GKTX DDR 2016 R17-048 - English (clean for website) · 2018-02-19 · pursuant to its General Rules...
Transcript of GKTX DDR 2016 R17-048 - English (clean for website) · 2018-02-19 · pursuant to its General Rules...
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IMPORTANT NOTICE
This document is a free translation (the “Translation”) of Genkyotex’s document de référence 2016, dated June 29, 2017. This Translation is provided for convenience only.
IN THE EVENT OF ANY AMBIGUITY OR CONFLICT BETWEEN THE STATEMENTS OR OTHER ITEMS CONTAINED HEREIN AND THE CORRESPONDING STATEMENTS IN THE FRENCH LANGUAGE “DOCUMENT DE RÉFÉRENCE 2016”, THE DOCUMENT DE RÉFÉRENCE 2016 SHALL PREVAIL.
None of Genkyotex, its advisors or representatives or any of their respective officers, directors, employees or affiliates, or any person controlling any of them assumes any liability or responsibility whatsoever in respect of any difference between the Translation and Genkyotex’s document de référence 2016.
This Translation does not constitute or form part of any offer to sell or the solicitation of an offer to purchase securities in any jurisdiction, nor shall or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever.
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A limited company (société anonyme) organized with a Board of Directors andwith a share capital of €7,785,000.60
Registered office: 218 avenue Marie Curie - Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France
REGISTRATION DOCUMENT
The Autorité des marchés financiers (French Financial Markets Authority, or “AMF”), under and pursuant to its General Rules and Regulations and, in particular, Article 212-13 thereof, registeredthis Registration Document on June 29, 2017, under number R.17-048. This document may be used in support of a financial transaction only if it is supplemented by a securities note approved by the AMF. This document was drawn up by the issuer under the responsibility and liability of its signatories.Registration, under and pursuant to Article L. 621-8-1-I of the French Monetary and Financial Code occurred after the AMF verified that the Registration Document was complete and understandable and that the information it contained was consistent. It does not imply authentication by the AMF of the financial and accounting information presented.
In accordance with Article 28 of Regulation (EC) 809/2004, the following information has been included by reference in this Registration Document:
the IFRS financial statements of Genkyotex SA (formerly Genticel SA) for the financial year ended December 31, 2015, as well as the related Statutory Auditors' report presented on pages 91 to 134 and 166 of the 2015 annual financial report published by Genkyotex SA (formerly Genticel SA) on April 26, 2016,
the annual financial statements of Genkyotex SA (formerly Genticel SA) as at December 31, 2015, as well as the related Statutory Auditors' report presented on pages 135 to 165 and 167 to 168 respectively of the 2015 annual financial report published by Genkyotex SA (formerly Genticel SA) on April 26, 2016,
the report on internal control and corporate governance of Genkyotex SA (formerly Genticel SA) for the financial year ended December 31, 2016, as well as the related Statutory Auditors' report presented on pages 168 to 180 and 181 and 182 of the 2016 annual financial report published by Genkyotex SA (formerly Genticel SA) on February 27, 2017.
This document is available free of charge from the Company's registered office and in electronic form on the AMF website (www.amf-france.org) and the Company's website (www.genkyotex.com).
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TABLE OF CONTENTS
1. RESPONSIBLE PERSONS ...........................................................................................................8
1.1. PERSON RESPONSIBLE FOR THE REGISTRATION DOCUMENT................................................8
1.2. DECLARATION OF THE PERSON RESPONSIBLE FOR THIS DOCUMENT....................................8
1.3. PERSON RESPONSIBLE FOR THE FINANCIAL INFORMATION .................................................8
2. STATUTORY AUDITORS............................................................................................................9
2.1. PRINCIPAL STATUTORY AUDITORS......................................................................................9
2.2. ALTERNATE STATUTORY AUDITORS ....................................................................................9
2.3. INFORMATION ON STATUTORY AUDITORS WHO HAVE RESIGNED, BEEN DISMISSED OR NOT REAPPOINTED ............................................................................................................9
2.4. STATEMENT OF FEES PAID TO THE STATUTORY AUDITORS ................................................10
3. SELECTED FINANCIAL INFORMATION .....................................................................................11
3.1. HISTORICAL FINANCIAL INFORMATION.............................................................................11
3.2. INTERIM FINANCIAL INFORMATION..................................................................................12
4. RISK FACTORS .......................................................................................................................13
4.1. RISKS RELATED TO THE COMPANY'S BUSINESS AND THE MARKET .....................................13
4.2. RISKS RELATED TO THE COMPANY'S ORGANIZATION.........................................................19
4.3. REGULATORY AND LEGAL RISKS........................................................................................21
4.4. RISKS RELATED TO INDUSTRIAL PROPERTY........................................................................23
4.5. INDUSTRIAL RISKS ............................................................................................................28
4.6. FINANCIAL RISKS ..............................................................................................................28
4.7. MARKET RISKS .................................................................................................................32
4.8. INSURANCE AND RISK COVERAGE.....................................................................................35
5. INFORMATION ABOUT THE ISSUER ........................................................................................39
5.1. HISTORY AND DEVELOPMENT OF THE COMPANY ..............................................................39
5.2. INVESTMENTS..................................................................................................................40
6. BUSINESS OVERVIEW ............................................................................................................42
6.1. GENERAL PRESENTATION OF THE GROUP'S ACTIVITIES......................................................42
6.2. NOX INHIBITION: A NEW AND COMPLEX THERAPEUTIC APPROACH...................................46
6.3. CLINICAL DEVELOPMENT PLAN FOR GKT831......................................................................48
6.4. OVERVIEW OF PBC AND ITS MARKET ................................................................................50
6.5. OVERVIEW OF NASH AND ITS MARKET..............................................................................53
6.6. PRECLINICAL CHARACTERISTICS AND RESULTS FOR GKT831...............................................56
6.7. GKT831 - CLINICAL RESULTS..............................................................................................65
6.8. GKT771 ............................................................................................................................70
6.9. PRECLINICAL RESEARCH PROGRAMS.................................................................................73
6.10. PARTNERSHIP WITH THE SERUM INSTITUTE OF INDIA FOR THE USE OF VAXICLASE(GTL003) IN MULTIVALENT VACCINES ...............................................................................75
6.11. ORGANIZATION OF THE COMPANY ...................................................................................77
6.12. SCIENTIFIC ADVISORY BOARD...........................................................................................77
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6.13. ORGANIZATION OF OPERATIONS......................................................................................77
6.14. MULTIPLE PEER-REVIEWED SCIENTIFIC PUBLICATIONS ......................................................78
6.15. EXPERTISE IN PRECLINICAL RESEARCH AND DEVELOPMENT...............................................80
6.16. CLINICAL DEVELOPMENT EXPERTISE .................................................................................80
7. ORGANIZATIONAL STRUCTURE ..............................................................................................81
7.1. LEGAL STRUCTURE............................................................................................................81
7.2. COMPANIES IN THE GROUP ..............................................................................................81
7.3. FINANCIAL FLOWS WITHIN THE GROUP ............................................................................82
8. REAL ESTATE, PLANTS AND EQUIPMENT ................................................................................83
8.1. REAL ESTATE AND EQUIPMENT.........................................................................................83
8.2. ENVIRONMENTAL ISSUES .................................................................................................83
9. ANALYSIS OF FINANCIAL CONDITION AND RESULTS................................................................84
9.1. COMPARISON BETWEEN THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS STANDARDS FOR GENKYOTEX SA (FORMERLY GENTICEL SA) FOR THE LAST TWO FINANCIAL YEARS ....................................................................................................84
9.2. COMPARISON BETWEEN THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH FRENCH STANDARDS FOR GENKYOTEX (FORMERLY GENTICEL) FOR THE LAST TWO FINANCIAL YEARS ....................................................................................................90
10. CASH AND EQUITY.................................................................................................................93
10.1. INFORMATION ABOUT EQUITY, LIQUIDITY, AND SOURCES OF FINANCING .........................93
10.2. CASH FLOW......................................................................................................................95
10.3. BORROWING TERMS AND FINANCING STRUCTURE ...........................................................96
10.4. POSSIBLE RESTRICTIONS ON THE USE OF CAPITAL .............................................................96
10.5. SOURCES OF FINANCING EXPECTED FOR FUTURE INVESTMENTS........................................96
11. RESEARCH AND DEVELOPMENT, PATENTS, LICENSES AND OTHER INTELLECTUAL PROPERTY RIGHTS .................................................................................................................................97
11.1. PATENTS AND PATENT APPLICATIONS ..............................................................................97
11.2. OTHER ELEMENTS OF INTELLECTUAL PROPERTY.............................................................. 113
12. TREND INFORMATION......................................................................................................... 114
12.1. KEY TRENDS SINCE THE END OF THE LAST FINANCIAL YEAR ............................................. 114
12.2. KNOWN TRENDS, UNCERTAINTIES, COMMITMENT REQUESTS AND EVENTS REASONABLY LIKELY TO AFFECT THE COMPANY’S OUTLOOK ........................................... 114
13. PROFIT FORECASTS OR ESTIMATES ...................................................................................... 115
14. ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES AND SENIORMANAGEMENT................................................................................................................... 116
14.1. EXECUTIVES AND DIRECTORS.......................................................................................... 116
14.2. CONFLICTS OF INTEREST IN THE COMPANY’S ADMINISTRATIVE AND EXECUTIVE BODIES AND SENIOR MANAGEMENT .......................................................................................... 122
15. COMPENSATION AND BENEFITS........................................................................................... 123
15.1. COMPENSATION OF CORPORATE OFFICERS..................................................................... 123
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15.2. AMOUNTS SET ASIDE BY THE COMPANY OR ITS SUBSIDIARIES TO PROVIDE PENSION, RETIREMENT OR SIMILAR BENEFITS TO DIRECTORS AND EXECUTIVES.............................. 131
15.3. SHARE SUBSCRIPTION OR PURCHASE OPTIONS; WARRANTS AND FOUNDERS' WARRANTS.................................................................................................................... 131
15.4. SUMMARY OF TRANSACTIONS BY EXECUTIVES AND THE PERSONS MENTIONED IN ARTICLE L. 621-18-2 OF THE FRENCH MONETARY AND FINANCIAL CODE INVOLVING COMPANY SECURITIES IN THE PAST FINANCIAL YEAR...................................................... 132
16. BOARD PRACTICES .............................................................................................................. 133
16.1. COMPANY MANAGEMENT ............................................................................................. 133
16.2. CONTRACTS BINDING CORPORATE OFFICERS AND THE GROUP........................................ 133
16.3. BOARD OF DIRECTORS AND SPECIALIZED COMMITTEES – CORPORATE GOVERNANCE...... 133
16.4. STATEMENT REGARDING CORPORATE GOVERNANCE...................................................... 135
16.5. INTERNAL CONTROL ....................................................................................................... 136
17. EMPLOYEES......................................................................................................................... 137
17.1. NUMBER OF EMPLOYEES AND BREAKDOWN BY JOB POSITION........................................ 137
17.2. HOLDINGS AND STOCK OPTIONS OF CORPORATE EXECUTIVES......................................... 137
17.3. EMPLOYEE HOLDINGS IN THE COMPANY'S SHARE CAPITAL ............................................. 138
17.4. PROFIT SHARING AND EQUITY INTEREST AGREEMENTS................................................... 138
18. MAJOR SHAREHOLDERS ...................................................................................................... 139
18.1. SHAREHOLDING STRUCTURE AND VOTING RIGHTS.......................................................... 139
18.2. SIGNIFICANT SHAREHOLDERS NOT REPRESENTED ON THE BOARD OF DIRECTORS............ 139
18.3. VOTING RIGHTS OF MAIN SHAREHOLDERS...................................................................... 139
18.4. CONTROL OF THE COMPANY .......................................................................................... 140
18.5. AGREEMENTS THAT COULD TRIGGER A CHANGE OF CONTROL ........................................ 140
18.6. PLEDGE OF THE COMPANY’S SHARES .............................................................................. 140
19. RELATED PARTY TRANSACTIONS.......................................................................................... 141
19.1. INTRA-GROUP TRANSACTIONS ....................................................................................... 141
19.2. SIGNIFICANT AGREEMENTS WITH RELATED PARTIES ....................................................... 141
19.3. STATUTORY AUDITORS' SPECIAL REPORT ON REGULATED AGREEMENTS ......................... 143
20. FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES ................................................................. 151
20.1. FINANCIAL STATEMENTS OF GENKYOTEX (FORMERLY GENTICEL) PREPARED APPLYING IFRS STANDARDS FOR THE FINANCIAL YEAR ENDING DECEMBER 31, 2016 ....................... 151
20.2. PRO FORMA FINANCIAL INFORMATION .......................................................................... 195
20.3. GENKYOTEX (FORMERLY GENTICEL) COMPANY’S FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2016 ................................................................. 213
20.4. AUDITING OF HISTORICAL ANNUAL FINANCIAL INFORMATION........................................ 250
20.5. DATE OF THE LATEST FINANCIAL INFORMATION ............................................................. 253
20.6. INTERIM AND OTHER FINANCIAL INFORMATION............................................................. 253
20.7. DIVIDEND DISTRIBUTION POLICY .................................................................................... 253
20.8. LEGAL AND ARBITRATION PROCEEDINGS ........................................................................ 253
20.9. SIGNIFICANT CHANGE IN THE FINANCIAL OR BUSINESS SITUATION.................................. 253
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21. ADDITIONAL INFORMATION ................................................................................................ 254
21.1. SHARE CAPITAL .............................................................................................................. 254
21.2. ARTICLES OF INCORPORATION AND BY-LAWS ................................................................. 264
22. MATERIAL AGREEMENTS..................................................................................................... 270
22.1. LICENSE AGREEMENT SIGNED ON FEBRUARY 2, 2015 WITH THE PHARMACEUTICAL COMPANY SERUM INSTITUTE OF INDIA LTD. (SIIL) .......................................................... 270
22.2. SERVICE AGREEMENT WITH SYNGENE............................................................................. 270
22.3. SERVICE AGREEMENT WITH CMED.................................................................................. 271
22.4. SERVICE AGREEMENT WITH CORDEN PHARMA ............................................................... 271
23. THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATIONS OF ANY INTEREST............................................................................................................................ 272
24. DOCUMENTS ACCESSIBLE TO THE PUBLIC............................................................................. 273
25. INFORMATION ON HOLDINGS ............................................................................................. 274
GLOSSARY ..................................................................................................................................... 275
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GENERAL OBSERVATIONS
Definitions
For the purposes of this Registration Document and unless otherwise indicated:
" Genkyotex" or "Genticel" or the "Company" refers to Genkyotex (formerly Genticel), a limited company (société anonyme) with a share capital of €7,785,000.60 whose shares are admitted to trading on the regulated markets of Euronext in Paris and Brussels, and whose registered office is at 218 avenue Marie Curie - Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France. It should further be noted that the General Shareholders' Meeting of February 28, 2017, approved the change to the Company's management and governance structure and adopted a one-tier board system. Prior to that date, the Company was organized under the two-tier system (with a management board and a supervisory board);
"Genkyotex Suisse" refers to Genkyotex Suisse SA, a Swiss limited liability company with a share capital of CHF 5,262,133 whose registered office is at Chemin des Aulx 16, 1228 Plan-les-Ouates, Switzerland and which is registered with the Geneva Commercial Register under number CHE-112 747 508;
"Genkyotex Innovation" refers to Genkyotex Innovation SAS, a simplified joint-stock company (société par actions simplifiée) with a share capital of €1,549,731 whose registered office is at 218 avenue Marie Curie - Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France and is registered with the Thonon-Les-Bains Trade and Companies Register under number 528 733 132;
The "Group" refers to Genkyotex SA and its subsidiaries Genkyotex Suisse SA and Genkyotex Innovation SAS;
"Registration Document" means this registration document filed with the French Financial Markets Authority (AMF);
"Registration Document Date" means the date on which the Registration Document was filed.
Disclaimer
The Registration Document contains information about the Company's activities and the market in which it operates. This information comes from internal studies or external sources (e.g., industry publications, specialized studies, information published by market intelligence providers, and analysts' reports). In the Company’s opinion, at the time of writing, this information gives a true and fair view of its reference market and its competitive position in that market. However, this information has not been verified by an independent expert and the Company cannot guarantee that a third party using different methods to collate, analyze or calculate market data would obtain the same results.
This Registration Document also contains information about the Company’s objectives and development strategies. Such statements may be identified by the use of the future or conditional tense and by terms of a prospective nature such as “estimate,” “consider,” have as objective,” “expect to,” “intend,” “should,” “hope,” “could,” “may” or similar terminology. The readers’ attention is drawn to the fact that these objectives and development strategies are not historical
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data and should not be interpreted as a guarantee that the stated facts or data will occur, that the assumptions will be borne out or that the objectives will be achieved. By their very nature it is possible that the objectives may not be achieved and that the information in this Registration Document may be proven incorrect, the Company being under no obligation to update them, subject to applicable regulations, in particular the General Regulations of the French Financial Markets Authority ("AMF").
Investors are also advised to take into careful consideration the risk factors described in Section 4 “Risk factors” of this Registration Document before making an investment decision. Should any or all of these risks materialize, they may have a negative impact on the Company’s activity, financial position, profits or objectives. Furthermore, other risks, not yet identified or considered not significant by the Company, may have a similar negative impact and investors may lose all or part of their investment.
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1. RESPONSIBLE PERSONS
1.1. PERSON RESPONSIBLE FOR THE REGISTRATION DOCUMENT
Mr Ilias (Elias) Papatheodorou, Chief Executive Officer
1.2. DECLARATION OF THE PERSON RESPONSIBLE FOR THIS DOCUMENT
Saint-Julien-en-Genevois, on June 29, 2017
I hereby certify, after having taken every reasonable measure to this effect, that the information contained in this Registration Document is, to the best of my knowledge, accurate and does not contain any omission that could affect its meaning.
I have obtained a completion of work letter (lettre de fin de travaux) from the Statutory Auditors, in which they state that they have verified the information relating to the financial position and the financial statements contained in this Registration Document and have read it in its entirety.
Ilias (Elias) Papatheodorou, Chief Executive Officer of Genkyotex
1.3. PERSON RESPONSIBLE FOR THE FINANCIAL INFORMATION
Mr Alexandre GrassinChief Financial OfficerAddress: 218 avenue Marie Curie - Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, FranceTelephone: +33 4 80 16 06 07Email: [email protected]
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2. STATUTORY AUDITORS
2.1. PRINCIPAL STATUTORY AUDITORS
SYGNATURES, member of the Compagnie régionale des commissaires aux comptes de Toulouse (Toulouse branch of the French institute of auditors), 8, chemin de la terrasse, BP 45122, 31512 Toulouse Cedex 5Represented by Laure MullinDate of re-appointment: March 7, 2014 Duration of term of office: 6 yearsExpiry date of term: at the close of the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019.
GRANT THORNTON, member of the Compagnie régionale des commissaires aux comptes de Versailles (Versailles branch of the French institute of auditors),
29, rue du Pont, 92200 Neuilly-sur-Seine
Represented by Samuel ClochardDate of appointment: December 20, 2013Duration of term of office: 6 yearsExpiry date of term: at the close of the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2018.
2.2. ALTERNATE STATUTORY AUDITORS
Philippe BENZONI, member of the Compagnie régionale des commissaires aux comptes de Toulouse (Toulouse branch of the French institute of auditors),8, chemin de la terrasse, BP 45122, 31512 Toulouse Cedex 5Alternate for SYGNATURESDate of re-appointment: March 7, 2014 Duration of term of office: 6 years Expiry date of term: at the close of the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019.
IGEC, member of the Compagnie régionale des commissaires aux comptes de Paris (Paris branch of the French institute of auditors), 22, rue Garnier, 92200 Neuilly-sur-Seine
Alternate for GRANT THORNTONDate of appointment: December 20, 2013Duration of term of office: 6 yearsExpiry date of term: at the close of the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2018.
2.3. INFORMATION ON STATUTORY AUDITORS WHO HAVE RESIGNED, BEEN DISMISSED OR NOT REAPPOINTED
Not applicable.
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2.4. STATEMENT OF FEES PAID TO THE STATUTORY AUDITORS
The following table shows the Statutory Auditors’ fees paid by the Company in the past two years:
STATUTORY AUDITORS’ FEES
(Amounts excluding tax in euros)Financial year 2016
(12 months)Financial year 2015
(12 months)
GRANT THORNTON
SYGNATURESGRANT
THORNTONSYGNATURES
For auditing the financial statements 25,750 25,750 25,000 25,000
For other services directly related to the duties of the statutory auditor
5,000 500 10,500 18,660
Services unrelated to the auditing of accounts (1) 16,850 13,250 - -
Subtotal 47,600 39,500 35,500 43,660
Other services
- Tax - - - -
- Other - - - -
Subtotal - - - -
Total 47,600 39,500 35,500 43,660
Services unrelated to the auditing of financial statements, including a limited review of the position as of September 30, 2016, the auditors’ report on the IFRS financial statements as at December 31, 2016 and the CSR report by one of the statutory auditor as an independent third-party
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3. SELECTED FINANCIAL INFORMATION
3.1. HISTORICAL FINANCIAL INFORMATION
The following key information is drawn solely from the historical financial statements of Genkyotex SA (formerly Genticel SA), prepared according to IFRS accounting standards, for the financial year ended December 31, 2016, shown in Section 20.1 "Financial Statements prepared to IFRS standards for the financial year ended December 31, 2016." The selected accounting and operational data should be read in conjunction with the information in Section 9 “Review of income statement and statement of financial position” and Section 10 “Cash and capital.”
The pro forma financial information of the new Genkyotex combined entity is shown for information purposes only and is drawn from the pro forma financial information of the new Genkyotex combined entity shown in Section 20.2 "Pro forma financial information."
It should also be noted that as at December 31, 2016, the Company has no subsidiaries or equity interests, and that only the annual financial statements of Genkyotex SA (formerly Genticel SA) prepared in accordance with French GAAP have legal standing. They are presented in Section 20.3 "Financial statements of Genkyotex SA (formerly Genticel SA) for the financial year ended December 31, 2016."
Simplified statement of financial position (in € thousand)IFRS standards
12/31/2016Pro formaUnaudited
12/31/201612 months
Audited
12/31/201512 months
Audited
TOTAL ASSETS 43,516 16,727 25,889
Non-current assets 12,122 224 5,501o/w Intangible assets 11,829 42 54o/w Property, plant and equipment 135 42 156o/w Other non-current financial assets 155 140 5,291o/w Deferred tax assets 4 - -
Current assets 31,394 16,503 20,388o/w Inventories - - 53o/w Trade receivables and related accounts 53 53 -o/w Other receivables 4,308 3,512 3,654o/w Other current financial assets 8,274 8,274 5,022o/w Cash and cash equivalents 18,759 4,663 11,660
TOTAL LIABILITIES 43,516 16,727 25,889
Shareholders' equity 36,680 13,300 20,335Non-current Liabilities 1,321 447 2,223
o/w Employee benefit obligations 986 112 322o/w Non-current financial liabilities 335 335 1,901
Current Liabilities 5,515 2,979 3,331o/w Current financial liabilities 598 598 621o/w Provisions 720 720 -o/w Trade payables and related accounts 2,116 571 1,886o/w Tax and social security liabilities 2,072 1,081 821o/w Other creditors and miscellaneous liabilities 8 8 2
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Simplified statement of profit and loss (in € thousand)IFRS standards
12/31/2016Pro formaUnaudited
12/31/201612 months
Audited
12/31/201512 months
Audited
Operating income 5,535 5,009 3,118o/w Sales - - -
Operating expenses (31,919) (12,420) (11,595)Operating profit (loss) (26,384) (7,411) (11,417)Financial profit (loss) 404 171 224 Pre-tax profit (loss) (25,980) (7,240) (11,193)Net profit (loss) (26,138) (7,240) (11,193)Earnings (loss) per share (€/share) n/a (0.47) (0.72)
Simplified statement of cash flow (in € thousand)IFRS standards
12/31/201612 months
Audited
12/31/201512 months
Audited
Cash flow from operating activities (8,189) (11,744)o/w Free cash flow (7,190) (10,478)o/w Change in WCR (-) 998 1,266
Cash flow from investing activities 2,054 12,585Cash flow from financing activities (862) 649Impact of exchange rate fluctuations - -
Change in cash & cash equivalents (6,997) 1,490
Net Debt (€ thousand)
IFRS standards
12/31/2016Pro formaUnaudited
12/31/201612 months
Audited
12/31/201512 months
Audited
Non-current financial debt 335 335 1,901Current financial debt 598 598 621Cash and cash equivalents (18,759) (4,663) (11,660)Current and non-current financial assets (8,274) (8,274) (10,176)
Total net debt (1) (26,100) (12,003) (19,314)(1) The amount of cash and cash equivalents and financial investments included in current and non-current financial assets is greater than the amount of financial debt
3.2. INTERIM FINANCIAL INFORMATION
Not applicable.
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4. RISK FACTORS
Investors are urged to give consideration to all the information contained in this Registration Document, including the risk factors set forth in this chapter, before deciding to subscribe for or purchase Company shares. The Company has conducted a review of the risks which could have a material adverse effect on the Group, its business, its financial condition, its results, its prospects or on its capacity to meet its objectives. To the best of its knowledge, on the date of this Registration Document, there are no other major risks besides those presented in this chapter.
Investors should however note that the list of risks and uncertainties described below is not exhaustive. Other risks or uncertainties which are unknown, or the materialization of which is not considered, on the Date of the Registration Document, as likely to have a material adverse effect on the Group, its business, its financial condition, its results or its prospects, may exist or become important factors likely to have a material adverse effect on the Group, its business, its financial condition, its results, its growth or its prospects.
4.1. RISKS RELATED TO THE COMPANY'S BUSINESS AND THE MARKET
4.1.1. Genkyotex identifies and develops selective NADPH Oxidase (NOX) inhibitors to treat specific diseases, the therapeutic benefit of which has not yet been demonstrated
Genkyotex is developing a new therapeutic approach based on the selective inhibition of NOX enzymes which are identified as potentially key factors in the development of certain complex illnesses that are difficult to treat, such as hepatic, pulmonary and renal fibrosis, certain forms of cancer, neurodegenerative diseases or even hearing problems (refer to chapter 6 of the Registration Document).
The capacity of NOXs to simultaneously regulate protein networks makes them a therapeutic target, the inhibition of which could enable, with a single oral drug, the simultaneous normalization of multiple mechanisms involved in the onset and progression of many human illnesses, such as fibrosis, inflammation, angiogenesis, tumor growth and neurodegeneration.
Genkyotex is exploring this new area of medicine involving NOX inhibitors. On the date of this Registration Document, no NOX inhibitor had been approved for marketing or sale by the competent health authorities.
Accordingly, the prospects for the development and profitability of Genkyotex’s most advanced product candidate, GKT831, for fibrosis, its safety, its efficacy, and its acceptance by patients, prescribers, and paying agencies, are uncertain.
The results for GKT831 in connection with the Phase 1 trials, and the Phase 2 trial for diabetic nephropathy (in which GKT831 had a statistically significant effect on several secondary efficacy endpoints in the liver which had been predefined in the protocol) on the one hand, and the Phase 2 trial for PBC, on the other, and more generally those relating to all existing or future products in the Company's portfolio or based on its technology at the time of the research or pre-clinical phase, may not be confirmed by future trial phases. Such a situation could have a very material adverse effect on Genkyotex’s business, results, financial condition, and prospects.
4.1.2. GKT831, Genkyotex's most advanced product candidate, the next clinical phase for which is planned on fibrosis of the liver and of the kidney, may never obtain market authorization
Genkyotex has already completed for GKT831, its product candidate at the most advanced stage of development, pre-clinical and clinical trials, in Phase 1 with the aim of assessing the safety and
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pharmacokinetics of the compound after a single dose and repeated doses, to assess the effect of the compound on cytochrome CYP3A4 and to assess the effect of food and micronization on pharmacokinetics and, in Phase 2, to assess the safety, and the pharmacokinetic and pharmacodynamic properties, as well as the efficacy of GKT831 in treating diabetic nephropathy patients.
The use of GKT831 for fibrosis of the liver and of the kidney requires additional clinical developments to be carried out under Phase 2 and, should the latter be successful, under Phase 3.
The development of GKT831, the completion of Phase 2b clinical trials for PBC, and, possibly, Phase 3, as well as the preparation for marketing authorization and the manufacture of GKT831 under strict manufacturing conditions require and will continue to require, significant investments by Genkyotex in time and financial resources, as well as the attention of its most qualified staff. Accordingly, if Genkyotex does not obtain regulatory authorization of GKT831 for the treatment of PBC, its financial condition, results of operations, and prospects will be significantly and adversely affected.
4.1.3. Genkyotex’s clinical trials, especially for its leading product candidate, GKT831, could be delayed or not occur in a satisfactory manner
Genkyotex’s ability to conduct clinical trials successfully depends on many factors, especially the pace of recruiting patients, eligibility criteria, the size of the eligible patient population, the type of clinical protocol, the proximity of patients to clinical sites, possible secondary effects and competition with other clinical trials conducted on product candidates developed by competing companies with, among other things, financial resources that may be greater than the Company’s.
In general, Genkyotex could encounter difficulties in recruiting and retaining patients to participate in clinical trials of its products and particularly its most advanced product candidate, GKT831 for PBC. As a result of the clinical trials for PBC (see section 6.3.2 - page 49) that are presently taking place, difficulties linked to the recruitment of patients in a trial that includes a placebo may arise. Strict criteria for inclusion in trials could also complicate patient recruitment. Once recruited, the patients participating in such trials could suspend or terminate their participation at any time without cause. Delays in patient recruitment could also increase their costs or delay, or even cause the cancellation of, clinical trials. Finally, if too many patients terminate their participation in a clinical trial, the analysis of the results of such trial could lack sufficient statistical significance.
Clinical trials designed and coordinated by the Company are conducted by companies that specialize in the organization of trials (a contract research organization or “CRO”) and the quality of their work (the selection of populations, base-line measurements, compliance with protocols, doses, the number of administrations, intermediate delays and the collection of data) is determinant in the analysis and precision of results.
Furthermore, the Company has limited experience in conducting clinical trials at multiple centers and has turned or will turn, now and in the future, to third parties to assist it in supervising and monitoring its trials. A breach or failure by one of such third parties or CROs in performing their task or their failure to comply with applicable regulatory standards could cause delays or even the premature termination of the trials.
Finally, the appearance during the trials of side effects that are currently unknown could cause delays or even suspend development of the Company’s product candidate. If, after the Company or one of its partners or licensees obtains a marketing authorization, the Company’s products cause unacceptable side effects which were not identified during the clinical trials, it might be impossible to sell or assign them or grant licenses to partners with a view to marketing them, which could have
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a very material adverse effect on its business and operations, prospects, financial condition, results, and growth.
As a reminder, due to the disappointing results of the phase 2 clinical trial in terms of the therapeutic efficacy obtained with Genticel's first product candidate, GTL001, the Company has decided to terminate its development program of treatments against the Human Papilloma Virus (HPV) infection.
4.1.4. Genkyotex could encounter problems in obtaining, or not obtaining at all, regulatory authorization to develop its candidate products
To obtain a marketing authorization for its candidate products, the Company will be required to show, by long, numerous and very expensive clinical trials, the outcome of which is uncertain, that their use is without danger and effective in humans. Clinical trials are subject to supervision of ethics committees, medical research participants protection committees, as well as regulatory authorities. If the Company does not meet its development calendar, or is unable to conduct the expected clinical trials successfully within applicable time limits, its business and operations could be materially and adversely affected.
The Company’s ability to obtain marketing authorization for its products will depend on several factors, including, but not limited to:
the possibility of pursuing the development of those of its products presently in early clinical trials, or presently in pre-clinical development to a clinical stage;
the ability of its partners or itself to conduct clinical trials successfully and in a timely manner without having to devote significantly greater resources than initially expected;
its clinical trials showing efficacy and tolerance of its products;
its products are approved for the indication they are intended to treat, or for any indication of any kind; and
an announcement by its competitors of more promising clinical results with their own products, which makes the Company’s economic equation unfavorable.
Traditionally in the pharmaceutical and biotechnology industries, it often happens that favorable results of pre-clinical studies and Phase 1/2 clinical trials are not confirmed by later clinical trials. Regulatory authorities in various countries in which the Company intends to market its products could block initiation of clinical trials, or the pursuit of clinical developments, if the proposed clinical trials do not meet applicable regulatory standards.
Such authorities could likewise interpret results differently from the Company and, in any event, request additional tests, on a discretionary basis (relating, among other things, to the study protocols, the characteristics and number of patients, the length of treatment, the analytical methods, and post-treatment follow-up), or impose additional or unexpected requirements at the time of such trials.
Furthermore, the Company might decide to suspend or terminate clinical trials, or regulatory agencies could so require, if patients are exposed to unexpected risks. Deaths or other adverse events could occur during a clinical trial, because of medical problems linked or not to the treatments administered, forcing the Company to delay or interrupt the trial. In light of the trial’s results, the Company could decide to abandon development projects that were initially identified as promising. Finally, products already approved could turn out to be unsafe and be withdrawn from
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the market, or produce effects different from those initially expected, which could limit or prevent any commercial use. The occurrence of all or some of such events could have material adverse effects on the Company’s business, results, and prospects.
4.1.5. Even if GKT831, the Company's leading product candidate, obtains a marketing authorization for fibrosis of the liver and/or the kidney, the Company's target market could turn out to be less significant than previously considered
The revenues that the Company may receive in connection with the marketing and sale of GKT831 will be limited by the number of patients and the categories of patients in this group who respond to treatment, the perception of its therapeutic benefit by health prescribers, its ability to achieve appropriate pricing and reimbursement levels, and the impact of competition.
In particular, the Company will have to compete with drugs already on the market as well as other products which may appear from the discovery and exploitation of new molecules.
If the Company does not market and sell GKT831 successfully, its revenue could be diminished, and it could find itself unable to finance the development and marketing of other products for other indications.
4.1.6. The successful marketing and sale of future products by the Company will depend on its ability to attract support from the medical community
If the Company succeeds in obtaining marketing authorization to introduce products based on its technology, it will need time to gain the support of the medical community, including healthcare providers, patients, and third-party payors. The degree of acceptance by the market will depend on many factors, especially:
the safety and efficacy of its therapeutic products, as demonstrated during clinical trials;
the existence of undesirable side effects;
the ease of administration;
the success of its marketing, sales, and public relations efforts;
the availability of alternative treatments;
the pricing;
the reimbursement policies of governments and other third parties (see section 4.3.1 of the Registration Document – page 21);
the effective adoption and implementation of a publication strategy; and
obtaining the support of recognized external opinion leaders.
A lack of or insufficient support from the medical community could have a material adverse effect on the marketing and sale, and on the Company's capacity to generate profits, which could have an adverse effect on the Company's financial condition, results and prospects.
4.1.7. Risks related to development partnerships and to the marketing and sale of product candidates incorporating the Vaxiclase platform
Serum Institute of India ("Serum Institute") is working in partnership with the Company to develop a Diptheria-Tetanus-Pertussis (DtaP) prophylactic acellular vaccine incorporating the Vaxiclase platform (see sections 6.10 - page 75 and 22.1 - page 270 of the Registration Document for detailed information on this partnership). Furthermore, the Company does not rule out the forging of other
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partnerships to facilitate the development and commercial exploitation of Vaxiclase technology and product candidates which have used this platform.
On February 2, 2015, the Company entered into a license agreement with Serum Institute for the development of multivalent prophylactic vaccines including active ingredients against whooping cough and containing GTL003 (i.e. empty Vaxiclase used as an antigen against whooping cough - for a description of this agreement, see section 22.1 - page 270 of the Registration Document). Under the terms of this agreement, Serum Institute may terminate the partnership prematurely at any time, upon 90 days' prior written notice. Should this situation arise, the Company may not manage to sign a contract with a partner of the same quality or under equivalent economic conditions. The development and marketing of product candidates incorporating the Vaxiclase platform will depend on efforts in research and development, marketing and commercial, all financial as well as human efforts made by the Company's partners, and their capacity to complete clinical trials or to manufacture the products developed on an industrial scale. The Company may experience delays, failures or competitive attitudes from its partners.
Furthermore, it is standard practice in a license and development agreement for the licensee to pay the licensor in milestone payments and royalties on sales. The Company's partner may not pay such compensation, particularly in the case of financial difficulties or if the objectives set under the partnership were not achieved or if the number of products sold was insufficient.
Moreover, the Company's partner may encounter difficulties during one of the various pre-clinical and clinical phases for a particular indication; which could delay the development, production and marketing of the product candidate concerned or even bring its development to a halt. The Company cannot guarantee that the developments of product candidates incorporating the Vaxiclase platform will come to a successful conclusion one day, even in the case of delays consistent with market requirements. Any failure or delay in the development of these products would have an adverse effect on the partnerships entered into by the Company, in particular by endangering all or part of the related milestone payments, and, in turn, the Company's results, its financial condition and its prospects.
At each clinical development phase of a product candidate, the authorization of the competent authorities in the countries concerned, depending on the development plan chosen by the Company's partner, should be requested before conducting the clinical trials. The entity in charge of the development process must then present the results of its clinical studies to the same authorities. The authorities may deny the authorizations necessary for the clinical trials, have additional requirements (e.g. relating to study protocols, patient characteristics, treatment periods, post-treatment follow-up, differences in the interpretation of the results between local regulatory agencies) and may request additional studies. Any denial or decision by the health authorities requesting additional trials or reviews could interrupt or delay the development of the subject products. Moreover, the effect of vaccine product candidates is only measurable in trials of a very large scale and long duration or in the case of an epidemic, meaning that the expected effects of these product candidates developed by the Company's partners during trials my not be apparent in the short-term. The absence or delay of an immune response (prophylactic or therapeutic) could also delay, or even suspend, the development of product candidates based on the Vaxiclase platform.
Finally, the appearance of side effects that are currently unknown could cause delays in the development of product candidates incorporating the Vaxiclase platform, or even interrupt it or result in the permanent abandonment of this platform. Moreover, if, after their marketing authorization ("MA") is obtained by the Company and/or one or more of its partners, the product candidates developed by its partners cause side effects which are unacceptable or have not been
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identified during the clinical trial period, their marketing and sale will not be authorized, which would have an adverse effect on the business, prospects, financial condition, results and growth of the Company.
Accordingly, if the studies conducted on the products developed through these partnerships were to reveal problems relating to their safety and/or therapeutic efficacy, or if the use of the platform infringed an intellectual property right of a third party, this could undermine the use and operation of the Vaxiclase technological platform itself and require new research and development efforts, without any guarantee of success.
If such events should arise, the development of product candidates incorporating Vaxiclase and, in turn, any related partnership would be affected, which could have a material adverse effect on the business, prospects, growth, financial condition and results of the Company.
In any event, if the Company and/or one or several of its business partners should successfully obtain MA permitting them to market and sell products incorporating the Vaxiclase platform, they may however not have enough time to secure the backing of the medical community, health prescribers and third-party payors.
Even if future products developed by the Company's partners may have the potential to bring a medical response to a currently unsatisfied requirement, poor market penetration could have an adverse effect on their marketing and sale and on the Company's capacity to generate profits from agreements it enters into with industrial partners, which could have an adverse effect on the Company's financial condition, results and growth.
4.1.8. The Company could encounter difficulties in the implementation of potential external growth operations
As part of a strategy aimed at diversifying its risks, the Company is assessing a certain number of projects involving the acquisition of companies or technologies. Such acquisitions could facilitate or give the Company access to new compounds or drugs, to new research projects, to new geographical areas or enable it to generate synergies with its existing businesses.
However, if such acquisitions should prove to be necessary, the Company may not be in a position to make these acquisitions under satisfactory conditions (particularly those related to price), or even to effectively incorporate the newly acquired companies or businesses, while achieving its operational objectives, or the desired cost savings or synergies. Moreover, the Company may not be in a position to obtain the financing for these acquisitions under favorable conditions and could be obliged to finance them using cash funds which would have otherwise been allocated to different purposes in the existing businesses.
If the Company encounters difficulties in the implementation or execution of its external growth policy, this could affect its capacity to achieve its financial objectives and to develop its market share, which could have a material adverse effect on its business, financial condition, results or prospects.
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4.2. RISKS RELATED TO THE COMPANY'S ORGANIZATION
4.2.1. Since Genkyotex is a biopharmaceutical company with no product that has obtained a marketing authorization and with only a single product candidate that has reached the clinical trial stage, the absence of revenues from historical products makes it difficult to evaluate its prospects and future financial results
Genkyotex is a biopharmaceutical company with a limited operating history that does not make it possible to estimate its prospects and future revenues. The development of biopharmaceutical products is highly speculative and involves a high degree of uncertainty. The Company’s operations have been so far primarily limited to identifying and developing therapeutic molecules capable of selectively inhibiting NOX enzymes and, on the basis of such technology, to conduct pre-clinical and clinical trials for the purpose of developing, and marketing and selling therapeutic solutions. GKT831, the Company's product candidate at the most advanced stage of development, targets fibrosis of the liver and the kidney and a Phase 2a study has revealed favorable results in terms of safety as well asstatistically significant effects on several secondary efficacy endpoints (statistically significant reduction in the GGT liver enzyme and C-reactive protein, a marker for inflammation of the liver).
Notwithstanding the experience and abilities of its management and scientific team, the Company has not yet shown an ability to overcome the great number of risks and uncertainties frequently encountered by companies active in new and rapidly evolving areas such as biopharmaceuticals. The Company’s ability to evaluate its future results or commercial prospects with precision, likewise, is more limited than if it had a long operating history or products that had already received marketing authorization.
As a result, the probability of the Company’s success must be evaluated in light of the numerous potential challenges and contingencies faced by a Company in the business of developing medications at an early stage, most of which are beyond its control. The occurrence of any setback in this connection could harm the Company’s operations and prospects.
4.2.2. Genkyotex does not have extensive manufacturing capability or experience
The Company has chosen to outsource the manufacture of its products.
Its dependence on third parties to manufacture and assemble some of its products and its lack of experience in manufacturing other products on an industrial scale could affect its ability to develop and sell its products within a reasonable time frame and on a competitive basis.
In particular, the Company depends on third parties to produce its most advanced product candidate, GKT831 for PBC, and for the production of its second product candidate, GKT771. In this regard, it has entered into an agreement with Corden Pharma (see section 22.4 – page 271) for the manufacture of the GKT831 placebo and capsules, for specific quantities at a predetermined cost and another agreement with Syngene for the production of GKT771 (refer to section 22.2 – page 270).
Furthermore, dependency on third-party manufacturers involves additional risks to which the Company might not be exposed if it manufactured its product candidates itself, i.e.:
non-compliance of such third parties with regulatory and quality control standards;
the breach of such agreements by such third parties;
the termination or non-renewal of such agreements for reasons beyond its control; and
the insolvency of such third parties.
If products manufactured by such third-party suppliers do not comply with regulatory standards, sanctions and penalties could be imposed. Such sanctions could include fines, court orders, civil
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penalties, the refusal of regulatory authorities to grant marketing authorization for its products, delays, the suspension or withdrawal of authorizations, the revocation of product licenses, or recalls of its products, the seizure or recall of its products, operating restrictions, and criminal prosecutions, all measures which could have a material adverse effect on the Company’s business and operations, its financial condition, and its results.
4.2.3. Genkyotex relies heavily on service providers, particularly the CRO selected for the Phase 2 Cmed trial to assist in the clinical trials and Corden Pharma in the manufacture of its products
The organization of the Phase 2 clinical trial on PCB has been entrusted to the British company Cmed which is primarily responsible for the logistics of the trial, follow-up of the study, and data collection and analysis (refer to section 22.3 - page 271). Cmed’s performance as part of its engagement, with respect to which the Company, has only financial oversight, will be essential to the quality and timeliness of obtaining results. Although Cmed is a CRO recognized in the market, this type of multinational trial (such as the Phase IIb trial) could encounter considerable quality problems and delays.
If the Company is unable to maintain its collaboration agreements with its existing partners, including the contract manufacturing organization (“CMO”) Corden Pharma (refer to section 22.4 -page 271), or enter into new agreements, it will have to develop and sell its products at its own expense, or turn to other partners. This could increase its capital needs or limit its growth and sales efforts to other areas. In addition, even if the Company, in accordance with its agreements, has included provisions designed to impose strict compliance by its partners with their commitments, it cannot control either the significance or the timing of the resources that its existing and future partners will devote to the development or sale of its products. Such partners might not meet their obligations as set forth in the contracts that it has, or may have, with them or as it expected.
Even though the Company tries to include non-compete clauses in its collaboration agreements, no assurance can be given that such restrictions will provide sufficient protection. Its partners could pursue technologies alone or together with others, including its competitors.
4.2.4. Genkyotex is dependent on its key staff and must continue to attract and retain its key employees and scientific advisors
The Company's success depends largely on the work and experience of its executive management and its key scientific personnel. The loss of their expertise could alter the Company’s ability to reach its objectives. Furthermore, the Company will need to recruit new qualified executives and scientific staff as it expands in areas that require additional abilities, such as marketing, manufacturing, clinical trials, and regulatory affairs. The Company competes with other companies, research organizations, and academic institutions to recruit and retain highly qualified scientific, technical, and management staff. To the extent such competition is very intense the company may be unable to attract or retain such key staff on terms and conditions that are acceptable from an economic point of view. Its inability to attract and retain such key staff could prevent it from reaching its overall objectives.
4.2.5. The success of the new group resulted from the combination between Genkyotex and the Company completed in February 2017, will partly depend on management's ability to effectively manage the publicly traded company
The Company’s management has limited experience in managing a publicly traded company on a regulated market and in complying with ever more complex laws and regulations applicable to
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publicly traded companies. The Company’s management may be unable to successfully and effectively manage the Company subject to supervision by the Autorité des marchés financiers(French financial markets authority) and the numerous regulatory obligations arising under and pursuant to applicable laws and regulations. Such obligations require substantial attention from the Company’s management and could divert its attention from the day-to-day management of its business and affairs. As a publicly traded company, the Company is required to make additional disclosures. Compliance with legal and regulatory requirements will increase legal and financial compliance costs as well as being time-consuming. Furthermore, the new group emerging from the combination approved by the Shareholders’ Meeting of February 28, 2017 will have to integrate and harmonize the various operational procedures specific to each company, such as the financial and accounting systems (see section 16.5 of the Registration Document). The implementation and completion of the new systems and harmonized procedures will also take up a lot of time. As a result, the attention of the Company’s management could be diverted to considerations other than business, and the Company may end up hiring additional employees or outsourcing consultants to assimilate these requirements or to set up and carry out new procedures for the group, which will increase costs and expenses. Any such developments, taken separately or together, could have an adverse effect on the Company, its financial condition, and operating results.
4.2.6. The Company's development will depend on its capacity to manage growth
As part of its growth strategy, the Company should be required to develop its operational capacities, which could call for significant involvement from its internal resources.
For this purpose, the Company will, in particular, have to:
anticipate expenses linked to this growth and the associated financing needs;
increase the capacity of its existing operating IT, financial and management systems;
manage the outsourcing of the production of the drugs it develops; and
manage partnership agreements with industrial partners of the Company in charge of continuing the clinical development, marketing and sale of the Company's products.
To meet demand within the time frame agreed upon with its future partners, the Company may need to enter into new subcontracting contracts.
The Company's inability to manage its growth, or unforeseen difficulties encountered during its expansion, could have a material adverse effect on its business, results, financial condition, growth and prospects.
4.3. REGULATORY AND LEGAL RISKS
4.3.1. Risks related to the ever changing legal and regulatory framework in terms of price and reimbursement of drugs
The conditions for fixing the sales price for the reimbursement of drugs are beyond the control of pharmaceutical companies. They are decided respectively by the competent public commissions and agencies and by social bodies or private insurance entities. Against the current backdrop of health expenses management and economic and financial crisis, the pressure on sales prices and the level of reimbursement is increasing, due mainly to the price controls imposed by many states and the increased difficulty of obtaining and maintaining an acceptable reimbursement rate for drugs.
When the time comes, the conditions for fixing the price and the reimbursement rate for the Company's products will play a key role in their commercial success. The possibility for the Company
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to receive royalties from its industrial partner(s) on the sale of its treatments will depend on these price fixing and reimbursement conditions. If the time spent on price negotiations causes a significant delay in the marketing launch or if one of the Company's drugs does not obtain an appropriate level of reimbursement, its profitability would be reduced.
The Company is also unable to guarantee its ability to maintain, over time, the price level of its drugs or the accepted rate of reimbursement. Under these conditions, its revenues, profitability and prospects could be significantly affected.
4.3.2. Genkyotex is subject to regulations that are numerous and uncertain and it may not be able to obtain the necessary authorizations to market and sell its products
As of the date hereof, none of the Company’s products, including its most advanced product candidate, GKT831, have received a marketing authorization from any regulatory authority. The Company cannot be sure that it will receive the necessary authorizations to market and sell any of its products. These are subject to many very stringent laws and the applicable regulatory requirements are uncertain and subject to modification. The U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the "EMA") and the Agence Nationale de Sécurité du Médicament et des produits de santé (French agency for the safety of drugs and healthcare products) (the "ANSM") in France, as well as their counterparts in other countries regulate, among other things, research and development, pre-clinical tests, clinical trials, manufacturing, safety, efficacy, records retention, labeling, and the marketing, sale, and distribution of therapeutic products.
The regulatory process for approving new therapeutic products requires the Company to submit detailed characteristics of the product’s manufacturing process and quality control, as well as pre-clinical and clinical data, and any information making it possible to establish the potential safety and efficacy of the product for each indication. It may also require continual post-marketing studies as well as manufacturing quality controls.
These regulatory steps are costly, may take several years, and their results are unpredictable. The data from pre-clinical and clinical developments may give rise to different interpretations, which could delay obtaining or restrict the scope of regulatory authorization. The requirements of the regulatory process vary greatly from one country to another, so that the Company or its strategic partners may not be able to obtain authorization on a timely basis in each relevant country. Since the Company’s products are based on new, constantly changing technologies and have not been tested on an in-depth basis in humans, the applicable regulatory requirements are still uncertain andcould be subject to significant changes. Changes in laws and regulations during the development of a product and its regulatory review could cause delays in or the denial of authorization.
In the United States, in Europe and in other countries, applicable laws and regulations and changes to them could:
delay and/or significantly increase the cost of developing, testing, manufacturing and marketing the Company’s products;
limit the indications for which it might be authorized to market and sell its products;
impose new, stricter requirements, suspend authorization of the Company’s products or require that the clinical trials being conducted by the Company or marketing and sales be stopped (for example, if unexpected results are obtained during clinical trials by other researchers of products similar to those of the Company); or
impose restrictive labeling.
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If the Company does not comply with the laws and regulations applicable to its business and operations, it could incur sanctions or penalties, which could include refusals to authorize pending applications, product recalls, restrictions on sales or the temporary or permanent suspension of its operations as well as civil and criminal proceedings.
4.3.3. The validity of the layoffs made under mass layoff plans implemented by Genticel could be undermined
The implementation, by Genticel, of measures proposed under its 2016 strategy and in particular of various mass layoff plans ("MLP"), has resulted in a significant reduction in Genticel's salaried workforce. Although it considers that it has implemented these measures in accordance with the laws and regulations in force, the Company cannot guarantee that one or several employees involved in the MLP will not take individual action to call into question all or part of the layoff procedures carried out under the Mass Layoff Plan (MLP) before a court and that the latter will not consider the layoff(s) abusive and order the payment, by Genticel, of damages to the employees affected.
Although the Company has no knowledge, as of the date of the Registration Document, of any decision by one or several of its former employees to call into question their layoff, nor is it aware, as of the date of the Registration Document, of involvement in any dispute of the sort, such events could require the immobilization of internal and financial resources. This could have a material adverse effect on the Company's business, results, financial condition and growth prospects.
4.4. RISKS RELATED TO INDUSTRIAL PROPERTY
4.4.1. Risks related to intellectual property
It is important for the success of its business that Genkyotex and any of its future licensees, are in a position to obtain, maintain and uphold their patents, intellectual property rights and similar rights (such as trade secrets, business secrets and know-how) in Europe, the United States and in other countries in which Genkyotex may sell its products directly or indirectly. It cannot be ruled out that:
the Company may fail to develop new inventions that are patentable;
patent applications that are being reviewed, including certain important patents in several
jurisdictions, are not granted;
the patents which are granted or licenses to its partners or itself are contested or held to be
invalid, or the Company may be unable to enforce them;
the scope of protection granted by a patent is not sufficient to protect the Company from
competition; or
third parties may claim proprietary rights to the patents or other intellectual property rights
that the Company owns outright or to which it holds a license.
The grant of a patent does not guarantee its validity or scope and third parties may challenge both aspects. The validity and scope of a patent in the area of biotechnology is highly uncertain and raise complex legal and scientific questions. Until now, no uniform policy has emerged at a worldwide level, in terms of the content of patents granted in the area of biotechnology and the scope of individual claims. Legal action may be necessary to enforce Genkyotex’s intellectual property rights, protect its trade secrets or determine the validity and scope of its intellectual property rights. Any dispute could entail considerable expense, reduce profits, and not provide the protection sought.
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The Company’s competitors could successfully challenge in court or through other proceedings the patents the Company has been granted or has had licensed to it, which could have the consequence of reducing the scope of its patents. In addition, such patents could be infringed or successfully avoided as a result of innovations.
However, the Company may not be in a position to keep protecting its intellectual property rights. In such a case, the Company would lose its technological and competitive edge.
To the best of the Company's knowledge, its technology is currently protected by the patents and patent applications it has filed. However, if the Company is unable to maintain or protect its intellectual property rights, it could lose its technological and/or competitive edge and be unable to operate profitably.
4.4.2. Risk related to patent portfolios
4.4.2.1. Specific risks related to the infringement of intellectual property rights
The Company's success will partly depend on its ability to develop its products or technologies which do not infringe patents or other rights of third parties. It is important, for the success of its business, that the Company be in a position to freely exploit its products without them undermining patents or other intellectual property rights, and, in turn, without third parties undermining the Company's rights, in particular those relating to intellectual property.
The growth of the research industry and the associated increase in the number of patents filed heighten the risk that the Company's products and technologies may infringe the rights of third parties, in particular those relating to intellectual property.
The Company therefore continues to speed up, as it has done up to now, the preliminary studies it deems necessary in relation to the aforementioned risks, before committing investments aimed at developing its different products/technologies. In particular, it monitors the activities (patent filing in particular) of its competitors.
To the extent that patents combine the use of multiple molecules, the Company should examine and monitor the rights which could have been obtained or which would be obtained in the future by third parties over these molecules or antigens. The Company will therefore be eventually required to take actions to challenge the rights of third parties to be free to exploit its products, or may in some cases have to obtain licenses on specific aspects within the composition of its products or its immunotherapies and for which the Company has not been able to secure protection, mainly because they concern products or processes prior to its research in the field or concern fields which are different, yet related.
Patents belonging to third parties have, for example, been identified by the Company in the field of adjuvants required for preparation and these third party patents are monitored by the Company to determine their relevance in the context of a long-term exploitation project. Actions could be taken by the Company to challenge these patents if required.
However, monitoring the unauthorized use of the Company's products and technology, and, thus, the infringement of its own intellectual property and other rights, is a delicate task. The Company can therefore not guarantee:
that it will be able to prevent and seek redress for unauthorized misappropriations or uses of its products and technology, particularly in foreign countries where its rights would not be as well protected due to the territorial scope of intellectual property rights;
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that there are no former patents or other rights (particularly those relating to intellectual property) of third parties, likely to cover certain products, processes, technologies, results or activities of the Company and that, as a result, third parties infringe or violate their rights against the Company with a view to obtaining damages and/or the cessation of its manufacturing activities and/or of the marketing or sale of products, processes and otheractivities thus incriminated;
that there are no prior trademarks or other rights of third parties likely to provide grounds for an infringement or liability action against the Company; and/or
that the Company's domain names will not be the subject of, by a third party with former rights (e.g. trademark rights), a UDRP (Uniform Dispute Resolution Policy) or similar procedure or infringement proceedings.
Should disputes arise regarding the intellectual property it uses, the Company may be obliged to:
cease or oversee the cessation of the development, sale or use of any product(s) dependent upon the challenged intellectual property;
review the design of some of its products/technologies or, in the case of requests concerning trademarks, rename its products, to avoid infringing the intellectual property rights of third parties, which could prove impossible or be long and costly, and could, in fact, impact efforts to market and sell the products concerned by the Company and/or its partners.
Third parties (including employees of the Company) could use or try to use elements of the Company's technology protected by an intellectual property right, which would place the Company in a harmful situation. The Company may therefore be obliged to take legal or administrative litigation action against these third parties and/or employees to assert its rights particularly those relating to intellectual property (patents, trademarks, drawings and models or domain names) in court.
Any litigation or dispute, whatever the outcome, could generate substantial costs, affect the Company's reputation, negatively influence the results and financial condition of the Company and potentially not provide the protection or solution sought. The Company’s competitors may have greater resources than the Company and be in a better position to bear the cost of litigation proceedings.
However, as of the date of the Registration Document, the Company had not found itself in any of these situations, nor had it been involved in any disputes, as claimant or defendant, concerning its intellectual property and other rights or those of a third party.
4.4.2.2. Specific risks related to agreements concerning intellectual property and the confidentiality of the Company's information and know-how
The agreements signed by the Company to protect its technology, its trade secrets and its know-how could prove insufficient
It is important for the Company to protect itself against the unauthorized use and disclosure of its confidential information, its know-how and its trade secrets. Its technologies, processes, methods, know-how and data which are not patented and/or patentable are considered trade secrets that the Company partly attempts to protect through confidentiality agreements. Furthermore, the rules for giving the Company control over any inventions that its employees have created or may create, and their terms of remuneration, are governed by article L.611-7 of the intellectual property code which is public policy for French entities of the Group.
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Under collaboration, partnership, research or any other type of cooperation agreements entered into between the Company and researchers from university institutions and with other public or private entities, subcontractors or any co-contracting third party, various information and/or products may be entrusted to them particularly for the purposes of conducting certain tests and clinical trials. In such cases, the Company requires the signature of confidentiality agreements. Furthermore, the Company ensures that the collaboration, partnership or research agreements that it signs give it access to the full ownership or, at least, the co-ownership of any results and/or inventions resulting from such a collaboration, where it has effectively participated in the creation of such results and/or inventions. The Company also seeks, through the license agreements it signs with its partners, to retain control over the management of patents or to only grant licenses in specific fields in which it does not operate.
It cannot be ruled out that the agreements established to protect the Company's technology and trade secrets and/or know-how may not provide the protection sought or may be violated, that the Company may not have effective recourse against such violations or that its trade secrets may be disclosed to its competitors or developed independently by them. Furthermore, the Company has very limited control over the conditions under which third parties with which it enters into contracts, themselves engage third parties, and protect their confidential information. This is independent of the fact that the Company takes into account in its agreements with its co-contractors that they undertake to pass on to their own co-contractors these confidentiality obligations.
Such agreements therefore expose the Company to the risk of the third parties concerned (i) claiming entitlement to intellectual property rights over inventions or other intellectual property rights of the Company, (ii) failing to ensure the confidentiality of unpatented innovations or enhancements of the Company's confidential information and know-how, (iii) disclosing the Company's trade secrets to its competitors or independently developing these trade secrets and/or (iv) breaching such agreements, without the Company having a suitable solution against such breaches.
As a result, the rights of the Company over its confidential information, its trade secrets and its know-how may not confer the expected protection against the competition and the Company cannot guarantee:
that its know-how and trade secrets will not be obtained, usurped, circumvented, transferred without its authorization or used by unauthorized third parties;
that the Company's competitors have not already developed a technology, products or devices comparable or similar in nature or destination to those of the Company;
that no co-contractor will claim entitlement to all or part of the intellectual property rights over inventions, knowledge or results that the Company owns itself or in co-ownership, or for which it would be required to hold a license; or
that the Company's employees will not claim the rights or the payment of additional compensation or a fair price in consideration of inventions for which they have contributed to the creation.
The occurrence of one or more of such risks could have a material adverse effect on the Group’s business, prospects, financial condition, results and development.
The Company is reliant on the good execution by Serum Institute of India Ltd. of its contractual obligations under the terms of the license agreement dated February 2, 2015.
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On February 2, 2015 the Company entered into a license agreement with the company Serum Institute of India Ltd. (SIIL) concerning its technology Vaxiclase, as part of the development by SIIL of acellular and multivalent vaccines containing antigens against whooping cough.
SIIL could encounter difficulties in the technical and clinical validation of the Company's Vaxiclase technology. The resulting delays or failures could delay or even jeopardize the marketing and sale by SIIL of the products concerned.
SIIL may also fail to take all the necessary measures to achieve the desired results under the license agreement signed with the Company. Budgetary restrictions within SIIL or priority given by SIIL to other development programs, in particular, could delay the validation of the potential of products incorporating Vaxiclase technology.
The Company cannot rule out either that SIIL may wind down its relationship with it. SIIL may also unilaterally terminate the license agreement upon 90 days' notice and payment of any sums due to the Company. A conflict of interest could arise between certain activities of SIIL and the activities that SIIL provides to the Company. This would cause a loss of know-how and expertise for the Company and may even involve the disclosure of important confidential information in the Company's research and development system even though SIIL is contractually bound by a duty of confidentiality towards it under the terms of the license agreement.
Such events could have a material adverse effect on the Group’s prospects in terms of potential revenues to be received through this contract, financial condition and results, to the extent that intangible asset depreciation in the sum of €11.8 million could result from the occurrence of such events.
4.4.2.3. Risks related to accountability related to products
The Company could be held accountable for the product candidates it develops
The Company may be exposed to liability risks during the clinical development of its products (in particular accountability for the products, in relation to tests of therapeutic products on humans and animals). It may also be held liable by patients participating in the clinical trials for the development of therapeutic products tested and due mainly to unexpected side effects which could result from the administration of these products.
The Company's liability may also be incurred in the marketing of its products. Civil or criminal proceedings could be brought against the Company by patients, regulatory authorities, biopharmaceutical companies, and other third parties using or selling its products. Such actions could include claims resulting from acts by its partners, licensees, and subcontractors over which the Company has little or no control.
The Company cannot guarantee that its insurance coverage is sufficient to respond to actions likely to be brought against it, or to respond to an unforeseen situation.
If it or one of its partners, licensees or subcontractors is held responsible, if it or its partners, licensees and subcontractors are not in a position to obtain and maintain appropriate insurance coverage at an acceptable cost, or if the Company is not in a position to protect itself in any way against liability actions, this would seriously impact the marketing and sale of the Company's products and more generally be harmful to its business, results, financial condition and growth prospects.
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4.5. INDUSTRIAL RISKS
4.5.1. Risks related to the use of products harmful to health and/or the environment
The handling of hazardous materials by staff of the Company may cause contamination of the environment or occupational illnesses
The Company's activities entail the controlled storage, handling, use and treatment of hazardous or toxic materials and chemical and biological agents.
There are therefore not only environmental risks related to the contamination of the environment but also health-related risks (particularly occupational illnesses) linked to the handling by the Company's employees of active or toxic products during the research and production of products.These risks also apply to the third parties with whom the Company works.
Although the Company considers that the safety measures it takes for the handling and treatment of hazardous materials comply with the regulations in force and allow its employees and subcontractors to carry out their activities under suitable conditions in terms of environment, health and safety, the risk of accidental contamination or occupational illnesses related to the handling of hazardous materials cannot be entirely ruled out. In the event of an accident, the Company may be held responsible for any damage caused and the liability incurred could exceed the upper limit of insurance policies taken out by the Company, which may not be covered at all by its insurance policies.
4.6. FINANCIAL RISKS
4.6.1. The Company has posted operating losses since its formation and believes this situation could continue. It is possible that it may never be profitable.
Since it began operating, the Company has posted operating losses. Such losses reflect both the significance of the expenses incurred in research and development and the weakness of its revenues.
The Company foresees that such losses will continue over the next few years, at least until the marketing and sale of its products (should that occur), because of the significant investments required for research, development, manufacture, quality control, distribution of its products, pre-clinical and clinical trials, administrative activities, and activities linked to the development of intellectual property, as well as license agreements for new products and for the acquisition of new technologies that may become necessary, as the case may be. The Company may never market or sell any products and, as a result, may never become profitable.
As of December 31, 2016, the accumulated losses according to IFRS standards over the last two financial years ended totaled €18,433 thousand, of which €7,240 thousand account for the loss incurred in the financial year ended December 31, 2016.
The Company expects that its operating losses will increase in the near future, particularly when:
some of its products move beyond the stage of pre-clinical development to clinical development;
it is confronted with increased regulatory requirements for the manufacturing and trials of its product candidates (including GKT831 for PBC, which is its only product in an advanced stage of development);
it increases its portfolio of products by adding new products for future development;
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it develops its research and development activities and buys new technologies, products or licenses, as the case may be; and
it has to finance structural expenses consistent with the growth of its business.
The amount of net losses and the time needed to reach sustained profitability are difficult to estimate and will depend on several factors, including:
the degree of advancement of the Company’s research and development activities, particularly pre-clinical developments and clinical trials;
the calendar of regulatory procedures in connection with the preparation, review, and protection of patents and intellectual property rights;
changes in collaboration arrangements made by the Company; and
other factors, a great number of which are beyond the Company’s control.
The increase of these expenses could have a material adverse effect on the Company, its business, financial condition, results, growth and prospects.
4.6.2. Risks related to research tax credit
The Company may not be able to continue receiving the research tax credit in future years
To finance its activities, the Company uses Crédit d’Impôt Recherche (Research Tax Credit) ("CIR"), which is a tax credit to companies investing significantly in research and development. The research expenses that are eligible for the CIR include, wages and salaries, the amortization of research material, services subcontracted to approved research entities (public or private), and intellectual property expenses.
The amounts received by the Company through the CIR 2015 amount to €3,008 thousand. The amount which will be requested by Genkyotex SA (formerly known as Genticel SA) through the CIR 2016 to receive in 2017 is €2,431 thousand.
It is also specified that the Genkyotex group, with which the Company combined in February 2017, has a subsidiary in France (Genkyotex Innovation SAS) which had an outstanding amount of CIR in 2016. The research tax credits for the 2013 to 2015 financial years for this subsidiary are currently being audited by the tax authorities.
The Company cannot rule out the possibility that the tax authorities will question the methods used by the Company in calculating research and development expenses or that the CIR may be questioned (for past or future financial years) because of a change in regulation or a challenge from the tax services even though the Company meets the requirements in terms of documentation and eligibility of expenses, given that management’s repossession right is exercised until the end of the third year following the date when the special declaration provided for the calculation of this tax credit was filed. The amounts declared by the Company Genkyotex SA (formerly Genticel) for the financial years 2014 to 2016 amount to €8,075 thousand. Furthermore, following the discontinuation of the program to develop treatments against HPV infection which concerned GTL001 and GTL002, the Company will no longer be entitled to receive CIR after 2017.
If such a situation should arise, this could have an adverse effect on the results, financial condition and prospects of the Company.
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4.6.3. Risks related to government advances received by the Company
The Company receives government advances and, in the event that these advances stop, should be entitled to receive other sources of financing
The Company receives the following repayable aid:
As of the Registration Document DateIn thousands of euros
Amountreceived
Amount repaid
Outstanding amount due
OSEO 2: development and clinical trials of a therapeutic vaccine against cancer and precancerous lesions on the cervix caused by Human papillomavirus (HPV) infection
1,500 1,375 125
OSEO 3: extension of phase I clinical studies of the ProCervix project (GTL001)
812 306 506
Total 2,312 1,681 631
The information regarding the various contracts for advances (payments, repayment calendar or specific clauses) is presented in note 10.1 of the notes to the financial statements prepared in accordance with IFRS standards for the year ended December 31, 2016 appearing in section 20.1 -page 175 "Financial statements of Genkyotex SA (formerly Genticel) prepared in accordance with IFRS standards for the financial year ended December 31, 2016".
