424B4 1 d82500d424b4.htm 424B4 424B4
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Filed Pursuant to 424(b)(4)

Registration Statement No. 333-250984

 

PROSPECTUS

 

 

LOGO

8,998,020 Ordinary Shares

Represented by 899,802 American Depositary Shares

Our American Depositary Shares, or ADSs, each representing ten ordinary shares of Pharming Group N.V., have been approved for listing on the Nasdaq Global Market, or Nasdaq, under the symbol “PHAR”. The ADSs will begin trading on December 23, 2020. Our ordinary shares are currently traded on Euronext Amsterdam under the symbol “PHARM”. The closing price of our ordinary shares on Euronext Amsterdam on December 21, 2020 was €1.46 per ordinary share, which is equivalent to a price of $1.79 per share based on the noon buying rate of the Federal Reserve Bank of New York on December 18, 2020, or $17.86 per ADS, after giving effect to the ratio of one ADS for every ten ordinary shares. We have appointed J.P. Morgan Chase Bank, N.A. to act as the depositary for the ADSs representing our ordinary shares, including the Registered Shares, as defined below. Holders of ordinary shares registered hereby may deposit such ordinary shares with the depositary in exchange for ADSs representing such ordinary shares at the ratio referred to in the first sentence of this paragraph. ADSs representing the ordinary shares registered hereby will be freely tradeable on Nasdaq.

We filed the registration statement of which this prospectus forms a part with respect to an aggregate of 8,998,020 ordinary shares held by the shareholders identified herein. Holders of all such ordinary shares are identified in this prospectus as the Registered Holders and the aggregate of 8,998,020 ordinary shares registered hereby as the Registered Shares. Any Registered Shares offered and sold in the United States by the Registered Holders will be in the form of ADSs. The Registered Holders are also permitted to sell ordinary shares not represented by ADSs in private transactions or in open market trades, including on Euronext Amsterdam, which resales are not covered by this prospectus. The Registered Holders are offering their securities in order to create a public trading market for our ADSs in the United States. However, unlike an initial public offering, any disposition by the Registered Holders of the Registered Shares represented by ADSs are not being underwritten by any investment bank. The registration of shares by our directors and officers named in the “Registered Holders” section of this Registration Statement does not imply that any such Registered Holder has the intention and/or an obligation, to sell the ADSs. Moreover, as Registered Holders, the directors and officers will remain subject to the applicable obligations and restrictions with regard to the trading of the registered shares, including but not limited to those pursuant to the European Market Abuse Regulation, the Dutch Financial Supervision Act and (other) applicable securities laws. We expect that the opening public price of our ADSs on Nasdaq will be determined by reference to the most recent trading price of our ordinary shares on Euronext Amsterdam, as adjusted for the currency exchange rate and a share-ADS ratio of ten to one. Thereafter, trades of our ADSs will be made through brokerage transactions on Nasdaq at prevailing market prices or as otherwise provided in the section entitled “Plan of Distribution”. The Registered Holders may, or may not, elect to dispose of Registered Shares represented by ADSs as and to the extent that they may individually determine. Such dispositions, if any, will be made through brokerage transactions on Nasdaq or other securities exchanges in the United States at prevailing market prices. See the section entitled “Plan of Distribution.” We will not receive proceeds from any disposition of Registered Shares in the form of ADSs by Registered Holders.

We are an “emerging growth company” and a “foreign private issuer,” each as defined under the federal securities laws, and, as such, we will be subject to reduced public company reporting requirements. See the section entitled “Prospectus Summary—Implications of Being an Emerging Growth Company and a Foreign Private Issuer” for additional information.

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

Investing in ADSs representing our ordinary shares involves a high degree of risk. Before buying any ADSs representing our ordinary shares you should carefully read the discussion of material risks of investing in such securities in “Risk Factors ” beginning on page 11 of this prospectus.

Prospectus dated December 22, 2020


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TABLE OF CONTENTS

 

     Page  

ABOUT THIS PROSPECTUS

     ii  

PRESENTATION OF FINANCIAL AND SHARE INFORMATION

     iii  

PROSPECTUS SUMMARY

     1  

MESSAGE FROM THE CEO

     1  

THE REGISTERED SHARES

     8  

SUMMARY CONSOLIDATED FINANCIAL DATA

     9  

RISK FACTORS

     11  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     48  

INDUSTRY AND MARKET DATA

     49  

USE OF PROCEEDS

     49  

DIVIDEND POLICY

     50  

CAPITALIZATION

     51  

SELECTED CONSOLIDATED FINANCIAL DATA

     52  

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

     55  

BUSINESS

     71  

MANAGEMENT

     98  

RELATED PARTY TRANSACTIONS

     110  

PRINCIPAL SHAREHOLDERS

     111  

REGISTERED HOLDERS

     112  

DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF ASSOCIATION

     113  

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

     130  

ORDINARY SHARES AND ADSS ELIGIBLE FOR FUTURE SALE

     143  

MATERIAL INCOME TAX CONSIDERATIONS

     144  

PLAN OF DISTRIBUTION

     153  

EXPENSES OF THIS OFFERING

     156  

LEGAL MATTERS

     157  

EXPERTS

     157  

CHANGE IN AUDITOR

     157  

ENFORCEMENT OF JUDGMENTS

     159  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     160  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     F-2  

We and the Registered Holders are responsible for the information contained in this prospectus and any free writing prospectus that we may prepare or authorize. Neither we nor the Registered Holders have authorized anyone to provide you with different or additional information, and neither we nor they take any responsibility for, or provide any assurance as to the reliability of, any other information that others may give you. Neither we nor the Registered Holders are making an offer to sell ADSs representing our ordinary shares in any jurisdiction where the offer or sale thereof is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of our ADSs.

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

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

 

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ABOUT THIS PROSPECTUS

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms “Pharming,” “Pharming Group,” “Pharming Group N.V.,” “Pharming Healthcare Inc.,” “the company,” “we,” “us” and “our” refer to Pharming Group N.V. together with its subsidiaries.

This prospectus includes trademarks, tradenames and service marks, certain of which belong to us and others that are the property of other organizations. Solely for convenience, trademarks, tradenames and service marks referred to in this prospectus appear without the ®, and SM symbols, but the absence of those symbols is not intended to indicate, in any way, that we will not assert our rights or that the applicable owner will not assert its rights to these trademarks, tradenames and service marks to the fullest extent under applicable law. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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PRESENTATION OF FINANCIAL AND SHARE INFORMATION

The consolidated financial statements of Pharming Group N.V., Leiden for the years ended December 31, 2019 and 2018 included in this prospectus are referred to herein as the “Annual Financial Statements”. The Annual Financial Statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and audited in accordance with the standards of the PCAOB (United States). The unaudited condensed consolidated interim financial statements of Pharming Group N.V., Leiden as of and for the nine months ended September 30, 2020 and 2019 included in this prospectus are referred to herein as the “Unaudited Interim Financial Statements”. The Unaudited Interim Financial Statements are prepared in accordance with International Accounting Standard IAS 34, Interim Financial Reporting. The Annual Financial Statements and the Unaudited Interim Financial Statements are referred to herein collectively as the “Consolidated Financial Statements”.

We maintain our books and records in euros and while we report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, and as approved by the European Committee for purposes of our statutory financial reporting under Dutch law, we report in this prospectus under IFRS as issued by the IASB but there are no material differences between these reporting methods. None of the financial statements included in this prospectus were prepared in accordance with generally accepted accounting principles in the United States. All references in this prospectus to “$” are to U.S. dollars and all references to “€” are to euros.

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them. Additionally, numerical figures under € have been rounded to the nearest thousand in this prospectus.

All references to “shares” in this prospectus refer to ordinary shares of Pharming Group N.V. with a nominal value of € 0.01 per share.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before investing in our ADSs, you should read this entire prospectus carefully, including the sections of this prospectus entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our Consolidated Financial Statements and the related notes, in each case contained elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the section of this prospectus titled “Business” before making an investment decision.

MESSAGE FROM THE CEO

Since its inception in 1988, Pharming Group has been focused on developing ground-breaking new therapies for the safe, effective treatment of rare diseases where there remains an unmet medical need. By applying its patented transgenic technology platform, we can develop difficult to reproduce, highly glycosylated, recombinant human proteins.

Our first commercialized product from this platform, RUCONEST®, is a recombinant human C1 esterase inhibitor, or rhC1INH, approved for the treatment of acute hereditary angioedema, or HAE, attacks. This drug has been launched in over 40 countries, including across Europe and the US, where the company has developed its own salesforce, allowing patients to manage their acute HAE attacks, which in some cases, if left untreated, can be life-threatening. The successful commercialization of RUCONEST® has also enabled us to become a profitable, cash generative biopharma company, fueling its own growth.

We remain focused on its three-pillar strategy. Namely, (i) continued sales growth of RUCONEST® through further country launches and increasing acute HAE attack treatment market share; (ii) indication expansion for rhC1INH and clinical development and commercialization of new recombinant human proteins using our platform technology, and; (iii) in-licensing or acquisition of drug candidates that are in the late-stages of clinical development and that can potentially leverage our commercial infrastructure.

And this strategy is delivering: we continue to grow the number of patients benefitting from RUCONEST®, as well as exploring more convenient modes of administration that can potentially increase patient convenience. We are advancing our pipeline through the clinical development of rhC1INH for the treatment of pre-eclampsia, acute kidney injury and severe pneumonia as a result of COVID-19 infections. In addition, we continue to advance our proprietary enzyme replacement therapies, or ERTs, for Pompe disease, that have also been developed using our proprietary transgenic technology platform. Lastly, in 2019, we in-licensed from Novartis the late-stage product, leniolisib, for the treatment of activated PI3K delta Syndrome, or APDS, an ultra-rare, primary immune-deficiency.

Additionally, we recently received European and US validation of our new production facility to support increased production of rhC1INH. This will enable Pharming to treat much greater populations of patients if and when our pipeline programs are approved.

We believe that, with our increasing patient reach and advancing pipeline, we will be able to continue to deliver significant value to our patients and other stakeholders. The Directors believe that a dual listing on the US Nasdaq stock market will enable us to accelerate our growth strategy through enhancing access to a much deeper pool of specialist biotech and life science investors.

Overview

We are a global, commercial stage biopharmaceutical company developing innovative protein replacement therapies and precision medicines for the treatment of rare diseases and unmet medical needs. The flagship of our portfolio is our recombinant human C1 esterase inhibitor, or rhC1INH, franchise. C1INH is a naturally occurring protein that downregulates the complement cascade in order to control swelling in affected tissues. Our lead product, RUCONEST® is the first and only plasma-free rhC1INH protein replacement therapy. It is approved for the treatment of acute hereditary angioedema, or HAE, attacks. We are commercializing RUCONEST® in the



 

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United States, the European Union and the United Kingdom through our own sales and marketing organization, and the rest of the world through our distribution network. We are also developing rhC1INH for subsequent indications, including pre- eclampsia, Acute Kidney Injury and we are also investigating the clinical efficacy of rhC1INH in COVID-19. In addition, we are studying our oral precision medicine, leniolisib (a phosphoinositide 3-kinase delta, or PI3K delta, inhibitor), for the treatment of activated PI3K delta syndrome, or APDS, in a registration enabling Phase 2/3 study in the US and Europe. Furthermore, we are also leveraging our transgenic manufacturing technology to develop next-generation protein replacement therapies most notably for Pompe disease, which program is currently in the preclinical stage.

Our Portfolio

The following chart summarizes the status of our product and our main product candidate portfolio.

 

 

LOGO

Our Marketed Product: RUCONEST® for the treatment of acute HAE attacks

Our lead product, RUCONEST® is the first and only rhC1INH protein replacement therapy that is approved for the treatment of acute hereditary angioedema, or HAE, attacks. HAE is a rare genetic condition that occurs in between approximately 1 in 10,000 and 1 in 50,000 people worldwide. In the United States, the market for acute treatment is estimated to be between 7,000 and 8,000 patients for both acute and prophylactic treatment. HAE is caused by a deficiency of the protein C1INH. This deficiency leads to the uncontrolled activation of the complement cascade, resulting in the over-production of some mediators, leading to the leaking of fluid from blood vessels to the tissue space. The most common symptoms of an HAE attack are caused by overproduction of the bradykinin initiator protein, kallikrein, and thus excessive leakage of fluid into tissue spaces (edema or swelling). Patients may suffer bouts of excruciating abdominal pain, nausea and vomiting that is exacerbated by swelling in the intestinal wall. Airway, or laryngeal, swelling is particularly dangerous and can lead to death by asphyxiation. Untreated, attacks can last between 48 and 120 hours and can be fatal.

Our revenues from the sale of RUCONEST® were €169.0 million and €135.1 million for the years ended December 31, 2019 and 2018, respectively, and €134.7 million and €123.4 million for the nine months period ended September 30, 2020 and 2019, respectively. We are currently marketing RUCONEST® in the United States, the United Kingdom and the European Union through our own sales force, and RUCONEST® is being sold in South Korea, Israel and certain Central and South American countries through our distributor network.

RUCONEST® has been shown to normalize C1INH effects in HAE patients. Returning C1INH activity levels to normal has been shown to be clinically relevant in HAE attack treatment. The standard posology for the treatment of HAE attacks is 50 units per kilogram of the reconstituted product. RUCONEST® is administered through a slow intra-venous (IV) injection. One vial contains 2100 U of lyophilized product to be reconstituted



 

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with 14ml of water for injection. RUCONEST® irreversibly binds to several target molecules, including importantly the coagulation factor FXII and the protease kallikrein, which (when unbound) cleaves a plasma protein into bradykinin and other products. By binding to and chemically deactivating these molecules, RUCONEST® stops the production of bradykinin and all other mediators and thereby stops the HAE attack.

We are currently developing a next-generation low-volume formulation of RUCONEST® for intramuscular administration or other routes of administration. We have received approval from the EMA for the extension of the RUCONEST® label to include pediatric patients (aged 2-13 years).

RUCONEST® has regulatory exclusivity in the European Union expiring in 2025 and in the United States biologics reference product exclusivity expiring July 16, 2026.

Additional Development Programs for rhC1INH

rhC1INH for the treatment of COVID-19.

We are currently investigating the potential utility of rhC1INH for the treatment of severe pneumonia resulting from COVID-19 infection. In April 2020, we reported results from a compassionate use program at the University Hospital Basel, Switzerland, in which four male patients and one female patient (between 53-82 years of age) with COVID-19, suffering from related severe pneumonia, who did not improve despite standard treatment, including hydroxychloroquine and lopinavir/ritonavir, had been administered rhC1INH. The results from our compassionate use program do not guarantee that rhC1INH will be deemed a safe and effective treatment for COVID-19. Extensive clinical testing and regulatory approval will be required before our rhC1INH will be approved for marketing for the treatment of COVID-19, if at all. The results of this compassionate use study were published in a peer-reviewed journal (Frontiers in Immunology). Based on the results of the compassionate use program, enrollment commenced in a randomized, controlled, investigator-initiated Phase 2 clinical trial for treatment with rhC1INH in up to 150 patients with confirmed COVID-19 infections hospitalized with related severe pneumonia at the University Hospital Basel in Basel, Switzerland. We are also in the process of expanding this trial to centers in Mexico and Brazil. This clinical trial will study whether rhC1INH can control or stop the systemic hyperinflammation syndrome or cytokine storm. We are also preparing to commence a clinical trial for rhC1INH for the treatment of severe pneumonia resulting from COVID-19 infection in the United States. An investigational new drug application was submitted to the U.S. FDA by an investigation partner in June and taken over by us in August of 2020.

rhC1INH for the treatment of acute kidney injury resulting from contrast medium.

