below the price at which shares are being sold in this offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other shareholders.
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Future sales, or the possibility of future sales, of a substantial number of our ordinary shares could adversely affect the price of our ordinary shares.
Future sales of a substantial number of our ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our ordinary shares. Additionally, in accordance with the GlyPharma Share Purchase Agreement, we may be required to issue ordinary shares if certain milestones are met. Following the completion of this offering, we will have 34,014,593 ordinary shares outstanding, assuming the underwriters do not exercise their option to purchase additional ordinary shares, based on 26,514,593 registered shares outstanding as of December 31, 2020. This includes the ordinary shares in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. Approximately 78% of the ordinary shares outstanding after completion of this offering are expected to be held by existing shareholders. Substantially all of these ordinary shares will be subject to the lock-up agreements described in the “Underwriting” section of this prospectus. However, BofA Securities, Inc. and SVB Leerink LLC, on behalf of the underwriters, can waive the provisions of these lock-up agreements by written consent, in their sole discretion, and allow the sale of these shares at any time. If, after the end of the term of the lock-up agreements (or if such lock-up agreements are waived), these shareholders sell substantial amounts of ordinary shares in the public market, or the market perceives that such sales may occur, the market price of our ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.
We do not expect to pay dividends in the foreseeable future.
We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. Any proposal of our board of directors to the general meeting of shareholders to pay future dividends will in addition be at the discretion of our board of directors after taking into account various factors including our business prospects, cash requirements, financial performance and new product development and subject to approval by the general meeting of shareholders. In addition, payment of future dividends is subject to certain limitations pursuant to Swiss law. See the section of this prospectus entitled “Description of Share Capital and Articles of Association—Dividends and Other Distributions.” Also, we are a holding company with no material direct operations. As a result, we would be largely dependent on dividends or other distributions from our subsidiaries in order to pay a dividend. Our subsidiaries are subject to legal requirements of their respective jurisdictions of incorporation that may restrict their paying dividends or making other distributions to us.
Accordingly, investors cannot rely on dividend income from our ordinary shares and any returns on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.
If you purchase ordinary shares in this offering, you will suffer immediate dilution of your investment.
The assumed initial public offering price of our ordinary shares is substantially higher than the pro forma net tangible book value per ordinary share. Therefore, if you purchase ordinary shares in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per ordinary share after this offering. Based on the assumed initial public offering price of $17.00 per ordinary share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, you will experience immediate dilution of $13.11 per ordinary share, representing the difference between our pro forma net tangible book value per ordinary share after giving effect to this offering and the assumed initial public offering price. In addition, purchasers of ordinary shares in this offering will have contributed approximately 60.4% of the aggregate price paid by all purchasers of our ordinary shares but will own only approximately 22.0% of our ordinary shares outstanding after this offering. To the extent options are exercised, you will incur further dilution. See the section of this prospectus entitled “Dilution.”
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The registration of the share capital increases in the commercial register may be blocked and the shareholders’ resolutions regarding the ordinary and authorized share capital increases may be challenged.
This offering is subject to, among other things, approval by our shareholders of resolutions regarding the ordinary share capital increase and the creation of authorized share capital necessary to source the ordinary shares to be sold in this offering, which was obtained on April 1, 2021. The execution of the share capital increases by our board of directors and the related filings will be made prior to the completion of this offering and, with regard to the ordinary shares to be issued upon any exercise of the underwriters’ option to purchase additional ordinary shares (if any), upon exercise of such option. The issuance of new ordinary shares will become effective upon registration in the commercial register. As with all share capital increases in Switzerland, the shareholders’ resolutions regarding such share capital increase may be challenged in court within two months after such shareholders’ meeting and/or the registration of the capital increases in the commercial register may be blocked temporarily by a preliminary injunction or permanently by order of a competent court. Either action would prevent or delay the completion of this offering.
We are a Swiss corporation. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Swiss corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies, including listed companies, incorporated in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies governed by the laws of the United States. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our Company, and may also have regard to the interests of our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors in court.
Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors, but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of fiduciary duty would have to be brought to the competent courts in Basel, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively to the competent courts in Basel, Switzerland. U.S.-style class actions and derivative actions are not available under Swiss law. A further summary of applicable Swiss corporate law is included in this prospectus, see the sections of this prospectus entitled “Description of Share Capital and Articles of Association” and “Comparison of Shareholder Rights under Swiss and Delaware Corporate Law.” There can be no assurance that Swiss law will not change in the future, which could adversely affect the rights of our shareholders, or that Swiss law will protect our shareholders in a similar fashion as under U.S. corporate law principles.
Our ordinary shares are not listed in Switzerland, our home jurisdiction. As a result, certain Swiss law provisions designed to protect shareholders in the event of a public takeover offer or change of control transaction will not apply.
The Swiss rules that require investors to disclose their interest in a company if they reach, exceed or fall below certain ownership thresholds only applies to issuers that have a listing for their equity securities in Switzerland. Since our ordinary shares will be listed exclusively on The Nasdaq Global Market, a U.S. market, the disclosure obligations regarding major shareholdings according to art. 120 of the Swiss Financial Markets Infrastructure Act and its implementing provisions do not apply to us. Likewise, the Swiss takeover regime does not apply to us. In particular, the duty to make a mandatory bid offer for all outstanding listed equity securities of a company by any person or group of persons that acquires more than one third of a company’s voting rights does not apply to us. In addition, the Swiss takeover regime imposes certain restrictions and obligations on bidders in a voluntary public takeover offer that are designed to protect shareholders. However, these protections are applicable only to issuers that list their equity securities in Switzerland and, because our ordinary shares will be listed exclusively on The Nasdaq Global Market, will not be applicable to us. Furthermore, since Swiss law restricts our ability to implement
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rights plans or U.S.-style “poison pills,” our ability to resist an unsolicited takeover attempt or to protect minority shareholders in the event of a change of control transaction may be limited. Therefore, our shareholders may not be protected in the same degree in a public takeover offer or a change-of-control transaction as are shareholders in a Swiss company listed in Switzerland.
U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or members of our board of directors.
The Company is a corporation organized and incorporated under the laws of Switzerland with registered office and domicile in Basel, Switzerland, and the majority of its assets are located within Switzerland. Moreover, a number of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are or may be located outside the United States. As a result, investors may not be able to effect service of process within the United States upon the Company or upon such persons, or to enforce judgments obtained against the Company or such persons in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt that a lawsuit based upon United States federal or state securities laws could be brought in an original action in Switzerland and that a judgment of a U.S. court based upon United States securities laws would be enforced in Switzerland.
The United States and Switzerland currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in the United States, whether or not predicated solely upon U.S. securities laws, may not be enforceable in Switzerland, see the sections of this prospectus entitled “Enforcement of Civil Liabilities.”
Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.
Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment of dividends and the cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization to 50% of the share capital registered in the commercial register of the Canton of Basel-City at the time of the authorization. The authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares, which may be limited or withdrawn under certain conditions. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different classes of shares as do the laws of some other jurisdictions. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where greater flexibility would have provided benefits to our shareholders. See the sections of this prospectus entitled “Description of Share Capital and Articles of Association” and “Comparison of Shareholder Rights under Swiss and Delaware Corporate Law.”
Shareholders outside of the United States may not be able to exercise pre-emptive rights in future issuances of equity or other securities that are convertible into equity.
Under Swiss corporate law, shareholders may receive certain pre-emptive rights to subscribe on a pro-rata basis for issuances of equity securities or other securities that are convertible into equity securities. Due to the laws and regulations in certain jurisdictions, however, shareholders who are not residents of the United States may not be able to exercise such rights unless the Company takes action to register or otherwise qualify the rights offering, including, for example, by complying with prospectus requirements under the laws of that jurisdiction. There can be no assurance that the Company will take any action to register or otherwise qualify an offering of subscription rights or shares under the laws of any jurisdiction other than the United States where the offering of such rights is
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restricted. If shareholders in such jurisdictions were unable to exercise their subscription rights, their ownership interest in the Company will be diluted.
Anti-takeover provisions in our amended and restated articles of association could make an acquisition of us, which may be beneficial to our shareholders, more difficult.
Our amended and restated articles of association contain provisions that may have the effect of discouraging, delaying or preventing a change in control of us that shareholders may consider favorable, including transactions in which our shareholders may receive a premium for their shares. Our amended and restated articles of association, which will become effective immediately prior to the completion of this offering, include provisions that:
in certain cases, allow our board of directors to place up to 16,647,845 ordinary shares and rights to acquire an additional 9,017,720 ordinary shares (approximately 48.9 % and 26.5%, respectively, of the expected outstanding share capital after completion of this offering, assuming no exercise of the underwriters’ option to purchase additional ordinary shares in the offering) with affiliates or third parties, without existing shareholders having statutory pre-emptive rights in relation to this share placement;
allow our board of directors not to record any acquirer of ordinary shares, or several acquirers acting in concert, in our share register as a shareholder with voting rights with respect to more than 18% of our share capital registered in the commercial register;
restrict shareholders from exercising voting rights with respect to own or represented shares in excess of 18% of our share capital registered in the commercial register;
limit the size of our board of directors to nine members; and
require two-thirds of the votes represented at a general meeting of shareholders for amending or repealing the above-mentioned registration and voting restrictions, the provision setting a maximum board size, and the provision for indemnification of the members of our board of directors and our executive committee as set forth in our articles of association, and for dismissing the chairman or any member of our board of directors or any member of our compensation committee before the end of his or her term of office.
These and other provisions, alone or together, could delay or prevent takeovers and changes in control. See “Description of Share Capital and Articles of Association.” These provisions could also limit the price that investors might be willing to pay in the future for our ordinary shares, thereby depressing the market price of our ordinary shares.
We are a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
Following the consummation of this offering, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including: (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
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As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we will have the option to follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.
Following the offering we will be a foreign private issuer. As a result, in accordance with Nasdaq Listing Rule 5615(a)(3), we may choose to comply with home country governance requirements and certain exemptions thereunder rather than complying with certain of the corporate governance requirements of Nasdaq.
Swiss law does not require that a majority of our board of directors consist of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings at which only independent directors are present.
Although Swiss law also requires that we set up a compensation committee, we may follow home country requirements with respect to such committee. Among other things, Swiss law does not require that all or a majority of the compensation committee consist of independent directors.
Our articles of association provide for an independent proxy elected by our shareholders, who may represent our shareholders of record at a general meeting of shareholders, and we must provide shareholders of record with an agenda and other relevant documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime for the solicitation of proxies, thus our practice may vary from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. Furthermore, in accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
For an overview of our corporate governance principles, see the section of this prospectus entitled “Description of Share Capital and Articles of Association.” As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
Following the consummation of this offering, we may lose our foreign private issuer status, which would then require us to comply with the domestic reporting requirements of the Exchange Act and cause us to incur significant legal, accounting and other expenses.
We are currently a foreign private issuer and therefore, following the consummation of this offering, will not be required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our status as a foreign private issuer, either (1) a majority of our ordinary shares must be either directly or indirectly owned of record by non-residents of the United States; or (2) (a) a majority of our executive officers or directors may not be United States citizens or residents, (b) more than 50% of our assets cannot be located in the United States and (c) our business must be administered principally outside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. Among other things, we would be required under current SEC rules to prepare our financial statements in accordance with generally accepted accounting principles in the United States, rather than IFRS, which would involve significant time and cost. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. If we lose our foreign private issuer status and are unable to devote adequate funding and the resources needed to maintain compliance with U.S. securities laws, while continuing our operations, we could be forced to deregister with the SEC. A deregistration would substantially reduce or effectively terminate the trading of our securities in the United States. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to
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accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group. Because our group includes one or more U.S. subsidiaries, we expect that certain of our non-U.S. subsidiaries will be treated as controlled foreign corporations (regardless of whether or not we are treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A United States investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.
We may be a passive foreign investment company, which may result in adverse U.S. federal income tax consequences for U.S. Holders of our ordinary shares.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our assets are held for the production of, or produce, 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, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. Our status as a PFIC may also depend on how quickly we use the cash proceeds from this offering in our business. Based on the nature of our income and the value and composition of our assets, we do not believe we were a PFIC during the taxable year ended December 31, 2020. However, we have not yet determined whether we expect to be a PFIC for the current taxable year. If we are characterized as a PFIC in a taxable year, our shareholders who are U.S. Holders (as defined in “Material U.S. Federal Income Taxation Considerations for U.S. Holders”) may suffer adverse tax consequences, regardless of whether we continue to be characterized as a PFIC in subsequent taxable years, including the treatment of gains realized on the sale of our ordinary shares as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by individuals who are U.S. Holders, the addition of interest charges to the tax on such gains and certain distributions, and additional reporting requirements. A U.S. shareholder of a PFIC generally may mitigate these adverse U.S. federal income tax consequences by making a “qualified electing fund” election, or, to a lesser extent, a “mark to market” election. However, we do not intend to provide the information necessary for U.S. Holders to make qualified electing fund elections if we are classified as a PFIC.
Our international operations may subject us to potential adverse tax consequences.
As a multinational organization, we may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to
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operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate or are being taxed may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or the valuations applied for intercompany transfers of intellectual property between jurisdictions, or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.
Our effective tax rate could increase due to several factors, including:
changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act and the CARES Act;
changes to our assessment about our ability to realize any deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
the outcome of current and future tax audits, examinations, or administrative appeals; and
limitations or adverse findings regarding our ability to do business in some jurisdictions.
Any of these developments could adversely affect our business, results of operations and financial condition.
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase in the future, which could adversely affect our net income and cash flows.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. The tax laws applicable to our business activities, however, are subject to changes in interpretation. Our tax position could be adversely impacted by changes in tax rates, tax laws, tax practice, tax treaties or tax regulations or changes in the interpretation thereof by the tax authorities in jurisdictions in which we do business. Our effective income tax rate may be affected by changes in or interpretations of tax laws, treaties, rulings, regulations or agreements in any given jurisdiction, the resolution of issues arising from any future tax audits with various tax authorities, utilization of net operating loss and tax credit carryforwards, changes in geographical allocation of income and expense, and changes in management’s assessment of matters such as the realizability of deferred tax assets. In the past, we have experienced fluctuations in our effective income tax rate. Our actual tax rate may vary from our expectation and that variance may be material. Our effective income tax rate in a given fiscal year reflects a variety of factors that may not be present in the succeeding fiscal year or years. There is no assurance that our effective income tax rate will not change in future periods.
We file Swiss and non-Swiss tax returns. We are subject to tax audits, examinations and assessments in various jurisdictions. If any tax authority successfully challenges our operational structure, allocation of income by tax jurisdiction, or amounts paid between our affiliated companies pursuant to our intercompany arrangements or transfer pricing policies, if any tax authority successfully asserts that we are subject to income, withholding or other taxes in a jurisdiction by reason of our activities and operations or our other taxable presence in such jurisdiction, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective income tax rate could increase. A tax authority may take the
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position that material income or other tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, which could adversely affect our profitability. If our effective income tax rate increases in future periods, our net income and cash flows could be adversely affected, including in future tax years.
Due to the Swiss corporate tax law reform that took effect on January 1, 2020, all Swiss cantons, including the Canton of Basel-City, have abolished the cantonal tax privileges. Therefore, since January 1, 2020, we are subject to standard cantonal taxation. The standard effective corporate tax rate in Basel, Canton of Basel-City, can change from time to time. The standard combined (federal, cantonal, communal) effective corporate income tax rate, except for dividend income for which we could claim a participation exemption, for 2020 in Basel will be approximately 13.04%. Further, the available tax loss carryforward could be limited in case an entity changes from a preferential to the ordinary tax regime.
We urge our shareholders to consult with their legal and tax advisors with respect to the potential tax consequences of investing in or holding our ordinary shares.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our ordinary shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of 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 of the Sarbanes-Oxley Act, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an “emerging growth company,” we are required to report only two years of financial results and selected financial data compared to three and five years, respectively, for comparable data reported by other public companies. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if our annual gross revenues exceed $1.07 billion, if we issue more than $1.0 billion of non-convertible debt in any three-year period or if the aggregate market value of our ordinary shares held by non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). 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 the price of our ordinary shares may be more volatile.
General Risk Factors
If we fail to implement and maintain effective internal controls over financial reporting, our ability to produce accurate financial statements on a timely basis could be impaired.