For OSEO (now Bpifrance) repayable advances, if the Company should fail to comply with the contractual conditions set forth in the aid agreements signed, it may be required to repay the sums advanced earlier than planned.
Such a situation could deprive the Company of necessary financial means for its research and development projects, with no guarantee that it would find the necessary additional financial means, the time or the ability to replace these financial resources with others.
4.6.4. Risks related to the future use of tax loss carryforwards
The tax loss carryforwards accumulated by the Company may not be attributable to future profits
As of December 31, 2016, after taking into consideration the net loss reported for the financial year, the Company had tax loss carryforwards in France amounting to €74,202 thousand.
In France, the carry forward of these tax losses is capped at 50% of the taxable profits for the year. This limitation is applicable to the portion of profits exceeding €1 million. The outstanding amount of tax losses may be carried forward to subsequent financial years, and under the same conditions without any time limitation.
Refer to note 19 of section 20.1 - page 188 concerning the accounting treatment of tax losses in financial statements prepared according to IFRS standards.
It is also specified that as of December 31, 2016, the Genkyotex group, with which the Company combined in February 2017, had tax loss carryforwards in Switzerland, the reporting of tax losses for which is limited to 7 years.
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It cannot be ruled out that regulatory or legislative changes to the taxation of companies may question the possible carry forward, in its entirety or in part, of these former tax losses to future profits or put a time limit on their carryforward.
4.6.5. Dilution Risk
The stake of the Company's shareholders in its capital could be significantly diluted
Since its creation, the Company has issued and granted subscription warrants (BSAs) and start-up subscription warrants (BSPCEs). As of the Registration Document Date, the full exercise of all of the instruments granting access to the capital awarded and in circulation on that date would allow for the subscription of 861,428 new shares, generating a dilution equal to 1.11% based on the existing capital on that date and 1.09% based on the fully-diluted capital.
In connection with its incentive strategy for motivating its executives and employees and to attract and retain qualified personnel, the Company may issue or award shares or new equity securities carrying the right to acquire shares in the future, which could cause further dilution, potentially material, for present and future shareholders of the Company (see section 21.1.4 - page 256 of the Registration Document for detailed information on dilutive instruments).
4.6.6. The results and financial condition presented in the pro forma financial information of the Company (formerly known as Genticel) may not reflect its future performance
The pro forma financial information presented in section 20.2 of the Registration Document was prepared following the contribution transaction involving the contribution of 5,262,133 GenKyoTex shares (representing 100% of the capital and voting rights of the aforementioned company) to give shareholders of the Company (formerly known as Genticel) an insight into what the results and financial condition of the new combined entity would have been if this contribution had been completed on January 1, 2016.
The integration of GenKyoTex into the financial accounts could present several difficulties for the Company (formerly known as Genticel), particularly as regards the harmonization of reporting and analytical accounting procedures. This situation could prolong the lead times for closing the annual financial statements and, in turn, have an impact on the Company's capacity to provide financial information on the dates planned.
Furthermore, the pro forma financial information is based on historical financial information and not on expected data. It does not include any new provisional costs, or any expected synergies or economies of scale. Moreover, on December 13, 2016, Genticel announced its phase 2 results and the discontinuation of its program to develop treatments against HPV infection. Since this date, Genticel's assets have been provisionally reduced to its cash, the residual value of its pre-clinical portfolio of anti-HPV therapies, its Vaxiclase technology and to the license agreement with SIIL. As a result, the pro forma financial information provides no indication of future results or of the financial condition of the new combined entity.
Finally, in the course of preparing the pro forma financial information, Genticel carried out some reclassifications and adjustments.
Pro forma reclassifications and adjustments were applied to GenKyoTex's historical data primarily due to the Euro/Swiss franc exchange rate. The companies predict that other reclassifications or adjustments could prove necessary when the new entity approves the format for its financial statements and its final accounting principles and methods.
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Moreover, this transaction was treated in substance as a reverse acquisition. In this context, the acquisition cost of Genticel shares was determined based on revised stock market objectives provided by analysts. This market price does not in any way predict the intrinsic value of the Genticel share and is likely to have a significant impact on the pro forma financial information presented. Genticel's assets also underwent a preliminary revaluation for the purposes of the valuation of the SIIL contract. In the event that future cash flows are lower than those predicted for the valuation of Genticel, the Company may be required to depreciate this asset, which would have a material impact on the results and equity of the new combined entity.
All of these factors could have an adverse effect on the Company's financial statements and its consolidated financial condition could differ significantly from that set out in the pro forma financial information presented in section 20.2 of the Registration Document.
4.7. MARKET RISKS
4.7.1. Liquidity risks
The Company may be required to strengthen its equity capital or to obtain additional financing to ensure its growth
Since its creation, the Company has financed its growth by strengthening its equity capital through successive capital increases, obtaining government aid for innovation and repaying outstanding CIR (Crédit d’Impôt Recherche, research tax credit) amounts but has not, to date, resorted to bank loans.As a result, the Company is not exposed to an immediate liquidity risk resulting from the potential implementation of early repayment clauses for such loans.
Considerable expenditure on the research and development of clinical studies has been incurred since the Company began operating, which has, to date, generated negative cash flows related to operational activities. These amounted respectively to -€11.7 million and -€8.2 million for the financial years ended December 31, 2015 and December 31, 2016.
As of December 31, 2016, the Company (Genticel only) had:
cash and cash equivalents amounting to €4.7 million.
liquid financial investments (presented under current financial assets in the IFRS financial statements as of December 31, 2016) totaling €8.3 million.
On the date the Company's financial statements were closed, the going concern assumption was made, taking into consideration the Company's financial capacity in terms of its financing needs for the next 12 months.
Following the Company's combination with the group Genkyotex Suisse in February 2017, the financing structure of the new combined entity changed substantially. As of December 31, 2016, the new combined entity had cash assets and liquid financial investments estimated at €27 million (refer to section 20.2 "Pro forma financial information" - page 195).
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As of March 31, 2017, the Group had cash assets and liquid financial investments amounting to €21.8 million1. This cash position does not take into account the early repayment of the Research Tax Credit (CIR) for 2016, estimated by the Company to be approximetely €3.0 million2.
As of the Registration Document Date, the Company believes that the new Group resulted from the combination is in a position to meet its maturities over the coming twelve months.
The Company will continue to have major financing needs in the future for the development of its technology, the continuation of its clinical development program and the equipping of its own pharmaceutical laboratory and in the longer term for the production, marketing and sale of its products. The Company could find itself unable to self-finance its growth, which could lead it to seek other sources of financing, particularly via new capital increases.
The Company’s level of financing needs and their scheduling over time depends on matters that are largely beyond the Company’s control, including:
higher costs and slower progress than those anticipated for its research and development programs and clinical studies;
the costs of preparing, filing, defending, and maintaining its patents and other intellectual property rights; and
costs associated with possible requests to change studies, or to include a greater number of patients;
higher costs and longer lead times than those anticipated to obtain regulatory authorizations for the marketing of its products and access to reimbursement, including time spent preparing application dossiers for the competent authorities; and
new opportunities for the development of new products or the purchase of technologies, products or companies.
It is possible that the Company may not be able to secure additional capital when it is needed, or that such capital may not be available on financial terms and conditions acceptable to the Company. If the necessary funds should not be available, the Company may be forced to:
delay, reduce, or eliminate the number and scope of its pre-clinical studies and clinical trials;
grant licenses of its technologies to partners or third parties; and/or enter into new collaboration agreements on terms and conditions less favorable to it that those that it might have been able to obtain in different circumstances.
To the extent the Company can raise capital by issuing new shares, the stake of its shareholders could be diluted. Debt financing, where available, could however require the Company and its shareholders to make restrictive commitments.
The occurrence of one or more of such risks could have a material adverse effect on the Company, its business, financial condition, results, development, and prospects.
4.7.2. Foreign exchange risks
Conducting its business abroad would expose the Company to a higher foreign exchange risk
1Unaudited quantitative data
2Unaudited quantitative data
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As of December 31, 2016, the Company's cash was primarily denominated in euros. Following the payment of the first milestone payment under the license agreement with the pharmaceutical company Serum Institute of India Ltd. (SIIL), the Company also held funds in dollars. The Company's cash surplus in euros was invested in investment products exclusively in euros.
It is also specified that the cash of the Genkyotex group, which the Company combined with in February 2017, was primarily denominated in Swiss francs as of December 31, 2016.
The Company did not, at this stage of its development, enter into any hedging arrangements to protect its business against fluctuations in exchange rates, as the expenses anticipated at this stage by the Company are primarily anticipated in euros and Swiss francs. However, the Company cannot rule out that a significant increase in its business abroad, particularly resulting from its combinationwith the Genkyotex group and the license agreement with the pharmaceutical company SIIL, would not subject it to a higher exposure to exchange rate risks.
If the Company does not manage to take effective hedging arrangements against exchange rate fluctuations in the future, its results of operations could be impacted.
4.7.3. Credit risk
The Company manages its available cash prudently, refraining from any investments in speculative instruments or those with a risk of capital loss.
As of December 31, 2016, cash and cash equivalents amounted to €4.7 million, and comprised bank accounts and monetary SICAVs (refer to note 7 of section 20.1 of the Registration Document - page 170). Financial investments, including in current and non-current financial assets, as of December 31, 2016, amounted to €8.3 million including €3.2 million related to a capital bond (capital guaranteed investment) and €5.1 million in term deposits (refer to note 4 of section 20.1 of the Registration Document - page 167).
It is also specified that the cash assets of the Genkyotex group, which the Company combined with in February 2017, solely comprised bank accounts as of December 31, 2016.
Credit risk is associated with deposits with banks and financial institutions. To make its cash investments, the Company works with highly ranked financial institutions and, therefore, does not bear any material credit risk on its cash.
4.7.4. Interest rate risks
The Company has no exposure to interest rate risk as regards the asset items on its balance sheet, to the extent that cash equivalents consist of short-term accounts and that it has not subscribed to any variable-rate debt.
Given the current low level of return on the Company's investments, it considers that any change of +/-1% would have an insignificant impact on its net income in terms of the amount of losses generated by its operational activities.
As a result, the Company does not consider itself exposed to any major interest rate fluctuation risk.
4.7.5. Risk related to change in the Company's share price and the stock market valuation
The Company's securities were admitted to trading on the regulated Euronext Paris and Euronext Brussels markets on April 9, 2014, at the price of €7.90.
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Given the level of the stock market price and market capitalization, and how they have fluctuated since the initial public offering, any failure or delay in the completion of scientific, financial or regulatory steps, could have a material adverse effect on the stock market price and the market valuation of the Company, not to mention its business, financial condition, results, growth and prospects.
During the 2016 financial year, the stock market price reached its highest level on January 1, 2016, at €6.69 and its lowest level on November 29, 2016, at €1.30. As of December 31, 2016, the closing price was €2.53. The drop in the stock market price observed during this financial year is related tothe Company's publication of the disappointing results of the phase 2 clinical study for GTL001, the aim of which was to provide proof of concept of its clinical efficacy.
During the first few months of 2017, the price went from €2.53 on January 2, 2017 to €2.01 on June 28, 2017, resulting in a market capitalization of the Company of around €156.48 million.
4.8. INSURANCE AND RISK COVERAGE
The insurance cover taken out by the Company could prove inadequate
The Company has adopted a strategy of covering its principal insurable risks with levels of coverage that it believes are compatible with the nature of its business. The amount of expenditure paid by the Company for all of its insurance policies amounted to €123 thousand for the financial year ended December 31, 2016.
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Summary table of insurance policies taken out by the Company:
Type of insurance Insurer Amounts covered Deductible per claim
Civil Liability of Executives
The contract covers executives of the Company (and its subsidiaries) for any claims made against them during the insurance period (March 1 to February 28) invoking their individual or joint liability and covering any actual or alleged professional misconduct committed in the performance of their duties as executive.In accordance with regulations, a local Swiss policy has been taken out by the subsidiary Genkyotex Suisse with the same company
XL CATLIN
XL CATLIN
EUR 10,000,000 per year
CHF 1,000,000 per year
None
None
Civil Liability for Operations
All damages including:Including: Misconduct Material and immaterial damage
Including: Non-consecutive consequential
losses Damage to entrusted property Sudden and accidental pollution
Defense and Legal Action
Please note that a Civil Responsibility for Operations policy has also been taken out with CNA to cover Genkyotex Suisse SA in accordance with Swiss insurance requirements.
CNA (per claim and per year of insurance)
EUR 7,000,000
EUR 1,000,000EUR 1,500,000
EUR 300,000
EUR 250,000EUR 500,000
EUR 50,000
(per claim unless otherwise stated)
None
EUR 5,000 per victimEUR 2,000
EUR 2,000
EUR 2,000EUR 2,000
Disputes in excess of
EUR 500
Professional Multi-risk (Archamps)
Damage to Property (business movable property, equipment, goods and fixtures) Fire & related risks Water damage Theft Broken glass Accidents involving electrical
equipment All IT Risks (excluding laptops) Occupant’s liability
Rental risks Claims by neighbors and third parties
GAN
EUR 322,000EUR 64,500
EUR 129,000EUR 4,300
EUR 53,800EUR 21,500
EUR 800,000
EUR 200
EUR 200
None
Company property and operating loss (Plan-les-Ouates)
Damage to Property (business movable property, equipment, goods and fixtures) Fire and related risks, Water damage,
Theft Costs Goods, equipment for stands Broken glass Technical insurance
LA MOBILIERE
CHF 585,200
20% of insurance CHF 117,040CHF 10,000
CHF 5,000
CHF 200
CHF 200 CHF 200
NoneNone
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Type of insurance Insurer Amounts covered Deductible per claim
Electronic installations Additional costs
(guarantee effective until 12/31/2017)
CHF 100,000CHF 30,000 to CHF 50,000
CHF 300,000
NoneCHF 1
CHF 200
Business Travel
Healthcare costs Psychological support Assistance Guarantees Family Personal Life Insurance
Guarantees
APRIL
Capped at EUR 750,000
EUR 4,600,000 in bodily injuryEUR 460,000 in material
damage EUR 92,000 in immaterial
damage
None
Vehicle Travel
Civil Liability Legal protection Fire Theft All accidental damages
GAN
Capped at EUR 30,000 incl. taxes per vehicle and per
incident
EUR 457
Key Man (M. Benedikt TIMMERMAN)
Death – Accident/Illness TPD Total and Permanent Disability
APRIL
EUR 150,000EUR 150,000
Waiting period:Illness: 3 months
Accident: none
Insurance for the clinical study GSN000300
in Belgium
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 400,000 per subjectEUR 3,000,000 per protocol
None
Insurance for the clinical study GSN000300
in Canada
(guarantee effective from 6/15/17 to 9/30/2018)
AGCS
(in accordance with local practices and obligations)
CAD 1,200,000 per claimCAD 5,000,000 per protocol
None
Insurance for the clinical study GSN000300
in Germany
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 500,000 per subjectEUR 5,000,000 per protocol
None
Insurance for the clinical study GSN000300
in Spain
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 250,000 per year of insurance
EUR 2,500,000 per protocol
None
Insurance for the clinical study GSN000300
in the United Kingdom
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
GBP 5,000,000 per protocol None
Insurance for the clinical study GSN000300
in Italy
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 1,000,000 per subjectEUR 5,000,000 per protocol
None
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Type of insurance Insurer Amounts covered Deductible per claim
Insurance for the clinical study GSN000300
in the United States
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
USD 1,000,000 per subjectUSD 5,000,000 per protocol
USD 5,000 per claim
Insurance for the clinical study GSN000300
in Greece
(guarantee effective from 6/15/17 to 9/30/2018)
AGCS
(in accordance with local practices and obligations)
EUR 300,000 per subjectEUR 5,000,000 per protocol
None
Insurance for the clinical study GSN000300
in Israel
(guarantee effective from 6/15/17 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
USD 1,000,000 per subjectUSD 3,000,000 per protocol
None
Corporate liability (Plan-les-Ouates)
Pre-clinical development of drugs in the cardiovascular field
Damage to leased premises(guarantee effective until 12/31/2017)
ZURICH CHF 5,000,000 in the event of bodily injury and/or material
damage
CHF 1,000,000
CHF 100
CHF 500
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5. INFORMATION ABOUT THE ISSUER
5.1. HISTORY AND DEVELOPMENT OF THE COMPANY
5.1.1. Corporate name of the Company
The Company’s corporate name is: Genkyotex SA (formerly Genticel SA).
5.1.2. Place of registration and registration number of the Company
The Company was registered with the Toulouse Trade and Companies Register (Registre du commerce et des sociétés de Toulouse) under number 439 489 022. Following approval by the Shareholders' General Meeting of June 15, 2017 to transfer its registered office, the Company is in the process of registration with the Thonon-les-Bains Trade and Companies Register (keeping its registration number).
The Company’s NAF code (French business code, formerly “APE” code) is 7211Z.
5.1.3. Date of incorporation and term
The Company was incorporated on October 15, 2001 for a period of 95 years expiring on October 15, 2096, barring early dissolution or extension.
5.1.4. Registered office, legal form and governing law
The Company's registered office is at 218 Avenue Marie Curie - Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France.
The Company’s contact details are as follows:Telephone: +33 4 80 16 06 07Website: www.genkyotex.com
The Company is a limited liability company (société anonyme) with a Board of Directors since the General Meeting of February 28, 2017. Prior to that date, it was organized with a management board and a supervisory board.
The Company, governed by French law, is subject, in operational matters, to Articles L.225-1 and subsequent of the French Commercial Code.
5.1.5. History
2001 to 2013
The Company is founded
Financing rounds totaling €12 million
Exclusive license negotiated with the Pasteur Institute for the CyaA protein
2014 Initial Public Offering (IPO) on the regulated market of Euronext in Paris in April and concomitantly €35 million funds raised
€6 million fund raising, through the exercise of BSA Closing 2 (warrants) issued April 22, 2013 and the conversion of a bond issued March 7, 2014.
2015 License granted to Serum Institute of India to use the Vaxiclase technology platform for whooping cough vaccines
Positive preclinical proof of concept results for GTL002, the multivalent HPV vaccine candidate from Vaxiclase
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2016 Results obtained after 12, 18 and 24 months of observation in the Phase II trial with GTL001, and the Company's research projects halted in the field of HPV (i.e. , GTL001 and GTL002)
Decisive milestone reached in the partnership with Serum Institute of India, regarding the use of GTL003 in multivalent vaccines; the Company receives a $1.2 million milestone payment
Strategic combination announced with GenKyoTex Suisse Group and contribution agreement signed
2017 The Combined General Meeting of the Company's shareholders on February 28, 2017, approves the combination with GenKyoTex Suisse Group through the in-kind contribution of all GenKyoTex shares to Genticel, creating a listed French-Swiss group whose activity is primarily dedicated to the development of a portfolio of NOX inhibitors, a new therapeutic class in fibrosis and inflammatory pain. These contributions resulted in the issuance of 62,279,951 new shares to the contributors at a parity of 11.8355 shares of Genkyotex SA (formerly Genticel SA) for each Genkyotex Suisse share contributed.
FDA approval for IND for Phase II clinical trial of GKT831 in patients with primary biliary cholangitis. Beginning in late June 2017, the objective of the study is to obtain preliminary results during the first half of 2018 and final results in the second half of 2018.
The launch of a phase 2 clinical trial to evaluate 48-week treatment withGKT831 in patients with Type 1 diabetes and kidney disease lead by the Baker Heart and Diabetes Institute of Melbourne, Australia, with the financial support of the Juvenile Diabetes Research Foundation, for a study in multiple study sites across Australia focusing on diabetic nephropathy.
5.2. INVESTMENTS
5.2.1. Main investments made during the last two financial years
The following information is based solely on the Financial Statements of Genkyotex SA (formerly Genticel SA), prepared to IFRS standards, for the financial year ended December 31, 2016, in Section 20.1 "Financial Statements prepared to IFRS standards for the financial year ended December 31, 2016".
Principal investments(in € thousand)
12/31/2016 12/31/2015
Intangible assets 8 39
Property, plant and equipment 6 113
Including machinery and equipment - 91
It is noted that the Company has devoted a major part of its resources to the research and development of its drug candidates. These research costs are automatically recognized in expenses (see Note 3.1 in Section 20.1 of the Registration Document) and are therefore not shown in this section.
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5.2.2. Main investments since the end of the last financial year ended
As part of the combination with Genkyotex Suisse Group in February 2017, this Group's former shareholders contributed 100% of their securities to the Company for a total value of €120 million. This in-kind contribution was paid through the issue of ordinary shares in the Company.
5.2.3. Main investments planned
The Company is not planning, for the moment, to make significant investments in the foreseeable future, for which the Company management bodies have made firm commitments. It will continue, in the future, to devote a major part of its resources to the research and development of its drug candidates.
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6. BUSINESS OVERVIEW
6.1. GENERAL PRESENTATION OF THE GROUP'S ACTIVITIES
Genkyotex is a clinical-stage biopharmaceutical company specializing in the discovery and development of small therapeutic molecules suitable for oral administration and capable of selectively inhibiting NADPH oxidase (or NOX) enzymes. NOXs have been identified as potentially key factors in the development of many complex illnesses which are difficult to treat.
Following the combination, involving the contribution in kind of shares, completed on February 28, 2017 between Genticel and Genkyotex, the Company now focuses its activities primarily on the development of products for the selective inhibition of NOXs.
The Company, which recorded disappointing results in 2016 from its clinical trials on two therapeutic vaccines, ceased its research and development activities in the field of immunotherapy. However, it intends to continue promoting Vaxiclase, the proprietary polyvalent platform developed by Genticel and in particular, to follow up the license and partnership agreement signed by Genticel in 2015 with the Serum Institute of India Ltd.
The Group has 12 employees, 8 of whom are dedicated to research and development. Besides the R&D conducted within the Group, a significant part of its development activities is carried out by Contract Research Organizations (CRO), whose main responsibilities include conducting clinical trials, manufacturing compounds and performing toxicology studies. The Company also relies on the unrivaled expertise of the members of its Scientific Advisory Board, which includes top global experts in NOX.
A unique therapeutic approach: selective inhibition of NOXs
The function of NOX enzymes, most of which were discovered and characterized by the members who currently sit on the Company's Scientific Advisory Board, is to produce reactive oxygen species (ROS) which act as second messengers in oxidizing target proteins and thus, modulating their function. Through this mechanism, NOX enzymes regulate many biological pathways involved in numerous physiopathological processes.
The capacity of NOXs to simultaneously regulate protein networks makes them an attractivetherapeutic target, since their inhibition with a single oral drug has the potential to normalize multiple mechanisms involved in the onset and progression of many human illnesses, such as fibrosis, inflammation, angiogenesis, tumor growth and neurodegeneration.
The NOX family contains seven enzymes called NOX isoforms (NOX1 to NOX5, as well as DUOX1 and DUOX2). To date, no NOX inhibitor has yet been approved and the technological challenge is to identify selective inhibitors of NOXs to obtain an optimal efficacy and safety profile to treat specific disorders.
An initial focus on fibrotic disorders with the drug candidate GKT831
GKT831, an NOX1 and NOX4 inhibitor which is the most advanced drug candidate developed by Genkyotex, has shown anti-inflammatory properties in several clinical studies, in addition to its efficacy in various animal models of hepatic, pulmonary or renal fibrosis. These results, which have been the subject of over 30 publications in leading scientific journals, have led the Company to identify fibrotic processes, which are estimated to contribute to around 45% of deaths in the industrialized world, as a very important therapeutic target. The Company has identified fibrotic
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disorders of the liver and, in a second phase other organs, as the main targets of its drug candidate GKT831.
In the liver, the main disorders targeted by the Company are primary biliary cholangitis (PBC), a chronic orphan auto-immune disease causing a progressive destruction of the intra-hepatic bile ducts, which largely affects women (90%), and another liver disorder known as nonalcoholic steatohepatitis (NASH).
The Company has conducted four Phase 1 clinical trials which have shown GKT831 to have very good safety and pharmacokinetics profiles. These trials were completed in 2013 and were conducted on a total of 117 healthy subjects.
The Company also conducted a Phase 2 trial with GKT831 in diabetic nephropathy, which was completed in 2015 and involved 136 patients. Although this trial did not achieve its primary efficacy endpoint, it did enable the Company to observe a statistically significant effect on several predefined secondary efficacy endpoints.
On late June 2017, the Company has launched a Phase 2 clinical trial of GKT831 in patients wih PBC. The trial will be conducted in several European countries and in North America and will include 102 PBC patients. The objective is to obtain preliminary results during the first half of 2018 and final results in the second half of 2018.
For PBC, although it is difficult to estimate the size of the market, given that there is only one non-generic drug currently available (Ocaliva by Intercept Pharmaceuticals), the Company believes that the PBC market, based on the prevalence of this orphan disease and the price of the marketing and sale of Ocaliva, generates revenues of between US$1.5 and 2 billion.
GKT771: a drug candidate with anti-angiogenic, analgesic and anti-inflammatory effects with Phase 1 planned for end of 2017
The second most advanced product candidate, GKT771, is a selective inhibitor of NOX1 which, and as the Company's preclinical research has shown, has anti-angiogenic, analgesic and anti-inflammatory effects. These are three major components in a high number of rheumatic and cutaneous inflammatory disorders and in various types of inflammatory pain. Genkyotex is currently conducting preclinical studies to define the priority clinical indications for GKT771 and plans to be ready to initiate the Phase 1 clinical program with GKT771 at the end of 2017 to assess the safety, pharmacokinetics and pharmacodynamic activity in healthy subjects.
Preclinical research programs
Genkyotex also carries out early preclinical research programs on NOXs, in connection with hearing loss, disorders of the central nervous system and oncology.
Partnership agreement with the Serum Institute of India for Vaxiclase
Lastly, the Company intends to promote the in-house polyvalent platform Vaxiclase, developed by Genticel before it combined its activities with those of Genkyotex. Vaxiclase was developed by Genticel through its development of two immunotherapy therapeutic vaccines (GTL001 and GTL002) intended to treat women infected by the most dangerous types of human papillomavirus (HPV), the agent responsible for cervical cancer, which were suspended in December 2016 following disappointing results from the Phase 1 and Phase 2 clinical trials on these vaccines.
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A partnership for the use of Vaxiclase as an antigen alone (GTL003) was entered into by the Company in February 2015 with the Serum Institute of India (Serum Institute), the largest producer of vaccine doses in the world. This license agreement, which allows the Serum Institute to use Vaxiclase to develop its multivalent acellular vaccines against a variety of infectious diseases, including whooping cough and which covers only regions outside the United States and Europe, could allow Genkyotex to generate up to US$57 million in revenues, excluding royalties on potential sales (see section 6.10 of the Registration Document below). The final preclinical stage provided for in this agreement, which was completed in November 2016, opens the way to regulatory preclinical tests conducted by the Serum Institute, prior to the potential clinical development, marketing and sale of vaccines by this organization.
Status of the clinical and preclinical development of Genkyotex's products
The table below summarizes the progress of the clinical and preclinical development of Genkyotex's products.
Research and development work, preclinical studies, clinical trials, facilities and the manufacture, marketing and sale of the Company's products are subject to the regulatory authorities in France (Agence nationale de sécurité du médicament et des produits de santé (ANSM)), Europe (European Medicines Agency (EMA)), the United States (the Food and Drug Administration (FDA)) and in other countries.
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6.1.1. Competitive advantages
Genkyotex considers itself to have the following competitive advantages:
The Company has unique NOX expertise, bolstered by its position as first entrant in the field. Founded by scientists who discovered and characterized the majority of NOX enzymes, Genkyotex boasts unrivaled expertise and technological and scientific leadership in this new therapeutic area. The clinical trials conducted to date by the Company has enabled it to demonstrate the clinical feasibility of this therapeutic approach.
A positive safety profile and proof of pharmacological activity for GKT831. GKT831 has undergone four Phase 1 clinical trials which have shown a favorable safety profile and have demonstrated its pharmacological activity. The Company also conducted a Phase 2 clinical trial assessing GKT831 in diabetic nephropathy, which was completed in 2015 and involved 136 patients. Although this trial did not achieve its primary efficacy endpoint, it did enable the Company to observe a statistically significant effect on several predefined secondary efficacy endpoints. In addition, the positive safety profile observed during the Phase 2 trial in diabetic nephropathy supports the further clinical evaluation of GKT831 in the kidneys, liver and other organs for a longer treatment period and at higher doses.
The two product candidates GKT831 and GKT771 offer a therapeutic alternative for significant unmet needs. The NOX therapies developed by the Company offer a therapeutic alternative for several indications and in particular for fibrotic disorders, for which there arecurrently no approved therapies.
The Company's technology allows it to target various biological pathways with a single oral compound. The NOX technology developed by the Company allows it to effectively target multiple biological pathways with a single oral compound and a positive safety profile. The NOX also have the advantage of being able to characterize these compounds in several different ways.
An experienced management team and Board of Directors assisted by a leading Scientific Advisory Board, including some of the world's most highly regarded specialists in the NOX field. The Chief Executive Officer, the Medical Director, the members of the Board of Directors and the four members of the Company's Scientific Advisory Board, professors Karl-Heinz Krause (University of Geneva), Chihiro Yabe (University of Kyoto), Robert A. Clark (University of Texas) and Dave Lambeth (Emory University Medical School, Atlanta) are highly experienced, with complementary expertise in terms of their training and experience in the pharmaceutical industry. In particular, they boast extensive experience in translational, preclinical and clinical research, regulatory affairs, business development and finance.
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6.1.2. Strategy
Genkyotex's aim is to develop a new approach in the treatment of various illnesses, the needs of which are not currently met at all or are only partly met. The main elements of its strategy are as follows:
Confirm the efficacy of GKT831 for fibrosis in a hepatic disorder. The Company's main objective is to confirm the efficacy of its most advanced product candidate, GKT831, for the treatment of hepatic fibrosis with a study in PBC. To achieve this objective, the Company has launched a Phase II clinical trial in late June 2017 in Europe and North America. If this trial targeting fibrosis of the liver is successful, it will open represent a gateway for other fibrotic disorders.
Confirm the efficacy of GKT831 in kidney fibrosis. The Company concluded an agreement for a Phase 2 clinical trial to evaluate the effectiveness and safety of GKT831 for a period of 48 weeks with the Baker Heart and Diabetes Institute on patients with type 1 diabetes and kidney disease. The study will be carried out at the Baker Institute as well as in several clinical centers in Australia, and it will be financed by the Juvenile Diabetes Research Foundation (JDRF), which has obtained funds through the Australian Research Council Special Research Initiative in Type 1 Juvenile Diabetes. Enrollment of patients will begin during the second half of 2017.
Conduct the Phase 1 clinical trial to confirm the positive safety profile and demonstrate the pharmacological activity of GKT771. The second most advanced product candidate, GKT771, is a selective inhibitor of NOX1 with anti-inflammatory, anti-angiogenic and analgesic effects, three major components in many rheumatic and cutaneous inflammatory disorders and in various types of inflammatory pain. Genkyotex is currently conducting preclinical studies to define high-priority clinical indications. It plans to be ready to initiatethe Phase 1 clinical program with GKT771 at the end of 2017 and aims to focus its efforts on obtaining a favorable response in Europe to its clinical trial application (DEC or CTA).
Promote the Company's NOX platform by conducting further exploratory preclinical research programs. Genkyotex also plans to conduct NOX exploratory preclinical research programs in connection with hearing loss, disorders of the central nervous system and oncology.
Continue the partnership with the Serum Institute for Vaxiclase and promote the rights held by the Company under this license agreement. The Company plans to continue its partnership with the Serum Institute and to promote Vaxiclase to third parties in the regions (Europe, United States) excluded from the license agreement with the Serum Institute.
6.2. NOX INHIBITION: A NEW AND COMPLEX THERAPEUTIC APPROACH
To date, no NOX inhibitor has been approved by a regulatory authority. The Company's objective is to identify and obtain authorization for selective inhibitors of NOX isoforms involved in the target disorders, in order to obtain an optimal efficacy and safety profile to treat these specific disorders.
NOX enzymes are highly complex biological systems. The identification and development of selective inhibitors therefore require a highly sophisticated technological platform. Since the creation of Genkyotex in 2006, the Company has been a pioneer in this area, relying initially on the scientific
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knowledge of its founders, whose research teams discovered and characterized the majority of NOX enzymes.
Preclinical studies conducted with NOX inhibitors generated by Genkyotex seem to confirm the role of NOXs in important biological pathways such as fibrosis, inflammation, angiogenesis and tumor growth. These data were generated in collaboration with renowned academic groups and have been published in leading scientific journals, with more than 35 publications to date (see Section 6.14).
The published scientific data suggest in particular that NOX1 and NOX4 isoforms could play a predominant role in the development of inflammatory and fibrotic processes.
6.2.1. Genkyotex's proprietary NOX platform
Complexity of trials
The development of a platform enabling the development of NOX inhibitors is particularly complex.It is currently very difficult, if not impossible, to apply rational drug design to the development of NOX inhibitors, for the following reasons:
- NOXs are 6-helix transmembrane proteins and are therefore very difficult to crystallize, a necessary step for the development of a high-definition tridimensional model;
- It is therefore impossible to correctly model the transmembrane structure of NOXs and extremely difficult to extrapolate the binding format of NADPH; and
- the structure of NOXs is unique, meaning a similar crystalline structure cannot be used as a basis (e.g., modeling of 7TM from bacteriorhodopsin).
It is currently not possible to carry out binding studies. The two substrates of NOXs, i.e., molecular oxygen and NADPH, are reduced to the extent that they are only losely linked and the product obtained lacks affinity for the enzyme and detaches itself. To date, it has not been possible to synthesize a radioactive NADPH moiety which is not reduced (e.g., GTPgS which is not hydrolyzed and which remains linked to the subunit of the G protein). Also impossible is the radiolabeling of a ligand of NOXs, as these ligands, apart from those of GKT, do not exist.
The high-throughput screening of molecules is therefore based on a functional test which assesses the inhibitory activity of the candidate molecules on the enzymatic activity of NOXs. These functional tests assess the production of reactive oxygen species (enzymatic products) and the consumption of oxygen and NADPH (enzymatic substrates).
To conduct these enzymatic studies, the Company first had to express each NOX isoform together with its subunits in cells lacking endogenous NOX expression, in order to be certain of the activity measured. Then, it had to express the enzymes at a rather high rate to be able to measure ROS levels (reactive oxygen species). At the same time however, high ROS production kills cells. To overcome this paradox, the Company constitutively expressed all the necessary subunits in the cells and the catalytic subunit (NOX1-NOX5) was inducibly expressed using tetracycline. In other words, for the chosen isoform to be expressed, cells need to be treated with tetracycline.
The second challenge was to measure ROS in a robust fashion and with high throughput. ROS are highly reactive species with a very short lifespan. Furthermore, the existing ROS detection probesare not yet specific enough for one ROS and may be subject to artefacts. For this, Genkyotex has created a battery of studies with different probes which can be used at high throughput. Because probes can lack specificity and are subject to artefacts, the Company also developped probe-
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independent methods which can be used in low thoughput format. These tests assess the consumption of molecular oxygen and NADPH, which are the two natural substrates in NOXs.
Cell and membrane-based NOX assays
It is currently impossible to measure the inhibition of a specific NOX isofrom in cells expressing multiple NOX isoforms. Accordingly, Genkyotex developed a membrane assay for each NOX isoform.This was achieved by establishing a suite of cell lines expressing each of the NOX isoforms. Because cell-based assays are subject to interference by other cellular sources of ROS and intracellular antioxidant systems, the Company developped membrane-based assay for each of the NOX isoforms. For this purpose, highly purified membrane preparations were created from each cell line overexpressing the NOX isoforms. These membranes contain protein p22 and the catalytic subunit (i.e., the NOX isoform). For isoforms NOX1, NOX2 and NOX3, the subunits required for their activitywere added. These subunits were produced recombinantly in bacteria and highly purified. To the best of the Company's knowledge, Genkyotex is the only company to have the full NOX battery of assays, including both membrane and cellular systems. The best molecules identified in the membrane tests are also tested in our cells overexpressing the desired isoform. Moreover, as mentioned above, various probes were used, both on the membrane and on entire cells.
Lastly, the candidate molecules for in vivo tests were also tested on cells expressing NOX endogenously and which are related to each of the disorders of interest to the Company.
Negative controls and counter screening trials
To eliminate false positives, the Company has also developed a full battery of tests capable of identifying both antioxidants and inhibitors of flavoproteins in general. First, to eliminate antioxidants, the reduction of DPPH was measured. This molecule is capable of identifying hydrogen donors, i.e., molecules with antioxidant capacity. The Company has also developed a xanthine oxidase assay and a glucose oxidase assay. These two enzymes are also oxidases, which function in a very similar way to NOXs, i.e., production (albeit at a lesser extent) of superoxide and hydrogen peroxide from molecular oxygen. The activity of these two enzymes was measured using the same sensors as those used for NOXs. This battery of tests was therefore used to eliminate molecules acting mainly via an antioxidant mechanism or though a general inhibitors of flavoproteins. Other assays allow for the elimination of other sources of artefacts, such as the direct inhibition of enzymes involved in our ROS detection systems.
6.3. CLINICAL DEVELOPMENT PLAN FOR GKT831
Genkyotex's most advanced compound is GKT831, an NOX1 and NOX4 inhibitor. These two NOX isoforms play an important role in the development and maintenance of inflammatory and fibrotic disorders. As described below, there are plans to assess GKT831 in patients suffering from PBC.
Following encouraging preclinical and clinical results, Genkyotex's objective is to expand the assessment of GKT831 in fibrotic disorders for which an optimal study protocol could be carried out.
6.3.1. Strategic therapeutic area for GKT831: Fibrosing disorders
The preclinical studies conducted to date indicate that GKT831 has direct anti-inflammatory and anti-fibrotic effects. Its anti-inflammatory effects include a reduction in the expression of cytokines, chemokines and adhesion molecules and a reduction in the infiltration of inflammatory cells. Its anti-fibrotic effects include a reduction in the activation of myofibroblasts, the main cellular source of
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extracellular matrix. These anti-fibrotic effects seem to be due to direct action as they can be reproduced in myofibroblasts cultivated in vitro. These anti-inflammatory and anti-fibrotic properties could be particularly useful in fibrotic disorders in different organs. These disorders are generally due to genetic and environmental factors which cause the parenchymatous cells to suffer, in turn triggering an inflammatory response. The development of fibrosis (i.e., fibrogenesis) then appears as an initially favorable response to cell and tissue damage but over time, fibrosis contributes to the gradual and often irreversible loss of function of the organs involved. It is estimated that fibrosis is a factor in around 45% of deaths in industrialized countries. However, no anti-fibrotic therapy has been approved to date.
Fibrotic disorders include lung diseases such as idiopathic pulmonary fibrosis, skin conditions such as scleroderma and liver diseases of viral, metabolic, cholestatic or immunological origin. Fibrosis also plays a part in renal diseases, such as diabetic nephropathy and focal segmental glomerulosclerosis. Considerable progress has been made in the understanding of fibrogenic mechanisms in recent years. The cellular origin of components of the extracellular matrix and the biological pathways involved in this process are better understood. It emerges that fibrogenesis represents a highly complex process involving a myriad of mediators and interconnected cell types. It also emerges that certain biological pathways play a central role and have the capacity to modulate the gene networks and proteins involved in fibrogenesis. The activation of NOXs therefore seems to represent a major biological pathway, necessary for the action of multiple fibrogenic pathways.
The preclinical studies completed to date with GKT831 seem to confirm this theory, as they have revealed GKT831's efficacy potential in hepatic, pulmonary and renal fibrosing disorders (see Section 6.6 below). The Company's objective is therefore to assess the therapeutic potential of GKT831 in fibrosing disorders for which there is a significant medial need.
6.3.2. Clinical trials completed on GKT831
The Phase 1 clinical trials conducted in healthy subjects indicated a positive safety profile and good oral bioavailability. These studies also indicated that GKT831 can be administered with meals and is unlikely to induce drug interactions. Finally, the Phase 1 repeated dose study, conducted in the form of a double-blind placebo-controlled study, also provided the first indications of pharmacodynamic activity.
GKT831 was then assessed in patients with diabetic nephropathy. This international study, conducted in 75 research sites in North America, Europe and Australia, enrolled 155 patients, 136 of whom were randomized and treated with GKT831 or a placebo. The primary efficacy endpoint, a decrease in proteinuria, was not achieved. As described in Section 6.7.2 below, the lack of efficacy in the primary efficacy endpoint could be linked to several factors, including the short duration of the treatment (12 weeks), an insufficient dose, the already intensive medical treatment of these patients or possibly the lack of induction of NOXs in this population. GKT831 did, however, achieve a statistically significant reduction in the plasma concentrations of several markers of inflammation and hepatocyte damage (e.g., hsCRP, GGT).
These results, obtained on those secondary efficacy endpoints predefined in the study protocol, suggest that GKT831 is active in humans. Moreover, the safety profile of GKT831 was shown to be particularly positive, as described in Section 6.7.1 below. This positive safety profile allows for the assessment of GKT831 at higher doses and over a longer treatment period.
6.3.3. Continuation of the clinical assessment of GKT831 in fibrosing disorders of the liver
Following these encouraging results, the objective is to extend the assessment of GKT831 in fibroticdisorders for which an optimal study protocol could be carried out. Of the various fibrotic disorders, liver diseases represent potential therapeutic targets. GKT831 has generated beneficial effects, particularly anti-inflammatory and anti-fibrotic, in several preclinical models (see Section 6.7.2). Recent publications have also confirmed the induction of NOX1 and/or NOX4 in patients suffering
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from hepatic fibrosis. Moreover, GKT831 is metabolized in the liver and eliminated by the biliary tracts, accumulating in the liver tissue at a rate that is three to five times greater than that in other organs. This favorable tissue distribution allows for good exposure of the target tissues while minimizing systemic exposure. Inflammatory and fibrotic disorders of the liver include the following illnesses:
Chronic cholestatic disorders such as primary biliary cholangitis and primary sclerosing cholangitis;
Metabolic disorders such as nonalcoholic steatohepatitis (NASH);
Viral disorders such as hepatitis B and C virus;
Chronic alcoholic hepatitis.
6.3.4. Launch of a study in renal fibrosis pathologies
The Company concluded an agreement for a Phase 2 clinical trial to evaluate the effectiveness and safety of GKT831 for a period of 48 weeks with the Baker Heart and Diabetes Institute in patients with type 1 diabetes and kidney disease. This study will be carried out at the Baker Institute as well as in multiple study sites across Australia, and it is financially supported by the Juvenile Diabetes Research Foundation (JDRF), the recipient of the Australian Research Council Special Research Initiative in Type 1 Juvenile Diabetes funding.
Diabetic kidney disease is a fibrotic disorder where progressive glomerulosclerosis and interstitial fibrosis lead to end stage renal disease. GKT831 is a NOX 1 and 4 enzyme inhibitor that has shownpotent anti-fibrotic activity in a broad range of preclinical models, including several DKD models [1-4]. In a previous, short-term Phase 2 trial in patients with type 2 diabetes and kidney disease, GKT831 demonstrated an excellent safety profile and achieved statistically significant reductions in several secondary efficacy endpoints. However, improvements in albuminuria, the study’s primary endpoint, was not achieved after twelve weeks of treatment.
The Baker Institute study will be a placebo-controlled, double blind, randomized, parallel group phase 2 trial to evaluate the effect of oral GKT831 on the urine albumin-to-creatinine ratio (UACR) in patients with type 1 diabetes and persistent albuminuria despite treatment with optimal standard of care. The primary endpoint of the study will be UACR difference between means at the end of treatment period of 48 weeks, adjusted for baseline. A key secondary endpoint of the study will be the effect of GKT831 on renal function, as defined by changes in estimated glomerular filtration rate. Patients will receive 200mg of oral GKT831 or placebo twice a day for 48 weeks. A total of 142 patients are planned to be enrolled into the study at up to 15 investigational centers in Australia.
6.4. OVERVIEW OF PBC AND ITS MARKET
6.4.1. Overview of PBC
Primary biliary cholangitis (PBC) is a rare chronic auto-immune illness which affects the liver. If not treated correctly, it can lead to cirrhosis, liver failure and death. PBC largely affects women (90%) and ranks as the second most common cause of liver transplants in women in the United States.
The clinical diagnosis of the illness is based on a combination of clinical signs, biochemical anomalies of the liver related to cholestasis and persisting more than six months, and on the presence of antimitochondrial antibodies (AMA). A liver biopsy is often carried out to confirm the diagnosis.
Bile, which contains bile acids, plays a key role in the solubilization of dietary fats. However, these bile acids have detergent properties making them toxic for cells and their lipid membrane. In PBC,
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the progressive autoimmune destruction of the bile ducts causes bile acids to accumulate in the bile ducts and in the liver, causing cell damage and a chronic inflammatory response. An attempt to repair the tissue is then triggered in the form of hepatic fibrosis.
The first symptoms of PBC typically appear between the ages of 30 and 65 with a higher incidence above the age of 50. The progression of the illness varies considerably from patient to patient, with the average survival rate of patients treated varying by 7.5 years if the symptoms of the illness are observed at diagnosis and by 16 years if the symptoms are not identified at diagnosis.
However, in the long term, this fibrosing response causes a gradual decrease in liver function and raises blood pressure in the portal venous system, which brings blood to the liver (portal hypertension). This liver failure reduces the synthetic capacity of the liver, which can cause a reduction in coagulation factors resulting in a hemorrhagic tendency, and/or of plasma proteins, which results in peripheral and intra-abdominal edema (ascites). This liver failure also causes the retention of neurotoxic substances, which can lead to hepatic encephalopathy. Portal hypertension leads to the appearance of esophageal varices, which are the cause of severe digestive hemorrhages. A liver transplant is ultimately needed to prevent death from the condition.
Patients suffering from PBC also have a significantly higher incidence of hepatocellular carcinoma, a particularly aggressive form of cancer. PBC is often connected to other auto-immune illnesses such as Sjögren's syndrome, scleroderma, Raynaud's disease and CREST syndrome.
Although some people suffering from primary biliary cholangitis do not have any apparent symptoms years after their diagnosis, others display a certain number of signs and symptoms.
The first common symptoms are:
Fatigue;
Pruritus (itching);
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Xerostomia and xerophthalmia (dry eyes and mouth).
Subsequent signs and symptoms may include:
Pain in the upper right portion of the abdomen;
Musculoskeletal pain;
Jaundice;
Ascites;
Cutaneous fat deposits around the eyes and eyelids, or in the creases of the palms, soles, elbows or knees (xanthelasma);
Osteoporosis that can lead to bone fractures;
Higher blood fats;
Diarrhea (steatorrhea);
Thyroid problems.
6.4.2. The PBC market
Primary biliary cholangitis (PBC) is a chronic disease characterized by an inflammation and progressive destruction of the interlobular bile ducts, with prevalence in Europe, the United States and Japan of between 1.91 and 40.2 per 100,000 inhabitants (K. Boonstra et al., Epidemiology of primary sclerosing cholangitis and primary biliary cirrhosis: a systematic review. J Hepatol. 2012 May; 56(5):1181-8). This variability is due to the small size of series published.
It does, however, appear that the disease is becoming more prevalent over time. A growing incidence has been noted in Europe, the United States and Japan . This is probably due to a better understanding of the disease and the routine use of new diagnostic equipment such as the detection of antimitochondrial antibodies.
There is a considerable medical need for this illness for which only two drugs have been approved:
Ursodeoxycholic acid (UDCA), approved specifically for the treatment of PBC, is marketed in the form of a generic drug under the name Ursodiol. It is a bile acid present in small quantities in the human body and whose mechanism of action, in therapeutic doses, is to dilute bile acids more detergent than itself that are present in the liver. Long-term treatment using UDCA improves biochemical liver tests, slows down histological progression and extends survival without liver transplant. Monotherapy using UDCA seems to be sufficient for many patients. However, the survival rate without transplant of patients treated using UDCA remains significantly lower than that of a matching control population based on age and gender. Studies have also shown that between 40% and 50% of patients suffering from PBC do not respond properly to UDCA in monotherapy and therefore remain, despite the treatment, exposed to a high risk of liver failure with the only alternative being a liver transplant. The dosage of the drug, with several daily doses having to be administered, ultimately relieves therapeutic observance problems for certain patients.
In May 2016, obeticholic acid (OCA), developed by Intercept Pharmaceuticals, obtained an accelerated marketing authorization for the US market from the FDA as an orphan drug for the treatment of PBC, in combination with UDCA, for adults with an insufficient response to UDCA or as monotherapy for patients who did not tolerate UDCA. In December 2016, it also received conditional marketing authorization (MA) from the EMA for the European Union for the treatment of PBC. This drug was first marketed under the name Ocaliva by Intercept Pharmaceuticals, not long after its authorization by the FDA in the United States. The same company also announced the launch of sales in Europe starting in January 2017 and the
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filing of reimbursement dossiers with several countries in the European Union. The cost of annual treatment per patient is approximately US$70,000 in the United States (Cassidy et al., Nat Rev Drug Discov, 2016), and Intercept Pharmaceuticals reported sales of Ocaliva totaling US$18 million for the financial year ending December 31, 2016. In accordance with the post-marketing requirements of the accelerated authorization procedure in the United States and the conditional marketing authorization received from the EMA, Intercept Pharmaceuticals is currently conducting a confirmatory Phase 4 clinical trial of Ocaliva for PBC (Cobalt trial currently at recruitment stage) to confirm and characterize the clinical benefits of the drug with a view to its final authorization.
As a result, there is an ongoing need for new therapeutic options in PBC, as is the case for patients suffering from primary sclerosing cholangitis (PSC).
6.4.3. Key players and molecules under development for PBC
A sample of the main products currently under development for PBC is as follows:
Companies Molecule Mechanism of action
Clinical/marketing stage
Intercept Pharmaceuticals
Genfit
CymaBay
Novartis
Fast Forward
OCA
Elafibranor
MBX-8025
LJN452
FFP104
FXR
PPARα
PPAR
FXR
CD40
Approved (NDA)
Phase 2
Phase 2
Phase 2
Phase 1/2
6.5. OVERVIEW OF NASH AND ITS MARKET
Genkyotex believes that GKT831 also has the potential to directly target fibrogenic processes in patients with another liver disease, namely, nonalcoholic steatohepatitis (NASH). Although there has been no plan or authorization to date for any decision to launch or draft a timetable for the launch of such a trial, this indication could be the subject of a future clinical trial with GKT831.
6.5.1. NASH
Nonalcoholic steatohepatitis (NASH), the hepatic component of metabolic syndrome, covers a variety of illnesses ranging from simple steatosis of the liver to NASH with or without cirrhosis, and hepatocellular carcinoma.
The obesity and type 2 diabetes pandemic, together with improvements in the treatment of chronic viral hepatitis have caused NASH to become the main factor in chronic liver disease, making it the most common cause of liver transplants in 2016 (Banini BA, et al. Abstract #46. Presented at the American College of Gastroenterology Annual Scientific Meeting; Oct. 14-19, 2016; Las Vegas, NV, USA).
More generally, liver cirrhosis is the sixth most common cause of death in developed countries and the ninth in developing countries (Lim YS, Kim WR. The global impact of hepatic fibrosis and end-stage liver disease; ClinLiver Dis. 2008 Nov; 12(4):733-46).
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For reasons that are not yet fully understood, in patients suffering from NASH, steatosis and other factors such as resistance to insulin result in chronic inflammation of the liver and can cause progressive fibrosis and cirrhosis. These pathological processes can cause liver failure and possibly death.
To date, no drug has been approved for the treatment of NASH. The medical need is therefore considerable. However, various therapeutic agents are used off-label, such as vitamin E (an antioxidant), insulin sensitizers (such as metformin), hypolipemiant agents (such as gemfibrozil) and pentoxifylline. Changes in lifestyle, including change of diet and exercise to reduce body weight, and the concurrent treatment of diabetes and dyslipidemia, are commonly accepted components of the standard treatment, but their efficacy has not been convincingly demonstrated in NASH. Histologically, NASH is defined as the presence of hepatic steatosis and inflammation with hepatocyte damage (ballooning), with or without fibrosis. Normally, NASH causes few or no symptoms during the early stages. It is therefore a relatively silent disease until the onset of liver failure, hepatocellular carcinoma, or the development of portal hypertension. Although the presence of simple hepatic steatosis has little impact on mortality of hepatic cause, it does trigger inflammatory and fibrotic processes. It is the presence of hepatic fibrosis that reduces the survival rate of NASH patients.
Hence the importance of identifying new therapeutic strategies to prevent, slow down or reverse hepatic fibrosis. However, most treatments available primarily target the mechanisms responsible for hepatic steatosis.
In theory, the elimination of steatosis should, over time, induce a regression in fibrotic processes. However, fibrogenesis is a complex process, its causes go far beyond simple steatosis. The presence of a resistance to insulin, the activation of the renin–angiotensin system, the exposure of hepatocytes to bacterial products of enteric origin and genetic factors also play a part in fibrogenic processes. Moreover, patients presenting an advanced stage of fibrosis (F2-F3 [significant to severefibrosis]) have a risk of developing serious liver complications, particularly cirrhosis and hepatocellular carcinoma.
Different stages in the development of fibrosis
It is therefore important to develop new drugs capable of targeting these fibrotic processes directly and effectively. Such therapies could be used as a first-line treatment, or in conjunction with drugs targeting the metabolic causes of NASH.
Genkyotex believes that GKT831 has the potential to directly target fibrogenic processes in patients with NASH.
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6.5.2. The NASH market
There are currently no treatments for NASH on the market and medical prescriptions are based on drugs with no proven efficacy in patients suffering from NASH and are therefore used off label. In most cases, these are drugs prescribed to control type 2 diabetes or hypercholesterolemia.
Against the backdrop of an increasing number of diabetes cases, patients suffering from hypertension and increasing obesity, the prevalence of NASH is expected to rise sharply in the next 10 years. New therapeutic solutions that are specifically approved for this indication are also expected to arrive on the market. In particular, these include many ongoing Phase 3 studies such as those on obeticholic acid by Intercept Pharmaceuticals and PPARα/δ agonist by Genfit. The increased prevalence of this disorder in connection with the arrival on the market of therapies specially approved for NASH suggests a strong increase in the market.
Although it is difficult to estimate the size of the NASH market in the absence of an approved drug to date, on the basis of several studies, the prevalence of the illness (estimated at between 3% and 12% in the United States according to sources [source: NIH, Spengler and Loomba, Mayo Clin Proc]) and the estimated price for the potential marketing of drugs, this global market has been valued at between US$30 and 40 billion per year.
A sample of the main products currently under development for NASH is listed in the table below:
Companies Molecule Mechanism of action Clinical stage
Intercept
Genfit
Galmed
Novo
Conatus
Gilead
Gilead (Phenex)
Gilead (Nimbus)
OCA
GFT505
Aramchol
Liraglutide
Emricasan
GS-4997
PX-104
NDI-010976
FXR
PPAR
Bile acid conjugate
GLP-1
Caspase
Ask-1
FXR
FAAH
3
3
2
2
2
2
1
2
Novartis LJN452 FXR 2
Allergan (Tobira) Cenicriviroc (TBR-652) Dual antagonist CCR2 / CCR5 2
Table1: Key players and molecules under development for NASH.
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6.6. PRECLINICAL CHARACTERISTICS AND RESULTS FOR GKT831
6.6.1. Stages of development
6.6.1.1. High throughput screening of 150,000 molecules and identification of the chemical series
In 2006, Genkyotex launched a high-throughput screening campaign on a library of 150,000 molecules. This screening in miniaturized NOX assays helped to identify positive molecules based on a Z score, before launching a molecule optimization program for a period of around 18 months.
The positive molecules were tested again at Genkyotex in membrane assays on NOX1 and NOX4, and only the reconfirmed molecules were then tested at several concentrations to determine an IC50. In order to eliminate potential false positives and particularly antioxidant potential, positive molecules were tested in a xanthine oxidase assay.
Several chemical series were identified and the pyrazolopyridine series that GKT831 comes from was selected as the basis for optimization. This chemical series showed promising affinity with NOX atmicromolar levels and also showed a good relationship between the chemical structure and activity (Structure Activity Relationship, or SAR) on NOXs and promising ADME (Absorption, Distribution, Metabolism, Elimination) properties.
i. Optimization of the chemical series and identification of GKT831
During the 18 months of optimization of the chemical series, no fewer than 700 molecules were synthesized, allowing the successive identification of GKT000239, followed by GKT136901 and finally GKT831. This optimization helped to considerably improve the affinity of molecules for NOXs, from an affinity of around 10 micromolars to less than 100nM for the best molecules. A better understanding of the SAR also enabled an improvement in the ADME properties of the molecules tested and in the pharmacokinetics of the molecules and therefore their efficacy in vivo.
During the optimization period, the synthesized molecules were tested in all of the NOX assays developed by Genkyotex (NOX1, NOX2, NOX3, NOX4 and NOX5) to establish their complete selectivity profile and to only develop the most selective molecules for NOX1 and NOX4.
At the end of the 18-month optimization period, three potential preclinical candidates were tested in a preliminary toxicity study in the rat and in genotoxicity studies to only select the molecule presenting the best safety profile.
All this information contributed to GKT831's selection as a preclinical candidate, thereby demonstrating Genkyotex's ability to conduct high-throughput screening, followed by an optimization campaign to the standards of the pharmaceutical industry.
ii. Physico-chemical characteristics of GKT831
GKT831 is a small organic molecule with low molecular weight (394.85 g/mol) from the pyrazolopyridine dione family. GKT831 is the most successful molecule from this chemical class and was the first NOX inhibitor administered to humans.
The chemical structure of GKT831 is shown in the table below:
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Chemical formula:
Molecular weight:
Chemical name:
C21H19ClN4O2
394.85 g/mol
2-(2-chlorophenyl)-4-[3-(dimethylamino)phenyl]-5-methyl-1H-pyrazolo[4,3-c]pyridine-3,6(2H,5H)-dione
The physico-chemical characteristics of GKT831 are summarized in the table below:
Parameters Characteristics
Lipinski's rule
AppearanceHygroscopicitySolubility in water
Large-scale synthesisStability
Compliance with rules (<5 hydrogen bond donor, <10 hydrogen bond acceptor, MW<500 daltons, log P<5)Pale yellow powderNon-hygroscopic polymorphModerate water solubility at pH 7 (0.3 mg/mL), water solubility at pH 1.0 (30 mg/mL), soluble in methanol, ethanol and acetonitrileGMP batch up to 60 kgStability data validated for over 36 months
iii. Pharmacology of GKT831
This molecule is a preferential inhibitor of NOX1 and NOX4 isoforms. Indeed, GKT831 shows an affinity in isolated and purified membrane assays of 90 mM for NOX4 and 150 mM for NOX1, compared with an affinity in the region of 350 mM for NOX3 and NOX5 and over 2 uM for NOX2. GKT831 has also been tested in cellular assays in cells overexpressing each NOX isoform. These have shown an IC50 in the order of 150 nM on NOX4, of around 210 nM for NOX1, in the region of 500 nM for NOX3 and NOX5 and finally of over 2 µM for NOX2. The table below summarizes the power (Ki) of GKT831 on human NOX enzymes.
NOX isoformKi (µM) Study no.
NOX1 0.150 0.02 GSN000050
NOX2 2.13 0.21 GSN000006
NOX3 0.36 0.15 GSN000264
NOX4 0.09 0.01 GSN000005
NOX5 0.325 0.04 GSN000023
Figure 1: Affinity (Ki) of GKT831 on isolated human NOX enzymes
To demonstrate that GKT831 selectively inhibits the production of ROS via NOXs, GKT831 was tested in two assays systems also producing ROS by other enzymatic methods. These consist of xanthine oxidase and glucose oxidase assays. In the xanthine oxidase assay, GKT831 was found inactive with a
NN
NH
O
O
Cl
N
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Ki of over 100 µM, while GKT831 inhibits glucose oxidase with a Ki of 1.7 µM, demonstrating its excellent selectivity for NOXs, compared to other oxidases. It is, however, important to note that GKT831 is a weak electron donor (antioxidant activity) as it reduces DPPH (1,1-Diphenyl-2-picryl-hydrazyl) with an IC50 of 20,µM, in other words, at a significantly lower power than that of its NOX inhibition activity.
Two metabolites that are very similar structurally to GKT831 were identified, synthesized and subjected to the same pharmacological tests as GKT831, in order to establish their pharmacology.This involved GKT137184, corresponding to a Phase 1 N-monodemethylation, and GKT137185, corresponding to an N-didemethylation. These two metabolites therefore display a strictly similar activity, affinity and selectivity profile to that of GKT831, hence also partly contributing to the activity of GKT831.
GKT831 is a specific inhibitor of NOXs as it displayed virtually no affinity on a vast panel of other enzymes, kinases and receptors.
As mentioned above, it was important to verify that GKT831 did not affect the phagocytic function linked to NOX2. GKT831 (25 and 100 µM) does not affect the potential of isolated human phagocytes stimulated by phorbol ester and does not reduce their ability to destroy Staphylococcus aureus bacteria in vitro. Nor does GKT831 administered over a period of 25 days at a dose of 100 mg/kg/j affect mice's capacity to successfully kill these Staphylococcus aureus and to effectively reduce the inflammation they induce in vivo.
iv. Mechanism of action: In vitro and in vivo data of GKT831
i. Effect of GKT831 on inflammation and hepatic fibrosis, steatosis and cholestasis models
Effect of GKT831 on a hepatic fibrosis model induced by a toxic agent
To induce hepatic fibrosis, C57BL/6J male mice received repeated intraperitoneal injections of the toxic agent carbon tetrachloride (CCL4) over a six-week period. This study was published in the Journal of Hepatology by Professor David Brenner's group at the University of California, San Diego.
In an initial study, mice with a mutated SOD (superoxide dismutase) gene and control mice received injections of CCL4 or a harmless vehicle. The theory was that this specific mutation of SOD, present in a small proportion of patients suffering from amyotrophic lateral sclerosis, induced a physical interaction between SOD and NOX1 and induces the production of ROS by NOX1. This model therefore offered a good experimental system for testing an NOX1 inhibitor. After six weeks of repeated CCL4 injections, acute liver inflammation associated with fibrosis was observed. As expected, the level of inflammation and fibrosis was significantly higher in mice with the mutant form of SOD. GKT831 at a dose of 60 mg/kg per day by oral means for the final three weeks of induction of the liver disorder (therapeutic mode) significantly reduced hepatocellular damage as well as inflammation and hepatic fibrosis. It is important to note that GKT831 also reduced inflammation and fibrosis in the normal mice exposed to CCL4 (Figure 2).
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Figure 2: Effect of GKT137831 (NOX1/4 inhibitor) on fibrosis deposition in a mouse model with hepatic fibrosis induced by repeated injections of CCL4.
Mechanistic research was also conducted in vitro. The main fibrogenic mechanism is the activation of hepatic stellate cells (HSC) by TGF-β and angiotensin 2, to induce the transdifferentiation of these HSC in active myofibroblasts. The co-treatment of cells with 20 µM of GKT831 prevented the induction of fibrogenic and pro-inflammatory genes.
A second study, also conducted by Professor Brenner and his colleagues, provided a clearer definition of the respective roles of NOX1 and NOX4 in this model. Mice presenting a deletion of NOX1 (NOX1 KO) or NOX4 (NOX4 KO) genes and control mice were given repeated injections of CCL4 for six weeks. As expected, the control mice showed a significant elevation of transaminases and an increase in hepatic fibrosis markers, both in terms of expression of the genes involved in fibrotic pathways and in fibrosis quantification. The severity of this inflammatory and fibrotic phenomenon was significantly reduced in both the NOX1 KO and NOX4 KO mice, suggesting an individual role for each of these two NOX isoforms in the induction of inflammatory and fibrotic processes in hepatic disorders. This probably explains GKT831's marked efficacy in a vast series of inflammation and hepatic fibrosis models (Figure 3).
Figure 3: Beneficial effect of the loss of NOX1 and NOX4 on various fibrosis markers in a mouse model with hepatic fibrosis induced by repeated injections of CCL4.
Besides TGF-β and angiotensin 2, multiple pro-inflammatory and fibrogenic signaling pathways had been described. As a result, HSCs were stimulated with ligands inducing the TLR4, Hedgehog and
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PDGF pathways. Specific reporter genes were used to assess the activation of these biological pathways. GKT831 was able to block these pro-inflammatory and fibrogenic pathways.
Viewed collectively, these results illustrate the capacity of GKT831 to simultaneously block multiple pathological biological pathways and validate its NOX1/4 selectivity profile.
Effect of GKT831 in a steatosis and hepatic fibrosis model induced by a high-calorie diet
In an initial study conducted by Professor Natalie Torok's group at the University of California, Davis, C57BL/6J male mice were fed a high calories diet for between 12 and 20 weeks to induce hepatic steatosis and secondary inflammation and fibrosis. These mice were treated therapeutically with 60 mg/kg per day of GKT831 orally, or with an inactive vehicle, for six weeks. To confirm the pharmacological approach with a genetic approach, a lineage of mice was produced to eliminate the NOX4 gene in hepatocytes (NOX4 hepKO).
Control mice receiving the high-calorie diet showed a significant increase in hepatic enzymes and the expression of genes involved in inflammatory and fibrogenic pathways. These phenomena were accompanied by an increase in the number of inflammatory cells recruited in the liver, an increased proportion of hepatocytes that had initiated a programmed cell death process and an increase in the quantity of collagen found in liver tissue. In contrast, in the NOX4 hepKO mice and in mice treated with GKT831, it was possible to observe a significant reduction in transaminases, severe tissue inflammation and cell death, as well as a significant reduction of collagen deposit in the liver (Figure 4).
Figure 4: Effect of GKT137831 on collagen deposits and expression of pro-fibrogenic genes in a mouse model with NASH induced by a high-calorie diet.
Tissue analysis for protein expression involved in the signaling pathways linked to stress and cell death reveals that the specific deletion of NOX4 in hepatocytes will prevent the activation and phosphorylation of many kinases and proteins involved in the induction of cell death.
In the end, the mice put on a high-calories diet presented lower tolerance to glucose and lowersensitivity to insulin. These two anomalies were also significantly reduced in the NOX4 hepKO mice and in the mice treated with GKT831, suggesting that NOX4 could play an important role in the onset of inflammation and hepatic fibrosis, and in insulin resistance.
A histological analysis also demonstrates that GKT831 does not seem to have any effect on steatosis, despite its considerable anti-inflammatory and anti-fibrotic effect. The mechanism of action of
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GKT831 therefore seems to be a direct effect on inflammation and fibrogenesis, as it is observed in HSC. This differs from the majority products under development for NASH, most of which seem to primarily reduce steatosis and the associated lipotoxicity. GKT831 could therefore hold differentiated and especially useful therapeutic potential in patients presenting a more advanced form of NASH and established fibrosis. It is therefore also logical to suppose that GKT831 could be used to achieve powerful therapeutic effects in a large number of patients if it were used in conjunction with a metabolic approach such as PPAR or FXR agonists or even oral anti-diabetic drugs.
Effect of GKT831 on a hepatic fibrosis model induced by hepatic cholestasis
To assess the therapeutic potential of GKT831 in inflammatory and fibrotic disorders of cholestatic origin, the effect of GKT831 was assessed by Professor Natalie Torok's group at the University of California, Davis, in a bile duct ligation model.
C57BL/6 mice underwent complete bile duct ligation to induce cholestasis. As described above, intra-hepatic accumulation of bile acids causes inflammation of the biliary ducts and hepatocytes. These inflammatory processes, in turn, activate fibrogenic signaling pathways in HSC; leading to the accumulation of collagen in liver tissue. Two additional groups of animals were treated with a daily oral dose of GKT831 (60 mg/kg), either preventively following the ligation of the biliary ducts and over the 3 weeks of the experiment, or therapeutically over the 15 days of the experiment.Irrespective of whether this was carried out preventively or therapeutically, treatment with GKT831 significantly reduced plasma level of hepatic enzymes and bilirubin. On a local basis, it was possible to observe a significant decrease in the number of hepatocytes in cell death phase, collagen deposit and expression of fibrogenic genes in the liver tissue (Figure 5).