Acute kidney injury, or AKI, resulting from contrast medium is a form of kidney damage which occurs in stress situations such as when a patient is injected with contrast medium as part of a contrast-enhanced examination, for example a Computed Tomography, or CT, scan. AKI is a serious and expensive complication in the contrast-enhanced examination setting, where patients are often compromised following minor or major cardiac events. When AKI occurs, it can require dialysis and could lead to prolonged hospitalization or intensive care, which can result in poor long-term outcomes for patients and is extremely expensive. An investigator at the University Hospital Basel conducted a Phase 2 investigator-initiated study of rhC1INH in a double-blind, placebo-controlled clinical trial in 80 randomized patients at risk of AKI resulting from contrast-enhanced examinations. Thirty-nine patients were treated with a placebo and 38 were treated with the product RUCONEST®, totaling 77 patients. Three patients did not receive the angiography that was required to take part in the trial. The primary endpoint of the study was urine NGAL peak change within 48 hours. Other secondary endpoints were cystatin C increase within 24 hours and troponin T peak change within 24 hours. The modified Intention To Treat, or mITT, analysis in the overall population revealed a clear trend (P=0.06) in favor of the RUCONEST® treatment. We observed significant results (p=0.001 n=30) in the relative NGAL difference in a subgroup of patients undergoing percutaneous coronary interventions, or PCI, such as stent insertion. Following this outcome, we have completed preparations for our new Phase 2b study of the effects of RUCONEST® in patients undergoing PCI accompanied by contrast-enhanced examinations. This study was planned for the first half of 2020, but was halted due to COVID-19.



 

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rhC1INH for the treatment of pre-eclampsia

We are developing a rhC1INH protein replacement therapy for the treatment of pre-eclampsia. Pre-eclampsia is a life-threatening multisystem disorder in pregnancies leading to maternal and neonatal mortality and morbidity, usually first appearing as hypertension and proteinuria. Treatments include termination of the fetus or premature delivery, which is often associated with high rates of mortality. Even if they can be born safely, consequences for the child can be severe, with growth restrictions, learning difficulties and moderate to severe disabilities affecting over half of such newborns. We are currently conducting an open label, single-arm, multi-stage, multi-center Phase 1/2 study in late-stage pre-eclampsia in the Netherlands and Australia. This study was initiated in 2019, but was halted due to COVID-19.

Our Product Candidate Pipeline

Leniolisib for the Treatment of APDS

We are developing our oral therapy, leniolisib (a phosphoinositide 3-kinase delta, or PI3K delta, inhibitor), for the treatment of activated PI3K delta syndrome, or APDS. APDS is caused by a mutation in the PIK3CD gene that increases activity of phosphoinositide-3-kinase delta, a promoter of activity in the immune system. APDS has an estimated prevalence of 1-2 patients per million. Leniolisib is a small molecule inhibitor of the delta isoform of PI3K delta. In our collaboration with Novartis, we are currently studying leniolisib in a double blind placebo controlled randomized, registration-enabling Phase 2/3 trial followed by an open label extension safety trial which is currently enrolling patients in clinical sites in the United States and Europe. The trial is designed to enroll 30 patients with ADPS. To date, leniolisib was well tolerated in healthy subjects as well as the APDS patients during the Phase 1, first in human trial and the ongoing open label extension trial. The study was temporarily halted due to COVID-19, but has resumed. Subject to COVID-19-related delays, data is expected during the second half of 2021, followed by review by regulatory authorities during 2021 and the first half of 2022. If approved, the drug is planned to launch in the second half of 2022.

Next-Generation Enzyme-Replacement Therapies

Enzyme replacement therapies, or ERTs, have been used to treat enzyme-deficiency disorders, such as alpha-glucosidase for Pompe disease. Utilizing our transgenic manufacturing platform technology, rather than traditional ERT manufacturing methods, we are developing ERTs that are designed to be less immunogenic than approved therapies. Our main initial ERT product candidate is alpha-glucosidase for the treatment of Pompe disease.

Our Strengths

Our key strengths include the following:

 

   

Sales growth of RUCONEST®.

 

   

Proven rare-disease commercialization capabilities.

 

   

Internal pipeline of product candidates.

 

   

Transgenic Production Platform Technology.

 

   

Data exclusivity, know-how and intellectual property.

Our Strategy

Our goal is to be a leading biopharmaceutical company focused on offering treatment options for patients with unmet medical needs, focused on rare diseases. Our three-pillar strategy for achieving our goal is:

 

   

Continuing to grow sales of RUCONEST® through further country launches and increasing acute HAE attack treatment market share



 

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Expanding indications for rhC1INH and clinical development and commercialization of new recombinant human proteins using our platform technology

 

   

Developing rhC1INH for additional large unmet indications, such as Acute Kidney Injury, Pre-eclampsia and COVID-19.

 

   

Developing more convenient forms of RUCONEST®.

 

   

Leveraging our transgenic manufacturing technology to develop next-generation protein replacement therapies

 

   

In-licensing or acquiring drug candidates that are in the late-stages of clinical development and that can potentially leverage our commercial infrastructure

 

   

Developing leniolisib for the treatment of ADPS.

 

   

Developing or acquiring new programs or companies that can be commercialized using our sales and marketing infrastructure.

Corporate Information

We were incorporated as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the laws of the Netherlands on November 11, 1988 under the name GENFARM B.V. GENFARM B.V. was ultimately renamed Pharming Group B.V. on July 2, 1998. On May 29, 1997, Pharming was converted from a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) into a public company (naamloze vennootschap). Pharming is registered with the Dutch Chamber of Commerce under number 28048592. Our principal executive offices are located at Vondellaan 47, 2332 AA Leiden, the Netherlands. Our registered office address is Darwinweg 24, 2333 CR Leiden, the Netherlands, and our telephone number is +31 (0)71 5247 400. Our ordinary shares are traded on Euronext Amsterdam under the symbol “PHARM”. Our website address is www.pharming.com. The information contained on, or that can be accessed from, our website does not form part of this prospectus.

Our agent for service of process in the United States is Pharming Healthcare Inc.

Risks Associated with Our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth in the section titled “Risk Factors” before deciding whether to invest in our ADSs. Among these important risks are, but not limited to, the following:

 

   

We are heavily dependent on sales of RUCONEST® in the United States and Europe. If we are unable to continue to commercialize RUCONEST®, our business could be materially harmed. In addition, our development pipeline remains dependent on the C1INH franchise in the near term.

 

   

The outbreak of COVID-19 may result in disruptions to our commercialization, clinical trials, manufacturing and other business operations, which could have a material adverse effect on our business, financial condition, operating profit, cash flows and prospects.

 

   

We face significant competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

 

   

We have only recently established our direct sales and marketing organization in Europe. If we are unable to maintain and grow our sales and marketing capabilities, particularly outside of the United States, or enter into agreements with third parties to market and sell our products outside of the United States and Europe, our business will be adversely affected.

 

   

We rely on named patient sales of RUCONEST® in certain territories where it has not yet been approved; however, there are no assurances that named patient sales of our products will continue at current levels, or at all.

 

   

The successful commercialization of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage, reimbursement levels and



 

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pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease revenue generating ability.

 

   

Any future acquisitions we make may expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.

 

   

Negative public opinion and increased regulatory scrutiny of transgenic manufacturing techniques, or activism regarding the ethical treatment of our livestock, may damage public perception of RUCONEST® and our product candidates, which may adversely affect sales of our products and our ability to obtain marketing approvals for our product candidates.

 

   

We rely on third parties for the conduct of significant aspects of our preclinical studies and clinical trials and intend to rely on third parties in the future. If these third parties do not successfully carry out their contractual duties, our business may be adversely impacted.

 

   

We are currently conducting clinical trials for certain of our product candidates at sites outside the United States. The FDA may not accept data from trials conducted in such locations.

 

   

We may not be able to obtain or maintain orphan drug exclusivity for our products or product candidates. If our competitors are able to obtain orphan drug exclusivity for their products, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

 

   

The results from our clinical trials may not be sufficiently robust to support the submission of marketing approval for our product candidates. Before we submit our product candidates for marketing approval, the FDA and/or the EMA may require us to conduct additional clinical trials or evaluate patients for an additional follow-up period.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

Emerging Growth Company

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company,” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

a requirement to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure and

 

   

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act.

We may choose to take advantage of some but not all of these reduced burdens, and therefore the information that we provide holders of ordinary shares and ADSs may be different than the information you might receive from other public companies in which you hold equity. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies in the United States. As a public company in the Netherlands, we are unable to take advantage of the extended transition period.

We may take advantage of these provisions for up to five years from the initial public offering of our ADSs or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of the following:

 

   

the last day of the first fiscal year in which our annual revenues were at least $1.07 billion;

 

   

the last day of the fiscal year following the fifth anniversary of the initial public offering of our ADSs;

 

   

the date on which we have issued more than $1 billion of non-convertible debt securities over a three-year period; and



 

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the last day of the fiscal year during which we meet the following conditions: (i) the worldwide market value of our common equity securities held by non-affiliates as of our most recently completed second fiscal quarter is at least $700 million, (ii) we have been subject to U.S. public company reporting requirements for at least 12 months and (iii) we have filed at least one annual report as a U.S. public company.

Foreign Private Issuer

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

 

   

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

 

   

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

 

   

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

In addition, we will not be required to file annual reports and financial statements with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules for U.S. public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Even if we no longer qualify as an as an emerging growth company, so long as we remain a foreign private issuer, we will continue to be exempt from such compensation disclosures.



 

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THE REGISTERED SHARES

 

Nasdaq Global Market Symbol

“PHAR”

 

Euronext Amsterdam Symbol

PHARM

 

Registered Shares being registered on behalf of the Registered Holders.

8,998,020 ordinary shares, represented by an aggregate of 899,802 ADSs

 

Ordinary shares issued and outstanding immediately before and after the effectiveness of the registration statement of which this prospectus forms a part

638,055,619 ordinary shares

 

ADSs issued and outstanding immediately after the effectiveness of the registration statement of which this prospectus forms a part

899,802 ADSs (assuming deposit with the depositary of all the Registered Shares)

 

American Depositary Shares

Each ADS represents ten ordinary shares, nominal value € 0.01 per ordinary share. Holders of ADSs have the rights of an ADS holder or beneficial owner of ADSs (as applicable) as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs issued thereunder from time to time. To better understand the terms of the ADSs representing our ordinary shares, see the section of this prospectus captioned “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

Depositary

J.P. Morgan Chase Bank, N.A.

 

Use of proceeds

We will not receive proceeds from the disposition, if any, of Registered Shares in the form of ADSs by the Registered Holders.

 

Risk factors

See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our ADSs.

Unless otherwise stated in this prospectus, the number of our ordinary shares set forth herein is as of September 30, 2020 and is based on 638,055,619 ordinary shares issued and outstanding on such date but excludes:

 

   

36,322,988 ordinary shares issuable upon the exercise of outstanding options under our option plan for employees, as of September 30, 2020;

 

   

208,944 ordinary shares issuable upon the exercise of warrants, as of September 30, 2020;

 

   

4,131,708 ordinary shares reserved for issuance pursuant to our Long Term Incentive Plan (LTIP), as of September 30, 2020; and

 

   

62,412,622 ordinary shares issuable upon conversion of our convertible bonds due 2025.



 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables present summary consolidated financial data as of the dates and for the periods indicated. We have derived the summary consolidated statement of operations data for the years ended December 31, 2019 and 2018 and the consolidated balance sheet data as of December 31, 2019 and 2018 from our Annual Financial Statements, included elsewhere in this prospectus.

The selected consolidated statements of operations and comprehensive income (loss) data for the nine months ended September 30, 2020 and 2019 and the selected consolidated statement of financial position data as of September 30, 2020 have been derived from our Unaudited Interim Financial Statements included elsewhere in this prospectus. The Unaudited Interim Financial Statements have been prepared on the same basis as the audited financial statements and in accordance with International Accounting Standard IAS 34. In the opinion of management, the interim data reflect all adjustments necessary for a fair presentation of the financial information in those statements.

Our historical results for the nine months ended September 30, 2020 and 2019 are not necessarily indicative of results to be expected for a full year or any other interim period. We maintain our books and records in euros, and while we report under IFRS as issued by the IASB and as approved by the European Committee for purposes of our statutory financial reporting under Dutch law, we prepared our Consolidated Financial Statements for purposes of this prospectus in accordance with IFRS as issued by the IASB.

You should read this data together with our Consolidated Financial Statements appearing elsewhere in this prospectus and the information under the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results.



 

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     For the Nine Months Ended
September 30
    For the Year Ended
December 31
 
     2020     2019     2019     2018  
     (€)     (€)     (€)     (€)  
     (in thousands, except per ordinary share data)  

Consolidated Statement of Income Data:

        

Revenues

     134,714       123,358       169,022       135,130  

Costs of Sales

     (14,694     (16,278     (21,355     (22,180

Gross Profit

     120,020       107,080       147,667       112,950  

Other Income

     718       292       435       684  

Research & Development

     (23,810     (23,726     (28,368     (28,882

General and Administrative

     (13,670     (10,780     (18,913     (12,221

Marketing and Sales

     (32,113     (30,182     (39,914     (34,539

Other Operating Costs

     (69,593     (64,688     (87,195     (75,642

Operating Profit

     51,145       42,684       60,907       37,992  

Fair value loss on revaluation derivatives

     131       (141     (209     (495

Other finance income

     581       769       1,011       18  

Other finance expenses

     (18,285     (12,146     (15,259     (36,658

Finance cost, net

     (17,573     (11,518     (14,457     (37,135

Share of net profits in associates using the equity method

     195       439       229       —    

Profit before tax

     33,767       31,605       46,679       857  

Income tax credit (expense)

     (8,171     (7,549     (10,484     24,136  

Profit for the year

     25,596       24,056       36,195       24,993  

Attributable to:

        

Owners of the parent

     25,596       24,056       36,195       24,993  

Total net profit

     25,596       24,056       36,195       24,993  

Basic earnings per share

     0.040       0.038       0.058       0.041  

Fully-diluted earnings per share

     0.035       0.036       0.054       0.038  

 

     As at
September 30,
2020
     As at December 31,  
     2019      2018  
     (€)      (€)      (€)  
     (in thousands, except per ordinary share data)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

     154,795        66,299        80,311  

Total assets

     319,348        228,210        214,482  

Shareholders’ equity

     136,253        104,679        61,751  

Total liabilities

     183,095        123,531        152,731  


 

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RISK FACTORS

Investing in ADSs representing our ordinary shares involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus, including our Consolidated Financial Statements and the related notes, before investing in the ADSs. The risks and uncertainties described below are those significant risk factors, currently known and specific to us, that we believe are relevant to an investment in the ADSs. If any of these risks materialize, our business, results of operations or financial condition could suffer, the price of the ADSs could decline and you could lose part or all of your investment. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also harm us and adversely affect your investment in the ADSs.

Risks Related to Our Business

We are heavily dependent on sales of RUCONEST® in the United States and Europe. If we are unable to continue to commercialize RUCONEST®, our business could be materially harmed. In addition, our development pipeline remains dependent on the C1INH franchise in the near term.

Our company has, to date, been substantially focused on the development and commercialization of RUCONEST®, and we expect to continue to be dependent primarily on revenues from RUCONEST® sales in the near term. Any adverse events or findings regarding the properties, efficacy or safety of RUCONEST®, or material constraints on the manufacturing of RUCONEST®, may have a material impact on our financial results and operations.

Our ability to meet expectations with respect to sales of RUCONEST®, generate revenues from such sales, and attain and maintain positive cash flow from operations, in the time periods anticipated, or at all, will depend on a number of factors, including, among others:

 

   

the ability to continue to maintain and grow market acceptance for RUCONEST® among healthcare professionals and patients in the United States, European Union and other key markets for the treatment of approved indications;

 

   

our ability to maintain regulatory approvals without onerous restrictions or limitations in key markets;

 

   

our ability to secure regulatory approvals in additional markets on a timely basis and with commercially feasible labels;

 

   

our ability to obtain pricing and reimbursement approvals at adequate levels, where required, on a timely basis;

 

   

presence of side effects or other safety issues associated with the use of RUCONEST® that could require us or our distributors to modify or halt commercialization;

 

   

whether we will be required by regulatory agencies to conduct additional studies regarding the safety and efficacy of RUCONEST®, which we have not planned or anticipated;

 

   

increased competition from competitors;

 

   

obtaining and maintaining commercial distribution agreements with third-party distributors outside the United States and Europe;

 

   

obtaining and maintaining patent protection and regulatory exclusivity; and

 

   

adequately investing in the manufacturing, sales, marketing, market access, medical affairs and other functions that are supportive of our commercialization efforts.

In addition, our near-term product candidate pipeline is dependent on development of rhC1INH for new formulations and new indications. If we encounter adverse market acceptance, regulatory, pricing, intellectual property or manufacturing issues, the development of rhC1INH for new formulations and new indications may be adversely impacted.