Following the completion of this offering, we will be subject to reporting obligations under U.S. securities laws and the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on the effectiveness of our internal control over financial reporting in our second annual report on Form 20-F after we become public. If we fail to remediate the material weakness identified below, our management may conclude that our internal control over financial reporting is not effective. This conclusion could adversely impact the market price of our ordinary shares due to a loss of investor confidence in the reliability of our reporting processes.
In the future, we will be required to perform system and process evaluations and testing of our internal controls over financial reporting, to allow our management and our independent public registered accounting firm to report on the effectiveness of our internal control over financial reporting. In addition, our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense, expend significant management effort and we may need to hire additional accounting and financial staff with the appropriate experience and
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technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or any subsequent testing by our independent registered public accounting firm, may reveal additional deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal control over financial reporting in the future. If we are unable to conclude that our internal controls are effective or if we have material weaknesses, investors could lose confidence in the accuracy or completeness of our reported financial information, which could have a negative effect on the trading price of our ordinary shares.
For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We could be an “emerging growth company” for up to five years. At the time when we are no longer an emerging growth company, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur remediation costs. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
In connection with the audit of our consolidated and carve-out financial statements as of and for the year ended December 31, 2019, we identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. We and our independent registered public accounting firm have concluded that the material weakness still existed as of December 31, 2020. If we fail to remediate our material weakness, we may not be able to report our financial results accurately or to prevent fraud.
Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control over financial reporting. Further, our reporting obligations as a public company will continue to place a significant strain on our management, operational and financial resources and systems for the foreseeable future.
Although we are not yet subject to the certification or attestations requirements of Section 404 of the Sarbanes-Oxley Act of 2002, in connection with the audit of our consolidated and carve-out financial statements as of and for the year ended December 31, 2019, we and our independent registered public accounting firm identified one material weakness as defined by the Public Company Accounting Oversight Board in the United States, or the PCAOB, in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.
In connection with the audit of our 2019 consolidated and carve-out financial statements in preparation for this offering, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting related to the lack of sufficient internal accounting personnel to support an efficient and structured financial statement close process and for the preparation of our consolidated and carve-out financial statements. During our year end close for the year ended December 31, 2019, we did not have sufficient personnel within the accounting function and had a lack of segregation of duties to adequately conduct review and analysis of certain transactions. Although we made progress to enhance our in-house accounting and finance function, in connection with the audit of our consolidated and carve-out financial statements as of and for the year ended December 31, 2020, we and our independent registered public accounting firm concluded that the material weakness had not yet been fully remediated as of December 31, 2020.
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To address the material weakness, we have hired two people into the finance department (increasing the headcount from three employees to five employees) and have begun to implement new management review processes, as well as a new ERP system, which we believe will enhance our internal control over financial reporting. Beyond these measures, we intend to continue taking steps to remediate the material weakness through formalizing documentation of policies and procedures and implementing additional accounting processes and controls. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting, and therefore we are not be able to conclude that it has been fully remediated.
If we are unable to successfully remediate our identified material weakness, or if we discover additional material weaknesses, we would be required to continue disclosing such material weaknesses in future filings with the SEC, which could adversely impact investor confidence in our company and the market price of our ordinary shares, and could subject us to litigation or regulatory enforcement actions.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
We will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our ordinary shares. We intend to use the net proceeds from this offering to advance the development of apraglutide and other potential product candidates and for working capital and other general corporate purposes.
The failure by us to apply these funds effectively could result in financial losses that could have an adverse effect on our business, cause the price of our ordinary shares to decline and delay the development of our product candidate. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
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.
Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of our product candidate and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, 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 us and 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 insurance coverage or 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. We do not currently carry biological or hazardous waste insurance coverage.
Our internal computer systems, or those used by our CROs or other contractors or consultants, may fail or suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from cyberattacks, “phishing” attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional
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opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. 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. In addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various federal and state privacy and security laws, if applicable. Likewise, we partially rely on our third-party research institution collaborators for research and development of our product candidate and other third parties for the manufacture of our product candidate and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. 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 costs associated with investigation and remediation, our reputation could be harmed, and the further development and commercialization of our product candidate could be delayed.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our ordinary shares and our trading volume could decline.
The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by equity research analysts. If no or too few securities or industry analysts commence coverage of us, the trading price for our ordinary shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, the price of our ordinary shares would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which might cause the price of our ordinary shares and trading volume to decline.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases, such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
the ability of our clinical trials to demonstrate acceptable safety and efficacy of apraglutide;
the timing, progress and results of clinical trials for apraglutide, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
the timing, scope and likelihood of regulatory filings and approvals;
our ability to obtain marketing approvals of apraglutide and to meet existing or future regulatory standards or comply with post-approval requirements;
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents and net proceeds of this offering;
future milestone or royalty payments to our licensing partners or other third-parties, and the expected timing of such payments;
our expectations regarding the potential market size and the size of the patient populations for apraglutide, if approved for commercial use;
our expectations regarding the potential advantages of apraglutide over existing therapies for SBS-IF and our expectations regarding potential uses of apraglutide to treat other indications;
developments and projections relating to our competitors and our industry, including competing therapies;
the impact of COVID-19 on our business, operations and prospects and on our clinical trials;
our potential to enter into new collaborations;
our expectations with regard to our ability to develop additional product candidates or leverage our current product candidate for other indications, and our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
our ability to develop, acquire and advance additional product candidates into, and successfully complete, clinical trials;
the commercialization and market acceptance of apraglutide;
our marketing and manufacturing capabilities or those of third parties with which we contract;
our ability to operate our businesses without infringing the intellectual property rights and proprietary technology of third parties;
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the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;
estimates of our expenses, future revenue, capital requirements, our needs for additional financing and our ability to obtain additional capital;
regulatory development in the United States, Europe and other jurisdictions;
our exposure to additional scrutiny as a U.S. public company;
our ability to effectively manage our anticipated growth;
our ability to attract and retain qualified employees and key personnel;
our use of proceeds from this offering; and
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act and qualify as a foreign private issuer.
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and other sections in this prospectus. You should read thoroughly this prospectus and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we refer to 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.
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MARKET, INDUSTRY AND OTHER DATA
This prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates, including data regarding the estimated size of such markets and the incidence of certain medical conditions. We obtained the industry, market and similar data set forth in this prospectus from our internal estimates and research and from academic and industry research, including research commissioned by us, publications, surveys and studies conducted by third parties, including governmental agencies. In some cases, we do not expressly refer to the sources from which this data is derived. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties are reliable, we have not separately verified this data. Further, while we believe that our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.
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DIVIDEND POLICY
Since our incorporation, we have never declared or paid a dividend, and we do not anticipate paying dividends in the foreseeable future. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business. As a result, investors in our ordinary shares will benefit in the foreseeable future only if our ordinary shares appreciate in value. Any future determination related to dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant.
Under Swiss law, any dividend must be proposed by our board of directors or, to the extent permitted by, and subject to the requirements of, applicable law and our articles of association, one or several shareholders and be approved at a general meeting of shareholders. In addition, our auditors must confirm that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association. We may pay dividends only if we have sufficient distributable profits brought forward from the previous financial years (Bilanzgewinn) or if we have distributable reserves, each as evidenced by our audited stand-alone statutory balance sheet prepared pursuant to Swiss law and after allocations to reserves required by Swiss law or our articles of association have been deducted. Distributable reserves are generally booked either as voluntary “retained earnings” (freiwillige Gewinnreserven), as statutory “retained earnings” (gesetzliche Gewinnreserve), as statutory capital reserves (gesetzliche Kapitalreserve) or as reserves from capital contributions (Kapitaleinlagereserven). Distributions out of issued share capital, which is the aggregate nominal value of a corporation’s issued shares, may be made only by way of a share capital reduction. See the section of this prospectus entitled “Description of Share Capital and Articles of Association—Dividends and Other Distributions.”
The Company is a holding company with no material direct operations. As a result, we are largely dependent on dividends or other distributions from our subsidiaries in order to pay a dividend to our shareholders. Our subsidiaries are subject to legal requirements of their respective jurisdictions of incorporation that may restrict them from paying dividends or making other distributions to the Company. Accordingly, investors cannot rely on dividend income from our ordinary shares and any returns on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.
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USE OF PROCEEDS
We estimate the net proceeds to us from this offering will be approximately $115.3 million, or $132.9 million if the underwriters exercise their option in full to purchase additional ordinary shares, assuming an initial public offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Each $1.00 increase or decrease in the assumed initial public offering price of $17.00 per ordinary share would increase or decrease, as applicable, the net proceeds to us from this offering by $6.9 million, assuming the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase or decrease of 1,000,000 in the number of ordinary shares we are offering would increase or decrease, as applicable, the net proceeds to us from this offering by $15.6 million, assuming the assumed initial public offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to obtain additional capital to support our operations, establish a public market for the ordinary shares and facilitate our future access to the public capital markets.
We expect to use the net proceeds from this offering, together with our existing cash and cash equivalents, as follows:
approximately $90 million to advance apraglutide for the treatment of SBS-IF and completion of our pivotal Phase 3 study and our Phase 2 study in CIC patients;
approximately $10 million to advance our apraglutide program for the treatment of GVHD including the initiation of the planned proof of concept study;
the remaining amounts for general corporate purposes including business development activities, the development of other potential product candidates, general and administrative expenses and working capital requirements.
Our expected use of the net proceeds from this 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 this offering or the amounts that we will actually spend on the uses set forth above. We believe that opportunities may exist from time to time to expand our current business through licenses with, acquisitions of or investments in complementary businesses, products or technologies. While we have no current agreements, commitments or understandings for any specific licenses, acquisitions or investments at this time, we may use a portion of the net proceeds for these purposes.
We will have broad discretion over the use of the net proceeds from this offering. The amounts and timing of our expenditures will depend upon numerous factors, including the results of our research and development efforts, the timing, cost and success of preclinical studies and ongoing clinical trials or clinical trials we may commence in the future, the timing of regulatory submissions, our ability to obtain additional financing, the amount of cash obtained through our existing collaborations and future collaborations, if any, and any unforeseen cash needs.
Based on our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to advance apraglutide for the treatment of SBS-IF, including the completion of our pivotal Phase 3 study and our Phase 2 study in CIC patients, to advance our apraglutide program for the treatment of GVHD, including the initiation of the planned proof of concept, and cover operating expenses and capital expenditures through the next twelve months. The net proceeds from this offering, together with our existing cash and cash equivalents, may be insufficient to fund apraglutide through regulatory approval for one or more indications. It is difficult to predict the cost and timing required to complete development and obtain regulatory approval of, and commercialize, apraglutide due to, among other factors, the relatively short history of
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our experience with initiating, conducting and completing clinical trials, obtaining regulatory approval and commercializing apraglutide, the rate of subject enrollment in our clinical trials, filing requirements with various regulatory agencies, clinical trial results and the actual costs of manufacturing and supplying apraglutide.
Pending any use described above, we intend to invest the net proceeds of this offering in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2020 on:
on an actual basis;
on a pro forma basis to give effect to (i) the filing and effectiveness of the amendment and restatement of our articles of association immediately prior to the completion of this offering, (ii) the conversion of all of our outstanding preferred shares into 13,753,612 ordinary shares immediately prior to the completion of this offering and (iii) the issuance of 441,176 ordinary shares pursuant to the SAFE, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, upon closing of this offering; and
on a pro forma as adjusted basis to additionally reflect the issuance and sale of 7,500,000 ordinary shares in this offering at an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
Our capitalization following the closing of this offering will depend on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our audited consolidated and carve-out financial statements and the related notes thereto, included elsewhere in this prospectus and the sections of this prospectus titled “Summary Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
As of December 31, 2020
ActualPro Forma
Pro Forma
as Adjusted(1)
(in thousands)
Cash and cash equivalents$40,172 $47,597 $162,930 
Shareholders’ equity:
Ordinary share capital, CHF 0.05 (USD 0.05) nominal value per share; 12,319,805 ordinary shares issued and outstanding, actual; 26,514,593 ordinary shares issued and outstanding, pro forma; 34,014,593 ordinary shares issued and outstanding, pro forma as adjusted$667 $1,430 $1,805 
Preferred share capital, CHF 0.05 (USD 0.05) nominal value per share; 13,753,612 preferred shares issued and outstanding, actual; no preferred shares issued and outstanding, pro forma; no preferred shares issued and outstanding, pro forma as adjusted741 — — 
Reserves101,933 109,336 224,294 
Treasury Shares(38)(38)(38)
Accumulated Losses(71,065)(71,065)(71,065)
Total equity32,238 39,663 154,996 
Total capitalization$32,238 $39,663 $154,996 
_________________
(1)The pro forma as adjusted information set forth above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $17.00  per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash and cash equivalents, total equity and total capitalization by $6.9 million, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each 1,000,000 share increase or decrease in the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted amount of each of cash and cash equivalents, total equity and total capitalization by $15.6 million, assuming the assumed initial public offering price of $17.00 per ordinary share, the midpoint of the price range set forth on the cover page
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of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The number of ordinary shares to be outstanding after this offering is based on 26,514,593 of our ordinary shares outstanding prior to giving effect to this offering, which consists of (i) 12,319,805 ordinary shares outstanding as of December 31, 2020, including 2,896,725 restricted ordinary shares which under certain circumstances are subject to a repurchase option by us, (ii) the conversion of all of our outstanding preferred shares into 13,753,612 ordinary shares immediately prior to the completion of this offering and (iii) 441,176 ordinary shares to be issued pursuant to a simple agreement for future equity, or SAFE, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, upon the closing of this offering, and excludes:
1,252,900 ordinary shares issuable upon the exercise of options outstanding under the 2019 Plan and the 2020 Plan as of December 31, 2020, with a weighted average exercise price of approximately $0.05 per share;
234,500 ordinary shares issuable upon vesting of RSUs issued under the 2019 Plan and the 2020 Plan as of December 31, 2020;
105,000 ordinary shares issuable upon the exercise of options issued after December 31, 2020 under the 2020 Plan, with a weighted‑average exercise price of approximately $0.05 per share;
6,760,000 ordinary shares that may be issued from our share capital for future grants under the 2021 Plan, which include 2,220,800 ordinary shares underlying the grants to be issued in connection with this offering shortly after the closing of this offering to certain of our executive officers, directors, employees and consultants under our 2021 Plan, either in the form of options with an exercise price of $4.80 per share or RSUs (currently estimated to be 1,784,800 options and 436,000 RSUs);
400,000 ordinary shares reserved for issuance under the ESPP; and
722,275 ordinary shares we hold in treasury.
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DILUTION
If you invest in the ordinary shares in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per ordinary share in this offering and our net tangible book value per ordinary share after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the net book value per ordinary share.
Our historical net tangible book value as of December 31, 2020 was $9.6 million, or $0.78 per ordinary share. Historical net tangible book value per ordinary share represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities, divided by the number of ordinary shares outstanding as of December 31, 2020.
Our pro forma net tangible book value as of December 31, 2020 was $17.0 million, or $0.64 per ordinary share. Pro forma net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities, after giving effect to (i) the conversion of all of our outstanding preferred shares into 13,753,612 ordinary shares immediately prior to the completion of this offering and (ii) the issuance of 441,176 ordinary shares pursuant to the SAFE, based on an assumed initial public offering of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus,
After giving effect to (i) the pro forma adjustments described above and (ii) our sale of the ordinary shares offered in this offering at the assumed initial public offering price of $17.00  per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (assuming the underwriters do not exercise their option to purchase additional ordinary shares), upon the closing of this offering our pro forma as adjusted net tangible book value as of December 31, 2020 would have been $132.3 million, or $3.89 per ordinary share. This represents an immediate further pro forma increase in net tangible book value of $3.25 per ordinary share to our existing shareholders and an immediate dilution in net tangible book value of $13.11 per ordinary share to investors purchasing ordinary shares in this offering. The following table illustrates such dilution:
The following table illustrates this dilution on a per ordinary share basis.