Figure 5: Effect of GKT137831 on the deposition of collagen and the expression of pro-fibrogenic genes in a mouse model with cholestasis induced by bile duct ligation.
To confirm the role of NOX4 in the induction of hepatocyte cell death and in HSC activation, hepatocytes and HSC were treated with Fas ligand in order to induce cell death. HSCs were spontaneously activated to acquire a fibrotic phenotype and the activation of genes involved in signaling pathways linked to fibrosis. Treatment with GKT831 at the concentration of 20 µM significantly reduces the death of hepatocytes and the activation of the genes involved in the activation of HSC, confirming the important role of NOX1 and NOX4 in the development of fibrosis in cholestatic disorders.
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Taken together, the results of this study seem to suggest that treatment with GKT831 provides significant hepatocyte protection and reduces the activation of HSCs in primary and secondarycholestatic disorders of the liver.
ii. Effect of GKT831 on inflammation of the kidney and renal fibrosis models
Effect of GKT831 in a renal fibrosis model induced by diabetes in ApoE deficient mice
Many detailed findings suggest that NOXs, in particular NOX1 and NOX4 (but also perhaps NOX5), play an important role in the development of diabetic complications and in particular, in diabetic nephropathy and arteriosclerosis. The Australian group led by Professors Mark Cooper and Karin Jandeleit-Dahm at the Baker IDI Institute of Melbourne, therefore systematically tested the respective roles of NOX1, NOX2 and NOX4 in these vascular and renal diabetic complications. It is important to note that diabetic nephropathy is a progressive fibrotic illness.
In order to induce these renal and vascular complications, mice deficient in alipoprotein E (ApoE-/-) are made diabetic, using an injection of streptozotocin a few days after birth. After 20 weeks of diabetes, these diabetic ApoE-/- mice develop severe proteinuria, accompanied by glomerulosclerosis as well as renal inflammation and fibrosis [71]. In this study, GKT831 was administered orally on a preventive basis at the dose of 60 mg/kg per day. The results indicate that GKT831 significantly reduces proteinuria, as well as inflammation and fibrogenesis markers (Figure 6).
Figure 6: Effect of GKT137831 on the level of urinary albumin after 10 and 20 weeks of diabetes induced by Streptozotocine in ApoE-/- mice.
Histological observations have confirmed the protective effect of GKT831 on the renal architectureby preventing the loss of the number of glomeruli in the renal cortex. Specific markings were used to show a significant decrease in proliferation markers, inflammatory markers and fibrosis markers confirmed by quantitative analysis.
In this same study, the extent of arteriosclerotic plaques, fibrotic and inflammatory vascular markers and the infiltration of inflammatory cells were also significantly reduced by GKT831 treatment. It is important to note that mice deficient in NOX1 were protected from vascular complications, whilemice deficient in NOX4 were protected from renal complications.
These results illustrate the ability of these genetic systems to clarify the specific role of NOX isoforms in specific disorders and therefore, to validate the specific selectivity profile for relevant inhibitors.The renal results were published in the Journal of the American Society of Nephrology and the vascular findings were published in Circulation, the top-ranked publications in each of these therapeutic areas. An independent editorial was published in Circulation to illustrate the importance of these results.
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In a second study, animals were left for 30 weeks with diabetes to induce a more severe phenotype in the control animals. GKT831 was administered therapeutically this time for 10 weeks, from week 20 to week 30. The same observations and the same positive results were found with GKT831.
Podocytes play a major role in the modulation of glomerular filtration and their destruction causes leakage of macromolecules, including plasma proteins in urine. Freshly isolated human podocytes were cultured with TGF-β, a growth factor activating signaling pathways of cell proliferation and fibrosis. Treatment of these cells with 10 µM of GKT831 blocked the production of ROS by these cells but also blocked the activation of many genes involved in cell proliferation and in fibrosis.
Effect of GKT831 in a renal fibrosis model induced by diabetes in OVE26 mice:
To study the effect of GKT831 in a second diabetic nephropathy model, Professor Hanna Abboud's group at the University of San Antonio used OVE26 mice. These are transgenic mice with type 1 diabetes from birth, which present rapidly progressing proteinuria associated with severe nephropathy. After 24 weeks of diabetes, control mice present a very high level of proteinuria, coupled with renal hypertrophy. Additional markers show a marked increase in the number of inflammatory cells in the cortex and medulla and an increase in fibrosis markers. Two additional groups of animals received an oral dose of 10 and 40 mg/kg of GKT831 per day therapeutically for 4 weeks, from week 20 to week 24. Treatment with GKT831 significantly reduces proteinuria and renal hypertrophy (Figure 7).
Figure 7: Effect of GKT137831 on the level of urinary albumin after 24 weeks of type 1 diabetes in OVE26 mice.
These improvements are associated with a significant reduction in the infiltration of inflammatory cells in renal tissue and a clear reduction in the level of renal fibrosis. This second study supports the theory that GKT831 has therapeutic potential in renal disorders associated with diabetes.
Effect of GKT831 in a renal fibrosis model induced by diabetes in AKITA mice:
In this third diabetic nephropathy model, Professor Kumar Sharma's group at the University of California, San Diego, used AKITA mice. These mice present a mutation on the Ins2 insulin gene inducing the development of insulin-dependent diabetes from birth. At the age of 28 weeks, the control mice developed exactly the same symptoms and the same characteristics as the OVE26 mice.Additional markers also revealed a significant increase in tissue hypoxia and an increase in the number of cells undergoing programmed cell death. Separately, preliminary studies conducted in patients with diabetic nephropathy indicated the existence of a mitochondrial dysfunction in the kidney, and Krebs cycle anomalies in particular. These anomalies include the inhibition of the fumarate hydratase enzyme, which processes fumarate. Recently, it was reported that fumarate
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could play an important role in fibrogenesis, in epigenetic modifications and in tumorigenesis. This inhibition leads to the accumulation of fumarate in urine, which is a relevant biomarker.
Two groups of mice also received therapeutic treatment for 16 weeks with GKT831 at doses of 30 and 60 mg/kg per day. As was the case in the OVE26 mice, mice treated with GKT831 showed a significant improvement in kidney damage and in the level of inflammation and renal fibrosis. Also observed was a significant reduction in the level of hypoxia in the kidney, associated with a reduction in the number of kidney cells undergoing programmed cell death. To a remarkable extent, GKT831 also corrected the metabolic anomalies in renal tissue and tended to normalize urinary fumarate (Figure 8).
Figure 8: Effect of GKT137831 on the level of urinary fumarate after 28 weeks of type 1 diabetes in AKITA mice.
v. Preclinical toxicological data
The toxicological profile of GKT831 was assessed through an extensive panel of regulatory tests in the rat and the dog. In the rat, GKT831 was tested over a maximum period of 26 weeks and up to a dose of 1,000 mg/kg a day. The compound was extremely well tolerated in the rat, which showed no clinical signs, resulting in a NOAEL (no-observed-adverse-effect-level) of 1,000 mg/kg/day.
Moreover, GKT831 was tested over a similar maximum period of 26 weeks in the dog at the maximum dose of 500 mg/kg/day. The NOAEL allocated to this study was 150 mg/kg/day.
All the observations reported for this treatment were at very high doses and are summarized in the table below.
Type of changes
28-day study 13-week study 26-week study
300 mg/kg/
d
1,000 mg/kg/
d
100 mg/kg/
d
750/500 mg/kg/
d
150 mg/kg/
d
500/300
mg/kg/d
ECG alteration X X (*)
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TSH; T4 X X X
Follicular cell hypertrophy X X X
Red blood cells X X X
Bone marrow toxicity X (**)
(*) Only in weeks 1 and 4 (500 mg/kg/d), no signal in weeks 8, 13 and 26.(**) Non-regenerative anemia in a female (week 13).
It is also important to note that no GLP (Good Laboratory Practice) study on genotoxicity, mutagenicity or cytotoxicity showed positive with GKT831. Finally, no neurological or respiratory symptoms were observed during regulatory studies on the Central Nervous System (CNS) and on respiratory function.
6.7. GKT831 - CLINICAL RESULTS
6.7.1. GKT831 - Phase 1 studies in healthy volunteers (safety and pharmacokinetics)
Four Phase 1 studies have been conducted to date in healthy subjects. The aim of these studies was to assess the safety and pharmacokinetics of the compound after a single dose and repeated doses, to assess the effect of the compound on the CYP3A4 cytochrome and to assess the effect of feeding and micronization on the pharmacokinetics of GKT831. All these studies were conducted in male subjects.
In terms of the compound's safety, four studies exposed more than 105 healthy volunteers to GKT831. During the repeated dose study, the healthy subjects received up to 900 mg of compound per day for 10 days. Irrespective of the dose administered, none of the Phase 1 studies identified events linked to the administration of the compound, in terms of biochemical or hematological and cardiac parameters; this demonstrates a very good tolerance to GKT831.
The pharmacokinetic properties of the compound were consistent for each of the studies carried out. Oral absorption of the compound is rapid and the Cmax is achieved between 1 and 2 hours after administration. The exposure is proportional to the dose up to 900 mg per day and slightly less above 900 mg per day. The molecule's half-life is typically between 10 and 20 hours after repeated administration and between 6 and 11 hours after a single administration. Most of the compound is generally eliminated 12 hours after administration, explaining its lack of accumulation over time, substantiating the compound's good safety profile. GKT138184, which is the primary active metabolite of GKT831, presents similar pharmacokinetic characteristics as those of the parent molecule and its exposure is 60 to 100 times less than for GKT831.
During the drug interaction study, GKT831 was administered with midazolam, which is a substrate of the CYP3A4 cytochrome. The exposure of midazolam increased by 38% and that of its primary metabolite by around 40%. Since the ratio between midazolam and its metabolite is not modified by GKT831, it is not possible to either conclude or rule out that the increase in midazolam is due to an inhibition of CYP3A4. GKT831 is therefore classified as a weak inhibitor of CYP3A4.
In the course of study of interaction with meals, healthy subjects received a single dose of 300 mg of GKT831. The subjects were either fasted or had received a high-fat meal. The findings were an increase in the serum exposure of GKT831 and its metabolite (AUC fasted: 38,200 h.ng/mL ; AUC fed:
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47,600 h.ng/mL) and an increase in their half-life (T1/2 fasted: 17 hours ; T1/2 fed: 29 hours) in subjects who received a meal.
Particular focus was placed on the primary toxicity signals observed during toxicity studies in dogs, particularly modifications of ECG tracings, the plasma concentration of thyroid hormones and the levels of red blood cells and reticulocytes. No modification of the values concerning these parameters could be observed or attributed to the treatment with GKT831 in any of the Phase 1 studies, irrespective of the doses administered.
6.7.2. GKT831 - Phase 2 safety and efficacy study in a population of patients suffering from diabetic nephropathy
Following the four Phase 1 clinical trials conducted on healthy subjects, an initial Phase 2 clinical trial was conducted to assess the safety, pharmacokinetic and pharmacodynamic properties, as well asthe efficacy of GKT831 in patients with diabetic nephropathy.
These were type 2 diabetes patients who developed macroalbuminuria despite optimal medical treatment.
Scientific literature suggests that NOX1 and NOX4 play an important role in the development of many diabetic complications, including renal, cardiovascular and ophthalmic conditions. Based on these publications, the Juvenile Diabetes Research Foundation (JRDF) awarded a research grant, allowing several renowned academic groups to assess the efficacy of GKT831 in diabetic complications models.
These preclinical data, published in leading scientific publications, seem to confirm the therapeutic potential of NOX1 and NOX4 inhibitors (and of GKT831 in particular) in the treatment of diabetic complications (You YH, et al. Metabolomics reveals a key role for fumarate in mediating the effects of NADPH oxidase 4 in diabetic kidney disease; J Am Soc Nephrol. 2016 Feb; 27(2):466-81. Gorin Y, et al. Targeting NADPH oxidase with a novel dual Nox1/Nox4 inhibitor attenuates renal pathology in type 1 diabetes; Am J Physiol Renal Physiol. 2015 Jun 1; 308(11):F1276-87. Jha JC, et al. Genetic targeting or pharmacologic inhibition of NADPH oxidase nox4 provides renoprotection in long-term diabetic nephropathy; J Am Soc Nephrol. 2014 Jun; 25(6):1237-54).
Diabetic nephropathy is a chronic progressive fibrosing disorder, with glomerulosclerosis and the development of interstitial fibrosis playing a dominant role in the progression of the illness and specifically the decline in renal function. However, these phenomena are slow and it is not possible to assess the impact of an anti-fibrotic therapy through a short clinical trial.
The aim of this initial clinical trial was to characterize the safety and pharmacokinetics of GKT831 in this population of patients and to assess the therapeutic efficacy of GKT831 in early markers of glomerular complaints, such as albuminuria. The toxicoly data available at the time was sufficient to support a treatment period longer than 12 weeks. This Phase 2 clinical trial (GSN000200) was a randomized, double-blind, placebo-controlled multicentric study conducted on parallel groups.GKT831 or placebo were administered after a period of four weeks ("run-in") during which antihypertensive treatments (diuretic, anticalcic, β-blockers) were adjusted and those prescribed for diabetic nephropathy (inhibitors of the angiotensin-converting enzyme, angiotensin receptor blockers) were optimized up to the maximal dose tolerated, then kept unchanged during the treatment period. The eligibility of patients to enter this run-in period was assessed during a preliminary selection period of up to four weeks.
In total, 155 subjects were enrolled in 75 research sites. The study was carried out in six countries (United States, Canada, Czech Republic, Poland, Germany and Australia). A total of 136 subjects
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were still eligible at the end of the run-in period and could be randomized and distributed evenly between the two treatment arms: GKT831 and placebo.
Patients self-administered 100 mg of GKT831 orally morning and night (200 mg per day) or placebo for the first six weeks of the treatment, then 200 mg morning and night (400 mg per day) for the following six weeks. All patients were then monitored for 30 days after the treatment period. The patient retention rate was very high, with 125 patients reaching the end of the full treatment period.
The trial did not achieve its principal efficacy endpoint. No difference was detected between GKT831 and placebo on proteinuria (albumin ratio on urinary creatinine) after 12 weeks of treatment. Nor did GKT831 have any impact on other measurements of renal function, such as serum creatinine and the estimated glomerular filtration rate.
However, GKT831 did achieve a statistically significant effect on several secondary efficacy endpoints that were predefined in the protocol. It was decided to assess the anti-inflammatory effect of GKT831, considering its preclinical anti-inflammatory effects, as well as the hepatocellular injury markers. Considering that the subjects included had type 2 diabetes, they may have some degree of non-alcoholic fatty liver disease (NAFLD). GKT831 caused a statistically significant decrease in the GGT liver enzyme and in C-reactive protein ("hs-CRP"), an inflammation marker produced in the liver. There was also a clear but non-significant reduction in other serum markers such as serum amyloid A protein, interleukin (IL-6) and plasminogen activator inhibitor-1 (PAI-1), as well as a reduction in triglycerides.
A positive trend for GKT831 was also observed in diabetic peripheral neuropathy assessed with the VAS 100 mm scale and in erectile dysfunction assessed with the IIEF (International Index of Erectile Function) questionnaire. However, these trends were not statistically significant.
During this trial, GKT831 at a dose of up to 400 mg per day was well tolerated. The number of adverse events ("AE") was low, with less than 50% of patients reporting at least one AE during the study. Out of a total of 68 patients treated with GKT831, most of the AEs emerging were low in severity, unrelated to the treatment and quickly resolved. The most common AEs related to respiratory tract infections. Other one-off AEs were reported by one or two of the patients treated. The fixed dose escalation after six weeks of treatment did not have any impact on the number of AEs emerging. A slight, clinically insignificant increase in diastolic and systolic arterial pressure was observed in patients treated with GKT831 in comparison to those under placebo. These variations remained within the normal range and were not associated with any clinically significant increase in arterial pressure requiring medical intervention. The incidence of adverse effects was noticeably more frequent in patients receiving placebo (119 cases in the placebo group versus 69 in the GKT831 group), i.e., a 42% decrease. If the adverse effects are categorized by degree of severity, a decrease of 12%, 68% and 93% is observed respectively for side effects of mild, moderate and severe severity (p < 0.001). The side effects reported in these patients reflect the natural history of their disease. The effect of GKT831 on the incidence of adverse effects may reflect a decrease in the severity of these diabetic complications.
Finally, in the Phase 2 study, the safety signals observed in the preliminary toxicology studies in animals have not been confirmed. In particular, no signals affecting thyroid, liver, bone marrow or cardiac conduction were observed.
Although this clinical trial did demonstrate the very good safety profile and pharmacodynamic activity of GKT831, it was important to analyze the potential reasons for the lack of activity in the primary efficacy endpoint (albuminuria). There are several possible reasons:
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the duration of treatment: compounds acting on intrarenal hemodynamics and in particular on filtration pressure (such as angiotensin II converting enzyme inhibitors, angiotensin II receptor antagonists and endothelin receptor antagonists), generally achieve a reduction in albuminuria within 12 weeks. However, there were no precedents on which to inform the necessary treatment duration for compounds acting on renal fibrosis and inflammation. It is therefore possible that a treatment of more than 12 weeks may have been needed to demonstrate a nephroprotective effect.
the dose: the selection of doses for this clinical trial (100 mg 2x/day for six weeks, followed by 200 mg 2x/day for six weeks) was based on several elements. Above all, it was important to ensure exposure of the subjects at levels matching the exposure needed for maximal efficacy in animal models. A 20 mg/kg dose seemed sufficient in mice. However, the data obtained since then suggest that a dose of 60 mg/kg is required in some studies to achieve maximal efficacy. This is apparent, for example, in the STAM model which is a model of NASH. In addition, a population pharmacokinetic model was developed, based on PK data obtained in Phase 1 andPhase 2 clinical trials. These data indicate that a significant proportion of patients would not have been sufficiently exposed with the doses chosen, particularly during the first six weeks of treatment when the dose was 100 mg 2x/day.
Importantly, the good safety profile observed during the Phase 2 trial in diabetic nephropathy does support the evaluation of GKT831 over a longer treatment period with higher doses in diseases of the kidney, liver and other organs.
6.7.3. Next stages of development for GKT831
6.7.3.1. GKT831 - Phase 2 clinical trial planned on primary biliary cholangitis (PBC)
Genkyotex has initiated a double-blind placebo-controlled study, to assess the efficacy and safety of GKT831 in patients with primary biliary cholangitis (PBC), a chronic orphan auto-immune disease. This study is expected to be launched with the first recruitments planned for the first half of 2017.
The Phase 2 clinical trial conducted on patients with diabetic nephropathy revealed a good safety profile, characterized the pharmacokinetic properties of GKT831, and generated encouraging pharmacodynamic data. As described above, these clinical results brought to light elements that should be taken into account to increase the chances of success of subsequent clinical trials.
The design of this second clinical trial takes these elements into account. The duration of the treatment will be extended to 24 weeks, far exceeding the treatment duration generally used in this type of clinical trials (i.e. 12 weeks). Moreover, the maximum dose will be 400 mg 2x/day for 24 weeks. It is also important to note that GKT831 is eliminated by the biliary ducts, which allows for maximum exposure, specifically where it is desirable. These preclinical data obtained in rats with radioactive GKT831 revealed tissue concentrations three to five times higher in liver compared with other organs such as the kidney.
In conclusion, the PBC clinical trial allows for significant and prolonged drug exposure in the target organ. Furthermore, the primary efficacy endpoint is GGT (gamma glutamyl transpeptidase), a liver enzyme that is elevated in cases of hepatic inflammation and/or cholestasis. In the Phase 2 clinical trial conducted, GKT831 produced a statistically significant reduction in GGT.
In conclusion, the PBC clinical trial was developed to maximize the chances of therapeutic success, based on all available preclinical and clinical data.
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The main objective of this clinical trial will be to assess the efficacy of GKT831 administered for 24 weeks compared to a placebo. Two doses will be assessed to inform the selection of doses for future clinical trials. The efficacy of GKT831 will be assessed on the basis of its effects on the following markers: (i) hepatocyte injury (transaminases such as ALT, AST, GGT), (ii) cholestasis and bile duct injury (ALP, GGT), (iii) hepatocyte apoptosis (CK-18), (iv) auto-immunity (auto-antibodies, IL-13, IL-4, IP-10, IFNg, IL-12p70), and (v) pruritis and quality of life. The safety of GKT831 will also be assessed in this population of patients, as will the product's pharmacokinetics.
The study will target a total enrollment of 102 patients (34 per group). Patients are to be included in the study based on the following major criteria:
Primary biliary cholangitis diagnosis defined by the presence of at least two of the following three criteria: (i) history of high alkaline phosphatase, (ii) positive antimotochondrial antibodies, (iii) a liver biopsy with a histological diagnosis of primary biliary cholangitis;
Alkaline phosphatase level ≥ 1.5x the upper limit of the norm (ULN);
Plasmatic GGT value above ULN;
Treatment with ursodeoxycholic acid for at least six months and with a stable dose for at least three months;
Absence of liver decompensation or cirrhosis;
Coagulation disorders;
A history of liver transplant or a MELD score of over 15;
An elevation in ALT transasminases of over five times the ULN.
The study will be conducted at 50-60 research sites located in North America, in several European countries and in Israel.
Preparatory work for this study was begun in the second half of 2016, with a recruitment launch planned for the first half of 2017. An interim analysis will be carried out when 90 subjects have completed the week 6 visit.
If the different stages of the study go ahead as planned, these interim results will be available by the end of the first half of 2018. The final results should be available by the end of 2018.
On May 2, 2017, the company announced that the US Food & Drug Administration (FDA) had accepted its IND (Investigational New Drug) application for GKT831, its NOX1 and NOX4 inhibitor, authorizing Genkyotex to assess this drug candidate in a Phase 2 clinical trial on primary biliary cholangitis (PBC). Subsequently, Genkyotex announced the initiation of the first investigational center in the US, effectively initiating patient recruitment into the trial. The Company plans to obtain preliminary results in the first half of 2018 and final results in the second half of 2018.
A considerable percentage of patients with PBC receiving approved therapies present persistent hepatic inflammation and fibrosis. Several mouse models with hepatic disorders showed the anti-inflammatory and anti-fibrotic effects of GKT831. Moreover, GKT831 caused a statistically significant reduction in hepatic pain and inflammation markers in patients with type 2 diabetes.
This Phase 2 trial is a multicentric, placebo controlled, double blind trial assessing the safety and efficacy of GKT831 over a 24-week treatment period in patients suffering from primary biliary cholangitis who are not responding adequately to ursodeoxycholic acid. In total, 102 patients will be recruited for this international study, and will receive placebo or one of two doses of GKT831 (400 mg once a day or 400 mg twice a day). The trial's main objective will be to demonstrate the therapeutic activity of GKT831 through the reduction of gamma glutamyl transpeptidase (GGT), which is both a liver damage marker and an oxidative stress indicator. The secondary efficacy
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endpoints include inflammation and liver complaint markers (CK-18, hs-CRP, ALT) and non-invasive markers of hepatic fibrosis: ELF (Enhanced Liver Fibrosis) test, transient elastography and circulating collagen fragment levels.
6.7.3.2. Phase 3 clinical program
If Phase 2 results are positive, meetings will be organized with the FDA and EMA to discuss further clinical development.
Given that this is an orphan disease, accelerated registration after completion of the Phase 3 program may be considered, as was the case recently for Intercept Pharmaceuticals' Ocaliva.However, it is important to note that GKT831 has a different mechanism of action than those of Ocaliva or Ursodiol. It is therefore doubtful that the regulatory agencies will approve an identical Phase 3 program based on the same registration criteria.
Should this situation arise, the beneficial effect of GKT831 on histological criteria such as inflammation, biliary damage and fibrosis, may need to be demonstrated. This research, if necessary, could be carried out as part of the Phase 3 study or in a dedicated clinical trial allowing for the inclusion of a specific patient population for these investigations.
For the development of GKT831 in liver disorders, the safety of GKT831 in patients with liver failure would also need to be demonstrated. This trial is currently planned on 36 subjects in Child-Pugh stages A (12 subjects), B (12 subjects) and C (12 subjects). The pharmacokinetic and safety data obtained in these patients will be useful when it comes to planning the pivotal Phase 3 study.
6.8. GKT771
6.8.1. Overview
GKT771, Genkyotex's second most advanced drug candidate, is a selective inhibitor of NOX1. This molecule has anti-inflammatory, anti-angiogenic and analgesic effects. Genkyotex plans to submit a CTA/IND application by the end of 2017, in order to support the initiation of the Phase 1 program.
Following 13 months of optimization of the chemical series, Genkyotex selected the compound GKT771 as a clinical candidate, due to its good physiochemical characteristics, its good membrane permeability properties and the fact that it does not cross the blood-brain barrier. Moreover, the pharmacokinetic properties measured in different animals make it a very good candidate for peripheral indications in which NOX1 plays an important role.
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6.8.2. Stage of development
Genkyotex is currently conducting preclinical studies to define the high-priority clinical indications for GKT771. The indications currently under consideration include rheumatic diseases such as osteoarthritis and inflammatory arthritis, inflammatory skin disorders and various forms of inflammatory pain. If the preclinical trials that are yet to be conducted, particularly the toxicology studies, are positive, Genkyotex will be in a position to submit a regulatory dossier by the end of 2017, with a view to obtaining authorization to begin the first Phase 1 clinical trial.
6.8.3. Preclinical results
6.8.3.1. High throughput screening of 155,000 molecules / identification of the chemical series
The transfer and miniaturization of the NOX1, NOX2, NOX4 and XO trials allowed for a very high throughput screening campaign to be conducted on more than 155,000 molecules in the three NOX isoforms specified above. This process was used to identify molecules with different pharmacological profiles: one of the screened isoforms selective for NOX1, selective for two of the three of the isoforms, or non-selective. None of these molecules had to show activity on xanthine oxidase. Of these hit molecules, it was decided to proceed with further characterization and development of one of them, which was highly selective of NOX1, i.e., GKT3000126
i. Optimization of the chemical series and identification of GKT771
The GKT300126 hit molecule has a Ki on NOX1 of 1 µM and is completely inactive on NOX2 and xanthine oxidase. Its inactivity was confirmed not only on NOX2 and XO but also on NOX3, NOX4 and NOX5. These results encouraged Genkyotex to launch an optimization campaign on this chemical series. This optimization was carried out over a 13-month period with a neo-synthesis of around 650 molecules. This series was improved not only in terms of its power on NOX1, but also in all the physico-chemical parameters necessary to make it a preclinical candidate.
ii. Pharmacology of GKT771
At the end of this 13-month optimization period, Genkyotex selected GKT771 (GKT771) as a clinical candidate. This molecule is highly selective for the NOX1 isoform, with a potency (Ki) of 60 nM. This potency was measured in different assays with different ROS detection probes. In the cell tests, IC50
is sub-µM in lassays using a probe and around 3 µM in the oxygen consumption test.
iii. Physico-chemical characteristics of GKT771
GKT771 has good physico-chemical characteristics. For example, at 10 µM, there is no activity on the main CYPs and there is no inhibition of hERG at 33 µM. It also presents good membrane permeability properties and does not cross the blood-brain barrier. Moreover, the pharmacokinetic properties measured in different animals make it a very good candidate for peripheral indications in which NOX1 plays an important role.
iv. Mechanism of action: in vitro and in vivo data
Effect of GKT771 on an angiogenesis model in mice
Extensive data suggest that ROS play a key role in the migration, proliferation and survival of endothelial cells that constitute major events in the mechanisms of angiogenesis. Professor Beat Imhof's team at the University of Geneva, was able to demonstrate that NOX1 did indeed play this role. Basically, endothelial cells for which the NOX1 gene was removed show a lower propensity to migrate and to form tubular networks when they are stimulated by angiogenic factors. This
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mechanism was confirmed in vivo in mice deficient in NOX1, in which a marked reduction in angiogenic activity was observed in response to pro-angiogenic growth factors (Garrido-Urbani S et al., PLoS One al., PLoS One, 2011).
Genkyotex was able to replicate these studies with GKT771. Angioreactors containing angiogenic factors (VEGF and FGF) were placed under the skin of C57BL/6 mice for a period of two weeks. The aim was to induce the recruitment and proliferation of murine endothelial cells within these angioreactors. At the same time, mice were orally administered GKT771 at doses of 1 and 3 mg/kg twice a day. GKT771 significantly reduced the recruitment and proliferation of endothelial cells in comparison to the control mice, clearly suggesting that NOX1 does play an important role in angiogenesis (Figure 9).
Figure 9: Effect of GKT137831 on the recruitment of endothelial cells in angioreactors incubated for 2 weeks in mice.
Analgesic effect of GKT771 on inflammatory pain models
The chemical mediators released from injured tissue and inflammatory cells increase the perception of pain by lowering the activation threshold of the transient receptor potential vanilloid 1 (TRPV1) through various post-translational mechanisms (Ohta et al. 2006).
In injured or inflamed tissue, a protein called NGF (Nerve Growth Factor) is heavily induced and will bind itself to its receptor TrkA (tyrosine kinase receptor A), which is found on the surface of spinal neurons. A signal will then be sent to the inside of the neurons inducing the translocation of the epsilon isoform of protein kinase C to the plasma membrane. This will activate TRPV1 and send a pain signal to the neuro-sensory system (Kallenborn-Gerhardt W et al., Pharmacol Ther, 2013). Professor Chihiro Yabe's group revealed that the production of ROS by NOX1 played a leading role in the membrane translocation of PKC. NOX1 KO mice presented lower sensitivity to inflammatory pain (Ibi M et al., J Neurosci, 2008). It is important to note that TRPV1 can be directly activated by various stimuli such as heat, capsaicin, acids and protons.
To test its activity on this nociceptive pathway, GKT771 has therefore been tested in two murine models with inflammatory pain.
In the first model, mice received a dose of UV on the arch of their paws, inducing an inflammatory reaction accompanied by hyperalgesia. Two and three days respectively after UV radiation, the animals underwent a test to measure thermal and mechanical hyperalgesia. A heightened sensitivity was observed in the mechanical and thermal tests in the paw exposed to UV rays, compared to the
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non exposed paws. GKT771, administered orally at 30 mg/kg twice a day, caused a significant reduction in this hypersensitivity, following exposure to UV rays. (Figure 10).
Figure 10: Effect of GKT771 on thermal hyperalgesia after exposure of the arch of the foot in mice to UV rays
In a second model, rats received an injection of capsaicin into their paws to induce the direct activation of the TRPV1 receptor and to generate a pain signal. The rats then underwent a mechanical nociception test 30, 60 and 90 minutes after the capsaicin injection. Paws into which capsaicin was administered presented increased sensitivity in the pain test compared to the control paws. A single administration of GKT771 blocked the pain signal in a statistically significant and dose-dependent extent. Mice treated with GKT771 also presented a resistance to mechanical pain that was comparable to what was observed with a potent opiate (morphine) or a TRPV1 antagonist.
6.8.4. Preclinical toxicological data
GKT771, which recently qualified as a clinical candidate, is being assessed in a series of regulatory tests in rodents and dogs to determine this compound's suitability for entry into the clinical stage.
6.8.5. Potential indications
GKT771 displayed anti-angiogenic, analgesic and anti-inflammatory effects, all three of which are major components in many rheumatic diseases, inflammatory skin conditions and various forms of inflammatory pain.
Genkyotex is currently conducting preclinical studies to define the high-priority clinical indications for GKT771.
6.9. PRECLINICAL RESEARCH PROGRAMS
Genkyotex is also conducting exploratory preclinical research programs in relation to hearing loss, disorders of the central nervous system and oncology.
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6.9.1. NOX inhibition in hearing loss
Hearing loss affects some 560 million people and is expected to increase to 900 million by 2050 according to the WHO. Disorders of the inner ear are associated with severe morbidity and a loss of quality of life in affected patients. In many of these conditions, the production of ROS is a major mechanism. It seems increasingly clear that the activation of NOX enzymes, and in particular NOX3, plays a key role in many forms of hearing loss. The expression of NOX3 is induced by ototoxic drugs such as cisplatin and aminosides, acoustic trauma and in connection with Ménière's disease. NOX3 therefore represents an interesting target for the treatment and prevention of disorders of the inner ear. The data obtained to date in animal models seem to confirm the therapeutic potential of NOX3 inhibitors (Tavanai E et al., Eur Arch Otorhinolaryngo, 2016).
The development of pharmacological inhibitors and of genetic strategies targeting NOX3 therefore represents a relevant therapeutic approach. However, the first preclinical studies conducted by Genkyotex suggest that NOX3 may not be the only NOX isoform involved. Furthermore, it would be useful to develop a therapy that could prevent not only hearing impairment, but also the renal and neurological side effects, which again seem to be linked not solely to NOX3.
As a result, Genkyotex is currently assessing the therapeutic potential of a general inhibitor of all NOX isoforms. Genkyotex has already succeeded in demonstrating that this molecule reaches sufficient concentrations in the perilymph and in the tympanic bulla.
Over time, Genkyotex hopes to develop a drug that could be administered orally before and during chemotherapy cycles based on cisplatin, to prevent multiple toxicities of this excellent chemotherapeutic agent.
6.9.2. NOX inhibition in disorders of the central nervous system
There is increasing evidence that the generation of ROS by NOXs is involved in many disorders of the central nervous system. It has been documented that NOX2 could potentially play a vital role in psychiatric disorders such as schizophrenia and in certain types of epilepsy, multiple sclerosis and neurodegenerative diseases such as Alzheimer's disease, Creuzfeld-Jacob disease, amyotrophic lateral sclerosis and Parkinson's disease (Nayernia Z, Jaquet V, Krause KH, 2014. New insights on NOX enzymes in the central nervous system. Antioxid Redox Signal.; 20:2815-37).
When it comes to these neurodegenerative diseases, some studies find that NOX2 could play a key role in inflammation of the microglia and in neuronal cell death (Lelli A, Gervais A, Colin C, Chéret C, Ruiz de Almodovar C, Carmeliet P, Krause KH, Boillée S, Mallat M, 2013. The NADPH oxidase Nox2 regulates VEGFR1/CSF-1R-mediated microglial chemotaxis and promotes early postnatal infiltration of phagocytes in the subventricular zone of the mouse cerebral cortex. Glia. 61:1542-55).
For Parkinson's disease, several studies have demonstrated the key role played by NOX1 in dopaminergic neurons (Cristóvão AC, Guhathakurta S, Bok E, Je G, Yoo SD, Choi DH, Kim YS., 2012.NADPH oxidase 1 mediates α-synucleinopathy in Parkinson's disease. J Neurosci. 32:14465-77) in various murine models of Parkinson's, the pharmacological or genetic inhibition of NOX1 inhibits the degeneration of dopaminergic neurons induced by toxins such as paraquat, 6-OHDA and MPTP (Zhang F et al., CNS Neurosci Ther, 2014).
As a priority, Genkyotex is assessing the therapeutic potential of NOX inhibitors in Parkinson's disease.
6.9.3. NOX inhibition in oncology
NOXs are a key component in the response to cellular stress. Cancer cells are affected by many
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forms of stress, including hypoxia, genome instability, increased metabolic demand, immune surveillance, change in environment during metastasis and the effect of anticancer treatments.
As a result, scientific literature suggests that NOXs could play a role in the multiple stages of tumor growth (Meitzler JL et al., Antioxid Redox Signal, 2014):
DNA oxidation inducing genetic mutations facilitating tumorigenesis
Proliferation of cancer cells
Switches in energy metabolism (e.g., Warburg effect)
Tumor angiogenesis
Stromal growth
Mesenchymal–epithelial transition in the context of metastasis
Emergence of secondary mutations causing resistance to anticancer therapies
Thanks to academic partnerships, Genkyotex is exploring the potential of selective NOX inhibitors to target key compounds of the tumor's microenvironment, namely, angiogenesis and tumor stroma.
6.10. PARTNERSHIP WITH THE SERUM INSTITUTE OF INDIA FOR THE USE OF VAXICLASE (GTL003) IN MULTIVALENT VACCINES
On February 2, 2015, the Company entered into a license agreement with the Serum Institute of India Ltd. (the Serum Institute), the largest producer of vaccine doses in the world.
The disappointing results obtained in terms of therapeutic efficacy with the drug candidate GTL001 developed by Genticel, which brought an end to its development in 2016, did not call into question the partnership with the Serum Institute, which is based on the use of Vaxiclase as an antigen in the development of a prophylactic vaccine. In this context, Vaxiclase represents an "active ingredient" that is now called GTL003.
Given that GLT003 is a more compact version of the vector used for GTL001 immunotherapy, the good tolerance observed in GTL001 in the Phase 2 study is highly encouraging as regards the tolerance profile of a prophylactic vaccine developed with GTL003 and all the more so, given than the doses of GTL003 that should be used in a prophylaxis context will be significantly lower than those used by Genticel in its therapeutic applications.
This license agreement, which authorizes the Serum Institute to use Vaxiclase to develop its multivalent acellular vaccines against a variety of infectious diseases, including whooping cough, and which covers only regions located outside the United States and Europe, could allow the Company to generate up to US$57 million in revenues, excluding royalties on potential sales.
All aspects of the development of multivalent prophylactic candidates containing GTL003, which is the subject matter of the partnership agreement with the Serum Institute, will now be exclusively carried out by the Serum Institute, as specified in the license agreement dated February 2, 2015.
On November 30, 2016, Genticel announced that it had reached an important milestone in its partnership with the Serum Institute, as GTL003 had achieved the predetermined objectives of the in vivo preclinical tests. This was the last preclinical step planned in the agreement, triggering the milestone payment of US$1.2 million.
The final preclinical stage provided for in this agreement, which was completed in November 2016, opens the way to regulatory preclinical tests conducted by the Serum Institute, prior to the potential clinical development, marketing and sale of vaccines by this organization.
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In the event of clinical development and marketing by the Serum Institute of the vaccines produced through this program, the global agreement could generate up to US$57 million in milestone payments for the Company, in addition to royalties based on sales.
Accordingly, the Company believes that the events giving rise to the milestone payments (i) for development should occur between 2016 and 2025 for a maximum total payment of US$4.95 million (unless under license before phase 3), and (ii) for other commercial sales between 2025 and 2032 for a maximum total payment of US$53 million.
Furthermore, in the fourth quarter of 2016, the Company was granted a new patent in the United States (No. 9,499,809), titled “CyaA-based chimeric proteins comprising a heterologous polypeptide and their uses in the induction of immune responses.” This patent protects Vaxiclase primarily when it is used as a product (GTL003).
Finally, it is not ruled out that certain market players may wish to develop a treatment against HPV and, for this purpose, to enter into a partnership with the Company to use the results obtained during the pre-clinical phases for GTL001 and GTL002.
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6.11. ORGANIZATION OF THE COMPANY
As of the Registration Document Date, Genticel employs 12 people on permanent contracts, including 8 employees dedicated to research and development. There are 9 managers in the team, including 3 in executive management positions. These managers currently include one medical doctor, two PhDs and one MBA.
6.12. SCIENTIFIC ADVISORY BOARD
Genkyotex has a Scientific Advisory Board made up of the three scientists who founded Genkyotex Suisse in 2006, as well as Professor Dave Lambeth. The Company's Scientific Advisory Board meets regularly to discuss all matters relating to NOX science and to the continued development of the technology platform. The members of the Scientific Advisory Board are:
Karl-Heinz Krause, professor of medicine at the faculty of medicine at the University of Geneva and honorary professor at Beijing Hospital, China. From 1982 to 1989, he trained in internal medicine and infectious diseases at the hospitals of Munich, Geneva and Iowa. Highly active in research on inflammation, since 1998 he has focused his research on mechanisms linked to aging and treatments of age-related illnesses, focusing specifically on the role of the NADPH oxidase family as an important pathological source in the production of oxidative stress. He is a member of the Swiss Academy of Medical Sciences and the American Society for Clinical Investigation. Dr Krause was one of the founders of Genkyotex.
Chihiro Yabe, PhD in science, medical doctor, professor of pharmacology at the University of Medicine of Kyoto in Japan. In addition to conducting research on diabetes since 2000, she has specialized in research into NOX enzymes. Professor Yabe is an advisor to the Japanese Pharmacological Society, the Japan Diabetes Society and the Japanese Society of Clinical Pharmacology and Therapeutics. Dr Yabe was one of the founders of Genkyotex.
Robert A. Clark, medical doctor, professor of medicine at the University of Texas in San Antonio. Professor Clark has led many fundamental studies and programs in translational medicine on inflammatory response mechanisms and on the understanding of human phagocyte cells. His group was one of the main contributors to the study of production mechanisms of ROS by NOX2 and in studying the role of NOX2 mutations in the onset of CGD (Chronic Granulomatous Disease). He has recently focused his attention on understanding the function and role of NOXs in aging and neurodegeneration. Dr Clark was one of the founders of Genkyotex.
Dave Lambeth, PhD in science, doctor, professor at the laboratory of pathology and biochemistry at Emory University in Atlanta. In the 1980s, his research group at Emory University contributed considerably to the understanding of phagocyte NADPH and its method of regulation. His group then became the first to identify the first non-phagocyte NOX, NOX1, in 1999. He went on to make considerable contributions to the discovery of other NOXs and to the understanding of their regulation mechanism.
6.13. ORGANIZATION OF OPERATIONS
Effective June 15, 2017, the Company's head office was relocated to Archamps in France, where its pharmacology and clinical operations are also located at the Group's site.
Prior to this date, the Company's head office was situated in Labège.
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6.14. MULTIPLE PEER-REVIEWED SCIENTIFIC PUBLICATIONS
On the basis of the scientific research conducted by its staff or in collaboration with external scientists, the Company has been able to use leading scientific literature to make its technology known. Below is a list of the main scientific publications used by the Company to validate its scientific and medical approach:
1. Combined NOX1/4 inhibition with GKT137831 in mice provides dose-dependent reno- and atheroprotection even in established micro- and macrovascular disease. Gray SP et al. Diabetologia. 2017 May; 60(5):927-937. doi: 10.1007/s00125-017-4215-5.
2. Cyclic mechanical stretch-induced oxidative stress occurs via a NOX-dependent mechanism in type II alveolar epithelial cells. Tanaka T et al. Respir Physiol Neurobiol. 2017 Apr 22; 242:108-116. doi: 10.1016/j.resp.2017.04.007.
3. Tert-butyl hydroperoxide (t-BHP) induced apoptosis and necroptosis in endothelial cells: Roles of NOX4 and mitochondrion. Zhao W et al. Redox Biol. 2017 Apr; 11:524-534. doi: 10.1016/j.redox.2016.12.036.
4. Signalling mechanisms mediating Zn2+-induced TRPM2 channel activation and cell death in microglial cells. Mortadza SS et al. Sci Rep. 2017 Mar 21; 7:45032. doi: 10.1038/srep45032.
5. Involvement of Nox2 and Nox4 NADPH oxidases in early brain injury after subarachnoid hemorrhage. Zhang L et al. Free Radic Res. 2017 Mar; 51(3):316-328. doi: 10.1080/10715762.2017.1311015.
6. Critical role of X-box binding protein 1 in NADPH oxidase 4-triggered cardiac hypertrophy is mediated by receptor interacting protein kinase 1. Chen L et al. Cell Cycle. 2017 Feb 16; 16(4):348-359. doi: 10.1080/15384101.2016.1260210.
7. The role of the Nox4-derived ROS-mediated RhoA/Rho kinase pathway in rat hypertension induced by chronic intermittent hypoxia. Lu W et al. Sleep Breath. 2017 Jan 11. doi: 10.1007/s11325-016-1449-2.
8. Pharmacological inhibition of NOX4 ameliorates alcohol-induced liver injury in mice through improving oxidative stress and mitochondrial function. Sun Q et al. Biochim Biophys Acta. 2017 Jan; 1861(1 Pt A):2912-2921. doi: 10.1016/j.bbagen.2016.09.009.
9. NOX4 supports glycolysis and promotes glutamine metabolism in non-small cell lung cancer cells. Zeng C et al. Free Radic Biol Med. 2016 Dec; 101:236-248. doi: 10.1016/j.freeradbiomed.2016.10.500. Epub 2016 Oct 27.
10. Role of muscular eNOS in skeletal arteries: Endothelium-independent hypoxic vasoconstriction of the femoral artery is impaired in eNOS-deficient mice. Kim HJ et al. Am J Physiol Cell Physiol. 2016 Sep 1; 311(3):C508-17. doi: 10.1152/ajpcell.00061.2016. Epub 2016 Jul 27.
11. NOX4-dependent fatty acid oxidation promotes NLRP3 inflammasome activation in macrophages. Moon JS et al. Nat Med. 2016 Sep; 22(9):1002-12. doi: 10.1038/nm.4153.
12. Therapeutic potential of NADPH oxidase 1/4 inhibitors. Teixeira G et al. Br J Pharmacol. 2016 Jun 7. doi: 10.1111/bph.13532.
13. NADPH oxidase-4 overexpression is Associated with epithelial ciliary dysfunction in neutrophilic asthma. Wan WY et al. Chest. 2016 Jun; 149(6):1445-59. doi: 10.1016/j.chest.2016.01.024.
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14. The Nox1/4 dual inhibitor GKT137831 or Nox4 knockdown inhibits angiotensin-II-induced adult mouse cardiac fibroblast proliferation and migration. AT1 physically associates with Nox4. Somanna NK et al. J Cell Physiol. 2016 May; 231(5):1130-41. doi: 10.1002/jcp.25210.
15. Off-target vascular effects of cholesteryl ester transfer protein inhibitors involve redox-sensitive and signal transducer and activator of transcription 3-dependent pathways. Rios FJ et al. J Pharmacol Exp Ther. 2016 May; 357(2):415-22. doi: 10.1124/jpet.115.230748.
16. Early oxidative damage induced by doxorubicin: Source of production, protection by GKT137831 and effect on Ca(2+) transporters in HL-1 cardiomyocytes. Asensio-López MC et al. Arch Biochem Biophys. 2016 Mar 15; 594:26-36.
17. Chemerin regulates crosstalk between adipocytes and vascular cells through Nox. Neves KBet al. Hypertension. 2015 Sep; 66(3):657-66. doi: 10.1161/HYPERTENSIONAHA.115.05616.
18. Hepatocyte nicotinamide adenine dinucleotide phosphate reduced oxidase 4 regulates stress signaling, fibrosis, and insulin sensitivity during development of steatohepatitis in mice. Bettaieb A et al. Gastroenterology. 2015 Aug; 149(2):468-80.e10. doi: 10.1053/j.gastro.2015.04.009.
19. Inhibition of NOX1/4 with GKT137831: a potential novel treatment to attenuate neuroglial cell inflammation in the retina. Deliyanti D et al. J Neuroinflammation.
20. Deficiency of NOX1 or NOX4 prevents liver inflammation and fibrosis in mice through inhibition of hepatic stellate cell activation. Lan T et al. PLoS One. 2015 Jul 29; 10(7):e0129743. doi: 10.1371/journal.pone.0129743.
21. Targeting NADPH oxidase with a novel dual Nox1/Nox4 inhibitor attenuates renal pathology in type 1 diabetes. Gorin Y et al. Am J Physiol Renal Physiol. 2015 Jun 1; 308(11):F1276-87. doi: 10.1152/ajprenal.00396.2014.
22. Cholesteryl ester-transfer protein inhibitors stimulate aldosterone biosynthesis in adipocytes through Nox-dependent processes. Rios FJ et al. J Pharmacol Exp Ther. 2015 Apr; 353(1):27-34. doi: 10.1124/jpet.114.221002.
23. NADPH oxidase 4 induces cardiac fibrosis and hypertrophy through activating Akt/mTOR and NFκB signaling pathways. Zhao QD et al. Circulation. 2015 Feb 17; 131(7):643-55. doi: 10.1161/CIRCULATIONAHA.114.011079.
24. Antioxidant treatments do not improve force recovery after fatiguing stimulation of mouse skeletal muscle fibres. Cheng AJ et al. J Physiol. 2015 Jan 15; 593(2):457-72. doi: 10.1113/jphysiol.2014.279398.
25. Matrix metalloproteinase-3 causes dopaminergic neuronal death through Nox1-regenerated oxidative stress. Choi DH et al. PLoS One. 2014 Dec 23; 9(12):e115954. doi: 10.1371/journal.pone.0115954.
26. NADPH oxidase, NOX1, mediates vascular injury in ischemic retinopathy. Wilkinson-Berka JL et al. Antioxid Redox Signal. 2014 Jun 10; 20(17):2726-40. doi: 10.1089/ars.2013.5357.
27. Genetic targeting or pharmacologic inhibition of NADPH oxidase nox4 provides renoprotection in long-term diabetic nephropathy. Jha JC et al. J Am Soc Nephrol. 2014 Jun; 25(6):1237-54. doi: 10.1681/ASN.2013070810.
28. NADPH oxidase enzymes in skin fibrosis: molecular targets and therapeutic agents. Babalola O et al. Arch Dermatol Res. 2014 May; 306(4):313-30. doi: 10.1007/s00403-013-1416-8.
29. Pharmacological inhibition of NOX reduces atherosclerotic lesions, vascular ROS and immune-inflammatory responses in diabetic Apoe(-/-) mice. Di Marco E et al. Diabetologia. 2014 Mar; 57(3):633-42. doi: 10.1007/s00125-013-3118-3.
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30. NADPH oxidase 1 plays a key role in diabetes mellitus-accelerated atherosclerosis. Gray SP et al. Circulation. 2013 May 7; 127(18):1888-902. doi: 10.1161/CIRCULATIONAHA.112.132159.
31. Nicotinamide adenine dinucleotide phosphate oxidase in experimental liver fibrosis: GKT137831 as a novel potential therapeutic agent. Aoyama T et al. Hepatology. 2012 Dec; 56(6):2316-27. doi: 10.1002/hep.25938.
32. The Nox4 inhibitor GKT137831 attenuates hypoxia-induced pulmonary vascular cellproliferation. Green DE et al. Am J Respir Cell Mol Biol. 2012 Nov; 47(5):718-26. doi: 10.1165/rcmb.2011-0418OC.
33. Liver fibrosis and hepatocyte apoptosis are attenuated by GKT137831, a novel NOX4/NOX1 inhibitor in vivo. Jiang JX et al. Free Radic Biol Med. 2012 Jul 15; 53(2):289-96. doi: 10.1016/j.freeradbiomed.2012.05.007.
34. The NADPH oxidase (NOX) inhibitor GKT137831 alleviates liver inflammation and fibrosis in a mouse model of non-alcoholic steatohepatitis (NASH). Teixeira G et al. (2014). Keystone Symposia Conference. Fibrosis: from bench to bedside, Keystone.
35. Inhibition of Nox1, 4 and 5 attenuates vasculopathy and inflammation in rats with hypertensive diabetic retinopathy. Deliyanti D et al. ARVO Conference, May 2017.
6.15. EXPERTISE IN PRECLINICAL RESEARCH AND DEVELOPMENT
With GKT831, the Company has, to date, developed one drug candidate from the stage of discovery to completion of Phase 2. The preclinical and clinical research and development steps completed for this first project constitute expertise applicable to new projects such as GKT771.
In particular, the Company has established a network of consultants and subcontractors who allow it to manage and perform all the successive stages in the development of new products: design and production of candidates, development of processes, development of analytical methods, regulatory expertise, animal pharmacology studies, conduct of toxicological studies, pharmacokinetics, formulation, traceability, quality assurance, etc.
A significant part of the Company's activities is carried out by Contract Research Organizations (CRO), whose main responsibilities include conducting clinical trials, producing compounds and performing toxicology studies. Above all, this operational model enables Genkyotex to maintain control over its intellectual property, the consultants and CRO used who are not themselves granted any rights over this intellectual property.
6.16. CLINICAL DEVELOPMENT EXPERTISE
An experienced team devoted to clinical development is based at the Company's premises in Plan-Les-Ouates (Switzerland) and Archamps (France). The clinical team works closely with experts in regulatory affairs, pharmacokinetics and statistical methods.
The clinical development team is responsible for managing all the activities involved in preparation, implementation, management of subcontractors and analysis of the data from Genkyotex's clinical trials (drafting of the research brochure, establishment of a clinical protocol, requests for scientific advice from regulatory agencies, setup of the clinical trial, monitoring of the clinical trial (selection of a CRO, patient recruitment, management of interactions between the different parties involved, etc.), data analysis and preparation of regulatory reports presenting results.
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100% (percentage of capital held and voting rights)
7. ORGANIZATIONAL STRUCTURE
On February 28, 2017, the Company acquired Genkyotex Suisse SA by way of contribution in kind.
In accordance with the contribution agreement signed on December 22, 2016, the Company's General Shareholders' Meeting approved (i) the contribution to the Company of 5,262,133 ordinary shares of Genkyotex Suisse SA representing 100% of its share capital and voting rights and (ii) the issue by the Company of 62,279,951 new shares at a subscription price of €1.9268 per share (contribution premium included) as payment for the contributed securities.The shareholders of Genkyotex Suisse SA thereby received 11.8355 Company shares for each share contributed. This exchange parity had been agreed to by the Company and Genkyotex Suisse SA shareholders based on an actual value of €120,000,000 for Genkyotex SA and €30,000,000 for Genticel, as provided in the contribution agreement. As a result of the completion of the contribution, the former shareholders of Genkyotex SA hold 80% of the share capital and voting rights in Genkyotex (formerly Genticel).
The acquisition of Genkyotex Suisse SA is in line with the Company's strategy aimed at diversifying its risks and investing its financial resources in projects with major value creation potential. This combination allows access to new drug candidates and the creation of a Franco-Swiss group whose activity is mainly dedicated to the development of a portfolio of NOX inhibitors, a new therapeutic class in fibrosis and inflammatory pain.
7.1. LEGAL STRUCTURE
This is Genkyotex Group’s legal structure as of Registration Document Date:
7.2. COMPANIES IN THE GROUP
Genkyotex SA (formerly Genticel SA): the Group's parent company, based in Saint-Julien-en-Genevois, France.
Genkyotex Suisse SA: formed in 2006 and based in Plan-Les-Ouates, Switzerland. The Company runs screening programs to identify NADPH oxidase inhibitors.
Genkyotex SA(France)
100% (percentage of capital held and voting rights)
Genkyotex Suisse SA(Switzerland)
Genkyotex Innovation SAS(France)
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Genkyotex Innovation SAS: this company was formed in late 2010 and is based in Saint-Julien-en-Genevois, France. It is a research center specializing in preclinical studies and Phase I and II clinical trials on NADPH oxidase inhibitors identified by Genkyotex Suisse SA.
7.3. FINANCIAL FLOWS WITHIN THE GROUP
As at December 31, 2016, the Company does not own a subsidiary or equity interests. There were no technical or commercial agreements between Genkyotex SA (formerly Genticel SA) and Genkyotex Suisse Group prior to their combination in February 2017.
As at the Registration Document Date, the following agreements are in effect within the Group:
cash management agreement signed on April 1, 2012, between Genkyotex Suisse SA and its subsidiary Genkyotex Innovation SAS. This agreement allows either company’s cash advances to be used as working capital to support its current operations and defines the payment terms.
service agreement signed on December 31, 2012, between Genkyotex Suisse SA and its subsidiary Genkyotex Innovation SAS, with retroactive effect to January 1, 2012, as amended on August 1, 2013. This agreement sets out the payment terms for R&D assignments performed by Genkyotex Innovation SAS for Genkyotex Suisse SA based on the cost-plus method.
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8. REAL ESTATE, PLANTS AND EQUIPMENT
8.1. REAL ESTATE AND EQUIPMENT
8.1.1. Real estate leases
As at the Registration Document Date, the Group had signed the following leases for its subsidiaries Genkyotex Suisse SA and Genkyotex Innovation SAS:
Address 16 Chemin des Aulx, 1228 Plan-les-Ouates, Geneva, Switzerland Floor Area Approximately 281 m2 on the 2nd floor and storage unit No. 600
measuring 67 m2 on basement level 1 Lease term 5 years - renewed ON February 1, 2016, and expiring January 31, 20212016 rent excluding tax and bills: CHF 94 thousand (approximately €87 thousand, based on the average
exchange rate in 2016)During the term of the lease, the rent may be revised to reflect changes in the Swiss official consumer price index.
Address 218 Avenue Marie-Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France
Floor area Approximately 154 m2 consisting of a laboratory and officesLease term August 1, 2011 - July 30, 2020, with the option of terminating the
lease at the end of every three-year period2016 rent excluding tax and bills: €31 thousandThe rent may be revised every three years based on the change in the commercial rent index published by INSEE. Furthermore, based on the improvements and special work that the tenant has asked the lessor to carry out, the rent will be reduced by approximately €7 thousand, starting on August 1, 2017.
The Group has decided to proceed with the restitution of its Labège premises (see Note 16.2 of Section 20.1 of the Registration Document).
8.1.2. Other tangible assets
As of December 31, 2016, the value of Genkyotex SA (formerly Genticel SA) tangible assetsamounted to €42 thousand. Genkyotex Suisse, with which the Company combined in February 2017, also owns property, plant and equipment. The value of the tangible assets of the new combined entity is estimated at €135 thousand (see Section 20.2 "Pro forma financial information").
8.1.3. Main expense burden on the Company's intangible assets
None.
8.2. ENVIRONMENTAL ISSUES
The nature of the Group’s activities does not involve any significant environmental risk. See Section 4.5 “Industrial risks.”
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9. ANALYSIS OF FINANCIAL CONDITION AND RESULTS
The Company, which as of December 31, 2016, did not have any subsidiaries or holdings, prepared in addition to its annual financial statements according to French standards, restated financial statements according to IFRS standards as adopted by the European Union.
Readers are invited to read the information below regarding the financial condition and results of the Company together with the full Registration Document and in particular, the financial statements of Genkyotex SA (formerly Genticel SA) prepared in accordance with IFRS standards for the financial year ended December 31, 2016 (refer to section 20.1 of the Registration Document) and the annual financial statements of Genkyotex SA (formerly Genticel SA) prepared in accordance with French standards for the financial year ended December 31, 2016 (refer to section 20.3 of the Registration Document).
9.1. COMPARISON BETWEEN THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS STANDARDS FOR GENKYOTEX SA (FORMERLY GENTICEL SA) FOR THE LAST TWO FINANCIAL YEARS
9.1.1. Constitution of operating profit and net result
9.1.1.1. Revenue and operating profit and loss
REVENUE AND OTHER INCOME BY GEOGRAPHICAL AREA (Amounts in € thousand)
12/31/2016 12/31/2015
France - -India 1,304 178
Total revenue and other income 1,304 178
On February 2, 2015, the Company entered into a license agreement with the pharmaceutical company Serum Institute of India Ltd. (SIIL) concerning its technology Vaxiclase, as part of the development by Serum Institute of acellular and multivalent vaccines containing, namely, antigens against whooping cough.
In return for the access to and use in the treatment of the authorized indication of the Vaxiclase platform (referred to as GTL003 in the agreement), Genticel could receive up to 57 million US dollars in initial payments and milestone payments for the development and sales based on criteria defined under the terms of the agreement, and royalties on the basis of net sales.
During the 2015 financial year, an up-front payment ($100 thousand) and the delivery of the technical plan ($100 thousand) were invoiced under this agreement.
The Company delivered certain batches of GTL003 during the first half of 2016 for a sum of $250 thousand (€220 thousand). Moreover, on November 30, 2016, the Company announced that it had reached an important milestone in this partnership with Serum Institute, as GTL003 had achieved the predetermined objectives in the in vivo pre-clinical tests. This was the last pre-clinical step planned in the agreement, resulting in the settlement of a milestone payment of $1.2 million (i.e. €1.1 million).
The Company points out that all aspects of the development of multivalent prophylactic candidates containing GTL003, the subject of the partnership agreement with Serum Institute, will now be exclusively carried out by Serum Institute.
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9.1.1.2. Operating expenses by destination
Research and development expenses
The expenditure on research and development relates to developments of immunotherapies.
Research expenses are systematically recognized as expenses.
Due to the risks and uncertainties linked to regulatory authorizations and to the research and development process, the six immobilization criteria according to IAS 38, were considered unfulfilled before obtaining marketing authorization ("MA") on the drugs market. Accordingly, internal development expenses incurred before obtaining MA, mainly consisting of expenses on clinical studies, are recognized as expenses under Research and development expenses, when incurred.
The breakdown of research and development expenses during the financial years presented is as follows:
RESEARCH AND DEVELOPMENT (Amounts in € thousand)
12/31/2016 12/31/2015
Raw materials and consumption (58) (132)Studies and services (4,408) (6,947)Maintenance and repair (65) (69)Insurance (69) -Business trips, travel and entertainment (61) (84)Other external services (20) (42)Personnel expenses (2,183) (2,766)Royalties and patents (240) (336)Depreciation of fixed assets (3) (3)Share-based payments (71) (558)
Research and Development Expenses (7,178) (10,935)
Research Tax Credit 2,959 2,917Bpifrance advances 746 23
Subsidies 3,705 2,940
Research and development expenses amount to €7,178 thousand as of December 31, 2016, versus €10,935 thousand as of December 31, 2015, down €3,757 thousand owing mainly to:
A €2,539 reduction in spending on studies and services, attributed mainly to the cessation of spending on the industrial scale rollout of the GTL001 manufacturing process and the cessation of spending on the GTL002 program;
expenditure on research staff down by €583 thousand given the workforce reduction plan, the first phase of which took effect with the departure, at the end of the second quarter of 2016, of the first 9 people.
Income from research tax credit amounts to €2,959 thousand for FY 2016. The Company also profited from the debt waiver granted by Bpifrance under the MAGenTA project for the sum of €769 thousand. This has been recorded, at its net amount taking into account the accretion, as subsidies.
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General and administrative expenses
The breakdown of general and administrative expenses during the financial years in question is as follows:
ADMINISTRATIVE EXPENSES (Amounts in € thousand)
12/31/2016 12/31/2015
Rentals of intangible and tangible property (205) (183)Maintenance and repair (51) (73)Insurance (54) (125)Fees, legal and prop. (973) (1,562)Advertising (80) (122)Business trips, travel and entertainment (166) (245)Other external services (198) (152)Taxes and charges (59) (54)Staff expenses (700) (649)Attendance fees (100) (100)Depreciation of fixed assets (70) (53)Share-based payments (161) (283)
Administrative expenses excluding restructuring andcombination expenses
(2,817) (3,599)
Economically-driven workforce reduction plan (2,124) -Fees related to the strategic combination project (225) -Expenses for the return and vacation of premises (76) -
Restructuring and combination expenses (2,425) -
Administrative Costs (5,242) (3,599)
Administrative costs excluding expenses relating to restructuring and the strategic combinationamount to €2,817 thousand as of December 31, 2016 versus €3,599 thousand as of December 31, 2015. This €782 thousand decrease is primarily due to the €589 thousand decrease in fee expenses. Significant costs relating to market studies (€217 thousand), the institution of contracts and the establishment of internal procedures were incurred during 2015 and were not renewed in 2016.
Restructuring and strategic combination costs comprise:
the cost of the economically-driven workforce reduction plan for a sum of €2,124 thousand. This plan was carried out in two phases and affected 9 employees during the 1st half of 2016, and 17 employees during the 2nd half of 2016, and the very start of 2017.
fee expenses linked to the strategic combination with Genkyotex totaling €225 thousand, as
the Company had launched a process to assess its strategic options, with a special focus on the Company's facilitation of access to innovative product candidates. This process led to the signature of a contribution agreement with Genkyotex in December 2016, subject to the approval of Genticel's shareholders at the Annual Shareholders' Meeting on February 28, 2017.
expenses for the return and vacation of premises for €76 thousand. Following the combination project with Genkyotex and given that the latter already has premises in France, the Company made the decision to return its premises. As part of this process, it sold all of its laboratory equipment, generating a capital loss on sale of €44 thousand and provided for the costs of refurbishing the Labège premises for €32 thousand.
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9.1.1.3. Financial income (Expenses)
FINANCIAL INCOME AND EXPENSES (Amounts in € thousand)
12/31/2016 12/31/2015
Other financial expenses (42) (57)Financial income 143 280Exchange (losses) and gains 69 -
Total financial income and expenses 171 223
Financial income (expenses), besides positive and negative exchange differences, comprises:
financial expenses related to the accretion of repayable advances;
interest revenue related to financial investments and the recognition of unrealized gains based on their net asset value.
The Company does not have any significant exposure to interest rate risk, to the extent that:
cash assets consist of bank accounts;
investments mainly comprise term deposits repaid at a fixed rate;
no variable rate debt has been obtained.
The Company does not subscribe to financial instruments for speculative purposes.
9.1.1.4. Corporate taxes
The Company has not recorded any corporate tax expense.
As of December 31, 2016, the Company has tax losses which can be carried forward indefinitely in France totaling €74 million. The carry forward of these tax losses is capped at 50% of the taxable profits for the year. This limitation is applicable to the portion of profits exceeding €1 million. The outstanding amount of the tax losses may be carried forward to subsequent financial years, under the same conditions without any time limit.
The tax rate applicable to the Company is the rate applicable in France, i.e., 33.33%.
Deferred tax assets are recorded as tax losses which may be carried forward when it is probable that the Company will have future taxable earnings against which these cumulative tax loss carryforwards may be used. In accordance with this principle, no deferred tax assets are recorded in the Company's financial statements except for passive deferred taxes.
9.1.1.5. Earnings Per Share
Basic earnings per share are calculated by dividing the net profit attributable to Company shareholders by the weighted average number of the shares outstanding during the financial year.
EARNINGS PER SHARE 12/31/2016 12/31/2015
Financial year income (expenses) (7,240) (11,193)
Average weighted shares in circulation 15,561,352 15,463,263
Earnings per share (€/share) (0.47) (0.72)
Diluted earnings per share (€/share) (0.47) (0.72)
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9.1.2. Analysis of Statement of Financial Position
9.1.2.1. Non-currents assets
NON-CURRENT ASSETS(Amounts in € thousand)
12/31/2016 12/31/2015
Intangible assets 42 54Property, plant and equipment 42 156Other non-current financial assets 140 5,291
Total non-currents assets 224 5,501
Property, plant and equipment in net value amounts to €42 thousand as of December 31, 2016 versus €156 thousand in 2015, down €114 thousand primarily due to the sale of all laboratory equipment.
The decline in other non-current financial assets is attributed mainly to the reclassification of the capital bond (valued at €5,154 thousand as of December 31, 2015), given that the Company plans to repurchase this bond in its entirety by the end of 2017. As of December 31, 2016, these consist of the cash reserve linked to the liquidity contract and deposits on commercial leases for rentals.
9.1.2.2. Current assets
CURRENT ASSETS(Amounts in € thousand)
12/31/2016 12/31/2015
Inventory - 53Accounts receivable 53 -Other receivables 3,512 3,654Current financial assets 8,274 5,022Cash and cash equivalents 4,663 11,660
Total current assets 16,503 20,388
As of December 31, 2016, the Company has no more stock of products and goods for research works given the cessation of its research activities.
Other receivables remain stable in relation to the previous year and include:
research tax credits reported during the financial years presented (€3,000 thousand in 2015, and €2,951 thousand in 2016), which have been repaid or should be repaid during the next financial year);
reported advance expenses totaling €135 thousand, mainly for studies, services and rentals.
Current financial assets as of December 31, 2016, include a term deposit with a value of €5,046 thousand maturing in 2017 and the capital bond valued at €3,228 thousand. The Company plans to repurchase the capital bond in its entirety by the end of 2017.
As of December 31, 2016, cash and cash equivalents consist solely of bank accounts. As of December 31, 2015, the Company had €5,651 thousand in bank accounts and €6,009 thousand in monetary SICAVs.