We face significant competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of pharmaceuticals is highly competitive. In particular, RUCONEST® faces intense competition from other products used to treat Hereditary Angioedema, or HAE. Several products

 

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have been approved in the U.S. and Europe for the treatment of HAE attacks, including human blood plasma derived C1INH products. Oral products for the prevention of HAE attacks are also being developed and the first one may be approved in late 2020. Consequently, we may not obtain sufficient market penetration with RUCONEST® or a sufficient level of sales of the product to allow it to remain profitable. New technologies from competitors may make RUCONEST®, one or more of our product candidates or our technology obsolete.

Our competitors include major international pharmaceutical companies as well as smaller or regional specialty pharmaceutical and biotechnology companies. Many of our competitors are larger and have greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, prosecuting intellectual property rights and marketing approved products than we do. Such competitors may be better equipped to withstand changes in economic and industry conditions. Smaller or early stage companies may also be significant competitors, particularly through collaborative arrangements with large, established companies. Key competitive factors affecting the commercial success of our products and any other products that we develop or acquire are likely to be safety, efficacy, tolerability profile, reliability, convenience of dosing, price and reimbursement. We may also face future competition from companies selling generic alternatives to our products in countries where we do not have patent coverage, Orphan Drug status or another form of data or marketing exclusivity or where patent coverage or data or marketing exclusivity has expired, is not enforced, or may, in the future, be challenged.

We have only recently established our direct sales and marketing organization in Europe. If we are unable to maintain and grow our sales and marketing capabilities, particularly outside of the United States, or enter into agreements with third parties to market and sell our products outside of the United States and Europe, our business will be adversely affected.

We reacquired commercial rights to distribute RUCONEST® in Europe from Swedish Orphan Biovitrium AB, or SOBI, as of January 2020. Accordingly, we have only recently established our direct sales and marketing organizations in Europe. There are risks involved with both establishing and maintaining our own sales and marketing capabilities. For example, recruiting and training a commercial organization is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

 

   

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

 

   

the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future product that we may develop;

 

   

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

 

   

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

We enter into arrangements with third parties to perform sales, marketing and distribution services outside the United States and Europe. In addition, we have granted the China Shanghai Institute of Pharmaceutical Industry an exclusive license to commercialize RUCONEST® in China, and we are solely dependent on their efforts to commercialize RUCONEST® in that territory. We may receive certain regulatory and manufacturing-associated milestones, and we are eligible to receive low to mid-single digit royalties from sales in China by CSIPI or other affiliates of Sinopharm. Dependence on distribution arrangements and marketing alliances to commercialize our products in certain jurisdictions subjects us to a number of risks. We don’t have full control over such third parties and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. In addition, such third parties may experience compliance related issues and associated government investigations. If such third party arrangements are terminated or allowed to expire, the marketing and sales of a product in that jurisdiction may be interrupted, which could adversely affect our revenues. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. Please see the risk factor entitled “—We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic markets. We can face criminal liability and other serious consequences for violations, which can harm our business.”

 

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We rely on named patient sales of RUCONEST® in certain territories where it has not yet been approved; however, there are no assurances that named patient sales of our products will continue at current levels, or at all.

RUCONEST® is currently available on a named patient basis in certain countries where it is not yet approved. Named patient basis means physician-requested treatment for patients in territories where marketing authorization has not yet been obtained. There is no assurance that named patient sales will continue to be authorized in any particular country. Even if they are authorized, we will likely not be permitted to promote, market or otherwise engage in proactive selling activities for products sold on a named patient basis, which makes named patient sales much less predictable, and susceptible to unexpected decreases. If violations of any laws or governmental regulations are found to have occurred in connection with our products significant criminal or civil lawsuits may be filed, or investigations may be commenced.

The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, payors and others in the medical community.

The commercial success of our products and product candidates will depend in part on the medical community, patients, and payors accepting our product candidates as effective, safe and cost-effective. Notwithstanding the level of revenues historically generated from the sale of RUCONEST®, if RUCONEST® or our product candidates do not achieve an adequate level of acceptance, we may struggle to continue to generate significant product revenues and may not in the future generate any profits from operations. The degree of market acceptance of RUCONEST®, or our product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

the potential efficacy and potential advantages over alternative treatments;

 

   

the frequency and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;

 

   

the frequency and severity of any side effects resulting from the conditioning regimen or follow-up requirements for the administration of our product candidates;

 

   

the relative convenience and ease of administration;

 

   

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

   

the strength of marketing and distribution support and timing of market introduction of competitive products;

 

   

publicity concerning our products or competing products and treatments; and

 

   

sufficient third-party insurance coverage or reimbursement.

Even if a product candidate displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product, if approved for commercial sale, will not be known until after it is launched. Our efforts to educate the medical community and payors on the benefits of our products and product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors.

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

The availability and adequacy of coverage and reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payers is essential for many patients to be able to afford prescription medications such as RUCONEST® and potential product candidates, assuming regulatory approval is obtained. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations fundamentally impacts the potential success of RUCONEST® and product candidates. Assuming we obtain coverage for our product

 

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candidates by third-party payers, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the EU Member States, or elsewhere will be available for the product candidates or any product that we may develop, and any reimbursement that may become available may be decreased or eliminated in the future. There is an increasing tendency of health insurers to reduce healthcare costs by limiting both the coverage and the level of reimbursement for new therapeutic products and in some cases by refusing to provide coverage altogether.

Because coverage and reimbursement determinations are made on a payor-by-payor basis, obtaining coverage and adequate reimbursement from a third party payor does not guarantee that we will obtain similar coverage or reimbursement from another third party payor. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any products for which we obtain marketing approval. Failure to secure or retain adequate coverage or reimbursement for our products by third-party payors, or delays in processing approvals by those payors, could result in the loss of sales, loss of customers, or reputational damage, which could have a material adverse effect on our business, financial condition and operating profit.

Further, it is possible that a third-party payer may consider our product candidates as substitutes and only offer to reimburse patients for a less expensive product. Even if we show improved efficacy or convenience of administration with our product candidates compared to products marketed by our competitors and the prevailing standard of care, the pricing of existing therapies may still limit the amount we could charge. Third-party payers may deny or revoke the reimbursement status of any given product or establish new prices for existing marketed products that inhibit us from realizing an appropriate return on our investment in the product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates, and may not be able to obtain a satisfactory financial return on them.

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

Many of our product candidates are at an early stage. We may spend several years developing current or future product candidates, and failure can occur at any stage.

Other than leniolisib, which is currently being studied in a phase 2/3 trial, both our rhC1INH projects and our non-rhC1INH product candidates are all at an earlier stage of development. Our next generation enzyme replacement therapy, or ERT for Pompe disease is in preclinical development.

We may spend several years developing current or future product candidates, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. Because we have limited resources, we may forego or delay pursuit of opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential than our product candidates. Our spending on current and future research and development programs may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through strategic collaborations, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. If any of these events occur, we may be forced to abandon our development efforts with respect to a particular product candidate or fail to develop a potentially successful product candidate. In addition, certain of our current or future product candidates may not demonstrate the pharmacological benefits we believe they may possess or compare favorably to existing, approved therapies.

Because our internal research capabilities are limited, we may be dependent upon pharmaceutical companies, biotechnology companies, academic scientists and other researchers to sell or license product candidates,

 

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approved products or the underlying technology to us. The success of this strategy depends upon our ability to identify, select, discover and acquire on favorable terms promising product candidates and products.

The outbreak of COVID-19 may result in disruptions to our commercialization, clinical trials, manufacturing and other business operations, which could have a material adverse effect on our business, financial condition, operating profit, cash flows and prospects.

The recent outbreak of the Coronavirus Disease 2019, or COVID-19, which has been declared a global pandemic by the World Health Organization, has spread across the globe and is impacting worldwide economic activity. A public health epidemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, distributors and other partners, as well as physicians treating HAE patients, may be prevented from conducting business and patient care activities for an indefinite period of time, including due to shutdowns and quarantines that may be requested or mandated by governmental authorities. Beginning in March 2020, we transitioned our field-based sales, market access, and medical employees to remote work and suspended work-related travel and in-person customer interactions with healthcare professionals and customers. Our increased reliance on personnel working from home may negatively impact productivity or disrupt, delay or otherwise adversely impact our business. In addition, remote working could increase our cyber security risk. General protective measures put into place at various governmental levels, including quarantines, travel restrictions and business shutdowns, may also negatively affect our operations.

There is no guarantee that the virus may not be more dangerous than currently observed, or may affect more people, or may result in longer term measures restricting further the ability of employees to complete their assigned tasks properly and on time. Our animal carers and staff involved in the production of RUCONEST® may be affected, which would adversely affect our ability to manufacture RUCONEST®. In addition, our clinical trials or those of our collaborators and investigational sponsors, including our planned Phase 2b study of the effects of RUCONEST® in patients undergoing PCI accompanied by contrast-enhanced examinations and our open label, single-arm, multi-stage, multi-center Phase 1/2 study in late-stage pre-eclampsia, have been subject to delays and it remains uncertain when these clinical trials will resume or the degree to which COVID-19 will impact.

The continued spread of COVID-19 and the measures taken by the governments of countries affected, particularly the United States and the Netherlands, could also disrupt the supply chain and the manufacture or shipment of RUCONEST®. Any delays or interruptions in the manufacture and supply of RUCONEST® could result in delays for our planned clinical trials, impair our ability to meet demand for new RUCONEST® prescriptions and impede our clinical trial recruitment, testing, monitoring, data collection and analysis and other related activities.

Any of the foregoing factors could have a material adverse impact on our business, financial condition, operating profit, cash flows and prospects. The extent to which COVID-19 impacts our operations and those of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, additional or modified government actions, new information which emerges concerning the severity of COVID-19 and the actions taken to contain the virus or treat its impact, among others. In particular, the speed of the continued spread of COVID-19 globally, and the magnitude of interventions to contain the spread of the virus, will determine the impact of the pandemic on our operations.

Any future acquisitions we make may expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.

As a part of our growth strategy, we may make additional acquisitions of complementary businesses. Any future acquisition will involve numerous risks and operational, financial and managerial challenges, including the following, any of which could adversely affect our business, financial condition or results of operations:

 

   

limited support and user knowledge for legacy systems of acquired companies;

 

   

problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems;

 

   

difficulties in managing geographically dispersed operations, including risks associated with entering foreign markets in which we have no or limited prior experience;

 

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underperformance of any acquired technology, product or business relative to our expectations and the price we paid;

 

   

negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges;

 

   

the potential loss of key employees, customers and strategic partners of acquired companies;

 

   

claims by terminated employees and shareholders of acquired companies or other third parties related to the transaction;

 

   

the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash;

 

   

the issuance of equity securities to finance or as consideration for any acquisitions that dilute the ownership of our shareholders;

 

   

any collaboration, strategic alliance and licensing arrangement may require us to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us;

 

   

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

 

   

diversion of management’s attention and company resources from existing operations of the business;

 

   

inconsistencies in standards, controls, procedures and policies;

 

   

the impairment of intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies;

 

   

assumption of, or exposure to, historical liabilities of the acquired business, including unknown contingent or similar liabilities that are difficult to identify or accurately quantify;

 

   

our inability to generate revenues from acquired technology or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs; and

 

   

risks associated with acquiring intellectual property, including potential disputes regarding acquired companies’ intellectual property.

There can be no assurance that any of the acquisitions we may make will be successful or will be, or will remain, profitable. Our failure to successfully address the foregoing risks may prevent us from achieving the anticipated benefits from any acquisition in a reasonable time frame, or at all.

Negative public opinion and increased regulatory scrutiny of transgenic manufacturing techniques, or activism regarding the ethical treatment of our livestock, may damage public perception of RUCONEST® and our product candidates, which may adversely affect sales of our products and our ability to obtain marketing approvals for our product candidates.

Public perception may be influenced by negative public statements regarding our transgenic manufacturing technology. Our transgenic manufacturing technology platform involves the genetic engineering of animals for the production of recombinant proteins. Genetic modification of food and livestock are a common subject of debate and negative publicity. In addition, animal rights activists commonly engage in campaigns to reduce or eliminate the use of animals in the commercialization of pharmaceutical products.

Negative publicity regarding genetic modification in general, and our transgenic manufacturing techniques in particular, or activism regarding the treatment of our livestock could result in reduced market acceptance for our products, increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. If any such adverse events occur, commercialization RUCONEST® or further advancement of our clinical trials could be halted or delayed, which would have a material adverse effect on our business and operations.

 

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We rely on third parties for the conduct of significant aspects of our preclinical studies and clinical trials and intend to rely on third parties in the future. If these third parties do not successfully carry out their contractual duties, our business may be adversely impacted.

We rely on third parties for the conduct of significant aspects of our preclinical studies and clinical trials. These third parties include Contract Research Organizations, or CROs, medical institutions, clinical investigators and contract laboratories. Although we design the clinical trials for our product candidates, we depend on these third parties for aspects of performing the trials. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our regulatory or contractual responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial.

The third parties we rely upon may fail to successfully carry out their contractual duties or meet expected deadlines, which may cause delays in the conduct of our preclinical and clinical studies.

If the CROs do not perform preclinical studies and clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements and other compliance obligations, the development, regulatory approval and commercialization of our product candidates may be delayed, we may not be able to obtain regulatory approval and commercialize our product candidates, or our development programs may be materially and irreversibly harmed. If we are unable to rely on preclinical and clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of any clinical trials we conduct and this could significantly delay commercialization and require significantly greater expenditures. Please see the risk factor entitled “—We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic markets. We can face criminal liability and other serious consequences for violations, which can harm our business.”

We are currently conducting clinical trials for certain of our product candidates at sites outside the United States. The FDA may not accept data from trials conducted in such locations.

We and the investigators conducting clinical trials for certain of our product candidates are studying our product candidates outside the United States. For example, the clinical trials of rhC1INH for the treatment of COVID-19, Acute Kidney Injury, or AKI and pre-eclampsia are being conducted outside the United States. Although the U.S. Food and Drug Administration, or FDA, may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful.

In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will depend on its determination that the trials also complied with all applicable U.S. laws and regulations. If the FDA does not accept the data from any trial that we conduct outside the United States, it would likely result in the need for additional trials, which would be costly and time-consuming and would delay or permanently halt our development of the applicable product candidates. In addition, in order to commence a clinical trial in the United States, we are required to seek FDA acceptance of an Investigational New Drug, or IND, for each of our product candidates. We cannot be sure any IND we submit to the FDA, or any similar CTA we submit in other countries, will be accepted. We may also be required to conduct additional preclinical testing prior to submitting an IND for any of our product candidates, and the results of any such testing may not be positive. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to a New Drug Application, or NDA, or Biologics License Application, or BLA submission and approval of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our product candidates.

 

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We may not be able to obtain or maintain orphan drug exclusivity for our products or product candidates. If our competitors are able to obtain orphan drug exclusivity for their products, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.

Regulatory authorities in some jurisdictions, including the United States, the European Union and the United Kingdom, may designate drugs for relatively small patient populations as orphan drugs. We obtained orphan drug designations from the FDA for the treatment of acute HAE attacks. Leniolisib has also received this designation from the FDA and the EMA. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of market exclusivity, which, subject to certain exceptions, precludes the EMA from approving another marketing application for a similar medicinal product or the FDA from approving another marketing application for the same drug for the same indication for that time period. The FDA defines “same drug” as a drug or biologic that contains the same active moiety and is intended for the same use. The applicable market exclusivity period for orphan drugs is ten years in the European Union and the United Kingdom and seven years in the United States. The European Union and United Kingdom exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation, including if the drug is sufficiently profitable so that market exclusivity is no longer justified.

In the European Union and the United Kingdom, a “similar medicinal product” is a medicinal product containing a similar active substance or substances as contained in a currently authorized orphan medicinal product, and which is intended for the same therapeutic indication. Obtaining orphan drug exclusivity for our product candidates is important to the product candidate’s success. If a competitor obtains orphan drug exclusivity for and approval of a product with the same indications as our product candidates as before we do and if the competitor’s product is the same drug or a similar medicinal product as ours, we could be excluded from the market for a certain period of time.