Assumed public offering price per ordinary share$17.00 
Historical net tangible book value per ordinary share as of December 31, 2020$0.78 
Decrease in net tangible book value per ordinary share attributable to pro forma adjustments$(0.14)
Pro forma net tangible book value per ordinary share as of December 31, 2020$0.64 
Increase in net tangible book value per ordinary share attributable to this offering$3.25 
Pro forma as adjusted net tangible book value per ordinary share after this offering$3.89 
Dilution per ordinary share to investors participating in the offering$13.11 
The dilution information discussed above is illustrative only and will change based on the actual offering price and other terms of the offering determined at pricing. Each $1.00 increase or decrease in the assumed offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease our pro forma as adjusted net tangible book value by $6.9 million, or $0.20 per ordinary share, and the dilution to investors participating in the offering by $0.80 per ordinary share, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ordinary shares we are offering. An increase of 1,000,000 ordinary shares offered by us would increase the pro forma as adjusted net tangible book value by $15.6 million, or $0.34 per ordinary share, and the dilution to investors participating in the offering by $0.34 per ordinary share, assuming that the assumed offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a decrease of 1,000,000 ordinary shares offered by us would decrease the pro forma as adjusted net tangible book value by $15.6 million, or $0.36 per ordinary share, and the
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dilution to new investors participating in the offering by $0.36 per ordinary share, assuming that the assumed offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual offering price, the actual number of ordinary shares offered by us and other terms of the offering determined at pricing.
If the underwriters exercise their option to purchase additional ordinary shares in full, the pro forma as adjusted net tangible book value per share after the offering would be $4.30 per ordinary share, the increase in the pro forma as adjusted net tangible book value to existing shareholders would be $3.66 per ordinary share and the dilution to investors participating in the offering would be $12.70 per ordinary share, in each case assuming an initial public offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus.
The following table sets forth, as of December 31, 2020, consideration paid to us in cash for shares purchased from us by our existing shareholders and to be paid by investors participating in this offering, based on an assumed offering price of $17.00 per ordinary share, which is the midpoint of the price range set forth on the cover page of this prospectus, and before deducting underwriting discounts and commissions and estimated offering expenses payable by us:
Shares purchasedTotal considerationAverage price per share
NumberPercentAmountPercent
Existing shareholders26,514,59378.0 %$83,640,510 39.6 %$3.15 
Investors participating in the offering7,500,00022.0 %$127,500,000 60.4 %$17.00 
Total
34,014,593100 %$211,140,510 100 %$6.21 
Each $1.00 increase or decrease in the assumed offering price of $17.00 per ordinary share would increase or decrease the total consideration to be paid by investors participating in the offering by $6.9 million, assuming that the number of ordinary shares offered by us, as set forth on the cover page of this prospectus, remains the same and before deducting underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ordinary shares we are offering. Each increase or decrease in 1,000,000 ordinary shares offered by us would increase or decrease the total consideration to be paid by investors participating in the offering by $15.6 million, assuming that the assumed offering price remains the same and before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual offering price, the actual number of ordinary shares offered by us and other terms of the offering determined at pricing.
In addition, if the underwriters exercise their option to purchase additional ordinary shares in full, the number of shares held by the existing shareholders after this offering would be reduced to 75.5% of the total number of ordinary shares outstanding after this offering, and the number of shares held by investors participating in this offering would increase to 24.5 % of the total number of ordinary shares outstanding after this offering.
The foregoing tables and calculations are based on 26,514,593 of our ordinary shares outstanding prior to giving effect to this offering, which consists of (i) 12,319,805 ordinary shares outstanding as of December 31, 2020, including 2,896,725 restricted ordinary shares which under certain circumstances are subject to a repurchase option by us, (ii) the conversion of all of our outstanding preferred shares into 13,753,612 ordinary shares immediately prior to the completion of this offering and (iii) 441,176 ordinary shares to be issued pursuant to a simple agreement for future equity, or SAFE, based on an assumed initial public offering price of $17.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, upon the closing of this offering, and excludes:
1,252,900 ordinary shares issuable upon the exercise of options outstanding under the 2019 Plan and the 2020 Plan as of December 31, 2020, with a weighted average exercise price of approximately $0.05 per share;
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234,500 ordinary shares issuable upon vesting of RSUs issued under the 2019 Plan and the 2020 Plan as of December 31, 2020;
105,000 ordinary shares issuable upon the exercise of options issued after December 31, 2020 under the 2020 Plan, with a weighted‑average exercise price of approximately $0.05 per share;
6,760,000 ordinary shares that may be issued from our share capital for future grants under our 2021 Plan, which include 2,220,800 ordinary shares underlying the grants to be issued in connection with this offering shortly after the closing of this offering to certain of our executive officers, directors, employees and consultants under our 2021 Plan, either in the form of options with an exercise price of $4.80 per share or RSUs (currently estimated to be 1,784,800 options and 436,000 RSUs);
400,000 ordinary shares reserved for issuance under the ESPP; and
722,275 ordinary shares we hold in treasury.
To the extent that we issue additional ordinary shares in the future, there will be further dilution to investors participating in the offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our shareholders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated and carve-out financial statements, including the related notes thereto, beginning on page F-1 of this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should read the sections of this prospectus titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of the factors that could cause our actual results to differ materially from our expectations.
Company Overview
We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of innovative treatments for severe rare conditions for which there is a significant unmet medical need. We are led by an experienced management team with a strong track record in the biotechnology and pharmaceutical industry. Our goal is to become a leading, patient-centric, fully integrated global rare disease company. Our current product pipeline is focused on rare gastrointestinal, or GI, disorders, and we intend to license or acquire additional transformational, differentiated rare disease assets. Our product candidate, apraglutide, is a next generation, long-acting synthetic peptide analog of glucagon-like peptide-2, or GLP-2, which we are developing as a differentiated therapeutic for a range of rare GI diseases, with an initial focus on short bowel syndrome, or SBS. Based on our preclinical and clinical data to date, we believe that apraglutide has the potential to advance the treatment of SBS intestinal failure, or SBS-IF, by establishing less frequent dosing and improve clinical outcomes. Apraglutide is currently being evaluated in a global Phase 3 clinical trial for the treatment of patients with SBS-IF. We also plan to evaluate apraglutide’s therapeutic potential in additional rare GI conditions, such as graft versus host disease, that could benefit from GLP-2 activation.
Our product candidate, apraglutide, is a next generation, long-acting, synthetic GLP-2 analog that is designed to increase nutrient absorption in the intestine and reduce the burden of PS, thereby improving patient quality of life. Apraglutide has been rationally designed to have unique properties to address the known issues with native GLP-2 and teduglutide. In our preclinical studies and completed clinical trials, apraglutide has shown a significantly longer half-life and more consistent on-target drug exposure, potentially allowing for once-weekly dosing versus once-daily dosing for teduglutide, and enhanced trophic effects on the small intestine, when compared to other GLP-2 analogs. We believe that these properties have the potential to translate into increased pharmacological activity and improved patient adherence to treatment relative to other GLP-2 analogs, thereby allowing a subset of patients who currently receive PS to achieve enteral autonomy. In addition, we have designed a development strategy that will allow us to adapt the use of apraglutide to treat different SBS patient subtypes based on their GI anatomy.
We were founded in 2019 through a spin-off of our apraglutide program from Therachon Holding AG, or THAG and together with its subsidiaries, referred to as the Parent Group, a rare disease-focused company, following its acquisition by Pfizer for an upfront payment of $340.0 million and additional contingent payments of up to $470.0 million. The separation, which has been considered as a reorganization under common control for the purpose of the preparation of our audited consolidated and carve-out financial statements, resulted in the transfer of certain assets, liabilities and contracts related to the Apraglutide Business (as defined below) to us prior to the spin-off date, which occurred on July 1, 2019. On July 1, 2019, THAG distributed the shares of VectivBio Holding AG to the existing THAG shareholders, referred to as the Spin-off, and we began operating as a standalone entity.
On September 30, 2018, THAG acquired GlyPharma Therapeutic Inc., or GlyPharma, whose principal activity was to develop the GLP-2 analog, referred to as the Apraglutide Business, which was then integrated into the Parent Group, with certain business functions carried out by multiple legal entities in the Parent Group.
For further information on the Spin-off from THAG refer to Note 1 to our consolidated and carve-out financial statements beginning on page F-1 of this prospectus.
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Basis of Presentation in the Consolidated and Carve-Out Financial Statements
We historically did not operate as an independent, standalone company, but rather as a part of a larger group of companies controlled by THAG and reported our results as part of THAG prior to the Spin-off. The financial information for the period prior to July 1, 2019 have been derived from THAG’s historical financial records as if the Apraglutide Business had been a standalone business. Accordingly, the financial information for the periods prior to the Spin-off have been prepared on a “carve-out” basis to present the results of operations and the costs of doing business. There are limitations inherent in the preparation of the carve-out financial statements since our business was previously part of a larger organization. The basis of preparation included in our consolidated and carve-out financial statements provides a detailed description of the treatment of historical transactions in the period prior to the Spin-off.
During this period, our net loss was impacted by the following consequences of carve-out accounting and the Spin-off: an allocation of expenses for the services provided by the Parent Group for research and development costs, shared corporate costs for professional services, legal services, other administrative support, and employee-related costs for senior management and other shared employees. The amounts of these allocations may not necessarily be indicative of the similar costs we would incur as an independent, standalone company. The total amount allocated to us from THAG related to the expenses described above was $4.8 million during the six months ended June 30, 2019. Subsequent to the Spin-off on July 1, 2019, the financial information for the Apraglutide Business is prepared on a consolidated basis. For further information on the basis of presentation refer to Note 2 to our consolidated and carve-out financial statements beginning on page F-1 of this prospectus.
Recent Developments—COVID-19
At the beginning of 2020, an outbreak of a novel strain of coronavirus, or COVID-19, emerged globally. This event significantly affected economic activity worldwide and, as a result, could materially and adversely affect our operations and financial results. The extent to which COVID-19 will impact our results will depend on future developments that cannot be reliably predicted, including actions to contain or treat the disease and mitigate its impact on the economies of the affected countries, among others.
There is significant uncertainty as to the duration and likely effects of this disease which may, among other things, materially impact our planned future clinical trials or ability to raise funding in the future. This pandemic or outbreak could result in difficulty securing clinical trial site locations, ability to enroll patients in future trials, CROs, and/or trial monitors and other critical vendors and consultants supporting future trials. These situations, or others associated with COVID-19, could cause delays in our future clinical trial plans, delays in obtaining regulatory approval for potential products and could increase expected costs, all of which could have a material adverse effect on our business and financial condition. 
As of the date of this prospectus, our operations have not been significantly impacted by the COVID-19 pandemic. We are monitoring the impact COVID-19 may have on the clinical development of our product candidate, including potential delays or modifications to its ongoing and planned trials. However, we cannot at this time predict the specific extent, duration or full impact that the COVID-19 outbreak will have on our financial condition and operations, including ongoing and planned clinical trials. See “Risk Factors—Risks Related to Our Business Operations—The COVID-19 pandemic could adversely impact our business, including the timing or results of our clinical trials.”
Components of Results of Operations
Revenues
We do not generate any revenues from product sales and do not expect to generate any revenues from the sale of products in the near future. If our development efforts for apraglutide or other product candidates that we may develop in the future are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenues in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.
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GlyPharma Share Purchase Agreement and Milestone Payments
On September 30, 2018, the Parent Group acquired 100% of the shares of GlyPharma from a third party, which was subject to contingent consideration depending on whether future milestones would be met. The first milestone payment was paid in full on April 18, 2019, and the second milestone payment was paid in full on May 8, 2019, prior to the Spin-off. The third milestone payment of $20 million will be payable upon (i) the first patient dosing with the GLP-2 analog in a pivotal clinical trial and may be paid in cash or ordinary shares, at our election, 180 days from the date of this prospectus or (ii) a liquidation event.
2016 Amended and Restated License Agreement with Ferring
In August 2012, as subsequently amended and restated in December 2016, GlyPharma, which the Parent Group acquired in September 2018, entered into an exclusive license agreement with Ferring pursuant to which Ferring granted GlyPharma an exclusive, worldwide, sublicensable license under certain patent rights and know-how related to apraglutide and controlled by Ferring and under certain know-how controlled by Ferring relating to specified alternate drug compounds, to research, develop, manufacture, make, have made, import, export, use, sell, distribute, promote, advertise, dispose of or offer to sell (i) products containing apraglutide whose manufacture, use or sale is covered by a valid claim of the licensed patents, or licensed products and (ii) products, containing a specified alternate drug compound, or alternate drug products.
Under the license agreement, as partial consideration for the rights Ferring granted GlyPharma, GlyPharma is required to pay Ferring a high single-digit royalty on worldwide annual net sales of licensed products and alternate drug products until, on a country-by-country basis and licensed product-by-licensed product or alternate drug product-by-alternate drug product basis, as applicable, the date on which the manufacture, use or sale of such licensed product or alternate drug product, as applicable, ceases to be covered by a valid claim of a patent within the licensed patents in such country. GlyPharma was also required to pay Ferring a certain number of warrants and Class A preferred shares pursuant to a shareholders’ agreement. The equity obligations under the license agreement have been fully performed by GlyPharma.
We are also obligated to pay a specified percentage of the annual consideration GlyPharma or its affiliates, including us, receive in connection with sales of licensed product or alternate drug product by any third parties to which GlyPharma or its affiliates, including us, grant a sublicense of any of the rights licensed to GlyPharma by Ferring under this Agreement. Such percentage is in the high single digits for sales of both licensed products and alternate drug products, and such payments are owed for the duration of the royalty term for licensed products or alternate drug products, as applicable.
Operating Expenses
Research and Development Expenses
Our research and development activities primarily consist of preclinical research, clinical trials, the production of the materials used in our preclinical studies and clinical trials, regulatory activities and intellectual property activities to protect our trade secrets and know-how. Research and development expenses include, among others, employee compensation, including salary, fringe benefits and share-based compensation; regulatory expenses and activities related to the development of our product candidate pipeline and depreciation expense for assets used in research and development activities.
We recognize expenditures on research and development activities as an expense in the period in which they are incurred.
An internally-generated intangible asset arising from research and development is capitalized to the extent that all the following can be demonstrated:
the technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
the intention to complete and the ability to use or sell the asset;
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how the asset will generate future economic benefits;
the availability of resources to complete the asset; and
the ability to measure reliably the expenditure during development.
Where no internally-generated intangible asset can be recognized, development expenditure is recognized in the income statement in the period in which it is incurred. To date, our intangible assets are not subject to amortization.
We expect our research and development expenses to increase for the foreseeable future as we seek to advance the development of our product candidate. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidate. We are also unable to predict when, if ever, net cash inflows will commence from sales of our product candidate. This is due to the numerous risks and uncertainties associated with developing product candidates, including:
the number of clinical sites included in the trials;
the length of time required to enroll suitable patients;
the number of patients that ultimately participate in the trials;
the number of doses patients receive;
the duration of patient follow-up; and
the results of our clinical trials.
In addition, the probability of success for our product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. A change in the outcome of any of these variables with respect to the development of our product candidate would significantly change the costs, timing and viability associated with the development of the product candidate.
General and Administrative Expenses
Our general and administrative expenses are primarily related to salaries and other related costs, including share-based payment, personnel expenses for our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We anticipate that our general and administrative expenses will increase for the foreseeable future to support continued research and development activities as well as commercialization activities as we seek to advance our product candidate. We also anticipate that we will incur increased legal, accounting, tax, audit, compliance and board costs, as well as investor and public relations expenses costs associated with operating as a public company.
Finance income and expense
Finance income relates to interest earned on our bank accounts. Finance expense consists of interest expense and revaluation loss on our Convertible Loans, bank charges, and lease liabilities.
Foreign exchange differences, net
Foreign exchange differences, net relate to gains and losses from the settlement or translation of monetary assets and liabilities denominated in foreign currencies.
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Taxation
We are subject to corporate taxation in Switzerland and Canada. As of December 31, 2020, we had tax loss carryforwards totaling $63.5 million ($21.2 million as of December 31, 2019). Because we are uncertain whether we will be able to realize taxable profits in the near future, we did not recognize any deferred tax assets.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
Year ended December 31,
20202019% Change
(in thousands)
Operating expenses:
Research and development expenses
$(43,035)$(15,980)169 %
General and administrative expenses
(14,226)(8,335)71 %
Operating loss
(57,261)(24,315)135 %
Finance income
15 (93 %)
Finance expense
(1,118)(50)*
Foreign exchange differences, net
(1,565)869 (280 %)
Income taxes
— — — %
Net Loss
$(59,943)$(23,481)155 %
___________________
*Not meaningful
Research and Development Expenses
Our research and development expenses increased by 169% to $43.0 million for the year ended December 31, 2020, from $16.0 million for the year ended December 31, 2019. The following table provides a breakdown of research and development expenses:
Year ended December 31,
20202019
(in thousands)
Employee expenses
$(5,398)$(2,406)
Services expenses
(15,855)(6,162)
Material expenses
(3,368)(2,017)
License and IP expenses
(24)(53)
Consulting expenses
(5,280)(3,287)
Revaluation loss on contingent consideration liabilities
(12,938)(1,991)
Depreciation and amortization expenses
(172)(64)
Total research and development expenses
$(43,035)$(15,980)
Our research and development expenses for the years ended December 31, 2020 and 2019 were related to our product candidate. Prior to the Spin-off, $3.6 million of the total research and development expenses for the year ended December 31, 2019 were incurred by the Parent Group on our behalf, which were allocated to us for purposes of preparing the carve-out financial information and included in the amounts stated above.