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9.1.2.3. Equity
EQUITY(Amounts in € thousand)
12/31/2016 12/31/2015
Capital 1,557 1,554Additional paid-in capital 48,349 48,420Other comprehensive income 43 5Reserves - Group share (29,409) (18,451)Income (expenses) - Group share (7,240) (11,193)
Equity, Group share 13,300 20,335
Non-controlling interests
Total equity 13,300 20,335
The share capital as of December 31, 2016, is fixed at the sum of €1,557,005.50 and is divided into 15,570,055 common shares fully subscribed and paid up for a par value of €0.10. The change in equity compared to December 31, 2015, mainly reflects the losses for the financial year amounting to €7,240 thousand.
9.1.2.4. Non-current liabilities
NON-CURRENT LIABILITIES(Amounts in € thousand)
12/31/2016 12/31/2015
Employee benefit obligations 112 322Non-current financial debts 336 1,901
Non-current liabilities 447 2,223
Employee benefit obligations consist of the provision for retirement benefits, down from December 31, 2015, given the workforce reduction implemented under economically-driven redundancy plans.
Non-current financial debts comprise the non-current portion of repayable advances granted by OSEO (HPV and ProCervix-HPV001). The sharp decline in debt compared to December 31, 2015, is attributed to the failure of the MAGenTA project which resulted in a waiver by Bpifrance.
9.1.2.5. Current liabilities
CURRENT LIABILITIES(Amounts in € thousand)
12/31/2016 12/31/2015
Current financial debts 598 621Provisions 720 -Trade payables 571 1,886Tax and social security debts 1,081 821Other payables and miscellaneous debts 8 2
Current liabilities 2,979 3,331
Current financial debts primarily include the current portion of repayable advances granted by OSEO (see section 10.1.2 for further details).
As of December 31, 2016, the Company has set aside provisions for risks and expenses totaling €720 thousand in connection with the economically-driven redundancy procedures in progress totaling €688 thousand (consisting of the total redundancy cost of €2,348 thousand recorded in 2016 for this item) and to costs to refurbish the premises in Labège totaling €32 thousand.
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The €1,315 thousand decline in trade payables versus December 31, 2015, is primarily due to the cessation of research activities in FY 2016.
Tax and social security debts amount to €1,081 thousand as of December 31, 2016 versus €821 thousand as of December 31, 2015. This increase is attributed mainly to the economically-driven redundancy procedures in progress: redundancy allowances, financing of professional securitization contracts (CSP), etc.
9.2. COMPARISON BETWEEN THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH FRENCH STANDARDS FOR GENKYOTEX (FORMERLY GENTICEL) FOR THE LAST TWO FINANCIAL YEARS
9.2.1. Constitution of Operating Profit and Net Result
9.2.1.1. Operating income
Operating income amounts to €1,336 thousand as of December 31, 2016 versus €284 thousand as of December 31, 2015, up €1,052 thousand with the following breakdown:OPERATING INCOME(Amounts in € thousand)
12/31/2016 12/31/2015
Revenue 222 90Production of inventory (44) 44Write-back of depreciation and provisions, transfer of charges 75 62Other income 1,082 88
Total operating income 1,336 284
The change in operating income in 2016 versus 2015 is attributed to the payment in the 4th quarter of 2016 of $1.2 million for a milestone payment linked to the SIIL contract.
9.2.1.2. Operating expenses
Operating expenses amount to €12,213 thousand as of December 31, 2016 versus €13,663 thousand as of December 31, 2015, down €1,450 thousand.OPERATING EXPENSES(Amounts in € thousand)
12/31/2016 12/31/2015
Purchases of materials and change in inventories (113) (134)Other purchases and external expenses (6,516) (9,866)Taxes and charges (103) (75)Staff expenses (4,535) (3,381)Depreciation allowance on fixed assets (72) (56)Allocation to provisions for risks and expenses (720) -Other expenses (154) (151)
Total operating expenses (12,213) (13,663)
The decrease in other purchases and external expenses of €3,351 thousand versus December 31, 2015, is primarily due to a reduction in costs linked to the cessation of spending on the industrial scale rollout of the GTL001 manufacturing process and the cessation of spending on the GTL002 program.
Staff expenses are up €1,154 net versus December 31, 2015, mainly due to staff expenses in connection with the two redundancy plans (€1,660 out of the total cost including €2,348 in provisions for risk) which are partly offset by the departure of the individuals concerned during the same period.
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The allocation to provisions for risks and expenses of €720 thousand as of December 31, 2016, relates to the economically-driven redundancy procedures in progress for the sum of €688 thousand (see above) and the cost of refurbishing the premises in Labège for €32 thousand.
Other expenses mainly consist of attendance fees paid to members of the supervisory board totaling €100 thousand and the annual royalties under the license agreement with Institut Pasteur amounting to €50 thousand.
9.2.1.3. Financial income (expenses)
Financial income (expenses) amounts to €188 thousand as of December 31, 2016, remaining stable since December 31, 2015 (€170 thousand). It primarily consists of income on financial investments totaling €120 thousand and exchange gains and losses amounting to €69 thousand.
9.2.1.4. Exceptional income (loss)
Exceptional income (loss) amounts to €670 thousand as of December 31, 2016, and mainly consists of the debt waiver granted by Bpifrance under the MAGenTA project for €769 thousand.
9.2.1.5. Corporate taxes
In its financial statements as of December 31, 2016, the Company recorded research tax credit income of €2.9 million.
9.2.2. Analysis of balance sheet
9.2.2.1. Fixed assets
The Company's intangible assets and property, plant and equipment consist mainly of software, fixtures and fittings.
As of December 31, 2016, financial fixed assets include €60 thousand in treasury shares and a cash reserve of €121 thousand linked to the liquidity contract signed with Oddo in 2014.
9.2.2.2. Trade, other receivables and prepaid expenses
OPERATING RECEIVABLES(Amounts in € thousand)
12/31/2016 12/31/2015
Accounts receivable 53 -Other receivables 3,377 3,462Prepaid expenses 518 191
Total operating receivables 3,948 3,653
Other receivables amount to €3,377 thousand as of December 31, 2016, and primarily consist of the research tax credit receivables amounting to €2,951 thousand.
Prepaid expenses amount to €518 thousand as of December 31, 2016, €383 thousand of which relate to fee expenses in connection with the combination project with Genkyotex, which will be recognized less the contribution premium incurred.
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9.2.2.3. Cash assets and marketable securities
CASH ASSETS AND MARKETABLE SECURITIES(Amounts in € thousand)
12/31/2016 12/31/2015
Capital bond 3,042 5,000
Short-term deposits 5,046 5,024Bank accounts 4,662 5,649Mutual fund 1 6,000
Total cash assets and marketable securities 12,751 21,673
Refer to note 3.3 section 20.3 of the Registration Document for further information on cash assets and marketable securities held by the Company.
9.2.2.4. Equity
The share capital as of December 31, 2016, was €1,557,005.50 divided into 15,570,055 common shares fully subscribed and paid up for a par value of €0.10.
The net change in equity versus the 2015 financial year is attributed mainly to the combination of annual losses for the financial year amounting to -€7,060 thousand and the exercise of BSPCE for €90 thousand.
9.2.2.5. Conditional advances
Conditional advances consist of the following outstanding repayable advances:
REPAYABLE ADVANCES(Amounts in € thousand)
OSEO 2 - HPVOSEO 3 -ProCervix (GTL001)
OSEO 4 -Magenta
TOTAL
As of December 31, 2015 750 678 1,182 2,610As of December 31, 2016 375 582 - 957
Refer to note 4.4 section 20.3 of the Registration Document for further information on cash assets and marketable securities held by the Company.
9.2.2.6. Debts
DEBTS(Amounts in € thousand)
12/31/2016 12/31/2015
Trade payables 571 1,886Social security debts 1,042 789Tax debts 40 34Other debts 79 2
Total debts 1,732 2,711
The increase in social security debts versus December 31, 2015, is primarily due to the economically-driven redundancy procedures in progress: layoff allowances, financing of professional securitization contracts (CSP), etc.
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10.CASH AND EQUITY
Readers are advised to refer also to Notes 8 and 10 of the Notes to the Financial Statements of Genkyotex SA (formerly Genticel SA), prepared applying IFRS standards, for the financial year ended December 31, 2016, in Section 20.1 "Financial Statements prepared applying IFRS standards for the financial year ended December 31, 2016".
It should also be noted that the pro forma information in this Section is provided for indicative purposes only and is drawn from the pro forma financial information of the new Genkyotex entity shown in Section 20.2 "Pro forma financial information".
10.1. INFORMATION ABOUT EQUITY, LIQUIDITY, AND SOURCES OF FINANCING
10.1.1. Financing by equity capital
The following table summarizes, in terms of value, the main capital increases of Genkyotex SA (formerly Genticel SA) until the date of this Registration Document:
PeriodGross amount raised
in € thousandTransactions
2001 49 Contribution by founders
2003 - 2008 3,163 Capital increase
2008 - 2010 516 Capital increase (P1 preferred shares)
2013 8,357 Capital increase (P3 and P5 preferred shares)
2014 3,246 Exercise of BSA Closing 2
2014 34,670 IPO
2014 2,452 Capital increase (conversion of convertible bonds March 7, 2014)
2015-2016 408 Exercise of BSPCE
2017 12,000 Capital increase of 62,279,951 new shares at a subscription price of €1.9268 per share as payment for the in-kind contribution of Genkyotex Suisse SA shares.
Total 64,861
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10.1.2. Financing through repayable advances
CHANGE IN REPAYABLE ADVANCES
(Amounts in € thousand) OSEO 2 - HPVOSEO 3 -ProCervix(GTL001)
OSEO 4 -Magenta
Total
At December 31, 2014 1,092 718 319 2,130
(+) Cash inflow - - 853 853
(-) Repayments (400) (96) - (496)
Subsidies - - (23) (23)
Financial expenses 35 18 3 56
At December 31, 2015 727 641 1,153 2,521
(+) Cash inflow - - - -
(-) Repayments (375) (96) (413) (884)
Subsidies - - (746) (746)
Financial expenses 20 16 6 42
At December 31, 2016 372 562 - 933
OSEO 2 repayable advance
On March 9, 2011, the Company obtained from OSEO a repayable advance in the amount of €1,500 thousand for the “development and clinical trials of a therapeutic vaccine to combat cancer and precancerous lesions of the cervix caused by the human papillomavirus (HPV)”.
As a result of the success of the project, this advance was repaid in quarterly installments between 2013 and 2017.
OSEO 3 repayable advance
On January 11, 2013, the Company obtained from OSEO a repayable advance of up to €849 thousand “to extend the Phase I clinical trials of the ProCervix (GTL001) project”.
Following confirmation of completion of the program and after obtaining the statement of expenditure incurred on the project financed by OSEO, the repayable advance was reduced to €811,663 to take into account the fact that actual expenditure was less than projected. This advance is repaid in quarterly installments between 2014 and 2019.
OSEO 4 repayable advance and subsidy (Magenta)
On March 7, 2013, the Company obtained from OSEO a repayable advance as part of the global strategic industrial innovation project “Magenta” grouping six beneficiaries, including a lead beneficiary tasked with scientific, technical and administrative coordination. This contract benefiting from the repayable advance is part of a framework agreement signed on that same date.
The financial aid consists of:
total subsidies up to a maximum of €3,114,847 of which €583,223 is for the Company;
total repayable advances up to a maximum of €7,593,808 of which €3,596,218 is for the Company.
On July 13, 2016, the Company notified Bpifrance (ex-OSEO) of its intention to quit the MAGenTA consortium due to the technological failure of GTL002.
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As a result of this request, Bpifrance reviewed the eligible expenses incurred by the Company up to June 30, 2016 and found an overpayment of €413,174 for experimental development expenses. The Company repaid this amount in October 2016.
On October 17, 2016, Bpifrance confirmed to the Company that it had discharged all its obligations to Bpifrance in connection with its MAGenTA project commitments and confirmed that it would grant a debt waiver amounting to €768,817. This amount, after accretion, was recognized as R&D subsidy.
10.1.3. Financing through the research tax credit
The Company has benefited from research tax credits since it was founded. The research tax credits (“CIR”) for the years 2014 (€2,636 thousand) and 2015 (€3,008 thousand) were repaid in 2015 and 2016, respectively. The Company declared a CIR of €2,431 thousand for 2016.
It should also be noted that Genkyotex Suisse Group, with which the Company combined in February 2017, has a French subsidiary (Genkyotex Innovation SAS) that had a receivable CIR for 2016.
The CIR repayment to the new combined entity for 2017 is expected to be approximately €3 million.
10.2. CASH FLOW
The following information is based solely on the Financial Statements of Genkyotex SA (formerly Genticel SA), prepared to IFRS standards, for the financial year ended December 31, 2016, in Section 20.1 "Financial Statements prepared applying IFRS standards for the financial year ended December 31, 2016".
10.2.1. Cash flows from operating activities
Cash consumed in the operating activities of Genkyotex SA (formerly Genticel SA) amounted to
€8,189 thousand for the financial year ended December 31, 2016, versus €11,744 thousand the
previous financial year. This cash consumption mainly reflects the Company's R&D activities, down
from 2015, given the Phase 2 results obtained for GTL001 during 2016 and the decision to gradually
halt the R&D development program for treatments against infection.
10.2.2. Cash flows from investing activities
Cash generated by the investing activities of Genkyotex SA (formerly Genticel SA) amounted to
€2,054 thousand for the financial year ended December 31, 2016, versus €12,585 thousand the
previous financial year. These cash flows mainly reflect the winding down of financial investments
classified as current and non-current financial assets.
10.2.3. Cash flows from financing activities
Cash consumed in the financing activities of Genkyotex SA (formerly Genticel SA) amounted to €862thousand for the financial year ended December 31, 2016. Financing activities in FY 2015 generated cash in the amount of €649 thousand. These cash flows mainly reflect the amounts received and repaid in respect of repayable advances.
1Unaudited data
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10.3. BORROWING TERMS AND FINANCING STRUCTURE
Following the Company's combination with Genkyotex Suisse Group in February 2017, the new combined entity's financing structure changed significantly.
The pro forma net debt of the new entity at December 31, 2016 can be broken down a follows:
Net Debt (€ thousand)IFRS standards
Genkyotex SA (formerly
Genticel SA)
Genkyotex Suisse SA
Pro forma adjustments
Pro forma
Non-current financial debt 335 - - 335Current financial debt 598 - - 598Cash and cash equivalents (4,663) (13,937) (159) (18,759)Current and non-current financial assets (8,274) - - (8,274)
Total net debt (1) (12,004) (13,937) (159) (26,100)(1) The amount of cash and financial investments included in current and non-current financial assets is greater than the amount of financial debt.
As at March 31, 2017, the Group had cash and cash equivalents amounting to €21.8 million.2 This does not take into account the early repayment of Research Tax Credit for 2016, which the Company estimates to be approximately €3.0 million.4
10.4. POSSIBLE RESTRICTIONS ON THE USE OF CAPITAL
As of the Registration Document Date, the funds held under the capitalization contract signed on August 18, 2014 with Natixis Life are subject to contractual redemption penalties equal to 1% of the amount redeemed. Starting in August 2017, the Company will have free use of the funds without penalty.
10.5. SOURCES OF FINANCING EXPECTED FOR FUTURE INVESTMENTS
As of the Registration Document Date, the Company has sufficient cash resources to obtain proof of concept in liver diseases (“PBC” Phase II trial), to complete Phase 1 of the product GKT771 and to pursue its R&D programs (central nervous system (CNS), hearing loss and oncology).
To fund its development and its future investments, the Company may resort to equity financing and/or borrowing.
2Unaudited data
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11.RESEARCH AND DEVELOPMENT, PATENTS, LICENSES AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company's activities consist in the discovery, characterization and development of candidates.
Most of Genkyotex's resources are devoted to research and development activities that have enabled the Company to build a technological platform offering the potential to generate innovative therapies for multifactorial diseases such as fibrosis, inflammatory pain, cancer and some disorders of the central nervous system.
The Company's patent portfolio includes patent applications under examination and patents issued in the United States and other countries.
11.1. PATENTS AND PATENT APPLICATIONS
Intellectual property
The Company's commercial success will depend partly on its ability to obtain and retain patents, trade secrets and intellectual property and to protect ownership of its technology, its current and future candidates and the methods used to develop and produce them.
Patents linked to NOX activity
After a research assessment conducted through screening campaigns involving commercial molecules, followed by the development of new chemical entities through the study of medicinal chemistry and ADME, pharmacokinetic and toxicology studies in vitro and in vivo, Genkyotex submitted several patent families in the United States, Europe and Japan, covering new molecular entities, NADPH oxidase selective inhibitors or NOX (see Table 1.1 below).
Patent
familiesName Owners/Holder(s) Status
P1145 Pyrazolo pyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1148 Tetrahydroindole derivatives as NADPH oxidase inhibitors Genkyotex
P1181 Pyrazolo pyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1182 Pyrazolo pyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1183 Pyrazolo pyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1184 Pyrazolo pyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1253 Pyrazoline dione derivatives as NADPH oxidase inhibitors Genkyotex
P1268 Pyrazolo piperidine-series F Genkyotex Abandoned except in the United States
P1269 Pyrazolo piperidine-series G Genkyotex Abandoned except in the United States
P1471 Use of NOX4 inhibitors in the treatment of osteoporosis Genkyotex Abandoned in certain markets
P1652 Erectile dysfunction Genkyotex Abandoned
P1862 Amido thiadiazoles as NADPH oxidase inhibitors Genkyotex
P1887 Process for the preparation Genkyotex Under consideration for potential abandonment
Table 1.1: Table summarizing the patents held by Genkyotex.
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The different patent families cover six different chemotypes, of which the pyrazolopyridine family is at the most advanced stage of development.
The first patent applications relate to two chemical series (P1148 and P1145) identified early in the commercial molecule screening process (libraries). One of these two series (pPyrazolopyridines) was then selected for the identification of a molecule of interest for clinical development (GKT136901) and as a starting point for future developments of new chemical entities based on structural variations targeting pyrazolopyridine units.
These developments gave rise to the identification of a new molecule of interest for clinical development (GKT137831) and other active molecules. Given that all these new molecules were developed after the filing of the basic application covering the therapeutic uses of the pyrazolopyridines initially identified, a protection strategy for each of the structural variations targeting the pyrazolopyridine units was put in place ("clustering") before publication of the basic application covering the therapeutic use of the pyrazolopyridines initially identified and the corresponding patent applications were filed on the same day (P1181-P1184), one specifically covering the product candidate GKT831 (P1184).
New structural variations of the pyrazolopyridine units, the development of new selective inhibitors and the characterization of polymorph forms of the clinical compound were covered by previous applications (P1253, P1268, P1269, P1471 and P1887).
The development of new inhibitors, specific to NOX1 isoforms, also led to the development of a new different chemical series (amidothiazoles).
These developments were the subject of patent applications filed and the Company regularly files such applications to protect its drug candidates and technological processes.
Intellectual property protection policy
Patents linked to the Vaxiclase platform and others (patent portfolio of the former Genticel)
The Genkyotex policy regarding Genticel's original patent portfolio is to maintain and protect the industrial property covered by the licenses currently in force, particularly with the Institut Pasteur and the Serum Institute of India Private Ltd (Serum Institute).
To date, the main patents and patent applications held by the Company are of three main types (hereinafter referred to collectively as the "Patents"):
patents for which the Company is the sole proprietor (see Section 11.1.2. below);
patents co-owned by the Company (see Section 11.1.3. below); and
licensed patents (see Section 11.1.4 below).
Four families of patents for which Genkyotex is the sole proprietor protect (i) other uses of vaccines based on CyaA (2 families), (ii) the new Vaxiclase platform (1 family) and (iii) the second-generation multivalent HPV vaccine (1 family).
The purpose of this entire patent portfolio is to enable Genkyotex to maintain exclusive rights over the use of its platforms and associated products granted under license to current and future partners.
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The table below summarizes the patent families and original patent applications of the former Genticel:
Genticel products Patent families / patent applicationsGenticel's rights over the patent family /
patent applications in question
ProCervix Sixth family: recombinant CyaA protein
Seventh family: polypeptide(s) carried by CyaA and use to induce therapeutic and prophylactic immune responses
Eleventh family: immunotherapeutic vaccine containing HPV16 and HPV18 E7 proteins fused to CyaA for use in subjects infected by HPV
License agreement of July 31, 2008, between Institut Pasteur and Genticel (now Genkyotex) modified by addenda nos. 1 and 2 dated October 23, 2009, and May 4, 2010 (see Section 22.1 of the 2014 Registration Document and Note 22.4 of the IFRS financial statements of Genticel as of December 31, 2015).
Property of Genkyotex
Property of Genkyotex
Vaxiclase Technology
Eighth family: chimeric proteins based on CyaA containing a heterologous polypeptide and their use for the induction of immune responses
Property of Genkyotex
Multivalent HPV Ninth family: HPV/CyaA chimeric proteins and their use for the induction of immune responses against infection by HPV
Property of Genkyotex
11.1.1. Nature and coverage of patents
The patents granted and the patent applications in progress offer a true picture of Genkyotex's research and development work and the pace of R&D.
Furthermore, the patents listed in the tables below (see Sections 11.1.2 to 11.1.3 below) are based on a focus on specific properties of the adenylate cyclase protein, originally produced by Bordetellabacteria, which have the characteristic of transporting and delivering molecules of interest in a targeted way to cells involved in the immune response when this combination (molecule of interest + adenylate cyclase) is administered in vivo.
Under these conditions, the inventions covered by the patents are structured around the design of vectors based on adenylate cyclase or modified forms of this protein and around the selection of molecules of interest, particularly of therapeutic interest, which may be administered in a targeted and therefore effective way, to the immune system.
The patents also cover therapeutic applications in the area of treatment of viral infections, such as infections by papillomaviruses. In some cases, they define vaccine product candidates for cancer immunotherapy treatments, in particular with regard to forms of cancer associated with papillomavirus infections.
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11.1.2. Patents and patent applications for which Genkyotex is the sole proprietor
Patents linked to NOXs
Table describing patent P1148 relating to the family of Tetrahydroindole derivatives as NADPH oxidase inhibitors.
P1148: TETRAHYDROINDOLE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1148PC00 PCTPCT/EP2008/0537043/28/2008
2008/1169262/10/2008
Entry into national phase complete
P1148EP00 EP07109561.64/6/2007
200017610/12/2008
Abandoned- Priority-claimed
P1148EP01 EP08718308.33/28/2008
21394726/1/2010
21394726/13/2016
3/28/20073/28/2028
Patent issued and confirmed in SW, GB, GER, SP, FR, IT. No opposition
P1148US00 US60/908,4143/28/2007
Expired- Priority-claimed
P1148US01 US12/532,5673/28/2008
2010/01207495/13/2010
8,288,43210/16/2012
3/28/20079/4/2029
Patent issued
Table describing patent P1145 relating to the family of pyrazolopyridine derivatives as NADPH oxidase inhibitors.
P1145: PYRAZOLO PYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: GenKyoTex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1145PC00 PCTPCT/EP2008/0533903/20/2008
2008/1138569/25/2010
Entry into national phase complete
P1145AU00 AU20082281863/20/2008
200822818611/29/2012
3/22/20073/20/2028
Patent issued
P1145BR00 BRPI0808824-13/20/2008
3/22/20073/20/2028
Pending-Examination application filed. Awaiting examiner report
P1145CA00 CA2,676,9543/20/2008
2,676,95412/1/2016
3/22/20073/20/2028
Patent issued
P1145CN00 CN200880009282.43/20/2008
1016869673/31/2010
ZL200880009282.48/19/2015
3/22/20073/20/2028
Patent issued
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P1145: PYRAZOLO PYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: GenKyoTex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1145CN01 CN201510477495.13/20/2008
10506142211/18/2015
3/22/20073/20/2028
Pending Examination in progress
P1145EP00 EP07109555.84/6/2007
200283512/17/2008
Abandoned-Priority-claimed
P1145EP01 EP08718102.03/20/2008
21394776/1/2010
213947712/12/2012
3/22/20073/20/2028
Patent issued and confirmed in all member countries of the EPC. No opposition
P1145EP02 EP12187254.33/20/2008
25459181/16/2013
25459186/8/2014
3/22/20073/20/2028
Patent issued and confirmed in all member countries of the EPC except Albania, Bosnia and Macedonia. No opposition
P1145HK00 HK101083223/20/2008
1141734A11/19/2010
12/16/20252/19/2016
3/22/20073/20/2028
Patent issued based on Chinese patent CN00
P1145HK01 HK12187254.33/20/2008
1179871A11/10/2013
117987111/14/2014
3/22/20073/20/2028
Patent issued based on European divisional patent EP02
P1145IL00 IL2010093/20/2008
2010097/1/2016
3/22/20073/20/2028
Patent issued
P1145IN00 IN3064/KOLNP/20093/20/2008
3/22/20073/20/2028
Patent accepted after oral proceedings Awaiting notification of issuance
P1145JP00 JP2009-5540363/20/2008
2010-521522A6/24/2010
57153403/20/2015
3/22/20073/20/2028
Patent issued
P1145JP01 JP2015-0501043/20/2008
3/22/20073/20/2028
Patent accepted and issuance fees paid. Awaiting notification of issuance
P1145US00 US60/896.2843/22/2007
Abandoned-Priority-claimed
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P1145: PYRAZOLO PYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: GenKyoTex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1145US01 US12/532.3363/20/2008
2010/00485602/25/2010
8,389,5185/3/2013
3/22/200712/4/2028
Patent issued. Term extended by 23 days to April 12, 2028
P1145US02 US13/734.2053/20/2008
20131232565/16/2013
9,073,919 7/7/2015
3/22/20073/20/2028
Patent issued
Table describing patent P1181 relating to the family of pyrazolopyridine derivatives as NADPH oxidase inhibitors.
P1181: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1181PC00 PCTPCT/IB2009/0541489/22/2009
2010/0352171/4/2010
Entry into national phase complete
P1181AU00 AU20092980049/22/2009 1/4/2010
20092980041/5/2014
9/23/20089/22/2029
Patent issued
P1181BR00 BRPI0919329-49/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1181CA00 CA2,737,4579/22/2009
1/4/20109/23/20089/22/2029
Pending Examination in progress
P1181CN00 CN200980133740.X9/22/2009
1/4/2010ZL200980133740.X4/22/2015
9/23/20089/22/2029
Patent issued
P1181EP00 EP08164847.99/23/2008
21660083/24/2010
Abandoned-Priority- claimed
P1181EP01 EP9815760.59/22/2009
23444931/4/2010
23444936/1/2016
9/23/20089/22/2029
Patent issued and confirmed in SW, GB, GER, SP, FR, IT. No opposition
P1181HK00 HK11113479.012/14/2011
11590967/27/2012
115909612/24/2015
9/23/20089/22/2029
Patent issued based on Chinese patent CN00
P1181IL00 IL2118899/22/2009
1/4/20102118891/11/2016
9/23/20089/22/2029
Patent issued
P1181IN00 IN1168/KOLNP/20119/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed.
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P1181: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
Awaiting examiner report
P1181JP00 JP2011-5274639/22/2009
2012-502978A2/2/2012
566645412/19/2014
9/23/20089/22/2029
Patent issued
P1181KR00 KR10-2011-70061299/22/2009
10-2011-00563879/6/2012
9/23/20089/22/2029
Patent accepted and issuance fees payable by 2/7/2017
P1181RU00 RU201111162279/22/2009
10/27/2012256930310/27/2015
9/23/20089/22/2029
Patent issued
P1181US00 US13/120.4359/22/2009
2011-01722667/14/2011
8,481,5629/7/2013
9/23/20083/20/2028
Patent issued
P1181US01 US13/935,6679/22/2009
2013-02963627/11/2013
8,940,7601/27/2015
9/23/20083/20/2028
Patent issued
Table describing patent P1182 relating to the family of pyrazolopyridine derivatives as NADPH oxidase inhibitors.
P1182: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1182PC00 PCTPCT/IB2009/0541509/23/2008
2010/0352191/4/2010
Entry into national phase complete
P1182AU00 AU20092980069/22/2009
1/4/201020092980066/19/2014
9/23/20089/22/2029
Patent issued
P1182BR00 BRPI0919328-69/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1182CA00 CA2,737,8949/22/2009
1/4/20109/23/20089/22/2029
Pending Examination in progress
P1182CN00 CN200980133744.89/22/2009
1/4/2010ZL200980133744.85/18/2016
9/23/20089/22/2029
Patent issued
P1182CN01 CN201610239497.1 9/22/2009
9/23/20089/22/2029
Pending Examination in progress
P1182EP00 EP08164853.79/23/2008
21657073/24/2010
Abandoned-Priority- claimed
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P1182: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1182EP01 EP9787268.39/22/2009
1/4/201023492618/14/2013
9/23/20089/22/2029
Patent issued and confirmed in all member states. No opposition
P1182EP02 EP13177370.79/22/2009
267416010/28/2015
9/23/20089/22/2029
Patent issued and confirmed in SW, GB, GER, SP, FR, IT. No opposition
P1182HK00 HK11113465.69/22/2009
11589487/27/2012
9/23/20089/22/2029
Extension based on Chinese patent CN00 filed. Awaiting notification of issuance.
P1182HK01 HK14105625.69/22/2009
11939745/8/2016
9/23/20089/22/2029
Patent issued based on European patent EP02
P1182IL00 IL2118909/22/2009
1/4/20109/23/20089/22/2029
Pending Examination in progress. Official notification to respond to by 1/26/2017
P1182IN00 IN1005/KOLNP/20119/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1182JP00 JP2011-5274649/22/2009
2012-502979A2/2/2012
57008362/27/2015
9/23/20089/22/2029
Patent issued
P1182KR00 KR10-2011-70061329/22/2009
10-2011-00597193/6/2011
9/23/20089/22/2029
Patent accepted and issuance fees payable by 2/7/2017
P1182RU00 RU20111162269/22/2009
10/27/201225321614/9/2014
9/23/20089/22/2029
Patent issued
P1182US00 US13/120,4369/22/2009
2011-01780817/21/2011
8,455,4854/6/2013
9/23/20083/20/2028
Patent issued
P1182US01 US13/755,3879/22/2009
201301438796/6/2013
9,012,449 4/21/2015
9/23/20089/22/2029
Patent issued
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Table describing patent P1183 relating to the family of pyrazolopyridine derivatives as NADPH oxidase inhibitors.
P1183: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1183PC00 PCTPCT/IB2009/0541559/22/2009
WO 2010/0352201/4/2010
Entry into national phase complete
P1183AU00 AU20092980079/22/2009
1/4/201020092980075/24/2014
9/23/20089/22/2029
Patent issued
P1183BR00 BRPI0919331-69/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1183CA00 CA2,737,5389/22/2009
1/4/20109/23/20089/22/2029
Pending Examination in progress
P1183CN00 CN200980133736.39/22/2009
1/4/2010200980133736.32/7/2014
9/23/20089/22/2029
Patent issued
P1183EP00 EP08164849.59/23/2008
21660093/24/2010
Abandoned-Priority- claimed
P1183EP01 EP9815761.39/22/2009
23422031/4/2010
23422034/11/2015
9/23/20089/22/2029
Patent issued and confirmed in SW, GB, GER, SP, FR, IT. No opposition
P1183HK00 HK11113467.49/22/2009
11590927/27/2012
11590923/13/2015
9/23/20089/22/2029
Patent issued based on Chinese patent CN00
P1183IL00 IL2118919/22/2009
1/4/20109/23/20089/22/2029
Pending Examination in progress
P1183IN00 IN1165/KOLNP/20119/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1183JP00 JP2011-5274659/22/2009
2012-502980A2/2/2012
57503723/22/2015
9/23/20089/22/2029
Patent issued
P1183KR00 KR10-2011-70061339/22/2009
10-2011-00609018/6/2011
9/23/20089/22/2029
Pending Examination in progress
P1183RU00 RU20111162329/22/2009
10/27/201225480223/18/2015
9/23/20089/22/2029
Patent issued
P1183US00 US13/120,4389/22/2009
2011-01780827/21/2011
8,455,4864/6/2013
9/23/20083/20/2028
Patent issued
P1183US01 US13/755,6179/22/2009
2013-01580276/20/2013
9,006,238 4/14/2015
9/23/20083/20/2028
Patent issued
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Table describing patent P1184 relating to the family of Pyrazolo pyridine derivatives as NADPH oxidase inhibitors.
P1184: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1184PC00 PCTPCT/IB2009/0541569/22/2009
WO 2010/035221
Entry into national phase complete
P1184AU00 AU20092980089/22/2009
1/4/2010200929800810/29/2014
9/23/20089/22/2029
Patent issued
P1184BR00 BRPI0919330-89/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1184CA00 CA2,737,5509/22/2009
1/4/20109/23/20089/22/2029
Pending Examination in progress
P1184CN00 CN200980136710.49/22/2009
1/4/2010200980136710.45/27/2015
9/23/20089/22/2029
Patent issued
P1184EP00 EP08164857.89/23/2008
21660103/24/2010
Abandoned-Priority- claimed
P1184EP01 EP9787271.79/22/2009
23444921/4/2010
234449210/29/2014
9/23/20089/22/2029
Patent issued. No opposition
P1184EP02 EP14190340.19/22/2009
28601794/15/2015
9/23/20089/22/2029
Pending Examination in progress. Acceptance expected
P1184HK00 HK11113702.99/22/2009
11591077/27/2012
115910712/24/2015
9/23/20089/22/2029
Patent issued based on Chinese patent CN00
P1184HK0115109065.49/22/2009
28601797/27/2012
9/23/20089/22/2029
Extension requested based on European patent EP02
P1184IL00 IL2118929/22/2009
1/4/20109/23/20089/22/2029
Official notification received. Response due 12/8/2016 (extendable)
P1184IN00 IN1040/KOLNP/20119/22/2009
1/4/20109/23/20089/22/2029
Pending-Examination application filed. Awaiting examiner report
P1184JP00 JP2011-5274669/22/2009
2012-502981A2/2/2012
57008372/27/2015
9/23/20089/22/2029
Patent issued
P1184JP01 JP 2014-254651 5932008 9/23/2008 Patent issued
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P1184: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
9/22/2009 5/13/2016 9/22/2029
P1184KR00 KR10-2011-70061349/22/2009
10-2011-00563875/25/2011
9/23/20089/22/2029
Pending Examination in progress
P1184KR01 KR Divisional filed
P1184RU00 RU2011162309/22/2009
10/27/2012253804111/17/2014
9/23/20089/22/2029
Patent issued
P1184US00 US13/120,4409/22/2009
2011-2697571/4/2010
9,096,588 4/8/2015
9/23/20089/22/2029
Patent issued
P1184US01 US14/750,0196/25/2015
9/23/20089/22/2029
Compound 135 and “liver diseases or disorders,” in particular, liver fibrosis and more particularly, non-alcoholic steatohepatitis (claim 10) selected (restriction requirement). Official notification received. Response due 1/4/2017 (extendable)
Table describing patent P1253 relating to the family of Pyrazoline dione derivatives as NADPH oxidases inhibitors.
P1253: PYRAZOLINE DIONE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1253PC00 PCTPCT/IB2010/054329 9/27/2010
WO 2011/036651 3/31/2011
Entry into national phase complete
P1253AU00 AU20102994879/27/2010
20102998477/7/2016
9/28/20099/27/2030
Patent issued
P1253BR00 BR112012004208.49/27/2010
9/28/20099/27/2030
Pending-Examination application filed. Awaiting examiner report
P1253CA00 CA2,770.2789/27/2010
9/28/20099/27/2030
Official notification received. Response due 12/15/2016
P1253CN00 CN201080041718.59/27/2010
1026865909/19/2012
ZL 201080041718.59/16/2015
9/28/20099/27/2030
Patent issued
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P1253: PYRAZOLINE DIONE DERIVATIVES AS NADPH OXIDASE INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and date
Priority date and
max. termStatus
P1253EP00 EP09171466.79/28/2009
Abandoned-Priority- claimed
P1253EP01 EP10782688.59/27/2010
24832718/8/2012
9/28/20099/27/2030
Pending Examination in progress
P1253HK00 HK12112534.49/27/2010
1171748A5/4/2013
HK11717488/7/2016
9/28/20099/27/2030
Patent issued based on Chinese patent CN00
P1253IL00 IL2188149/27/2010
9/28/20099/27/2030
Pending Examination in progress
P1253IN00 IN253/MUMNP/20129/27/2010
9/28/20099/27/2030
Pending-Examination application filed. Awaiting examiner report
P1253JP00 JP2012-5304029/27/2010
57074066/3/2015
9/28/20099/27/2030
Patent issued
P1253KR00 KR10-2012-70076649/27/2010
9/28/20099/27/2030
Pending Examination in progress
P1253RU00 RU20121177969/27/2010
25698553/11/2015
9/28/20099/27/2030
Patent issued
P1253US00 US13/394,9049/27/2010
2012-01723523/7/2012
9,394,3067/19/2016
9/28/20099/27/2030
Patent issued
Table describing patent P1862 relating to the family of Amido thiadiazoles as [NADPH] inhibitors.
P1862: AMIDO THIADIAZOLES AS NADPH INHIBITORSOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and
date
Grant number and
date
Priority date and max.
termStatus
P1862EP00 EP14198597.812/17/2014
12/17/2014Abandoned- Priority-claimed
P1862PC00 PCTPCT/IB2015/05965912/16/2015
12/16/2015 14198597.812/17/201412/17/2025
Pending & published on 6/23/2016. Entry into national phase due 6/17/2017
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Table describing patent P1471 on the use of NOX4 inhibitors in the treatment of osteoporosis.
P1471: USE OF NOX4 INHIBITORS IN THE TREATMENT OF OSTEOPOROSISOwner/Holder: Genkyotex
Reference CountryFiling number and
date
Publication number and date
Grant number and date
Priority date and
max. termStatus
P1471EP00 EP11188782.411/11/2011
25917825/15/2013
Abandoned – Priority claimed
P1471PC00 PCTPCT/IB2012/0562869/11/2012
2013068975/16/2013
Entry into national phase complete
P1471AU00 AU2012335148
Abandoned (no examination application due on 3/5/2016)
P1471BR00 BR11201401140059/11/2012
5/16/2013Abandoned – No payment of annuities
P1471CA00 CA2,855,0049/11/2012
Abandoned (no examination application or payment of annuities)
P1471CN00 CN201280055349.49/11/2012
1039458445/16/2013
11/11/20119/11/2032
Pending. Examination in progress (passive abandonment expected)
P1471EP01 EP12798879.89/11/2012
5/16/2013 11/11/20119/11/2032
Pending. Examination in progress. Acceptance expected
P1471HK00 HK14112914.29/11/2012
11/11/20119/11/2032
Extension requested based on European Patent EP00
P1471IL00 IL2325159/11/2012
5/16/2013 11/11/20119/11/2032
Pending. Examination in progress (passive abandonment expected)
P1471IN00 IN1159/MUMNP/20149/11/2012
5/16/2013 11/11/20119/11/2032
Pending. Examination in progress (passive abandonment expected)
P1471JP00 JP2014-5406189/11/2012
5/16/201311/11/20119/11/2032
Pending. Examination pending
P1471KR00 KR10201470154359/11/2012
5/16/201311/11/20119/11/2032
Pending. Examination application due on November 9, 2017 (passive abandonment expected)
P1471MX00 MXMX/a/2014/0054409/11/2012
5/16/2013 11/11/20119/11/2032
Pending. Examination in progress (passive abandonment expected)
P1471RU00 RU20141236729/11/2012
5/16/2013 11/11/20119/11/2032
Pending. Examination in progress (passive abandonment expected)
P1471SG00 SG1120140949Y9/11/2012
5/16/2013 Abandoned
P1471TH00 TH14010025369/11/2012
5/16/2013 Abandoned
P1471UA00 UAa2014064559/11/2012
11/11/20119/11/2032
Pending. Examination in progress (passive abandonment expected)
P1471US00 US14/357,6059/11/2012 9/11/2032
Pending. Refund application under review
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Main patents linked to the Vaxiclase platform and others (patent portfolio of the former Genticel)
Polypeptide(s) carried by CyaA and use to induce therapeutic and prophylactic immune responses
The purpose of this patent family ("multivalent CyaA vaccine") is a therapeutic application of the adenylate cyclase vector carrying a polypeptide as an active ingredient. This therapeutic application is defined by the dual purpose of treating a disease and preventing another, and possibly preventing the recurrence of the first disease. This patent family is the result of a focus on new specific properties of the immune response in the context of administration of the vector. Patent applications filed recently have not, up until now, been reviewed by the respective industrial property offices.
CountryPriority
dateFilingdate
Publication no.Date of
issuanceDate of
expirationStatus
EUROPE 1/24/2011 2478915 Provisional application
abandoned 3
AUSTRALIA 1/24/2011 1/24/2012 AU2012210612 1/24/2032 Valid(pending issuance)
BRAZIL 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Valid
CANADA 1/24/2011 1/24/2012 CA2825470 1/24/2032 Valid
CHINA 1/24/2011 1/24/2012 CN103476424 1/24/2032 Valid
SOUTH KOREA 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Valid
UNITED STATES 1/24/2011 10/8/2013 2014-0037670-A1 1/24/2032 Valid
EUROPE 1/24/2011 1/24/2012 2667890 1/24/2032 Valid
HONG KONG 1/24/2011 11/21/2013 1187834 1/24/2032 Valid
RUSSIA 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Valid
INDIA 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Abandoned
JAPAN 1/24/2011 1/24/2012 2014-506562A 1/24/2032 Valid(pending issuance)
JAPAN 1/24/2011 1/24/2012 1/24/2032 Valid
MEXICO 1/24/2011 1/24/2012 MX/a/2013/008606
1/24/2032 Valid
Status of patents and patent applications for the family "Polypeptide(s) carried by CyaA and use to induce therapeutic and prophylactic immune responses"
Chimeric proteins based on CyaA containing a heterologous polypeptide and their use for the induction of immune responses
The purpose of this patent family ("CyaA-D203/CyaA-D93") is to achieve a specific construction of adenylate cyclase defined for the preparation of new vectors to deliver therapeutic active ingredients. The invention defined in this patent family is intended to constitute a platform suitable for use in multiple areas of application. This patent family supports Genkyotex's Vaxiclase project. An
3A European patent application determines the priority date of the family when the application is first filed. It
is generally abandoned when an international application (PCT) is filed within 12 months of this priority. This international application is then allocated the priority date of the priority application and allows for the protection period of 12 months to be extended accordingly.
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international PCT4 application was confirmed in January 2015, authorizing an extension of markets in which protection is requested.
CountryPriority
dateFilingdate
Publication no.Date of
issuanceDate of
expirationStatus
EUROPE 7/23/2012 2690172 Application abandoned
PCT (i.e., international application)
7/23/2012 7/23/2013 WO2014016310 1/23/2015 Undertaken5
EUROPE7/23/201
27/23/201
32875130
7/23/2033
Valid
HONG KONG7/23/201
29/2/2015 1208048
7/23/2033
Valid
USA7/23/201
21/22/201
59,499,809
11/22/2016
7/23/2033
Issued
USA7/23/201
27/23/203
3Filing of divisional application in
progress
AUSTRALIA7/23/201
27/23/201
37/23/203
3Valid
BRAZIL7/23/201
27/23/201
37/23/203
3Valid
CANADA7/23/201
27/23/201
37/23/203
3Valid
CHINA7/23/201
27/23/201
3CN 104662152A
7/23/2033
Valid
SOUTH KOREA
7/23/2012
7/23/2013
7/23/2033
Valid
RUSSIA7/23/201
27/23/201
37/23/203
3Valid
INDIA7/23/201
27/23/201
37/23/203
3Valid
JAPAN7/23/201
27/23/201
3P 2015-524270A
7/23/2033
Valid
MEXICO7/23/201
27/23/201
3MX/a/2015/00101
87/23/203
3Valid
Statuses of patent applications for the family "Chimeric proteins based on CyaA containing a heterologous polypeptide and their use for the induction of immune responses"
11.1.3. Patents and patent applications co-owned by Genkyotex
Co-owned patents are governed by a co-ownership regulation, where one is in place. In the absence of such a regulation, Articles L. 613-29 et seq. of the French Intellectual Property Code lay down in substance that each of the co-owners may (except to offer fair compensation to other co-owners
4The PCT (Patent Cooperation Treaty) is a centralized filing system that allows for a significant number of markets to be covered on a protective basis and in a simple way. The office authorized to examine the international PCT application carries out a prior art search and sends the corresponding report accompanied by a preliminary opinion on the patentable nature of the invention to the applicant. At the end of the international phase of a PCT application (which lasts 30 months from the priority date), the countries/regions in which the examination of the application should be actually undertaken should be selected.
5As a reminder, at the end of the international phase of a PCT application (which lasts 30 months from the priority date), the countries/regions in which the examination of the application should be undertaken should be selected.
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who do not personally exploit the invention or have not granted an exploitation license), (i) exploit the invention for their own benefit and (ii) grant a non-exclusive exploitation license to a third party (subject to notification of the other co-owners). Moreover, an exclusive exploitation license may only be granted with the agreement of all co-owners or by legal authorization.
Main patents linked to the Vaxiclase platform and others (patent portfolio of the former Genticel)
Recombinant CyaA-HPV protein
This family of patents is co-owned by Genkyotex (formerly Genticel), the Institut Pasteur, CNRS and INSERM (see Section 22 of the 2014 Registration Document regarding the license agreement entered into with the Institut Pasteur concerning this patent family).
CountryPriority
dateFilingdate
Publication no.Date of
issuanceDate of
expirationStatus
EUROPE(confirmed in Sweden, Switzerland, Turkey, Germany, France, Austria,
Belgium, Bulgaria, Cyprus [Greek part], Denmark, Spain, Estonia, Finland,
Greece, Hungary, Ireland, Italy, Luxembourg, Monaco, the Netherlands,
Poland, Portugal, Czech Republic, Romania, United Kingdom, Slovakia,
Slovenia)
3/18/2004 1576967 9/12/2007 3/18/2024 Issued
HONG KONG 3/18/2004 3/21/2006 1085383A 10/3/2008 3/18/2024 Issued
EUROPE 3/18/2004 3/18/2005 1725259 3/18/2025 Valid
HONG KONG 3/18/2004 5/2/2007 1098348A 3/18/2025 Valid
EUROPE 3/18/2004 3/18/2005 2351580 3/18/2025 Valid
UNITED STATES 3/18/2004 9/8/2006 US 8,628,779 1/14/2014 3/18/2025
+1,147 daysIssued
CANADA 3/18/2004 3/18/2005 2559235 3/18/2025 Valid
AUSTRALIA 3/18/2004 3/18/2005 2005224036 2/2/2012 3/18/2025 Issued
BRAZIL 3/18/2004 3/18/2005 PI0508722 3/18/2025 Valid
MEXICO 3/18/2004 3/18/2005 PA/a/2006/010469 12/5/2011 3/18/2025 Issued
CHINA 3/18/2004 3/18/2005 CN 1956730A 4/25/2012 3/18/2025 Issued
JAPAN 3/18/2004 3/18/2005 2007-533307 12/20/2013 3/18/2025 Issued
JAPAN 3/18/2004 3/18/2005 5824474 10/16/2015 3/18/2025 Issued
SOUTH KOREA 3/18/2004 3/18/200510-1382250
4/1/2014 3/18/2025 Issued
SOUTH KOREA 3/18/2004 3/18/2005 10-1495740 3/18/2025 Issued
INDIA 3/18/2004 3/18/2005 No. 258906 2/14/2014 3/18/2025 Issued
INDIA 3/18/2004 3/18/2005 10337/DELNP/2013 Valid
RUSSIA 3/18/2004 3/18/2005 2441022 1/27/2012 3/18/2025 Issued
UNITED STATES 3/18/2004 12/23/2010 US 8,637,039 1/28/2014 3/18/2025+189 days
Issued
UNITED STATES 3/18/2004 12/16/2013 US PATENT NO.9,387,243
7/12/2016 3/18/2025 Issued
Status of patents and patent applications for the family "Recombinant CyaA-HPV protein"
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11.1.4. Patents currently exploited
As of the Registration Document Date, some patents of the former Genticel were commercially exploited by Genkyotex through a license agreement with the Serum Institute of India, or "SIIL" (for more information, see Section 22.1 of the Registration Document).
11.2. OTHER ELEMENTS OF INTELLECTUAL PROPERTY
11.2.1. Trademarks, domain names
genkyotex.biz
genkyotex.com
genkyotex.net
genkyotex.org
genkyotex.info
genkyotex.ch
genkyotex.fr
genkyotex.co.uk
vaxiclase.fr
vaxiclase.com
genticel.fr
genticel.com
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12.TREND INFORMATION
12.1. KEY TRENDS SINCE THE END OF THE LAST FINANCIAL YEAR
None.
12.2. KNOWN TRENDS, UNCERTAINTIES, COMMITMENT REQUESTS AND EVENTS REASONABLY LIKELY TO AFFECT THE COMPANY’S OUTLOOK
None.
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13.PROFIT FORECASTS OR ESTIMATES
The Company does not intend to provide forecasts or estimates of profits.
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14.ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES AND SENIOR MANAGEMENT
14.1. EXECUTIVES AND DIRECTORS
14.1.1. Composition of the Board of Directors and senior management
As at the Registration Document Date, the Board of Directors and senior management are comprised of the following members:
Name Office/FunctionStart date of
termExpiry date of term
Claudio Nessi Chairman of the Board of Directors
Member of the Appointments and Compensation Committee
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
Ilias (Elias) Papatheodorou
Director and Chief Executive Officer
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
Eclosion2 SA represented by Jesús
Martin-Garcia
Director
Member of the Audit Committee
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
EDRIP represented by Gilles Nobécourt
Director
Chair of the Appointments and Compensation Committee
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
Catherine Moukheibir Independent Director
Chair of the Audit Committee
Member of the Appointments and Compensation Committee
CGSM 2/28/2017 CGSM called to approve the financial statements
for the year ending 12/31/2018
Mary Tanner Independent Director
Member of the Audit Committee
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
Stéphane Verdood Observer CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
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Name Office/FunctionStart date of
termExpiry date of term
Joseph McCracken Observer CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2018
Mr Benedikt Timmerman had been appointed the Company's Deputy Chief Executive Officer in charge of overseeing the license agreement signed with SIIL by the Board of Directors at its meeting held at the close of the General Shareholders' Meeting of February 28, 2017.
At its meeting of May 4, 2017, the Board of Directors decided to revoke his mandate as corporate officer.
For the purposes of their corporate duties, the members of the Board of Directors and senior management are domiciled at the Company’s registered office.
As of the Registration Document Date, the other corporate duties and functions being performed by the members of the Board of Directors and senior management are:
14.1.2. Other current corporate duties
Name Office/Function Company/Entity
Claudio Nessi Director Arsanis Ltd
Director Avitide Ltd
Managing partner NeoMed Management
Ilias (Elias) Papatheodorou - -
Jesús Martin-Garcia Chairman & CEO GeNeuro SA
Shareholder and Managing Director Eclosion2 SA
Chairman of the Board of Directors Value Management Group
Chairman of the Board of Directors ArisGen SA
Director DepGen SA
Member of the boardUnion des Associations
Patronales Genevoises (UAPG)
ChairmanAssociation des Industries
Genevoises des Sciences de la Vie (AIGSV)
Gilles Nobécourt Director COMPLIXDirector INOTREM
Director GAMABABS PHARMA
Member of the Board of Directors
FONDATION OPHTALMOLOGIQUE
ADOLPHE D ROTHSCHILD Member of the Supervisory Board INNOCINÉ
Managing DirectorEDMOND DE ROTHSCHILD INVESTMENT PARTNERS
Catherine Moukheibir Chairman of the Board of Directors MedDay
Member of the Board of Directors Cerenis
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Name Office/Function Company/Entity
and the Audit Committee
Member of the Board of Directors and Chair of the Audit Committee
Zealand pharma
Member of the Board of Directors and the Audit Committee
Ablynx NV
Mary Tanner Senior Managing DirectorEVOLUTION Life Science
Partners
Member of the Board of Directors Lineagen, Inc.
Member of the Board of Deans Yale School of Medicine
Member of the Advisory Board Yale School of Management
Stéphane Verdood Managing Director SGV Management Services
Managing partner Vesalius Biocapital
Director Value For Growth (V4G)
Director Apitope International
Member of the Supervisory Board Genomic Vision SA
Director Trod Medical SA (NV)
Director Fast Forward Pharma NV
Joseph McCracken Director Alkahest, Inc.
Director Nexvet Biopharma PLC
Director Regimmune Corporation
Director Savara, Inc.
Expired offices (held in the past five years):
Name Office/Function Company/Entity
Claudio Nessi Director Creabilis S.A.
Director Endosense S.A.
Ilias (Elias) Papatheodorou Chairman of the Board of Directors Priaxon
Jesús Martin-Garcia Executive Fondation Eclosion
Director Melcure
Gilles Nobécourt Director COVAGEN
Director GLYCOVAZYN
Member of the Executive Committee
PARVULUS
Catherine MoukheibirMember of the Executive
CommitteeInnate Pharma
Chairman of the Board of Directors Creabilis
Director and Chair of the Audit Committee
OctoPlus NL
Mary Tanner Director Evotec
Director PanGenX
Stéphane Verdood Director Bienca Enzymes SA
Joseph McCracken - -
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Biographies of the Chairman of the Board of Directors, the Chief Executive Officer and Directors:
Claudio Nessi - Chairman of the Board of Directors, a Swiss citizen, born in 1968
Claudio Nessi has 15 years' experience in venture capital, investing in healthcare both in Europe and the US. He has been an investor and board member of multiple life science companies including Axovan AG, Kuros Biosciences AG, Endosense SA, PregLem SA and Creabilis Ltd. He currently serves on the board of directors of Arsanis Ltd and of Avitide Ltd.
Claudio Nessi joined NeoMed Management in 2001 before becoming a partner in 2004, and he heads NeoMed’s operations in Switzerland. He has academic research experience in molecular biology from the Max Planck Institute and the University of Connecticut and has published articles in leading scientific journals.
Claudio Nessi holds an MBA from Erasmus University, the Netherlands, and a Ph.D. in genetics from the University of Pavia, Italy.
Ilias (Elias) Papatheodorou – Director and Chief Executive Officer, a Greek citizen, born in 1969
Ilias (Elias) brings with him more than 20 years of experience with private and public biotechnology companies, as well as with multinationals (Philip Morris International, the Coca-Cola Company). At Covagen AG, he was instrumental in the closing of a CHF46 million second round of financing and the subsequent acquisition of Covagen by Janssen Pharmaceuticals, a J&J Group company.
Ilias (Elias) has solid experience in raising capital, business development and license negotiation.
Jesús Martin-Garcia representing Eclosion2 SA – Director, a Swiss citizen, born in 1962
Jesús began his career in 1983 at the World Economic Foundation, then in 1989 with McKinsey & Co, where he directed studies in the pharmaceutical and food industries.
Beginning in 1993, he became an entrepreneur by creating, investing in, and managing numerous start-ups in Switzerland and the United States. He was the co-founder of LeShop in 1996, a company that became the e-commerce leader in Switzerland and was sold to Migros. He was also an initial equity investor and participated in the development of other start-ups such as Silverwire and VTX, during more than 10 years.
In 2003, he founded Eclosion, a public–private partnership, to transform potentially disruptive academic discoveries in the area of life science into medications. This original structure was instrumental in the launch of GeNeuro; Jesús took the helm in 2006 and is now its Chairman and Chief Executive Officer.
Jesús Martin-Garcia holds a degree in economics and in law from the University of Geneva. He also holds an MBA from Harvard Business School. He serves on the boards of biotech companies and industrial and management associations.
Gilles Nobécourt representing EdRIP, Director, a French citizen, born in 1957
Gilles joined Edmond de Rothschild Investment Partners in 2002.
He was advisor to the French Minister for Industry and Research, then advisor to the Prime Minister's Cabinet Office, before joining the United Nations High Commission for Refugees as Field Director in Africa and Latin America. He then joined Rhône-Poulenc Group and Rhône-Poulenc Rorer
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(Aventis), where he was Vice President of Global Operations at RPR Gencell, RPR's biotechnology division based in San Francisco, USA, then General Manager of a commercial subsidiary in Mexico until 2000. Prior to joining EdRIP, Gilles worked at Russell Reynolds & Associates as a consultant to pharmaceutical and biotechnology companies.
Gilles graduated from the Paris Institute for Political Sciences (Sciences Po Paris), holds a Master's degree in applied economics and a certificate from Stanford University's Graduate School of Business.
He holds directorships at Complix, Genkyotex, Inotrem and Gamamabs, and is a director of the Fondation Ophtalmologique Adolphe de Rothschild.
Catherine Moukheibir, Director, a Lebanese citizen, born in 1959
Catherine Moukheidir has 20 years of experience in finance including 15 in the biotechnology industry, holding multiple leadership roles and board roles. Most recently, Catherine was a member of the Executive Board of Innate Pharma (from 2011 to 2016). Prior to joining Innate, she was CFO of Movetis, a Belgian biotech company (from 2008 to 2010), for which she led the IPO on Euronext Brussels and then the acquisition by Shire. Previously, she was Director of Capital Markets at Zeltia (from 2001 to 2007), a Spanish biopharma and consumer chemicals company, where she steered its financial strategy. Before joining Zeltia, she was Executive Director of Investment Banking at Salomon Smith Barney and at Morgan Stanley Catherine Moukheibir is currently Chair of the Board of Directors of MedDay Pharmaceuticals and is a member of the boards of Cerenis, Ablynx and Zealand.
She has an MBA from Yale University.
Mary Tanner, Director, a US citizen, born in 1951
Mary Tanner is co-founder and Senior Managing Director at the consultancy firm Life Sciences Partners LLC, specializing in strategic and financial advice for companies operating in the life sciences and healthcare. Based in New York, Mary has held various positions at world-class investment banks such as Lehman Brothers Inc., Bear Stearns & Co. and Peter J. Solomon.
Mary Tanner has over 25 years' experience in health-related industries. She has developed strong expertise in the pharmaceutical, biotechnology, diagnostic, medical devices and healthcare sectors.
She is a member of the board of directors of Lineagen Inc., a molecular diagnostics company.
She has a BA from Harvard University and speaks fluent French.
Stéphane Verdood, observer, a Belgian citizen, born in 1961
Stéphane is a founding partner of Vesalius Biocapital. Since 2007, he has invested in more than 15 biotech companies. Prior to founding Vesalius Biocapital, Stéphane was a consultant for growth-stage companies. He was a founder and managing partner at Value4Growth, a specialized life science consulting firm, supporting start-ups in all aspects of company formation, product strategy and fund-raising. He began his career with Arthur Andersen as an information technology auditor. After having led the mergers and acquisitions division of Arthur Andersen in Belgium from 1989 to 1995, he founded and led Arthur Andersen’s business consulting division in Belgium and Luxembourg. He served on the European Board of Partners of Arthur Andersen. Stéphane has an MBA and a degree in commercial engineering from the Catholic University of Leuven (Belgium).
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Joseph McCracken, observer, a US citizen, born in 1953
Dr McCracken has more than 25 years of experience in business development roles at biotechnology and pharmaceutical companies. Most recently he was Global Head for Business Development & Licensing at Roche Pharma, where he was responsible for Roche Pharma’s global in-licensing and out-licensing activities. Prior to joining Roche Pharma, Dr McCracken held the position of Vice President, Business Development at Genentech for more than 10 years. He was also at one time Director of Business Development and Representative Director of Genentech Ltd., Genentech’s wholly owned subsidiary in Japan, and has also held the positions of President of Technology Licensing and Alliances at Aventis, and Vice President of Worldwide Business and Technology Development at Rhône-Poulenc Rorer SA.
Mr McCracken holds a Bachelor of Science in microbiology, a Master of Science in pharmacology and a Doctorate of Veterinary Medicine from Ohio State University.
14.1.3. Declarations relating to Board and senior management members
During the last five years, no member of the Company’s Board of Directors or senior management:
was convicted of fraud, perjury or any other official sanction or penalty against him/her/it by
governmental or regulatory authorities;
was involved in an insolvency, bankruptcy, receivership, or liquidation as an executive or officer;
or
has been prevented by a court from acting as a member of an administration, management, or
supervisory body or from being involved in the management or conduct of the business and
affairs of an issuer.
14.1.4. Composition of the Supervisory Board and Executive Board prior to the change in the Company's management and governance structure on February 28, 2017
As of December 31, 2016, the Company’s Supervisory Board was comprised of eight members:
Thierry Hercend, Chairman,
Gerald Möller, Vice Chairman,
Caroline Laplane, Member,
Edmond de Rothschild Investment Partners represented by Raphaël Wisniewski, Member,
Bpifrance Investissement represented by Olivier Martinez, Member,
Didier Hoch, Member,
Rainer Strohmenger, Member,
Mary Tanner, Member.
As of December 31, 2016, the Company’s Board of Directors was comprised of two members:
Benedikt Timmerman (Chairman) and Martin Koch (Member).
Due to the change in the Company's management and governance structure adopted by the General
Shareholders' Meeting of February 28, 2017, all the persons cited above resigned their respective
mandates, to take effect at the close of that General Shareholders' Meeting.
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14.2. CONFLICTS OF INTEREST IN THE COMPANY’S ADMINISTRATIVE AND EXECUTIVE BODIES AND SENIOR MANAGEMENT
There are no family relationships between the individuals cited above.
Mr Papatheodorou and Mary Tanner are direct or indirect shareholders in the Company and/or holders of securities giving access to Company capital.
Mr Martin-Garcia and Mr Nobécourt each represent the management companies (Eclosion2 and EdRIP, respectively) that manage the funds of the Company's shareholders.
Mr. Nessi is managing partner of NeoMed Management, a management company that administers certain funds that hold shares of the Company.
There is a related-party agreement as described in Section 16.2 of this Registration Document.
To the Company’s best knowledge and subject to the relationships described above and the personal interests involved in the agreements disclosed in Section 16.2 of this Registration Document, there is no current or potential conflict of interest between their duties to the Company and the personal interests and/or other duties of the individuals members of the management and of the board of directors of the Company.
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15.COMPENSATION AND BENEFITS
15.1. COMPENSATION OF CORPORATE OFFICERS
15.1.1. Compensation in financial years 2016 or 2015
The following tables show the compensation and other benefits due or paid to corporate officers in office in the financial years 2016 or 2015. Following the General Shareholders' Meeting of February 28, 2017, approving the combination with Genkyotex SA (formerly Genticel SA) and the adoption of a one-tier board structure led by a Board of Directors, all the functions of the members of the Supervisory Board and the Executive Board were terminated at the close of that General Meeting. The new composition of the management and governance bodies are shown in Section 14 of the Registration Document.
Table 1: Summary of compensation, BSA ( warrants) and BSPCE (founders’ warrants) granted to each executive corporate officer
Summary of compensation, options and shares allocated to each executive corporate officer
FY 2015 FY 2016
Benedikt TIMMERMAN – Chairman of the Management Board – director in charge of development (1) (2)Compensation for the financial year (detailed in Table 2) €217,489 €206,809Value of multi-year variable compensation - -Value of options granted during the financial year (detailed in Table 4) - -Value of free shares granted during the financial year (detailed in Table 6) - -
Total €217,489 €206,809Martin KOCH - Member of the Management Board - Chief Administrative & Financial Officer (1)Compensation for the financial year (detailed in Table 2) €190,500 €155,015Value of multi-year variable compensation - -Value of options granted during the financial year (detailed in Table 4) - -Value of free shares granted during the financial year (detailed in Table 6) - -Total €190,500 €155,015Marie-Christine BISSERY - Member of the Management Board - R&D Director (3) (4)Compensation for the financial year (detailed in Table 2) €190,654 €167,406Value of multi-year variable compensation - -Value of options granted during the financial year (detailed in Table 4) - -Value of free shares granted during the financial year (detailed in Table 6) - -Total €190,654 €167,406Sophie OLIVIER – Member of the Management Board – Chief Medical Officer (3)
Compensation for the financial year (detailed in Table 2) €236,021 €207,266
Value of multi-year variable compensation - -Value of options granted during the financial year (detailed in Table 4) - -
Value of free shares granted during the financial year (detailed in Table 6)
- -
Total €236,021 €207,266(1) As a result of the adoption by the General Shareholders' Meeting of February 28, 2017, of a one-tier board structure, the functions of the Management
Board members Martin KOCH and Benedikt TIMMERMAN were terminated at the close of that General Shareholders' Meeting.
(2) In the Group's new structure, Bendikt TIMMERMAN assumed the functions of Deputy Chief Executive Officer from February 28 to May 2, 2017.
(3) Marie-Christine BISSERY and Sophie OLIVIER resigned their mandates as members of the Management Board on September 8, 2016.
(4) Marie-Christine BISSERY received a redundancy payment in 2016 in the amount of €81,049 consisting of a contractual component and discretionary
component.
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Table 2: Summary of compensation granted to executive corporate officers
The following tables show the compensation due to executive corporate officers for the financial
years ended December 31, 2015, and December 31, 2016, and the compensation received by them
during those financial years.
Summary of compensation granted to executive corporate officers
FY 2015 FY 2016
Amounts Amounts Amounts Amounts
due (1) paid (2) due (1) paid (2)
Benedikt TIMMERMAN – Chairman of the Management Board – director in charge of development (3) (4)
Base (fixed) compensation €180,846 €180,846 €197,054 €197,054
Annual variable compensation €21,000 €51,000 - €21,000
Multi-year variable compensation - - - -
Exceptional compensation - - - -
Attendance fees - - - -
Benefits in kind €15,643 €15,643 €9,755 €9,755
TOTAL €217,489 €247,489 €206,809 €227,809
Martin KOCH - Member of the Management Board - Chief Administrative & Financial Officer (3)
Base compensation €150,500 €150,500 €155,015 €155,015
Annual variable compensation €40,000 €31,500 - €40,000
Multi-year variable compensation - - - -
Exceptional compensation - - - -
Attendance fees - - - -
Benefits in kind - - - -
TOTAL €190,500 €182,000 €155,015 €195,015
Marie-Christine BISSERY - Member of the Management Board - R&D Director (5) (6)
Base compensation €170,654 €170,654 €167,406 €167,406
Annual variable compensation €20,000 €38,250 - €20,000
Multi-year variable compensation - - - -
Exceptional compensation - - - -
Attendance fees - - - -
Benefits in kind - - - -
TOTAL €190,654 €208,904 €167,406 €187,406
Sophie OLIVIER – Member of the Management Board – Chief Medical Officer (5)
Base compensation €206,021 €206,021 €207,266 €207,266
Annual variable compensation €30,000 €46,124 - €30,000
Multi-year variable compensation - - - -
Exceptional compensation - - - -
Attendance fees - - - -
Benefits in kind - - - -
TOTAL €236,021 €252,145 €207,266 €237,266(1) for the financial year.
(2) during the financial year.
(3) As a result of the adoption by the General Shareholders' Meeting of February 28, 2017, of a one-tier board structure, the functions of
the Management Board members Martin KOCH and Benedikt TIMMERMAN were terminated at the close of that General Shareholders'
Meeting.
(4) In the Group's new structure, Benedikt TIMMERMAN assumed the functions of Deputy Chief Executive Officer from February 28 to May
4, 2017.
(5) Marie-Christine BISSERY and Sophie OLIVIER resigned their mandates as members of the Management Board on September 8, 2016.
(6) Marie-Christine BISSERY received a redundancy payment in 2016 in the amount of €81,049 consisting of a contractual component and
discretionary component.