Even if we obtain orphan drug exclusivity for other product candidates in these indications, we may not be able to maintain it. For example, if a competitive product that is the same drug or a similar medicinal product as our product or product candidate is shown to be clinically superior to our product or product candidate, as applicable, any orphan drug exclusivity we have obtained will not block the approval of such competitive product. In addition, orphan drug exclusivity will not prevent the approval of a product that is the same drug as our product or product candidate if the FDA finds that we cannot assure the availability of sufficient quantities of the drug to meet the needs of the persons with the disease or condition for which the drug was designated.

The FDA Reauthorization Act, signed into law in August 2017, authorizes the FDA to impose additional clinical trial requirements on manufacturers seeking orphan drug designation and/or pediatric indications.

The results from our clinical trials may not be sufficiently robust to support the submission of marketing approval for our product candidates. Before we submit our product candidates for marketing approval, the FDA and/or the EMA may require us to conduct additional clinical trials or evaluate patients for an additional follow-up period.

The results from our clinical trials may not be sufficiently robust to support the submission of marketing approval for our product candidates. The FDA normally requires two registrational trials to approve a drug or biologic product, and thus the FDA may require that we conduct additional clinical trials of our product candidates prior to a BLA or NDA submission. The FDA typically does not consider a single clinical trial to be adequate to serve as a registrational trial unless it is, among other things, well-controlled and demonstrates a clinically meaningful effect on mortality, irreversible morbidity, or prevention of a disease with potentially serious outcome, and a confirmatory study would be practically or ethically impossible. Additionally, while the FDA recognizes the potential for natural history models to augment the need for placebo arms in trials for drugs that target very rare disease, where trial recruitment can be especially challenging, the FDA has found the use of natural history data as a historical comparator to be unsuitable for adequate and well-controlled trials in many circumstances. The FDA generally finds trials using historical controls to be credible only when the observed effect is large in comparison to variability in disease course.

Due to the nature of the indications our product candidates are designed to treat, and the limited number of patients with these conditions, a placebo-controlled and blinded study may not be practicable for ethical and other reasons. It is possible the FDA will not consider our comparisons to natural history data and, where

 

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available, historical transplant data, to provide clinically meaningful results. Additionally, even though a product candidate may have achieved the primary endpoints in a registrational clinical trial, it is possible that the FDA or EMA may require us to conduct additional registrational trials, possibly involving a larger sample size or a different clinical trial design, especially if the FDA or EMA does not find the results from these trials to be sufficiently persuasive to support a BLA/NDA or Marketing Authorization Application, or MAA, submission, as applicable. The FDA or EMA may also require that we conduct a longer follow-up period of patients treated with our product candidates prior to accepting our BLA/NDA or MAA submission, as applicable.

In addition, data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. There can be no assurance that the FDA, EMA or other foreign regulatory bodies will find the efficacy endpoints in our registrational trials or any efficacy endpoint we propose in future registrational trials to be sufficiently validated and clinically meaningful, or that our product candidates will achieve the pre-specified endpoints in current or future registrational trials to a degree of statistical significance, and with acceptable safety profiles. We also may experience regulatory delays or rejections as a result of many factors, including SAEs involving our product candidates, changes in regulatory policy or changes in requirements during the period of our product candidate development. Any such delays could materially and adversely affect our business, financial condition, results of operations and prospects.

We expect that the FDA and EMA will assess the totality of the safety and efficacy data from our product candidates in reviewing any future BLA or NDA, or MAA, submissions. Based on this assessment, the FDA or EMA may require that we conduct additional preclinical studies or clinical trials prior to submitting or approving a BLA or NDA, or MAA, for our target indications.

If the FDA or the EMA requires additional trials, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, it is possible that the FDA and the EMA may have divergent opinions on the elements necessary for a successful BLA/NDA and MAA, respectively, which may cause us to alter our development, regulatory and/or commercialization strategies.

Our assumptions and estimates regarding prevalence and the addressable markets for our products and product candidates may be inaccurate, which could have a material adverse effect on our revenues and cash position.

If there are fewer actual patients than estimated, or if any product approval is based on narrower definitions of patient populations, our revenues and cash position could be materially and adversely affected. The patient population for the diseases that our products treat is very small, and networking, data gathering and support channels are not as established as those for more prevalent and researched disease indications. There is no patient registry or other method of establishing with precision the actual number of patients of our existing potential future indications in any geography. Estimating the prevalence of a rare disease is difficult and we therefore must rely on assumptions, beliefs and an amalgam of information from multiple sources, resulting in potential under or over-reporting. There is no guarantee that our assumptions and beliefs are correct, or that the methodologies used and data collected have generated or will continue to generate accurate estimates. There is therefore uncertainty around the estimated total potential addressable patient population for treatment with RUCONEST® worldwide. In addition, the potential market opportunity for our product candidates that we may develop is difficult to estimate precisely, particularly given that the orphan drug markets which are targeted are, by their nature, relatively unknown. Our estimates of the potential market opportunity for each of these product candidates are predicated on several key assumptions, such as industry knowledge and publications, third-party research reports and other surveys. If any of our assumptions prove to be inaccurate, then the actual market for RUCONEST®, or our other or future product candidates, could be smaller than our estimates of the potential market opportunity. If that turns out to be the case, our product revenue may be limited, and we may be unable to achieve or maintain profitability, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are dependent on a limited number of suppliers for some of our components and materials used in our product candidates and product.

We rely on a limited number of suppliers for certain essential materials incorporated into products and product candidates. Certain of our suppliers are based in Europe, while a significant percentage of RUCONEST® sales

 

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are conducted in the US. If international shipping is disrupted, we may not be able to supply sufficient quantities of RUCONEST® for sale in the US. Any disruption in the supply of these materials could adversely affect our ability to deliver product or complete clinical trials. Other studies of product candidates, regulatory applications or commercializing product candidates in a timely and commercially valuable manner, may be adversely affected, should supply be disrupted.

We cannot be sure that these suppliers will remain in business (including those affected by COVID-19), or that they will not be purchased by one of our competitors or another company that is not interested in continuing to produce these materials for our intended purpose. Our use of a limited number of suppliers of raw materials, components and finished goods exposes us to several risks, including disruptions in supply, price increases, late deliveries and an inability to meet customer demand. There are, in general, relatively few alternative sources of supply for these components. These vendors may be unable or unwilling to meet our future demands for our clinical trials or commercial sale. Establishing additional or replacement suppliers for these components could take a substantial amount of time and it may be difficult to establish replacement suppliers who meet regulatory requirements. Any disruption in supply from any supplier or manufacturing location could lead to supply delays or interruptions which would damage our business, financial condition, results of operations and prospects.

If we are required to switch to a replacement supplier, the manufacture and delivery of our product and product candidates could be interrupted for an extended period, adversely affecting our business. Establishing additional or replacement suppliers may not be accomplished quickly. If we are able to find a replacement supplier, the replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. For example, the FDA or EMA could require additional supplemental data, manufacturing data and comparability data if we rely upon a new supplier. While we seek to maintain adequate inventory of the components and materials used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to conduct our clinical trials and, if our product candidates are approved, to meet the demand of our customers and cause them to cancel orders.

In addition, as part of the FDA’s approval of our product candidates, the FDA must review and approve the individual components of our production process, which includes raw materials, the manufacturing processes and facilities of our suppliers. Our reliance on these suppliers subjects us to a number of risks that could harm our reputation, business, and financial condition, including, among other things:

 

   

the interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;

 

   

delays in product shipments resulting from defects, reliability issues, or a supplier’s variation in a component;

 

   

a lack of long-term supply arrangements for key components with our suppliers;

 

   

the inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;

 

   

difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner;

 

   

production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;

 

   

a delay in delivery due to our suppliers prioritizing other customer orders over ours;

 

   

damage to our reputation caused by defective components produced by our suppliers;

 

   

increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers; and

 

   

fluctuation in delivery by our suppliers due to changes in demand from us or their other customers.

If any of these risks materialize, costs could significantly increase and our ability to conduct our clinical trials and, if our product candidates are approved, to meet demand for our products could be impacted.

 

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Any contamination in the manufacturing process for our recombinant products, shortages of raw materials or failure of any of our key suppliers to deliver necessary components could result in delays in our clinical development or marketing schedules.

We use living mammals as the source for our recombinant products. Our transgenic manufacturing platform bears the risk of failure due to contamination of the produced milk, diseases of the producing livestock or a breakdown of the facilities. Any contamination could adversely affect our ability to produce, release or administer our recombinant products on schedule and could, therefore, harm our results of operations and cause reputational damage. Additionally, although our recombinant products are tested for contamination prior to release, if a contaminated product was administered to a patient, it could result in harm to the patient. A material shortage, contamination, recall or restriction on the raw materials we use in the manufacture of our recombinant products could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could adversely affect our development timelines and our business, financial condition, results of operations and prospects.

We depend on third-party manufacturers for the production of rhC1INH for commercial supply and clinical trials of RUCONEST®, as well as our other product candidates for clinical trials. Interruption in supply could materially and adversely affect sales.

We have entered into (downstream) manufacturing and supply agreements for RUCONEST® with, among others, Sanofi and BioConnection. We are also preparing to develop additional downstream manufacturing capabilities of our own. It is uncertain whether and to what extent we will be able to develop such capabilities or enter into such partnerships or agreements on a timely basis and on acceptable terms. A failure to develop or sufficiently contract additional manufacturing capacity on a timely basis could have significant adverse effect on our business.

The release of product to the market is dependent on a set of quality control procedures. Some of these procedures, although validated, are very sensitive and complex. We do not have a Good Manufacturing Practice, or GMP, certified analytical lab capable of performing the quality control procedures needed for the release of product, and we rely on third parties for this task.

We do not have experience as a company managing a manufacturing facility.

We are currently planning the construction of a downstream manufacturing facility for RUCONEST®. Operating our own manufacturing facility requires significant resources, and we do not have experience as a company in managing a manufacturing facility. In part because of this lack of experience, we cannot be certain that our manufacturing plans will be completed on time, if at all.

In addition, if we switch from our current Contract Manufacturing Organizations, or CMOs to our own manufacturing facility for one or more of our product candidates in the future, we may need to conduct additional analytical or clinical trials to bridge our modified product candidates to earlier versions. Failure to successfully operate our planned manufacturing facility could adversely affect the commercial viability of our product candidates.

Our future success depends on our ability to hire and retain key executives and to attract, retain and motivate qualified personnel.

Our future success depends on our ability to attract and retain key management personnel, scientific and technical personnel, particularly in the biopharmaceutical industry. Our ability to continue our operations and implement our strategy depends upon retaining, recruiting and motivating employees, especially with respect to our management team and research personnel. Experienced employees in the biopharmaceutical and biotechnology industries are in high demand and competition for their talents can be intense, especially in the Netherlands, where we maintain our principal operations. We have entered into employment agreements with executive officers and other key employees, but any employee may terminate his or her employment at any time or may be unable to continue in his or her role. The loss of any executive or key employee, or an inability to recruit desirable candidates or find adequate third parties to perform such services on reasonable terms and on a timely basis, could have a material adverse effect on our business, financial condition, results of operations and prospects. If we are not able to attract, retain and motivate necessary personnel to accomplish our business

 

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objectives, we may experience constraints that could significantly impede our ability to achieve our development and commercial objectives, our ability to raise additional capital and our ability to implement our business strategy.

Our business, products or product pricing could be subject to negative publicity, which could have a material adverse effect on our reputation, business, financial position, results of operations, liquidity and cash flows.

In recent years, the pharmaceutical industry has been the subject of public complaints and significant publicity regarding the pricing of pharmaceutical products, including publicity and pressure resulting from prices charged by competitors and peer companies for new products as well as price increases by competitors and peer companies on older products that the public has deemed excessive. We may experience downward pricing pressure on the price of RUCONEST® and any other future approved products due to social or political pressure to lower the cost of drugs, which could reduce our revenue and future profitability. Orphan drugs in particular have received recent negative publicity for the perceived high prices charged for them by their manufacturers, and as a result orphan drug developers such as us may be negatively impacted by such publicity and any U.S. or other government regulatory response. Due to these factors, we may suffer public criticism and negative publicity in media coverage, by industry trade associations and legislators.

Any of the events or developments described above could result in reputational harm and reduced market acceptance and demand for our products, could harm our ability to market our products in the future, could cause us to incur significant expense, could cause our senior management to be distracted from execution of our business strategy, and could have a material adverse effect on our business, reputation, financial condition, results of operations, liquidity, cash flows and/or share price.

We depend on our information technology systems, and any failure of these systems could harm our business. Any real or perceived security breaches, loss of data, and other disruptions or incidents could compromise the privacy, security, integrity or confidentiality of sensitive information related to our business or prevent us from accessing critical information and expose us to liability and reputational harm, which could adversely affect our business, results of operations and financial condition.

We collect and maintain data and information that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business, including systems infrastructure operated and maintained by our third-party suppliers or providers. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the privacy, security, confidentiality and integrity of such confidential information. We have established physical, electronic and organizational measures to safeguard and secure our systems and facilities to prevent an information compromise, and rely on commercially available systems, software, tools and monitoring to provide security for our information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of our information technology infrastructure, and as a result, a number of third-party vendors may or could have access to our confidential information. Our internal information technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants and other third parties on which we rely, are vulnerable to damage or unauthorized access or use resulting from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, denial-of-service attacks, cyber-attacks or cyber-intrusions over the Internet, hacking, phishing and other social engineering attacks, attachments to emails, persons inside our organization (including employees or contractors), lost or stolen devices, or persons with access to systems inside our organization.

The risk of a security breach or disruption or data loss, particularly through social engineering attacks, cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate, investigate and respond to potential security incidents, breaches, disruptions, network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service and other harm to our

 

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business and our competitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Moreover, if a real or perceived security breach affects our systems (or those of our third party providers or suppliers) or results in the loss of or accidental, unlawful or unauthorized access to, use of, release of or other processing of personally identifiable information or clinical trial data, our reputation could be materially damaged. In addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various supranational, national, federal or state privacy and security laws in the European Union or the U.S., if applicable, including the General Data Protection Regulation, or GDPR, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Clinical Health Act of 2009, or HITECH and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws. We would also be exposed to a risk of loss, negative publicity, harm to our reputation, governmental investigation and/or enforcement actions, claims or litigation and potential liability, which could materially adversely affect our business, results of operations and financial condition. The global data protection landscape is rapidly evolving, and we may be affected by or subject to new, amended or existing laws and regulations in the future, including as our operations continue to expand or if we begin to operate in foreign jurisdictions. Please see the risk factor entitled “—If we fail to comply with UK, EU or U.S. privacy and data security laws and regulations, we may be subject to civil and criminal penalties and other liability.”

Risks Related to Intellectual Property

Our success is dependent on our ability to obtain and protect rights to proprietary technology and to develop our technology and products without infringing the proprietary rights of third parties.

We rely, and will continue to rely, on a combination of patents, trademarks and confidentiality agreements with employees, consultants, collaborators, advisors and other third parties to protect the intellectual property related to our current and future product candidates. We use patents and licensing to protect our products and technology. We are also careful to develop products that don’t infringe on the proprietary rights of third parties. Currently, we have several patent applications granted and pending in countries including the US, Europe and Japan. The patent positions of pharmaceutical companies can be uncertain and may involve complex legal and factual questions.

The patents that we own now or the patents and patent applications that we may own or in-license in the future may not have patentable claims that protect our current and future product candidates in the relevant jurisdictions where we intend to commercialize such products. There is no assurance that we are aware of all potentially relevant prior art relating to future patent applications. As such, the patent examiner may find prior art that can prevent a patent from issuing from a pending patent application. During the patent examination process, we may be required to narrow the pending claims to overcome prior art, a process that may limit the scope of patent protection. Even if patents do successfully issue based on our future patent applications, and even if the issued patents cover our current and future product candidates, including their compositions formulation, method of manufacture, and method of use, third parties may challenge our issued patents’ validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to us in the future could deprive us of rights necessary for the successful commercialization of any of our current or future product candidates, if approved. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.

If the patent applications we may own or in-license in the future with respect to our current and future product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for any of our current or future product candidates, it could dissuade other companies from collaborating with us to develop future product candidates, and threaten our ability to commercialize our current and future product candidates. Notably, pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Any such outcome could have an adverse effect on our business.