The increase in research and development expenses was mainly caused by:
i)Services, material and consulting expenses. The transition from the conclusion of apraglutide’s Phase 2 clinical trial to the preparation of the Phase 3 clinical trial implied an increase of $13.0 million in services,
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material and consulting expenses. The Phase 3 trial is conducted as a global trial that is expected to include 144 SBS-IF patients. In addition, during 2020 we have worked on the preparation of other clinical trials to further evaluate the efficacy of apraglutide and to support potential submissions of marketing applications for apraglutide in the United States, European Union and Japan.
ii)Employee expenses. The increase was mainly driven by the fact that the financial year 2020 was a complete year of payroll expenses while 2019 was impacted by the allocation of expenses carried out in the carve-out period. In addition, headcount increased during the year ended December 31, 2020, which further contributed to the increase in employee expenses.
iii)Revaluation loss on contingent consideration liabilities. The remaining milestone payment under the GlyPharma share purchase agreement was remeasured as of December 31, 2020, assuming 100% probability of occurrence, resulting in a revaluation loss of $12.9 million.
General and Administrative Expenses
General and administrative expenses increased by 71% to $14.2 million for the year ended December 31, 2020, up from $8.3 million for the year ended December 31, 2019. The following table provides a breakdown of general and administrative expenses:
Year ended December 31,
20202019
(in thousands)
Employee expenses
$(8,496)$(4,674)
Professional services expenses
(3,902)(1,851)
Travel and meeting expenses
(304)(881)
Facility expenses
(103)(105)
Insurance and other charges expenses
(5)(15)
Employee recruitment expenses
(367)(298)
IT maintenance and support expenses
(822)(387)
Capital tax and other non-income tax expenses
(109)(14)
Depreciation and amortization expenses
(98)(88)
Office and other administrative expenses
(20)(22)
Total general and administrative expenses
$(14,226)$(8,335)
Prior to the Spin-off, $1.2 million of the total general and administrative expenses for the year ended December 31, 2019 were incurred by the Parent Group and allocated to us for the purposes of preparing the carve-out financial information and included in the amounts presented above. The increase in general and administrative expenses for the year ended December 31, 2020 was mainly attributable to an increase personnel costs. Similar to research and development expenses, the increase was partially caused by the fact that the year ended December 31, 2019 was impacted by the allocation of expenses carried out in the carve-out period. The employee expenses were also impacted by the significant increase in share-based payment expenses incurred during the year ended December 31, 2020. In addition to the employee expenses, professional services expenses also significantly increased during the period due to corporate activities and costs associated with preparation for our initial public offering. Travel and meeting expenses in year ended December 31, 2020 were significantly reduced due to the COVID-19 pandemic.
Finance income
Finance income earned on our bank accounts decreased by 93% to $1 thousand for the year ended December 31, 2020, from $15 thousand for the year ended December 31, 2019.
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Finance expense
The following table provides a breakdown of finance expense for the years ended December 31, 2020 and 2019:
Year ended December 31,
20202019
(in thousands)
Interest expense on lease liabilities
$(2)$(2)
Interest expense on Convertible Loans
(513)(17)
Other interest expenses and bank charges
(39)(31)
Changes in fair value of Convertible Loans
(564)— 
Total finance expense
$(1,118)$(50)
Interest expense on lease liabilities. Interest on lease liabilities relates to the interest component on our two leases of office space in Basel, Switzerland. Interest expense on lease liabilities for the year ended December 31, 2020 remained stable as compared to the year ended December 31, 2019.
Interest expense on Convertible Loans. Interest expense on our Convertible Loans relates to the accrued interest during the period. Interest expense on our Convertible Loans increased $496 thousand to $513 thousand for the year ended December 31, 2020, up from $17 thousand for the year ended December 31, 2019. Our Convertible Loans were issued on December 23, 2019, and therefore the interest expense accrued during 2019 was insignificant. The Convertible Loans were converted in September 2020 and the accrued interest was considered paid in full upon conversion.
Other interest expenses and bank charges. Other interest expenses and bank charges primarily relates to bank charges.
Changes in fair value of Convertible Loans. Changes in fair value of our Convertible Loans relates to subsequent fair value remeasurement from initial recognition to conversion during 2020.
Foreign exchange differences, net
Total foreign exchange differences, net decreased to a loss of $1.6 million for the year ended December 31, 2020 from a gain of $0.9 million for the year ended December 31, 2019. The decrease was due to the negative fluctuation of the U.S. dollar against the Swiss franc mainly caused by the capital increase completed in September 2020 amounting to $55 million.
Liquidity and Capital Resources
Since the acquisition of GlyPharma’s development of the GLP-2 analog, or the Apraglutide Business, in September 2018 to date, we have not generated a profit nor any revenue from product sales and have incurred net losses and negative cash flows from our operations. Prior to July 1, 2019, we funded our operations through capital resources received from the Parent Group. From July 1, 2019 to December 31, 2019, we funded our operations primarily through the contributions into reserves made by THAG amounting to $14.1 million as part of the Spin-off and through issuing our Convertible Loans pursuant to which we received an aggregate of $17.1 million in cash in 2019 and $2.9 million in January 2020, which were converted into series A1 preferred shares upon closing of the first tranche of the series A2 financing in September 2020. We raised an aggregate of $55 million of gross proceeds through the issuance and sale of our series A2 preferred shares in September 2020. As of December 31, 2020, we had $40.2 million in cash and cash equivalents. These series A preferred shares carry non-cumulative preferred dividend rights in the amount 6% of the issue price paid per series A preferred share per annum, if we resolve on paying a dividend, as well as liquidation preference. Our preferred shares will convert into ordinary shares immediately prior to the completion of this offering.
Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the
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change in our outstanding accounts payable and accrued expenses. We currently have no ongoing material financing commitments, such as lines of credit or guarantees.
We expect our expenses to increase in connection with our ongoing activities, particularly as we:
continue to invest in the clinical development of our current product candidate in connection with our Phase 3 clinical trial of apraglutide for the treatment of the SBS-IF population and any additional preclinical studies or clinical trials that we may conduct for apraglutide or additional product candidates;
hire additional research and development, and general and administrative personnel;
maintain, expand and protect our intellectual property portfolio;
identify and in-license or acquire additional product candidates; and
incur additional costs associated with operating as a public company following the completion of this offering.
In addition, if we obtain marketing approval for our product candidate, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of any future collaborators. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We are of the opinion that our cash position, including the net proceeds from our series A2 financing in 2020 of $55 million, is sufficient to continue operating through the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
the scope, progress, results and costs of our ongoing and planned preclinical studies and clinical trials for apraglutide;
the timing and amount of milestone and royalty payments we are required to make under the GlyPharma Share Purchase Agreement and our license agreements;
the extent to which we in-license or acquire other product candidates and technologies;
the number and development requirements of other product candidates that we may pursue;
the costs, timing and outcome of regulatory review of our product candidate;
the costs associated with building out our operations in the United States and Switzerland;
the costs and timing of future commercialization activities, including drug manufacturing, marketing, sales and distribution, for our product candidate for which we receive marketing approval;
the revenue, if any, received from commercial sales of our product candidate for which we receive marketing approval;
our ability to establish strategic collaborations; and
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims.
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Cash Flows
The following table shows a summary of our cash flows for the years ended December 31, 2020 and 2019:
Year ended December 31,
20202019
(in thousands)
Net cash used in operating activities
$(38,212)$(14,897)
Net cash used in investing activities
(69)(45)
Net cash provided by financing activities
56,587 32,812 
Net increase in cash and cash equivalents
$18,306 $17,870 
Comparison of the Years Ended December 31, 2020 and 2019
Net cash used in operating activities was $38.2 million for the year ended December 31, 2020 compared to $14.9 million for the year ended December 31, 2019. This increase in net cash used in operating activities was the result of an increase in research and development activities and general and administrative activities undertaken during the year ended December 31, 2020, primarily related to the increase in the research and development expenses for the preparation of the Phase 3 clinical trials, the personnel costs and corporate costs.
Net cash used in investing activities was $69 thousand for the year ended December 31, 2020 compared to $45 thousand for the year ended December 31, 2019. This increase in net cash used in investing activities was mainly driven by the acquisition of office equipment, partially offset by receipts of security deposits related to cancelled leases.
Net cash provided by financing activities was $56.6 million for the year ended December 31, 2020 compared to $32.8 million for the year ended December 31, 2019. This increase in net cash provided by financing activities was primarily driven by cash proceeds received from capital increases and proceeds from the Convertible Loans, partially offset by transaction costs related to capital increase and lease principal payments.
Contractual Obligations and Commitments
Our contractual obligations and commitments are summarized as follows:
Lease commitments related to leased office space, a serviced apartment, meeting room and parking spaces in Basel, Switzerland; and a lease commitment related to an office space in Montreal, Canada. As of December 31, 2020, our lease commitments amounted to $0.1 million. Further information on our leases is described in Note 26 to our consolidated and carve-out financial statements beginning on page F-1 of this prospectus.
Net liability arising from our defined benefit obligations amounted to $3.6 million as of December 31, 2020 and is described in Note 19 to our consolidated and carve-out financial statements beginning on page F-1 of this prospectus.
Contingent consideration liabilities that are held at FVTPL relate to the third contingent milestone payment in relation to the acquisition of GlyPharma in September 2018 by the Parent Group. As of the date of this prospectus, the conditions for the third milestone payment of $20 million have been met and this milestone will be payable within 180 days from the date of this prospectus.
Additionally, we enter into contracts in the normal course of business with CROs and other third parties for clinical trials and preclinical research studies and testing. These contracts are generally cancelable by us upon prior notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our services providers, up to the date of cancellation. The amount and timing of such payments are not known.
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Off-Balance Sheet Arrangements
For the years ended December 31, 2020 and 2019, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the U.S. Securities and Exchange Commission.
Outstanding Debt
The following table shows our undiscounted outstanding debt as of the date indicated:
Year ended December 31,
20202019
(in thousands)
Current borrowings
$129 $17,231 
Non-current borrowings
106 
Total outstanding debt
$133 $17,337 
Current borrowings included our Convertible Loans at December 31, 2019, at nominal value plus accrued interest of 4.0% per annum, and the current portion of our lease liabilities. Our Convertible Loans were converted during 2020 and the accrued interest was considered paid in full upon conversion. Non-current borrowings include the non-current portion of our lease liabilities. Short-term leases that meet the exception under IFRS 16 have been excluded from this table.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our audited consolidated and carve-out financial statements, which we have prepared in accordance with International Financial Reporting Standards, or IFRS. The preparation of our consolidated and carve-out financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates.
While our significant accounting policies are described in more detail in Note 4 to our consolidated and carve-out financial statements included elsewhere in this prospectus, we believe the following accounting policies to be most critical to understanding our historical financial performance as they relate to the more significant areas involving management's judgments and estimates:
Going Concern
We have experienced net losses and significant cash used in our operating activities. As of December 31, 2020, we had accumulated losses of $71.1 million, a loss for the year of $59.9 million and net cash used in operating activities of $38.2 million. We expect to continue to incur net losses and to have significant cash outflows for at least the next 12 months. These conditions, among others, could raise doubt about our ability to continue as a going concern. Our consolidated and carve-out financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving commercial status for our product candidate and achieving a level of positive cash flows adequate to support our cost structure.
As of December 31, 2020, we had cash and cash equivalents of $40.2 million, which included cash from financing activities related to the completion of the first tranche of series A2 financing round in September 2020 for cash proceeds of $55 million.
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We are of the opinion that this cash position is sufficient to continue operating through the next 12 months, but the Group will require significant additional cash resources to continue developing its clinical trials and expand opportunities with the Apraglutide Business, as well as new projects in the pipeline.
Fair Value of Contingent Consideration Liabilities
As of December 31, 2020, the fair value of the contingent consideration liabilities in relation to contractual milestone payments has been revalued based upon the estimated probability of success. For the year ended December 31, 2020, total revaluation losses of approximately $12.9 million (2019: $2.0 million) were recognized within research and development expenses. For further details, please refer to “—Milestone Payments” and Notes 4 and 18 of our consolidated and carve-out financial statements included elsewhere in this prospectus.
Net Pension Liabilities
The retirement benefit obligation is calculated based on various financial and actuarial assumptions. The key assumptions for assessing these obligations are the discount rate, interest credit rate, mortality rate, future salary and pension increases, average retirement age and expected life expectation at regular retirement age. The calculations were performed by external actuaries and the principal assumptions used are summarized in Note 19 of our consolidated and carve-out financial statements included elsewhere in this prospectus. As of December 31, 2020, the underfunding amounted to $3.6 million compared with $2.0 million as of December 31, 2019. Using other basis for the calculations could have led to different results.
Share-based Payments
Following the Spin-off, we offered to certain directors, executive officers, employees and external consultants, providing services similar to those rendered by employees, to participate in one of the three different share-based payment plans. These beneficiaries could choose between (i) options to purchase our ordinary shares, (ii) entitlements to our ordinary shares, or restricted share units (“RSUs”), or (iii) purchasing ordinary shares under a restricted share purchase agreement at their nominal value of CHF 0.05 per restricted share.
These equity instruments are measured at fair value at their respective grant dates. We used two valuation methodologies, which depend on the instrument being valued. For the restricted shares and RSUs, we used the discounted cash flow method, which calculates the fair value of the underlying equity instrument on the grant date based on the fair value of our ordinary shares at the forward value and estimated discount factor. For the share options, we used a variation of the Black-Scholes option pricing model (Black model), which takes into consideration the following variables to calculate the fair value of the options: fair value of our ordinary shares at the forward value, exercise price, volatility and duration.
The cost is recognized within research and development expenses or within general and administrative expenses depending on their function with a corresponding increase to equity (accumulated losses). For the year ended December 31, 2020, an expense of $1.2 million compared with $0.3 million as of December 31, 2019 was recognized within research and development expenses and an expense of $4.2 million compared with $1.3 million as of December 31, 2019 was recognized within general and administrative expenses. For further details, refer to Note 10 to our consolidated and carve-out financial statements included elsewhere in this prospectus.
Determination of the fair value of the ordinary shares
As there has been no public market for our ordinary shares to date, our board of directors has determined the estimated fair value of our ordinary shares as of the date of each grant, with input from management, considering our most recently available valuations of our ordinary shares obtained in the first quarter of 2021 in connection with the preparation of our consolidated and carve-out financial statements, and our board of directors’ current assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the grant through the date of the most recent valuation. These valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The method is a probability-weighted expected return method, or PWERM, which is a scenario-based methodology that estimates the
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fair value of the Company’s ordinary share based upon an analysis of the Company’s future values, assuming various outcomes. Thus, the ordinary share value is based on the probability-weighted present value of expected future scenario proceeds considering each of the possible outcomes available as well as the rights of each class of shares.
The PWERM analysis was performed for the following scenarios (the probabilities for each scenario vary depending on the grant date): IPO, merger/acquisition, or M&A, and dissolution. The M&A scenario is further split into four scenarios, depending on the statistical measure for the valuation multiple considered: average, median, maximum and minimum multiple. For all the scenarios, the enterprise value has been estimated based on the market approach (market multiples). Once the present value of each scenario proceeds for each share class was calculated (considering an appropriate risk-adjusted discount rate), the appropriate discount rate due to lack of marketability was applied. Finally, the probability-weighted ordinary share value was calculated, based on the probability assigned to each scenario.
However, for 2019 and first half of 2020, the fair value of our ordinary shares was determined using the discounted cash flow method, which calculates the fair value of the underlying ordinary shares on the grant date based on the discounted future cash flow projections of our Company.