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Table 3: Attendance fees and other compensation received by non-executive corporate officers
Attendance fees and other compensation received by non-executive corporate officers
Non-executive corporate officersAmounts paid
in FY 2015Amounts paid
in FY 2016
Thierry HERCEND – Chairman of the Supervisory Board (1)
Attendance fees - -
Other compensation (5) €80,000 €80,000
Dr. Gérard MOLLER – Vice Chairman of the Supervisory Board (1)
Attendance fees €40,000 €40,000
Other compensation - -
Ludovic DE MEEUS D’ARGENTEUIL (2)Attendance fees - n/a
Other compensation - n/a
Edmond de Rothschild Investment Partners represented by Raphaël Wisniewski (1)
Attendance fees - -
Other compensation - -
KURMA LIFE SCIENCES PARTNERS represented by Alain Munoz, then by Philippe Peltier as of December 2, 2015 (3)
Attendance fees - -
Other compensation - -
BPI France Investissement représentée par Olivier MARTINEZ (1)
Attendance fees - -
Other compensation - -
Dr. Didier HOCH (1)Attendance fees €20,000 €20,000
Other compensation (6) €6,000 €1,000
Dr. Rainer STROHMENGER (1)Attendance fees - -
Other compensation - -
Mary TANNER (1)Attendance fees €40,000 €40,000
Other compensation - -
Caroline LAPLANE (1) (2)Attendance fees - -
Other compensation - -
IDRDI represented by Jean-Michel PETIT (observer) (4)
Attendance fees - n/a
Other compensation - n/a
(1) As a result of the adoption by the General Shareholders' Meeting of February 28, 2017, of a one-tier board structure, the functions of
the members of the Supervisory Board were terminated at the close of that General Shareholders' Meeting.
(2) Appointment of Caroline LAPLANE replacing Ludovic DE MEEUS D’ARGENTEUIL, whose mandate expired at the General Shareholders'
Meeting of June 11, 2015.
(3) Resigned his mandate as member of the Supervisory Board on December 1, 2016.
(4) Mandate expired at the General Shareholders' Meeting of June 11, 2015.
(5) Fees received as Chairman of the Supervisory Board in the amount of €20,000 and under his consultancy contract in the amount of
€60,000 excluding taxes in 2016.
(6) Fees received by Hoch Strategy SARL, whose manager is Dr. Didier HOCH.
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Table 4: BSA (warrants) or BSPCE (founders’ warrants) granted to executive corporate officers by
the Company or any company in its Group in the financial years ended December 31, 2015, and
December 31, 2016
BSPCE granted to executive corporate officers by the issuer or by a company in the Group in 2016
Name of executive corporate officer
No. and date of plan
Type of warrant (BSA orBSPCE)
Valuation of warrants using
the Black & Scholes
method (in euros)
Number of warrants granted
Exercise price
Exercise period
NONE
BSPCE granted to executive corporate officers by the issuer or by a company in the Group in 2015
Name of executive corporate officer
No. and date of plan
Type of warrant (BSA orBSPCE)
Valuation of warrants using
the Black & Scholes
method (in euros)
Number of warrants granted
Exercise price
Exercise period
NONE
Table 5: BSA and BSPCE exercised by each executive corporate officer in the financial years ended December 31, 2015, and December 31, 2016
Options to subscribe or purchase shares exercised in 2016 by each executive corporate officer
Name of executive corporate officer No. and date of planNumber of options
exercised in the financial year
Exercise price
NONE
Options to subscribe or purchase shares exercised in 2015 by each executive corporate officer
Name of executive corporate officer No. and date of planNumber of options
exercised in the financial year
Exercise price
Benedikt TIMMERMAN – Chairman of the Management Board – director in charge of development (1)
BSPCE Nov. 200511/30/2005
24,200 €2.90
TOTAL 24,200
(1) As a result of the adoption by the General Shareholders' Meeting of February 28, 2017, of a one-tier board structure, Benedikt
TIMMERMAN's functions as Chairman of the Management Board were terminated at the close of that General Shareholders' Meeting. In
the Group's new structure, Bendikt Timmerman assumed the functions of Deputy Chief Executive Officer from February 28 to May 4, 2017.
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Table 6: Free shares granted to executive corporate officers during the financial years ended December 31, 2015, and December 31, 2016
None
Table 7: Free shares that became available to executive corporate officers during the financial years ended December 31, 2015, and December 31, 2016
None
Table 8: History of grants of BSA or BSPCE to executive corporate officers
See the tables in Section 21.1.4 of the Registration Document.
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Table 9: BSA or BSPCE granted to the top 10 employees who are not corporate officers, and the warrants exercised by them
BSPCE GRANTED TO THE TOP 10 EMPLOYEES WHO ARE NOT CORPORATE OFFICERS AND BSPCE
EXERCISED BY THEM IN 2016
Total number of BSPCE /
shares subscribed or
bought
Weighted average
subscription price per
share
No. and date of plan
Total number of BSPCE granted /
shares subscribed or
bought
BSPCE granted, during the period, by the issuer and any company included in the scope of BSPCE allocation, to the top 10 employees of the issuer and of any company included in this scope, with the highest number of BSPCE thus granted (aggregate numbers)
100,000 (1) 4.19BSPCE Mar. 2016
3/1/2016100,000
BSPCE held on the issuer and above-referenced companies, exercised during the year by the top 10 employees of the issuer and of those companies, with the highest number of BSPCE thus exercised (aggregate numbers)
28,596 3.11
BSPCE Dec. 201012/17/2010
15,080
BSPCE Sept. 20119/30/2011
9,000
BSPCE Feb. 20132/15/2013
1,500
BSPCE Dec. 201312/20/2013
3,016
(1) Only 1 employee received options in FY 2016
BSPCE GRANTED TO THE TOP 10 EMPLOYEES WHO ARE NOT CORPORATE OFFICERS AND BSPCE
EXERCISED BY THEM IN 2015
Total number of BSPCE /
shares subscribed or
bought
Weighted average
subscription price per
share
No. and date of plan
Total number of BSPCE granted /
shares subscribed or
bought
BSPCE granted, during the period, by the issuer and any company included in the scope of BSPCE allocation, to the top 10 employees of the issuer and of any company included in this scope, with the highest number of BSPCE thus granted (aggregate numbers)
50,059 (1) 7.66
BSPCE Apr. 2015 4/23/2015
5,059
BSPCE July 20157/3/2015
45,000
BSPCE held on the issuer and above-referenced companies, exercised during the year by the top 10 employees of the issuer and of those companies, with the highest number of BSPCE thus exercised (aggregate numbers)
76,651 (2) 3.23
BSPCE Apr. 2009 4/9/2009
27,720
BSPCE Dec. 201012/17/2010
28,320
BSPCE Sept. 2011 9/30/2011
4,500
BSPCE Feb. 20132/15/2013
6,880
BSPCE Dec. 201312/20/2013
6,080
BSPCE May 20145/14/2014
3,151
(1) Two employees were granted BSPCE in FY 2015
(2) Eight employees subscribed to shares in FY 2015
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Table 10: History of allocations of free shares
None.
Table 11:
Breakdown of compensation terms and other benefits granted to executive corporate officers:
Executive corporate officersEmployment
contractSupplemental pension plan
Allowances and benefits due or likely to be due
upon termination or change of function
Indemnities under a non-compete clause
Yes No Yes No Yes No Yes No
Ilias (Elias) PAPATHEODOROU –Chief Executive Officer
X(1) X (2) X X (3)
Start date of term of office: Date appointed: February 28, 2017
End date of term of office: At the close of the General Shareholders' Meeting called to approve the financial statements for the financial year ending December 31, 2019
Claudio NESSI – Chairman of the Board of Directors
X X X X
Start date of term of office: Date appointed: February 28, 2017
End date of term of office: At the close of the General Shareholders' Meeting called to approve the financial statements for the financial year ending December 31, 2019
Benedikt TIMMERMAN -Chairman of the Management Board
X X (4) X X (5)
Start date of term as Deputy Chief Executive Officer:
Date appointed: February 28, 2017
End date of term as Deputy Chief Executive Officer:
May 4, 2017
Start date of term as Chairman of the Management Board:
Most recent renewal date: April 22, 2013
End date of term as Chairman of the Management Board:
At the close of the General Shareholders' Meeting of February 28, 2017
Martin KOCH - Member of the Management Board - Chief Administrative & Financial Officer
X X X X
Start date of term of office: Most recent renewal date: April 22, 2013
End date of term of office: At the close of the General Shareholders' Meeting of February 28, 2017
Marie-Christine BISSERY –Member of the Management Board – R&D director
X (6) X X X (6)
Start date of term of office: Most recent renewal date: April 22, 2013
End date of term of office: Resigned on September 8, 2016
Sophie OLIVIER – member of the Executive Board – Chief Medical Officer
X (7) X X X (7)
Start date of term of office: Appointed September 11, 2014, effective October 1, 2014
End date of term of office: Resigned on September 8, 2016(1) In 2016, Ilias (Elias) Papatheodorou received total compensation of CHF 350,000 through his work contract with Genkyotex Suisse SA,
CHF 225,000 of which was fixed pay and CHF 125,000 variable pay.
(2) In accordance with the Swiss system, employees receive old-age insurance and pension benefits consisting of two components: a
minimum pension from the government and a mandatory occupational pension plan (LPP, 2nd pillar).
(3) The employment contract provides non-compete compensation equal to 100% of base annual pay.
(4) Benedikt TIMMERMAN benefits from an endowment life insurance policy, under Article 82 of the French General Tax Code.
(5) The employment contract provides non-compete compensation equal to 50% of the average salary received over the course of the last
six years of service at the Company.
(6) Marie-Christine BISSERY's employment contract ended on November 17, 2016.
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(7) Sophie OLIVIER's employment contract ended on May 5, 2017.
15.1.2. Board of Directors Report on the principles and criteria for determining, distributing and allocating fixed, variable and exceptional components of total compensation and benefits of any kind that may be granted to corporate officers
“This report, prepared in accordance with Article L. 225-37-2 of the French Commercial Code, was adopted by the Board of Directors of Genkyotex and describes Genkyotex's compensation policy applicable to corporate officers from March 1, 2017.
This report is attached to the Management Report for the financial year ended December 31, 2016, included in the Company Annual Financial Report for 2016. It describes the principles and criteria used to determine, distribute and allocate the fixed, variable and exceptional components of total compensation and benefits of any kind that may be granted for the 2017 financial year to the Chairman of the Board of Directors and to the Chief Executive Officer of Gekyotex as corporate officers.
This report was the subject of a separate Resolution submitted for approval to the Annual Ordinary General Shareholders' Meeting, it being understood that the payment of variable and exceptional compensation to the corporate officers concerned requires ratification by the Annual Ordinary General Shareholders' Meeting convened to approve the financial statements for the financial year ended December 31, 2017.
Compensation policy for executive corporate officers
Given the recent change in the Company's management and governance structure to a one-tier board structure, entailing the resulting resignation of all members of the former Management Board and Supervisory Board, a new compensation policy for executive corporate officers has been implemented. However, given the short time elapsed since completely renewing its governance structure, the Company is unable at this stage to comprehensively revamp the compensation policy for its new executive corporate officers.
As part of the change to the Company's governance structure, the Board of Directors decided to separate the Chairman's functions from those of Chief Executive Officer (CEO) and, given the recent changes in the Company, decided that the Chairman and CEO functions would, at this stage, receive no compensation.
Thus, for 2017, the Chairman will not receive attendance fees, annual or multi-annual variable compensation, nor benefit from any severance arrangements. However, depending on how the Company's business progresses, the Board of Directors, on the recommendation of the Appointments and Compensation Committee, could review the compensation policy and include a performance-based compensation plan and/or stock option plan.
For 2017, the Chief Executive Officer will not be granted any fixed or variable compensation as a corporate officer. However, depending on how the Company's business progresses, the Board of Directors, on the recommendation of the Appointments and Compensation Committee, could review the compensation policy and include a performance-based compensation plan and/or stock option plan, as well as, possibly, benefits in kind and variable compensation based on performance criteria.
All compensation arrangements will be voted on by the Board of Directors based on a proposal by the Appointments and Compensation Committee, which takes into consideration the level and difficulties of the responsibilities, the field of activity and industry practices.
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These may be further reviewed should exceptional events occur that could legitimately amend the compensation policy or how goals and targets are assessed, in which case the Board of Directors might seek the advice and recommendations of the Appointments and Compensation Committee.
Executive corporate officers do not receive attendance fees for their corporate duties.
The Company does not offer severance arrangements or supplemental pension plans for corporate duties.
None of the corporate officers concerned receive compensation or benefits of any kind mentioned in Articles L. 225-37-2 and R. 225-29-1 of the French Commercial Code for their corporate duties.
However, Ilias (Elias) Papatheodorou, the Company's Chief Executive Officer, receives compensation under an employment contract that predates his functions as a corporate officer at the Company and ties him to one of the Group's subsidiaries as the Chief Executive Officer of that subsidiary.”
On the date of the Registration Document, the Chairman and Chief Executive Officer and of the Chairman of the Board of Directors positions were paid no compensation. If the Company decides otherwise during the year, a General Shareholders’ Meeting will be called in order to decide on any modification recommended regarding the remuneration of these corporate mandates.
15.2. AMOUNTS SET ASIDE BY THE COMPANY OR ITS SUBSIDIARIES TO PROVIDE PENSION, RETIREMENT OR SIMILAR BENEFITS TO DIRECTORS AND EXECUTIVES
The amounts set aside or measured by the Company or its subsidiaries for pension payments, retirement packages or other benefits to directors and executives relate only to the legally required retirement packages for French employees and the intra-company mandatory defined benefit scheme for Swiss employees. They are calculated on the same basis as for the Group's other employees.
15.3. SHARE SUBSCRIPTION OR PURCHASE OPTIONS; WARRANTS AND FOUNDERS' WARRANTS
The terms and conditions of each BSA and BSPCE plan are disclosed in detail in Section 21.1.4 of the Registration Document.
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15.4. SUMMARY OF TRANSACTIONS BY EXECUTIVES AND THE PERSONS MENTIONED IN ARTICLE L. 621-18-2 OF THE FRENCH MONETARY AND FINANCIAL CODE INVOLVING COMPANY SECURITIES IN THE PAST FINANCIAL YEAR
Persons concernedType of
transactionDate of
transactionNumber of shares
Transaction Amount
Ludovic de Meeus, natural person related to Caroline Laplane, member of the Supervisory Board
Sale (share) 6/24/2016 2,124 €4,460.00
Ludovic de Meeus Sale (share) 8/23/2016 14,330 €22,924.62
Ludovic de Meeus Sale (share) 8/24/2016 26,500 €46,358.35
Ludovic de Meeus Sale (share) 8/25/2016 13,500 €24,488.46
LBP S.A., legal entity related to Caroline Laplane, member of the Supervisory Board
Sale (share) 10/4/2016 5,500 €8,825.00
LBP S.A. Sale (share) 10/6/2016 5,000 €8,000.00
LBP S.A. Sale (share) 11/30/2016 14,500 €27,859.55
LBP S.A. Sale (share) 11/30/2016 30,000 €77,202.60
LBP S.A. Sale (share) 12/1/2016 13,627 €48,728.71
LBP S.A. Sale (share) 12/2/2016 70,688 €220,334.50
LBP S.A. Sale (share) 12/5/2016 40,000 €124,750.00
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16.BOARD PRACTICES
16.1. COMPANY MANAGEMENT
The Company's executive management functions are handled by the Chief Executive Officer; recent structural changes to the management structure are described in Section 14 “Administrative, management and supervisory bodies and senior management” and Section 21.2 “Articles of Incorporation and By-laws” of this Registration Document.
16.2. CONTRACTS BINDING CORPORATE OFFICERS AND THE GROUP
Mr Ilias (Elias) Papatheodorou, appointed Chief Executive Officer of the Company on February 28, 2017, has an employment contract with Genkyotex Suisse SA as its Chief Executive Officer.
There are no other contracts binding a corporate officer to the Company or to any company of the Group.
16.3. BOARD OF DIRECTORS AND SPECIALIZED COMMITTEES – CORPORATE GOVERNANCE
Developments regarding the composition of the Board of Directors and information about its members are presented in Chapters 14 “Administrative, management and supervisory bodies and senior management” and 21.2 “Articles of Incorporation and By-laws” of this Registration Document.
The members of the Board of Directors may be paid attendance fees, which are allocated among them, based on attendance records at Board meetings and their participation in specialized committees.
To date, only the independent members of the Board of Directors are paid attendance fees.
New rules of procedure (Board charter) were adopted by the Board of Directors at its meeting of February 28, 2017.
The Board charter specifies the rules of conduct and the obligations of its members. Board members separately undertakes to maintain their independence of analysis, judgment and action, and to actively participate in the work of the Board. They inform the Board of any conflicts of interests that may involve them. Moreover, the Board charter reaffirms the current regulations on the communication and use of inside information and specify that its members must refrain from trading in Company shares when they have inside information. All members of the Board of Directors are also obligated to declare to the Company and to the AMF (French Financial Markets Authority) any direct or indirect trading they do in Company shares.
The Board of Directors believes that it has, in the persons Ms Catherine Moukheibir and Ms Mary Tanner, two independent members under the meaning of the Corporate Governance Code for small and medium enterprises as updated in September 2016 by MiddleNext and approved as a standard code by the AMF, to the extent that Ms Catherine Moukheibir and Ms Mary Tanner:
are not and have not been in the past five years, employees or executive corporate officers of the Company or of a company in its group;
do not have and have not had in the past two years a significant business relationship with the Company or its group (as customer, supplier, competitor, service provider, creditor, banker, etc.);
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are not major shareholders of the Company or hold a significant percentage of voting rights;
have no close or family relationship with any corporate officer or major shareholder; and
have not been auditors of the Company in the past six years.
The number of Board of Directors meetings reflects the various events in the life of the Company. Thus, the Board does not meet more frequently than Company events justify and at least four (4) times per year.
In the financial year ended December 31, 2016, before the change in the Company's management and governance structure, its Supervisory Board met eight times and the average attendance rate of its members was 89%.
As of the registration date of this Registration Document, after the change in the Company's management and governance structure, the Board of Directors also has two specialized committees: an Audit Committee and an Appointments and Compensation Committee.
The Audit Committee monitors issues relating to the preparation and verification of accounting and financial information and, for that purpose, has the following main duties:
- monitor the process of preparing financial information and, as appropriate, make recommendations to guarantee its integrity;
- monitor the effectiveness of internal control and risk management systems, and, as appropriate, internal audits of procedures relating to the preparation and processing of accounting and financial information, without undermining its independence;
- oversee the Statutory Auditors' review of the separate and consolidated annual financial statements;
- issue a recommendation regarding the appointment of Statutory Auditors by the General Shareholders' Meeting and issue a recommendation to the Board of Directors when the term of office of the Statutory Auditor(s) comes up for renewal;
- ensure that the Statutory Auditors carry out their assignment and take into consideration the findings and conclusions of the French audit control board (Haut conseil du commissariat aux comptes / H3C) following their audits;
- ensure that the Statutory Auditors meet the independence requirements; take any necessary measures as needed;
- approve the provision of non-audit services by the Statutory Auditors (Article L. 822-11-2 of the French Commercial Code);
- report on a regular basis to the Board of Directors regarding the progress of its assignments and on the results of the statutory audit, how it contributed to the integrity of financial information, and the role it played in that process. The Audit Committee immediately reports any problems encountered;
- review the Company’s procedures for receiving, storing and treating complaints concerning internal accounting and control, audit-related issues as well as documents sent by employees anonymously and confidentially that may call into question accounting or auditing practices;
- in general, offer all appropriate advice and recommendations in the above-mentioned areas.
The Audit Committee is composed of: Catherine Moukheibir (Chair of the Audit Committee), the company Eclosion2 SA represented by Jesús Martin-Garcia, Mary Tanner.
The Appointments and Compensation Committee’s tasks are:
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regarding appointments:- submit recommendations to the Board of Directors for Chief Executive Officer and
Deputy Chief Executive Officers and, when appropriate, the composition of the Board of Directors and its committees;
- propose to the Board of Directors on an annual basis a list of directors who qualify as "independent member" in terms of the criteria defined in the MiddleNext Code;
- prepare a list of individuals who can be recommended as Chief Executive Officer, Deputy Chief Executive Officer or Director;
- prepare a list of directors who can be recommended as a member of a Board of Directors committee;
regarding compensation:- review the key objectives proposed by the Chief Executive Officer and his or her Deputy
Chief Executive Officers in terms of compensation for non-corporate-officer executives of the Company and the Group, including free-share plans and share subscription or purchase options;
- review the compensation of non-corporate-officer executives, including free-share plans and share subscription or purchase options, pension and insurance plans and benefits in kind;
- submit recommendations and proposals to the Board of Directors regarding: the compensation, pension and insurance plans, benefits in kind, and other
monetary rights, including in the case of the cessation of business, for the Chief Executive Officer and Deputy Chief Executive Officers; the Appointments and Compensation Committee proposes compensation amounts and structures and, in particular, the rules for setting the variable portion taking into account the Company’s strategy, objectives and results as well as market practices and
free-share plans, share subscription or purchase options and any other similar incentive mechanism and, in particular, allocations by name to the Chief Executive Officer and to Deputy Chief Executive Officers, if any;
- review the total attendance fees and the system for allocating them among the members of the Board of Directors, as well as the conditions for the reimbursement of any expenses incurred by Board members;
- prepare and submit reports, if any, specified by the rules of procedure of the Appointments and Compensation Committee;
- submit any other recommendations that may be requested of it by the Board of Directors or the Chief Executive Officer regarding compensation.
The Appointments and Compensation Committee is composed of the company Edmond de Rothschild Investment Partners, represented by Gilles Nobecourt (Chair of the Appointments and Compensation Committee), Catherine Moukheibir and Claudio Nessi.
The Board of Directors also has two observers, namely, Stéphane Verdood and Joseph McCraken.Observers are invited to Board of Directors meetings on the same terms as the Board's members and have the same right to receive information prior to the meetings on the same terms and conditions as the Board members. They attend Board meetings in an advisory capacity only (see Section 21.2.2of this Registration Document for the statutory provisions concerning observers).
16.4. STATEMENT REGARDING CORPORATE GOVERNANCE
In order to comply with Article L. 225-37 of the French Commercial Code, the Company has designated the Corporate Governance Code for small and medium enterprises as updated in September 2016 by MiddleNext (the "MiddleNext Code”) as standard code.
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The Company intends to comply with all the recommendations of the Corporate Governance Code for small and medium enterprises.
The Company, however, does not follow all the recommendations in the Corporate Governance Code. In particular, the Company believes that it is not compliant with the following recommendations:
R11: Implementation of a mechanism for assessing the Board's performance
Given the change in the Company's management and governance structure in 2017, it would be prudent to allow the Board of Directors some time to operate under this new structure before assessing its performance. The Board will carry out a self-assessment after the approval of the 2017 annual financial statements.
R15: Combined employment contract and corporate mandate
Ilias (Elias) Papatheodorou is not bound to the Company by an employment contract; however, he has an employment contract with Genkyotex Suisse SA. This contract was concluded prior to the contribution in shares to the Company, which was formerly called Genticel, and to his nomination as Chief Executive Officer of Genkyotex SA.
16.5. INTERNAL CONTROL
As of the Registration Document Date, the Company has the following internal control procedures in place:
Organization of the accounting and finance department
The accounting function for Genkyotex SA is outsourced under the supervision of the Chief Financial and Administrative Officer.The Company is diligent in maintaining a separation between the preparation and supervision of its financial statements and uses independent experts to measure complex accounting items (pension obligations, value of shareholders' equity instruments) and/or relies on subjective assumptions.Payroll and review of tax issues are entrusted to chartered accountants.The financial statements, in accordance with French and IFRS standards, produced with the assistance of an independent audit firm, are submitted to the Company’s co-auditors.
Budget process
The Company prepares an annual projected spending budget per project, taking into account actual spending, revenue adjustments and expenses remaining to be incurred. These factors are reviewed on a regular basis at Board meetings.
Delegation of powers
The Company has put in place a procedure for delegating powers, including signing powers for the payment of invoices and the placing of purchase orders.
Since the strategic combination on February 28, 2017, the Company has integrated and harmonized the various operational systems and procedures used within the two companies, to include the financial and accounting systems (see Risk Factors under section 4.2.5 of the Registration Document).On the date of the Registration Document, the Company continued to implement and carry out the new harmonized systems and procedures.
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17.EMPLOYEES
17.1. NUMBER OF EMPLOYEES AND BREAKDOWN BY JOB POSITION
17.1.1. Operational organizational chart
At the Registration Document Date, the Group’s operational organizational chart appears as follows:
17.1.2. Number and breakdown of employees
At the close of the stated financial periods, the Company’s workforce was located in France and broke down as follows:
Breakdown by activity 12/31/2016 12/31/2015
Administrative employees 3 4Research & Development 4 30
TOTAL 7 34
In view of the clinical results of the Phase 2 study of GTL001, the Company begain downsizing its workforce in 2016 and early 2017.
At the Registration Document Date, the new group arising from the combination with Genkyotex Suisse employed 12 persons, 8 in Switzerland and 4 in France. Eight employees hold research and development positions and four perform administrative functions.
17.2. HOLDINGS AND STOCK OPTIONS OF CORPORATE EXECUTIVES
See Sections 15.3 “Share subscription or purchase options; warrants and founders’ warrants” and 18.1 “Shareholding structure and voting rights” in the Registration Document.
Chief Executive Officer
Chief Medical Officer
Head of Pharmacology
Associate Scientist
Head of Screening and Biotechnology
Senior Scientist and Screening
Manager
Technician
Clinical Study Manager
Chief Financial and
Administrative Officer
Secretary-accountant
Financial Controller
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17.3. EMPLOYEE HOLDINGS IN THE COMPANY'S SHARE CAPITAL
In accordance with Article L. 225-102 of the French Commercial Code, the Company states that no employee savings plan has been implemented for the employees of the Company.
See section 18.1 “Shareholding structure and voting rights” in the Registration Document.
17.4. PROFIT SHARING AND EQUITY INTEREST AGREEMENTS
None.
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18. MAJOR SHAREHOLDERS
18.1. SHAREHOLDING STRUCTURE AND VOTING RIGHTS
At the date of the Registration Document, shareholding broke down as follows:
Shareholders
At the date of the Registration Document
As at 12/31/2016
On a non-diluted basis On a diluted basis (1)
Number of shares
Percentage of capital
and voting rights (2)
Number of shares & options
Percentage of capital
and voting rights (2)
Number of shares
Percentage of capital
and voting rights (2)
EDRIP Funds 18,494,278 23.76% 18,627,612 23.62% 2,239,167 14.38%
Eclosion2 SA 13,932,857 17.90% 13,932,857 17.66% - 0.00%
Vesalius Biocapital II SA, SICAR 6,915,293 8.88% 6,915,293 8.77% - 0.00%
NEOMED 5,661,747 7.27% 5,661,747 7.18% - 0.00%
VI 4,338,692 5.57% 4,338,692 5.50% - 0.00%
BIOMED 4,245,157 5.45% 4,245,157 5.38% - 0.00%
IDinvest Partners 2,178, 521 2.80% 2,178, 521 2.76% 2,178,521 13.99%
Wellington Partners 1,611, 857 2.07% 1,611, 857 2.04% 1,611,857 10.35%
Bpifrance (FCPR Innobio) 1,570, 502 2.02% 1,570, 502 1.99% 1,570,502 10.09%
Other institutional investors with less than 5% each 3,736,324 4.80% 3,736,324 4.80% - 0.00%
Total institutional investors 62,685,228 80.52% 62,818,562 79.64% 7,600,047 48.81%
Management & Employees 4,146,207 5.33% 4,146,207 5.26% 495,017 3.18%
Free float 10,964,367 14.08% 10,964,367 13.90% 7,451,191 47.86%
Treasury stock (3) 54,204 0.07% 54,204 0.07% 23,800 0.15%
Total 77,850,006 100.00% 78,878,398 100.00% 15,570,055 100.00%(1) including the 391,094 BSPCE warrants and the 470,334 BSA warrants issued and allocated by the Company at the Registration Document Date, exercisable or not, giving right to 391,094 and 470,334 new shares of the Company respectively.
(2) Theoretical voting rights All shares have the same voting rights, except treasury shares.
(3) Shares held as of May 31, 2017 under the liquidity contract with Oddo et Cie on April 18, 2014.
For the record, following the approval of the in-kind contribution of the Swiss company GenKyoTex shares by the Company’s General Shareholders Meeting on February 28, 2017, the shareholders of the contributing company received 62,279,951 new ordinary shares in compensation for their contribution, representing 80% of the Company’s share capital; consequently, the “Free float” line was impacted between December 31,2016 and February 28, 2017.
18.2. SIGNIFICANT SHAREHOLDERS NOT REPRESENTED ON THE BOARD OF DIRECTORS
None.
18.3. VOTING RIGHTS OF MAIN SHAREHOLDERS
At the date of the Registration Document, the voting rights of each shareholder were equal to the number of shares held by each of them. The bylaws of the Company do not allow double voting rights.
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18.4. CONTROL OF THE COMPANY
In the meaning of Article L. 233-3 of the French commercial code, no controlling shareholder existed at the date of the Registration Document.
The Company did not make any arrangement to protect against abusive exercise of control of the Company.
To the Company’s knowledge, there is no concerted action (action de concert) amongst its shareholders.
18.5. AGREEMENTS THAT COULD TRIGGER A CHANGE OF CONTROL
To the Company’s knowledge, there is no agreement which, if implemented, could trigger a change in control of the Company.
18.6. PLEDGE OF THE COMPANY’S SHARES
None. To the Company’s knowledge, no pledges regarding its shares have been made.
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19.RELATED PARTY TRANSACTIONS
19.1. INTRA-GROUP TRANSACTIONS
See section 7.3 "Financial flows within the Group"
19.2. SIGNIFICANT AGREEMENTS WITH RELATED PARTIES
At the General Shareholder’s Meeting of February 28, 2017, the Company's shareholders approved the change to the Company's management and governance structure and adopted a one-tier board structure. All the functions of the members of the Supervisory Board and the members of the Management Board were terminated at the close of that General Shareholders’ Meeting.
It should also be noted that no new agreement was signed with corporate officers between January 1, 2017, and the Registration Document Date. Mr Papatheodorou, the Company's Chief Executive Officer, has an employment contract with the Company's Swiss subsidiary, Genkyotex Suisse SA.
19.2.1. Consulting agreement signed between the Company and Hoch Strategy SARL
The Company benefits from Mr. Hoch’s advice in assessing the commercial potential of its products, which is an essential aspect of the value of the projects that it carries out. The Company pays €3,000 per day for consulting services provided, excluding expenses. This agreement signed in previous years was automatically renewed in 2016 (the Company having previously been a dual structure with a Management Board and a Supervisory Board).
Mr. Hoch performed the functions of a member of the Supervisory Board until February 28, 2017.
The fees paid to Hoch Strategy SARL, which is managed by Mr Hoch, amounted to €1,000 in 2016. No fees were paid under this agreement during the period January 1, 2017 to February 28, 2017.
The consulting contract between the Company and Hoch Strategy SARL was terminated and not renewed in 2017.
19.2.2. Consulting contract signed between the Company and Mr Hercend
The Company benefits from Mr Hercend's expert advice in the field of immunology (Mr. Hercend being a Doctor of Medicine and a Doctor of Immunology Sciences). The Company pays €15,000 per quarter for consulting services provided. This agreement signed in previous years was automatically renewed in 2016 (the Company having previously been a dual structure with a Management Board and a Supervisory Board).
Mr Hercend performed the functions of Chairman of the Supervisory Board until February 28, 2017.
The fees paid to Mr Hercend under this agreement amounted to €60,000 (excl. tax) in 2016. No fees were paid under this agreement during the period January 1, 2017 to February 28, 2017.
The consulting contract between the Company and Mr. Hercend was terminated and not renewed in 2017.
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19.2.3. Consulting contract signed between the Company and Mr Timmerman
The Company signed a permanent employment contract with Mr Timmerman as Chief Executive Officer in charge of the Company's development. This agreement which had been signed in previous years continued in 2016.
Mr Timmerman performed the functions of Chairman of the Management Board until February 28, 2017, and then Deputy Chief Executive Officer until May 4, 2017.
The compensation received by Mr Timmerman from his employment contract amounted to €206,809 in 2016.
19.2.4. Employment contract signed between the Company and Mr Koch
The Company signed a permanent employment contract with Mr Koch as the Company's Chief Financial Officer. This agreement which had been signed in previous years continued in 2016.
Mr Koch performed the functions of member of the Management Board until February 28, 2017.
The compensation received by Mr Koch from his employment contract amounted to €155,015 in 2016.
19.2.5. Employment contract signed between the Company and Ms Bissery
The Company signed a permanent employment contract with Ms Bissery as the Company's R&D Director. This agreement which had been signed in previous years continued in 2016.
Ms Bissery performed her functions as a member of the Management Board until September 8, 2016, her date of resignation from the Board, and her employment contract was terminated on November 17, 2016.
The compensation received by Ms Bissery from her employment contract amounted to €167,406 in 2016.
19.2.6. Salary payments owed to related parties under the terms of their previously signed employment contracts still in force on January 1, 2017
As of the Registration Document Date, the total salary payments owed to related parties under the terms of their previously signed employment contracts still in force on January 1, 2017 amount to €95,3666.
It should be noted that all the members of the Supervisory Board and of the Management Board resigned their positions at the close of the General Shareholders' Meeting of February 28, 2017, and are therefore, as of this date, no longer considered to be related parties, with the exception of Mr Benedikt Timmerman who was appointed Deputy Chief Executive Officer but whose term of office ended on May 4, 2017.
6Unaudited data
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19.3. STATUTORY AUDITORS' SPECIAL REPORT ON REGULATED AGREEMENTS
19.3.1. Statutory Auditors’ Special Report on regulated agreements in effect in the financial year ended December 31, 2016
GENTICELLIMITED COMPANY WITH CAPITAL OF EURO 1,557,005.50
Registered office:516 Rue Pierre et Marie Curie
31670 Labege, France
STATUTORY AUDITORS' SPECIAL REPORTON REGULATED AGREEMENTS AND COMMITMENTS
General Shareholders’ Meeting to approve the financialstatements for the year ended December 31, 2016
This is a free translation into English of the Statutory Auditors’ special report on regulated agreements and commitments issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. It should be understood that the agreements and commitments reported on are only those provided by the French Commercial Code and that the report does notapply to related party agreements described in IAS 24 or other equivalent accounting standards.
To the Shareholders,
As Statutory Auditors of your company, we present to you our report on related-party agreements and commitments.
It is our duty to report to you, based on the information provided to us, the key features of and benefits to the Company, of the agreements and undertakings of which we have been informed or which we have identified during our assignment, without being required to form an opinion as to their usefulness or appropriateness or to search for undisclosed agreements and undertakings. According to the provisions of Article R.225-58 of the French Commercial Code, it is your duty to assess the benefits of entering into these agreements and commitments when they are submitted for your approval.
It is also our duty, where appropriate, to inform you of the information referred to in article R.225-58 of the French Commercial Code relating to the continuation, in the period under review, of agreements and undertakings approved by General Shareholders’ Meetings in previous years.
We carried out the investigations that we considered necessary to comply with the professional guidelines issued by the Compagnie nationale des commissaires aux comptes in respect of this assignment. The guidelines focus on verifying that the information presented is consistent with underlying source documents.
AGREEMENTS AND COMMITMENTS SUBMITTED FOR THE APPROVAL OF THE GENERAL SHAREHOLDERS’ MEETING
In accordance with Article L.225-88 of the French Commercial Code, we have been informed of the following agreements and undertakings previously approved your Supervisory Board.
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Agreement with Doctor Thierry HERCEND
Person concerned: Thierry HERCEND, Chairman of your Company’s Supervisory Board
On December 1, 2015, your Supervisory Board authorized the renewal, for 2016, of a contract originally signed with Dr Thierry HERCEND in 2008. His mission is to:
• assist the Management Board in defining and setting up a pre-clinical and clinical development strategy;
• assist the Company in raising funds to support its structural growth.
Benefit to the Company of the Supervisory Board's agreement or commitment:
Your Company benefits from Mr. Hercend's expert advice in the field of immunology (Mr. Hercend being a Doctor of Medicine and a Doctor of Immunology Sciences).
This contract renewal took effect on January 1, 2016, for a 12-month automatically renewable term. His services will be remunerated in the form of a fixed monthly payment of €5,000 plus VAT.
For the financial year ended December 31, 2016, the expense recognized by your Company was €60,000 (excl. tax).
Agreement with Doctor Didier HOCH
Person concerned: Didier HOCH, independent member of your Company’s Supervisory Board.
On December 1, 2015, your Supervisory Board authorized the renewal, for 2016, of a contract originally signed with Dr HOCH in 2011. His mission is to advise the Company on:
• marketing development• market access strategy
Benefit to the Company of the Supervisory Board's agreement or commitment:
The Company benefits from Mr Hoch’s advice in assessing the commercial potential of its products, which is an essential aspect of the value of the projects that it carries out.
This contract renewal took effect January 1, 2016, for a 12-month automatically renewable term. Each intervention by Dr HOCH is remunerated at a flat daily rate of €3,000 plus VAT. Travel expenses are reimbursable on presentation of supporting documentation.
For the financial year ended December 31, 2016, your Company paid €1,000 in fees and €1,878.80 in travel expenses.
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AGREEMENTS AND COMMITMENTS PREVIOUSLY APPROVED BY THE GENERAL SHAREHOLDERS' MEETING
In accordance with Article R.225-57 of the French Commercial Code, we have been informed that the following agreements and commitments approved by a General Shareholders’ Meeting in previous years were still in force in the past year.
Agreement with Mr Benedikt TIMMERMAN
Person concerned: Benedikt TIMMERMAN, Chairman of your Company’s Executive Board
On February 22, 2010, your Supervisory Board authorized your Company to sign a permanent employment contract with Mr Benedikt TIMMERMAN as Chief Executive Officer in charge of the Company’s development.
For the financial year ended December 31, 2016, Mr Benedikt TIMMERMAN received for his functions as Chief Executive Officer in charge of the Company’s development, gross annual compensation of €206,809.
Agreement with Mr Martin KOCH
Person concerned: Martin KOCH, member of your Company’s Executive Board
On February 22, 2010, your Supervisory Board authorized an addendum to the permanent employment contract of Mr Martin KOCH, Chief Financial and Administrative Officer, changing his compensation.
For the financial year ended December 31, 2016, Mr Martin KOCH received for his functions as Chief Financial and Administrative Officer gross annual compensation of €155,015.
Agreement with Ms Marie-Christine BISSERY
Person concerned: Marie-Christine BISSERY, member of your Company’s Executive Board
On December 2, 2015, your Company signed an addendum to Ms Marie-Christine BISSERY's employment contract, giving her a new role as Development Director, stemming from the splitting of the Research Director's function into two: Development Director and Scientific Director.
For the financial year ended December 31, 2016, Ms Marie-Christine BISSERY received for her functions a gross annual compensation of €167,406.
Neuilly-sur-Seine and Toulouse, February 27, 2017
Statutory Auditors
GRANT THORNTON
French member of Grant Thornton International
Samuel Clochard
SYGNATURES
Laure Mulin
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19.3.2. Statutory Auditors’ Special Report on regulated agreements in effect in the financial year ended Thursday, December 31, 2015
100 Rue de Courcelles
75 017 Paris, FranceMember of the Compagnie Régionale
des Commissaires aux Comptes de Paris (National Institute of Auditors of Paris)
8 Chemin de la Terrasse31 500 Toulouse, France
Member of the Compagnie Régionale des Commissaires aux Comptes de
Toulouse (National Institute of Auditors of Toulouse)
GENTICELPUBLIC LIMITED COMPANY WITH CAPITAL OF EURO 1,554,108.60
Registered office: 516 Rue Pierre et Marie Curie
31 670 Labège, France
STATUTORY AUDITORS’ SPECIAL REPORT ON REGULATED AGREEMENTS AND COMMITMENTS –General Shareholders’ Meeting approval of the financial statements for the year ended December
31, 2015
To the Shareholders,
As Statutory Auditors of your company, we present to you our report on related-party agreements
and commitments.
It is our duty to report to you, based on the information provided to us, the key features of and
benefits to the Company, of the agreements and undertakings of which we have been informed or
which we have identified during our assignment, without being required to form an opinion as to
their usefulness or appropriateness or to search for undisclosed agreements and undertakings.
According to the provisions of Article R.225-58 of the French Commercial Code, it is your duty to
assess the benefits of entering into these agreements and commitments when they are submitted
for your approval.
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It is also our duty, where appropriate, to inform you of the information referred to in article R.225-58
of the French Commercial Code relating to the continuation, in the period under review, of
agreements and undertakings approved by General Shareholders’ Meetings in previous years.
We carried out the investigations that we considered necessary to comply with the professional
guidelines issued by the Compagnie nationale des commissaires aux comptes in respect of this
assignment. The guidelines focus on verifying that the information presented is consistent with
underlying source documents.
AGREEMENTS AND COMMITMENTS SUBMITTED FOR APPROVAL TO THE GENERAL SHAREHOLDERS’ MEETING
In accordance with Article L.225-88 of the French Commercial Code, we have been informed of the
following agreements and undertakings previously approved by your Supervisory Board.
Agreement with Dr Thierry HERCEND
Person concerned: Thierry HERCEND, Chairman of your Company’s Supervisory Board
In 2015, your Company renewed a contract originally signed with Dr Thierry HERCEND in 2008. His
mission is to:
assist the Management Board in defining and setting up a preclinical and clinical
development strategy;
assist the Company in raising funds to support its structural growth.
Benefit to the Company of the Supervisory Board's agreement or commitment:
Your Company benefits from Mr Thierry Hercend's expert advice in the field of immunology
(Mr Hercend being a Doctor of Medicine and a Doctor of Immunology Sciences).
This contract renewal took effect January 1, 2015, for an automatically renewable 12-month
term. His services will be remunerated in the form of a fixed monthly payment of €5,000
(excl. tax).
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For the financial year ended December 31, 2015, the recognized expense was:
€60,000 (excl. tax).
Agreement with Dr. Didier HOCH
Person concerned: Didier HOCH, independent member of your Company’s Supervisory Board.
In 2015, your Company renewed a contract originally signed with Dr HOCH in 2011. His mission is
to advise the Company on:
marketing development
market access strategy
Benefit to the Company of the Supervisory Board's agreement or commitment:
The Company benefits from Mr Hoch’s advice in assessing the commercial potential of its products,
which is an essential aspect of the value of the projects that it carries out.
This contract renewal took effect January 1, 2015, for an automatically renewable 12-month
term. Each intervention by Dr HOCH is compensated at a flat daily rate of €3,000 (excl. tax).
Travel expenses are reimbursable on presentation of supporting documentation.
For the financial year ended December 31, 2015, your Company paid €1,000 in fees and €1,175.53 in
travel expenses.
Agreement with Ms Marie-Christine BISSERY
Person concerned: Marie-Christine BISSERY, member of your Company’s Executive Board
On December 2, 2015, your Company signed an addendum to Ms Marie-Christine BISSERY's
employment contract, giving her a new role as Development Director, stemming from the splitting of
the Research Director's function into two: Development Director and Scientific Director.
Benefit to the Company of the Supervisory Board's agreement or commitment:
The splitting of the Research Director's functions into that of a Development Director and a Scientific
Director became necessary given the state of maturity of your Company's projects.
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For the financial year ended December 31, 2015, Ms Marie-Christine BISSERY received for her
functions as Research & Development Director gross annual compensation of €170,654.
AGREEMENTS AND UNDERTAKINGS PREVIOUSLY APPROVED BY THE GENERAL SHAREHOLDERS’ MEETING
In accordance with Article R.225-57 of the French Commercial Code, we have been informed
that the following agreements and commitments approved by the General Shareholders’
Meeting in previous years were still in force in the past year.
Agreement with Mr Benedikt TIMMERMAN
Person concerned: Benedikt TIMMERMAN, Chairman of your Company’s Executive Board
On February 22, 2010, your Supervisory Board authorized your Company to sign a permanent
employment contract with Mr Benedikt TIMMREMAN as Chief Executive Officer in charge of
the Company’s development.
For the financial year ended December 31, 2015, Mr Benedikt TIMMERMAN received for his
functions as Chief Executive Officer in charge of the Company’s development, gross annual
compensation of €196,489.
Agreement with Mr Martin KOCH
Person concerned: Martin KOCH, member of your Company’s Executive Board
On February 22, 2010, your Supervisory Board authorized an addendum to the permanent
employment contract of Mr Martin KOCH, Chief Financial and Administrative Officer, changing his
compensation.
For the financial year ended December 31, 2015, Mr Martin KOCH received for his functions as Chief
Financial and Administrative Officer, a gross annual compensation of €150,500.
Paris and Toulouse, March 24, 2015
Statutory Auditors
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GRANT THORNTON
French member of Grant Thornton International
Laurent Bouby
Partner
SYGNATURES
Laure Mulin
Partner
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20.FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES
20.1. FINANCIAL STATEMENTS OF GENKYOTEX (FORMERLY GENTICEL) PREPARED APPLYING IFRS STANDARDS FOR THE FINANCIAL YEAR ENDING DECEMBER 31, 2016
BALANCE SHEET
GENTICEL 12/31/2016 12/31/2015
Balance sheet Notes
€ €
ASSETSIntangible assets 3.1 41,664 54,017 Property, plant and equipment 3.2 41,766 155,874 Other non-current financial assets 4 140,268 5,290,657
Total non-current assets 223,698 5,500,549
Inventory 5 - 52,560 Trade and related receivables 6.1 53,342 -Other receivables 6.2 3,512,354 3,653,694 Current financial assets 4 8,274,109 5,021,938 Cash and cash equivalents 7 4,663,013 11,659,829
Total current assets 16,502,817 20,388,021
Total assets 16,726,515 25,888,570
LIABILITIESEquityCapital 8 1,557,006 1,554,109 Additional paid-in capital 48,348,830 48,420,039 Other comprehensive income 43,413 4,948 Reserves - Group share (29,409,020) (18,451,210)Result - Group share (7,240 271) (11,193,323)
Equity, Group share 13,299,958 20,334,563
Minority interests - -
Total equity 13,299,958 20,334,563
Non-current liabilitiesEmployee benefit obligations 11 111,767 322,060 Non-current financial debt 10 335,638 1,900,781
Non-current liabilities 447,405 2,222,842
Current liabilitiesCurrent financial debt 10 597,933 621,347 Provisions 12 720,061 -Debt to suppliers and related payables 571,262 1,886,424 Tax and social security payables 13.1 1,081,497 821,340 Other creditors and miscellaneous liabilities 13.2 8,398 2,055
Current liabilities 2,979,151 3,331,166
Total liabilities 16,726,515 25,888,570
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INCOME STATEMENT
GENTICEL 12/31/2016 12/31/2015
Income statement Notes 12 months 12 months
€ €
Revenue 15 - -Cost of sales - -
Gross margin - -
Other income 15 1,304,060 177,742
Net R&D expensesR&D expenses 16.1 (7,177,808) (10,935,343)Subsidies 16.1 3,705,131 2,940,037
General and administrative expenses 16.2 5,242,354 (3,599,155)
Operating profit/(loss) 7,410,971 (11,416,719)
Financial expenses 17 (47,874) (64,535)Financial income 17 218,574 287,931
Profit/(loss) before tax (7,240,271) (11,193,323)
Tax expense - -
Net profit/loss (7,240,271) (11,193,323)
Group share (7,240,271) (11,193,323)Minority interests - -
Earnings per share Notes 12/31/2016 12/31/2015
Weighted average number of outstanding shares 15,561,352 15,463,263
Basic earnings per share (€) 20 (0.47) (0.72)
Diluted earnings per share (€) 20 (0.47) (0.72)
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STATEMENT OF COMPREHENSIVE PROFIT/(LOSS)
GENTICEL 12/31/2016 12/31/2015
Statement of comprehensive profit/(loss) Notes 12 months 12 months
€ €
Profits for the year (7,240,271) (11,193,323)
Actuarial gains and losses 11 38,465 122,504
Items not recyclable as income 38,465 122,504
Items recyclable as income - -
Other items of comprehensive income (net of tax) 38,465 122,504
Comprehensive profit/(loss) (7,201,806) (11,070,819)
Group share (7,201,806) (11,070,819)Minority interests - -
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CHANGE IN EQUITY
GENTICEL Notes Capital CapitalPremiums linked to
share capital
Reserves andprofit/(loss)
Actuarial gains and
losses
Equity, Group share
Minority interests
Equity
Change in Equity Number of shares € € € € € € €
As of December 31, 2014 15,440,235 1,544,024 48,112,032 (19,321,595) (117,555) 30,216,905 - 30,216,905
2015 net income (loss) (11,193,323) (11,193,323) - (11,193,323)Other comprehensive income 122,504 122,504 - 122,504
Comprehensive profit/(loss) - - (11,193,323) 122,504 (11,070,819) - (11,070,819)
Exercise of BSPCE 100,851 10,085 308,007 318,092 - 318,092 Liquidity contract 29,689 29,689 - 29,689 Share-based payments 840,695 840,695 - 840,695
As of Thursday, December 31, 2015 15,541,086 1,554,109 48,420,039 (29,644,533) 4,948 20,334,563 - 20,334,563
2016 net profit/(loss) (7,240 271) (7,240 271) - (7,240 271)Other comprehensive profit/(loss) - 38,465 38,465 - 38,465
Comprehensive profit/(loss) - - (7,240 271) 38,465 (7,201,806) - (7,201,806)
Exercise of BSPCE 8 28,969 2,897 87,399 90,296 - 90,296 Liquidity contract 3,704 3,704 - 3,704 Share-based payments 9 231,810 231,810 - 231,810 Expenses of capital increase (1) (158,608) (158,608) - (158,608)
As of December 31, 2016 15,570,055 1,557,005 48,348,830 (36,649 291) 43,413 13,299,958 - 13,299,958
(1) The Company had incurred costs of €383,000 as of December 31, 2016 as part of the strategic amalgamation with Genkyotex, of which €159,000 were deducted from premiums linked to share capital in accordance with IAS 32 (see note 2.3).
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CASH FLOW STATEMENT
GENTICEL 12/31/2016 12/31/2015Notes 12 months 12 months
Cash flow statement € €
Cash flow from operating activities
Net profit/(loss) (7,240 271) (11,193,323)
(-) Elimination of depreciation of intangible assets 3.1 (18,072) (4,240)(-) Elimination of depreciation of property, plant and equipment 3.2 (54,496) (51,716)(-) Allocation to provisions 11, 12 (548,233) (64,847)(-) Costs related to share-based payments 9 (231,810) (840,695)(-) Gain/(loss) from sale of fixed assets (44,077) -(+) Interest from investments 142,725 280,090 (-) Waiver of the MAgenTA receivable 10.1 768,816 -(-) Discounting/unwinding of advances 10.1 (64,651) (33,730)
Self-financing capacity before cost of net financial debt and taxes (7,190,474) (10,478,184)
(-) Change in working capital requirements (net of impairment of trade receivables and inventories)
998,336 1,265,996
Cash flow from operating activities (8,188,810) (11,744,180)
Cash flow from investing activities
Acquisition of intangible assets 3.1 (7,613) (39,126)Acquisition of property, plant and equipment 3.2 (5,771) (112,727)Sale of fixed assets 23,200 -Redemption of term deposits recorded as other financial assets 5,000,000 12,500,000 Redemption of capitalization contract recorded as other financial assets 2,000,000 -Subscription of term deposits recorded as other financial assets (5,000,000) -Interest from investments 44,035 236,956
Cash flow from investing activities 2,053,852 12,585,103
Cash flow from financing activities
Capital increase transaction expenses 9 (68,376) -Exercise of BSPCE 90,296 318,092 Deposit of of conditional advances and subsidies 10.1 - 853,099 Repayment of conditional borrowings and advances 10.1 (883,774) (495,600)Repayment of bonds - (26,798)
Cash flow from financing activities (861,854) 648,793
Increase/(decrease) in cash & cash equivalents (6,996,812) 1,489,716
Cash & cash equivalents – beginning of the period (including short-term borrowings) 8 11,659,656 10,169,940 Cash & cash equivalents – end of the period (including short-term borrowings) 8 4,662,844 11,659,656
Increase/(decrease) in cash & cash equivalents (6,996,812) 1,489,716
Cash & cash equivalents – end of the period Notes 12/31/2016 12/31/2015
Cash and cash equivalents 8 4,663,013 11,659,829 Short-term borrowings 10 (169) (174)
Cash & cash equivalents – end of the period (including short-term borrowings) 4,662,844 11,659,656
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BREAKDOWN OF CHANGE IN WORKING CAPITAL REQUIREMENTS (WCR)
Breakdown of change in working capital requirement (WCR) 12/31/201
612/31/201
5
Other non-current financial assets - (6,763)Inventories (net of inventory impairment) (52,560) 21,091 Trade receivables and related accounts (net of impairment of trade receivables) 53,342 -Other receivables (141,341) 513,628 Debt to suppliers and related payables 1,405,395 776,353 Tax and social security payables (260,157) (36,982)Other creditors and miscellaneous liabilities (6,344) (1,332)
Total change 998,336 1,265,996
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NOTES TO THE IFRS FINANCIAL STATEMENTS
(Unless indicated otherwise, the amounts mentioned in these notes are denominated in euro.)
NOTE 1 – OVERVIEW OF ACTIVITY AND SIGNIFICANT EVENTS
The information below constitutes the Notes to the IFRS financial statements for the financial year ended December 31, 2016. Genticel’s financial statements were approved by the Executive Board on February 27, 2017 and authorized for publication.
1.1 THE COMPANY AND ITS ACTIVITY
Created in October 2001, Genticel is a public limited-liability company under French law, (société anonyme) with the following corporate purpose in France and abroad: research, study, development, manufacturing and distribution of medicines and drug and health products in the field of human and animal health.
Genticel’s research focuses on developing immunotherapies (therapeutic vaccines) GTL001 and GTL002 (also known as ProCervix and Multivalent HPV) for women infected by high risk types of the human papillomavirus (HPV) and GTL003, Vaxiclase, used as an antigen against whooping cough under the SIIL agreement.
Genticel has been listed on the Euronext market in Paris and Brussels since April 8, 2014.
Registered office: Prologue-Biotech - 516 Rue Pierre et Marie Curie - 31670 Labege, France
Toulouse Trade and Companies Register (RCS de Toulouse): 439 489 022Genticel is hereinafter referred to as the “Company”.
1.2 SIGNIFICANT EVENTS
Financial year ended December 31, 2016The highlights for 2016 revolve around three particularly significant events:
- Results at the 12, 18 and 24-month observation periods from Phase 2 trial of HPV immunotherapeutic candidate, GTL001 and the consequences of the results of the Company’s research projects in the area of HPV, notably : GTL001 et GTL002);
- The announcement of the conclusion of a key step in the partnership with the Serum Institute of India concerning the use of GTL003 in multivalent prophylactic vaccines;
- The announcement of a strategic combination with Genkyotex, the pioneer in research and development of NOX therapies.
Results from the Phase 2 trials by GTL001On January 27, 2016, the Company announced initial results from the ongoing trials for viral clearance of HPV viruses following the 12-month observation of patients treated with GTL001, compared to those receiving a placebo. The trials enrolled 233 evaluable patients at 12 months, including 117 patients in the treatment group and 116 patients in the placebo group and showed no significant difference in viral clearance rate between GTL001 and the placebo concerning the study criteria.
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On June 23, 2016 the Company announced a new series of results after an 18-month observation period. As stated above, the 12-month results announced in January 2016 showed little difference in the viral clearance rate between the treatment and the placebo in the overall study population. However, a statistically significant difference was observed when sub-group analyses were performed, especially in infected patients who have not yet developed pre-cancerous lesions. While this new 18-month intermediate analysis reveals no new unexpected events regarding safety, viral clearance in the treated population has produced no clear statistical difference with respect to the placebo group and neither does the sub-group analyses show any significant statistical difference.Lastly, on December 13, 2016, the Company announced its final data at the 24-month point, which highlighted no statistical difference in viral clearing between the GTL001 and placebo groups. Furthermore, no statistical difference between the groups was demonstrated in any of the secondary endpoints (confirmed and sustained clearance) over the 2-year duration of the trial. The incidence of subjects progressing to high-grade lesions was identical in both groups. Given this information, the Company decided to end its HPV therapeutics development program and to refocus on seeking new product candidates.
The conclusion of a key step in the partnership with the Serum Institute of India concerning the use of GTL003 in multivalent prophylactic vaccines.On November 30, 2016, the Company reached a signgificant milestone in its partnership with the Serum Institute of India, concerning the use of GTL003 in multivalent prophylactic vaccines. The Serum Institute evaluated the benefits of using GTL003 (Vaxiclase used as an antigen) in new, higher performance vaccines and obtained excellent pre-clinical results. Genticel's proprietary, re-engineered adenylate cyclase, GTL003, fulfilled its predetermined objectives in pre-clinical in vivo experiments. This was the last pre-clinical phase of the agreement, which led to a $1.2 million payment.At the same time, the Company was awarded a new patent in the United States, No. 9,499,809 and titled “CyaA-based chimeric proteins comprising a heterologous polypeptide and their uses in the induction of immune responses”. One of the claims of this patent protects Vaxiclase when used as a product, such as GTL003, which is the case in the partnership between Genticel and the Serum Institute.
A strategic combination plan between Genticel and Genkyotex, the pioneer in research and development of NOX therapies.On December 22, 2016, the Company announced its plan for a strategic combination with Genkyotex, the unlisted Swiss biopharmaceutical firm that is a leader in NOX therapies. The Company signed a contribution agreement with Genkyotex’s shareholders, under which the latter would contribute 100% of the share capital of Genkyotex to Genticel, which will issue new shares in return for this contribution. At the outcome of this transaction, Genkyotex shareholders will own 80% of the share capital and voting rights in Genticel, on an undiluted basis.
1.3 POST-BALANCE SHEET EVENTS
January 2017
Filing of Document E relating to the planned strategic combination between the Company and Genkyotex. The planned contribution transaction had yet to be approved by Genticel’s shareholders who were to meet on February 28, 2017, in a General Meeting, with the understanding that the main shareholders of the Company, together with certain employees and corporate officers, representing a total of 51% of the share capital and voting rights of Genticel, on a non-diluted basis, were committed to approving the planned transaction.
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NOTE 2 – ACCOUNTING PRINCIPLES, RULES AND METHODS
The financial statements are presented in euro, unless otherwise stated.
2.1 2.1. BASIS FORPREPARATION OF FINANCIAL STATEMENTS
Statement of complianceGenticel has prepared its financial statements in accordance with the standards and interpretations published by the International Accounting Standards Board (IASB) and adopted by the European Union as of the preparation date of the financial statements and for all the periods presented This reference, available on the European Commission website (http://ec.europa.eu/internal_market/accounting/ias_fr.htm), incorporates the international accounting standards (IAS and IFRS), the interpretations of the Standing Interpretations Committee (SIC) and of the International Financial Interpretations Committee (IFRIC).The accounting principles, methods and options adopted by the Company are described below. In some cases, IFRS allow a choice between a benchmark treatment and another approved treatment.
Changes in the presentation of the financial statements The presentation of financial statements prepared according to IFRS standards has changed in relation to that used in years ending prior to financial year-end December 31, 2015.The modifications concern primarily the structure and order of the notes to the financial statements by reference topic. They are intended to increase readability and relevance of financial statements prepared according to IFRS standards and to facilitate their assimilation, in accordance with AMF recommendations and with work carried out by the international accounting standards setter.Most of the accounting principles assembled heretofore in Note 2 now appear with each reference note, so that readers can easily understand the financial data being presented. The basis of financial statements, consolidation methods and the use of estimates to prepare financial statements are still detailed in Note 2. Accounting principles, methods and rules. Presentation of the income statement, the statement of comprehensive profit/(loss), the cash flow statement and change in Shareholders’ equity was not modified by the work that was performed.
Principles used in preparing the financial statementsThe Company’s financial statements have been prepared in accordance with the historical cost principle, with the exception of certain classes of assets and liabilities, in accordance with the provisions stated in IFRS standards. The classes concerned are mentioned in the following Notes.
Going concernThe assumption of a going concern was chosen by the Executive Board in view of the Company’s financial capacity to cover its financing needs over the next twelve months, in light of available cash and investments amounting to €12.9 million as of December 31, 2016.
Accounting methodsThe accounting principles adopted are identical to those used to prepare the IFRS financial statements for the financial year ended December 31, 2015, except for the application of the following new standards, amendments and interpretations adopted by the European Union and mandatory to the Company after January 1, 2016:
Standards, amendments and interpretations applicable to reporting periods starting on or after January 1, 2016
Amendment to IAS 1 – Presentation of financial statements: Disclosure initiative
Amendment to IAS 19 – Employee benefits
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Amendment to IAS 16 and IAS 38 - Clarification of acceptable methods of depreciation and amortization
Amendments to IAS 27 - Equity method in separate financial statements
Amendments to IFRS 11 – Accounting for acquisitions of interests in joint operations
Amendments to IAS 16 and IAS 41 – Bearer plants
Amendments to IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Application for an exemption from consolidation
IFRS Improvement (2012-2014 cycle)
IFRS Improvement (2010-2012 cycle)These new texts adopted by the European Union do not have a significant impact on the Company’s financial statements.
Standards, amendments and interpretations not yet adopted by the GroupStandards, amendments to standards and interpretations adopted by the European Union but not yet mandatory for 2016 financial statements
IFRS 9 - Financial instruments
IFRS 15 - Revenue from ordinary course of business as part of contracts with customers
Standards and interpretations adopted by IASB but not yet adopted by the European Union as of December 31, 2016
IFRS 14 - Regulatory Deferral Accounts
IFRS 16 - Leases
Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IAS 12 - Deferred Tax: Recovery of Underlying Assets
Amendments to IAS 7 - Disclosure Initiative: Transfer of financial assets
Amendments to IFRS 2 - Classification and measurement of share-based payment transactions
Amendments to IFRS 4 - Applying IFRS 9 with IFRS 4
Amendments to IAS 40 - Transfers of investment property
Clarifications to IFRS 15
IFRIC 22 - Foreign currency transactions and advance consideration
The Company is currently evaluating the impacts following the first application of these new regulations and does not expect a significant impact on its financial statements.
2.2 CHANGES IN ACCOUNTING METHODS
With the exception of the new texts identified above, Genticel made no changes to its accounting methods for the financial year ended December 31, 2016.
2.3 USE OF JUDGMENTS AND ESTIMATES
To prepare the financial statements in accordance with IFRS, the Company’s Executive Management has made judgments and estimates that could affect the amounts presented under assets and liabilities, the liabilities as of reporting date and the amounts presented under income and expenses for the period.
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Such estimates are made based on the assumption of business continuity as a going concern and on the information available at the time. These estimates are ongoing and are based on past experience as well as diverse other factors judged to be reasonable, and form the basis for the assessments of the book value of assets and liabilities. The estimates may be revised if the circumstances on which they are based change or as a result of new information. Actual results may differ significantly from such estimates if assumptions or conditions change.The key significant estimates or judgments made by the Company's management relate to the following in particular:
Allocation of share subscription warrants or founders’ warrants to employees, executives and external service providers: o The fair-value measurement of share-based payments is based on the Black & Scholes
option valuation model which makes assumptions about complex and subjective variables. These variables notably include the value of the Company’s shares, the expected volatility of the share price over the lifetime of the instrument, and the present and future behavior of the holders of those instruments. There is a high, inherent risk of subjectivity when using an option valuation model to measure the fair value of share-based payments in accordance with IFRS 2.
o The valuation assumptions adopted are disclosed in Note 9.
Non-recognition of deferred tax assets net of deferred tax liabilities: o The measurement of identifiable deferred tax assets requires management to make
estimates about the time period over which the deferred losses will be used up and about the level of future taxable income, based on the tax strategies adopted.
o The accounting principles applied by the Company for the recognition of deferred tax assets are set out in Note 19.
Costs relating the capital increase set for the first quarter of 2017, to compensate the contribution in-kind of Genkyotex shares.
o The Company exercised its judgment to determine the marginal costs directly attributable to the issuance of new shares.
o The fees charged to equity in 2016 are shown in the statement of changes in shareholders’ equity.
2.4 FUNCTIONAL AND REPORTING CURRENCY
The Company’s financial statements are prepared in euro (€) which is Genticel’s functional currency.
2.5 FOREIGN CURRENCY
Transactions denominated in a foreign currency are translated into the functional currency at the effective exchange rate on the transaction date. Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the effective exchange rate on the transaction date. Gains and losses on translation correspond to the difference between the amortized cost denominated in the functional currency at the start of the period, adjusted by the impact of the
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effective interest rate and payments over the period and the amortized cost denominated in the foreign currency translated at the effective exchange rate at period end. Non-monetary assets and liabilities denominated in a foreign currency that are measured at fair value are translated into the functional currency, at the effective exchange rate on the fair value measurement date. Gains and losses on translation are reported as profit (loss) (income statement) with the exception of a gain or loss from the translation of an equity instrument available for sale, of a financial liability identified as a net investment hedge in a foreign operation, or of an instrument identified as a cash flow hedge, which are all reported directly equity.
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NOTE 3 – INTANGIBLE ASSETS AND PROPETY, PLANT AND EQUIPMENT
3.1 INTANGIBLE ASSETS
ACCOUNTING PRINCIPLES
Research and development expenses
According to IAS 38, development expenses can be reported as intangible assets only if the Company can demonstrate all of the following:
a) the technical feasibility necessary to complete the development project,b) its intention to complete the project,c) its ability to use the intangible asset,d) how the intangible asset will generate probable future economic benefits,e) the availability of adequate technical, financial and other resources to complete the
project and,f) its ability to reliably measure the development expenditure.
Expenses can be activated if they are directly incurred in producing the asset, which includes:
the cost of services used or consumed to create the intangible asset;
staff salaries and benefits incurred to create the asset.
Expenses are not activated until the date that the intangible asset activation conditions are satisfied. Expenses cease being posted to assets when the intangible asset is ready to be used.
Due to the risks and uncertainties involved in the R&D process and in obtaining regulatory authorization, the six criteria for capitalizing expenses are deemed not to be satisfied until the drug marketing authorization is obtained. Consequently, internal development expenses incurred in obtaining a marketing authorization, which consist mainly of the cost of clinical trials, are reported under R&D expenses at the point that they are incurred.
Patents
Patent acquisition costs are posted to assets based on the costs incurred to acquire the patents concerned.
Software
Software license acquisition costs are posted to assets based on the costs incurred to acquire and bring the software concerned online.
Brands
Trademark registration costs incurred by the Company are capitalized and are not amortized.
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INTANGIBLE ASSETS
(Amounts in euro)Patents Software Brands Total
GROSS VALUE
Balance sheet as of December 31, 2014 47,088 26,545 990 74,623
Acquisition - 39,126 - 39,126 Disposal - - - -Transfer - - - -
Balance sheet as of December 31, 2015 47,088 65,671 990 113,749
Acquisition - 7,613 - 7,613 Disposal - (25,839) - (25,839)Transfer - - - -
Balance sheet as of December 31, 2016 47,088 47,444 990 95,522
DEPRECIATION AND AMORTIZATION
Balance sheet as of December 31, 2014 30,703 24,789 - 55,492
Increase 2,741 1,499 - 4,240 Decrease - - - -
Balance sheet as of December 31, 2015 33,444 26,288 - 59,732
Increase 2,741 15,331 - 18,072 Decrease - (23,946) - (23,946)
Balance sheet as of December 31, 2016 36,185 17,673 - 53,858
NET BOOK VALUE
As of December 31, 2014 16,385 1,756 990 19,131
As of December 31, 2015 13,644 39,383 990 54,017
As of December 31, 2016 10,903 29,771 990 41,664
Other intangible assets
In application of IAS 38 criteria, intangible assets acquired are reported under assets at their acquisition cost.
Amortization charge and duration
When their useful duration is finite, depreciation is calculated using the straight-line method to spread the cost over the estimated useful life, specifically:
Items Amortization period
PatentsSoftwareBrands
Period of validity1 yearN/A
The amortization charge for intangible assets is reported in profit and loss under:
administrative expenses for software,
R&D expenses for patents.
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3.2 PROPERTY, PLANT AND EQUIPMENT
ACCOUNTING PRINCIPLES
Property, plant and equipment are valued at their acquisition cost (purchase price plus ancillary expenses) or at their production cost.
Asset items are depreciated according to the actual useful duration of the asset.