Moreover, our technologies and products may infringe on third party intellectual property rights. As a result, we may face litigation or other legal proceedings concerning its intellectual property. These processes can be time-

 

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consuming and costly. In the event of an unfavorable ruling in patent or intellectual property litigation, we could be subject to significant liabilities to third parties, or be required to cease developing, manufacturing or selling the affected products or technology. Each of these outcomes may adversely affect our financial position. We may also be confronted with claims which are raised with the main aim of exploiting the nuisance value of publicly raised claims. For example, a competitor alleged that we were infringing their intellectual property as a result of the hiring of an employee. Although this dispute was resolved in our favor, we cannot guarantee that similar claims will not be made against us in the future. In order to prevent the infringement of third-party intellectual property rights, we may need to acquire licenses for patents held by third parties to re-establish or maintain its freedom to operate, possibly on unfavorable terms. A failure to obtain licenses for patents held by third parties, or failure to obtain them on favorable terms, may have a material adverse effect on our financial and operational position.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act made a number of significant changes to United States patent laws. These include provisions that affect the way patent applications are prosecuted and challenged at the U.S. Patent and Trademark Office, or USPTO, and may also affect patent litigation. The USPTO has developed and continues to develop new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, became effective on March 16, 2013. Accordingly, it remains unclear what impact the Leahy-Smith Act, subsequent rulemaking, and judicial interpretation of the Leahy-Smith Act and regulations will have on the operation of our business. However, the Leahy- Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business and financial condition.

Moreover, future changes to the patent laws of the United States and foreign jurisdictions may adversely affect the term, scope, validity and enforceability of our or our licensor’s patent rights. For example, a 2019 bill (Terminating the Extension of Rights Misappropriated Act, or TERM Act, H.R. 3199) in the United States Congress aimed to reduce the term of certain drug patents in order to ease generic entry and increase competition. Changing political priorities could potentially drive more such initiatives. The inventorship and ownership rights for patents that we in-license or may own or in-license in the future may be challenged by third parties. Such challenges could result in loss of exclusive rights to such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or require us to obtain a license from such third parties on commercially reasonable terms to secure exclusive rights. If any such challenges to inventorship or ownership were asserted, there is no assurance that a court would find in our favor or that, if we choose to seek a license, such license would be available to us on acceptable terms or at all. Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in pre- and post-issuance opposition, derivation, re-examination, inter partes review (“IPR”), post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us,

 

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without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.

In addition, if the breadth or strength of protection provided by our patents and patent applications, whether owned or in-licensed now or in the future, is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our licensed patents may be challenged in the courts or patent offices in the United States. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after the filing of the earliest non-provisional application to which the patent claims priority. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. We may be required to disclaim a portion of patent term in order to overcome double patenting rejections from the patent office, thus potentially shortening our exclusivity period. Without patent protection for our current or future product candidates, we may be open to competition from generic versions of such products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

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

Competitors may infringe or otherwise violate our patents, the patents of our licensor or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that an asserted patent is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that the asserted patent does not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of asserted patents at risk of being invalidated or interpreted narrowly and could put a related patent application at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte re-examinations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and patent applications that we may license in the future, we may have limited or no right to participate in the defense of any licensed patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on our current or future product candidates. Such a loss of patent protection could harm our business.

We may not be able to detect or prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore,

 

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because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our ordinary shares.

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

The United States has recently enacted and implemented wide-ranging patent reform legislation. The U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have issued numerous precedential opinions in recent years narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future. The U.S. federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The federal government retains a “nonexclusive, non-transferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself.

We may infringe or be alleged to infringe the intellectual property rights of others, which may prevent or delay product development and commercialization efforts, requiring us to expend resources on litigation or other resolutions, which may materially and adversely affect our business.

Our success will depend in part on our ability to operate without infringing the intellectual property rights and other proprietary rights of third parties. Identification of third-party patent rights that may be relevant to our products and proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty and uncertainty in assessing the meaning or scope of protection of patent claims. There could be issued patents of which we are or were not aware that our products infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our product infringes.

Proceedings involving our patents or patent applications or those of others could:

 

   

put one or more of our patents at risk of being invalidated, rendered unenforceable or interpreted narrowly;

 

   

adversely impact the patentability of our inventions relating to our products;

 

   

result in monetary damages, injunctive relief or otherwise harm our competitive position, including by limiting marketing and selling activities, increasing the risk for generic competition, limiting development and commercialization activities or requiring us to obtain licenses to use the relevant technology (which licenses may not be available on commercially reasonable terms, if at all); and

 

   

otherwise negatively impact the enforceability, validity or scope of protection offered by the patents relating to the products.

We may not have the resources to adequately defend such claims, and even if successful in any such proceedings, we would incur substantial costs and divert management’s time and attention in pursuing these proceedings,

 

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putting further strain on our resources, which could have a material adverse effect on our business, financial condition, results of operations and prospects. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court or other venue. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion.

In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may:

 

   

incur substantial monetary damages;

 

   

encounter significant delays in expanding the market of our products; and

 

   

be precluded from manufacturing or selling any products; which, in each case, could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our patents may be challenged, deemed unenforceable, invalidated or circumvented, and if we do not obtain or maintain patent protection for the products, our business may be materially harmed.

The patent positions of biotechnology and pharmaceutical companies involve complex legal and factual questions and, therefore, validity and enforceability cannot be predicted with certainty. U.S. patents and patent applications also may be subject to interference proceedings, ex parte re-examination, IPR and post-grant review proceedings, derivation proceedings and supplemental examination and may be challenged in district courts. Patents granted in certain other countries may be subjected to opposition or comparable proceedings lodged in various national and regional patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, re-examination, opposition, post-grant review, IPR, derivation proceedings, supplemental examination or revocation proceedings may be costly. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. The degree of future protection for our products and proprietary rights is uncertain, and it cannot be guaranteed that:

 

   

we will be able to successfully develop or commercialize our product before some or all of the relevant patents or regulatory exclusivity expire, or in countries where we do not have patent protection or exclusivity;

 

   

we or our licensors were the first to make the inventions covered by each of the pending patent applications and patents;

 

   

we or our licensors were the first to file patent applications for these inventions;

 

   

others will not independently develop similar or alternative technologies or duplicate any of our technologies;

 

   

any of our pending patent applications or those that we have licensed will result in issued patents;

 

   

any of our patents or those we have licensed will be valid or enforceable;

 

   

we will be able to license the patents or pending patent applications necessary or desirable to enforce or protect our patent rights on commercially reasonable terms or at all;

 

   

any patents issued to us or our licensors or collaborators will provide a basis for any additional commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;

 

   

we will be able to develop additional proprietary technologies that are patentable;

 

   

Orphan Drug exclusivity marketing rights for our products in the United States will be maintained, if, for example, the FDA determines in the future that the request for Orphan Drug Designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. In addition, the FDA, and the EMA for the European Union, may subsequently approve products with the same active moiety for the same condition if the FDA or the EMA concludes that the later drug is safer, more effective, or makes a major contribution to patient care. Orphan Drug Designation neither shortens the development time nor

 

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regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process; or

 

   

the patents of others will not have an adverse effect on our business.

We enjoy only limited geographical protection with respect to certain patents.

Filing and prosecuting patent applications and defending patents covering product candidates in all countries throughout the world would be prohibitively expensive. Competitors may use our and our licensors’ technologies in jurisdictions where patent protection has not yet been obtained to develop their own products or may export infringing products to territories where enforcement rights are not as strong as in the United States or European Union. These products may compete with our product candidates, and our intellectual property rights may not be effective or sufficient to prevent such products from competing. Patent applications may be issued in some non-U.S. jurisdictions with different scope or they may be refused in certain jurisdictions, such as in China, which has different requirements for patentability.

Proceedings to enforce our patent rights in other jurisdictions, whether or not successful, could result in substantial costs and divert efforts and attention from other aspects of the business. They could also put our patents and patent applications at risk of being invalidated, denied or interpreted narrowly, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits or damages or other remedies awarded to us, if any, and they may not be commercially meaningful. Accordingly, our intellectual property rights as enforced may be inadequate to obtain a significant commercial advantage and our efforts to protect our intellectual property rights may be unsuccessful or inadequate, which may adversely affect our ability to successfully commercialize our product candidates, which may have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our drug candidates in all of our expected, significant international markets.

Some countries also have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties or laws limiting the enforceability of patents against government agencies or government contractors. In those countries, a patent owner may have limited recourse, which could materially diminish the value of such patents. If we or any of our licensors are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be adversely affected.

Risks Related to Government Regulation

The laws, regulations, ethical standards and international pharmaceutical codes in the areas of sales and marketing of pharmaceutical products, and interacting with healthcare professionals and patients, are very complex, and require a robust compliance program. Failure to comply with these laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

The laws and regulations in the area of sales and marketing of pharmaceutical products, and in interacting with healthcare professionals and patients, are complex. We must comply with such laws in each jurisdiction in which we operate. These regulations are subject to change. We may not be able to meet such standards as they evolve and are implemented. In addition to changing regulatory requirements, our failure to comply with applicable regulatory requirements could result in, among other things, injunctions, product recalls, product seizures, declines in our share price, management distractions, reputational damage, loss of stakeholder trust, employee engagement, difficulties in recruitment, fines and criminal prosecution.

We must comply with a variety of laws and regulations, including regulatory, health and safety, license requirements, tax and Corporate Governance Regulations. We may be required to pay penalties for non-compliance with the laws and regulations of local, regional, national, US and EU authorities to which it is subject. A material change in the applicable laws and regulations, or in their interpretation or enforcement, could force us to alter our business strategy or operations, leading to additional costs or reductions of revenues, which may adversely affect its business.

 

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We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Non-compliance with these legal standards could impair our ability to compete in domestic markets. We can face criminal liability and other serious consequences for violations, which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, antitrust and competition laws, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the United States domestic bribery statute contained in 18 U.S.C. § 201, the United States Travel Act, the USA PATRIOT Act, certain prohibitions under the Dutch Criminal Code (Wetboek van Strafrecht), under the Dutch Economic Offences Act (Wet op Economische Delicten), the U.K. Bribery Act and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities or countries that are otherwise relevant for our activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors and other partners from authorizing, promising, offering, or providing, directly or indirectly, payments or anything else of value to recipients in the public or private sector (in relation to an act or omission (to be or having been) committed by the recipient). We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors and other partners, even if we do not explicitly authorize or have actual knowledge of such activities, and we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA, the Bribery Act or local anti-corruption laws. We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, disgorgement, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

If we fail to comply with UK, EU or U.S. privacy and data security laws and regulations, we may be subject to civil and criminal penalties and other liability.

We are also subject to laws and regulations covering data privacy and the protection of health-related and other personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues which may affect our business, including recently enacted laws in many jurisdictions where we operate. The collection and use of personal health data in the European Union is governed by the provisions of the General Data Protection Regulation (EU) 2016/679, or GDPR. This directive, which is wide-ranging in scope and includes extraterritoriality provisions that apply to certain entities located outside of the European Union, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data, and substantial fines for breaches of the data protection rules. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to other countries (including the United States). Failure to comply with the requirements of the GDPR and the related national data protection laws of the EU Member States and the United Kingdom may result in large fines and other administrative penalties: a failure to comply could result in fines up to the greater of 4% of annual worldwide turnover for the preceding financial year or €20 million, with infringements being grouped into tiers which attract different maximum fine levels. Turnover in this context may include not only the entity in breach but also other group entities. Recent enforcement actions against multinational companies have resulted in significant fines. Following the United Kingdom’s formal departure from the European Union on January 31, 2020, the United Kingdom entered a transition period until December 31, 2020, during which time the GDPR will remain applicable to the United Kingdom, alongside the United Kingdom’s Data Protection Act 2018, or DPA 2018. At the end of the transition period, there is uncertainty regarding the future relationship between the United Kingdom and the European Union in relation to data protection. Once the United Kingdom leaves the European Union and the transition period has expired, the United Kingdom will become a “third country” for the purposes of data protection law. A “third country” is a country other than the EU Member States and the three

 

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additional European Economic Area countries (Norway, Iceland and Liechtenstein) that have adopted a national law implementing the GDPR. Under the GDPR, personal data can only be transferred to third countries in compliance with specific conditions for cross-border data transfers. Appropriate safeguards are required to enable transfers of personal data from the European Union and EEA Member States. This status has a number of significant practical consequences, in particular for international data transfers, competent supervisory authorities and enforcement of the GDPR. In the United Kingdom, the DPA 2018 supplements the GDPR, and in particular sets out specific requirements related to the processing of “special categories of personal data,” including personal data related to health, genetic information and personal data related to criminal offenses or convictions. The DPA also creates a number of criminal offenses (punishable by uncapped fines) for organizations and in certain cases their directors and officers.

Under the GDPR regulations, we are considered a controller of data processing and area subject to several legal obligations. In particular, we are obligated to place importance on collection and processing of special categories of personal data which, for our purposes, is data that reveals genetic data or data concerning health. While we have taken steps to comply with the GDPR and the DPA 2018, we cannot assure you that our efforts to achieve and remain in compliance have been or will continue to be fully successful. The GDPR regulations and the DPA 2018 may impose additional responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with these or new data protection rules. This may be onerous and adversely affect our business, financial condition, results of operations and prospects.

In addition, we obtain patient health information from most healthcare providers that prescribe our products and research institutions with which we collaborate, and they are subject to privacy and security requirements under the Health Insurance Portability and Accountability Act of 1996, or HIPAA in the United States. Although we are not directly subject to HIPAA other than with respect to providing certain employee benefits, we could potentially be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. There are also state laws on patient health information, such as the California Confidentiality of Medical Information Act, which we are more directly subject to. As more states consider implementing such laws, we may face an ever-expanding patchwork of data privacy regulations.

Failure to comply with healthcare laws and laws and regulations covering data privacy and the protection of health-related and other personal information could result in government enforcement actions, which could include civil or criminal penalties, private litigation and adverse publicity and could negatively affect our business, financial condition, results of operations and prospects.

Our current and future relationships with healthcare professionals, customers and third-party payors are subject to applicable anti-kickback, fraud and abuse, privacy and security, transparency, and other healthcare laws and regulations, which could expose us to significant penalties, including criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

We are subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in the jurisdictions in which we conduct our business. Third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research as well as market, sell and distribute any products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:

 

   

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal false claims laws, including the civil False Claims Act, impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or

 

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fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; in addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;

 

   

HIPAA imposes criminal and civil liability for, among other things, executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value to physicians, as defined by such law, and teaching hospitals and the ownership and investment interests of physicians and their immediate family members in such manufacturers. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its relationships with physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives during the previous year;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates, and their subcontractors, that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

 

   

ACA, analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers;

 

   

some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures;

 

   

state and local laws that require the registration of pharmaceutical sales representatives;

 

   

state and foreign laws also govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and

 

   

the FCPA prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

 

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If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs that we participate in, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We have certain price reporting obligations to the Medicaid Drug Rebate Program. Under the Medicaid Drug Rebate Program, we are required to pay a rebate to each state Medicaid program for RUCONEST®, and expect to do so for any new approved products. Those rebates are based on pricing data we would have to report on a monthly and quarterly basis to the CMS the federal agency that administers the Medicaid Drug Rebate Program. These data include, among other things, the Average Manufacturing Price, or AMP, and the Best Price, or BP, which, in general, represents the lowest price available from the manufacturer to any entity in the U.S. in any pricing structure, calculated to include all sales and associated rebates, discounts and other price concessions. On June 17, 2020, CMS issued a proposed rule that, among other things, would change the methodology for calculating and reporting of AMP and BP in order to encourage manufacturers and states to enter into value-based purchasing arrangements. Although the public comment period has closed, we cannot provide any assurance that the proposed rule will be adopted or adopted in the form published. We are liable for errors associated with our submission of pricing data and for any overcharging of government payors. For example, failure to submit monthly/quarterly AMP and BP data on a timely basis could result in a civil monetary penalty for each day the submission is late beyond the due date. Failure to make necessary disclosures and/or to identify overpayments could result in allegations against us under the Federal False Claims Act and other laws and regulations. Any required refunds to the U.S. government or responding to a government investigation or enforcement action would be expensive and time consuming and could have a material adverse effect on our business, results of operations and financial condition.

Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B program requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The ACA expanded the list of covered entities to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, but exempts “orphan drugs” from the ceiling price requirements for these covered entities. The 340B ceiling price is calculated using a statutory formula based on the AMP and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate Program, and in general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement. Any additional future changes to the definition of AMP and the Medicaid rebate amount under the ACA or other legislation or regulation could affect our 340B ceiling price calculations and negatively impact our results. In addition, legislation may be introduced that, if passed, would further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in an inpatient setting.

RUCONEST® has been approved by the FDA, the EMA and certain other regulatory authorities for the treatment of HAE attacks. Regulatory approval is limited to the specific indication for which approval has been granted and, unless we seek regulatory approval for additional indications, we will be prohibited from marketing RUCONEST® for other indications. We may be subject to significant fines, penalties or injunctions if we are determined to have promoted or be promoting the use of RUCONEST® for unapproved or “off-label” uses, resulting in damage to our reputation and business.

RUCONEST® is approved by the FDA, the EMA and certain other regulatory authorities for the treatment of HAE attacks, but is not currently approved for the treatment of other indications. Regulatory authorities strictly regulate the promotional claims that may be made about prescription products, and RUCONEST® may not be promoted for uses that are not approved, as reflected in its approved labeling. If we are not able to obtain regulatory approval for any desired future indications for our products and product candidates, our ability to effectively market and sell our products may be reduced and our business may be adversely affected.

While physicians may choose, in their independent medical judgment, to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the

 

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regulatory authorities, we are prohibited from marketing and promoting the products for indications that are not specifically approved by the regulatory authorities. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States and in other jurisdictions generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities do, however, restrict communications by biotechnology or pharmaceutical companies on off-label use. If the FDA or another regulator determines that our promotional activities constitute promotion of an off-label use, it could request that we modify our promotional materials and subject us to regulatory or enforcement actions as well as actions by other agencies, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, mandatory or voluntary recalls, and could result in the imposition of significant criminal, civil, and administrative penalties such as civil fines, disgorgement of money, imprisonment, exclusion from participation in federal health care programs (e.g. Medicare and Medicaid), operating restrictions, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement, injunctions or criminal prosecution, any of which could significantly harm our business.

Current and future legislation may affect the prices we may obtain for currently marketed products or future product candidates.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict post-approval activities and affect our ability to sell profitably any product candidates for which we obtain marketing approval.

In the United States, Medicare covers certain drug purchases by the elderly and eligible disabled people and introduced a reimbursement methodology based on average sales prices for physician-administered drugs. In addition, Medicare may limit the number of drugs that will be covered in any therapeutic class. Ongoing cost reduction initiatives and future laws could decrease the coverage and price that we will receive for any approved products. While Medicare beneficiaries are limited to most elderly and certain disabled individuals, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates.

In March 2010, the ACA became law. The ACA is a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the ACA of importance to our product candidates are the following:

 

   

an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

   

expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

   

revisions to the new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% point-of-sale discounts off negotiated prices;

 

   

extension of manufacturers’ Medicaid rebate liability;

 

   

expansion of eligibility criteria for Medicaid programs;

 

   

expansion of the entities eligible for discounts under the Public Health Service Act’s pharmaceutical pricing program;

 

   

new requirements to report to CMS financial arrangements with physicians, as defined by such law, and teaching hospitals;

 

   

a new requirement to annually report to FDA drug samples that manufacturers and distributors provide to physicians; and

 

   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

 

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There remain challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. Since January 2017, President Trump has several two Executive Orders and other directives designed to eliminate the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Congress has also considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. The legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, among other things, included a provision which repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on certain high-cost employer-sponsored health insurance plans and the medical device excise tax on non-exempt medical devices and, effective January 1, 2021, also eliminates the health insurer tax. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case. It is unclear how such litigation and other efforts to repeal and replace the ACA will impact the ACA.

There has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. For example, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Further, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. On July 24, 2020, the Trump administration announced four executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals, including a policy that would tie Medicare Part B drug prices to international drug prices; one that directs HHS to finalize the Canadian drug importation proposed rule previously issued by HHS and makes other changes allowing for personal importation of drugs from Canada; one that directs HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for discounts for plans, pharmacies, and pharmaceutical benefit managers; and one that reduces costs of insulin and epipens to patients of federally qualified health centers. While some of these and other measures may require additional authorization to become effective. Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we will receive for any approved product. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic. For example, on August 6, 2020, the Trump administration issued another executive order that instructs the federal government to develop a list of “essential” medicines and then buy them and other medical supplies from U.S. manufacturers instead of from companies around the world, including China. The order is meant to reduce regulatory barriers to domestic pharmaceutical manufacturing and catalyze

 

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manufacturing technologies needed to keep drug prices low and the production of drug products in the United States. Any reduction in payments from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenues, attain profitability, or commercialize our products.

Our product and future product candidates may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.

Our ability to commercialize RUCONEST® or any other product candidate successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. and E.U. healthcare industries and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be certain that coverage and reimbursement will continue to be available for RUCONEST® or any other product that we commercialize and, if coverage and reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. In addition, third-party payors are likely to impose strict requirements for reimbursement of a higher priced drug, and any launch of a competitive product is likely to create downward pressure on the price initially charged. If reimbursement is not available or is available only to a limited degree, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the applicable regulatory authority. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacturing, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. In the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. In the European Union, reference pricing systems and other measures may lead to cost containment and reduced prices. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating profit, our ability to raise capital needed to develop product candidates and commercialize products and our overall financial condition.

We are exposed to the risk that our employees and independent contractors, including principal investigators, consultants, any future commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity.

Our employees and independent contractors, including principal investigators, consultants, commercial collaborators, service providers and other vendors may also engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations. We are exposed to the risk that our employees and independent contractors, including principal investigators, consultants, any future commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies; manufacturing standards; U.S. federal and state healthcare fraud and abuse laws, data privacy and security laws and other similar non-U.S. laws; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud,

 

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misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct also could involve the improper use or misrepresentation of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, the creation of fraudulent data in our preclinical studies or clinical trials, or illegal misappropriation of product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third-parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other U.S. federal healthcare programs or healthcare programs in other jurisdictions, integrity oversight and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

As a “foreign private issuer,” we are exempt from a number of rules under the U.S. securities laws and the Nasdaq rules, and we are permitted to file less information with the SEC than are U.S. companies. In addition, we are permitted and expect to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to domestic issuers. This may make our ADSs and ordinary shares less attractive to investors.

We are a “foreign private issuer,” as defined in the rules and regulations of the SEC, and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

As a foreign private issuer traded on Euronext Amsterdam, we are permitted to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of the ADSs, are governed by Dutch law, including the provisions of the Dutch Corporate Governance Code, and by our Articles of Association, which may provide less protection than is afforded to investors under Nasdaq rules applicable to domestic issuers.

In particular, we expect to follow Dutch law instead of Nasdaq practice in the following ways:

 

   

We do not intend to follow Nasdaq Rule 5620(c) regarding quorum requirements applicable to meetings of shareholders as long as we are not a domestic issuer and absent another mandatory obligation to such effect. Such quorum requirements are not required under Dutch law. In accordance with generally accepted business practice, our Articles of Association provide alternative quorum requirements that are generally applicable to meetings of shareholders.

 

   

We do not intend to follow Nasdaq Rule 5605(b)(2), which requires that independent directors regularly meet in an executive session, where only independent directors are present. The independent directors may choose to meet in an executive session at their discretion.

Although we may rely on certain home country corporate governance practices, we must comply with Nasdaq Rule 5625, Notification of Noncompliance and Rule 5640, Voting Rights. Further, we must have an audit committee that satisfies Rule 5605(c)(3), which addresses audit committee responsibilities and authority, and that consists of committee members who meet the independence requirements of Rule 5605(c)(2)(A)(ii).

 

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We intend to take all actions necessary to maintain compliance as a foreign private issuer under the applicable corporate governance requirements of the Sarbanes-Oxley Act, the rules adopted by the SEC and the Nasdaq corporate governance rules and listing standards.

The United Kingdom’s withdrawal from the European Union, or Brexit, could result in increased regulatory and legal complexity, and impose additional challenges in securing regulatory approval of our product candidates in the European Union and the rest of Europe.

The United Kingdom withdrew from the European Union effective as of January 31, 2020 and is now in a period of transition until the end of 2020. The transition period maintains all existing trading arrangements. During the transition period, the United Kingdom and the European Union will negotiate future trading arrangements. Until a final agreement has been reached, an exit without a trade agreement in place, which would result in the United Kingdom losing access to free trade agreements for goods and services with the European Union and other countries, continues to be a risk. An exit by the United Kingdom from the European Union without an agreement in place would likely lead to legal uncertainty and potentially divergent laws and regulations between the United Kingdom and the European Union. We cannot predict whether or not the United Kingdom will significantly alter its current laws and regulations in respect of the pharmaceutical industry and, if so, what impact any such alteration would have on us or our business. Moreover, we cannot predict the impact that Brexit will have on (i) the marketing of pharmaceutical products, (ii) the process to obtain regulatory approval in the United Kingdom for product candidates or (iii) the award of exclusivities that are normally part of the European Union legal framework.

Brexit may also result in a reduction of funding to the EMA if the United Kingdom no longer makes financial contributions to European institutions, such as the EMA. If the United Kingdom funding is so reduced, it could create delays in the EMA issuing regulatory approvals for our products and product candidates and, accordingly, have a material adverse effect on our business, financial position, results of operations and future growth prospects.

As a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with the European Union. Given these possibilities and others we may not anticipate, as well as the absence of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the United Kingdom from the European Union would have and how such withdrawal would affect us, and the full extent to which our business could be adversely affected.

In addition, following the Brexit vote, the European Union decided to move the headquarters of the EMA from the United Kingdom to the Netherlands. The EMA is currently finishing its relocation process to the Netherlands. However, as a result of the move, the EMA has lost a significant percentage of its employees and was not able to hire at least the same amount of employees that left the EMA upon the movement of its headquarters from the United Kingdom to the Netherlands. This raises the possibility that new drug approvals in the European Union could be delayed as a result of such employee shortage.

Risks Related to Our ADSs

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our ADSs less attractive to investors and, as a result, adversely affect the price of the ADSs and result in a less active trading market for the ADSs.

We are an emerging growth company as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

   

the option to present only two years of audited financial statements and related discussion in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus;

 

   

not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

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not being required to submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes” (without prejudice to the applicable “say-on-pay” requirements we are subject to under Dutch law); and

 

   

not being required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation (without prejudice to the applicable disclosure requirements relating to executive compensation that we are subject to under Dutch law and the related best practice recommendations under the Dutch Corporate Governance Code, or DCGC).

We may choose to take advantage of some, but not all, of the available exemptions. For example, in this prospectus, we have elected to rely on the exemption from the auditor attestation requirement and the exemption that permits only two years of financial statements to be presented. We may avail ourselves of these disclosure exemptions until we are no longer an emerging growth company. We cannot predict whether investors will find our ADSs less attractive because of our reliance on some or all of these exemptions. If investors find our ADSs less attractive, it may adversely affect the price of the ADSs and there may be a less active trading market for the ADSs.

We will cease to be an emerging growth company upon the earliest of:

 

   

the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion (as such amount is indexed for inflation every five years by the SEC) or more;

 

   

the date on which we have, during the previous three-year period, issued more than $1.0 billion in nonconvertible debt;

 

   

the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 of the Exchange Act, which would occur if the market value of our ordinary shares and ADSs that are held by non-affiliates exceeds $700 million as of the last day of our most recently completed second fiscal quarter; and

 

   

the last day of the fiscal year following the fifth anniversary of the completion of our first sale of common equity securities pursuant to this registration statement under the Securities Act, or December 31, 2025.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. If we are unable to comply timely with these accounting standards, we may be delayed in providing the disclosures required by the Exchange Act.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding the ADSs adversely, the price and/or trading volume of our ADSs could be affected.

The trading market for our ADSs may be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us or our industry downgrade the shares in a research report, the market price of the shares may decline and if one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the financial markets, which could cause the market price and/or trading volume of the shares to decline.

If intangible assets and goodwill that we record in connection with our acquisitions become impaired, we may have to take significant charges against earnings.

In connection with the accounting for our acquisitions, a significant value may be recognized in respect of intangible assets, including developed technology and customer relationships relating to the acquired product lines, and goodwill. Under IFRS, we must assess, at least annually and potentially more frequently, whether the value of intangible assets and goodwill has been impaired. Intangible assets and goodwill will be assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of intangible assets and goodwill will result in a charge against earnings, which could materially adversely affect our results of operations and shareholders’ equity in future periods.

 

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Our global operations subject us to significant tax risks.

We are subject to tax rules in the jurisdictions in which we operate. Changes in tax rates, tax relief and tax laws, changes in practice or interpretation of the law by the relevant tax authorities, increasing challenges by relevant tax authorities or any failure to manage tax risks adequately could result in increased charges, financial loss, penalties and reputational damage. Tax authorities may actively pursue additional taxes based on retroactive changes to tax laws which could result in a material restatement to its tax position. Any of these factors could have a negative impact on our business, financial condition, results of operations and prospects.

Exchange rate fluctuations may materially affect our results of operations and financial condition.

Owing to the international scope of our operations, fluctuations in exchange rates, particularly between the Euro and the U.S. dollar, may adversely affect us. While we are based in the Netherlands, we source materials, products and services from several countries outside the EU that are paid in local currencies. As a result of the commercialization of RUCONEST® in the United States and in other countries outside the EU, we will also receive payments and generate costs in U.S. dollars and other currencies. As a result, our business and the price of our ADSs may be affected by fluctuations in foreign exchange rates between the Euro and the U.S. dollar, as well as other currencies.

Currency fluctuations may adversely affect the price of our ADSs.

Our ordinary shares are quoted in euros on Euronext Amsterdam, and our ADSs will be quoted in U.S. dollars on the Nasdaq. Movements in the euro/U.S. dollar exchange rate may adversely affect the U.S. dollar price of the ADSs on the Nasdaq or the euro price on Euronext Amsterdam. For example, if the euro weakens against the U.S. dollar, the U.S. dollar price of our ADSs could decline, even if the price of our ordinary shares in euros increases or remains unchanged.

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

The market price of our ADSs is likely to be volatile and could decline significantly. The stock market in general, and the market for biotechnology and emerging pharmaceutical companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our ADSs and ordinary shares may be influenced by a variety of factors, including:

 

   

actual or anticipated variations in our financial condition and operating profit;

 

   

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

 

   

announcements of technological partnerships, innovations or new products by us or our competitors;

 

   

the success of competitive products or technologies;

 

   

changes in management and members of our board of directors;

 

   

changes in financial estimates or recommendations by securities analysts;

 

   

changes in the trading volume of our ADSs on the Nasdaq and of our ordinary shares on Euronext Amsterdam;

 

   

sales of our ADSs or ordinary shares by executive officers or future holders of our equity securities;

 

   

announcements or expectations of additional debt or equity financing efforts;

 

   

unanticipated losses or gains due to unexpected events, including events related to the success of our clinical trials or regulatory approvals;

 

   

significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

 

   

changes in our accounting policies or practices;

 

   

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

 

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changes in government regulations, including any changes that may affect pricing or reimbursement; and

 

   

conditions in the financial markets or changes in general economic conditions.

These and other market and industry factors may cause the market price and demand for our ADSs and ordinary shares to fluctuate substantially.

Moreover, stocks of life science companies, and stock markets in general, have from time to time experienced extreme price and volume fluctuations that may be unrelated or disproportional to the operational performance of any particular companies. In addition, the trading prices for common stock of other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. The COVID-19 outbreak continues to rapidly evolve. The extent to which the outbreak may impact our business, and the prices of our ADSs and ordinary shares will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

We will incur increased costs as a result of simultaneously having our ADSs listed in the United States and our ordinary shares admitted to trading on Euronext Amsterdam in the Netherlands, and our senior management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

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

However, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, regardless of whether or not we are an EGC we will be required to furnish a report by our senior management on our internal control over financial reporting, beginning with our annual report filed with the SEC for the year ending December 31, 2021, which we expect to file by April 2022. However, while we remain an EGC we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To prepare for eventual compliance with Section 404, including the attestation report required once we no longer qualify as an EGC, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants, adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404.