Valuation dateFair Value of Ordinary Shares
January 16, 2020$3.20
February 29, 2020$2.25
April 1, 2020$2.10
September 24, 2020$4.35
September 29, 2020$4.35
September 30, 2020$4.35
October 21, 2020$4.40
December 31, 2020$4.80
In addition to considering the results of these valuations for our grants in 2020, our board of directors considered various objective and subjective factors to determine the fair value of our ordinary shares as of each grant date, including:
the prices at which we issued and sold preferred shares and the preferential rights of the preferred shares relative to our ordinary shares as well as the proximity in time of such private placement to the date of each grant;
the progress of our research and development programs, including the status of preclinical studies and planned clinical trials for our product candidates;
our stage of development and our business strategy;
external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;
our financial position, including cash on hand, and our historical and forecasted performance and operating results;
the lack of an active public market for our ordinary and preferred shares;
the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or a sale of our company in the light of prevailing market conditions; and
the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
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The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different.
Once a public trading market for our ordinary shares has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the fair value of our ordinary shares as an input for the valuation of equity instruments for the purpose of our accounting for granted share options and other such awards we may grant, as the fair value of our ordinary shares will be determined based on the quoted market price of our ordinary shares.
For the information on the share-based awards granted, refer to the Note 10 of our audited consolidated and carve-out financial statements included elsewhere in this prospectus.
Subsequent to December 31, 2020 and through the date of this prospectus, we granted at various dates during the first quarter of 2021 options to purchase an aggregate of 105,000 outstanding ordinary shares to employees who are non-U.S. taxpayers at an exercise price of $0.05 per ordinary share under the 2020 Plan. As a result of the increased likelihood of completion of this offering, we have assessed on a preliminary basis the ordinary shares’ fair value for the share options’ grant dates occurring in the first quarter of 2021 using a straight-line interpolation between the December 31, 2020 valuation and the midpoint of the price range set forth on the cover page of this prospectus of $17.00 per ordinary share. Based on the obtained fair value of ordinary shares, we estimate on a preliminary basis that we will recognize share-based compensation expense during 2021 of approximately $0.5 million to $0.7 million related to share options granted in the first quarter of 2021. The final fair value assessment related to the 2021 share option grants and the actual share-based compensation expense that we recognize will be dependent on the final price at which our ordinary shares are sold in this offering and the finalization of our financial statements for the year ended December 31, 2021.
Additionally, in connection with this offering, we expect to grant 2,220,800 equity awards (1,784,800 share options and 436,000 RSUs) under the 2021 Plan to certain of our directors, executive officers, employees and consultants, which we refer to as the IPO Grants. Share options will be granted to non-U.S. taxpayers at an exercise price of $4.80 per share, which we refer to as the Non-U.S. Grants. Such Non-U.S. Grants will be outstanding and subject to vesting shortly after the closing of this offering. All grants made to U.S. taxpayers will be in the form of RSUs, which we refer to as the U.S. Grants. Such U.S. Grants will be outstanding and subject to vesting shortly after the closing of this offering. For these IPO Grants, the fair value of each underlying ordinary share will be based on the closing price of our ordinary shares as reported on the grant date on the primary stock exchange on which our ordinary shares are traded. Considering the midpoint of the price range set forth on the cover page of this prospectus of $17.00 per ordinary share, we estimate on a preliminary basis that we will recognize share-based compensation expense during 2021 of approximately $13.5 million to $14.5 million related to share options to be granted shortly after the completion of this offering. The final fair value assessment related to the IPO Grants and the actual share-based compensation expense that we recognize will be dependent on the final price at which our ordinary shares are sold in this offering and the finalization of our financial statements for the year ended December 31, 2021.
Recent Accounting Pronouncements
See Note 3.1 to our consolidated and carve-out financial statements included elsewhere in this prospectus for a description of recent accounting pronouncements applicable to our consolidated and carve-out financial statements.
Qualitative and Quantitative Disclosures about Financial Risks
We are exposed to various financial risks such as credit risk, liquidity risk and market risk (including interest-rate and currency risk). The following sections provide an overview of the extent of the individual risks and the goals, principles and processes employed to handle these risks.
As of December 31, 2020, we had $40.2 million compared with $19.8 million as of December 31, 2019 of cash and cash equivalents and outstanding borrowings of $0.1 million compared with $17.3 million as of December 31, 2019.
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Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss. Counterparty risk is minimized by ensuring that our cash and cash equivalents are held with a major Swiss bank, with an A rating as per Standard & Poor's.
The carrying amount of financial assets recorded in our audited consolidated and carve-out financial statements represents our maximum exposure to credit risk without considering the value of any collateral obtained.
Liquidity risk
Liquidity risk management implies maintaining sufficient cash and cash equivalents to meet our financial obligations. Currently the major liquidity sources are represented by shareholders and investors who systematically made up for major liquidity requirements. We monitor our net liquidity position through rolling forecasts based on expected cash flows.
Our financial liabilities are all non-interest bearing except for our Convertible Loans, which were deemed repaid in full and terminated in their entirety in September 2020 compared with financial liability amounting to $17,086 thousand as of December 31, 2019. The maturity profile of our financial liabilities is current in nature, with the exception of the non-current portion of our lease liabilities.
Interest rate risk
Except for our short-term cash deposits and our Convertible Loans, which were deemed repaid in full and terminated in their entirety in September 2020, we have no other interest-bearing assets or liabilities and the interest rate risk exposure is therefore minimized.
Currency risk
With the exception of certain short-term cash deposits, and the Convertible Loans (deemed repaid in full and terminated in their entirety in September 2020), which are held in foreign currencies (for details refer to Note 16 of our audited consolidated and carve-out financial statements included elsewhere in this prospectus), as well as trade payables in foreign currencies (for details refer to Note 20 of our consolidated and carve-out financial statements included elsewhere in this prospectus), we are not exposed to any foreign currency risk. As the cash balances in foreign currencies are held for settlement of expected invoices in these currencies, they are naturally hedged.
In light of the our foreign currency positions and assuming that all other variables remain unchanged, any change in the foreign exchange rates of USD/CHF and USD/CAD resulting from a 5% increase/(decrease) in the foreign currencies against CHF would have an impact of $1.9 million/$(2.2 million) on our result for the year ended December 31, 2020 compared with an impact of $0.6 million/$(0.8 million) as of December 31, 2019, respectively. The calculated foreign currency risk is mainly due to cash balances in U.S. dollars. As a significant portion of this cash balance will be used to pay invoices in U.S. dollars, part of the risk is naturally hedged.
During the years ended December 31, 2020 and 2019, we did not enter into any forward currency transactions.
Capital Risk
We are not regulated and not subject to specific capital requirements, however, we aim to be compliant with the specific needs of Swiss law. To ensure that statutory capital requirements are met, we monitor capital periodically on an interim basis as well as annually. From time to time, we may take appropriate measures or propose capital increases at the general meeting of shareholders to ensure the necessary capital remains intact.
Internal control over financial reporting
In connection with our preparation and the audit of our consolidated and carve-out financial statements as of and for the year ended December 31, 2019, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. This material weakness continued to exist as of
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December 31, 2020. As defined in the standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness identified during the audit of our consolidated and carve-out financial statements as of and for the year ended December 31, 2019 relates to the lack of sufficient accounting and financial reporting personnel to support an efficient and structured financial statement close process and for the preparation of our consolidated and carve-out financial statements.
We are taking a number of measures to address this material weakness, including hiring additional qualified accounting and financial reporting personnel and the design and implementation of more detailed review controls within the financial statement close process. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting, and therefore we were not able to conclude that it has been fully remediated as of December 31, 2020. 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 and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. Our failure to correct this material weakness or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings on a timely basis. As a result, our business, financial condition, results of operation and prospects, as well as the trading price of our ordinary shares, may be materially and adversely affected. See Risk Factors—Risks Relating to Our Business and Industry—We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. If we fail to remediate our material weakness, we may not be able to report our financial results accurately or to prevent fraud.
Implications of being an Emerging Growth Company
In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Given that we currently report and expect to continue to report our financial results under IFRS as issued by the IASB, we will not be able 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.
In addition, as an emerging growth company, we may rely on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, we are not required to, among other things, (1) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. These exemptions will apply for a period of five years following the completion of this offering or until we are no longer an "emerging growth company." We would cease to be an emerging growth company if any of the following occurs: 1) we have more than $1.07 billion in annual gross revenue, 2) we issue more than $1.0 billion of non-convertible debt over a three-year period, or 3) become a large accelerated filer as defiled by the Exchange Act Rule12b-2.
Implications of Being a Foreign Private Issuer
Upon the effectiveness of the registration statement of which this prospectus forms a part, we will report under the Exchange Act as a non-U.S. company with foreign private issuer status. Even after we no longer qualify as an emerging growth company, as long as we continue to qualify as a foreign private issuer under the Exchange Act, we
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will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;
the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and
the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events.
In addition, we will not be required to file annual reports and financial statements with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and are not required to comply with Regulation FD, which restricts the selective disclosure of material information.
Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules for U.S. public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Even if we no longer qualify as an emerging growth company, so long as we remain a foreign private issuer, we will continue to be exempt from such compensation disclosures.
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BUSINESS
Overview
We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of innovative treatments for severe rare conditions for which there is a significant unmet medical need. We are led by an experienced management team with a strong track record in the biotechnology and pharmaceutical industry. Our goal is to become a leading, patient-centric, fully integrated global rare disease company. Our current product pipeline is focused on rare gastrointestinal, or GI, disorders, and we intend to in-license or acquire additional transformational, differentiated rare disease assets. Our product candidate, apraglutide, is a next generation, long-acting synthetic peptide analog of glucagon-like peptide-2, or GLP-2, which we are developing as a differentiated therapeutic for a range of rare GI diseases, with an initial focus on short bowel syndrome, or SBS. Based on our preclinical and clinical data to date, we believe that apraglutide has the potential to advance the treatment of SBS intestinal failure, or SBS-IF, by establishing less frequent dosing and improve clinical outcomes. Apraglutide is currently being evaluated in a global Phase 3 clinical trial for the treatment of patients with SBS-IF. We also plan to evaluate apraglutide’s therapeutic potential in additional rare GI conditions, such as graft versus host disease, that could benefit from GLP-2 activation.
SBS is a malabsorption disorder caused by the loss of functional small intestine, with symptoms that include diarrhea, dehydration, malnutrition and weight loss. SBS typically occurs in adults as a consequence of irreparable GI damage caused by physical trauma, Crohn’s disease, ulcerative colitis, ischemia or cancer requiring surgeries that result in the removal of large portions of the small intestine or colon. In infants and children, SBS is typically a consequence of congenital defects or decreases in intestinal absorptive capacity secondary to surgical procedures. The symptoms and severity of SBS can vary depending upon the length and function of the remaining portion of the intestine. Patients suffer from SBS-IF when their gut function is reduced below the minimum function necessary for the absorption of macronutrients or water and electrolytes required to survive and, in the case of infants and children, to maintain health and growth.
In order to survive, patients with SBS-IF require parenteral support, or PS, which is the intravenous delivery of essential nutrients and fluids through a central line catheter. The frequent infusions of PS, which can last up to 10 to 15 hours per day, combined with the inability to sustain adequate oral nutrition, cause increased mortality and morbidity, a decrease in the quality of life of the patient, and a significant burden to the healthcare system. Reduction of the dependence on PS, with the ultimate goal of eliminating the central catheter and achieving enteral autonomy, defined as greater than three consecutive months without requirement of parenteral nutrition, is the most important goal for patients suffering from SBS-IF. The primary pharmacological treatment for adult patients with SBS-IF is teduglutide, a GLP-2 analog that is marketed as Gattex in the United States and Revestive in Europe. We believe that teduglutide has several limitations, such as a short half-life that requires patients to receive daily subcutaneous injections and a lengthy and complex administration procedure that requires the administrator to perform a multi-step reconstitution process, including calculating the exact dose for each patient based on the patient's individual body weight. Trial reports done by third-party investigators who conducted a Phase 3 clinical trial have indicated that teduglutide demonstrated a suboptimal efficacy and tolerability profile, characterized by the frequent occurrence of adverse events such as injection site reactions and abdominal pain, no statistically significant impact on patients’ quality of life, and no demonstrated benefit in the subset of patients characterized by the colon-in-continuity anatomy, or CIC, which represents approximately 55% of the overall SBS-IF population. Additionally, in real world utilization of teduglutide based on a study of U.S. insurance claims, a meaningful portion of patients are not persistent with therapy—approximately 25% of patients discontinue teduglutide by month three, 40% by month six, 50% by month twelve and 65% by month twenty-four. Collectively, we believe these factors demonstrate a need for improving treatments for SBS-IF patients.
Our product candidate, apraglutide, is a next generation, long-acting, synthetic GLP-2 analog that is designed to increase nutrient absorption in the intestine and reduce the burden of PS, thereby improving patient quality of life. Apraglutide has been rationally designed to have unique properties to address the known issues with native GLP-2 and teduglutide. In our preclinical studies and completed clinical trials, apraglutide has shown a significantly longer half-life and more consistent on-target drug exposure, potentially allowing for once-weekly dosing versus once-daily dosing for teduglutide, and enhanced trophic effects on the small intestine, when compared to other GLP-2 analogs.
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We believe that these properties have the potential to translate into increased pharmacological activity and improved patient adherence to treatment relative to other GLP-2 analogs, thereby allowing a subset of patients who currently receive PS to achieve enteral autonomy. In addition, we have designed a development strategy that will allow us to adapt the use of apraglutide to treat different SBS patient subtypes based on their GI anatomy.
The following table summarizes our clinical plans regarding apraglutide. We have retained global rights to commercialize apraglutide.
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(1)Our planned pediatric SBS-IF and acute graft versus host disease clinical trials rely on clinical trial data from our completed healthy volunteer Phase 1 and adult SBS-IF patient Phase 2 clinical trials. To date, we have not completed any dedicated clinical trials in pediatric SBS-IF and acute graft versus host disease.
To date, we have conducted three randomized, double-blind, placebo-controlled clinical trials and one non-controlled, open label clinical trial and in which we administered apraglutide to a total of 66 healthy volunteers and 16 patients with SBS. Apraglutide is the only GLP-2 analog to-date which has demonstrated therapeutically relevant pharmacological activity in SBS patients after a once-weekly treatment regimen. In our Phase 2 open label, metabolic balance clinical trial in patients with SBS we observed that apraglutide significantly improved intestinal absorption of wet weight, urinary output and energy. To our knowledge, this is the first time that a GLP-2 analog demonstrated increased intestinal absorption in SBS patients after a once-weekly treatment regimen, an effect that is of therapeutic significance in SBS patients who present with severely impaired intestinal absorption capacity. Importantly, in this study we observed a statistically significant effect of apraglutide on improving energy absorption, an observation that was not previously reported with other GLP-2 analogs in Phase 2 studies. In each of our four clinical trials, we observed that once weekly administration of apraglutide was well tolerated, with safety results that are consistent with the safety profile observed with other GLP-2 analogs and reduced frequency of injection site reactions.
We have devised an innovative development approach for apraglutide, which capitalizes both on our proprietary know-how and our executive team’s previous clinical and regulatory experience with GLP-2 analogs. We initiated a Phase 3 clinical trial to assess the safety and efficacy of apraglutide for the treatment of SBS-IF in January 2021, expect to report topline results from the trial in the second half of 2023. We expect to initiate a Phase 2 clinical trial to evaluate the effects of apraglutide on intestinal absorption in SBS-IF subjects with CIC in the second quarter of 2021 and expect to report first readout in the first half of 2022.
We plan to assess the safety and efficacy of apraglutide in pediatric SBS-IF and in other conditions where we believe the mechanism of action of GLP-2 has the potential to provide therapeutic benefit due to its potential impact on intestinal growth and absorption, GI blood flow and GI barrier function and immunity. We are evaluating the potential of apraglutide in each of these areas with a focus on rare diseases with no approved therapies or with significant unmet needs that we believe would benefit from apraglutide’s unique pharmacology. A priority area of focus is the prevention and treatment of the serious gastrointestinal manifestations of acute graft versus host disease, or GVHD, a common and life-threatening consequence of allogenic hematopoietic stem cell transplants, or HSCT. Most approaches targeting GVHD today involve modulation or suppression of immune mechanisms. We believe GLP-2 activation offers a novel approach which directly targets intestinal mucosal biology, intestinal barrier function, and the gut microbiota with the potential to improve outcomes in GVHD. Expanding to additional indications could potentially be achieved through proof-of-concept studies or by leveraging our Phase 2 clinical trial data in the SBS population to initiate additional clinical trials in indications other than SBS-IF, such as for GVHD. A clinical proof of concept study of apraglutide in acute steroid refractory GVHD on top of best available therapy is
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planned to start in the first quarter of 2022, evaluating safety and standard measures of efficacy in this setting, including overall response rate at day 28 and durability of response at day 56.