Amortization charge and duration
The following depreciation periods and methods are used:
Items Amortization period
Technical facilities, hardware and tools 3 to 5 years – Linear
General facilities, fixtures & fittings, and other 3 to 9 years – Linear
Office and computer equipment 3 to 5 years – Linear
Furniture 5 years – Linear
The amortization charge for property, plant and equipment is reported as profit and loss under:
administrative expenses for depreciation of facilities, fixtures and fittings; office and computer equipment; furniture;
R&D costs for the depreciation of laboratory machinery and equipment.
Finance leaseAssets financed by finance-leasing agreements in the sense of IAS 17, which essentially transfer to Genticel the risks and benefits inherent in their ownership, are reported under balance sheet assets. The corresponding debt is reported in balance sheet liabilities under “Financial debt”. Lease agreements, in which substantially all risks and benefits are retained by the landlord, are treated as operating leases. The payments made for operating leases, net of incentive fees, are reported under expenses in income & loss, using the straight line method over the term of the contract. The Company has no finance lease agreement in accordance with IAS 17.
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PROPERTY, PLANT AND EQUIPMENT
(Amounts in euro)Equipment and tooling
Fixtures and fittings
Office equipment, computer
equipment, furniture
Total
GROSS VALUE
Balance sheet at December 31, 2014 509,585 170,019 116,304 795,908
Acquisition 91,191 - 21,536 112,727 Disposal - - - -Transfer - - - -
Balance sheet as of December 31, 2015 600,776 170,019 137,840 908,635
Acquisition - 2,743 3,028 5,771 Disposal (600,560) (129,942) (92,964) (823,466)Transfer (216) - 216 -
Balance sheet as of December 31, 2016 - 42,820 48,120 90,940
DEPRECIATION AND AMORTIZATION
Balance sheet as of December 31, 2014 488,036 120,344 92,665 701,045
Increase 30,583 8,511 12,622 51,716 Decrease - - - -
Balance sheet as of December 31, 2015 518,619 128,855 105,287 752,761
Increase 28,196 8,564 17,736 54,496 Decrease (546,815) (122,972) (88,296) (758,083)
Balance sheet as of December 31, 2016 - 14,447 34,727 49,174
NET BOOK VALUE
As of December 31, 2014 21,549 49,675 23,639 94,863
As of December 31, 2015 82,157 41,164 32,553 155,874
As of December 31, 2016 - 28,373 13,393 41,766
3.3 IMPAIRMENT IN VALUE OF INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2016, no non-current assets presented internal or external signs of impairment.
ACCOUNTING PRINCIPLES
Brands with indefinite useful lives are not amortized but are tested for impairment on an annual basis.
The depreciated assets are subjected to an impairment test whenever an internal or external index indicates that an asset may have lost value.
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NOTE 4 – OTHER FINANCIAL ASSETS
OTHER FINANCIAL ASSETS
(Amounts in euro)12/31/2016 12/31/2015
Capitalization contract - 5,154,093
Liquidity contract 120,452 116,748
Guarantees 19,817 19,817
Total other non-current financial assets 140,268 5,290,657
Term deposits 5,045,833 5,021,938
Capitalization contract 3,228,276 -
TOTAL CURRENT FINANCIAL ASSETS 8,274,109 5,021,938
As of December 31, 2016, financial assets of the Company are made up of:
a capitalization contract signed on 18 August 2014, with an initial value of €5 million or a redemption value of 3,228,000 following a partial redemption in 2016 from Natixis Life (Luxembourg), which will likely be paid off during 2017. This contract features the following characteristics:
o “eurofund” investment (diversified, mostly bonds) with a continuous capital guarantee based on a “ratchet effect”, i.e., guaranteed interest payment,
o guaranteed minimum yield of 2.25% net of expenses, only for the current period subscribed until December 31, 2015,
o full discretionary use of funds via total or partial redemption at any time, subject to contractual redemption penalties in the first three years: 2% of amount redeemed in the first 12 months; 1.5% of the amount redeemed between months 13 and 24; 1% of the amount redeemed between months 25 and 36; 0% afterwards
o no legal or contractual lock-in provisions (no preventive detention period);
a term deposit subscribed in 2016 of an initial value of €5 million, with maturity in January 2017;
a cash reserve linked to the liquidity contract;
deposits for commercial property leases.
ACCOUNTING PRINCIPLES
Current financial assets of the Company are made up of:
loans and receivables initially reported at fair value and subsequently evaluated at amortized cost, using the the effective interest rate method. Collateral deposits are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market.
Financial assets at fair value through income or loss. These represent assets held for trading purposes. They are measured at their fair value and changes in fair value are reported through profit and loss. Some assets can also voluntarily be classified in this category. This category includes capitalization contracts and term deposits. These assets fall under category 1, defined by IAS 7.
Financial assets having a term of maturity of over one year are classified under “Other non-current financial assets”
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NOTE 5 – INVENTORIES
INVENTORIES
(Amounts in euro)12/31/2016 12/31/2015
Raw materials, supplies - 52,560
Gross inventory - 52,560
Inventory impairment - -
Total inventory impairment - -
Total net inventory - 52,560
In view of the halting of research work by the Company, inventories of products and supplies were reported as expenses during 2016.
NOTE 6 – RECEIVABLES
6.1 TRADE RECEIVABLES
TRADE RECEIVABLES AND RELATED ACCOUNTS
(Amounts in euro)12/31/2016 12/31/2015
Trade and related receivables 53,342 -
Impairment of trade and related receivables - -
Total net trade and related receivables 53,342 -
ACCOUNTING PRINCIPLES
Inventories of raw materials mainly consist of products and consumables inherent in research work and are measured using the first in, first out method.
Inventories are reported at their purchase cost or their net realizable value, whichever is lower. In the latter case, the impairment is posted to profit and loss.
A provision for impairment is constituted when the inventory value is less than the book value.
ACCOUNTING PRINCIPLES
Receivables are initially measured at fair value, which corresponds to their par value. They are depreciated, as appropriate, on a case by case basis via a provision to reflect any recovery problems they may entail.
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6.2 OTHER RECEIVABLES
OTHER RECEIVABLES
(Amounts in euro)12/31/2016 12/31/2015
Research tax credit (1) 2,951,380 3,000,452
Competitiveness and Employment Tax Credit (CICE) 6,016 27,596
Value added tax (2) 190,108 322,253
Credits receivable - 110,862
Receivables from suppliers 129,858 -
Advances and down payments - Personnel 97,244 -
Pre-paid expenses(3) 134,395 191,484
Other 3,352 1,047
Total other receivables 3,512,353 3,653,694
(1) Research tax credit
CIR for financial year 2016: €2,951,000. This amount is expected to be repaid in 2017.
CIR reported for financial year 2015: €3,008,000. This amount was repaid in December 2016.
ACCOUNTING PRINCIPLES
Research tax credit
Research tax credits are granted to companies by the French State as an incentive for technical and scientific research. Companies with expenses that meet the eligibility criteria receive a tax credit that can be used to pay the corporate income tax due in the year in which it is granted, as well as in the following three financial years or, as the case may be, any surplus tax paid can be reimbursed.
In the absence of taxable income and in view of the Company’s community SME status, the CIR receivable from the State is paid in the year following the year for which it is granted.
The research tax credit is recorded in assets for the year it was granted that corresponds to the year during which eligible expenses giving rise to a tax credit were incurred.
The research tax credit is presented in the income statement under subsidies under “research and development expenses”.
Competitiveness and Employment Tax Credit (CICE)
The tax credit for competitiveness and employment (Crédit d'Impôt pour la Compétitivité et l'Emploi or “CICE”) is a French tax scheme. The Company uses this tax credit through its research and development effort.
In view of the Company’s community SME status, the CICE may be reimbursed in the year following that in which it was granted.
The CICE tax credit is reported as a reduction of personnel costs in the income statement.
Subsidies
Subsidies received are reported as soon as the corresponding receivable become certain, taking into consideration the conditions specified when the subsidy was granted.
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(2) VAT receivables relate mainly to deductible VAT and the reimbursement of VAT paid.
(3) Pre-paid expenses relate to current expenses and correspond mainly to expenses incurred for trials and insurance.
PRE-PAID EXPENSES
(Amounts in euro)12/31/2016 12/31/2015
Studies and services 74,163 27,797
Insurance 13,925 91,016
Leases 32,034 27,833
Maintenance 1,201 8,313
Other 13,073 36,525
Total pre-paid expenses 134,395 191,484
NOTE 7 – CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
(Amounts in euro)12/31/2016 12/31/2015
Bank accounts 4,662,073 5,650,591
Money market funds (SICAV) 940 6,009,238
Total cash and cash equivalents 4,663,013 11,659,829
Money-market funds (SICAV) meet the requirements of the Company's investment policy, which states that the assets in which the funds are invested must be highly liquid and easily convertible into cash at any time.
ACCOUNTING PRINCIPLES
Cash and short-term deposits reported in the balance sheet include cash at banks, cash at hand, and short-term deposits with an initial maturity of less than three months.
Cash equivalents consist of term deposits and money market funds. Cash equivalents are held for trading purposes, are easily convertible into a known amount of cash and exposed to negligible risk that they will change in value. They are measured at their fair value and any changes in value are recorded as financial income. These assets fall under category 1, defined by IFRS 7.
For cash flow statement purposes, net cash consists of cash and cash equivalents as defined above, as well as short-term borrowings.
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NOTE 8 – CAPITAL
Issued capital
COMPOSITION OF SHARE CAPITAL 12/31/2016 12/31/2015
Capital (in euro) 1,557,005.50 1,554,108.60
Number of shares 15,570,055 15,541,086
including Ordinary shares 15,570,055 15,541,086
Par value of shares (in euro) €0.10 €0.10
The Company’s share capital as of December 31, 2015 was €1,557,005.50, made up of 15,570,055 fully subscribed and paid-up ordinary shares, each with a par value of €0.10.
This number of shares excludes share subscription warrants (“BSA”) and founders’ warrants (“BSPCE”) granted to certain investors and to certain physical persons, whether or not employees of the Company, that have not yet been exercised.
As a result of exercising BSPCEs in 2016 (see Note 9), share capital increased by €2,896.90 through the issuance of 28,969 new shares each with a par value of €0.10.
DividendsThe Company paid no dividend in the financial years presented.
Capital managementThe Group’s policy is to maintain a sound capital base, to preserve the confidence of investors and creditors, and to support the future growth of the business.
Following the Company’s IPO on the regulated market Euronext in Paris and Brussels, on April 18 April, 2014, a liquidity contract was signed with Banque Oddo et Cie. with a view to limiting intra day volatility in the Company’s share price. For this purpose, the Company entrusted €200,000 to this establishment, so that it could carry out purchase and sale transactions on the Company’s shares.As of December 31, 2016, under this contract, 23,800 ordinary shares were removed from equity and €120,812 in cash was entered as non-current financial assets.
ACCOUNTING PRINCIPLES
Ancillary costs directly attributable to the issuance of shares or stock options are reported, net of tax, as a deduction from equity.
Liquidity contract
The portion of the contract invested by this service provider in the Company’s treasury shares is reported as a deduction from Company equity at acquisition cost.
The income from the sale of these treasury shares is also reported directly in equity. The cash reserve for the liquidity contract is shown under "Other non-current financial assets".
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NOTE 9 – WARRANTS (BSA) AND FOUNDERS’ WARRANTS (BSPCE)
Warrants issued to the benefit of financial investorsThe Company issued 133,334 warrants to investors in July 2008 (exercise period: 10 years).
The BSAs issued to the benefit of financial investors are treated as equity instruments.Number of warrants outstanding Number of
shares that may be
subscribedChange in investor BSAs 12/31/2015 Allocated Exercised Forfeited 12/31/2016
BSA other investors 133,334 - - - 133,334 133,334
Total 133,334 - - - 133,334 133,334
ACCOUNTING PRINCIPLES
Since its formation, the Company has set up several compensation plans settled in equity instruments in the form of share subscription warrants (“BSA”) or founders’ warrants (“BSPCE”) allocated to employees, the members of the Executive Board, consultants and members of the Supervisory Board.
In accordance with the IFRS 2 standard, the cost of transactions settled in equity instruments is reported under expenses for the period in which the rights to benefit from the share capital equity instruments are acquired, as counterpart to a capital increase.
The Company has applied IFRS 2 to all the equity instruments granted to employees, members of the Supervisory Board, members of the Executive Board or to physical persons supplying services such as consultants.
The fair value of the warrants granted to employees is measured via the Black-Scholes option valuation mode. The same applies to the options granted to other physical persons supplying similar services, as their market value is not determinable.
All methods used in measuring the fair value of such options plans are disclosed below:
The share price used is equal to the investor subscription price or by reference to internal valuations;
The risk-free rate is based on the average lifetime of the instruments
Volatility is calculated with reference to a sample of listed companies in the biotechnology sector, as of the date the instruments are subscribed and over a period equal to the lifetime of the option.
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Warrants (“BSA”) issued to the benefit of Supervisory Board members and Executive Board members.The following table summarizes the option plans issued and the assumptions adopted for IFRS 2 valuation:
Plan features Assumptions
Type Allocation dateNumber of warrants allocated
Exercise period
Exercise price VolatilityRisk-free
rate
Total initial IFRS2 valuation
(Black&Scholes)
BSA 10/2008 10/24/2008 30,800 10 years €3.00 63.51% 7.03% €60,225
BSA 02/2010 2/14/2010 155,200 10 years €3.00 55.14% 3.58% €257,630BSA 12/2013 12/20/2013 116,000 10 years €4.00 54.27% 2.09% €220,552
BSA 09/2014 9/12/2014 35,000 10 years €5.79 50.03% 0.50% €72,228
Number of warrants outstanding Maximum number of shares that
may be subscribed
Type Allocation date 12/31/2015 Allocated Exercised Forfeited 12/31/2016
BSA 10/2008 10/24/2008 30,800 - - - 30,800 30,800
BSA 02/2010 2/14/2010 155,200 - - - 155,200 155,200
BSA 12/2013 12/20/2013 116,000 - - - 116,000 116,000
BSA 09/2014 9/12/2014 35,000 - - - 35,000 35,000
Total 337,000 - - - 337,000 337,000
(1) Some warrants are in the process of being vested.
The BSAs may be exercised by their holder as of the date of allocation by the Executive Board, but only up to one third of the holder's allocated warrants per year.
Founders’ warrants (“BSPCE”) issued to the benefit of employees and members of the Executive Board.The following table summarizes the option plans issued and the assumptions adopted for IFRS 2 valuation:
Plan features Assumptions
Type Allocation
date
Number of warrants allocated
Exercise period
Exercise price VolatilityRisk-free
rate
Total initial IFRS 2 valuation
(Black&Scholes)
BSPCE 02/2007 28,000 10 years €2.90 48.70% 4.27% €44,800
BSPCE 04/2009 4/9/2009 88,460 10 years €3.00 58.70% 5.22% €159,279
BSPCE 12/2010 12/17/2010 217,400 10 years €3.00 55.10% 3.73% €342,701
BSPCE 09/2011 9/30/2011 13,500 10 years €3.00 56.80% 3.83% €23,013
BSPCE 06/2012 6/26/2012 13,000 10 years €3.00 59.30% 2.34% €22,161
BSPCE 12/2012 12/11/2012 11,750 10 years €3.00 59.30% 1.42% €18,943
BSPCE 02/2013 2/15/2013 19,320 10 years €3.00 54.30% 1.68% €31,148
BSPCE 12/2013 12/20/2013 121,314 10 years €4.00 54.30% 2.09% €252,492
BSPCE 05/2014 5/14/2014 481,491 10 years €6.77 54.92% 0.81% €1,592,683
BSPCE 12/2014 12/9/2014 7,590 10 years €5.66 50.03% 0.30% €20,918
BSPCE 04/2015 4/23/2015 5,059 10 years €6.93 47.98% -0.02% €15,636
BSPCE 04/2015 7/3/2015 45,000 10 years €7.74 48.96% 0.40% €146,095
BSPCE 03/2016 3/1/2016 100,000 10 years €4.19 53.67% -0.23% €235,028
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Number of warrants outstanding Maximum number of shares that
may be subscribed
(1)
Type Allocation
date12/31/2015 Allocated Exercised Forfeited 12/31/2016
BSPCE 02/2007 28,000 - - - 28,000 28,000
BSPCE 04/2009 4/9/2009 60,740 - - (43,120) 17,620 17,620
BSPCE 12/2010 12/17/2010 160,180 - (15,080) (96,500) 48,600 48,600
BSPCE 09/2011 9/30/2011 9,000 - (9,000) - -
BSPCE 06/2012 6/26/2012 13,000 - - - 13,000 13,000
BSPCE 12/2012 12/11/2012 11,750 - - (3,456) 8,294 8,294
BSPCE 02/2013 2/15/2013 10,500 - (1,500) (7,500) 1,500 1,500
BSPCE 12/2013 12/20/2013 112,718 - (3,389) (34,636) 74,693 74,693
BSPCE 05/2014 5/14/2014 466,975 - - (119,616) 347,359 347,359
BSPCE 12/2014 12/9/2014 7,590 - - (7,590) - -
BSPCE 04/2015 4/23/2015 5,059 - - (5,059) - -
BSPCE 09/2015 7/3/2015 45,000 - - - 45,000 45,000
BSPCE 03/2016 3/1/2016 - 100,000 - (100,000) - -
Total 930,512 100,000 (28,969) (417,477) 584,066 584,066
(1) It must be noted that some warrants are in the process of being vested
The BSPCEs may be exercised by their holder as of the date of their allocation by the Executive Board, but only up to one third of the holder's allocated warrants per year.
Breakdown of charges reported in accordance with IFRS 2 for the applicable financial years12/31/2015 12/31/2016
Type Probable
cost of plan to date
Cumulative expense at
opening
Expense for the
year
Cumulative expense to
date
Probable cost of plan
to date
Cumulative expense at
opening
Expense for the
year
Cumulative expense to
dateBSPCE 06/2012 22,161 20,967 1,194 22,161 22,161 22,161 - 22,161
BSPCE 12/2012 18,943 16,954 1,989 18,943 18,943 18,943 - 18,943
BSPCE 02/2013 31,148 24,646 2,022 26,668 28,020 26,668 1,352 28,020
BSPCE 12/2013 250,192 152,786 65,963 218,749 222,579 218,749 3,830 222,579
BSPCE 05/2014 1,588,981 607,574 612,336 1,219,910 1,402,481 1,219,910 132,758 1,352,668
BSPCE 12/2014 20,918 730 11,665 12,395 6,973 12,395 (5,422) 6,973
BSPCE 04/2015 15,636 - 6,237 6,237 5,211 6,237 (1,026) 5,211
BSPCE 07/2015 146,095 - 42,321 42,321 146,095 42,321 60,093 102,414
Total 743,727 191,585
12/31/2015 12/31/2016
Type Probable
cost of plan to date
Cumulative expense at
opening
Expense for the
year
Cumulative expense to
date
Probable cost of plan
to date
Cumulative expense at
opening
Expense for the
year
Cumulative expense to
date
BSA 12/2013 220,552 136,681 60,105 196,786 220,552 196,786 23,766 220,553
BSA 09/2014 72,228 13,322 36,864 50,186 72,228 50,186 16,457 66,643
Total 96,969 40,223
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NOTE 10 – INTEREST-BEARING LOANS AND BORROWINGS
CURRENT AND NON-CURRENT FINANCIAL LIABILITIES (Amounts in euro)
12/31/2016 12/31/2015
Repayable advances 335,638 1,900,781
Non-current financial debt 335,638 1,900,781
Short-term borrowings 169 174
Bonds - debt component - 612
Repayable advances 597,764 620,561
Current financial debt 597,933 621,347
Total financial expenses 933,571 2,522,128
Reconciliation between repayment value and value in the balance sheet
RECONCILIATION BETWEEN REPAYMENT VALUE AND VALUE IN THE BALANCE SHEET(amount in euro)
Repayment value12/31/2016
Amortized cost
Fair valueBalance sheet value
12/31/2016 12/31/2015
Repayable advances 957,223 (23,821) - 933,402 2,521,342
Short-term borrowings 169 - - 169 174
Bond debt - - - - 612
Total financial expenses 957,392 (23,821) - 933,571 2,522,128
Breakdown of financial debt by maturity, in repayment value
CURRENT AND NON-CURRENT FINANCIAL DEBT(amounts in euro)
12/31/2016
Gross amountShare
< 1 year1 ≥ 5 yrs > 5 years
Repayable advances 957,223 604,440 352,783 -
Short-term borrowings 169 169 - -
Total financial expenses 927,392 604,609 352,783 -
Current financial debt 604,609
Non-current financial debt 352,783
ACCOUNTING PRINCIPLES
Unless otherwise indicated, loans and borrowings are reported at amortized cost, calculated using the Effective Interest Rate (EIR) method, in accordance with IAS 39.
The portion of financial debts due within one year is presented as “Current financial debt”.
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10.1 REPAYABLE ADVANCES AND SUBSIDIES
CHANGE IN REPAYABLE ADVANCES AND SUBSIDIES(Amount in euro)
OSEO 2 - HPVOSEO 3 -ProCervix (GTL001)
OSEO 4 -Magenta
Total
As of December 31, 2014 1,092,371 718,380 319,363 2,130,113
(+) Cash inflow 853,099 853,099
(-) Repayment (400,000) (95,600) (495,600)
Subsidies (22,613) (22,613)
Financial expenses 34,828 18,479 3,035 56,343
(+/-) Other movements -
As of December 31, 2015 727,199 641,259 1,152,884 2,521,342
(+) Cash inflow - - - -
(-) Repayment (375,000) (95,600) (413,174) (883,774)
Subsidies - - (745,875) (745,875)
Financial expenses 19,512 16,032 6,165 41,709
(+/-) Other movements - - - -
As of December 31, 2016 371,711 561,691 - 933,402
Breakdown of repayable advances by maturity, in repayment value
OSEO 2 - HPVOSEO 3 -ProCervix (GTL001)
OSEO 4 -Magenta
Total
As of December 31, 2016 375,000 582,223 - 957,223
Share < 1 year 375,000 229,440 - 604,440
Share 1 ≥ 5 years - 352,783 - 352,783
Share > 5 years - - - -
ACCOUNTING PRINCIPLES
The Company benefits from a certain amount of public aid, in the form of conditional subsidies and advances.
They are reported in accordance with IAS 20. These advances are granted at below market interest and measured at amortized cost, in accordance with IAS 39:
The interest rate advantage is measured by using a discount rate corresponding to a market rate on the date the aid is granted. The amount resulting from the interest rate advantage obtained when the repayable interest-free advance is granted is consideredto be a subsidy recorded under income in the statement of comprehensive income.
The financial cost of the repayable advances, calculated at the market interest rate, is then recorded under financial expenses.
In the event of failure of the project, the abandonment of the receivable is recorded under subsidies.
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OSEO Innovation repayable advance – OSEO 2On March 9, 2011, Genticel obtained from OSEO an interest-free repayable advance for the “development and clinical trials of a therapeutic vaccine to combat cancer and precancerous lesions of the cervix caused by the human papillomavirus (HPV)”.
The OSEO disbursements were deposited on a staggered basis, between signing the agreement and the completion of the project, the main milestones being:
First payment of €200,000 after signing the contract (received on March 14, 2011);
Second payment of €1,000,000 on a cash call, received on April 30, 2012;
The balance (€300,000) after confirmation of completion of work, received on October 18, 2012.
Following the success of the project, Company repaid this advance as follows:
€50,000 per quarter from September 30, 2013 to June 30, 2014 on the last day of the quarter;
€75,000 per quarter from September 30, 2014 to June 30, 2015 on the last day of the quarter;
€125,000 per quarter from September 30, 2015 to June 30, 2017 on the last day of the quarter1.
Furthermore, the agreement provides for an annual repayment on March 31 of each year, effective January 1, 2012, corresponding to 20% of the ex-tax proceeds from the sale or assignment of licenses, patents or know- how relating to all or part of the results of the aided program, received for the previous year and 20% of the ex-tax proceeds generated by the marketing or use by the beneficiary for its own purposes, of prototypes, pre-series or models produced as part of the aided program.The amounts owed to OSEO under this arrangement are to take priority and must be completed at the last due date according to the above repayment plan. This arrangement will not cause the Company to pay to OSEO an amount greater than the aid received.
According to IFRS, the fact that the repayable advance was not interest-bearing means that the Company benefited from a zero-rate loan, which is more favorable than market conditions. The difference between the amount of the advance at historical cost and the discounted value of the advance at market rates (3-month Euribor + 2.5 points = 3.60%) is considered a subsidy received from the State.
OSEO Innovation repayable advance – OSEO 3
On January 11, 2013, Genticel obtained from OSEO an interest-free repayable advance “to extend the Phase I clinical trials of the ProCervix (GTL001) project”.
The OSEO disbursements were deposited on a staggered basis between signing the agreement and the completion of the project, the main milestones being:
First payment of €330,000 after signing the contract, which was received on January 21, 2013,
The second installment of €330,000 at the next capital call and the lifting of a suspensive condition on €2,000,000, to be paid to Genticel by its shareholders (3rd tranche of convertible bonds),
The balance (maximum €189,000) upon confirmation that the program is successfully completed.
1 The payment set for December 31, 2016 actually occurred in early January, 2017.
Following confirmation of completion of the program and after obtaining the statement of expenditure incurred on the project financed by OSEO, the repayable advance was reduced to take into account the
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fact that actual expenditure was less than projected. The aid was thus reduced to €811,663 and an amendment was signed on September 5, 2014 to change the repayment dates.The resulting repayment schedule is as follows:
Quarterly from September 30, 2014 to June 30, 2015: €19,120
Quarterly from September 30, 2015 to June 30, 2016: €28,680
Quarterly from September 30, 2016 to June 30, 2017: €38,240
Quarterly from September 30, 2017 to June 30, 2018: €57,360
Quarterly from September 30, 2018 to March 31, 2019: €59,515
The balance on June 30, 2019: €59,518
Furthermore, the agreement provides for an annual repayment equal to 40% of the ex-tax proceeds from the sale or assignment of licenses, patents or know-how relating to all or part of the results of the aided program, received for the previous year and 40% of the ex-tax proceeds generated by the marketing or use by the beneficiary for its own purposes, of prototypes, pre-series or models produced as part of the aided program.The amounts owed to OSEO under this arrangement are to take priority and must be completed at the last due date, according to the above repayment plan. This arrangement will not cause the Company to pay to OSEO an amount greater than the aid received.
The agreement also provides for the repayment of a minimum lump sum of €340,000, regardless of the technical or commercial outcome of the aided program (failure, success or inability to achieve a minimum level of expenses), on the following schedule:
No later than September 30 and December 31, 2014: €20,000
No later than March 31 and June 30, 2015: €20,000
No later than September 30 and December 31, 2015: €30,000
No later than March 31 and June 30, 2016: €30,000
No later than September 30 and December 31, 2016: €40,000
No later than March 31, 2017: €40,000
No later than June 30, 2017: €20,000
This lump sum of €340,000 is not cumulative with the amount advanced by OSEO.
According to IFRS, the fact that the repayable advance was not interest-bearing means that the Company benefited from a zero-rate loan, which is more favorable than market conditions. The difference between the amount of the advance at historical cost and the discounted value of the advance at market rates (3-month Euribor + 2.5 points = 2.69%) is considered a subsidy received from the State.
2 The payment set for December 31, 2016 actually occurred in early January 2017.
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OSEO Innovation repayable advance – OSEO 4 (MAGenTA)On March 7, 2013, Genticel obtained from OSEO a repayable advance as part of the global strategic industrial innovation project “MAGenTA” grouping six beneficiaries, including a lead beneficiary tasked with scientific, technical and administrative coordination. This contract benefiting from the repayable advance is part of a framework agreement signed on that same date.
The financial aid consists of:o total subsidies up to a maximum of €3,114,847, of which €583,223 is for Genticel;o total repayable advances up to a maximum of €7,593,808, of which €3,596,218 is for Genticel.
This support program requires the Company to work on producing and testing a therapeutic anti-HPV vaccine candidate.
Repayable advanceThe following table shows the projected support payment schedule as well as the actual payments made in installments at key stages of progress and/or reflecting particular conditions (communication of financial information, ability to pursue the financed program, the granting of specific administrative and regulatory authorizations notably for clinical trials).
MILESTONEMaximum
paymentAmount received
Upon signature of contract €108,213 €108,213 (March 11, 2013)
Upon confirmation of the industrial feasibility of the process for the product candidate (EC1)
€300,000 €220,679 (August 29, 2014)
Upon pre-clinical approval and availability of the clinical batch of the productcandidate (EC2)
€1,094,029 €853,099 (October 29, 2015)
Upon obtaining a favorable opinion from the French national drug safety agency (Agence Nationale de Sécurité du Médicament) (ANSM) to continue work on batch 2 (EC3)
€1,087,801 -
Upon confirmation of the safety of the product candidate (EC4) €466,742 -
After the clinical results of the Phase I trial of the product candidate (EC5)
€539,433 -
TOTAL €3,596,218 €1,181,991
This repayable advance, taking into account a 2.05% discount rate, was to be repaid on the following schedule:
No later than June 30, 2019: €808,000
No later than June 30, 2020: €808,000
No later than June 30, 2021: €808,000
No later than June 30, 2022: €808,000
No later than June 30, 2023: €808,000
According to IFRS, the fact that the repayable advance has a discount rate of 2.05% means that the Company benefited from a loan interest rate that is more favorable than market conditions. The difference between the amount of the discounted advance at 2.05% and the discounted value of the advance at market rates (3-month Euribor + 2.5 points = 2.71%) is considered a subsidy received from the State.
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Subsidies Under this project, the Company can benefit from subsidies of up to 45% of eligible expenses with a ceiling of €583,223.The following table shows the projected support payment schedule as well as the actual payments made:
MILESTONE Maximumpayment
Amount received
Upon signature of contract €367,207 €367,207
(in 2013)Upon confirmation of the industrial feasibility of the process for the product candidate (EC1)
€128,532 €128,532
(in 2014)After the clinical results of the Phase I trial of the product candidate (EC5) €87,484 -
TOTAL €583,223 €495,739
Withdrawal from the MAGenTA consortium and confirmation of failureOn July 13, 2016, the Company informed Bpifrance (formerly OSEO) that it wished to withdraw from the MAGenTA consortium, in view of the technological failure of GTL002 (see Note 1.2 concerning highlights of the year). Following this request, Bpifrance carried out an analysis of the eligible expenses incurred by the Company up until June 30, 2016, which determined that an overpayment of €413,174 for experimental development expenses had been made. The Company reimbursed this sum in October 2016. On October 17, 2016, Bpifrance confirmed that the Company was free of all its commitments to Bpifrance under the MAGenTA project and granted a waiver of debt in the amount of €768,817. This amount was reported as research and development subsidies, net of the effect from unwinding the discount.
NOTE 11 – EMPLOYEE BENEFIT OBLIGATIONS
The main actuarial assumptions used to measure retirement packages are as follows:
ACCOUNTING PRINCIPLES
The Company’s French employees enjoy retirement benefits specified by French law:
A severance package, paid by the Company, upon retirement (defined benefit plan);
Pension payments by Social Security bodies, which are funded through company and employee contributions (defined contribution plan).
Pension plans, similar compensation and other employee benefits that qualify as defined benefit plans (in which the Company guarantees an amount or defined level of benefits), are reported in the balance sheet, based on an actuarial valuation of the obligations at period-end, minus the fair value of the plan’s assets.
This valuation uses the projected unit credit method, taking into account staff turnover and mortality probability. Any actuarial spreads are reported in equity as “items of other comprehensive income”.
The Company’s payments into defined contribution plans are reported under expenses on the income statement for the period to which they relate.
The provision for a retirement package is measured in accordance with the applicable collective bargaining agreement, specifically the collective agreement for the Pharmaceutical Industry. This commitment concerns only those employees covered by French law.
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ACTUARIAL ASSUMPTIONS 12/31/2016 12/31/2015
Age at retirementVoluntary retirement between 65
and 67 (full pension rate)
Collective agreements Pharmaceutical industry
Discount rate(IBOXX Corporates AA)
1.31% 2.03%
Mortality table INSEE 2015 INSEE 2014
Salary revaluation rate 2.50% 2.50%
Staff turnover Very high High
Social security expense ratioManagersEmployeesTechnicians
45%N/AN/A
45%43%47%
The following shows the change in retirement provisions:
EMPLOYEE BENEFIT OBLIGATIONS (Amounts in euro)
Lump-sum retirement
benefits
As of December 31, 2014 379,717
Past service costs 59,189
Financial costs 5,658
Actuarial gains (losses) (122,504)
As of December 31, 2015 322,060
Past service costs (1) (177,493)
Financial costs 5,665
Actuarial gains (losses) (38,465)
As of December 31, 2016 111,767
(1) In accordance with IAS 19, the impact of reduced benefits plan due to the reduction in staff of (€224,000) was reported as a reduction in the Past Services Cost.
NOTE 12 – PROVISIONS
PROVISIONS(amounts in euro)
12/31/2016
Amount at start of period
Allocations to provisions
Write-backs with an object
Write-backs without an
object
Amount at end of period
Provision for layoffs - 688,061 - - 688,061
Provision for site restoration - 32,000 - - 32,000
Total provisions for contingencies and charges - 720,061 - - 720,061
ACCOUNTING PRINCIPLES
Provisions correspond to commitments resulting from litigation and various risks, the outcome and value of which are uncertain, that the Company may face as part of its activities.
A provision is reported when the Company has an obligation to a third party, resulting from a past event that is likely to cause an outflow of resources to the benefit of that third party without a counterpart at least equivalent to it, and future outflows of cash can be reliably estimated. The amount reported in provisions is the estimated expense necessary to extinguish the obligation, discounted if necessary at the end of the period.
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Provision for layoffsIn view of the clinical results of the Phase 2 study of GTL001 announced in early 2016 (see Notes 1.2 and 16.2), the Company began downsizing for economic reasons. Under this plan, a provision was booked in the amount of €688,000.
Restoration and surrender of premisesFollowing the combination with Genkyotex, the Company decided that it would abandon its premises both in Paris and in Labège and accordingly, began restoring both of these locations. The provision set aside for restoring the premises at Labège amounted to €32,000.
NOTE 13 – CURRENT LIABILITIES
13.1 TAX AND SOCIAL SECURITY LIABILITIES
TAX AND SOCIAL SECURITY LIABILITIES(Amounts in euro)
12/31/2016 12/31/2015
Payroll & related accounts 481,378 393,273
Social security & other welfare programs 560,305 394,093
Other taxes, levies and similar payments 39,814 33,973
Total tax and social security liabilities 1,081,497 821,340
The increase in tax and social security liabilities is related mainly to the ongoing downsizing activities and includes severance pay, financing of CSP contracts (safeguarding of professional employment), etc.
13.2 OTHER CURRENT LIABILITIES
OTHER CURRENT LIABILITIES (Amounts in euro)
12/31/2016 12/31/2015
Attendance fees payable to Supervisory Board members 6,350 -
Other 2,048 2,055
Total of other current liabilities 8,398 2,055
ACCOUNTING PRINCIPLES
The fair value of current liabilities is equivalent to their carrying amount in the balance sheet, taking into account the extremely short deadlines for payment.
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NOTE 14 – FINANCIAL ASSETS AND LIABILITIES AND IMPACT ON INCOME OR LOSS
The Company’s assets and liabilities are measured as follows for each year:
HEADINGS - BALANCE SHEET(Amounts in euro)
12/31/2016 Value – BALANCE SHEET per IAS 39
Value –BALANCE
SHEETFair value
Liabilities at fair value
through the income statement
Loans and receivables
Debt at amortized
cost
Non-current financial assets 140,268 140,268 140,268
Trade and related receivables 53,342 53,342 160,085
Other receivables 3,512,354 3,512,354 3,512,354
Current financial assets 8,274,109 8,274,109 8,274,109 -
Cash and cash equivalents 4,663,013 4,663,013 940 4,662,073
Total assets 16,643,085 16,643,085 8,275,049 8,474,780 -
Current financial debt 597,933 597,933 597,933
Non-current financial debt 335,638 335,638 335,638
Trade and related payables 571,262 571,262 571,262
Other creditors and miscellaneous liabilities 8,398 8,398 8,398
Total liabilities 1,513,231 1,513,231 - - 1,513,231
ACCOUNTING PRINCIPLES
The Company distinguishes between the following financial assets and liabilities:
Financial assets and liabilities at fair value through the income statement;
Loans and receivables;
Debt at amortized cost.
The Company has established three categories of financial instruments depending on their valuation methods and uses this classification to disclose some of the information required by IFRS 7:
Level 1: financial instruments listed on an active market;
Level 2: financial instruments whose valuation methods rely on observable inputs;
Level 3: financial instruments whose valuation methods rely entirely or partly on unobservable inputs, an unobservable input being defined as one whose measurement relies on assumptions or correlations that are not based on the prices of observable market transactions for a given instrument on valuation day, nor on observable market data on valuation date.
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HEADINGS - BALANCE SHEET(Amounts in euro)
12/31/2015 Value – BALANCE SHEET per IAS 39
Value –BALANCE
SHEETFair value
Liabilities at fair value
through the income
statement
Loans and receivables
Debt at amortized
cost
Non-current financial assets 5,290,657 5,290,657 5,154,093 136,565
Other receivables 3,653,694 3,653,694 3,653,694
Current financial assets 5,021,938 5,021,938 5,021,938
Cash and cash equivalents 11,659,829 11,659,829 6,009,238 5,650,591
Total assets 25,626,119 25,626,119 16,185,269 9,440,850 -
Current financial debt 621,347 621,347 621,347
Non-current financial debt 1,900,781 1,900,781 1,900,781
Trade and related payables 1,886,424 1,886,424 1,886,424
Other creditors and miscellaneous liabilities 2,055 2,055 2,055
Total liabilities 4,410,607 4,410,607 - - 4,410,607
IMPACTS INCOME STATEMENT(Amounts in euro)
12/31/2016 12/31/2015
InterestChange in fair
valueInterest
Change in fair value
Assets
Fair value through profit (loss) 74,183 42,026
Loans and receivables 50,221 144,703
Cash and cash equivalents 7,806 - 16,918 (1,180)
LiabilitiesLiabilities measured at amortized cost: loans
41,710 56,343
NOTE 15 – INCOME AND OTHER REVENUE
REVENUE AND OTHER INCOME BY GEOGRAPHIC REGION
(Amounts in euro)12/31/2016 12/31/2015
France - -
India 1,304,060 177,742
Total revenue and other income 1,304,060 177,742
On February 2, 2015, the Company signed a license agreement with the pharmaceutical company Serum Institute of India Ltd. (SIIL) for its Vaxiclase technology, as part of SIIL’s development of acellular and multivalent vaccines containing whooping cough antigens. As counterpart for access to and use of the Vaxiclase platform in the authorized indication, Genticel could receive up to US $57,000,000 in initial payments and milestone payments on development and sales, based on criteria defined in the terms of the agreement, as well as royalties as a percentage of net sales.
ACCOUNTING PRINCIPLES
Other income includes proceeds from license agreements signed with partners.
Payments that are spread out as milestones are reached (milestone payments), are measured on a case by case basis and recorded in the income statement when the products and/or services concerned have been delivered or rendered.
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Under the terms of that agreement, an up-front payment (US $100,000) as well as a milestone paymentfor a technical milestone (US $100,000) were invoiced in 2015.
The Company delivered characterized Vaxiclase during the first half of 2016 for an amount of US $250,000 (€220,000). Furthermore, with the completion of the last pre-clinical stage in November 2016 (see Note 1.2), the Company received a payment of US $ 1,200,000 (€1,100,000).
The Company operates in only one business segment (see Note 21).
NOTE 16 – BREAKDOWN OF EXPENSES AND ITEMS BY FUNCTION
16.1 RESEARCH AND DEVELOPMENT
RESEARCH AND DEVELOPMENT (Amounts in euro)
12/31/2016 12/31/2015
Raw materials and consumables (58,085) (131,624)
Studies and services (4,407,581) (6,946,649)
Maintenance and repair (65,322) (68,735)
Insurance (69,210) -
Travel, assignments and entertainment (61,304) (83,889)
Other external services (20,233) (42,160)
Personnel expense (2,182,601) (2,765,547)
Royalties and patents (240,178) (336,190)
Depreciation of assets (2,741) (2,741)
Share-based payments (70,553) (557,808)
Research and Development Expenses (7,177,808) (10,935,343)
Research tax credit 2,959,255 2,917,424
Bpifrance loans 745,876 22,613
Subsidies 3,705,131 2,940,037
R&D expenses relate to the development of immunotherapies.
ACCOUNTING PRINCIPLES
The Company presents its income statement by function in two categories:
Research and development;
General and administrative expenses
The research tax credit and operating grants are presented in subsidies and are deducted for the research and development costs.
Operating grants are recorded, taking into account the rate of corresponding expenses so as to adhere to the principle of matching revenues and expenses, as the case may be.
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Subsidies
A sum due by the Company, in the amount of €769,000 under the MAgenTA project, was waived in 2016 (see note 10.1). The amount of this debt, net of the unwinding of the discount, was reported as subsidies.
16.2 GENERAL AND ADMINISTRATIVE EXPENSES
ADMINISTRATIVE EXPENSES(Amounts in euro)
12/31/2016 12/31/2015
Rental of movable and immovable property (204,553) (182,935)
Maintenance and repair (51,444) (72,628)
Insurance (53,624) (125,107)
Fees, legal and ownership (973,021) (1,561,860)
Advertising (79,718) (121,745)
Travel, assignments and entertainment (166,076) (244,736)
Other external services (198,311) (151,770)
Taxes and duties (59,071) (53,541)
Personnel expense (700,226) (648,730)
Attendance fees (100,000) (100,000)
Depreciation of assets (69,827) (53,215)
Share-based payments (161,257) (282,887)
Administrative expenses excluding restructuring and combination costs
(2,817,128) (3,599,155)
Plan for downsizing on economic grounds (2,124 486) -
Fees related to the strategic combination project (224,663) -
Expenses for restoration and surrender of premises (76,077) -
Restructuring and combination costs (2,425 226) -
Administrative costs (5,242 354) (3,599,155)
Restructuring and strategic combination costs
Plan for downsizing on economic groundsDue to the results of the Phase 2 clinical study on GTL001 announced in early 2016 (see Note 1.2), the Company moved to husband its cash holdings and bolster its resources, through an expenses optimization plan, with regard to its GTL001 and GTL002 product candidates.
Accordingly, the Company implemented a downsizing on economic grounds, to be carried out in two phases, the first concerning nine employees in the first half of 2016 and a second concerning 17 employees in the second half of 2016 and early 2017. This downsizing plan incurred a net charger of €2,124,000 for 2016, which is broken down as follows:
Cost of downsizing on economic grounds, to include severance pay, notice time not worked, outplacement costs, social charges and financing any CSP contracts, in the amount of €2,348,000.
Impact on the provision for retirement indemnities, in the amount of €224,000.
Strategic combination with GenkyotexIn July 2017, the Company began to evaluate its strategic options (see Note 1.2), with special emphasis on easing its access to innovative product candidates, as appropriate, through a merger or acquisition. This evaluation process led to the signature of a contribution agreement with Genkyotex in December2016, contingent upon the approval of Genticel shareholders who met at the Company’s General Shareholders’ Meeting on February 28, 2017. The Company incurred costs for this operation in the amount of €225,000 as of December 31, 2016.
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Restoration and surrender of the Labège premisesIn the wake of the combination project with Genkyotex, the Company decided to give up its premises in Labège, in as much as Genkyotex already has premises established in France. It sold of all of its laboratory equipment, incurring a loss for the sale of assets in the amount of €44,000. It also set aside a provision for restoring the premises at Labège in the amount of €32,000.
NOTE 17 – WORKFORCE
AVERAGE WORKFORCE 12/31/2016 12/31/2015
Managers 20.6 25.0
Employees 3.9 8.6
Total average number of employees 24.5 33.6
The workforce at the end of 2017 comprised seven persons, four of which have received layoff notices.
NOTE 18 – NET FINANCIAL INCOME AND EXPENSES
FINANCIAL INCOME AND EXPENSES(Amounts in euro)
12/31/2016 12/31/2015
Other financial expenses (41,717) (56,645)
Other financial income 143,337 280,090
Translation gains (losses) 69,079 (48)
Total financial income and expenses 170,699 223,396
ACCOUNTING PRINCIPLES
Net financial income includes:
Expenses related to the financing of the Company: Interest paid and unwinding of repayable advances and financial liabilities (see Notes 12.1 and 12.2).
Interest received on term deposits and the capitalization contract.
Any gains and losses on translation are reported under financial profit and loss.
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NOTE 19 – INCOME TAXES
The amount of tax loss deferred indefinitely available to the Company amounted to €74,202,000 as of December 31, 2016.
The tax rate applicable to the Company is the currently applicable rate in France, which is 33.33%. Under the principle described above, no deferred tax assets is reported in the Company’s accounts that exceed deferred tax liabilities.
Reconciliation between theoretical tax and effective taxTAX PROOF(Amounts in euro)
12/31/2016 12/31/2015
Net loss (7,240 271) (11,193,323)Tax - -
Profit/(loss) before tax (7,240 271) (11,193,323)
Current tax rate in France 33.33% 33.33%
Theoretical tax at current rate in France 2,413, 182 3,730,735
Permanent differences 908,399 1,017,398 Share-based payments (77,262) (280,204)Tax loss not activated adjusted for tax deferral (3,244 319) (4,467,929)
Tax expense/income - -
Effective tax rate 0.00% 0.00%
The permanent differences include the impact of the research tax credit (non-taxable operating income).
ACCOUNTING PRINCIPLES
Taxable assets and liabilities for this and previous financial years are valued at the amount expected to be recovered or paid by the tax authorities.
The tax rates and tax regulations used to calculate these amounts are those which were adopted or partially adopted at the end of the period.
Deferred taxes are reported using the variable deferral method for all temporary differences existing at the end of the reporting period between the tax base of assets and liabilities and their carrying amount on the balance sheet, as well as on deferrable losses.
The main temporary differences relate to deferrable tax losses.
Deferred tax assets are reported as deferrable tax losses, when it is probable that the Company will have future taxable profits to which those unused tax losses could be applied. The measurement of identifiable deferred tax assets requires Management to make estimates about the time period over which the deferred losses will be used up and about the level of future taxable income, based on the tax strategies adopted.
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Nature of deferred taxesNATURE OF DEFERRED TAXES(Amounts in euro)
12/31/2016 12/31/2015
Temporary differences 126,273 186,274
Deferred tax losses 24,731,500 21,425,813
Total of elements of a deferred tax assets nature 24,857,772 21,612,087
Temporary differences 99,686 176,265
Total of elements of a deferred tax liabilities nature 99,686 176,265
Total of elements of a deferred tax nature 24,758,087 21,435,822
Unrecognized differed tax (24,758,087) (21,435,822)
Total net deferred tax - -
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NOTE 20 – EARNINGS PER SHARE
BASIC EARNINGS PER SHARE(Amounts in euro)
12/31/2016 12/31/2015
Weighted average number of outstanding shares 15,561,352 15,463,263
Net profit/(loss) for the period (7,240 271) (11,193,323)
Basic earnings per share (€/share) (0.47) (0.72)
Diluted earnings per share (€/share) (0.47) (0.72)
As of December 31, 2016, the Company had the following dilutive instruments:
133,334 share subscription warrants to the benefit of investors (see Note 9).
337,000 share subscription warrants to the benefit of members of the Supervisory Board and consultants (see Note 9);
584,066 founders’ warrants (see Note 9).
NOTE 21 – SEGMENT INFORMATION
NOTE 22 – RELATED PARTIESThe Company has identified as related parties the members of the Executive Board, the Supervisory Board and the shareholders.
ACCOUNTING PRINCIPLES
Basic earnings per share (EPS) are calculated by dividing net income or loss attributable to holders of Company shares by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by adjusting the net income attributable to the holders of ordinary shares and the weighted average number of the ordinary shares in circulation by the effects of all the dilutive potential ordinary shares.
If, when calculating diluted earnings per share, taking into account instruments giving deferred access to capital (BSA and BSPCE) creates an anti-dilutive effect, those instruments are not taken into account. In this way, diluted earnings per share are identical to basic earnings per share.
ACCOUNTING PRINCIPLES
The Company operates in only one business segment:
The development of immunotherapies (therapeutic vaccines) for women infected by high risk types of the human papillomavirus (HPV).
The assets and operating losses presented are located in France.
R&D expenses and most administrative expenses are incurred in France.
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22.1 COMPENSATION OFCORPORATE OFFICERS
No post-employment benefits were granted to the members of the Executive Board or members of the Supervisory Board.
Compensation due to members of the Executive Board and to the members of the Supervisory Board can be broken down as follows (in euro):COMPENSATION OF CORPORATE OFFICERS (Amounts in euro)
12/31/2016 12/31/2015
Fixed compensation due 746,741 728,022
Variable compensation due - 89,134
Benefits in kind 9,755 15,643
Director’s fees 100,000 100,000
Share-based payments 209,763 659,853
Consulting fees 61,000 66,000
TOTAL 1,127,259 1,658,652
The variable components of compensation are allocated on the basis of performance criteria.The methods used to calculate the advantage of share-based payments are explained in Note 9.
22.2 CONSULTANT CONTRACTS
The Company has signed consultant contracts with two members of the Supervisory Board:
Consultant contract with Mr Hercend (Chairman of the Supervisory Board), which generated invoicing totaling €60,000 (excluding tax) for the financial year.
Consultant contract with Mr Hoch (Member of the Supervisory Board), which generated invoicing totaling €1,000 (excluding tax) for the financial year.
NOTE 23 – OFF-BALANCE SHEET COMMITMENTS
23.1 COMMERCIAL LEASES
Property rental
As part of its activity, the Company had signed lease agreements on premises. Following the strategic combination with Genkyotex (see Note 1.2), which already has premises in France, the Company decided to terminate all of its commercial leases.
Administrative buildings and laboratories: Address 516 Rue Pierre et Marie Curie, 31670 Labège, FranceLease August 1, 2015 – July 31, 2016Early departure Possible any time, with two months’ notice
The Company has ended its lease for the occupation of these premises, from which some laboratories were moved on January 11, 2017 and the remaining laboratories and offices on March 15, 2017.
Clinical development building:Address 5 rue Tronchet, 75008 Paris, FranceLease November 23, 2015 – May 31, 2023Early departure Possible initially after May 31, 2020, then again at the end of the ensuing
three-year period, with six months’ notice.
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After negotiations with the owner, it was agreed that the Company could vacate the premises prior to May 31, 2020, provided it paid one full year’s rent.
Expenses and commitmentsThe rent payments reported as of the end of 2016 and the commitments up to the surrender of the premises can be broken down as follows:
As of 12/31/2016Commitments until the next termination
period (Amounts in euro)
Lease agreementsEffective start date of lease
End date of lease
Occupancy expenses
(excl. charges) at
12/31/2016
≤ 1 year 1 ≥ 5 yrs > 5 years
Labège building 9/1/2013 3/31/2017 67,629 7,462 - -
Building in Paris, rue Tronchet 6/1/2014 2/28/2017 99,074 115,536 - -
23.2 OPERATING LEASE COMMITMENTS
The Company has signed mirror lease agreements. After analysis, they were considered to be operating leases in the sense of IAS 17.
The following table shows the minimum payments and their breakdown:OFF-BALANCE SHEETOPERATING LEASES(Amounts in euros)
< 1 year 1 ≥ 5 yrs > 5 years
Commitments at 12/31/2016 16,804 4,201 -
22.4 COMMITMENTS UNDER OTHER CONTRACTS
On February 22, 2006, the Company signed a licensing agreement with the Pasteur Institute. This agreement mainly provides for:
Royalties on the net receipts by the Company, related to HPV in the two predefined geographic regions (absence of revenue by the Company in this area to date).
A share in the cost of maintaining the patents.The Pasteur Institute is responsible with obtaining the issuance and assuring the continuing validity of patents. However, the Company will reimburse the Pasteur Institute 25% or 50% (depending on the type of patent) of the direct external expenses incurred by the Pasteur Institute to maintain and extend the patents.
A guaranteed annual minimum. Since 2009, the Company has had to pay to the Pasteur Institute, for the human and veterinary vaccines used, a minimum annual royalty of €50,000.
A counterpart in terms of veterinary vaccines. The Company will have to pay to the Pasteur Institute €100,000 upon request for authorization of clinical trials on animals and €150,000 upon the first marketing authorization of the product.Additionally, the Company will pay to the Pasteur Institute an annual royalty of 3.5% of net receipts.
A royalty in the case of sub-licensing (to date, the Company has not signed this type of agreement).
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A counterpart in terms of human vaccines.Genticel will pay to the Pasteur Institute the following amounts at the various development stages:
The product enters Phase I: €50,000
The product exits Phase I: €130,000
The product enters Phase II: €160,000
The product exits Phase III: €310,000
The product receives its first marketing authorization: €610,000
The product GTL001 (ProCervix) completed its Phase I in May 2014. The first Clinical Study Report was published on January 20, 2015. The product did not exit Phase II on December 31, 2016.
NOTE 24 – FINANCIAL RISK MANAGEMENT AND ASSESSMENT
Genticel may find itself exposed to various types of financial risk: market risk, credit risk and liquidity risk. Genticel implements simple measures proportional to its size, to minimize the potentially adverse effects of those risks on its financial performance.It is Genticel’s policy not to use financial instruments for speculative purposes.
Interest rate riskThe Company is not significantly exposed to interest rate risk, to the extent that:
its cash and cash equivalents and financial assets include time deposits,
no variable rate debt has been obtained.
Credit riskCredit risk is associated with deposits with banks and financial institutions. For its cash investments the Company uses top-tier financial institutions and therefore does not carry significant credit risk on its cash.
Foreign exchange riskThe main risks related to the impact of changes in foreign exchange rates are considered insignificant.The Group, at its present stage of development, does not use hedging instruments to protect its activity from exchange rate fluctuations. However, the Group cannot rule out the possibility that a major increase in its activity will increase its exposure to exchange rate risk. In such a case, the Group would consider adopting an appropriate policy to hedge such risks.
Equity riskThe Company does not hold equity investments or marketable securities on a regulated market.
Liquidity riskTaking into account the available cash and cash equivalents as of December 31, 2015, the Company does not have significant exposure to liquidity risk.
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NOTE 25 – STATUTORY AUDITORS' FEES
STATUTORY AUDITORS’ FEES(Amounts in euro excl. tax)
FY 2016 (12 months) FY 2015 (12 months)
GRANT THORNTON SYGNATURES GRANT THORNTON SYGNATURES
For auditing the financial statements 25,750 25,750 25,000 25,000 For other services directly related to the duties of the Statutory Auditor
5,000 500 10,500 18,660
Services other than certifying the financial statements
16,850 13,250 - -
Subtotal 47,600 39,500 35,500 43,660
Other services- Tax - - - -- Other - - - -
Subtotal - - - -
Total 47,600 39,500 35,500 43,660
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20.2. PRO FORMA FINANCIAL INFORMATION
20.2.1. Introduction
Pro forma financial information of the new entity have been prepared in accordance with the provisions of EC regulation no. 809/2004 dated April 29, 2004, “Pro forma financial information module”, Recommendation no. 2013/319 dated March 20, 2013, published by ESMA and Recommendation no. 2013-08 published by the AMF French Market Authority regarding pro forma financial information.
Pro forma financial information for the new entity include: A pro forma consolidated balance sheet as of December 31, 2016, as if the contribution had
occurred on December 31, 2016; A pro forma consolidated income statement for the twelve-month period of January 1, 2016
to December 31, 2016, as if the contribution had occurred on January 1, 2016; Notes to the pro forma financial information.
Pro forma adjustments have been determined on the basis of information available and based on assumptions considered reasonable by Genkyotex SA (formerly Genticel SA) and Genkyotex Suisse SA.
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20.2.2. Balance sheet, income statement and explanatory notes
20.2.2.1. Pro forma balance sheet to IFRS standards as of December 31, 2016
(in thousands of euros)
Genkyotex SA (formerly Genticel SA) - historical
data
Genkyotex Suisse SA -historical
data and pro forma
presentation
Pro forma adjustments
Pro forma balance
sheet
Note 2.1 Note 3.1
ASSETS
Intangible assets 42 - 11.787 11.829
Property, plant and equipment 42 93 - 135
Other non-current financial assets 140 15 - 155
Deferred tax assets - 4 - 4
Total non-current assets 224 112 11.787 12.122
Trade and related receivables 53 - - 53
Other receivables 3,512 795 - 4,308
Current financial assets 8,274 - - 8,274
Cash and cash equivalents 4,663 13,937 159 18,759
Total current assets 16,503 14,733 159 31,394
Total assets 16,727 14,844 11,946 43,516
LIABILITIES
Capital 1,557 4,742 1,486 7,785
Additional paid-in capital 48,349 49,923 63,748 162,020
Translation reserve - (3,518) - (3,518)
Other comprehensive income 43 (480) - (436)
Reserves - Group share (29,409) (31,752) (41,026) (102,187)
Result - Group share (7,240) (6,699) (13,045) (26,984)
Equity, Group share 13,300 12,217 11,164 36,680
Minority interests - - - -
Total equity 13,300 12,217 11,164 36,680
Non-current liabilities
Employee benefit obligations 112 874 - 986
Non-current financial debt 335 - - 335
Non-current liabilities 447 874 - 1.321
Current liabilities
Current financial debt 598 - - 598
Provisions 720 - - 720
Trade and related payables 571 1,203 341 2,116
Tax and social security payables 1,081 550 441 2,072
Other creditors and miscellaneous liabilities 8 - - 8
Current liabilities 2,979 1,753 782 5,515
Total liabilities 16,727 14,844 11,946 43,516
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Current financial assets as of December 31, 2016, of Genkyotex SA (formerly Genticel SA) are comprised of a term deposit of a value of €5,000,000 and a capitalization contract valued at €3,200,000.
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20.2.2.2. Pro forma income statement to IFRS for the twelve month period between January 1, 2016 and December 31, 2016
(in thousands of euros)
Genkyotex SA
(formerly Genticel
SA) -historical
data
Genkyotex Suisse SA -
historical data and pro forma presentation
Pro forma adjustment
sPro forma
income statement
4.2.3Note 2.2
4.2.3Note 3.2
Revenue - - - -
Cost of sales - - - -
Gross margin - - - -
Other income 1,304 - - 1,304
Net R&D expenses
Research and development expenses (7,178) (4,813) (2,293) (14,283)
Subsidies 3,705 526 - 4,231
General and administrative expenses (5,242) (1,641) (10,752) (17,636)
Operating profit/(loss) (7,411) (5,928) (13,045) (26,384)
Financial expenses (48) (20) - (68)
Financial income 219 254 - 472
Profit/(loss) before tax (7,240) (5,694) (13,045) (25,980)
Tax expense - (158) - (158)
Net profit/(loss) (7,240) (5,853) (13,045) (26,138)
Group share (7,240) (6,699) (13,045) (26,984)
Minority interests - 846 - 846
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20.2.2.3. Notes to the pro forma financial information
Preliminary note
On December 13, 2016, Genkyotex SA (formerly Genticel SA) decided to halt its entire development program for treating HPV infections, including its GTL001 program. Since that date, its assets have temporarily been reduced to its cash position, the residual value of its pre-clinical portfolio of anti-HPV therapeutics, its Vaxiclase technology and the licensing contract it holds with SIIL.
Against this backdrop, on December 22, 2016, Genkyotex SA (formerly Genticel SA) and Genkyotex Suisse SA announced a strategic combination and the signature of a contribution agreement.
On February 28, 2017, Genkyotex SA (formerly Genticel SA) and Genkyotex Suisse SA announced that the Genkyotex SA (formerly Genticel SA) shareholders, having met in a Combined General Shareholders’ Meeting, approved the resolutions implementing the strategic combination between the two companies, pursuant to the contribution agreement of December 22, 2016, as well as the name change from Genticel to Genkyotex.
The combination has resulted in a new Franco-Swiss Group named “Genkyotex”, whose primary business is developing a portfolio of a new therapeutic class of NOX inhibitors in fibrosis and inflammatory pain.
Note 1 - Basis of preparation
Note 1.1 - Underlying financial information
The pro forma financial information of the new entity was prepared on the basis of the following financial information:
The annual financial statements of Genkyotex SA (formerly Genticel SA), prepared according
to IFRS standards as adopted by the European Union at December 31, 2016, following a
report by the Statutory Auditors, Sygnatures and Grant Thornton, who issued an unqualified
opinion on the accounts on February 27, 2017. The annual financial statements to IFRS
standards and the report of the statutory auditors pertaining to them are presented in
sections 20.1 and 20.4.1 of the Registration Document.
The consolidated financial statements of Genkyotex Suisse SA, prepared in accordance with
IFRS standards as of December 31, 2016, were reviewed by an independent auditor, PwC,
which issued an unqualified opinion on them on April 11, 2017.
Note 1.2 - Accounting principles
Pro forma financial information has been prepared to reflect the application of accounting, evaluation and presentation principles consistent with IFRS accounting standards, which will be applied in the next financial statements published by the new entity.
According to IFRS 10, the purchaser is the party that gains control of the new entity. Under the transaction carried out on February 28, 2017, the shareholders of Genkyotex Suisse SA, the entity
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that was acquired in the legal sense, gained control over Genkyotex SA (formerly Genticel SA). Consequently, Genkyotex Suisse SA is considered the purchaser from an accounting perspective.
Although the transaction has the same features as a reverse acquisition, the completed transaction may not be treated as such because Genkyotex SA (formerly Genticel SA), the entity that was acquired from the accounting perspective, does not constitute a business as intended in IFRS 3.3 (see Preliminary Note). As such, the transaction under consideration may therefore not be treated as a business combination (IFRS 3.B19).
IFRS standards do not have any provisions recognizing this type of transaction from an accounting standpoint. Consequently, proper accounting treatment must be determined with regard to IAS 8, paragraphs 10-12. Although IFRS 3 is not applicable, the transaction was treated in substance as a reverse acquisition.
Against this backdrop and with regard to the substance of operation described above, from an accounting standpoint, the difference between the acquisition cost of Genkyotex SA (formerly Genticel SA) shares and the various acquired elements can be analyzed as listing costs to be reported as expenses (IFRS 2.13A).
The next Genkyotex SA (formerly Genticel SA) financial statements prepared according to IFRS standards as adopted by the European Union, shall be prepared as a continuation of Genkyotex Suisse SA consolidated financial statements per IFRS, with the exception of share capital and additional paid-in capital, which shall correspond to that of Genkyotex SA (formerly Genticel SA), the parent company from a legal perspective.
Note 1.3 - Assumptions
Pro forma adjustments for presenting the pro forma balance sheet were determined on the assumption that the contribution was carried out on December 31, 2016.
Pro forma adjustments for presenting the pro forma income statement were determined on the assumption that the contribution was carried out on January 1, 2016.
Pro forma financial information is presented exclusively for illustration purposes and gives no indication of either results or of the financial situation of the new entity that may have evolved as of December 31, 2016, if the contribution had been made on January 1, 2016.
All pro forma adjustments attributable to the contribution that may be supported by facts, be documented and estimated reliably were taken into account in the pro forma balance sheet and income statement.
This pro forma financial information does not account for expected synergies. In the same manner, it gives no indication of future results or of the financial situation of the new entity.
Note 1.3.1 - Reclassification and alignment of accounting principles
A preliminary analysis was carried out in order to identify:
The pro forma adjustments to be reported, if appropriate, with the object of harmonizing
accounting principles applied to similar transactions.
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Pro forma reclassifications to be carried out in view of the divergent balance sheet and
income statement presentations of the two companies.
Pro forma adjustments and reclassifications carried out on historical data of Genkyotex Suisse SA are detailed in Note 2.
The companies believe that further reclassifications or adjustments may prove necessary when the new entity decides on the format for financial statements and the final accounting principles and methods.
Note 1.3.2 - Intra-group transactions
To the knowledge of the two companies, there exist no intracompany transactions that could impact the balance sheet situations as of December 31, 2016, or the income statement for the twelve-month period from January 1, 2016 to December 31, 2016.
Note 1.3.3 - Evaluation of the purchase price
The purchase price corresponds to the fair value of the consideration effectively transferred by the purchaser to the sellers in exchange for control of the acquired entity on the acquisition date.
Therefore, the purchase price must be determined depending on the proportions of share capital that Genkyotex Suisse SA would be issuing, in order to give the owners of Genkyotex SA (formerly Genticel) the same percentage of interest in the new entity as that which came out of the transaction completed on February 28, 2017.
Nonetheless, the fair value of the consideration effectively transferred must be analyzed depending on the most reliable evaluation. According to the fair value evaluation hierarchy used in IFRS 13, the quoted price of Genkyotex SA (formerly Genticel SA) (Level 1) shares is a more reliable method for evaluating the consideration effectively transferred than fair estimated value of Genkyotex Suisse SA shares as defined in the preceding paragraph.
Accordingly, for the purpose of establishing pro forma financial information for the new entity, the acquisition price was determined from the number of Genkyotex SA (formerly Genticel SA) shares outstanding and the share price quoted at closing on February 28, 2017. This share price shall in no way be construed as the intrinsic value of the Genkyotex SA (formerly Genticel SA) share.
Note 1.3.4 - Identification of assets acquired and liabilities assumed by Genkyotex SA (formerly Genticel SA)
The assets acquired and liabilities assumed by Genkyotex SA (formerly Genticel SA) underwent the following preliminary evaluations at fair value as of December 31, 2016.
Subsequent modifications are nonetheless likely, in order to reflect the fair value of assets acquired and liabilities assumed as of the date the contribution legally occured.
The principal impacts of the preliminary evaluation are broken down as follows:
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Genkyotex SA (formerly Genticel SA) IFRS historical data as of
12/31/2016
Preliminary re-evaluation
Assets and liabilities assumed
following re-evaluation
(data in € thousands)
Assets acquired 16,727 11,787 28,514
Liabilities assumed 3,427 - 3,427
Net assets transferred 13,300 11,787 25,087
License contract with SIIL
Management of Genkyotex SA (formerly Genticel SA) deems that the fair value of the SIIL contract is €11,787,000. This contract was calculated on the basis of the discounted cash flow method, adjusted for the likelihood of some impact on the 2017-2035 business plan, which corresponds to the life of the patent underlying the license sold to SIIL.
Accordingly, the management of Genkyotex SA (formerly Genticel SA) evaluated the income it could receive under this license contract signed with SIIL for its GTL003 product and what it would receive if this contract were extended to major pharmaceutical markets not covered by the SIIL contract, whose scope is restricted to emerging markets, with emphasis on the fact that SIIL is the leading producer of vaccines worldwide in volume, with 1.3 billion doses produced yearly.
Under this contract, SIIL is considering using the Genkyotex SA (formerly Genticel SA) technological platform, Vaxiclase, not as a vectoring system for antigens but rather as an antigen against whooping cough in multivalent prophylactic vaccines such as DTap (Diptheria, Tetanus and Acellular Pertussis. Adenylate cyclase is a protein of the Bordetella bacterium, which is the causative agent of whooping cough. As such it may be used as an antigen in the development of prophylactic vaccines. The market for prophylactic vaccines against whooping cough is estimated at a total value of $4 billion per year, 19% of which is in markets in regions where Genkyotex SA (formerly Genticel SA) granted a license to SIIL.
Genkyotex SA (formerly Genticel SA) feels that it could also receive income through the extension of the contract to mature pharmaceutical markets representing 81% of the world market for vaccines against whooping cough. Genkyotex SA (formerly Genticel SA) assumes that expansions into these markets would procure cash flow of a significance proportional to the size of markets achieved on the basis of the expected performance of SIIL in regions where Genkyotex SA (formerly Genticel SA) granted it a license.
The duration of the 2017-2035 business plan was established on the basis of the life cycle of the patent from which the license to SIIL was granted.
All future flows have been impacted by the probability of occurrence reflecting the chances of success of various stages of developed products, from their clinical development through to their marketing. The source used by Genkyotex SA (formerly Genticel SA) to estimate these probabilities isthe study carried out by Biomedtracker in 2016, leading to a retrospective analysis of the probability of success of the various stages of clinical development based on 9,985 studies between 2009 and 2015.
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The success rates appear on the table below:
Probability of success of each phase
Overall probability of success
POC (1) 100% 100%
Phase 1 70% 70%
Phase 2 43% 30%
Phase 3 73% 22%
Commercial success 89% 19%
(1) Proof of concept already achieved
Probabilty of future success flows were upgraded by 16%, based particularly on a risk premium of the French securities market, an average beta originating from a sample of French biotechnology companies listed on Euronext and a risk premium specific to the Company.
Deferred taxes
Genkyotex SA (formerly Genticel SA) confirmed no deferred tax under the preliminary re-evaluation. No deferred tax liabilities were reported, based on the re-evaluation of the SIIL contract, in view of the exemption under IAS 12.15 in the event of acquisition of assets. Furthermore, not deferred tax assets were reported on tax loss carryforwards. Deferred tax assets are reported as deferrable tax losses, when it is more probable than improbable that the Company will have future taxable profits to which those unused tax losses could be applied.
Note 1.3.5 - Costs relating to the transaction
Direct costs related to the acquisition are recorded as expenses for the period in which the costs are incurred or services are rendered, excluding issuance costs of equity share capital instruments issued in compensation for the contribution, which are deducted from share capital in accordance with IAS 32.
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Note 2 - Description of reclassifications of historical data of Genkyotex and conversion into euros
Note 2.1 -Pro forma reclassifications of the balance sheet at December 31, 2016, and conversion into euros
Genkyotex Suisse
SA-
historical data (in
thousands of CHF)
Pro forma
balance sheet
Genkyotex Suisse SA
- historical data in pro
forma presentation (in thousands
of CHF)
Genkyotex Suisse SA
- historical data in pro
forma presentation (in thousands
of euros)*
ASSETS
Property, plant and equipment 100 100 93
Other non-current financial assets 16 16 15
Deferred tax assets 4 4 4
Total non-current assets 120 - 120 112
Other receivables 854 854 795
Cash and cash equivalents 14,967 14,967 13,937
Total current assets 15,821 - 15,821 14,733
Total Assets 15,941 - 15,941 14,844
LIABILITIES
Capital 4,785 307 5,092 4,742
Participation certificates 307 (307) - -
Additional paid-in capital 53,613 53,613 49,923
Translation reserve (3,669) (3,669) (3,518)
Other comprehensive income (515) (515) (480)
Reserves - Group share (34,098) (34,098) (31,752)
Result - Group share (7,303) (7,303) (6,699)
Equity, Group share 13,120 - 13,120 12,217
Minority interests - - -
Total equity 13,120 - 13,120 12,217
Non-current liabilities
Employee benefit obligations 938 938 874
Non-current liabilities 938 - 938 874
Current liabilities
Trade and related payables 1,292 1,292 1,203
Tax and social security payables - 591 591 550
Other current liabilities 591 (591) - -
Current liabilities 1,883 - 1,883 1,753
Total liabilities 15,941 - 15,941 14,844
*Converted at EUR / CHF closing rate on December 31, 2016: 1.0739
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The following reclassifications were carried out in order to align the presentation of the balance sheet with that used by Genkyotex SA (formerly Genticel SA):
Capital related to “Participation certificates” was reclassified as “capital” in the amount of
CHF 307,000.
“Other current liabilities” are made up of tax and social security liabilities and were
reclassified as “Tax and social security liabilities” in the amount of CHF 591,000.
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Note 2.2 -Pro forma reclassifications of the income statement as of December 31, 2016, and conversion into euros
Genkyotex Suisse
SA-
historical data (in
thousands of CHF)
Pro forma reclassifications
Genkyotex Suisse SA
- historical data in pro
forma presentatio
n (in thousands
of CHF)
Genkyotex Suisse SA
- historical data in pro
forma presentation (in thousands
of CHF)*
Revenue - - -
Cost of sales - - -
Gross margin - - - -
Net R&D expenses
Research and development expenses (5,247) (5,247) (4,813)
Subsidies 573 573 526
General and administrative expenses (1,789) (1,789) (1,641)
Operating profit/(loss) (6,463) - (6,463) (5,928)
Financial expenses (22) (22) (20)
Financial income 277 277 254
Profit/(loss) before tax (6,208) - (6,208) (5,694)
Tax expense (173) (173) (158)
Net profit/(loss) (6,381) - (6,381) (5,853)
Group share (7,303) (7,303) (6,699)
Minority interests 922 922 846
*Converted to average rate for EUR / CHF for 2016: 1.0902
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Note 3 - Description of pro forma adjustments related to the transaction
Note 3.1 -Pro forma adjustments of the balance sheet as of December 31, 2016
(in thousands of euros)
Operations prior to the transaction
within Genkyotex Suisse SA
Acquisition accounting
Transaction expenses
Change of
control - shares without voting rights clause
Total pro forma
adjustments
Note 3.3.1 Note 3.3.2 Note 3.3.3Note 3.3.4
ASSETS
Intangible assets 11,787 11,787
Property, plant and equipment -
Other non-current financial assets -
Deferred tax assets -
Total non-current assets - 11,787 - - 11,787
Inventories -
Trade and related receivables -
Other receivables -
Current financial assets -
Cash and cash equivalents 159 159
Total current assets 159 - - - 159
Total Assets 159 11,787 - - 11,946
LIABILITIES
Capital 159 1,328 1,486
Additional paid-in capital 63,849 (100) 63,748
Translation reserve - -
Other comprehensive income - -
Reserves - Group share (45,001) (8) 3,982 (41,026)
Profit/(loss) - Group share (8,388) (233) (4,423) (13,045)
Equity, Group share 159 11,787 (341) (441) 11,164
Minority interests - -
Total equity 159 11,787 (341) (441) 11,164
Non-current liabilities
Employee benefit obligations -
Non-current financial debt -
Non-current liabilities - - - - -
Current liabilities
Current financial debt -
Trade and related payables 341 341
Tax and social security payables 441 441 Other creditors and miscellaneous liabilities -
Current liabilities - - 341 441 782
Total liabilities 159 11,787 - - 11,946
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Note 3.2 -Pro forma adjustments of the income statement at December 31, 2016
(in thousands of euros)
Acquisition accounting
Transaction expenses
Change of control -shares
without voting rights clause
Pro forma adjustments
Note 3.3.2 Note 3.3.3 Note 3.3.4
Revenue -
Cost of sales -
Gross margin - - - -
Other income -
Net R&D expensesResearch and development
expenses (2,293) (2,293)
Subsidies -
General and administrative expenses (8,388) (233) (2,130) (10,752)
Operating profit/(loss) (8,388) (233) (4,423) (13,045)
Financial expenses -
Financial income -
Profit/(loss) before tax (8,388) (233) (4,423) (13,045)
Tax expense -
Net profit/(loss) (8,388) (233) (4,423) (13,045)
Group share (8,388) (233) (4,423) (13,045)
Minority interests - - - -
Note 3.3 - Notes to pro forma adjustments
Note 3.3.1 - Operations prior to the transaction within Genkyotex Suisse SA
Prior to the transaction, on January 16, 2017 Genkyotex Suisse SA decided to issue 169,854 participation certificates at a par value of CHF 1, for a capital increase of around € 159,000 and to attribute self-held participation certificates.
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Note 3.3.2 - Acquisition accounting
Reverse acquisition - cost of listing
Capital increase of Genkyotex
SA (formerly Genticel SA)
Cancellation of shareholders’
equity of Genkyotex SA
(formerly Genticel SA)
Fair value of Genkyotex
SA (formerly Genticel SA)
Cost of listing
Reclassification of equity
Acquisition accounting
LIABILITIES
Capital 6,228 (7,785) - - 2,885 1,328
Additional paid-in capital 113,772 (162,121) - - 112,198 63,849 Other comprehensive profit/(loss) - (43) - - 43 -
Reserves - Group share - 29,409 33,476 - (107,885) (45,001)
Result - Group share - 7,240 - (8,388) (7,240) (8,388)
Equity, Group share 120,000 (133,300) 33,476 (8,388) - 11,787
Minority interests - - - - - -
Total equity 120,000 (133,300) 33,476 (8,388) - 11,787
Note 3.3.2.1 - Capital increase of Genkyotex SA (formerly Genticel SA)
On the date of the contribution, Genkyotex Suisse SA shares were exchanged for new shares of Genkyotex SA (formerly Genticel SA) at an exchange ratio of 11.8355 Genkyotex SA (formerly Genticel SA) shares for 1 Genkyotex Suisse SA.
Considering the 5,262,133 shares of Genkyotex Suisse SA in circulation on February 28, 2017, 62,279,951 shares of Genkyotex SA (formerly Genticel SA) were issued on the same date, bringing on a capital increase of €6,228,000 and issue premium of €113,772,000 based on the valuation of Genkyotex Suisse SA of €120,000,000.
Note 3.3.2.2 - Reverse acquisition and cost of listing
Genkyotex Suisse SA is deemed the purchaser from an accounting perspective (see Note 1.2). Accordingly, it is appropriate to determine the fair value of Genkyotex SA (formerly Genticel SA) at the date of the contribution (refer to Note 1.3.3.), as the difference with identifiable assets and liabilities of Genkyotex SA (formerly Genticel SA) constitutes a cost of listing.
In the interest of pro forma financial information, the fair value of Genkyotex SA (formerly Genticel SA) was determined on the basis of its share price on February 28, 2017. It is expressly stated that this share price shall in no way be construed as the intrinsic value of the Genkyotex SA (formerly Genticel SA) share.
Number of shares of Genkyotex SA (formerly Genticel SA) outstanding as of February 28,
2017: 15,570,055 shares
Closing share prices on February 28, 2017: €2.15
Purchase price of Genkyotex SA (formerly Genticel SA): €33,476,000
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Note 3.3.2.3 - Reclassification of equity
Inasmuch as Genkyotex SA (formerly Genticel SA) is the purchaser from the legal standpoint, the structure of shareholders’ equity was restated to reflect share capital, its premiums and legal reserves and the balance posted to consolidated reserves - Group share.
Note 3.3.3 - Costs relating to the transaction
Costs related to the transaction subsequent to December 31, 2016, are estimated at €341,000 by Genkyotex SA (formerly Genticel SA) and €83,000 by Genticel Suisse SA.
Costs amouting to €100,000, directly related to issuing Genkyotex SA (formerly Genticel SA) shares and incurred subsequent to December 31, 2016, were deducted from shareholders’ equity in accordance with IAS 32.
Costs amounting to €8,000, directly related to Genkyotex Suisse SA legal transactions and incurred subsequent to December 31, 2016, were deducted from shareholders’ equity in accordance with IAS 32, deducted from reserves.
Other costs amounting to of €233,000, relating to the transactions and incurred subsequent to December 31, 2016, were booked as a charge in “Overheads and administrative expenses”.
Note 3.3.4 - Participation certificates (shares without voting rights) – change of control clause
Genkyotex Suisse SA participation certificates issued under the 2012 stock incentive plan include a change of control clause. In application of this clause, the restriction periods for a participation certificates expire. The acceleration of the vesting period for plans already issued and of the additional issue under review (refer to Note 3.3.1) is reflected in the pro forma income statement as of December 31, 2016, according to the principles of IFRS 2. This represents a charge of €4,423,000 with a counterparty of €3,982,000 in shareholders’ equity (share-based payment settled via shareholders’ equity instruments) and €441,000 in social security liabilities (share-based payment settled in cash). The IFRS 2 charge was split between “Research & Development Expenses” and “Overheads and administrative expenses”, depending on the assignment of beneficiaries of these allocations.
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20.2.3. Statutory Auditors’ report on pro forma financial information for the period January 1 -December 31, 2016
“
Statutory Auditors’ report on pro forma financial information for the period January 1 - December 31, 2016
Genkyotex SA (formerly Genticel)
To the Chairman of the Board of Directors,
As statutory auditors and pursuant to EC Regulation 809/2004 we have prepared this report on the pro forma financial information of Genkyotex (formerly Genticel) for the period of January 1 -December 31, 2016 included in Section 20.2 of the Registration Document.
This pro forma financial information was prepared solely to illustrate the impact the contribution of Genkyotex Suisse SA shares to Genkyotex SA (formerly Genticel) could have had on the balance sheet at December 31, 2016 and on the income statement for the period of January 1 - December 31, 2016 of Genkyotex SA (formerly Genticel) if the transaction had taken effect at December 31, 2016 with regard to the balance sheet, or on January 1, 2016 with regard to the income statement. By their very nature, these describe a hypothetical situation and are not necessarily representative of the financial situation or the performance that could have been achieved if the transaction or event had occurred on a date prior to that actually occurring or planned.
This pro forma financial information was prepared under your responsibility in application of EC Regulation 809/2004 as well as the ESMA recommendations for pro forma financial information.
It is our role, on the basis of our work, to express an assurance in the terms required by Appendix II, Point 7 of EC Regulation 809/2004 that the features of the pro forma financial information has been established fairly.
We conducted the due diligence we deemed necessary with regard to the professional doctrine of the French national auditing body Compagnie Nationale des Commissaires aux Comptes with regard to this assignment. This due diligence includes neither an audit nor a limited review of the underlying pro forma financial information. It consisted primarily in verifying that the basis upon which this pro forma financial information was prepared corresponds with the source documents as described in the notes to the pro forma financial information, in examining the conclusive elements that justify restatement of pro forma financial information an in conducting interviews with the management of Genkyotex SA (formerly Genticel) to collect information and explanations that we deemed necessary.
In our opinion:
- The pro forma financial information has been compiled in an appropriate manner, based on
the given information.
- This basis conforms to the accounting principles of the issuer.
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This report is issued for the sole purpose of registering the Registration Document with the AMF and may not be used in any other context.
Neuilly-sur-Seine and Toulouse, June 29, 2017
The Statutory Auditors
GRANT THORNTON
French Member of Grant Thorton International
SYGNATURES
Samuel Clochard Laure Mulin
“
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20.3. GENKYOTEX (FORMERLY GENTICEL) COMPANY’S FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2016
BALANCE SHEET
Genticel 12/31/2016 12/31/2015
Balance sheet - Assets in euros Amount Amort. Prov. Net book value Net book value
Stock subscribed but not called
INTANGIBLE ASSETS
Formation costs
Development costs
Concessions, patents, similar rights 95,522 53,858 41,664 54,017
Other intangible assets
PROPERTY, PLANT AND EQUIPMENT
Land
Buildings
Technical equipment, tooling 81,942
Other intangible assets 90,939 49,173 41,766 73,932
Property, plant & equipment in progressAdvances and down payments
FINANCIAL FIXED ASSETS
Other financial fixed assets 202,823 1,246 201,577 232,738
TOTAL FIXED ASSETS 389,284 104,277 285,007 442,629
STOCKS AND WORK IN PROGRESS
Raw materials and supplies 52,560
Intermediate and finished goods 43,661
Goods
Advances, down payments on orders
RECEIVABLES
Trade and related receivables 53,342 53,342 364
Other receivables 3,377,358 3,377,358 3,461,846
Stock subscribed and called, not paid in
OTHER
Short-term investments 3,043,068 3,043,068 11,000,226
Cash 9,707,906 9,707,906 10,672,529
ACCRUALS
Prepaid expenses 517,666 517,666 191,484
TOTAL CURRENT ASSETS 16,699,340 16,699,340 25,422,669
Translation losses
TOTAL ASSETS 17,088,624 104,277 16,984,347 25,865,299
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GENTICEL
Balance sheet - Liabilities in euros
12/31/2016 12/31/2015
EQUITY
Share capital or individual capital 1,557,006 1,554,109
Additional paid-in capital 48,292,846 48,205,447
Legal reserves 5,451 5,451
Untaxed reserves 18,326,101 18,326,101
Other reserves 103,563 103,563
Prior retained earnings (loss) (47,649,791) (37,082,638)
ReservesRESULTS FOR THE YEAR (profit or (loss)) (7,059,720) (10,567,153)
Operating grants
Untaxed provisions
TOTAL EQUITY 13,575,456 20,544,880
OTHER EQUITY
Income from the issue of equity instruments
Conditional advances 957,223 2,609,814
TOTAL OTHER EQUITY 957,223 2,609,814
PROVISIONS FOR CONTINGENCIES AND CHARGES
Provisions for contingencies
Provisions for charges 720,061 -
TOTAL PROVISIONS 720,061 -
LIABILITIES
Convertible bonds - 612
Other bonds
Bank borrowings and debt 169 174
Borrowings, financial debt Other
Advances and installments received on orders in progress
Trade and related payables 571,263 1,886,424
Tax and social security payables 1,081,496 821,340
Debt to suppliers of fixed assets
Other liabilities 78,679 2,055
ACCRUALS
Deferred income
TOTAL LIABILITIES 1,731,607 2,710,605
Translation adjustment - liabilities
TOTAL LIABILITIES 16,984,347 25,865,299
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INCOME STATEMENT
GENTICEL 12/31/201612 months
12/31/201512 monthsIncome statement in euros
OPERATING INCOME
Goods sold
Production sold 222,300 89,371
NET REVENUE 222,300 89,371
Stored production (43,661) 43,661
Capitalized production
Operating subsidies 200 375
Reversals of depreciation and provisions, transfers of expenses 75,174 61,968
Other income 1,082,222 88,457
TOTAL OPERATING INCOME 1,336,235 283,832
OPERATING EXPENSES
Purchase of trading goods
Change in inventories of trading goods
Purchase of raw materials, other supplies 60,089 155,294
Change in inventory of raw materials and supplies 52,560 (21,091)
Other purchases and external expenses 6,515,511 9,866,379
Other taxes, levies and similar payments 103,451 74,694
Salaries and wages 3,141,584 2,380,102
Social security contributions 1,392,953 1,000,641
OPERATING PROVISIONS
Depreciation charges on assets 72,568 55,956
Provision on current assets
Provision for loss and contingencies 720,061 -
Other expenses 154,083 150,672
Total operating expenses 12,212,860 13,662,647
PROFIT/(LOSS) FROM OPERATING ACTIVITIES (10,876,625) (13,378,815)
Financial income 195,531 178,657
Financial expenses 7,410 8,191
Financial profit/(loss) 188,121 170,466
PROFIT/(LOSS) BEFORE TAX (10,688,504) (13,208,349)
Non-recurring income 823,498 33,507
Non-recurring expenses 153,969 428,566
NON-RECURRING PROFIT/(LOSS) 669,529 (395,059)
Employee profit-sharing
Income taxes (2,959,255) (3,036,255)
PROFIT/(LOSS) FOR THE YEAR (7,059,720) (10,567,153)
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NOTES TO THE ANNUAL FINANCIAL STATEMENTS
Notes to the financial statements for the year ended 12/31/2016, showing a balance sheet total of €16,984,347, an income statement in the form of a list covering the period 01/01/2016 to 12/31/2016, showing a book loss of €7,059,720.
The following notes and tables form an integral part of the financial statements of the Company that were approved by the Executive Management Board on March 22, 2017.
Background information concerning the Company and its business:
Created in October 2001, Genticel is a French limited liability company (société anonyme) with the following corporate purpose in France and internationally: research, study, development, manufacturing and distribution of medicines and drug and health products in the field of human and animal health. Genticel’s research focuses on developing immunotherapies (therapeutic vaccines) GTL001 and GTL002 for women infected by high risk types of the human papillomavirus (HPV) and GTL003, its versatile platform Vaxiclase, used as an antigen against whooping cough under a contract with its Indian partner SIIL.
Genticel has been listed on the Euronext market in Paris and Brussels since April 8, 2014.
Registered office: Prologue-Biotech - 516 Rue Pierre et Marie Curie - 31670 Labège, France
Toulouse Trade and Companies Register (RCS) N°: 439 489 022
NOTE 1 – SIGNIFICANT EVENTS OF THE YEAR AND REMINDERS
1.1 GRANTING OF THE GTL003 LICENSE GENERATING REVENUE
In February 2015, Genticel signed a licensing agreement with the pharmaceutical company, Serum Institute of India Ltd. (SIIL), the world's largest producer of vaccines doses, relating to its Vaxiclase (GTL003) technology for the development by SIIL of acellular multivalent combination vaccines containing antigens countering whooping cough.
As counterpart for access to and use of the Vaxiclase platform in the authorized indication, Genticel could receive up to US $57,000,000 in initial payments and milestone payments on development and sales, as well as royalties as a percentage of net sales.
This licensing agreement gave rise to total invoicing of €177,742 ($200,000) during 2015, corresponding to the delivery of Vaxiclase for €89,371 and an up-front fee of €88,371.
Contract-based revenues continued to flow in during 2016, in a total amount of €1,304,060 ($1,450,00), corresponding to the delivery of Vaxiclase and related services in the amount of €222,300 ($250,000), as well as a milestone payment of €1,081,760 ($1,200,000). This payment resulted from the completion of the final pre-clinical stage of the agreement in November 2016. (See note 5.1 “Revenue and other operating income”).
The Company concluded a key step in the partnership with the Serum Institute of India in the fourth quarter of 2016, concerning the use of GTL003 in multivalent vaccines, SIIL having evaluated the benefits of the use of GTL003 (Vaxiclase used ans an antigen) in new, higher performance vaccines for which it obtained excellent pre-clinical results. Genticel's proprietary, re-engineered adenylate cyclase “GTL003” fulfilled its predetermined objectives in pre-clinical in vivo experiments. This was the last pre-clinical phase of the agreement, which led to a $1.2 million payment.
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At the same time, the company was awarded a new patent in the United States bearing patent number 9,499,809 and titled “CyaA-based chimeric proteins comprising a heterologous polypeptide and their uses in the induction of immune responses”. One of the provisions of this patent protects Vaxiclase when used as a product, such as GTL003, which is the case in the partnership between Genticel and the Serum Institute of India.
1.2 HALTING OF THE DEVELOPMENT PROGRAM OF THE GTL001 AND GTL002 PRODUCT CANDIDATES AND CONSEQUENCES
The Company decided to halt its development program of treatment to counter HPV infections, due to a lack of results sufficiently convincing at the outcome of Phase 2 of the clinical study of GTL001, its main immunotherapeutic candidate for HPV16/18 infections.
The final results of the 24-month study carried out on women infected by PPV16/18 presented on December 13, 2016, showed no statistical differences in viral clearance rates between the GTL001 and placebo groups and no difference between the groups in the incidence of subjects progressing to high-grade lesions. These results confirmed the twelve-month and eighteen-month results that were published in January and July of 2016 respectively.
The Group is now focused on seeking new product candidates, as well as moving forward with its partnership with the Serum Institute. It implemented an internal restructuring plan in 2016, which includes a reduction in staff through layoffs on economic grounds and in December 2016, announced a strategic combination plan with the Swiss biopharmaceutical company Genkyotex.
PLAN FOR DOWNSIZING ON ECONOMIC GROUNDSThe Company implemented layoffs on economic grounds in two phases for 26 individuals: the first phase concerned nine individuals at the end of the first half of 2016 and the second, which began during the last four months of 2016 and extended into the first quarter of 2017, concerned 17 employees. This downsizing plan incurred a total charge of €2,347,595 during 2016, reported as operating results, of which €688,061 appear under provisions risks and contingencies (severance pay for layoffs in the second phase and for layoffs notified in 2017) and €769,296 in payable costs to include the cost of layoffs notified in 2016, concerning employees present on December 31, 2016: severance pay, notice time not worked, outplacement, social charges and financing of CSP contracts, as appropriate. See Notes 4.5 and 5.2.
THE STRATEGIC COMBINATION PROJECT WITH GENKYOTEXIn July 2016, the Company began to evaluate its strategic options (see Note 1.2), with special emphasis on easing its access to innovative drug candidates, as appropriate, through a merger or acquisition.
This evaluation process led to the signature, on December 22, 2016, of an in-kind contribution agreement with the Swiss biopharmaceutical company Genkyotex, a pioneer in research and development of NOX therapies, concerning all of its actions and the issue of new Genticel shares in compensation. At the outcome of this transaction, which was to be approved by the shareholders of the two companies in an extraordinary General Shareholders’ meeting on February 28, 2017, Genkyotex shareholders would own 80% of the share capital and voting rights in Genticel on an undiluted basis. It is stated that the main shareholders of the Company, together with certain employees and corporate officers, representing a total of 51% of the share capital and voting rights of Genticel on a non-diluted basis, committed to voting to approve the planned operation.
The combination was to result in a new European Group involved in developing a portfolio of NOX inhibitors, representing a new therapeutic class in fibrosis and inflammatory pain.
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The information memo regarding the transaction required under Article 212-34 of the AMF General Regulations (Document E) was submitted and registered with the AMF in January 2017 and the statutory auditors’ reports on the value of the asset transfers and on the exchange parity of the transaction were filed on the same date.
External fees and costs borne by the Company as of December 31, 2016, for carrying out the transaction which amounted to €383,271, were offset in pre-paid expenses while awaiting their possible transfer to the issue premium, if it amounted to a positive sum in early 2017. If it did not, the charge would be reported as non-recurring expenses.
SURRENDER OF PREMISES, DISPOSALS, SCRAPPING OR DONATION OF FIXED ASSETSPursuant to the refocusing of its business and to the strategic combination with Genkyotex, who already has premises in France, the Company shut down its research laboratories at the Labège site at the end of 2016 and decided to give up its premises in Labège, through notice given at the end of 2016 and Paris, after a decision made in January 2017, an early termination of the lease having been renegotiated in February, 2017 in exchange for an indemnity representing one year’s rent excl. tax in the amount of €99,000.
Furthermore, the Company booked a provision for charges as of December 31, 2016, in the amount of €32,000, based on estimates for restoring the Labège premises to their original condition as per contractual obligation.
Simultaneously, it sold off a part of its laboratory and IT equipment for the sum of €23,200, with the remainder scrapped or donated, and scrapped its software, office equipment, furniture and fittings no longer used as of December 31, 2016. All of the these transactions regarding fixed assets generated an overall capital loss on the disposal, or an outflow of fixed assets in the amount of €44,077.
1.3 CAPITAL INCREASE TRANSACTIONS
A number of capital increases completed in cash, resulting from the exercise of BSPCE, were carried out in 2016 and noted by the Board Meetings of April 4, 2016, May 11, 2016, June 6, 2016 and June 30, 2016.
All of these transactions are disclosed in Note 4 “Balance sheet liabilities”, Section 4.1 "Share capital”.
1.4 REPAYABLE ADVANCES, OSEO
Two of the three agreements for repayable advances signed with OSEO in 2011 and 2013, specifically on March 9, 2011 as part of the “development and clinical trials of a cancer vaccine” and on January 11, 2013, as part of the “extension of Phase II clinical trials of ProCervix” were pursued in 2016 and, as of December 31, 2016, were still being repaid.
The third agreement, concluded on March 7, 2013 as part of the global strategic industrial innovation project “MAGenTA”, was confirmed as a technical failure in the final quarter of 2016, which triggered the repayment of unwarranted receipts in the amount of €413,174 by the Company and the abandonment of a receivable for the balance from the financing entity in the amount of €768,817, which was reported as non-recurring income.
Key information about MAGenTA and impact on the financial year are disclosed in Note 4 – Notes to Balance Sheet Liabilities, paragraph 4.4 “Other Equity”
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1.5 2014 INITIAL PUBLIC OFFERING (IPO)
On April 4, 2014, the Company placed an initial public offering on the Euronext regulated markets in Paris (Compartment C) and Brussels, as a vehicle to finance its continuing research and development activities in therapeutic vaccines in the field of human health for the short and medium term.
This operation raised a total €34,670,666.80 through:
the issuance on April 8, 2014, of 4,367,088 new shares at €7.90 per share, corresponding to the par value per share of €0.10 plus an issue premium of €7.80 for a total of €34,499,995.20, as part of an open price public offering
additionally, the issuance on May 2, 2014, of 21,604 new shares at €7.90 per share (as above) for a total of €170,671.60 under the terms of Article L.225-135-1 of the French Commercial Code and resulting from the exercise of the over-allotment option granted to underwriters, joint lead managers and joint book runners.
This dual capital increase transaction raised €438,869.20, accompanied by a total issue premium of €34,231,797.60.
The securities issuance costs connected with this IPO, amounting to €3,216,095.27, were posted to the issue premium (in accordance with guidance no. 2000-D of the Emergency Committee of the French National Accounting Board (CU CNC) of December 21, 2000).
Some of the proceeds from the call for funds went into cash investments in various non-risky liquid vehicles (primarily capitalization contract in euro with a guaranteed minimum rate of return, mutual funds, term deposits, interest-bearing accounts).
A liquidity contract was also signed with an investment services provider.
NOTE 2 – ACCOUNTING PRINCIPLES, RULES AND METHODS
The accounting conventions have been adopted in compliance with the principle of prudence and in accordance with the following basic assumptions:
Business continuity (see below) consistency of methods from one financial period to the next independence of financial years- segregation of accounting periods
and, in accordance with the general rules for the preparation and presentation of annual financial statements under French generally accepted accounting principles, in particular the regulatory provisions in the general accounting plan (ANC rule 2014-03 amended by ANC rule 2016-07).
The historical cost method has been adopted as the basic method of accounting.
The business continuity assumption was adopted by the Executive Board, taking into account the Company’s financial capacity to cover its short- and medium-term financing needs, in light of its available cash position as of December 31, 2016, (€12.75 million) and the payment of the expected 2016 CIR (€2.95 million).
The Company’s deficit position over the course of the reporting periods reflects the stage of development of its immunotherapy candidates (especially ProCervix and Multivalent HPV), which required high and increasing expenditure.
The main measurement methods used are described below.
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2.1 INTANGIBLE ASSETS
DEVELOPMENT EXPENSES
Development expenses incurred by the Company as part of its activities are reported directly as operating expenses by type of expense incurred: R&D services, external expenses, personnel expenses, depreciation of fixed assets, purchase of miscellaneous products and goods, etc. In accordance with the most frequently encountered and accepted in industry practices, development work is assigned to expenses due to the risks and uncertainties linked to regulatory authorizations and the development process. Although the six activation criteria specified in Articles 211-1 to 211-3 of the General Accounting Plan (must be identifiable, controlled by the Company, have future economic benefits, used longer than one financial year, can be reliably measured) were deemed not to have been satisfied once the marketing authorization for the vaccine was obtained, this is no longer the case for the Company.
SOFTWARE AND WEBSITE ACQUIRED BY THE COMPANY
Software and website development are reported at their acquisition cost and amortized using the straight line method over 1 and 3 years, respectively.
PATENTS
Expenses incurred in filing, maintaining and protecting “internal” patents developed by the Company are reported in dedicated lines under operating expenses (line 622720 “Internal patent management expenses” and 637820 “Taxes / internal patents") and follow the same accounting principles as development expenses. Only “external” patents acquired or received in contribution, are capitalized and depreciated using the straight line method over their remaining validity period by reference to their filing date (priority date).
BRANDS
Trademark registration costs incurred by the Company are capitalized and are not amortized.
2.2 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are valued at their acquisition cost (purchase price plus ancillary expenses) or at their production cost.
2.3 DEPRECIATION AND AMORTIZATION
Depreciation for impairment to value of fixed assets is calculated on a straight line basis, depending on expected period of use:
Software: 1 year Website: 3 years External patents acquired or received via contribution: length of validity remaining with relation
to the priority date Fixtures and fittings of laboratories: 3 years Fixtures and fittings of Paris premises: 9 years (lease period) Laboratory equipment: from 3 to 6 years Office equipment and furniture: from 3 to 5 years Miscellaneous furnishings: 5 years IT equipment: 3 years
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2.4 INVENTORIES
Inventories, strictly speaking, consisting of products and consumables inherent in the research work, are valued using the first in, first out method. Put simply, the latest known purchase price is used. A provision for impairment is entered when the inventory value is less than the carrying amount.
Inventoried products aa of December 31, 2015, made up of "Vaxiclase" GTL003 developed by the Company, are measured at their direct internal cost plus direct external cost incurred in their manufacture.
2.5 CLINICAL LOTS
The costs inherent to the production of the clinical lots used in clinical trials are reported directly as operating expenses by type and accordingly, are treated the same way as development expenses.
2.6 RECEIVABLES
Receivables are measured at their par value. A provision for impairment is constituted when the inventory value is less than the carrying amount.
2.7 MARKETABLE SECURITIES
Marketable securities include securities held for sale and a capitalization contract.
MARKETABLE SECURITIES
The gross value of securities held for sale is measured as the acquisition cost, excluding ancillary expenses. When the inventory value is less than the gross value, a provision for impairment is reported for the amount of the difference. Where the carrying value is lower than the at cost value, a provision for impairment is recorded for the difference.
CAPITALIZATION CONTRACT
The capitalization contract signed in financial year 2014 with NATIXIS LIFE in the amount of €5,000,000, is similar to available cash and cash equivalent invested in the short/medium-term and is recorded as such on the balance sheet as “Class 5” in the line item "Marketable securities" based on:
- the Company’s investment objectives (surplus cash assets connected with the 2014 IPO in liquid and available form with the expectation of using them to finance its R&D activities in the near future, with no real intention to hold them for the long term),
- the characteristics of the investments: investments in euro-denominated funds and guaranteed minimum returns, unfettered use of funds, including total or partial redemption at any time (subject to contractual redemption penalties in the first three years),
no legal or contractual lock-in provisions (no preventive detention period);
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2.8 CASH AND CASH EQUIVALENTS
Cash and cash equivalents include the following assets: current accounts at banks, interest-bearing surplus cash accounts, cash in hand and interest-bearing term-deposit accounts immediately accessible, regardless of contractual term.
2.9 CAPITAL INCREASE AND SECURITIES ISSUANCE EXPENSES
Capital-increase expenses and other securities-issuance expenses (external costs) are posted directly to the issuance premium before taxes.
Various consulting fees relating to the IPO, were posted before taxes to the issuance premium, taking into account the success of the IPO in April 2014, in accordance with CNC CU Opinion 200-D of December 21, 2000.
2.10 COMPETITIVENESS AND EMPLOYMENT TAX CREDIT (CICE)
The CICE introduced by 2012-1510 of December 29, 2012, Article 66 effective January 1, 2013, is reported on the credit side of personnel expense, on a dedicated line 649000 "CICE" in accordance with the possibility offered by the French Accounting Standards Board (ANC) (ANC information note of February 28, 2013), with counterpart in dedicated line 444300 as other receivables.
The CICE can be used to pay the corporate income tax due in the year the expenses are incurred plus the three following years or, as the case may be, any surplus tax paid can be rebated.
2.11 LIQUIDITY CONTRACT
Following the IPO in April 2014, the Company signed a liquidity contract on April 18, 2014, with an investment services provider, mandating it to trade on the market to stimulate the liquidity and regular listing of its shares and avoid share price discrepancies not justified by market trends.
This contract was signed in accordance with the applicable European and French laws and regulations (Regulation EC 2273/2003 of December 22, 2003, Directive 2003/6/EC, Articles L.225-209 and subsequent of the French Commercial Code) and market practices (AMF decision 2011-07 and AMF ethics charter of March 21, 2011).
The recognition principles adopted by the Company are consistent with the guidance from the French national auditing body Compagnie Nationale des Commissaires aux Comptes (quarterly bulletin no.137 March 2005): The cash part (ie., cash, strictly speaking), is reported in account 276100 “Other capitalized receivables” and the shares portfolio is reported in account 277100 “Treasury shares” based on periodic statements of the transactions conducted by the service provider. Realized gains and losses from buying and selling treasury shares are reported in accounts 778300 “Gain on treasury share buybacks” and 678300 “Loss on treasury share buybacks». The portfolio is measured at period-end at cost price. A provision for financial impairment is reported if an unrealized loss is identified.
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2.12 PROVISIONS FOR LOSS AND CONTINGENCIES
Provisions for loss and contingencies correspond to liabilities existing on the end date ofa financial year whose maturities or amounts are not accurately set.
In accordance with guidance no. 00-01-D of the Emergency Committee of the French National Accounting Board (CU CNC) dated December 21, 2000, the company recognizes a provision for loss and contingencies, when an obligation to a third party exists on the date the accounts are closed, for which it is probable or certain that, on the close date, the obligation will result in a payment to this third party without an amount at least equivalent in return, and for which the amount may be reliably measured.
That reported amount corresponds to the reliable estimate of the cost for eliminating the obligation.
NOTE 3 – NOTES TO THE BALANCE SHEET - ASSETS
3.1 TRADE RECEIVABLES
Trade receivables 12/31/2016 12/31/2015
Invoicing for the sale of fixed assets and costs 12/2016. 43,115 -
Invoicing to be accomplished / Repayment of patent costs 12/2016. 10,227 -
Miscellaneous trade receivables - 364
Total 53.342 364
3.2 OTHER RECEIVABLES
OTHER RECEIVABLES 12/31/2016 12/31/2015
Credit notes / R & D and other services - 110.862
Receivables from suppliers(1) 129,858 -
Advances and down payments - Personnel (2) 96,644 -
Research Tax Credit 2,951,380 3.000.452
CICE tax credit 6,016 27.596
Deductible VAT on services 14,785 32.078
Foreign VAT pending 486 3.473
VAT credit payable fourth quarter 107,727 254.210
VAT/ Trade invoices not received 67,110 32.492
Payroll advances - 683
Income receivable / CET rebate 3,352 -
Total 3.377.358 3.461.846
(1) Receivables related to the halting of service provider contracts connected with the halting of research and development activities, for the immunotherapeutic product candidates GTL001 and GTL002. These amounts must either be reimbursed (€73,885) or used (€55,974) in 2017, as part of studies in connection with the SIIL partnership.
(2) Advance/payment of the final settlement of laid-off employees currently under notice as of December 31, 2016.
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3.3 CASH AND CASH EQUIVALENTS
The following is a summary of net cash position:
VEHICLE 12/31/2016UNREALIZED
GAIN OR LOSS 31/12/2016
12/31/2015
Marketable securities/Mutual funds 940 +1 6,000,226
Capitalization contract (1) 3,042,128 (256,426) 5,000,000
Sub-total of marketable securities 3,043,068 256,427 11,000,226
Bank accounts 4,661,869 - 2,642,193
Term deposits 5,000,000 - 5,000,000
Interest bearing surplus cash account 204 - 3,006,360
Accrued interest / term-deposit interest / CET 45,833 - 23,976
Accrued bank charges - 169 - - 174
Subtotal of cash and cash equivalents 9,707,737 - 10,672,355
Total 12,750,805 +256,427 21,672,581
(1) See Note 2,7 “Marketable securities”.
The capitalization contract, initially subscribed for €5,000,000 € in 2014, was partially redeemed on November 25, 2016, in the net amount of €2,000,000, generating a capital gain of €52,229 (financial income) and penalties of €10,101 reported as a non-recurring expense. Annual management fees for 2014 and 2015 not yet submitted at the time by Natixis, were also settled as of December 31, 2016, in the amount of €41,114. These were reported as a non-recurring expense with an offsetting item in payables.
3.4 LIQUIDITY CONTRACT
The initial payment made on April 22, 2014, amounted to €200,000. The main items relating to the liquidity contract (see Accounting principles Note 2.11 “Liquidity contract”) at December 31, 2016, were as follows:
ITEMS 12/31/2016 12/31/2015
Initial payment on April 22, 2014 €200,000 €200,000
Total gain or loss for sales over the year (€30,515) €29,783
Account heading (line 277100 “treasury shares")Number of treasury shares:Cost of treasury shares:Closing price of treasury shares:
23,80061,594
€2,53
15,051€96,173
€6,68
Cash account (line 276100 “Other capitalized receivables”) €120,812 €116,748
Unrealized gain or loss 12/31 (€1,246) €4,268
Booking or write-back of provision for unrealized loss (€1,246) €721
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3.5 PREPAID EXPENSES
PREPAID EXPENSES 12/31/2016 12/31/2015
Costs for capital increase / Genkyotex securities transactions in 2017
383,271 -
Maintenance equipment and other items 4,053 8,379
Third party liability insurance for clinical trials - 76,237
Other third party liability insurance 14,036 14,178
Other communication 2,403 3,952
Rent and other lease expenses Paris 27,833 27,833
Rental of furnishings (copiers, etc) 4,497 -
Conference expenses - 16,150
R&D and consulting service providers 74,163 37.201
Miscellaneous (Subscriptions, telecoms, management of shareholders database)
7,411 7.554
Total 517.666 191.484
NOTE 4 – NOTES TO THE BALANCE SHEET - LIABILITIES
4.1 SHARE CAPITAL, PREMIUMS LINKED TO SHARE CAPITAL AND RESERVES
Share capital was increased successively in financial years 2008, 2009, 2010, 2013, 2014, 2015 and 2016:
DUAL CAPITAL INCREASE DECIDED BY THE EGSM OF July 31, 2008, which included a 100-to-1 nominal-value split of shares resulting in the number of outstanding shares increasing by a factor of 100:
by compensation in shareholder receivables / current accounts in the amount of €17,276.30: 172,763 new shares created with a par value of €0.10 each and issue premium paid totaling €407,720.68;
in cash, in the amount of €80,000.40: 800,004 P1 preference shares issued with a par value of €1.10 each and issue premium paid totaling €2,320,011.60, posted to a special line of unavailable reserves "reserve for conversion of P1 preference shares” in accordance with the decisions of the Extraordinary General Shareholders’ Meeting of July 31, 2008.
DUAL CAPITAL INCREASE DECIDED BY THE COMBINED GSM OF OCTOBER 26, 2009:
in cash, in the amount of €269,113.30: 2.691.133 P1 preference shares issued with par value €0.10 each and issue premium paid totaling €7,804,285.70, or €2.90 per share, posted to a special line of unavailable reserves "reserve for conversion of P1 preference shares” in accordance with the decisions of the Extraordinary General Shareholders’ Meeting of July 31, 2008.
in cash, in the amount of €66,666.70: 666.667 P1 preference shares issued with par value €0.10 each and issue premium paid totaling €1,933,334.30, or €2.90 per share, posted to a special line of unavailable reserves "reserve for conversion of P1 preference shares” in accordance with the decisions of the Extraordinary General Shareholders’ Meeting of July 31, 2008. This capital increase was reported by the Executive Board at its meeting of December 17, 2009, after the agreement of the Supervisory Board meeting of December 10, 2009, in accordance with the decisions taken by the Combined General Shareholders’ Meeting of October 26, 2009.
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CAPITAL INCREASE DECIDED BY THE COMBINED GSM OF FEBRUARY 22, 2010:
in cash, in the amount of €3,000,000: 1,000,000 P1 preference shares issued with a par value of €1.10 each and issue premium paid totaling €2,900,000 (being €2.90 per share) posted to a special line of unavailable reserves "reserve for conversion of P1 preference shares” created by the Extraordinary General Shareholders’ Meeting of July 31, 08.
CAPITAL INCREASE NOTED BY THE EXECUTIVE BOARD ON DECEMBER 23, 2010:
in cash, in the amount of €11,929.90: 119,200 new ordinary shares issued with par value €0.10 each following the exercise of 1,193 BSA initially authorized and decided by the EGSM of November 26, 2004.
TRIPLE CAPITAL INCREASE DECIDED BY THE COMBINED GSM OF APRIL 22, 2013:
in a nominal amount of €117,424.40 by compensation in receivables (convertible bond 2012/2013 and associated accrued interest) and 1,174,244 new P3 preference shares created with a par value of €0.10 each, with an issuance premium of €3.90 per share, being a total issued premium of €4,579,551.60, the capital increase measured by the Executive Board on May 28, 2013.
in a nominal amount of €84,674.70 by compensation in cash, and 846,747 new P3 preference shares created with par value of €0.10 each, with an issuance premium of €3.90 per share, being a total issued premium of €3,302,313.30, the capital increase measured by the Executive Board on May 28, 2013.
in a nominal amount of €0.50 by compensation in cash, and 5 new P5 preference shares created with par value of €0.10 each, with an issuance premium of €3.90 per share, being a total issued premium of €19.50, the capital increase measured by the Executive Board on May 28, 2013.
EXERCISE OF BSAS AUTHORIZED BY THE COMBINED GSM OF MARCH 22, 2013:The BSA 2013 Closing 1 and 2 warrants issued by the Combined General Meeting of April 22, 2013, entitle their holders to subscribe to new P3 shares with a par value of €0.10 and an issuance premium of €3.90.
under the terms of an Executive Board decision of September 19, 2013, the sum of €29,987.70 was contributed corresponding to the exercise of 299,877 warrants (BSA 2013 Closing 1) giving the right to 299,877 P3 shares plus a total issuanc premium of €1,169,520.30.
under the terms of an Executive Board decision of December 30, 2013, the sum of €37,500 was contributed corresponding to the exercise of 375,000 warrants (BSA 2013 Closing 2) giving the right to 375,000 P3 shares plus a total issuanc premium of €1,462,500. The 2013 BSA Closing 2 expired on December 31, 2013.
under the terms of an Executive Board decision of January 24, 2014, the sum of €104,687.60 was contributed corresponding to the exercise of 1,046,876 warrants (BSA 2013 Partial Closing 1) giving the right to 1,046,876 P3 shares plus a total issuanc premium of €4,082,816.40. The BSA Closing 1 2013 could be exercised until December 31, 2015.
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CAPITAL INCREASES APPROVED BY THE EXECUTIVE BOARD, ON THE AUTHORIZATION OF THE COMBINED GSM OF MARCH 7, 2014, AS PART OF THE COMPANY’S IPO ON THE EURONEXT PARIS AND BRUSSELS MARKETS:
Capital increase in cash via a public offering, in the amount of €436,708.80 by the creation of 4,367,088 new ordinary shares, fully paid-up, with a par value of €0.10, plus an issue premium of €7.80 per share, for a total issuance premium of €34,063,286.40. This capital increase was approved and then confirmed by the Executive Board on April 3, 2014 and April 8, 2014 (total subscription €34,499,995.20 at an issuance price of €7.90 per share).
An additional capital increase in cash via a public offering, in the amount of €2,160.40 by the creation of 21,604 new ordinary shares, fully paid-up, with a par value of €0.10, plus an issuance premium of €7.80 per share, for a total issuance premium of €168,511.20. This capital increase was decided and then confirmed by the Executive Board on April 3, 2014 and May 2, 2014 (total additional subscription €170,671.60 at an issuance price of €7.90 per share). This latter transaction was conducted in accordance with Article L.225-135- 1 of the French Commercial Code, resulting from the exercise of the over-allotment option granted by the Executive Board to underwriters, joint lead managers and joint book runners.
DUAL CAPITAL INCREASE BY THE CONVERSION OF CONVERTIBLE BONDS APPROVED BY THE EXECUTIVE BOARD ON THE AUTHORIZATION OF THE COMBINED GSM OF MARCH 7, 2014:
par value of €15,516.40 by offsetting debt (automatic conversion of the 1st tranche of the convertible bond issued March 7, 2014) and the creation of 155,164 new ordinary shares at nominal €0.10 per share, plus an issuance premium of €7.80 per share for a total issuance premium of €1,210,279.20. This capital increase was confirmed by the Executive Board on June 2, 2014, (total subscription €1,225,795.60 at an issuanc price of €7.90 per share).
par value of €15,516.40 by offsetting debt (automatic conversion of the 2nd tranche of the convertible bond issued March 7, 2014) and the creation of 155,164 new ordinary shares at nominal €0.10 per share, plus an issuance premium of €7.80 per share for a total issuance premium of €1,210,279.20. This capital increase was confirmed by the Executive Board on September 30, 2014, (total subscription €1,225,795.60 at an issuance price of €7.90 per share).
All outstanding P1, P3 and P5 preference shares were automatically transformed into ordinary shares in April 2014 at a parity of one ordinary share for one preference share, immediately before the first stock exchange listing of the Company’s shares following the decision of the Combined General Shareholders’ Meeting of March 7, 2014.
SHARE CAPITAL WAS INCREASED FOUR-FOLD AS A RESULT OF THE EXERCISE OF BSPCES IN 2015:
- Under the terms of a Board decision of August 4, 2015, the sum of €1,769.90 corresponding to the exercise of 17,669 founders’ warrants (BSPCE plans of December 17, 2010, February 15, 2011, December 20, 2013 and May 14, 2014), giving the right to 17,699 ordinary shares plus a total issuance premium of €60,539.26.
Under the terms of a Board decision of September 10, 2015, the sum of €1,784.90, corresponding to the exercise of 17,849 founders’ warrants (BSPCE plans of November 30, 2005, September 30, 2011, December 20, 2013 and May 14, 2014), giving the right to 17,849 ordinary shares plus a total issuance premium of €55,126.21.
Under the terms of a Board decision of November 4, 2015, the sum of €870, corresponding to the exercise of 8,700 founders’ warrants (BSPCE plan of November 30, 2005), giving the right to 8,700 ordinary shares plus a total issuance premium of €24,510.
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Under the terms of a Board decision of December 3, 2015, the sum of €5,660.30, corresponding to the exercise of 56,603 founders’ warrants (BSPCE November 30, 2005, April 9, 2009, December 17, 2010, February15, 2013 and December 20, 2013), giving the right to 56,603 ordinary shares plus a total issuance premium of €167,831.70.
SHARE CAPITAL WAS INCREASED FOUR-FOLD AS A RESULT OF THE EXERCISE OF BSPCES IN 2016:
under the terms of an Executive Board decision of April 4, 2016, the sum of €40,740, corresponding to the exercise of 17,669 founders’ warrants (BSPCE plans of December 17, 2010, and September 30, 2011), giving the right to 13,580 ordinary shares plus a total issuance premium of €39,382.
under the terms of an Executive Board decision of November 11, 2016, the sum of €3,000, corresponding to the exercise of 1,000 founders’ warrants (BSPCE plan of December 17, 2010), giving the right to 1,000 ordinary shares plus a total issuance premium of €2,900.
under the terms of an Executive Board decision of June 6, 2015, the sum of €34,564, corresponding to the exercise of 10,516 foundes’r warrants (BSPCE plans of December 17, 2010, September 30, 2011 and December 20, 2013), giving the right to 10,516 ordinary shares plus a total issuance premium of €33,512.40.
under the terms of an Executive Board decision of June 30, 2016, the sum of €11,992, corresponding to the exercise of 3,873 founders’ warrants (BSPCE plans of December 17, 2010, February 15, 2013 and December 20, 2013), giving the right to 3,873 ordinary shares plus a total issuance premium of €11,604.70.
Following the various transactions taking place in 2016, share capital is now made up of 15,570,055 ordinary shares at a par value of €0.10, of which 23,800 non-voting treasury shares in bearer form.
As of December 31, 2016, share capital amounted to €1,557,005.50
SUMMARY OF THE CHANGE IN SHARE CAPITAL AND ASSOCIATED PREMIUMS OVER THE FINANCIAL YEAR:
Items / TransactionsNumber of
sharesPV (€) Capital
Premiums
linked to
share
capital
Total as of 12/31/2016 15,541,086 0,10 1,554,109 48,205,447
Exercise BSPCE 04/04/2016
Exercise BSPCE 5/11/2016
Exercise BSPCE 6/6/2016
Exercise BSPCE 6/30/2016
13,580
1,000
10,516
3,873
0,10
0,10
0,10
0,10
1,358
100
1,052
387
39,382
2,900
33,512
11,605
Total as of 12/31/2016 15,570,055 0,10 1,557,006 48,292,846
SECURITIES ISSUANCE EXPENSE POSTED TO THE ISSUANCE PREMIUM
External expenses incurred as part of the various capital increases transacted during financial year 2014 were posted directly to pre-tax issuance premium, for a total of €3,216,095 (see Note 2.9 "Accounting rules and methods: Capital increase expenses and securities issuance expenses"). They correspond to
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fees, disbursements and other expenses invoiced by the Company’s legal advisors, consultants, other service providers and auditors directly related to the transactions concerned.
RESERVES ITEM UNAVAILABLE
The unavailable reserves item "reserve for conversion of P1 preferred shares” was €14,957,632.
The unavailable reserves item "reserve for conversion of P3 preferred shares” was €3,368,450. The latter was created by decision of the Combined General Shareholders’ Meeting of April 22, 2013 and was increased at each creation of P3 preferred shares since then, by drawing from the issuance premium nine times the par value of the shares created.
4.2 BSA AND BSPCE WARRANTS
The status of ordinary warrants (BSA) and founders’ warrants (BSPCE) as of December 31, 2016, was as follows:
BSA authorized, granted and exercisable: 470,334BSPCE authorized, granted and exercisable: 584,066BSA and BSPCE authorized and not granted: 0 (530,000 BSA and BSPCE authorized and not granted by the Executive Board remain under the initial maximum combined ceiling of 675.000 automatically canceled on December 11, 2016, - by decision of the Combined General Shareholders’ Meeting of June 11, 2015).
BSA granted during the period: 0 BSPCE granted during the period: 100,000BSPCE exercised during the period: 28,969
BSA expired or canceled during the period: 0 BSPCE expired or canceled during the period: 417,477BSA subscribed and paid during the period: €0 BSPCE subscribed and paid during the period: €0
The Combined General Shareholders’ Meeting of March7, 2014 authorized the Executive Board, for a period of 18 months, to issue and grant 2,245,000 BSA and BSPCE (maximum combined ceiling) on the following terms:
1 BSA or BSPCE for one ordinary share at a par value of €0.10
Exercise price: weighted average of the last 20 stock exchange trading days immediately preceding the grant of warrants
Exercise period: 10 years
BSA beneficiaries: members and observers on the Company's Supervisory Board
BSPCE beneficiaries: Company executives and employees
BSA SUMMARY AS OF DECEMBER 31, 2016
Reference Beneficiaries:BSA issued 12/31/15
BSAexpired / canceled
BSAexercised
BSA issued 12/31/2016
Number of shares to be
issued
Exercise price
per share (€)
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BSA 07/2008 Investors 133,334 - - 133,334 133,334 3,00
BSA 10/2008 Executives 30,800 - - 30,800 30,800 3,00
BSA 02/2010 Executives 155,200 - - 155,200 155,200 3,00
BSA 12/2013 Executives 116,000 - - 116,000 116,000 4,00
BSA 09/2014 Executives 35,000 - - 35,000 35,000 5,79
Total 470,334 - - 470,334 470,334 -
The exercise period of all BSA is 10 years from their issue.
BSPCE SUMMARY AT DECEMBER 31, 2016
Reference Beneficiaries:Exercise BSPCE
12/31/2015
BSPCE issued
and allocated
BSPCE expired /canceled
BSAexercise
d
BSPCE 12/31/2016
Number of shares to be issued
Exercise price
per share (€)
BSPCE 02/2007
Executives & Employees
28,000 - - - 28,000 28,000 2,90
BSPCE 04/2009 60,740 - 43,120 - 17,620 17,620 3,00
BSPCE 12/2010 160,180 - 96,500 15,080 48,600 48,600 3,00
BSPCE 09/2011 9,000 - - 9,000 - - 3,00
BSPCE 06/2012 13,000 - - - 13,000 13,000 3,00
BSPCE 12/2012 11,750 - 3,456 - 8,294 8,294 3,00
BSPCE 02/2013 10,500 - 7,500 1,500 1,500 1,500 3,00
BSPCE 12/2013 112,718 - 34,636 3,389 74,693 74,693 4,00
BSPCE 05/2014 466,975 - 119,616 - 347,359 347,359 6,77
BSPCE 12/2014 7,590 - 7,590 - - - 5,66
BSPCE 04/2015 5,059 - 5,059 - - - 6,93
BSPCE 09/2015 45,000 - - - 45,000 45,000 7,74
BSPCE 03/2016 - 100,000 100,000 - - - 4,19
Total 930,512 100,000 417,477 28,969 584,066 584,066 -
The exercise period of all BSPCE warrants is 10 years from their issue.
4.3 CHANGE IN SHAREHOLDERS’ EQUITY
Item 12/31/2015 Increase Reduction 12/31/2016
Capital 1,554,109 2,897 - 1,557,006
Issue premium (1) 47,869,660 87,399 - 47,957,059
BSA paid 335,223 - - 335,223
BSPCE paid 564 - - 564
Legal reserve 5,451 - - 5,451
Reserve for P1 conversion 14,957,632 - - 14,957,632
Reserve for P3 conversion 3,368,470 - - 3,368,470
Other reserves 103,563 - - 103,563
Retained losses (37,082,638) (10,567,153) - (47,649,791)
Income for the period (10,567,153) (7,059,720) (10,567,153) (7,059,720)
Total 20,544,880 -17,536,577 (10,567,153) 13,575,456
(1) Increase in this item reflects the capital increase transactions in the period linked to the exercise of BSPCEs.
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4.4 OTHER EQUITY
This item consists of the following repayable advances:
REPAYABLE ADVANCE OSEO INNOVATION 2010/2012 “OSEO 2”
An agreement for a repayable advance in the total amount of €1,500,000 was signed with OSEO on March 9,2011, as part of the “development and clinical trials for a therapeutic anti-cancer vaccine" for the period September 20, 2010 to September 30, 2012, the deadline for establishing the end of the program. The innovation aid, granted on the basis of expenses of €4,908,805.44 (thus 30.56% of expenses), was paid in three installments: €200,000 upon signing of the contract, €1,000,000 starting on April 1, 2011, when called, and the balance of €300,000 upon completion of the program.
The repayment schedule is as follows: €50,000 per quarter from September 30, 2013 to June 30, 2014, €75,000 per quarter from September 30, 2014 to June 30, 2015 and €125,000 per quarter from September 30, 2015 to June 30, 2017, which was in 2013: €100,000, in 2014: €250,000, in 2015: €400,000, in 2016: €500,000 and in 2017: €250,000.
Furthermore, the agreement provides for an annual repayment on March 31 of each year, effective January 1, 2012, corresponding to 20% of the ex-tax proceeds from the sale or assignment of licenses, patents or know-how relating to all or part of the results of the aided program, received for the previous year and 20% of the ex-tax proceeds generated by the marketing or use by the beneficiary for its own purposes, of prototypes, pre-series or models produced as part of the aided program. The agreement also provides for the repayment of a lump sum of €300,000, regardless of the technical or commercial outcome of the aided program, according to the following schedule: €50,000 at each calendar quarter end from September 30, 2013 to June 30, 2014, €75,000 by September 30, 2014 and €25,000 by December 31, 2014.
The balance on December 31, 2015 was €375,000 and corresponds to all the contractual payments made, minus the normal contractual repayments, except that for the fourth quarter of 2016, due to the change of the payment slated for December 31, 2016 to January 30, 2017. Accordingly, the sum of €375,000, instead of €500,000, was repaid in 2016.
This improvement shows the determinable nature of debt since 2013, following the confirmation of the end of the program and its success by OSEO.
REPAYABLE ADVANCE OSEO INNOVATION 2013/2019 “OSEO 3”
An agreement for a repayable advance was signed with OSEO on January 11, 2013,for a maximum amount of €849,000, as part of the “extension of the Phase I clinical trials for the ProCervix project” covering a 12-month period from September 12, 2012 to September 11, 2013. The innovation aid, granted on the basis of expenses of €1,887,309.28 was to be paid in 3 installments: €330,000 upon signing the contract, €330,000 from June 30, 2013, when called and subject to the suspensive condition that €2,000,000 be paid to Genticel by its shareholders (3rd tranche of convertible bonds) and the balance of €189,000 upon completion of the work. The Company had to provide, no later than March 30, 2014, a statement of expenses incurred for the financed project. The repayable advance will be reduced proportionally (44.98%) if the expenses incurred are less than those projected. The initial quarterly repayment schedule was as follows, beginning on September 30, 2014 and ending on June 30, 2019, based on total aid of €849,000:
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€20,000 no later than September 30, 2014, December 31, 2014 , March 31, 2015 and June 30, 2015
€20,000 no later than September 30, 2015, December 31, 2015 , March 31, 2016 and June 30, 2016
€20,000 no later than September 30, 2016, December 31, 2016 , March 31, 2017 and June 30, 2017
€20,000 no later than September 30, 2017, December 31, 2017 , March 31, 2018 and June 30, 2018
€20,000 no later than September 30, 2018, December 31, 2018 , March 31, 2019 and June 30, 2019
Furthermore, the agreement provides for an annual payment starting no later than January 1, 2014, of 40% of the ex-tax proceeds from the sale or assignment of licenses, patents or know-how relating to all or part of the results of the aided program, received for the previous year and 40% of the ex-tax proceeds generated by the marketing or use by the beneficiary for its own purposes, of prototypes, pre-series or models produced as part of the aided program. The agreement also provides that even if the program fails or is only partially successful, the Company must, in any case, repay to OSEO the lump sum of €340,000 between September 30, 2014 and June 30, 2017, as follows:
€20,000 no later than September 30, 2014, December 31, 2014 , March 31, 2015 and June 30, 2015
€30,000 no later than September 30, 2015, December 31, 2015 , March 31, 2016 and June 30, 2016
€40,000 no later than September 30, 2016, December 31, 2016 , March 31, 2017
€20,000 no later than June 30, 2017.
If OSEO judges the program to have failed technically, the Company will find itself relieved of all its obligations to repay, except in the case of entire or partial sale, cessation of activity, amicable winding up or liquidation, in which cases the repayable advance received must automatically be repaid in full. If the program succeeds technically but only partially, the repayment terms may be adjusted by addendum. Lastly, the Company has contractually paid to OSEO a risk commission of €25,470, corresponding to 3% of the repayable advance granted (deducted by OSEO at source upon payment of the first tranche of €330,000). This was adjusted in the financial statements for the year ended December 31, 2013, prorated by the advance paid and was reported as prepaid expenses in the amount of €15,570 posted to financial year 2014.
The amount of the repayable advance was adjusted during financial year 2014, to the final sum of €811,662.89, based on confirmation of the end of the program by the financing body. The agreement was amended by an addendum dated September 5, 2014, modifying the schedule for repaying the advances, as follows:
€19,120 no later than September 30, 2014, December 31, 2014 , March 31, 2015 and June 30, 2015
€28,680 no later than September 30, 2015, December 31, 2015 , March 31, 2016 and June 30, 2016
€38,240 no later than September 30, 2016, December 31, 2016 , March 31, 2017 and June 30, 2017
€57,360 no later than September 30, 2017, December 31, 2017 , March 31, 2018 and June 30, 2018
€59,515 no later than September 30, 2018, December 31, 2018 , March 31, 2019
€59,719 no later than June 30, 2019.
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The balance as of December 31, 2016 was €582,222.89 and corresponds to all the contractual payments made, minus the normal contractual repayments, except the one for the fourth quarter of 2016, due to the change of the payment slated for December 31, 2016 to January 30, 2017. Accordingly, the sum of €95,600, instead of €133,840, was repaid in 2016.
This improvement shows the determinable nature of debt since 2014, following the confirmation of the end of the program and its success by OSEO.
REPAYABLE ADVANCE OSEO INNOVATION 2013/2023 “OSEO 4” MAGENTA PROJECT
On March 7, 2013, the Company signed an agreement with OSEO Innovation for a repayable advance of up to €3,596,218, as part of the global strategic industrial innovation project “MAGenTA” grouping six beneficiaries, including a lead beneficiary tasked with scientific, technical and administrative coordination. This contract benefiting from the repayable advance is part of a framework agreement signed on that same date.
The R&D work required of the Company concerns the production and testing of a therapeutic anti-HIV vaccine candidate (immunotherapy) and covers a 6-year period from January 1, 2013 to December 31, 2018. The eligible costs adopted, corresponding to the total cost of the project, amount to €8,448,474 and consist partly of industrial research in the amount of €1,296,048 and partly of experimental development in the amount of €7,172,426. The total aid granted amounts to €4,179,441, €3,596,218 of which is a repayable advance and €583,223 a subsidy. This aid is paid at 5 key stages (KS) of progress of R&D (at trigger points).
The following is the projected maximum support payment schedule in installments, at key stages of progress and/or reflecting particular conditions (communication of financial information, ability to pursue the financed program, the granting of specific administrative and regulatory authorizations notably for clinical trials):
Aid Start KS 1 KS 2 KS 3 KS 4 KS 5 Total
Projected dates 2013 2014 2015 2016 2017 2018 -
Repayable advance
108,213 300,000 1,094,029 1,087,801 466,742 539,433 3,596,218
Subsidies 367,207 128,532 - - - 87,484 583,223
Total 475,420 428,532 1,094,029 1,087,801 466,742 626,917 4,179,441
KS 1: industrial feasibility of the procedure for the vaccine candidateKS 2: pre-clinical validation and availability of BMP clinical batch of the vaccine candidateKS 3: presentation of favorable opinion from ANSM for continuation of work on batch 2KS 4: safety of the vaccine candidateKS 5: clinical result of Phase I of the vaccine candidate
The aid received by the Company as part of KS1 is subject to the suspensive condition that it complete a capital increase of €180,000,000 in the financial year ended December 31, 2012, as cash contributions without compensation of receivables, in the form of a fully paid-up capital increase, issue premiums, convertible bonds, or current accounts at banks up to December 31, 2017. In the event that Genticel receives cash from licenses, the cash will be deducted from the required contribution to equity.
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Unless the project fails commercially, the contractual repayment schedule is as follows, after taking into account 2.05% annual discount: €808,000 per year for 5 years, by June 30 of each year from 2019 to 2023 inclusive, for a total of €4,040,000. In the event that the repayable advance actually paid is less than the maximum contractual total, the annual repayments will be reduced prorated by the amounts paid.
If no repayment is made within 10 years after the payment of the aid, the contract will be automatically canceled and the Company will be released from all its repayment obligations, provided it has met all its other obligations. The contract provides that the Company will pay to OSEO an annual payment of 50% of any income generated by the sale of intellectual property rights arising from the project, or from the sale of prototypes, pre-series or models produced as part of the project.
Lastly, once the advance has been repaid in full and under the suspensive condition that the Company achieve at least €50 million in ex-tax sales (by 2028), the contract stipulates that the Company will pay to OSEO the sum of €2,200,000 in three tranches as follows: €750,000 by June 30 in years 1 and 2 and €70,000 by June 30 in year 3.
The first tranche of the repayable advance (€108,213) and the first tranche of the subsidy (€367,207) were paid in full during 2013.
Following the review in April 2014 of key stage 1 by the financing body and its confirmation of the expenses incurred on the project, the second tranche of the repayable advance was paid in the amount of €220,679 on August 29, 2014, along with the second tranche of the subsidy (€128,532).
The third tranche of the repayable advance (€853,099) was paid on October 29, 2015, once key stage 2 was reached.
TERMINATION OF THE AGREEMENT UPON CONFIRMATION OF THE TECHNICAL FAILURE OF THE PROJECT
Bpi France (Ex OSEO) confirmed the technical failure of the project on July 27, 2016, at the request of the Company due to halting the development of the immunotherapeutic candidate drug GTL002, which the Company approved (technological failure).
A review of the financial aspects of the case triggered:
the notification of an over-allotment on September 30, 2016 by the Company, in the amount of €413,174 for experimental development costs incurred through June 30, 2016, which was repaid on October 11, 2016,
the notification of a permanent waiver of the outstanding balance of the repayable advance from the financing body, in the amount of €768,817, which was reported as extraordinary profit.
The Company is entirely free of its contractual commitments toward Bpi France, with regard to this repayable advance as of this notification.
Item 167440 “OSEO 4 conditional advance” was accordingly closed out on December 31, 2016.
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SUMMARY OF “CONDITIONAL ADVANCES” AT DECEMBER 31, 2016
AdvancesBalance
12/31/2015Payments Repayments
Abandonment of
receivable
Balance 12/31/201
6
OSEO 2010 / 2012 “OSEO 2” 750,000 - 375,000 - 375,000
OSEO 2013 / 2019 “OSEO 3” 677,823 - 95,600 - 582,223
OSEO 2013 / 2023 « OSEO 4 » ISI Magenta
1,181,991 - 413,174 768,817 -
Total 2,609,814 - 883,774 768,817 957,223
of which the total advances that had become determinable debt in the course of being repaid (1) 957,223
(1) of which debt < 1 year: €604,440, debt 1>5 years: €352,783 debt > 5 years: 0.