We were founded in 2019 through a spin-off of our apraglutide program from Therachon Holding AG, a rare disease focused company, following its acquisition by Pfizer for an upfront payment of $340 million and additional milestone payments of up to $470 million. To date, we have raised approximately $144 million in private financings from leading biotechnology investors, including OrbiMed Advisors, Versant Ventures, Novo Holdings, Bpifrance, Cowen Healthcare Investments, Tekla Capital Management, Surveyor Capital (a Citadel company), Cormorant Capital and Eventide Asset Management.
Our expertise lies in rare disease research, development and commercialization, and our current clinical programs reflect our strategy of pursuing product candidates with a clear and understood mechanism of action that have a high probability of transforming the lives of patients. We believe this approach benefits from our ability to select objective clinical endpoints and to leverage validated regulatory pathways.
We are led by Luca Santarelli, M.D., our founder, and CEO, who has more than 20 years of experience in research and development and business development. Dr. Santarelli previously served as the Senior Vice President and Head of Neuroscience, Ophthalmology, and Rare Diseases at Roche, where he advanced more than twenty new product candidates into clinical trials, resulting in multiple pivotal clinical trials and product approvals. Our leadership team includes our Chief Financial Officer, Claudia D’Augusta, Ph.D. (previously Chief Financial Officer at Therachon), our Chief Development Officer, Christian Meyer, M.D., Ph.D. (previously Chief Development Officer at Therachon), our Chief Commercial Officer, Kevin Harris (previously Group VP, Global product Strategy at Incyte), Chief Technical Officer, Alain Bernard (previously VP Biopharma Process Sciences at UCB), and Chief Business Officer, Sarah Holland, Ph.D. (previously VP, Global Head of Licensing at Lonza).
Our Strategy
Our mission is to build a leading, fully integrated global rare disease company using our patient-centric approach to identify and develop transformative medicines for the treatment of severe rare diseases. We are focused on developing highly innovative therapies that target the physiological root causes of a disease to significantly improve the lives of patients. Our approach leverages our unique scientific and clinical insight into the design and development of treatments that specifically target the molecular and physiological processes associated with the disease. This approach has the potential to alter the natural course of diseases and overcome the limitations of available treatments.
The key elements of our strategy include:
Advance apraglutide through clinical development in patients with SBS-IF. Our product candidate, apraglutide, has shown the potential to have a differentiated product profile for the treatment of SBS-IF based on multiple clinical trials and preclinical studies conducted to date. We initiated a Phase 3 clinical trial to assess the safety and efficacy of apraglutide for the treatment of SBS-IF in January 2021, expect to report topline results from the trial in the second half of 2023. Our Phase 3 clinical trial for apraglutide is informed by our expertise in understanding the patients’ characteristics and needs, anatomical heterogeneity, existing clinical practice and clinical trial methodology, with the goal of translating the unique pharmacological properties of apraglutide into best in disease solutions to patients. Our interactions with various regulatory authorities have corroborated our plan to evaluate dependence on PS as the primary endpoint and to address the anatomical heterogeneity of patients with SBS-IF by evaluating anatomy-specific endpoints.
Maximize the potential of apraglutide in additional indications where GLP-2 is central to the disease pathophysiology. We believe the mechanism of action of GLP-2 has broader application beyond SBS-IF. GLP-2-mediated signaling impacts intestinal growth, absorption, blood flow, barrier function, inflammation and immunity. We believe these pharmacological properties could have application in additional indications, including in GVHD, gastrointestinal transplant rejection, post-operative and early reconstructive settings, and autoimmune/inflammatory conditions. We are evaluating the potential of apraglutide in each of these areas with a focus on rare conditions with no approved therapies or patients
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with significant unmet needs that we believe could benefit from apraglutide’s unique pharmacology. We are evaluating our ability to leverage data from our prior studies, such as the preclinical data available in GHVD, to initiate late-stage clinical trials in additional indications. A clinical proof of concept study of apraglutide in acute steroid refractory GVHD on top of best available therapy is planned to start in the first half of 2022, evaluating safety and standard measures of efficacy in this setting, including overall response rate at day 28 and durability of response at day 56.
Retain commercialization rights for our product candidates in the United States and Europe and opportunistically evaluate strategies to maximize the commercial potential of our product candidates outside these jurisdictions. Retaining substantial commercial rights to our product and product candidate pipeline is core to our strategy. We are in the early stages of establishing, with plans to further expand, our commercial infrastructure in the United States and Europe. We believe our focus and experience in rare diseases will allow us to build a targeted and efficient infrastructure that supports the patient journey from treatment decision to product access and ongoing therapy adherence. We also plan to leverage our significant expert and advocacy relationships and insights from the SBS market to inform our commercialization strategy. We intend to opportunistically evaluate partnerships to enable us to supplement our capabilities and maximize the potential commercial value of our programs outside of the United States and Europe.
Combine our accomplished business development team with our experienced rare disease research and development capabilities to expand our product portfolio. We are leveraging the significant rare disease expertise of our research and development and business development teams to acquire and develop additional pipeline programs. While our focus is to build on our expertise in rare diseases affecting the GI system, we will also explore rare diseases affecting other organ systems, including metabolic pathways and CNS conditions. In particular, we will focus on diseases where core metabolic pathways are affected—the vast majority of these disorders are inherited and account for a diverse set of more than 1,000 distinct indications and while each individual condition may be rare, they collectively affect over 1 in 800 individuals. The vast majority of these metabolic disorders manifest with significant morbidity and mortality and only represent a small proportion of all orphan drugs approved to date, underscoring the unmet need in this space. We will prioritize diseases with high unmet need where we can commercialize independently, have validated translational models, have the ability to achieve proof of concept efficiently in well-characterized patient populations and where there is a viable clinical and regulatory path. We will seek opportunities based on validated biological targets with differentiated potential, with a preference for clinical or IND-ready programs. Given our experienced CMC team, we can consider a range of treatment modalities. We are committed to working with innovators to explore and develop new opportunities to drive our pipeline.
Continue to expand our strong collaborative relationships with key stakeholders to address the needs of patients in increasingly effective ways and shape the future standard-of-care for devastating rare diseases. We will continue to work with and seek input from key stakeholders in the rare disease communities, including patient advocacy groups, healthcare professionals, key opinion leaders, research institutions, regulators and payors. We have actively engaged with the SBS community, including key opinion leaders in the field of rare GI disorders and conditions. These experts have helped inform the Phase 3 design as well as potential future studies of apraglutide. We are committed to working with a broad range of stakeholders that are involved in the management of patients with SBS in order to provide such patients with effective and convenient pharmacological products and to support and address their unmet medical needs. This will allow us to remain guided by the needs of patients suffering from rare diseases and inform our development programs and strategies to bring transformational medicines to these communities.
Strengthen and expand our intellectual property to protect apraglutide. We have exclusive rights to apraglutide including issued composition of matter and method of use patents in the United States in lead indications. We aim to maintain a strong and broad estate of patents in the United States and other geographic areas. To this end, we have exclusively licensed 23 patents in the United States, Europe, Japan, China and other jurisdictions protecting apraglutide. We also own or exclusively license 7 pending patent
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applications worldwide that cover apraglutide, including ultrapure compositions, methods of manufacture and methods of use in various diseases.
Overview of Short Bowel Syndrome
SBS is a complex disease that is characterized by a patient’s inability to adequately absorb the fluids and nutrients that are necessary to survive. SBS occurs as a result of the physical loss or the loss of function of a significant portion of the small intestine or colon. In adults, SBS typically occurs as a result of surgeries that require removal of large portions of the small intestine or colon due to irreparable damage. For adult SBS patients, this irreparable damage is typically caused by physical trauma or conditions such as Crohn’s disease, ulcerative colitis, ischemia or cancer. In infants and children, SBS is typically a consequence of congenital defects or decreases in intestinal absorptive capacity as a result of surgery.
Patients can suffer from either SBS-intestinal insufficiency, or SBS-II, or SBS-IF. The reduction of gut absorptive function that does not require any intravenous supplementation to maintain health or growth is classified as SBS-II. SBS-IF is defined as the reduction of gut function below the minimum function necessary for the absorption of macronutrients or water and electrolytes, such that intravenous supplementation is required to maintain health, growth and survival. The severity of SBS ranges across a spectrum, and some patients who are initially diagnosed with intestinal insufficiency suffer from progressively worse food and fluid absorption, leading to chronic intestinal failure. As an organ failure condition, SBS-IF patients require parenteral support, or PS, which is the intravenous delivery of nutrition and fluids required for a patient’s survival through a central line catheter. When PS is administered at home, it can also be referred to as home parenteral nutrition, or HPN. The treatment burden associated with PS is significant, as it can require the most severe patients to be connected to a PS central line for up to 10 to 15 hours a day, seven days per week. Living a life dependent on PS can be very burdensome with challenges associated with catheter-related infections, sepsis, blood clots, liver damage, electrolyte imbalances, cholecystitis and glucose metabolism abnormalities in the form of hyperglycemia or hypoglycemia
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As a result, SBS-IF is associated with significant mortality, morbidity, reduced quality of life and high health care costs. In an independent study of 268 non-malignant adult SBS patients, the actuarial survival probabilities over 5 years and 10 years are estimated to be only 70% and 52% respectively, which was observed to be driven by significant complications of the disease that also contribute to significant morbidity. SBS-IF can cause central venous access complications, significant organ damage and GI complications. These impacts compromise quality of life of both the people living with SBS-IF and the caregivers supporting them, including negative impacts on physical role, social function and the mental health of patients. There is also a significant burden to the healthcare system in terms of annual costs of chronic home parenteral nutrition, which can range from $185,000 to $594,000
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per person per year, as well as indirect costs such as disability and lost work productivity of both patients and their caregivers. In the United States, annual reimbursement for HPN-related health services across clinical settings is approximately $2.3 billion.
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SBS-IF is an anatomically heterogenous condition with the presence or absence of a functional colon as the main determinant of the remaining fluid absorption capacity of the remnant bowel after surgery. SBS-IF patients can be classified according to the anatomy of the remnant intestine after surgery, into two anatomical subtypes: stoma with no colon-in-continuity, or stoma, and CIC. These two subtypes have different pathophysiology, which leads to distinct clinical presentations in patients with SBS-IF. Stoma patients’ larger PS volume requirement is due to greater hydration needs of these patients, as a consequence of an inability to absorb water because of a missing functional colon. Patients with a stoma require large amounts of supplementary fluids to maintain a lifesaving hydration status.
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Current Treatments and Limitations
There are limited treatment options available for patients with SBS-IF. The standard of care for SBS-IF patients is a combination of nutritional support, concomitant medications and PS. Achieving enteral autonomy, removal of the central catheter and the quality of life associated with eliminating the need for chronic PS is the ultimate goal for patients suffering from SBS-IF. Other meaningful treatment goals for SBS-IF patients include a reduction in the number of days per week of PS required by patients, a reduction in PS volume and the associated time required for PS, and general improvements in quality of life.
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Currently, there are several approved therapeutics for the treatment of patients with SBS-IF. The primary pharmacological treatment for adult patients with SBS is teduglutide, marketed as Gattex in the United States and Revestive in Europe. Teduglutide is an analog of GLP-2, which is a native, 33-amino acid peptide that is normally secreted by intestinal endocrine cells and released into the blood following nutrient ingestion. GLP-2 has been observed to stimulate the growth of intestinal villi, increasing their ability to absorb nutrients and improving intestinal nutrient transport, intestinal blood flow and gut-barrier function. However, native GLP-2 is unstable in blood serum with a half-life of only seven minutes. As a result, GLP-2 analogs have been developed to provide the benefits of native GLP-2 while overcoming its half-life limitations.
In spite of its demonstrated therapeutic benefits, teduglutide only partially addresses the treatment goals in SBS-IF patients and has the limitations listed below:
The prescribing information for teduglutide indicates that it has a half-life of 1.3 to 2 hours and is administered daily by subcutaneous injection. Due to its short half-life it requires daily injections and each injection is preceded by a lengthy and complex multi-step reconstitution process.
Even though teduglutide was observed in its Phase 3 pivotal clinical trial to reduce time on PS by over 20% in 63% of patients, compared to a similar reduction in 30% of patients receiving a placebo, it did not demonstrate a statistically significant impact on the quality of life of patients. In addition, in a retrospective analysis of these Phase 3 clinical trial results, although there was a significant reduction of PS volume in the stoma population, no difference was observed in the CIC patient population, which represents approximately 55% of the overall SBS-IF population. The package insert for teduglutide does not provide any specific information on results by anatomy, and no patients achieved enteral autonomy during the course of the Phase 3 clinical trial.
Some patients who have been treated with teduglutide have reported abdominal pain and nausea, the most commonly occurring adverse events related to teduglutide, which we believe may be related to daily pharmacokinetic fluctuations above and below the active pharmacological exposure levels required for the effective treatment of SBS.
Teduglutide treatment persistency declined significantly across a 24-month period based on an analysis of U.S. insurance claims we commissioned. This study evaluated patients from December 2015 to January 2019 who initiated teduglutide with a diagnosis of SBS and had at least 180 days of parenteral nutrition prior to receiving teduglutide. Patients were followed for at least 24 months and were considered discontinued if they had a gap in therapy greater than 90 days. The analysis concluded that approximately 25% of patients discontinue teduglutide by month three, 40% by month six, 50% by month twelve and 65% by month twenty-four. In a separate market research study we commissioned, the primary reasons for
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discontinuation of teduglutide were lack of efficacy, patient preference, patient noncompliance, and tolerability.
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We believe that these significant challenges present a barrier for both physicians and patients who may otherwise prescribe or seek treatment with teduglutide. Patients who initiate treatment also have challenges remaining persistent on therapy. Collectively, these challenges demonstrate a need for improved treatments for SBS-IF patients.
Previous Phase 2 Studies of GLP-2 Analogs
Historically, metabolic balance assessments represent an established and accepted methodology used to assess the effects of GLP-2 analogs in Phase 2 on intestinal absorption capacity, including the evaluation of fluid and nutrient absorption. In 2005 and 2019, two separate Phase 2 metabolic balance studies were performed with GLP-2 analogs with a once daily treatment regimen, with teduglutide and glepaglutide, respectively.
Metabolic balance studies are generally conducted under highly controlled and standardized conditions during hospitalization of the study subjects. Generally, metabolic balance studies are conducted over a period of four weeks. Patients are hospitalized for 72 hours at the beginning in order to establish a baseline metabolic balance status of all inputs consisting of copies of the patient’s meals and fluid consumption and outputs including feces and urine. After the first balance study, treatment with the GLP-2 analog is commenced. During the four-week study period, parenteral and oral fluid intake are kept constant. At the end of the four-week period, a second balance study is performed again during 72 hours of hospitalization. The study design enables the assessment of improvements in the patient’s fluid absorption by measuring urinary output, fecal excretion of intestinal wet weight, calorie absorption, macronutrients and electrolyte absorption after 4 weeks of treatment with a GLP-2 analog. For instance,
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the metabolic balance studies done with once-daily GLP-2 analogs were each conducted during a four- week period under the conditions noted above, and each study was conducted at the same single site in Copenhagen, Denmark.
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Market Opportunity
Based on market research we commissioned and our review of published literature, we estimate that there are approximately 16,000 SBS patients in the United States, with a combined approximately 16,000 patients in Germany, the United Kingdom, Italy, Spain and France, or collectively, the EU5. Based on our review of published literature, we estimate that almost half of these patients have SBS-IF, implying a prevalence of approximately 7,500 in the United States and 7,500 in the EU5. We estimate that there are up to 1,000 SBS-IF patients in Japan and a significant number of patients in other geographies, including China. Of these SBS-IF patients, we estimate that two-thirds of patients in the United States and one-third of patients in the EU5 will be amenable for treatment with a GLP-2 analog.
Despite the significant challenges and limitations of teduglutide, the worldwide sales of teduglutide in 2019 were approximately $568 million, representing an increase of 22% when compared to 2018 sales. Market research we commissioned suggests that teduglutide is used in a minority of GLP-2 eligible patients who have the highest PS frequency requirements. As shown below, the report also estimates that in SBS patients in the United States requiring three or more PS administrations per week, teduglutide is used in less than 50% of the stoma patients and less than 25% of the CIC patients. We estimate that the addressable global market opportunity for apraglutide, if approved, in SBS-IF could exceed $2 billion per year through significant growth in the number of eligible patients receiving a GLP-2 analog, potentially improved compliance and persistence, and geographic expansion beyond where teduglutide is approved today.
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PS Frequency and SBS Anatomy Predict Gattex Use
Estimated % of Patients Receiving Gattex by Predictive Variable
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Source: Custom market research commissioned by VectivBio, Nov 2019.
(1) Does not account for market research overstatement.
Our Product Candidate, Apraglutide
Apraglutide is a next generation, long-acting synthetic GLP-2 analog that has been carefully engineered to maintain the potency and selectivity of native GLP-2 and to provide a longer half-life and a more consistent on target drug exposure than native GLP-2 and teduglutide. Based on the half-life of 72 hours observed in our Phase 1 clinical trial, we believe apraglutide offers the potential to address a number of the limitations observed with teduglutide by providing weekly or less frequent dosing, consistent pharmacokinetics and a durable pharmacodynamic effect in treated patients. Given the physiological benefit of GLP-2 on nutrient absorption, we believe longer acting GLP-2 analogs have the potential to reduce the time SBS-IF patients are required to be on PS and address some of the malabsorption symptoms associated with SBS-IF. We believe these attributes will also simplify the administration for patients suffering from SBS-IF, leading to improved tolerability and treatment outcomes.
Apraglutide was originally designed and synthesized by Ferring Pharmaceuticals, from which we have licensed the rights to apraglutide, using rational peptide engineering to extend its half-life. The table below illustrates the amino acid sequences of apraglutide, native GLP-2, teduglutide and glepaglutide. Based on clinical trials to date, we believe apraglutide’s amino acid sequence leads to its observed half-life of 72 hours.
Sequence Alignment of GLP-2 Analogs Approved and in Development
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Each of the GLP-2 analogs listed above have a glycine in position 2 to improve their stability against native peptidases. Additionally, apraglutide has unique substitutions in positions 10, 11 and 16, changing methionine to norleucine (a substitution of a natural amino acid for a non-natural amino acid), asparagine to D-phenylalanine (also
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a substitution of a natural amino acid for a non-natural amino acid) and asparagine to leucine, respectively. The lower charge due to the amide group at the C-terminus is thought to result in a more limited solubility, thereby slowing down the absorption from the subcutaneous injection site into the circulation and increasing the terminal half-life. These modifications were engineered via a rational design process based on their ability to increase the half-life of apraglutide by increasing its plasma protein binding and thereby producing a significant corresponding decrease in total. These alterations represent principal structural features of apraglutide that we believe confer differentiated properties relative to the GLP-2 analogs that are approved or in development.
Our Competitive Differentiation
We believe that apraglutide has several potential advantages when compared to native GLP-2 and other GLP-2 analogs that are approved or in development:
Improved Half-Life: As highlighted in the figure below, in head-to-head preclinical studies comparing the pharmacokinetic profile of apraglutide, teduglutide, glepaglutide and native human GLP-2 in rats after a single intravenous administration, we observed a notably longer half-life for apraglutide, suggesting improved pharmacokinetic properties. We believe that the stable exposure after once weekly dosing of apraglutide observed in our Phase 1 and Phase 2 clinical trials may improve patient tolerability, compliance and adherence to treatment.
Pharmacokinetic profile of apraglutide, teduglutide, glepaglutide and native human GLP-2 in rats after a single intravenous administration
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Greater Intestinotrophic Activity: In preclinical studies, we observed that apraglutide resulted in dose-dependent growth of small and large intestines in rats at a dose of apraglutide as low as 3 nmol/kg. Head-to-head preclinical studies of apraglutide were also conducted to examine whether its longer half-life translated to increased pharmacodynamic effects when directly compared to teduglutide and glepaglutide at equivalent doses. In this study, apraglutide demonstrated a greater increase in intestinal wet weight when compared to teduglutide and glepaglutide at doses of 30 and 300 nmol/kg, suggesting that apraglutide’s longer half-life contributed to superior intestinotrophic effects in rats.
Once-weekly Effects Observed Across Key Clinical Parameters: We believe apraglutide is the only GLP-2 analog to date that has demonstrated therapeutically relevant pharmacological effects with weekly dosing, including statistically significant increases in clinically relevant parameters such as urinary output (a measure of increased fluid absorption) (p=0.0374), intestinal absorption of wet weight (p=0.0150) and energy absorption (p=0.0236).
Enhanced Energy Absorption: In our Phase 2 metabolic balance study, designed with the primary objective being safety, we demonstrated a statistically significant enhancement in energy absorption (p=0.0236) in SBS patients after a four-week treatment with apraglutide. Historically, metabolic balance assessments represent an established and accepted methodology used in Phase 2 studies to assess the effects of GLP-2 analogs on internal absorption capacity, including the evaluation of fluid and nutrient absorption. This is the first time that a GLP-2 analog has demonstrated a robust and statistically significant
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improvement in energy absorption in a Phase 2 clinical study. We believe that enhancing the energy absorption could result in better outcomes for patients through reduction of PS.
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Administration Convenience: Apraglutide’s chemical structure, formulation and presentation are designed to offer simple drug reconstitution and administration via a dual-chamber syringe, allowing for convenient and administration via self-injection, thereby potentially improving dosing accuracy and convenience for prescribers and patients. We have designed the Phase 3 trial to employ a bracketed dose method, where one of two doses would be administered to a patient based on a body weight threshold in lieu of an individualized calculation on a patient-by-patient basis. We believe our product candidate, if approved, will be commercialized through this bracketed dose method, and ultimately there will only be two doses available for the entire adult patient population.
Differentiated Clinical and Regulatory Strategy: Leveraging existing research and real-world experience with teduglutide, we were able to design a Phase 3 clinical trial which takes into account remnant bowel anatomy and individualizes assessment of caloric needs during weaning. We believe this will help us improve outcomes such as PS volume reduction, days off PS and a likelihood of achieving full enteral autonomy, especially in patients with CIC. We believe these outcomes, which we plan to assess across the full spectrum of SBS-IF patients, may more fully characterize the potential benefit of apraglutide in this heterogeneous condition.
Clinical Development of Apraglutide
Our clinical development program for apraglutide to date has consisted of three randomized, double-blind, placebo-controlled clinical trials and one non-controlled, open label clinical trial, in which we administered apraglutide to a total of 66 healthy volunteers and 16 patients with SBS (12 patients with SBS-IF and four patients with SBS-II). We believe these data provide the first clinical proof of concept of a GLP-2 analog that is designed to be administered once weekly for the treatment of SBS, as well as the dose rationale for our Phase 3 trial.
Key Results From Our Clinical Trials:
In the Phase 1 trial (TA799-002) a randomized, double blind, placebo-controlled trial in 24 healthy volunteers testing three once-weekly dose levels of 1 mg, 5 mg and 10 mg against placebo, we observed a dose dependent elevation of plasma citrulline, a marker of intestinal trophicity, with the maximum effect reached at the 5 mg once weekly dose.
In the Phase 2 (GLY-321) open label, metabolic balance clinical trial in eight patients with SBS over a period of four weeks, we observed that four 5 mg doses of apraglutide administered once weekly significantly improved intestinal absorption of wet weight (p=0.0150), urinary output (p=0.0374) and energy absorption (p=0.0236).
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In the Phase 2 (GLY-311) randomized, double blind, placebo-controlled, dose ranging clinical trial in eight SBS-IF patients, we observed that 5 mg doses of apraglutide administered once weekly resulted in the largest increase in urinary output, which is the relevant clinical marker that predicts a reduction in PS.
Key Safety Results From Our Clinical Trials
In each of our four clinical trials, we observed that once weekly administration of apraglutide was well tolerated with a safety profile that we believe was consistent with the safety profile observed with other GLP-2 analogs.
Our Phase 1a clinical trial (GYM-P3-698) was a randomized, double blind, placebo-controlled clinical trial in 64 healthy volunteers testing weekly doses of 11.4 mg, 28.4 mg and 56.9 mg of apraglutide over three consecutive weeks. In this trial, we observed that apraglutide was well tolerated up to the highest tested dose of 56.9 mg, a dose that is 10 times higher than the Phase 3 dose of 5 mg.
In the two Phase 2 clinical trials, a total of 12 serious adverse events, or SAEs, were reported. One SAE, abdominal pain in one patient that resolved within 24 hours, was determined to be related to apraglutide. This SAE is a well-known side effect consistent with the SAEs observed with other GLP-2 class analogs.
Summary Table: Key Data about our apraglutide clinical development program date
StudyNo. of subjectsDoseObjectiveTreatment
duration
GYM-P3-698
Phase 1a,
randomized,
double blind,
placebo-controlled SAD, MAD,
PK/Safety trial
64 healthy
volunteers (48 receiving
apraglutide)
SAD: 2.8, 5.7,
11.4, 28.4, and
56.9 mg/week
MAD: 11.4,
28.4 and 56.9
mg/week
Safety; PK/PD of
subcutaneous and
IV injection
SAD: 1 week
MAD: 3 weeks
TA799-002
Phase 1b,
randomized,
double blind,
placebo-controlled
PK/PD trial
24 healthy
volunteers (18 receiving
apraglutide)
1, 5, and 10
mg/week
Safety; PK/PD of subcutaneous
injection
6 weeks
GLY-321
Phase 2, open-label,
metabolic
balance trial
Eight patients with
SBS
5 mg/weekSafety; efficacy on
urinary output,
fecal wet weight
and energy
absorption
4 weeks
GLY-311
Phase 2,
randomized,
double blind,
placebo-controlled,
dose ranging trial
Eight patients with
SBS
5 and 10
mg/week
Safety; efficacy on
urinary output
Part A: 4 weeks
Part B: 4 weeks
Summary of Phase 1 Clinical Trials of Apraglutide in Healthy Volunteers
GYM-P3-698 Trial
In 2016, we conducted a Phase 1a clinical trial of apraglutide in 64 healthy volunteers. In this clinical trial, apraglutide was observed to be well tolerated in weekly doses of 11.4 mg, 28.4 mg or 56.9 mg for three consecutive weeks.
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The key results of this clinical trial were as follows:
Apraglutide was observed to be well tolerated for all subjects, with no SAEs reported.
During the three-week, multiple ascending dosing, there was no meaningful difference between doses or placebo in injection site reactions and GI disorders.
The most commonly reported adverse events during multiple ascending dosing were injection site erythema, injection site swelling, injection site bruising, constipation and headache. Three adverse events were reported as severe by two subjects in the 56.9 mg multiple-dose group, which consisted of constipation and increased hepatic enzymes, which resolved spontaneously.
Non-compartmental pharmacokinetic analysis showed dose-proportionality, a half-life of approximately 25 to 35 hours and steady state achievements in two weeks.
At the three dose levels, the maximum citrulline response was comparable and showed no dose proportionality.
TA799-002 Trial
In 2019, we completed a randomized, double-blind, parallel arm, Phase 1b clinical trial in the Netherlands in 24 healthy volunteers testing three weekly doses of apraglutide (1 mg, 5 mg and 10 mg) against placebo. Apraglutide or placebo were administered subcutaneously once weekly for six weeks to assess an increase in plasma citrulline, a key pharmacodynamic biomarker. After the sixth dose, subjects were followed for an additional six weeks, and blood samples taken for the measurement of apraglutide and citrulline levels over time. The results were released at the ESPEN Virtual Congress in September 2020.
The key results were as follows:
Apraglutide was generally well tolerated for all subjects with no SAEs reported.
No overall difference in systemic adverse events occurred between apraglutide and placebo.
The most frequently reported adverse events were abdominal pain, constipation, diarrhea, nausea, vomiting administration site erythema, administration site hematoma, administration site rash and injection site pain. Most adverse events were of mild intensity. Two adverse events were of moderate intensity and considered unrelated to apraglutide treatment.
Three subjects developed mild liver enzyme elevations after the final administration of apraglutide which resolved spontaneously.
Non-compartmental PK analysis showed a half-life of 70-72 hours for the 5 mg and 10 mg doses.
Pharmacodynamic effects (plasma citrulline elevation) lasted 10 to 17 days after the last dose, were dose dependent, and plateau levels of citrulline elevation were reached at 5 mg. As shown below, using a statistical model of maximum citrulline response corrected for baseline values, mean citrulline levels were elevated from baseline in all apraglutide arms and remained elevated during the 6-week treatment period. Citrulline increases were significantly greater with apraglutide 5 mg and 10 mg than with apraglutide 1 mg versus placebo. There were no statistically significant differences between 5 mg and 10 mg.
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Change in citrulline levels: Apraglutide vs. placebo
ContrastMean Difference
(µg/mL)
95% CIP-value
Placebo vs. Apraglutide 1 mg0.31-0.43, 1.070.39
Placebo vs. Apraglutide 5 mg1.260.5, 20.0025
Placebo vs. Apraglutide 10 mg1.630.88, 2.390.0002
Apraglutide 5 mg vs. 10 mg0.38-0.38, 1.130.31
Summary of Phase 2 Clinical Trials of Apraglutide in Patients with SBS
In 2018 and 2019, we conducted two independent Phase 2 clinical trials as single center trials at the same site in Denmark.
GLY-321 Trial
GLY-321 was a non-controlled, prospective, open label, proof-of-concept, Phase 2 clinical trial assessing the safety and efficacy of 5 mg apraglutide administered once weekly for a period of four weeks in patients with SBS (n=8). GLY-321 was conducted as a metabolic balance trial following the standardized conditions as described previously. We believe the most important efficacy assessments in this trial were change from baseline in intestinal absorption of wet weight, energy and urinary output. The results were released at the ESPEN Virtual Congress in September 2020.
The design of this trial in summarized in the chart below:
GLY-321 Trial: Phase 2 clinical trial with a metabolic balance study design
for apraglutide in patients with SBS
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Eight patients completed the study and results showed that once weekly administration of 5 mg apraglutide resulted in statistically significant improvements in urinary output (p=0.0374), wet weight absorption (p=0.0150) as well as energy absorption (p=0.0236), as shown in the graphs below. These efficacy results were obtained in a study with safety as the primary objective and we believe they provide initial clinical proof of concept for apraglutide in this patient population.
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*SEM: Standard Error of the Mean
Apraglutide was observed to be well tolerated in the GLY-321 trial, with the most frequently reported adverse events being nausea, stoma complication (increased stoma diameter, slower passage through stoma, stoma nipple hyperemia), GI stoma output decrease, GI stoma complication (increased stoma protrusion), GI stoma output abnormalities, flatulence and abdominal pain. In total, 4 SAEs were reported. One SAE, abdominal pain in one patient that resolved within 24 hours, was determined to be related to apraglutide. This SAE is a well-known side effect consistent with the SAEs observed with other GLP-2 class analogs.
GLY-311 Trial
GLY-311 was a Phase 2 clinical trial in SBS patients (n=8) with two parts:
Part A: a randomized cross-over, placebo-controlled, double-blind study with weekly administration of 5 mg apraglutide and placebo for a period of 4 weeks;
Part B: an open label study with weekly administration of 10 mg apraglutide for an additional period of 4 weeks.
After each dosing period, a wash out period of up to 6 weeks was observed to allow patients’ intestinal function to return to baseline. The primary objective was to assess safety and tolerability of once weekly administration of 5 mg and 10 mg apraglutide for 4 weeks. In addition, liquid consumption and urinary output were reported by the patients at home 48 hours after the end of the treatment course. The results were released at the ESPEN Virtual Congress in September 2020.
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GLY-311 Trial: Phase 2 clinical trial design with a 48-hour ambulatory urinary output design
for apraglutide in patients with SBS
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Eight patients completed Part A and seven patients completed Part B of the clinical trial. One patient who was enrolled in Part A but did not complete Part B of the clinical trial withdrew for reasons unrelated to safety. We observed that once weekly administration of 5 mg and 10 mg apraglutide led to an increase in urinary output with a numerically greater response observed with 5 mg versus 10 mg/week.
Effect on urinary output
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Apraglutide was observed to be well tolerated in the GLY-311 trial, with the most frequently reported adverse events being stoma complications (increased diameter of stoma, slower passage through stoma, decreased stoma diameter days before next injection), GI stoma output abnormal, oedema, polyuria, GI stoma complication (stoma nipple protrusion, increased stoma protrusion) and decreased GI stoma output. In total 8 SAEs were reported. None of the reported events were determined to be related to apraglutide.