4.5 PROVISIONS FOR LOSS AND CONTINGENCIES
PROVISIONS FOR LOSS AND CONTINGENCIES 12/31/2016 12/31/2015
Severance pay (1) 688,061 -
Restoring premises to former status (2) 32,000 -
Total 720,061 -
(1) See Notes 1.2 “Downsizing plan based on economic grounds” and 2.12 “Provisions for loss and contingencies”. This provision corresponds to the cost of severance pay negotiated in the second phase of collective layoffs on economic grounds at the end of 2016, estimated by reference and according to the same calculation principles used in the first phase occurring at the end of the first half of 2016, as well as the cost for severance pay for layoffs notified in 2017, that were part of phase 2.
(2) See Notes 1.2 “Restoring premises” and 2.12 “Provisions for loss and contingencies”. This provision corresponds to the cost of restoring the Labège premises to their original condition, evaluated via signed estimates, arising from the company’s contractual obligations when it gave notice of quitting at the end of 2016.
4.6 BOND CONVERTIBLE INTO SHARES
A share-convertible bond issued on March 7, 2014, with a total value of €2,451,628 (authorization of Combined General Meeting, decision of Executive Board and all three dated March 7, 2014) was incorporated into the Company's share capital in 2014. The Executive Board meetings of June 2, 2014 and September 30, 2014 confirmed the final completion of this capital increase by offsetting of receivables in two tranches totaling €2,451,591.20.
The main characteristics of this borrowing were: 612,907 bonds convertible into ordinary shares in the event of the IPO and, if not, then convertible into P3 preference shares at a par value of €4, annual interest rate 3%, interest capitalized on the basis of 365 days, automatic conversion of the first tranche into ordinary shares on the IPO date or May 30, 2014, whichever is later, projected end: September 30, 2014. The contract also provides special and confidential terms regarding conversion, allocation and early redemption principles.
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The balance of accrued and capitalized interest remaining to be paid on December 31, 2015 amounted to €2.10 and €609.82 respectively, after partial repayments in 2015 of €34.70 and €26,763.66 respectively.
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4.7 BREAKDOWN OF TRADE PAYABLES
Items Amount < 1 yearFrom 1 to 5
yrs> 5 years
Debt / invoices not received 422,043 422,043 - -
Other trade payables 149,220 149,220 - -
Total 571,263 571,263 0 0
4.8 PAYABLES
These are included in the various debt items on the liabilities side of the balance sheet.
ACCRUED EXPENSE 12/31/2016 12/31/2015
Supplier goods and services / invoices not received 422,043 1,356,087
Provision for paid holidays 82,052 137,675
Social security contributions on paid holidays 37,084 64,024
Provision for bonuses 1,500 242,933
Provision for social security / bonuses 697 111,981
Provision for short-term / fixed-term contract severance pay
- 9,857
Social security contributions on short-term / fixed-term contract bonuses
- 4,756
Provision for working time reduction 881 2,809
Soc sec contrib. / Provision for working time reduction 397 1,333
Continuing education 25,357 7,705
Apprenticeship tax 16,111 15,463
Participation in construction effort 10,662 7,912
Agefiph disability contribution - 730
Accrued bank charges 169 174
Accrued interest on share-convertible bonds - 610
Management costs for 2014-2016 capitalization contract 70,281 -
Financing of CSP contracts for laid off employees 233,310 -
Outsourcing services for employees 7,400 -
Severance pay for layoffs, notice time not worked, outplacement costs,
389,546 -
Social charges / severance pay for layoffs and notice time not worked
47,901 -
Total 1,345,391 1,964,049
NOTE 5 – NOTES TO THE INCOME STATEMENT
5.1 REVENUE AND OTHER OPERATING REVENUE
Operating revenue comes exclusively from the licensing agreement concluded in 2015 with the pharmaceutical company Serum Institute of India Ltd. (SIIL), for the Vaxiclase technology that is the property of Genticel, as part of SIIL’s development of acellular and multivalent vaccines containing whooping cough antigens (see Note 1.1 “Granting of the license generating revenue”).
During 2015, this contract generated total invoicing of €177,742 via the delivery of Vaxiclase for €89,371 and an up-front fee of €88,371.
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Contract-based revenues continued to flow in during 2016 in a total amount of €1,304,060 ($1,450,00), corresponding to the delivery of Vaxiclase and related services in the amount of €222,300 ($250,000 -Item 706000 Services exempted from VAT), as well as a milestone payment of €1,081,760 ($1,200,000 -Item Other income 751100 “Fees-Duties/ License exempt from VAT). This payment resulted from the completion of the final pre-clinical stage of the agreement in November, 2016.
CAHT AND OTHER OPERATING INCOME 12/31/2016 12/31/2015
France - -
India 1,304,060 177,742
Total 1,304,060 177,742
5.2 RESTRUCTURING AND STRATEGIC COMBINATION COSTS
The company incurred the following significant internal restructuring costs and fees in 2016, following the halting of the development program of treatment of HPV infections and the strategic combinationproject with the Swiss biopharmaceutical company Genkyotex that was announced on December 22, 2016, (see Note 1.2 “Halt of the development program of the GTL001 and GTL002 drug candidates and consequences”):
PLAN FOR DOWNSIZING ON ECONOMIC GROUNDS
The overall cost of the collective downsizing plan on economic grounds carried out in two phases, which involves a total of 26 employees, and is reported as operating results amounts to €2,347,595 for 2016, of which:
€688,061 appears in provisions for contingencies and charges (severance pay negotiated in the second phase and severance pay for layoffs notified in 2017)
€1,659,534 in the item “Wages and social security charges”, of which €769,296 includes payables in the item tax and social security liabilities (cost of layoffs notified in 2016, concerning employees present at December 31, 2016: severance pay, notice time not worked, outplacement, social charges and financing of CSP contracts, as appropriate).
FEES ASSESSED UNDER THE STRATEGIC COMBINATION PROJECT WITH GENKYOTEX
The company was assessed an overall amount of fees and external costs in the amount of €383,271 for services performed as of December 31, 2016, as part of the contribution in-kind of all Genkyotex shares that was to take place at the end of February, 2017, to include fees for consulting, preparing financial statements, audits, communication, drafting the contribution agreement and submitting Document E.
These costs were fully offset in the item pre-paid expenses, while awaiting their possible transfer to the issuance premium if it amounted to a positive sum. If it did not, the charge would be reported as non-recurring expenses.
SURRENDER OF PREMISES, DISPOSALS, SCRAPPING OR DONATION OF FIXED ASSETS
Following the refocusing of its business and the strategic combination project with Genkyotex, the company closed down its research laboratories at the end of 2016 and gave notice, at that time, to leave its premises at the Labège site in March 2017. The cost of restoring the Labège premises to their original
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condition, arising from the company’s contractual obligations, resulted in booking a provision of €32,000 for charges as of December 31, 2016 (see Note 4.5 “Provisions for risks and contingencies”).
No charges were booked as of December 31, 2016, concerning vacating the Paris premises, in view of the decision made in January 2017 to negotiate the early termination of the lease, which occurred in February and for which an indemnity of €99,000 was agreed upon, representing one year of rent excl. tax.
In addition, the company sold off a part of its laboratory and IT equipment for the sum of €23,200, with the remainder scrapped or donated and scrapped its software, office equipment, furniture and fittings no longer used on December 31, 2016. All of these transactions regarding fixed assets generated an overall capital loss on the disposal, or an outflow of fixed assets in the amount of €44,077, reported as a non-recurring expense.
5.3 LICENSING CONTRACT WITH THE INSTITUT PASTEUR
On February 22, 2002, the Company signed a licensing agreement with the Pasteur Institute which took effect on January 22, 2002, and two riders on May 2, 2007 and December 14, 2007, with the entire agreement taken up in a modified contract on July 31, 2008.
Under its terms, the Pasteur Institute grants various licenses for patents and biological material as well as its derivatives to manufacture, cause to be manufactured, use and market the products under license and/or implement the licensed procedures. The duration of the agreement runs from January 21, 2002 until the later of the following two dates: the expiry or cancellation or abandonment of the last patent in the last country of the territory in question or 10 years counting from the first marketing in the country in question and country by country, of the product under license and/or a service provision by the licensee.
The contract stipulates various financial counterparts, in particular:
The payment of a minimum annual royalty of €50,000 excl tax, beginning with financial year 2009 and credited to any other amount payable to the Institut Pasteur.
A share in the annual cost of maintaining the patents.
Royalties on the net receipts received per territory concerned (to date, the Company has had no sales).
A royalty in the case of sub-licensing (to date, the Company has not signed this type of contract).
Non-reimbursable counterparts in respect of any veterinary vaccines not applicable to date, to any work done by the company (€100,000 in the case of application for clinical trials on animals, and €150,000 for any marketing authorization).
Milestone payments specific to each stage of development of the company’s products.
- The product enters Phase I: €50,000 - The product exits Phase I: €130,000- The product exits Phase II: €160,000- The product exits Phase III: €310,000- Marketing authorization: €610,000
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The product completed its Phase I in the first half of 2014 resulting in the invoicing to the Company of the corresponding milestone payment on May 6, 2014 (€130,000).
The expenses reported during the 2016 financial year, relating to this licensing agreement, concern the minimum annual royalty of €50,000 (no milestone payment to be paid as Phase II was not completed as of December 31, 2016), as well as a provision for patent maintenance expenses evaluated at €6,800 excl. tax by reference to the amount invoiced by the Pasteur Institute for the financial year 2015 (large gap in invoicing dates).
5.4 FINANCIAL PROFIT/(LOSS)
Financial profit/(loss) 12/31/2016 12/31/2015
Interest from term deposits and other cash investments 58,026 161,621
Reversal of provision for impairment of treasury shares - 721
Currency translation gains 75,237 7,841
Proceeds from disposal of mutual funds/partial redemption of capitalization contract
62,268 8,474
Total income 195,531 178,657
Miscellaneous financial expenses (7) (302)
Currency translation losses (6,158) (7,889)
Provision for impairment of treasury shares 1,246 -
Total expenses (7,410) (8,191)
Total 188,121 170,466
5.5 NON-RECURRING INCOME (EXPENSE)
NON-RECURRING INCOME (EXPENSE) 12/31/2016 12/31/2015
Abandonment of BPI debt / repayable advance from Magenta (1)
768,817 -
SAN adjustment accounts, third-party suppliers 29,218 3,724
Credit from CET professional tax 2,263 -
Income from sale of fixed assets 23,200 -
Gain on disposals / liquidity contract - 29,783
Total non-recurring income 823,498 33,507
Miscellaneous adjustment accounts / previous years (4,962) (23,418)
Adjustment of 2014-2015 management fees for capitalization contract
(4,.114) -
Penalties / partial redemption of capitalization contract (10,101)
Tax / pay adjustments 2013-2014 - (7,446)
Training tax credit adjustments 2014 - (1,600)
Error correction / FNP R&D provider 2013/2014 - (396,102)
Net book value of fixed assets sold / removed (67,277) -
Loss on share buybacks – liquidity contract (30,515) -
Total non-recurring expenses (153,969) (428,566)
Total non-recurring profit/(loss) 669,529 (395,059)
(1) See Note 4.4 “Other shareholders’ equity” Repayable advance on OSEO Innovation 2013/ 2023 Projet Magenta “OSEO 4”
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NOTE 6 – OTHER INFORMATION
6.1 RESEARCH TAX CREDIT AND OTHER TAX CREDITS
The research tax credit for financial year 2016 shown in the income statement amounts to €2,951,380.
The research tax credit for 2015, amounting to €3,008,327, was paid in full by the tax authorities on December 19, 2016, pursuant to the new Article 199 ter b-02 of the French General Tax Code.
It should be noted that the €7,875 difference between the latter and the CIR initially reported (€3,000,452) results from the notification of the 2015 certification of a service provider after the end of the 2015 reporting period, whose invoices had been included in the tax return.
SUMMARY OF CIR / INCOME STATEMENT 12/31/2016 12/31/2015
CIR 2016 2,951,380 3,000,452
Additional CIR 2015 7,875 35,803
Total 2,959,255 3,036,255
Tax credit receivables recorded as assets under "Other receivables" can be broken down as follows:
RECEIVABLES RELATING TO TAX CREDITS 12/31/2016 12/31/2015
Research Tax Credit 2,951,380 3,000,452
CICE tax credit 6,016 27,596
Total 2,957,396 3,028,048
In accordance with Article 244 quater C of the French General Tax Code, the CICE, which is intended to fund improvements in business competitiveness, is used by the Company to fund its investments.
6.2 OTHER COMPANY-RELATED INFORMATION
Workforce as of63+ December 31, 2016: seven managers on permanent contracts, of which four have been notified of layoff.
Average workforce 2016: 24.5 people
Collective bargaining applicable: Pharmaceutical Industry
6.3 OTHER TAX-RELATED INFORMATION
Unlimited-duration deferrable tax loss amounted to €74,201,920 as of December 31, 2016.
6.4 RELATED PARTY TRANSACTIONS
Related party transactions concern the compensation paid to corporate officers who are Executive Board and Supervisory Board members, flowing from employment contracts, attendance fees and one consultancy contract:
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COMPENSATION TO EXECUTIVES 12/31/2016 12/31/2015
Fixed compensation 746,741 728,022
Variable compensation - 190,642
In kind benefits 9,755 15,643
Attendance fees 100,000 100,000
Consulting fees 61,000 66,000
Total 917,496 1,100,307
6.5 STATUTORY AUDITORS’ FEES
The statutory auditors’ fees relating to various assignments are as follows:
STATUTORY AUDITORS’ FEES 12/31/2016 12/31/2015
Official audit of company financial statements 51,500 50,000
Other services directly related to the duties of the statutory auditor or services other than auditing financial statements (1)
35,600 29,160
Total 87,100 79,160
(1) 2015: CSR / OTI , as well as a due diligence regarding the checking of monitoring and invoicing processes of expenditures / principal R&D service providers.
2016: Limited analysis of the situation as of September 30, 2016, CSR / OTI report and analyses concerning migration to SAP and audit of IFRS 2016 financial statements.
NOTE 7 – COMMITMENTS
7.1 RETIREMENT BENEFITS
These were assessed at €111,767 as of December 31, 2016, using the projected unit credit method (or accrued benefits method) in accordance with CNC recommendation 2003-R-01, based on the followingassumptions:
Collective agreement: Pharmaceutical Industry
Voluntary retirement age between 65 and 67
Mortality table: Insee 2015
Salary revaluation rate: 2.5 %
Staff turnover rate: extremely high
Employer social security expense ratio: managers 45.65%
Discount rate: 1.31 %
7.2 COPIERS LEASING CONTRACT
A 64-month leasing contract was signed in December 2012 with GE Capital (CM-CIC Leasing), for 2 multifunction Canon and Ricoh copiers, maintenance not included, for quarterly rent of €4,201 excl. tax. The commitments under this contract ending March 31, 2018, which was terminated early on March 31, 2017 are as follows: €22,686, including a charge of €18,485 for premature termination. The premature cancellation penalty for the maintenance contract of the copiers amounts to €3,462 ex-VAT.
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7.3 LICENSING CONTRACT WITH THE INSTITUT PASTEUR
See Note 5.2 "Pasteur Institute License Agreement”.
7.4 OSEO REPAYABLE ADVANCES AGREEMENT
See Note 4.4 “Other equity”.
7.5 COMMERCIAL LEASES
As part of its activity, the Company has signed the following leases on premises for which either notice of
early departure was given at the end of 2016 (Labège), or early departure was negotiated in early 2017
(Paris), following the halting of its development program for treating HPV infections and the planned
strategic combination between the Company and the Swiss biopharmaceutical company Genkyotex
announced on December 22, 2016 (see Note 1.2 “Halting of the development program of the GTL001
and GTL002 product candidates and consequences”):
Administrative offices and laboratories:
Address: Prologue-Biotech, 516 Rue Pierre et Marie Curie, 31670 Labège
Tenancy-at-will agreement
Term of Lease: September 1, 2013 – July 31, 2015, extended to July 31, 2016, then to September 25,
2017.
Early Termination: Possible at any time, subject to three months’ advance notice
Monthly Rent: €5,636 excl. tax (2016 rent invoiced: €67,629 excl. tax).
Notice given at the end of 2016 for effective departure from premises on January 11, 2017 (laboratories) and on March 31, 2017 (offices and remaining laboratories).
Clinical development building:
Address: 5 rue Tronchet, 75008 Paris
Initial commercial lease from May 22, 2014 (5th floor)
Term of Lease: June 1, 2014 - May 31, 2023
Early Termination: Possible at the end of a 6-year period, and at the end of 3-year periods thereafter,
subject to six months’ advance notice
Quarterly rent: €17,400 excl. tax (2016 rent invoiced: €70,074 excl. tax).
Amendment to the initial commercial lease on September 30, 2015: leased floor area increased (6th
floor)
Term of Lease: December 1, 2015 - May 31, 2023
Additional quarterly rent: €7,250 excl. tax (2015 rent invoiced: €29,000 excl. tax).
Early termination of lease negotiated in February, 2017, with an indemnity of one year’s rent excl. tax,
amounting to €99,031.
Effective departure from premises on February 22, 2017.
Rent commitments (excluding occupancy charges and early termination of lease) to the lessors and until
the effective departure from premises were as follows as of December 31, 2016:
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Contracts Start End
Annual rent, excl. -tax
2016 excluding charges
Commitment< 1 year
Commitment of 1 to 5 yrs
Labège facility 9/1/2013 3/31/2017 67,269 7,462 -
Facilities in Paris, rue Tronchet 6/1/2014 2/28/2017 70,074 81,703 -
Facilities in Paris, rue Tronchet 12/1/2015 2/28/2017 29,000 33,833 -
Total 166,343 122,998 -
NOTE 8 – POST-BALANCE SHEET EVENTS
No significant events have occurred since the end of the reporting period, that might affect the financial statements.
Noteworthy was the premature termination of the lease for the Paris premises, negotiated in February, 2017 with a charge for rent of €99,031 excl. tax, as well as that of the copiers lease and its maintenance contract incurring a total charge of €21, 947 excl. tax.
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NOTE 9 – STATEMENT OF RECEIVABLES AND PAYABLES
Box A STATEMENT OF RECEIVABLESGross
amount≤ 1 year > 1 year
Of fixed assets Receivables linked to equity interests
Loans (1) (2) 600 600
Other financial assets 202,223 19,817 182,406
Of current assets Doubtful debts or litigation
Other trade receivables 53,342 53,342
Receivables on repro securities, incl. provisions
Payroll & related accounts 96,644 96,644
Social security and other bodies
Income tax 2,957,396 2,957,396
Value Added Tax 190,108 190,108
Other taxes, duties and similar Related 3,352 3,352
Other (trade payables) 129,858 129,858
Group and associates (2)
Other debtors
Pre-paid expenses 517,666 517,666
TOTAL 4,089,595 3,968,783 120,812
Notes (1) Loans granted during the period 1,500
(1) Repayments obtained during the period 900
(2) Loans & advances granted to associates (physical persons)
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Box B STATEMENT OF PAYABLES Gross amount ≤ 1 year 1 ≥ 5 years > 5 years
Convertible bonds (1)
Other bonds (1)
Bank borrowings and debt (1) initially 1 yr max 169 169
Initially longer than 1 yr
Sundry borrowings and financial debt (1) (2)
Trade payables and related accounts 571,263 571,263
Payroll & related accounts 481,378 481,378
Social security & other welfare programs 560,305 560,305
Income tax
Value Added Tax 673 673
Guaranteed bonds
Other taxes and similar 39,141 39,141
Debts on assets and related accounts
Group and associates (2)
Other liabilities 78,679 78,679
Debt representing securities borrowed
Prepaid income
TOTALS 1,731,607 1,731,607
Notes (1) Borrowing subscribed during the period:
(1) Borrowing repaid during the period
(2) Miscellaneous borrowing & debts contracted with associates (physical persons)
Note the existence of the following repayable advances, reported under “Other equity” as determinable debt as of December 31, 2015 (see Note 4.4 “Other equity”):
AdvancesBalance
12/31/2016< 1 year
to1 to 5 years
> 5 years
OSEO 2010 / 2012 “OSEO 2” 375,000 375,000 - -
OSEO 2013 / 2019 “OSEO 3” 582,223 229,440 352,783 -
Total 957,223 604,440 352,783 -
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NOTE 10 – STATEMENT OF FIXED ASSETS
Box A FIXED ASSETS
Gross value of assets at start
of period
Additions (1)
INTANGIBLE Start-up costs, R&D costs I
Other items of intangible assets II 113,749 7,612
PROPERTY, PLANT AND EQUIPMENT Land
Buildings
Technical facilities, industrial plant 600,561Other
property, plant and
equipment Gen facilities, fixtures, fittings, other 170,018 2,743
Transportation equipmentOffice and computer equipment and furniture 138,056 3,028
Recoverable and other packaging
Property, plant & equipment under construction
Advances and down payments
TOTAL III 908,635 5,771
FINANCIAL Investments valued using the equity method
Other participating interests
Other long-term investment securities
Loans receivable and other non-current assets 232,738 5,564
TOTAL IV 232,738 5,564
GRAND TOTAL ( I + II + III + IV ) 1,255,122 18,947
Box B FIXED ASSETS Decreases (2) Gross value
at end of period
INTANGIBLE Start-up costs, R&D costs I
Other items of intangible assets II 25,839 95,522
PROPERTY, PLANT AND EQUIPMENT Land
Buildings
Technical facilities, hardware and tools 600,561 0Other
property, plant and
equipment Gen facilities, fixtures, fittings, other 129,942 42,819
Transportation equipmentOffice and computer equipment and furniture 92,964 48,120
Recoverable and other packaging
Property, plant & equipment in construction
Advances and installments
TOTAL III 823,467 90,939
FINANCIAL Investments valued using the equity method
Other investments
Other equity securities
Loans and other financial assets 35,479 202,823
TOTAL IV 35,479 202,823
GRAND TOTAL ( I + II + III + IV ) 884,785 38,.284
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(1) Acquisitions creations, contributions & payments (1) Reduction by sale to third parties or out of service
NOTE 11 – STATEMENT OF DEPRECIATION
DEPRECIABLE ASSETSDepreciation
charge at start of period
Additions in the period
Reduction due to assets
removed and returned
Depreciation charge at end
of period
Start-up costs, R&D costs I
Other items of intangible assets II 59,732 18,072 23,946 53,858
Land
Buildings
Technical facilities, hardware and tools 518,618 28,196 546,814 0Other
property, plant and equipme
nt Gen facilities, fixtures, fittings, other 128,855 8,565 122,973 14,447
Transportation equipment
Office and computer equipment and furniture 105,287 17,735 88,296 34,726
Recoverable and other packaging
Property, plant & equipment in construction
Advances and installments
TOTAL III 752,760 54,496 758,083 49,173
GRAND TOTAL ( I + II + III ) 812,492 72,568 782,029 103,031
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NOTE 12 – STATEMENT OF PROVISIONS Only one provision for financial impairment impacted the 2015 annual financial statements and concerned the Company's treasury shares held as part of the liquidity contract.
TYPE OF PROVISIONSAmount at
start of period
Additions during the
period
Reversalsduring the period
Amount at end of period
UNTAXED PROVISIONS
Prov. reconstit., mining, oil field
Provision for investments
Provision for price increases
Depreciation allowances
of which non-recurring 30% increase
Tax provision for foreign base
before 1/1/1992
after 1/1/1992
Provision for startup loans
Other regulated provisions
TOTAL I
PROVISIONS FOR LOSS AND
CONTINGENCIES
Prov. for disputes and litigation
Prov. for warranties to customers
Prov. for loss on financial futures
Prov. for fines & penalties
Prov. for loss on currency translation
Prov. for pensions & similar obligations
Prov. for taxes
Prov. for property renovation
Prov. for major upkeep and refurbishment
Prov. for social sec & tax liability on paid leave
Other provisions for loss and contingencies 0 720,061 0 720,061
TOTAL II 0 720,061 0 720,061
PROVISIONS FOR IMPAIRMENT
Prov. for impairment of assets
intangible assets
property, plant & equipment
interests in equity associates
equity securities
financial (other) 0 1,246 0 1,246
Prov. for impairment of inventories & in-process
Prov. for impairment of trade receivables
Other provisions for impairment
TOTAL III 0 1,246 0 1,246
GRAND TOTAL ( I + II + III ) 0 721,307 0 721,307
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20.4. AUDITING OF HISTORICAL ANNUAL FINANCIAL INFORMATION
20.4.1. Report of the Statutory Auditors on the financial statements prepared in accordance with IFRS as of December 31, 2016
“
To the Chairman,
As statutory auditors of the financial statements of the company Genticel, and in response to your request, we have carried out an audit of Genticel's financial statements, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union for the financial year ended December 31, 2016, which are attached to this report.
These financial statements were prepared under the responsibility of the Executive Board. Our role is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with professional standards applicable in France and the professional doctrine of the Compagnie nationale des commissaires aux comptes relating to this assignment; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures contained in the financial statements. An audit also entails evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements. We believe that the evidence we have obtained is sufficient and appropriate as a basis for our opinion.
It is our opinion that the financial statements prepared under IFRS present fairly, in all material respects and in accordance with the IFRS, as adopted by the European Union, the assets and financial position of the Company as of December 31, 2016 as well as the profit and loss for the financial year ended on that date.
Neuilly-sur-Seine and Toulouse, February 27, 2017
Statutory Auditors
Grant Thornton
French member of Grant Thornton International
Sygnatures
Samuel Clochard
Laure Mulin
“
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20.4.2. Statutory Auditors’ Report on the annual financial statements as of December 31, 2016
“
To the Shareholders,
In compliance with the assignment entrusted to us by your General Shareholders’ Meeting, we hereby report to you, for the financial year ended 31 December 2016, on:
• The audit of the accompanying financial statements of Genticel,• The justification of our assessments,• The specific verification and information required by law.
These financial statements have been approved by the Executive Board. Our role is to express an opinion on these financial statements, based on our audit.
1. Opinion on the financial statements
We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures contained in the financial statements. An audit also entails evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements. We believe that the evidence we have obtained is sufficient and appropriate as a basis for our opinion.
In our opinion, the financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as of December 31, 2016 and of the results of its operations for the year then ended in accordance with French accounting principles.
2. JUSTIFICATION OF OUR ASSESSMENTS
In accordance with the requirements of Article L.823-9 of the French Commercial Code, relating to the justification of our assessments, we inform you that our assessments focused on the appropriateness of the accounting principles applied and on the overall presentation of the accounts, namely with regard to the presentation of the investment securities described in Note 2.7 of the notes to the financial statements.
These assessments were made as part of our audit of the financial statements taken as a whole and therefore, contributed to the opinion we formed which is expressed in the first part of this report.
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3. Specific verifications and information
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law.
We have no comments as to the fair presentation and the consistency with the financial statements of the information provided in the management report of the Executive Board and in the documents addressed to shareholders, with respect to the financial position and the financial statements.
Concerning the information provided in accordance with the requirements of article L. 225-102-1 of the French Commercial Code (code de commerce), relating to remunerations and benefits received by the directors and any other commitments made in their favor, we have verified its consistency with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your company from companies controlling your company or controlled by it. Based on this work, we attest to the accuracy and fair presentation of this information.
In accordance with French law, we have verified that the identity of the shareholders and holders of the voting rights has been properly disclosed in the management report.
Neuilly-sur-Seine and Toulouse, February 27, 2017
Statutory Auditors
GRANT THORNTON
French member of Grant Thornton International
Samuel Clochard
SYGNATURES
Laure Mulin
“
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20.5. DATE OF THE LATEST FINANCIAL INFORMATION
The latest financial information was prepared on December 31, 2016.
20.6. INTERIM AND OTHER FINANCIAL INFORMATION
Not applicable.
20.7. DIVIDEND DISTRIBUTION POLICY
20.7.1. Dividends and reserves distributed by the Company over the last three financial years
None.
20.7.2. Distribution policy
In view of the Company’s stage of development, no dividend distribution policy has been initiated for the short term.
20.8. LEGAL AND ARBITRATION PROCEEDINGS
As of the Registration Document Date, there exist no governmental, legal or arbitrage proceedings of which the Company is aware, that is pending or threatens the Company, is likely to have or having had a significant impact on the the financial situation or profitability of the Company and/or the Group during the past twelve months.
20.9. SIGNIFICANT CHANGE IN THE FINANCIAL OR BUSINESS SITUATION
The Company acquired Genkyotex SA through an in-kind contribution. Upon completion of the contribution carried out on February 28, 2017, the Company issued 62,279,951 new shares at a subscription price of €1.9268 each, including issuance premium, in compensation for the shares contributed.
Please refer to section 20.2 “Pro forma financial information”.
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21.ADDITIONAL INFORMATION
21.1. SHARE CAPITAL
21.1.1. Amount of Share Capital
As of the registration date of this Registration Document, the Company’s share capital is €7,785,000.60 divided into 77,850,006 ordinary shares with a par value of €0.10 each, fully paid-up and of a single class.
21.1.2. Securities Not Representing Equity
None.
21.1.3. Buyback by the Company of its Own Shares
The Combined Ordinary and Extraordinary General Meeting of June 9, 2016 authorized the Board of Directors to implement, for a period of eighteen (18 months) counting from the date of the General Shareholders' Meeting, a share buyback plan in accordance with Article L.225-209 of the French Commercial Code and the AMF General Regulations.
The main terms of this authorization are as follows:Maximum number of shares that can be redeemed: 10% of the equity capital on the date that the shares are redeemed. When the shares are redeemed to stimulate trading and liquidity, the number of shares used for the calculation of this 10% limit corresponds to the number of shares purchased, less the number of shares resold over the term of this authorization.
Objectives of the share buyback plan:
to ensure the liquidity of Company shares through an investment services provider under a liquidity contract, in accordance with the ethics charter recognized by the French Financial Markets Authority (AMF);
to permit it to honor its obligations under stock option plans, free-share allocation plans, employee savings plans or other allocations of shares to the employees and executives of the Company or companies related to it;
to permit it to deliver shares upon the exercise of rights attached to securities giving access to its capital;
to purchase shares to be held for future use as exchange or payment in a potential external growth transaction; or
to cancel all or some of the securities redeemed.
Maximum purchase price: €15 per share, excluding fees and charges.The number of shares purchased by the Company for future use as payment or exchange in a merger, demerger or contribution may not exceed 5% of the total number of shares.
The maximum amount of funds that can be earmarked for share buyback: €2 million.
During the year ended December 31, 2016, the Company traded in its own shares as part of the liquidity contract signed for a period of one year with an independent financial services provider.
As of December 31, 2016, the Company held 23,800 of its own shares, i.e., 0.15% of its equity capital, purchased at a total cost price of €2.59 per share.
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Sales of treasury shares as part of the liquidity contract produced a net capital loss of €30,515 in the 2016 financial year.
The following table summarizes the situation:
ITEMS 12/31/2016
Initial payment on 04/22/2014 €200,000
Net loss from sales in 2016 financial year (€30,515)
Securities account (line 2777100 "treasury shares")number of treasury sharescost price of treasury sharesclosing price of treasury shares
23,800
€61,594€2.53
Cash account (line 276100 "Other capitalized receivables") €120,812
Unrealized capital loss 12/31/2016 €1,380
As of May 31 2017, the Company held 54,204 treasury shares accounting for a net value of €111,660.24.
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21.1.4. Securities convertible, exchangeable, or with warrants attached
As of the Registration Document Date, securities giving access to the Company's capital and still valid confer the right to subscribe to 861,428 new shares: 470,334 shares through the exercise of BSAs (warrants) and 391,094 through the exercise of BSPCEs (founders' warrants) (i.e., 1.11% of the existing capital on the Registration Document Date).
21.1.4.1. Share subscription warrants (BSA)
BSAJul-2018 BSAApr-2009 BSAFeb-2010 BSADec-2010 BSADec-2013 BSASep-2014
Date of General Shareholders' Meeting 07/31/08 10/24/08 02/22/10 10/26/09 04/22/13 03/07/14
Date of Board decision - 04/09/09 - 12/17/10 12/20/13 09/12/14
Number of BSAs authorized 666,670 30,800 10,900 152,500 598,154 2,245,000
Number of BSAs issued 666,670 30,800 2,700 152,500 116,000 35,000
Total number of shares available for subscription 133,334 30,800 2,700 152,500 116,000 35,000
Of which available for subscribtion by Board of Directors members
133,334 - - - - 35,000
Board of Directors members concerned:
Edmond de Rothschild Investment Partners 133,334* - - -
Mary Tanner - - - - 35,000
Number of non-corporate-member beneficiaries on Registration Document Date
0 1 1 1 3 0
BSA exercise start date 07/31/08 10/24/09 02/22/10 12/17/10 12/19/14 09/11/15
BSA expiry date 07/31/08 04/09/19 02/22/20 12/17/20 12/20/23 09/12/24
BSA issue price N/A** €0.00 €0.00 €0.00 €0.20 €0.58
BSA exercise price €3 €3 €3 €3 €4 €5.79
Exercise terms & conditions (1) (2) (2) (2) (2) (3) (4) (5)
Number of shares subscribed as of Registration Document Date
0 0 0 0 0 0
Total number of BSAs lapsed or canceled as of RegistrationDocument date
0 0 0 0 0 0
Unexercised BSAs outstanding on Registration Document Date
666,670 30,800 2,700 152,500 116,000 35,000
Total number of shares available for subscription on Registration Document Date
133,334 30,800 2,700 152,500 116,000 23,333
Total number of shares resulting from the exercise of BSAs, taken into account for the purposes of the table in Section 18.1 of the Registration Document: 470,334
133,334 30,800 2,700 152,500 116,000 35,000
* BSAs held by the FCPR Biodiscovery II mutual investment fund, whose management company is Edmond de Rothschild Investment Partners.** Each BSA 31-Jul-2008 is attached to one P1 share issued by the Company's General Shareholders' Meeting of July 31, 2008.(1) BSAs attached to 666,670 P1 class preference shares issued by the General Shareholders' Meeting of July 31, 2008. Each BSA (i) is exercisable at
any time by their holder no later than July 31, 2018, and (ii) gives the right to subscribe to one-fifth of a Genkyotex share.(2) The BSAs are all available for subscription as of the Registration Document Date. (3) This number counts towards the total overall combined ceiling of 598,154 for BSA2013 and BSPCEDec-2013 (see Section 21.1.4.2 below).
One-third of the BSAs are exercisable at the expiry of each year elapsed counting from September 11, 2014, provided that the holder is still in service at the Company on the anniversary date concerned.
(5) This number counts towards the overall combined cap of 2,245,000 warrants for the BSPCEs and BSAs granted in 2014 (see Section 21.4.4.2 below).
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21.1.4.2. Founders’ share subscription warrants (BSPCE)
BSPCE
Nov-2005
BSPCE
Feb-2007
BSPCE
Apr-2009
BSPCE
Dec-2010
BSPCE
Sep-2011
BSPCE
Jun-2012
BSPCE
Dec-2012
BSPCE
Feb-2013
BSPCE
Dec-2013
BSPCE
Dec-2013
BSPCE
May-2014
BSPCE
Dec-2014
BSPCE
Apr-2015
BSPCE
Jul-2015
BSPCE
Mar-2016
Date of General Shareholders' Meeting
06/28/05 06/30/06 10/24/08 10/26/09 05/17/11 06/26/12 06/26/12 06/26/12 04/22/13 04/22/13 03/07/14 03/07/14 03/07/14 06/11/15 06/11/15
Date of Board meeting 11/30/05 02/02/07 04/09/09 12/17/10 09/30/11 - 12/11/12 02/15/13 12/20/13 12/20/13 05/14/14 12/09/14 04/23/15 07/03/15 03/01/16
Number of BSPCEs authorized
24,200 56,000 123,200 310,600 186,600 13,000 173,100 173,100 598,154 598,154 2,245,000 2,245,000 2,245,000 675,000 675,000
Total number of BSPCEs granted
24,200 28,000 88,460 217,400 13,500 13,000 11,750 19,320 14,000 107,314 481,491 7,590 5,059 45,000 100,000
Total number of shares available for subscription
24,200 28,000 88,460 217,400 13,500 13,000 11,750 19,320 14,000 107,314 481,491 7,590 5,059 45,000 100,000
of which available for subscription by corporate officers as of the RegistrationDocument Date
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
BSPCE exercise start date
11/30/05 02/02/07 10/24/09 12/17/11 09/30/12 06/26/13 12/11/13 02/15/14 12/20/13 12/19/14 05/13/15 12/08/15 04/23/16 07/01/16 02/28/17
BSPCE expiry date 11/30/15 02/02/17 04/09/19 12/17/20 09/30/21 06/26/22 12/11/22 02/15/23 12/20/23 12/20/23 05/14/24 12/09/24 04/22/25 06/30/25 02/28/26
Subscription price of one share
2.90* 2.90* €3 €3 €3 €3 €3 €3 €4 €4 €6.77 €5.66 €6.93 €7.74 €4.19
Exercise terms & conditions
(1) (1) (1) (1) (1) (1) (1) (1) (1) (2) (1) (1) (3) (1) (1) (1) (1)
Number of shares subscribed as of Registration Document Date
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total number of BSPCE exercised, canceled or lapsed
24,200 0 83,160 174,900 13,500 0 3,456 19,320 0 57,314 251,491 7,590 5,059 45,000 100,000
Unexercised BSPCEs outstanding on Registration Document Date
0 28,000 5,300 42,500 0 13,000 8,294 0 14,000 50,000 230,000 0 0 0 0
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BSPCE
Nov-2005
BSPCE
Feb-2007
BSPCE
Apr-2009
BSPCE
Dec-2010
BSPCE
Sep-2011
BSPCE
Jun-2012
BSPCE
Dec-2012
BSPCE
Feb-2013
BSPCE
Dec-2013
BSPCE
Dec-2013
BSPCE
May-2014
BSPCE
Dec-2014
BSPCE
Apr-2015
BSPCE
Jul-2015
BSPCE
Mar-2016
Date of General Shareholders' Meeting
06/28/05 06/30/06 10/24/08 10/26/09 05/17/11 06/26/12 06/26/12 06/26/12 04/22/13 04/22/13 03/07/14 03/07/14 03/07/14 06/11/15 06/11/15
Date of Board meeting 11/30/05 02/02/07 04/09/09 12/17/10 09/30/11 - 12/11/12 02/15/13 12/20/13 12/20/13 05/14/14 12/09/14 04/23/15 07/03/15 03/01/16
Total number of shares available for subscription on Registration Document Date
0 28,000 5,300 42,500 0 13,000 8,294 0 14,000 50,000 230,000 0 0 0 0
Total number of shares resulting from the exercise of BSPCEs, taken into account for the purposes of the table in Section 18.1 of the RegistrationDocument: 391,094
0 28,000 5,300 42,500 0 13,000 8,294 0 14,000 50,000 230,000 0 0 0 0
* After taking into account the 100-for-1 par value split of shares decided by the General Shareholders' Meeting of July 31, 2008(1) These BSPCEs are all exercisable as of the Registration Document Date.(2) This number counts towards the overall combined cap of 598,154 warrants for the BSPCE2013 and BSA2013 (see Section 21.1.4.1 above). (3) This number counts towards the overall combined cap of 2,245,000 warrants for the BSPCEs and BSAs granted in 2014 (see Section 21.4.4.1 above).
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21.1.5. Authorized capital
As the General Shareholders' Meeting of February 28, 2017 approved the change to the Company's management and governance structure, the Company is since that date a limited company with a board of directors.
The issuance resolutions approved by the Combined Ordinary and Extraordinary General Shareholders' Meeting of June 15, 2017, are in effect and are summarized below:
Delegation of authorityMain applicable legal and
regulatory provisionsPeriod of validity
/ ExpirationCap
Price calculation method
Implemented as of Registration
Document Date
Delegation of authority to the Board of Directors to increase capital by issuing ordinary shares and/or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, and/or to securities giving access to future equity instruments, with shareholders’ pre-emptive rights maintained.
Articles L.225-129 to L.225-129-6, L.225-132, L.225-133, L.225-134, L.228-91, L.228-92 and L.225-93 of the French Commercial Code
26 months €3,850,000 (1) None
Delegation of authority to the Board of Directors to increase capital immediately or in the future by issuing ordinary shares or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, with shareholders’ pre-emptive rights waived and public offering.
Articles L.225-129 to L.225-129-6, L.225-135, L.225-135-1, L.225-136, L.228-91, L.228-92 and L.225-93 of the French Commercial Code
26 months €3,850,000 (1) See (2) None
Delegation of authority to the Board of Directors to increase capital by issuing ordinary shares and/or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, and/or securities giving access to future equity instruments, with shareholders’ pre-emptive rights waived, to be issued as part of an offer to qualified investors or a restricted circle of investors as defined in paragraph II. of Article L.411-2 of the French Monetary and Financial Code.
Articles L.225-129, L.225-129-2, L.225-135, L.225-135-1, L.225-136, L.228-91, L.228-92 and L.228-93 of the French Commercial Code
26 months
€1,555,000 (1) subject to a limit of 20% of the
share capital per 12-month period
See (3) None
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Delegation of authorityMain applicable legal and
regulatory provisionsPeriod of validity
/ ExpirationCap
Price calculation method
Implemented as of Registration
Document Date
Delegation of authority to the Board of Directors to increase capital by issuing ordinary shares and/or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, and/or to securities giving access to future equity instruments, with shareholders’ pre-emptive rights waived, to the benefit of a category of persons that meet specific criteria (i.e., companies or investment funds habitually investing in "small cap" growth stocks (i.e., which market capitalization when listed do not exceed €1 billion) (including, but not limited to, any innovation mutual fund, venture capital fund, professional investor fund, or proximity investment fund) in the health, life sciences, or biotechnology sectors participating in the issue with a single investment exceeding €50,000 (issue premium included), capped at 50 subscribers))
Articles L.225-129, L.225-129-2, L.225-129-4, L.225-135, L.225-135-
1, L.225-138, L.228-91 et seq. of the French Commercial Code
18 months €1,555,000 (1) See (4) None
Authorization to the Board of Directors, when issuing shares or any securities with shareholders’ pre-emptive rights waived, to set the issue price subject to a limit of 10% of the share capital and in accordance with the conditions set by the General Shareholders' Meeting
Articles L.225-136, 1°) of the French Commercial Code
26 monthsSubject to a limit of 10
% of share capitalSee (5) None
Delegation of authority to the Board of Directors to increase, in the event of a capital increase, the number of securities to be issued with shareholders’ pre-emptive rights waived or maintained.
Articles L.225-129, L.225-129-2, L.225-135-1 et seq., L.228-91 and L.228-92 of the French
Commercial Code
26 monthsSubject to a limit of
15% of the initial issue (1) (6)
Same price as the initial issue
None
Delegation of authority to the Board of Directors to issue ordinary shares or any securities giving access to Company capital, in the event of a tender offer that includes an exchange component initiated by the Company
Articles L.225-129 to L.225-129-6, L.225-148, L.228-91 and L.228-92 of the French Commercial Code
26 months €3,850,000 (1) None
Delegation of authority to the Board of Directors to issue Company ordinary shares or securities giving access in any way immediately or in the future to Company ordinary shares, subject to a limit of 10% of existing share capital, to be used as payment for in-kind contributions of equity instruments or securities giving access to the capital of third-party entities outside a public exchange offer.
Article L.225-147 of the French Commercial Code
26 months
Subject to a limit of 10% of existing sharecapital on the date of
the transaction in question (1)
None
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(1) These amounts are not cumulative. The maximum cumulative cap authorized by the General Shareholders' Meeting as the par value of capital increases, is set at €3,850,000.
(2) The issue price of shares and securities will be set by the Board of Directors and will equal at least the weighted average listed share price over the three trading days immediately preceding the date on which it is set, minus any legally authorized discount (currently 5%) and adjusted for any difference in entitlement dates, it being understood that the issue price of securities giving access to capital shall be the sum immediately taken by the Company, plus any that may be taken by it subsequently – thus, for each share issued pursuant to the issuance of these securities, is at least equal to the issue price defined above.
(3) The issue price of shares will be set by the Board of Directors and will equal at least the weighted average listed share price over the three trading days immediately preceding the date on which it is set, minus any legally authorized discount (currently 5%) and adjusted for any difference in entitlement dates, it being understood that the issue price of securities giving access to capital shall be the sum immediately taken by the Company, plus any that may be taken by it subsequently – thus, for each share issued pursuant to the issuance of these securities, is at least equal to the issue price defined above.
Delegation of authorityMain applicable legal and
regulatory provisionsPeriod of validity
/ ExpirationCap
Price calculation method
Implemented as of Registration
Document Date
Delegation of authority to the Board of Directors to increase capital by incorporating premiums, reserves, profits or other means
Articles L.225-129, L.225-129-2 and L.225-130 of the French
Commercial Code26 months €500,000 None
Authorization to the Board of Directors to grant options to subscribe or buy ordinary shares in the Company
Articles L.225-177 to L.225-185 of the French Commercial Code
38 months
4.500.000 shares, subject to alimit of one-third of
share capital (7)
See (8) None
Authorization to the Board of Directors to allocate existing or future shares free of charge
Article L.225-197-1 et seq. of the French Commercial Code
38 months4,500,000 shares,
subject to a limit of 10 % of share capital (7)
None
Delegation of authority to the Board of Directors to issue and allocate share subscription warrants to the benefit of (i) members and observers on the Company's Board of Directors in office on the allocation date who are not employees or executives of the Company or of any of its subsidiaries or (ii) persons related by a service or consulting contract to the Company or any of its subsidiaries or (iii) members of any existing or future committee of the Board of Directors who are not employees or executives of the Company or of any of its subsidiaries.
Article L.225-129 et seq., L.225-138-I, L.228-91 and L.228-92 of the
French Commercial Code18 months 4,500,000 shares (7) See (9) None
Authorization to the Board of Directors for the Company to purchase its own shares
Articles L.225-209 et seq. of the French Commercial Code
18 monthsSubject to a limit of
10% of the total number of shares
See (10) None
Authorization to the Board of Directors to reduce share capital by canceling shares as part of the authorization to buy back its own shares.
Article L.225-209 of the French Commercial Code
18 monthsSubject to a limit 10% of share capital in any
24-month periodNone
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(4) The issue price of shares will be set by the Board of Directors and will be equal to at least the volume-weighted average listed share price over a period of between five and thirty consecutive trading days from among the thirty trading days immediately preceding the date on which the issue price is set, adjusted for any difference in entitlement dates and potentially reduced by a maximum 20% discount.
(5) Subject to a limit of 10% of existing Company capital (existing on the transaction date) in any consecutive 12-month period, the Board of Directors can deviate from the price-setting conditions specified in the aforementioned authorizations and set the issue price for ordinary shares and/or other securities giving immediate or future access to issued capital, as follows:
the issue price of an ordinary share will be at least equal to the weighted average share price during the three trading days immediately preceding the date the price is set, potentially discounted by up to 15%, it being understood that in no case can it be lower than the par value of a Company share on the date that the shares in question are issued.
the issue price of securities giving access to capital shall be the sum immediately taken by the Company, plus any sum it may take subsequently, thus, for each share issued as a consequence of the issuance of these securities, at least equal to the issue price defined in the paragraph above.
(6) 15% or any other percentage that may be set by the applicable regulation;
(7) These amounts are not cumulative. The cumulative cap authorized by the General Shareholders' Meeting as the maximum number of securities giving access to capital is set at 4,500,000 shares.
(8) The per-share purchase price or subscription price will be set by the Board of Directors on the day that the option is granted and cannot be less than the average listed share price over the twenty trading days immediately preceding the date of the Board’s decision to grant the options, rounded to the next higher eurocent, not including purchase options, at the average purchase price for Company treasury shares, rounded to the next higher eurocent.
(9) The subscription price of BSAs will be set by the Board of Directors on the BSA issue date and must be at least equal to 5% of the weighted average listed share price over the five trading days immediately preceding the date on whichthose BSAs are granted by the Board of Directors. The subscription price of a share upon the exercise of a BSA will be set by the Board of Directors on the day that the BSAs are granted and will be equal to at least the weighted average listed share price over the twenty trading days immediately preceding the date of the Board's decision to grant those BSAs.
(10) The maximum purchase price per share (excluding fees and commissions) is €15, with an overall cap of €10 million, it being understood that this purchase price will be adjusted as necessary to take into account capital transactions (particularly in the case of incorporation of reserves, allocation of free shares, split or reverse-split).
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21.1.6. Disclosures regarding the capital of any Group company that is the object of a conditional or unconditional option or agreement to buy
To the Company’s knowledge, there is no option or any conditional or unconditional agreement providing for the introduction of such an option on the capital of the Company or Group companies.
21.1.7. Change in equity capital
The Company was registered in the trade and companies register on October 15, 2001, with initial equity capital of €48,500.
The equity capital was then increased, several times, reaching €7,785,000.60 on February 28, 2017, as the result of a capital increase by the issuance of 62,279,951 new shares.
The following table summarizes changes in equity capital since the Company's Initial Public Offering.
Date of transaction
Type of transaction
Number of shares issued or canceled
Maximum nominal (€)
Issue premium or contribution
premium (€)
Total par value of share capital
(€)
Total number of
shares outstanding
Par value
(€)
April 3, 2014
Capital increase via public offering
4,367,088 436,708.80 34,063,286.40 1,510,830.30 15,108,303 0.10
May 2, 2014
Capital increase (exercise of overallotment option)
21,604 2,160.40 168,511.20 1,512,990.70 15,129,907 0.10
June 2, 2014
Conversion of convertible bonds
155,164 15,516.40 1,210,279.20 1,528,507,.10 15,285,071 0.10
September 30, 2014
Conversion of convertible bonds
155,164 15,516.40 1,210,279.20 1,544,023.50 15,440,235 0.10
2015
Capital increase (ordinary shares) by exercise of BSPCEs
100,851 10,085.10 308,007.00 1,554,108.60 15,541,086 0.10
2016
Capital increase (ordinary shares) by exercise of BSPCEs
28,969 2,896.90 87,399.10 1,557,005.50 15,570,055 0.10
February 28, 2017
Capital increase
62,279,951 6,227,995.10 113,771,486.59 7,785,000.60 77,850,006 0.10
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21.2. ARTICLES OF INCORPORATION AND BY-LAWS
21.2.1. Company Purposes (Article 3 of the Articles of Association)
The Company has the following purpose, in France and abroad:
research, study, development, manufacturing and distribution of medicines and drug and sanitary products in the field of human and animal health
using any means and in particular by setting up new French or foreign companies, acquisition, contribution, merger, alliance, demerger, loans, guarantees, endorsements, advances, commissions or otherwise.
And in general, any operation, business or financial, commercial, industrial or real estate enterprise of any kind, in particular those directly or indirectly connected with the abovementioned purpose or any other similar or related purpose that may facilitate, encourage or develop its industry, commerce, and services.
21.2.2. Statutory or other provisions relating to the members of executive and management bodies
Membership
The Company is administered by a Board of Directors composed of natural persons or legal entities, whose number is set by the Ordinary General Shareholders' Meeting within legal limits.
A legal entity must, if appointed, designate a natural person as a permanent representative to the Board of Directors. The permanent representative's term of office is the same as that of the legal entity that he or she represents. Should a legal entity revoke its permanent representative's right to represent it, it must provide a replacement as promptly as possible. The same applies in the event of the death or resignation of a permanent representative.
The term of office for directors is three (3) years. A director’s term of office ends after the Ordinary General Shareholders’ Meeting called to approve the financial statements for the past financial year and held in the year during which that director’s term of office expires.
Directors are always eligible for re-election; they may be removed at any time by action taken at a general shareholders’ meeting.
If one or more seats on the Board are vacated by the death or resignation of a director, the Board can, between two General Shareholders' Meetings, make a provisional appointment.
The provisional appointments made by the Board of Directors must be submitted for ratification at the very next Ordinary General Shareholders' Meeting.
Should the appointment not be ratified, the previous deliberations and actions taken by the Board will continue with no less force or validity.
When the number of directors becomes less than the legal minimum, the remaining directors must immediately convene an Ordinary General Shareholders' Meeting with a view to increasing the Board membership.
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An employee of the Company can be appointed to the Board as a director. His or her employment contract must, however, correspond to effective employment. In such a case, he or she does not lose the benefit of his or her employment contract.
The number of directors bound to the Company by an employment contract must not exceed one third of the directors in office.
The number of directors over 70 years of age must not exceed one third of the directors in office. If a member exceeds this age limit during his or her term of office, the member is automatically deemed to have resigned at the close of the next General Shareholders' Meeting.
Chairmanship
The Board of Directors chooses a Chairman from among its own members, who must be a natural person. The Board sets his or her term of office, which cannot exceed his or her term as Director, and it can revoke his or her functions at any time. The Board sets his or her compensation.
The Chairman of the Board of Directors organizes and directs the work of the Board, and reports on this work to the General Shareholders’ Meeting. The Chairman oversees the proper functioning of the Company's bodies and ensures, in particular, that directors are capable of fulfilling their duties.
The Chairman of the Board may not be more than 75 years old. If the Chairman reaches this age limit during his or her term as Chairman, he or she is at the point deemed to have resigned from office. His or her term of office continues until the next Board of Directors meeting in the course of which his successor will be appointed. Subject to this provision, the Chairman of the Board is always reeligible.
Board of Directors practices
The Board of Directors meets as often as required in the interests of the Company.
The directors are convened to Board meetings by the Chairman. They can be convened by any means, written or orally. The Chief Executive Officer may also ask the Chairman to convene a Board meeting to consider a specific agenda. Directors representing a third of the Board members can also validly convene a Board meeting. In such a case, they must set and provide the agenda.
For Board deliberations to be valid, at least half of the Board members must be present.
Board decisions are taken by majority vote; in the case of a tie, the Chairman does not cast the deciding vote.
The Board charter adopted by the Board of Directors provides that, for quorum and majority purposes, members may be deemed present at a meeting if they attend by videoconference or telephone conference in accordance with applicable regulations. This provision is not applicable for the adoption of decisions relating to Articles L. 232-1 and L. 233-16 of the French Commercial Code.
Powers of the Board of Directors
The Board of Directors determines the strategies for the Company’s business and ensures their implementation. Subject to the powers expressly given to the Shareholders’ Meetings and within the limits of the corporate purpose, it addresses all questions related to the Company’s proper functioning and governs, by its decisions, the affairs that concern it.
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In its relations with third parties, the Company is committed by the actions of the Board of Directors even if they are inconsistent with the corporate purpose, unless the Company can prove that the third party knew that the act was outside that purpose or that it could not ignore it given the circumstances, excluding the fact that the publication of the Articles of Association alone is sufficient proof.
Observers
An Ordinary General Shareholders' Meeting may appoint observers. The Board of Directors may also appoint one observer directly, subject to ratification by the next General Shareholders' Meeting.
Observers are appointed for a three (3) year term expiring at the close of the Ordinary General Shareholders’ Meeting called to approve the financial statement for the financial year elapsed.
The college of observers studies the questions that the Board of Directors or its Chairman submit to it for review and opinion. Observers attend Board meetings and take part in the deliberations with a consultative voice only, and their absence does not affect the validity of deliberations.
They are convened to Board of Directors meetings on the same terms as the Board members.
The Board of Directors may remunerate observers by allocating them a portion of the attendance fees granted by the General Shareholders' Meeting to members of the Board of Directors.
Executive management
The Company’s general management function is the responsibility of either the Chairman of the Board of Directors or another natural person appointed by the Board of Directors and holding the title of Chief Executive Officer (CEO).
The Chief Executive Officer is vested with the most extensive powers to act on behalf of the Company in any circumstance. He or she exercises these powers within the limit of the corporate purpose and subject to the powers that the law expressly grants to the General Shareholders’ Meeting and to the Board of Directors.
He or she represents the Company in its relations with third parties. The Company is bound even by acts of the Chief Executive Officer that are not within the scope of the corporate purpose, unless the Company can prove that the third party knew that the act was beyond the scope of said purpose or the third party could not be unaware of it given the circumstances, although the mere publication of the Articles of Association does not suffice as such proof.
The Chief Executive Officer may not be more than 65 years old.
If the Chief Executive Officer is a director, his or her term of office as CEO must not exceed that of his or her directorship.
The Board of Directors can revoke his or her appointment as CEO at any time. If the revocation is decided for no fair reason, it may give rise to a claim for damages, unless the Chief Executive Officer takes on the role of Chairman of the Board of Directors.
At the proposal of the Chief Executive Officer, the Board of Directors may appoint one or more natural persons as Deputy Chief Executive Officer, with the responsibility of assisting the Chief Executive Officer.
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With the consent of the Chief Executive Officer, the Board of Directors determines the scope and extent of the powers granted to Deputy Chief Executive Officers. The Board sets their compensation. If a Deputy Chief Executive Officer is a director, his or her term of office in that function must not exceed that of his or her directorship.
With respect to third parties, Deputy Chief Executive Officers have the same powers as the Chief Executive Officer; in particular, they have the authority to participate in legal proceedings.
There can be no more than five Deputy Chief Executive Officers.
The position of Deputy Chief Executive Officer can be revoked at any time by the Board of Directors on the recommendation of the CEO. If the revocation is decided for no fair reason, it may give rise to a claim for damages.
A Deputy Chief Executive Officer may not be more than 65 years old. When a Deputy CEO reaches this age limit, he or she is deemed to have resigned his or her office. His or her term of office continues until the next Board of Directors meeting in which his or her successor may be appointed.
21.2.3. Rights, privileges and restrictions attached to shares in the Company
Form of securities
Shares may be registered or bearer shares, at the choice of the shareholder. They cannot be in the form of bearer shares until they are fully paid up.
The shares and all other securities issued by the Company are registered in an individual account, subject to the terms and conditions provided for by the applicable legal and regulatory provisions.
Voting right
The voting right attached to shares is proportional to the share of capital that they represent and each share gives the right to at least one vote, subject to applicable legal and regulatory provisions.
The Articles of Association expressly prohibit any mechanism that grants full double voting rights to shares held in registered form in the name of the same shareholder for at least two years (General Shareholders' Meeting of June 11, 2015).
Rights to dividends and profits
Each share confers a right to the Company’s profits and assets and to the surplus from liquidation in proportion to the fraction of the number and par value of existing shares that it represents.
Pre-emptive right
Company shares benefit from a pre-emptive right to capital increase under the terms and conditions specified in the French Commercial Code.
Limitation on voting rights
No provision of the Articles of Association restricts the right to vote attached to shares.
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Identifiable bearer securities
The Company may also, under the statutory and regulatory conditions in force, demand at any time, on a paid basis, from any authorized body, the name, or if a legal entity the corporate name, nationality and address of holders of securities conferring immediate to future voting rights at its own shareholders’ meeting, as well as the number of securities held by each of them and any restrictions that may apply to those securities.
21.2.4. Procedure for modifying shareholders' rights
Shareholders’ rights as explained in the Company’s Articles of Association can be modified only by an Extraordinary General Shareholders’ Meeting.
21.2.5. General Shareholders' Meetings of shareholders
General Shareholders' Meetings are convened and deliberate under the conditions laid down in applicable laws and regulations. When the Company wishes to call a meeting by electronic means rather than by post, it must first obtain the consent of the shareholders involved and their electronic addresses.
The meetings are held at the registered office or at any other place specified in the notice of meeting.
The right to participate in General Shareholders' Meetings is governed by applicable laws and regulations and is, in particular, conditional on the registration of shares in the name of the shareholder or of the authorized intermediary registered on the shareholder’s behalf, by 12:00 a.m. (midnight) Paris time, of the second business day before the Meeting, either in the registered share accounts kept by the Company or in the bearer share accounts kept by the authorized intermediary.
Shareholders, if not personally attending the meeting, can choose any of the following methods to participate:
assign a proxy in accordance with applicable laws and regulations;
vote by correspondence; or
send a form of proxy to the Company without indicating a delegate;
in accordance with applicable laws and regulations.
The Board of Directors may organize, in accordance with applicable laws and regulations, the participation and voting of shareholders at meetings via videoconferencing or other telecommunications methods that allow shareholders to be identified. If the Board of Directors decides to exercise this option for a particular meeting, it must state this decision in the notice of meeting. Shareholders participating in meetings by videoconference or by any other telecommunication method indicated above that the Board of Directors may choose, are deemed to be present for the purposes of calculating quorum and majority.
General Shareholders' Meetings are chaired by the Chairman of the Board of Directors. Failing which, the Meeting itself can elect a chairman for its meeting.
The roles of scrutineers are performed by the two willing shareholders present at the start of the Meeting who represent the greatest number of votes. The meeting officers appoint a secretary, who may be chosen from outside the members of the Meeting.
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An attendance sheet is maintained under the conditions provided by law.
An Ordinary General Shareholders’ Meeting on first convocation may validly deliberate only if the shareholders present or represented possess at least one fifth of the shares with voting rights. An Ordinary General Shareholders’ Meeting on second convocation may validly deliberate regardless of the number of shareholders present or represented.
Resolutions of Ordinary General Shareholders' Meetings are passed by a majority of the shareholders present or represented.
An Extraordinary General Shareholders’ Meeting on first convocation may only validly deliberate if the shareholders present or represented possess at least one quarter of the shares with voting rights. An Extraordinary General Shareholders’ Meeting on second convocation may validly deliberate only if the shareholders present or represented possess at least one fifth of the shares with voting rights.
Resolutions of Extraordinary General Shareholders' Meetings are passed by a two-thirds majority of the shareholders present or represented.
Copies or excerpts of the minutes of the meeting are validly certified by the Chairman of the Board of Directors, by a director performing the functions of a Chief Executive Officer, or by the Secretary of the Meeting.
Ordinary and Extraordinary General Shareholders' Meetings exercise their respective powers under the conditions provided by law.
21.2.6. Provisions to delay, defer or prevent a change of control
The Articles of Association do not contain any provisions to delay, defer or prevent a change of control of the Company.
21.2.7. Breach of statutory thresholds
None.
21.2.8. Special stipulations governing changes to capital
There are no special stipulations in the Company’s Articles of Association governing changes to its capital that would be more stringent than provided by law.
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22.MATERIAL AGREEMENTS
The main terms of material agreements are summarized below:
22.1. LICENSE AGREEMENT SIGNED ON FEBRUARY 2, 2015 WITH THE PHARMACEUTICAL COMPANY SERUM INSTITUTE OF INDIA LTD. (SIIL)
On February 2, 2015 the Company signed a license agreement with the pharmaceutical company Serum Institute of India Ltd. (SIIL) for its Vaxiclase technology, as part of the development by SIIL of acellular and multivalent vaccines containing antigens for whooping cough.
The license granted by the Company to SIIL ensures the introduction of the Vaxiclase technology platform in multivalent vaccines that protect against (among others) the bacterium Bordetella pertussis, the agent responsible for whooping cough. The license covers every country in the world, with the exception of the main pharmaceutical markets, notably the United States of America, Canada, New Zealand, Australia, Japan, Israel, Turkey and wider Europe.
In return for access to and use of the Vaxiclase platform in the authorized indication, the Company could receive up to US $57 million in initial payments and milestone payments on development and sales, based on criteria set out in the terms of the agreement, as well as royalties as a percentage of net sales.
Furthermore, additional options permit the extension of the collaboration to markets not yet included in the agreement.
The agreement was signed for a period expiring on the date on which SIIL no longer owes royalties to the Company under the agreement, or , if later, on the date on which all the obligations of all parties specified in the agreement have been satisfied or have expired.
The parties may, however, terminate the license agreement early in the following cases:
at the request of either party, in the event the other party has materially breached or defaulted in the performance of any of its material obligations, not cured within 90 daysafter written notice thereof;
by SIIL, at any time after February 2, 2016 and without cause, subject to 90 days’ prior written notice;
at the request of either party, if the other party files a petition in bankruptcy or insolvency proceedings or finds itself insolvent.
22.2. SERVICE AGREEMENT WITH SYNGENE
On May 2, 2017, Genkyotex signed a framework service agreement with Syngene International Limited, a CRO (research company specialized in the manufacturing and characterization ofpharmaceutical substances and medical drugs), engaged to provide the necessary products for the pre-clinical studies and Phase I clinical trials with GKT771 in patients. This agreement was signed for a initial term of three years, automatically renewable for an additional year.
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22.3. SERVICE AGREEMENT WITH CMED
On January 12, 2017, Genkyotex Group signed a framework service agreement with Cmed, a CRO (research company specialized in clinical trials services), to conduct the Phase II clinical trial in PBC. This agreement was signed for a initial term of five years, automatically renewable for an additional year. The trial will take place in some 60 facilities.
22.4. SERVICE AGREEMENT WITH CORDEN PHARMA
On June 28, 2012, Genkyotex Group signed a framework service agreement with Corden Pharma GmBH for the manufacturing and oversight of specific projects in pharmaceutical and biotechnology fields. The latest projects outsourced to Corden Pharma in July 2016, consist of the manufacturing of approximately 100,000 placebo capsules and two lots of approximately 50,000 GKT831 capsules, as well as stability work that began on November 14, 2016, for the purposes of the Phase II trial in PBC.
The framework agreement is automatically renewed each year. Genkyotex can terminate this contract at any time, subject to a 30-day written notice. Either party can terminate this contract in the case of a major breach of its terms, if the breach remains substantially uncured by the breaching party 30 days after receiving written notification of it. Either party can also immediately terminate the contract by written notification should the other party become insolvent or be the subject of insolvency or bankruptcy proceedings.
Furthermore, three reports on ad-hoc studies that Charles River was commissioned to carry out are in the process of being finalized.
With the exception of the agreements described above, Genkyotex Group has signed only usual contracts in the normal course of business.
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23.THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATIONS OF ANY INTEREST
None.
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24. DOCUMENTS ACCESSIBLE TO THE PUBLIC
Copies of this Registration Document are available free of charge from the Company’s registered office (218 avenue Marie Curie - Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France).
This Registration Document can also be consulted on the Company’s website (www.genkyotex.com) and on the AMF website (www.amf-france.org).
The Articles of Association, minutes of general shareholders’ meetings and other Company documents, as well as historical information and all assessments and reports issued by an expert at the Company’s request, which are required to be available to the shareholders in accordance with applicable laws, can be consulted free of charge at the Company’s registered office.
The regulated information, under the meaning of the AMF General Regulations, is also available on the Company’s website (www.genkyotex.com).
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25. INFORMATION ON HOLDINGS
The Company did not own a subsidiary or equity interests as of December 31, 2016.
The organization chart of the new entity resulting from the combination with the Genkyotex Group in February 2017, is shown in Section 7 "Organization" of the Registration Document.
The consolidated financial statements of Genkyotex Suisse SA prepared to IFRS standards for the year ended December 31, 2016 are available on the Company's website (www.genkyotex.com).
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GLOSSARY
Abbreviation / Term Definition
CHMP..............................................Committee for Medicinal Products for Human Use, which is a committee of the European Medicines Agency (EMA)
CRO.................................................Contract Research Organization, a company specializing in the organization and conduct of clinical trials
HPV.................................................Human Papilloma Virus
KOL .................................................Key opinion leaders
MA ..................................................Marketing authorization
NASH ..............................................Non-alcoholic steatohepatitis
NOX ................................................NADPH oxidase inhibitors
PBC .................................................Primary Biliary Cirrhosis
Clinical Phases................................Phase I: Study of the behavior of a molecule tested in an organism, on the basis of time (the pharmacokinetics of absorption and elimination) and analysis of safety and tolerance in humans. This phase is conducted on a small number of healthy volunteers;
Phase II: Assessment of the safety and efficacy of the molecule and determination of the therapeutic dose of the molecule.
Phase III: Comparison of the efficacy of a new drug to the treatment of reference. This phase involves a large number of patients. Patients are selected in accordance with precise criteria designed to determine the efficacy and benefits of the drug being tested as a new standard treatment for the disease concerned.
Pre-clinical phases .........................Laboratory tests to evaluate the principal effects of a molecule and its toxicity
SIIL ..................................................Serum Institute of India Ltd.