Our Clinical, Regulatory and Commercial Strategy
Our clinical, regulatory and commercial strategy capitalizes on the learnings from prior GLP-2 research and real-world experience with teduglutide. Our Phase 3 clinical trial design takes into account remnant bowel anatomy and individualizes assessments of calorie needs during weaning. We believe this may help us improve outcomes such as PS volume reduction, days off PS and a likelihood of achieving full enteral autonomy, in particular in patients with CIC. These results may allow us to create more informative product labelling that takes into account
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the heterogeneous nature of SBS patients, ultimately resulting in a differentiated positioning of apraglutide in future commercialization efforts, if it is approved by applicable regulatory authorities.
Stoma, No Colon-in-continuity versus Colon-in-continuity Patient Populations
CharacteristicStoma, no colon-in-continuityColon-in-continuity
EtiologyMainly InflammatoryMainly Trauma/Vascular
Frequency~45%~55%
PS RequirementHigherLower
Response to GLP-2Rapid, Robust Effects on PS ReductionMetabolic with Slow Effect on PS Reduction
In a retrospective analysis of the Phase 3 pivotal clinical trial for teduglutide, after six months treatment with teduglutide, stoma patients displayed a rapid and robust reduction in PS volume requirement, whereas CIC patients displayed more modest, non-significant effects on the reduction of this parameter. We believe that the difference in response observed in this study across different SBS anatomical subtypes can be in part explained by the method that was used to determine how to adjust PS volume, such as the monitoring of increases in diuresis. Changes in diuresis are considered a good marker of intestinal absorption improvements in patients with an altered fluid balance, such as stoma patients, whereas they are less informative for individuals where fluid balance is preserved, such as CIC patients. We believe that a more relevant way to assess GLP-2 responses in CIC patient should include the monitoring of additional parameters, including metabolic changes that reflect the increased absorption of solid caloric nutrients. To further corroborate these observations, recent data from a retrospective, multi-center, open label observational cohort study of SBS patients demonstrated that when metabolic parameters are taken into account when assessing clinical responses to teduglutide, CIC patients can achieve robust PS reductions, leading to enteral autonomy in over 30% of studied patients.
We believe our approach is differentiated compared to other GLP-2 analogs based on the following factors:
Focus on remnant bowel-anatomy: SBS is a heterogeneous condition where the type of remnant bowel anatomy determines the medical need and clinical response of individual patients. For this reason, we believe that bowel anatomy should be factored in when assessing the clinical benefit of a GLP-2 analog. We believe our approach takes a patient’s anatomy into consideration when adapting PS and evaluating the clinical impact of apraglutide. This is highly relevant to fully harness the therapeutic potential of apraglutide across the diverse spectrum of SBS patients, potentially offering better information on how to use apraglutide in distinct patient subtypes, based on their remnant bowel-anatomy.
Weaning Algorithm: Traditionally, diuresis has been used as the main monitoring element to adjust PS requirements. We believe that in the management of SBS patients it is important to assess both their fluid balance and metabolic needs in response with a GLP-2 analog therapy. In treating patients with apraglutide, we intend to deploy an algorithm to adjust the PS volume based on SBS anatomical subtype, in an effort to achieve the best therapeutic outcome for each patient based on an individualized, anatomy specific approach.
Treatment Goals across the Full Spectrum of SBS: Taking into account the disease heterogeneity of the patient population, we believe focusing on PS volume reduction alone in the trial design may not fully capture the therapeutic benefit of GLP-2 analog therapy. Therefore, our Phase 3 trial design aims to demonstrate broader and more meaningful treatment effects for SBS patients, and therefore will evaluate the reduction in the number of days per week of PS required by patients, the reduction in the associated time required for PS, and general improvements in quality of life. We believe achieving enteral autonomy,
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removal of the central catheter and the quality of life associated with eliminating the need for chronic parenteral support is the ultimate goal for patients suffering from SBS.
Spectrum of short bowel syndrome and treatment goals
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We believe our approach will be able to fully evaluate the therapeutic potential of apraglutide and thereby address a significant proportion of the current treatment limitations experienced with approved GLP-2 analogs.
Overview of Ongoing and Planned Clinical Trials
Based on the overall results of our clinical program with apraglutide to date and the recent data about the significance of remnant bowel anatomy on response pattern to GLP-2 analogs, we commenced a Phase 3 clinical trial, or the STARS trial, with the objective of evaluating the safety and efficacy of once weekly administration of 2.5 mg or 5 mg of apraglutide.
The STARS trial is being conducted as a global trial, and includes the following key design features:
Approximately 144 SBS-IF patients, each of which will be randomized by their particular SBS anatomy
Two treatment arms administering placebo and apraglutide doses of 2.5 mg or 5 mg once weekly, depending on the body weight of the patient
Utilization of an anatomy-specific PS reduction algorithm in an effort to adapt PS requirements based on the individual patient’s needs
Primary Endpoint:
Relative change from baseline in actual weekly PS volume at Week 24
Select Secondary Endpoints:
Subjects who achieve a reduction of at least 1 day/week of PS from baseline at Weeks 24 / 48
Relative change from baseline in actual weekly PS volume at Weeks 12 / 24 / 48
SBS-IF patients reaching enteral autonomy at Weeks 24 / 48
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At least 20% reduction of PS volume from baseline at Weeks 20 / 24
Subjects reaching enteral autonomy at Weeks 24 / 48
Calorie reduction in the PS at Weeks 24
Change from baseline on Quality of Life measures at Weeks 24 / 48
Apraglutide pharmacokinetic parameters (baseline through Week 48)
The STARS trial was initiated in January 2021, and we expect to report topline results from the trial in the second half of 2023.
In addition to the STARS trial, we plan to conduct the following clinical trials in order to further evaluate the efficacy of apraglutide in SBS-IF and to support potential submissions of marketing applications for apraglutide in the United States, European Union and Japan:
A Phase 2 study in patients with SBS-IF and CIC
Goal: to evaluate the effects of apraglutide on intestinal absorption in SBS-IF patients with CIC
Objective: assess metabolic balance and PS reduction
Design: open label
Approximately 10 patients
Readouts at 4 weeks and 48 weeks
A study to evaluate the impact of renal impairment on apraglutide pharmacokinetics
A study to evaluate the impact of hepatic impairment on apraglutide pharmacokinetics
A study to evaluate the pharmacokinetics of apraglutide in Japanese healthy volunteers
A study to evaluate efficacy and safety in the pediatric SBS population
In addition to the SBS-IF program we plan to conduct a clinical proof of concept study of apraglutide in acute steroid refractory GVHD on top of best available therapy. The objective is to evaluate safety and standard measures of efficacy in this setting, including overall response rate at day 28 and durability of response at day 56.
Preclinical Studies
Pharmacokinetics and Half Life
In preclinical studies conducted by Ferring Pharmaceuticals, from which we have licensed the rights to apraglutide, the pharmacokinetics of apraglutide was evaluated in catheterized adult Sprague Dawley rats after intravenous bolus administration in a head-to-head study versus teduglutide, glepaglutide and native human GLP-2 for comparison.
Following a single intravenous administration apraglutide demonstrated a notably longer elimination half-life and lower clearance in adult rats when compared to teduglutide, glepaglutide and native human GLP-2. Similarly, apraglutide showed sustained exposure levels after subcutaneous dosing in rat, monkey and minipigs in comparison to teduglutide in these three species.
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Time course of apraglutide and teduglutide concentrations
administered using the subcutaneous route in plasma
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Apraglutide showed sustained exposure levels after subcutaneous dosing in rat, monkey and mini-pig.
Pharmacodynamics and Intestinotrophic Activity
To assess the pharmacological effect of apraglutide, Ferring Pharmaceuticals tested the effect of apraglutide on intestinal growth in rats as determined by intestinal wet weight following once daily subcutaneous bolus administration of apraglutide over 5 days. Ferring Pharmaceuticals also studied the effect of teduglutide for comparison.
In these studies, it was observed that apraglutide resulted in dose-dependent growth of small and large intestines in rats. Ferring Pharmaceuticals observed significant increases in intestinal wet weight at a dose of apraglutide as low as 3 nmol/kg. At all doses tested, apraglutide led to larger increases in intestinal wet weight than equivalent doses of teduglutide. Ferring Pharmaceuticals also observed similar results in preclinical studies measuring the intestinotrophic effects of apraglutide in mice and mini-pigs.
Apraglutide led to a dose-dependent increase in small intestine wet weight in rats
following 5 days of treatment when compared to teduglutide
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Preclinical studies of apraglutide were also conducted to examine whether the duration of its half-life translated to increased pharmacodynamic effects that could offer the potential for less frequent dosing. In a study conducted by Ferring Pharmaceuticals, apraglutide was directly compared to teduglutide and glepaglutide, in head-to-head experiments at doses of 30 and 300 nmol/kg. All three molecules were synthesized by Ferring Pharmaceuticals in accordance with their published sequences.
The study was performed using adult male Sprague Dawley rats. Subcutaneous bolus administration of each of apraglutide, teduglutide, glepaglutide or vehicle was performed as follows for the multiple dosing intervals investigated:
Dosing Interval
(N = # of rats)
Number of
Administrations
Day of
Administration
Day of Tissue
Collection
Study
Period
24 hrs. (N = 66)
5
Days: 1, 2, 3, 4 & 5
Day 5
96 hours
72 hrs. (N = 60)
1
Day 1
Day 4
72 hours
After dosing on the final day, the GI tract of each rat was excised and the small intestines were carefully dissected, emptied of contents, cleaned and weighed. Compound-induced intestinal growth was determined by comparing the wet weight of the small intestine, as a percentage of body weight, in compound-treated animals relative to the vehicle treated group average from the respective study. In this study, apraglutide demonstrated a greater increase in intestinal wet weight when compared to teduglutide and glepaglutide.
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As shown in the graph above, in these preclinical studies assessing the efficacy of apraglutide, teduglutide and glepaglutide at equivalent doses, only apraglutide was observed to increase small intestine wet weight with statistical significance at a 30 nmol/kg dose when tested at the 72-hour dosing interval. Moreover, a single apraglutide dose of 300 nmol/kg led to an increase of intestinal wet weight of 20%, when measured 72 hours after administration, while single doses of teduglutide and glepaglutide had no detectable effect or increased intestinal weight by approximately 10%, respectively. Furthermore, following repeated administration for five days, each of apraglutide, teduglutide and glepaglutide demonstrated a greater increase in small intestine wet weight than a single dose, but apraglutide dosing continued to result in a greater increase in small intestine wet weight than equivalent doses of both teduglutide and glepaglutide when measured 96 hours following the first injection. Taken together, we believe these observations suggest that apraglutide’s half-life contributed to the superior increase in intestinal wet weight in rats observed in this study.
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We also studied the intestinotrophic effects of apraglutide as a potential therapeutic option for neonatal SBS given that gut resection in neonates is associated with malabsorption of nutrients. In an established neonatal piglet jejunostomy model of SBS, previously used to evaluate efficacy of teduglutide, treatment with apraglutide on day 1 and again on day 4 led to both a significant increase in intestinal wet weight and an increase in intestinal length. To our knowledge, an increase in intestinal length has not been reported with either native GLP-2 or teduglutide when studied in the same preclinical, neonatal, SBS piglet model. No increases in intestinal length were observed in animals receiving placebo. Apraglutide-treated piglets also had lower fecal fat and energy losses compared to animals receiving placebo.
Apraglutide demonstrated an increase in intestinal length and mucosal mass
in minipigs after different dosing regimens
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These observations were further supported in our preclinical studies conducted on healthy adult rats and minipigs. In these preclinical studies, apraglutide produced a durable increase in intestinal growth with significant differences persisting four weeks after cessation of treatment.
In another series of experiments in the neonatal piglet jejunostomy model of SBS, the intestinotrophic effect of apraglutide was compared to teduglutide. Apraglutide administered at 5 mg/kg twice weekly for one week had a superior intestinotrophic results (small bowel length and weight, villi height) compared to teduglutide administered at 0.05 mg/kg once a day for 7 consecutive days. Teduglutide reached the intestinotrophic results observed for apraglutide only when it was administered twice-a-day for seven consecutive days highlighting the importance of the duration and level of exposure for an optimal efficacy for GLP-2 analogs-based treatment.
Toxicology Studies
We have completed 26-week repeated dose GLP toxicology studies with apraglutide in rats and 39-week repeated dose GLP toxicology studies in minipigs. In all repeated dose GLP toxicity studies in rats and minipigs the systemic no observed adverse effect level was the highest dose tested in each study and exposure margins were greater than 100 times the maximum planned clinical dose. All systemic findings reported for apraglutide were considered to be due to the pharmacologic activity of apraglutide and generally non-adverse in nature. These findings included GI hypertrophy and hyperplasia in all studies in both species from the lowest doses tested, 0.5 mg/kg every second day in rats and 0.4 mg/kg every second day in minipigs. We believe these studies support long-term dosing in patients with SBS. Carcinogenicity studies in rats and mice are ongoing and we reached consensus with FDA on the study designs and dose selection. We expect to complete the outstanding rat reproductive toxicology study prior to the submission of any marketing applications and will plan to perform a juvenile toxicity study after consultation with regulatory authorities and in parallel with the STARS trial.
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Overview of Graft Versus Host Disease
A priority area of focus is the prevention and treatment of the serious gastrointestinal manifestations of acute graft versus host disease, or GVHD, a common and life-threatening consequence of allogenic hematopoietic stem cell transplants, or HSCT. Most approaches targeting GVHD today involve modulation or suppression of immune mechanisms. We believe GLP-2 activation offers a novel approach which aims to protect and regenerate intestinal mucosal biology, improve intestinal barrier function, and preserve the gut microbiota with the goal of improving patient outcomes in GVHD.
Acute GVHD occurs when immune cells from the donor attack healthy recipient tissues. Acute GVHD remains the second leading cause of death, after disease (cancer) relapse, in patients undergoing allogeneic HSCT. In 2018, there were approximately 9,000 allogeneic HSCTs in the United States and 18,000 in Europe and affiliated countries. Acute GVHD can develop in 30% to 50% of patients receiving allogeneic transplants. First-line treatment is steroid therapy; however, approximately 50% of patients go on to develop steroid-refractory GVHD and have a dismal prognosis with a reported 1-year survival rate of 10% to 38%, which is driven significantly by the presence of gastrointestinal GVHD.
Most commonly, GVHD affects the skin, GI tract, liver, and lungs. The predominant manifestations of GI GVHD are abdominal pain and diarrhea. The diarrhea is secretory, occurs independently of oral intake and can be profound and incessant, with up to several liters of output and more than 10 episodes per day, often requiring parenteral support to feed and hydrate patients. GI GVHD occurs in approximately 60% of patients with Grade II-IV disease, which is moderate to severe GVHD. This rate can increase to 70% in the steroid refractory setting based on a large, randomized trial.
The pathophysiology of acute GVHD of the gastrointestinal tract has been associated with: (i) HSCT conditioning (preparing the patient for transplant using chemotherapy and radiation), (ii) the use of immunosuppressants, (iii) the use of broad-spectrum antibiotics to prevent infection, and (iv) the introduction of foreign lymphocytes from the donor. These factors lead to a significantly compromised gastrointestinal tract with disruption of the intestinal epithelium and imbalances in the gut microbiota.
A number of preclinical studies with apraglutide were conducted in mouse models of chemotherapy-induced mucositis and GVHD to explore its therapeutic potential in GVHD. Collectively, these findings suggest that apraglutide protected the physical integrity of the GI barrier and improved survival, helped to maintain gut homeostasis, and did not negatively impact engraftment of donor cells (see data below).
Recent data obtained in GVHD patients provide important clinical validation of this mechanism as a potential therapeutic approach in GVHD. A cohort of six patients with steroid refractory acute GVHD having failed multiple therapies were treated with teduglutide at a dosage of 0.05 mg/kg body weight once daily for 10 days. Clinical signs of intestinal GVHD improved in all six patients with a decline of the diarrhea frequency, one measure of response. Serum albumin levels increased in all patients, a parameter indicating a positive impact on patients’ nutritional status, and an intestinal biopsy conducted in one patient provided evidence of regenerative effects on the intestinal epithelium.
A clinical proof of concept study of apraglutide in acute steroid refractory GVHD on top of best available therapy is planned to start in the first quarter of 2022, evaluating safety and standard measures of efficacy in this setting, including overall response rate at day 28 and durability of response at day 56.
GLP-2 activation offers a novel and complementary approach to immunosuppressive therapy by targeting GI GVHD, the most significant driver of morbidity and mortality of acute GVHD. By restoring intestinal mucosal biology, improving intestinal barrier function, and preserving the gut microbiota we aim to improve and extend outcomes over best available therapy in acute GVHD.
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