Further, being a U.S. listed company and a Dutch public company with ordinary shares admitted to trading on Euronext Amsterdam impacts the disclosure of information and requires compliance with two sets of applicable rules. From time to time, this may result in uncertainty regarding compliance matters and result in higher costs necessitated by legal analysis of dual legal regimes, ongoing revisions to disclosure and adherence to heightened

 

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governance practices. As a result of the enhanced disclosure requirements of the U.S. securities laws, business and financial information that we report is broadly disseminated and highly visible to investors, which we believe may increase the likelihood of threatened or actual litigation, including by competitors and other third parties, which could, even if unsuccessful, divert financial resources and the attention of our management and key employees from our operations.

We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and stock price.

We have identified material weaknesses in the design and operating effectiveness of our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, our stock price.

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to the material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional significant deficiencies or material weaknesses may have been identified.

In connection with the audits of our financial statements, we have identified material weaknesses in our internal control over financial reporting across the principles for each component of the COSO framework at the entity level and accordingly, across the business and IT processes of the Company. Although the Company does have oversight and compliance processes in place, these processes are currently not sufficiently formalized as controls to identify and address the risks of material misstatements and risks arising from IT. Where such control activities exist, there is not formalized control descriptions for our relevant controls to evaluate the design and operating effectiveness of such controls. In addition, where control activities are dependent on Information Used in a Control, the Company does not perform or document controls to determine the completeness and accuracy of such information. We also did not have controls in place to monitor control activities and identified control deficiencies.

As a result, we have identified material weaknesses in the control environment, risk assessment, monitoring, information & communication and control activities of the entity. In addition, the company did not maintain a sufficient complement of accounting and financial reporting resources commensurate with the financial reporting requirements. Deficiencies in control activities contributed to the potential for there to have been material accounting errors in substantially all financial statements account balances and disclosures.

We are in the process of remediating the material weaknesses identified including further developing and implementing formal policies, processes, internal controls and documentation relating to our financial reporting. We are also currently in the process of finalizing a risk assessment framework and scoping to identify key processes and controls that will require additional enhanced controls to be designed and implemented.

Future sales of our ordinary shares or ADSs, or the perception that such sales may occur, could depress the prices of such ordinary shares or ADSs.

Sales of a substantial number of our ADSs in the public market, or the perception that these sales might occur, could depress the market price of the ADSs and could impair our ability to raise capital through the sale of

 

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additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our ADSs.

Holders of our ADSs have fewer rights than our shareholders and are subject to certain additional risks.

ADS holders do not hold ordinary shares directly and, as such, are subject to, among others, the following additional risks:

 

   

as an ADS holder, we will not treat you as one of our shareholders and you will not be able to exercise shareholder rights, except through the depositary as permitted by the deposit agreement and except that you will have meeting rights to attend our general meetings;

 

   

distributions on the ordinary shares represented by your ADSs will be paid to the depositary, and before the depositary makes a distribution to you on behalf of your ADSs, any fees and expenses, including withholding taxes, that must be paid will be deducted. Additionally, if the exchange rate fluctuates during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the distribution; and

 

   

we and the depositary may amend or terminate the deposit agreement without the ADS holders’ consent in a manner that could prejudice ADS holders.

An active and liquid market for our securities may fail to develop, which could harm the market price of our ADSs.

There has been no prior public market on a U.S. national securities exchange for our ADSs or our ordinary shares. Although our ADSs have been approved for listing on the Nasdaq, an active trading market for our ADSs may never develop or be sustained. In the absence of an active trading market for our ADSs, investors may not be able to sell their ADSs at the time that they would like to sell.

We are a Dutch public company with limited liability. The rights of our shareholders and ADS holders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions and may not protect investors in a similar fashion afforded by incorporation in a U.S. jurisdiction.

We are a public company (naamloze vennootschap) organized under the laws of the Netherlands. Our corporate affairs are governed by our articles of association, the rules of our board of directors and by the laws governing companies incorporated in the Netherlands. However, there can be no assurance that Dutch law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.

The rights of shareholders and ADS holders and the responsibilities of directors may be different from the rights and obligations of shareholders, ADS holders and directors in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our directors are required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as an ADS holder.

For more information on relevant provisions of Dutch corporation law and of our articles of association, see “Description of Share Capital and Articles of Association” and “Comparison of Dutch Corporate Law and U.S. Corporate Law.”

Provisions of our Articles of Association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and prevent, delay or frustrate any attempt to replace or remove the members of our board of directors.

Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch law and Dutch case law.

Certain provisions of our articles of association may make it more difficult or less attractive for a third party to acquire control of us or to effect a change in our board of directors. These provisions include: a provision that our

 

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directors are appointed on the basis of a binding nomination prepared by our board of directors which can only be overruled by a simple majority of votes cast representing at least one third of our issued share capital; a provision that our directors may only be removed by the general meeting of shareholders by a simple majority of votes cast representing at least one third of our issued share capital; and a requirement that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our board of directors. Currently we have no such protective measures in place.

Shareholders and ADS holders may not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of ordinary shares.

In the event of an issuance of ordinary shares, subject to certain exceptions, each shareholder will have a pro rata preemptive right in proportion to the aggregate nominal value of the ordinary shares held by such holder. These preemptive rights may be restricted or excluded by a resolution of the general meeting or by another corporate body designated by the general meeting. This could cause existing shareholders to experience substantial dilution of their interest in us.

We are not obligated to, and do not, comply with all best practice provisions of the Dutch Corporate Governance Code.

We are subject to the Dutch Corporate Governance Code, or the DCGC. The DCGC contains both principles and best practice provisions for boards of directors, shareholders and general meetings, auditors, disclosure, compliance and enforcement standards. As a Dutch company listed on a stock exchange, we are subject to the DCGC and are required to disclose in our annual board report to what we extent comply with the principles and best practice provisions of the DCGC, and where we do not (for example, because of a conflicting Nasdaq requirement or otherwise), we must state why and to what extent we deviate in our annual report. We do not comply with all best practice provisions of the DCGC. See “Description of Share Capital and Articles of Association.” This may affect your rights as a shareholder or ADS holder and you may not have the same level of protection as a shareholder or ADS holder in a Dutch company that fully complies with the DCGC.

We have never declared or paid dividends on our ordinary shares since our ordinary shares were listed on Euronext Amsterdam, and we do not anticipate paying dividends in the foreseeable future.

We have never declared or paid cash dividends on our ordinary shares since our ordinary shares were listed on Euronext Amsterdam. We intend to retain any earnings for use in our business and do not currently intend to pay dividends on our ordinary shares. Subject to restrictions under applicable law, any future determination to pay dividends or other distribution will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, cash requirements, financial condition, future prospects, contractual restrictions, any future debt agreements, restrictions under applicable laws and other factors that our board of directors may deem relevant. We do not anticipate paying any cash dividends or other distributions on our ordinary shares in the foreseeable future. As a result, a return on any investment will only occur if the price of our ordinary shares increases.

ADS holders may not receive distributions on the ordinary shares represented by our ADSs or any value for such distribution if it is illegal or impractical to make them available to ADS holders.

While we do not anticipate paying any dividends or other distributions on our ordinary shares in the foreseeable future, if such a dividend or distribution is declared, the depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses, including withholding taxes. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to ADS holders. We have no obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

 

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Dividends distributed by us on the ordinary shares or ADSs to certain related parties in low-taxed jurisdictions might in the future become subject to an additional Dutch withholding tax on dividends.

Under current Dutch tax law, dividends paid on ordinary shares or ADSs are in principle subject to Dutch dividend withholding tax at a rate of 15% under the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965), unless a domestic or treaty exemption or reduction applies. In a letter to the Dutch parliament dated May 29, 2020, the Dutch State Secretary for Finance announced that the Dutch government intends to introduce an additional withholding tax on dividends paid to related entities in jurisdictions that have a corporate tax rate below 9% or to jurisdictions included on the EU’s blacklist of non-cooperative jurisdictions and in certain abusive situations, effective January 1, 2024. On September 25, 2020, the Dutch government launched an internet consultation to give interested parties the opportunity to respond to the draft legislative proposal to introduce the conditional withholding tax on dividends. Pursuant to the proposal published for consultation purposes, the conditional withholding tax on dividend payments will be an addition to the recently passed conditional withholding tax on interest and royalty payments pursuant to the Dutch Withholding Tax Act 2021 (Wet bronbelasting 2021), which act will become effective January 1, 2021. It is possible that the rate will be as high as the highest Dutch corporate income tax rate (currently 25%) at the time of the dividend payment, which will be the statutory rate applicable to interest and royalty payments to related entities in jurisdictions that have a corporate tax rate below 9% or to jurisdictions included on the EU’s blacklist of non-cooperative jurisdictions and in certain abusive situations. At the same time, the current Dutch dividend withholding tax regime is anticipated to remain in place. However, if the dividend withholding tax and the conditional withholding tax on dividends cumulate, the conditional withholding tax will be reduced by the dividend withholding tax levied. As a result, if the shareholder being a related entity is established in a jurisdiction that has a corporate tax rate below 9% or in a jurisdiction included on the EU’s blacklist of non-cooperative jurisdictions, the tax rate on dividends may rise from 15% to 25%. The internet consultation closes on October 23, 2020. After the internet consultation, the Dutch government aims to prepare the final legislative proposal in early 2021.

ADS holders must act through the depositary to exercise their voting rights and, as a result, may be unable to exercise their voting rights on a timely basis.

We will not treat holders of our ADSs (rather than the ordinary shares underlying the ADSs) as shareholders, and they will not be able to exercise shareholder rights, except through our depositary and except that the ADS holders will have meeting rights to attend our general meetings. The depositary will be the holder of the ordinary shares underlying the ADSs, and ADS holders will be able to exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our ordinary shares will be able to exercise their voting rights by either attending the shareholders meeting in person or voting by proxy. ADS holders, by comparison, will not receive any notice directly from us. Instead, in accordance with the deposit agreement, we will use commercially reasonable endeavors to provide at least 30 days’ notice to the depositary of any such shareholders’ meeting and details concerning the matters to be voted on in advance of the meeting date. If we so instruct, the depositary will mail to ADS holders the notice of the meeting and a statement as to the manner in which voting instructions may be given by holders as soon as practicable after receiving notice from us of any such meeting. To exercise their voting rights, ADS holders must then instruct the depositary as to voting the ordinary shares represented by their ADSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of ordinary shares. The ordinary shares represented by ADSs for which the depositary fails to receive timely voting instructions will not be voted.

The trading of our ordinary shares on Euronext Amsterdam and of our ADSs on the Nasdaq may adversely affect the liquidity and value of our ADSs.

Our ordinary shares are traded on Euronext Amsterdam, our ADSs have been approved for listing on the Nasdaq. We cannot predict the effect of this listing on the value of our ordinary shares and ADSs. However, these arrangements may dilute the liquidity of these securities in one or more markets and may adversely affect the development of an active trading market for the ADSs in the United States or the ordinary shares on Euronext Amsterdam. The price of our ADSs could also be adversely affected by trading in our ordinary shares on Euronext Amsterdam and the price of our ordinary shares traded on Euronext Amsterdam could be adversely affected by trading in ADSs on the Nasdaq. The speed by which ADSs can be exchanged for ordinary shares and

 

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subsequently traded on Euronext Amsterdam and vice versa might cause differences between the market price for an ADS and the market price for an ordinary share. Investors might arbitrate between stock exchanges to exploit such differences, exacerbating potential volatility in our market price.

ADS holders may have difficulty in effecting service of process on our company and certain directors or officers in the United States in enforcing U.S. judgements in the Netherlands or in enforcing U.S. securities laws in Dutch courts.

We are incorporated and located outside the United States and certain of our directors and officers are located outside of the United States. As a result, it may not be possible for ADS holders to effect service of process within the United States upon all such persons or our company, or to obtain discovery of relevant documents and/or the testimony of witnesses. ADS holders based in the United States may also have difficulty enforcing in courts outside the United States judgments obtained in U.S. courts against our company or our directors (including actions under the civil liability provisions of the U.S. securities laws). ADS holders may also have difficulty enforcing liabilities under the U.S. securities laws in legal actions originally brought in jurisdictions located outside the United States.

ADS holders may be subject to limitations on transfer of the ADSs.

The ADSs are only transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

Our ability to utilize our net operating loss carryforwards and to realize our deferred tax asset may be limited.

As of December 31, 2019, we had approximately € 23 million ($ 26 million) net operating loss carryforwards in the Netherlands and France and none in the U.S. These losses are reflected in a deferred tax asset of € 5.9 million ($ 6.6 million) as per December 31, 2019. Being able to utilize these losses requires that the company is sufficiently profitable and also depends on the stand-alone results of the group’s entities as the losses are ringfenced.

At the end of 2018, the group performed an internal reorganization in order to refresh part of the Dutch tax losses: certain intangibles and activities were transferred within the group resulting in a higher tax book value and relating deferred tax asset in one of the Dutch companies for the assets that have been transferred. The Dutch tax authorities might not agree to the transaction and the valuation applied, in which case e.g. (a part of) the deferred tax asset might have to be written-off. The refreshment program has been disclosed in the notes to the financial statements. The total amount of the losses available for carryforward – and the corresponding amount of the deferred tax asset – as well as the amount of the deferred tax asset relating to the intangible fixed assets depends on the acceptance of aforementioned transaction.

To the extent that we incur net operating losses in the United States, our ability to utilize our federal net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code. The limitations apply if we experience an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in the ownership of our equity by certain stockholders over a rolling three-year period. Similar provisions of state tax law may also apply to limit the use of our state net operating loss carryforwards. We have not assessed whether such an ownership change has previously occurred. If we have experienced an ownership change at any time since our incorporation, we may already be subject to limitations on our ability to utilize our existing net operating loss carryforwards to offset taxable income. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change and, consequently, the limitations under Section 382 of the Code. As a result, if or when we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to offset such taxable income may be subject to limitations, which could adversely affect our future cash flows.

 

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We cannot assure you that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to holders of our ordinary shares.

A non-U.S. corporation will be a Passive Foreign Investment Company, or PFIC, for any taxable year if either (i) at least 75% of its gross income for such year consists of certain types of “passive” income or (ii) at least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. If we are a PFIC for any taxable year during which a US Holder (as defined in “Material Income Tax Considerations—Material U.S. Federal Income Tax Considerations”) holds our ordinary shares, the US Holder may be subject to adverse tax consequences, including (1) the treatment of all or a portion of any gain on disposition as ordinary income, (2) the application of an interest charge with respect to such gain and certain dividends and (3) compliance with certain reporting requirements. Based on our estimated income, assets and market capitalization for 2020, we anticipate we will not likely be a PFIC for 2020. Whether we are treated as a PFIC is a factual determination that must be made on an annual basis after the close of each taxable year. This determination will depend on, among other things, the ownership and the composition of our income and assets, as well as the value of our assets (which may fluctuate with our market capitalization) and our subsidiaries’ assets from time to time. The United States Internal Revenue Service, or IRS, or a court may disagree with our expectations. Therefore, we cannot assure you that we will not be a PFIC for the current taxable year or for any future taxable year.

If a United States person is treated as owning at least 10% of the value or voting power of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.

Depending upon the aggregate value and voting power of our ordinary shares that United States persons are treated as owning (directly, indirectly or constructively), we could be treated as a controlled foreign corporation, or CFC. Additionally, because our group includes one or more U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as CFCs, regardless of whether or not we are treated as a CFC. If a United States person (as defined in the United States Internal Revenue Code of 1986, as amended) is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our shares, such person may be treated as a “United States shareholder” with respect to each CFC in our group (if any), which may subject such person to adverse U.S. federal income tax consequences. Specifically, a United States shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of each CFC’s “Subpart F income,” “global intangible low-taxed income” and investments of earnings in “United States property” by CFCs, whether or not we make any distributions of profits or income of a CFC to such United States shareholder. If you are treated as a United States shareholder of a CFC, failure to comply with these reporting obligations may subject you to significant monetary penalties and may prevent the statute of limitations with respect to your U.S. federal income tax return for the year for which reporting was due from starting. Additionally, a non-corporate U.S. shareholder would generally be denied certain tax deductions or foreign tax credits in respect of its income that may otherwise be allowable to a United States shareholder that is a U.S. corporation. We cannot provide any assurances that we will assist holders of our ordinary shares in determining whether we or any of our non-U.S. subsidiaries are treated as CFCs or whether any holder of our ordinary shares is treated as a United States shareholder with respect to any such CFC, nor do we expect to furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. The Internal Revenue Service, or IRS, has provided limited guidance on situations in which investors may rely on publicly available information to comply with their reporting and taxpaying obligations with respect to foreign-controlled CFCs. U.S. holders of our ordinary shares should consult their advisors regarding the potential application of these rules to their investment in our ordinary shares.

ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable results to the plaintiff(s) in any such action.

The deposit agreement governing our ADSs provides that owners and holders of ADSs irrevocably waive the right to a trial by jury in any legal proceeding arising out of or relating to the deposit agreement or the ADSs, including claims under U.S. federal securities laws, against us or the depositary to the fullest extent permitted by applicable law. As the waiver relates to claims arising as a matter of contract in relation to the ADSs, we believe that, as a matter of construction of the clause, the waiver would likely to continue to apply to ADS holders who withdraw the ordinary shares represented by the ADSs from the ADS facility with respect to claims arising before the withdrawal, and the waiver would most likely not apply to ADS holders who subsequently withdraw

 

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the ordinary shares represented by ADSs from the ADS facility with respect to claims arising after the withdrawal. However, to our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. If this jury trial waiver provision is prohibited by applicable law, an action could nevertheless proceed under the terms of the deposit agreement with a jury trial. Although we are not aware of a specific federal decision that addresses the enforceability of a jury trial waiver in the context of U.S. federal securities laws, it is our understanding that jury trial waivers are generally enforceable. Moreover, insofar as the deposit agreement is governed by the laws of the State of New York, New York laws similarly recognize the validity of jury trial waivers in appropriate circumstances. In determining whether to enforce a jury trial waiver provision, New York courts and federal courts will consider whether the visibility of the jury trial waiver provision within the agreement is sufficiently prominent such that a party has knowingly waived any right to trial by jury. We believe that this is the case with respect to the deposit agreement and the ADSs.

In addition, New York courts will not enforce a jury trial waiver provision in order to bar a viable setoff or counterclaim of fraud or one which is based upon a creditor’s negligence in failing to liquidate collateral upon a guarantor’s demand, or in the case of an intentional tort claim (as opposed to a contract dispute). No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any provision of U.S. federal securities laws and the rules and regulations promulgated thereunder.

If any owner or holder of our ADSs, including purchasers of ADSs in secondary market transactions, brings a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under U.S. federal securities laws, such owner or holder may incur increased costs of bringing a claim and may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. Any legal suit, action or proceeding against or involving us brought by the Depositary or any holder or beneficial owner of ADSs, arising out of or based upon the deposit agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, may be instituted only in any state or federal court in New York, New York. Any legal suit, action or proceeding against or involving the Depositary brought by us, arising out of or based upon the Deposit Agreement, the ADSs, the ADRs or the transactions contemplated therein or thereby, may only be instituted in a state or federal court in New York, New York.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. In some cases, you can identify forward- looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. The forward-looking statements and opinions contained in this prospectus are based upon information available to us as of the date of this prospectus and, while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements include statements about:

 

   

the development of our product candidates, including statements regarding the timing of initiation, completion and the outcome of clinical trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

   

our ability to obtain and maintain regulatory approval of our product candidates in the indications for which we plan to develop them, and any related restrictions, limitations or warnings in the label of an approved drug or therapy;

 

   

our plans to collaborate, or statements regarding the ongoing collaborations, with third parties;

 

   

our plans to research, develop, manufacture and commercialize our product candidates;

 

   

the timing of our regulatory filings for our product candidates;

 

   

the size and growth potential of the markets for our product candidates;

 

   

our ability to raise additional capital;

 

   

our commercialization, marketing and manufacturing capabilities and strategy;

 

   

our expectations regarding our ability to obtain and maintain intellectual property protection;

 

   

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

 

   

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

   

our estimates regarding future revenues, expenses and needs for additional financing;

 

   

our belief that our existing cash, cash equivalents and term deposits will be sufficient to fund our operating expenses and capital expenditure requirements through as we currently expect;

 

   

our ability to overcome the challenges posed by the COVID-19 pandemic to the conduct of our business; and

 

   

regulatory developments in the United States, the Netherlands, EU and other jurisdictions including tax matters.

In addition, you should refer to the section of this prospectus titled “Risk Factors” for an outline of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

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

 

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INDUSTRY AND MARKET DATA

This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources.

In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.”

USE OF PROCEEDS

We will not receive proceeds from the disposition, if any, of Registered Shares in the form of ADSs by Registered Holders.

 

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DIVIDEND POLICY

We have never declared or paid any dividends on our ordinary shares since our ordinary shares were listed on Euronext Amsterdam. We intend to retain any earnings for use in our business and do not currently intend to pay dividends on our ordinary shares. We may only pay dividends or distributions from our reserves to the extent our shareholders’ equity (eigen vermogen) exceeds the sum of our paid-up and called-up share capital plus the reserves we must maintain by Dutch law or by our articles of association from time to time and (if it concerns a distribution of profits) after adoption of the annual accounts by our general meeting from which it appears that such distribution is allowed. Subject to such restrictions, any future determination to pay dividends or other distribution will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, cash requirements, financial condition, future prospects, contractual restrictions, any future debt agreements, restrictions under applicable laws and other factors that our board of directors may deem relevant.

Under our articles of association (see “Management – Board structure” for additional information), our board of directors may decide that all or part of our profits shall be added to our reserves and any remaining profit will be at the disposal of the general meeting at the proposal of our board of directors for distribution on our ordinary shares, subject to restrictions of Dutch law. Our board of directors is permitted, subject to certain requirements, to declare interim dividends without the approval of the general meeting.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, indebtedness and capitalization as of September 30, 2020. This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements included elsewhere in this prospectus.

 

     As at September 30, 2020  
     (€)  
     (in thousands)  

Cash and cash equivalents (excluding restricted cash)

     154,795  
  

 

 

 

Convertible bonds (non-current)

     121,744  

Total debt

     121,744  
  

 

 

 

Share capital

     6,381  

Share premium

     396,231  

Legal reserves

     4,242  

Accumulated deficit

     (270,601

Total equity

     136,253  
  

 

 

 

Total capitalization

     257,997  

Unless otherwise stated in this prospectus, the number of our ordinary shares set forth herein is as of September 30, 2020 and is based on 638,055,619 ordinary shares issued and outstanding on such date but excludes:

 

   

36,322,988 ordinary shares issuable upon the exercise of outstanding options under our option plan for employees, as of September 30, 2020;

 

   

208,944 ordinary shares issuable upon the exercise of warrants, as of September 30, 2020;

 

   

4,131,708 ordinary shares reserved for issuance pursuant to our Long Term Incentive Plan (LTIP), as of September 30, 2020; and

 

   

62,412,622 ordinary shares issuable upon conversion of our convertible bonds due 2025.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present selected consolidated financial data as of the dates and for the periods indicated. We have derived the selected consolidated statement of operations data for the years ended December 31, 2019 and 2018 and the consolidated balance sheet data as of December 31, 2019 and 2018 from our Annual Financial Statements included elsewhere in this prospectus, which have been prepared in accordance with IFRS, as issued by the IASB, and audited in accordance with the standards of the PCAOB (United States). The selected consolidated statements of operations and comprehensive income (loss) data for the nine months ended September 30, 2020 and 2019 and the selected consolidated statement of financial position data as of September 30, 2020 have been derived from our Unaudited Interim Financial Statements included elsewhere in this prospectus and have been prepared on the same basis as the audited Annual Financial Statements. In the opinion of management, the interim data reflects all adjustments necessary for a fair statement of the financial information in those statements.

Our historical results for the nine months ended September 30, 2020 and 2019 are not necessarily indicative of results to be expected for a full year or any other interim period. We maintain our books and records in euros, and while we report under IFRS as issued by the IASB and as approved by the European Committee for purposes of our statutory financial reporting under Dutch law, we prepared our consolidated financial statements for purposes of this prospectus in accordance with IFRS as issued by the IASB.

You should read this data together with our Consolidated Financial Statements appearing elsewhere in this prospectus and the information under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of our future results.

 

     For the Nine Months Ended
September 30
    For the Year Ended December 31  
     2020     2019     2019     2018  
     (€)     (€)     (€)     (€)  
     (in thousands, except per ordinary share data)  

Revenues

     134,714       123,358       169,022       135,130  

Costs of Sales

     (14,694     (16,278     (21,355     (22,180

Gross Profit

     120,020       107,080       147,667       112,950  

Other Income

     718       292       435       684  

Research & Development

     (23,810     (23,726     (28,368     (28,882

General and Administrative

     (13,670     (10,780     (18,913     (12,221

Marketing and Sales

     (32,113     (30,182     (39,914     (34,539

Other Operating Costs

     (69,593     (64,688     (87,195     (75,642

Operating profit

     51,145       42,684       60,907       37,992  

Fair value loss on revaluation derivatives

     131       (141     (209     (495

Other finance income

     581       769       1,011       18  

Other finance expense

     (18,285     (12,146     (15,259     (36,658

Financial cost, net

     (17,573     (11,518     (14,457     (37,135

Share of net profits in associates using the equity method

     195       439       229       —    

Profit before tax

     33,767       31,605       46,679       857  

Income tax credit (expense)

     (8,171     (7,549     (10,484     24,136  

Profit for the year

     25,596       24,056       36,195       24,993  

Attributable to:

        

Owners of the parent

     25,596       24,056       36,195       24,993  

Total net profit

     25,596       24,056       36,195       24,993  

Basic earnings per share (€)

     0.040       0.038       0.058       0.041  

Fully-diluted earnings per share (€)

     0.035       0.036       0.054       0.038  

 

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     As at September 30      As at December 31,  
     2020      2019      2019      2018  
     (€)      (€)      (€)      (€)  
     (in thousands, except per ordinary share data)  

Consolidated Balance Sheet Data:

           

Cash and cash equivalents

     154,795        62,967        66,299        80,311  

Total assets

     319,348        220,814        228,210        214,482  

Share capital

     6,381        6,293        6,313        6,215  

Remainder of Shareholders’ equity

     129,872        84,182        98,366        55,536  

Total liabilities

     183,095        130,339        123,531        152,731  

Key Business and Non-GAAP Financial Measures

The success of Pharming is reflected in its operating and financial track record to date. In this prospectus, we use

EBIT, EBITDA, Adjusted EBITDA, Net Debt, and Operating Profit as measures to evaluate and manage our business on an ongoing basis. We believe these measures to be useful for investors to compare key financial data both within and across reporting periods. Specifically, we believe that EBIT, EBITDA, and Adjusted EBITDA provide investors with a supplemental measure of our operating performance and highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. Moreover, we believe that inclusion of Net Debt in this prospectus is appropriate to provide investors information on our ability to meet debt obligations by using cash and cash equivalents.

The table below presents these key financial measures for the periods indicated:

 

    

Nine months ended

September 30,

    Years ended December 31,  
          
     (in thousands)  
     2020     2019     2019     2018  

Operating Profit

     51,145       42,684       60,907       37,992  

EBIT

     51,340       43,123       61,136       37,992  

EBITDA

     55,277       46,348       65,593       41,927  

Adjusted EBITDA

     55,277       46,348       64,861       44,551  

Net Debt

     (34,307     (10,298     (22,977     (9,013

Some of these measures are not calculated in accordance with IFRS and we collectively refer to these as non-GAAP financial measures. These are defined as follows:

 

   

EBIT – Earnings before Interest & Tax. Defined as Profit for the year adjusted to exclude Income tax credit (expense) and Financial cost, net

 

   

EBITDA – Earnings before Interest, Tax, Depreciation & Amortization. Defined as Profit for the year adjusted to exclude Income tax credit (expense), Financial cost, net and Depreciation of Property, plant and equipment and Amortization of Intangible assets.

 

   

Adjusted EBITDA – Defined as Profit for the year adjusted to exclude Income tax credit (expense), Financial cost, net, Depreciation of Property, plant and equipment, Amortization of Intangible assets and Impairments/(reversal) of certain capitalized development expenses as defined.

 

   

Net Debt – Defined as Loans and borrowings plus Convertible bonds minus cash and cash equivalents minus non-current restricted cash.

To provide investors with additional information regarding our financial results, we have disclosed in the table above and within this prospectus Adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of Adjusted EBITDA to profit for the year, the most directly comparable IFRS financial measure.

We have included EBIT, EBITDA, and Adjusted EBITDA in this prospectus because we believe these measures are useful for investors to compare key financial data both within and across reporting periods. Specifically, we believe that these measures provide investors with a supplemental measure of our operating performance and highlights trends in our core business that may not otherwise be apparent when relying solely on IFRS measures. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business.

 

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Our use of EBIT, EBITDA and Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under IFRS. Some of these limitations are:

 

   

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

   

They do not reflect changes in, or cash requirements for, our working capital needs;

 

   

They do not reflect tax payments that may represent a reduction in cash available to us; and

 

   

Other companies, including companies in our industry, may calculate these measures differently, which reduces its usefulness as a comparative measure.

The table below presents a reconciliation of the non-GAAP measures to the measures disclosed in our annual report for the periods indicated:

 

     Nine months ended September 30,     Years ended December 31,  
     2020     2019     2019     2018  
     (€)     (€)     (€)     (€)  
     (in thousands)  

Profit for the year

     25,596       24,056       36,195       24,993  

Income tax credit (expense)

     (8,171 )      (7,549     (10,484 )      24,136  

Financial cost, net

     17,573       11,518       14,457       37,135  

EBIT

     51,340       43,123       61,136       37,992  

Add: Depreciation & Amortization

     3,937       3,225       4,457       3,935  

EBITDA

     55,277       46,348       65,593       41,927  

Add: Impairment(1)

                 1,892       2,624  

Add: Reversal of Impairment(1)

                 (2,624      

Adjusted EBITDA

     55,277       46,348       64,861       44,551  

 

(1)

Impairment comprises of impaired capitalized development costs in 2018. The impairment charge of €2.6 million in 2018 reflected in cost of R&D was taken after the Company down-prioritized the development track of a small variant of the RUCONEST® vial, as a result of opportunities with another variant of the vial. Reference is made to Note 11 to our Annual Financial Statements. This particular impairment charge was reversed in 2019 and led to a one-off write back of €2.6 million, comprising of the impaired capitalized development costs originally taken in 2018. The net impairment charge for the year 2019 was €0.7 (€2.6 million minus €1.9 million) given the presence of an (unrelated) impairment charge on another development track of €1.9 million. For further detail please see Note 11 to our Annual Financial Statements.

To provide investors with additional information regarding our financial results, we have disclosed in the table below Net Debt, a non-GAAP financial measure. Net debt is a useful indicator of the Company’s indebtedness, financial flexibility and capital structure because it indicates the level of borrowings after taking account of cash and cash equivalents within the Group’s business that could be utilized to pay down the outstanding borrowings. We have provided a reconciliation below of Net Debt to current loans and borrowings, the most directly comparable IFRS financial measure.

 

     Nine months ended September 30,     Years ended December 31,  
     2020     2019     2019     2018  
     (€)     (€)     (€)     (€)  
     (in thousands)  

Current loans and borrowings

           34,432       45,590       35,235  

Add: Non-current loans and borrowings

     121,744       19,659             37,267  

Less: Cash and cash equivalents

     (154,795 )      (62,967     (66,299     (80,311

Less: Non-current restricted cash

     (1,256     (1,422 )      (2,268 )      (1,204

Net Debt (2)

     (34,307 )      (10,298 )      (22,977 )      (9,013 ) 

 

(2)

Discounted value as per the balance sheet.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of financial condition and operating profit together with the information in “Selected Consolidated Financial Data”, the Unaudited Interim Financial Statements and the Annual Financial Statements included elsewhere in this prospectus. The following discussion is based on our financial information prepared in accordance with IFRS, as issued by the IASB.

The statements in this discussion with respect to our plans and strategy for our business, including expectations regarding our future liquidity and capital resources and other non-historical statements, are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including the risks and uncertainties described in the section of this prospectus titled “Risk Factors.” Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Overview

We are a global, commercial stage biopharmaceutical company developing innovative protein replacement therapies and precision medicines for the treatment of rare diseases and unmet medical needs. The flagship of our portfolio is our recombinant human C1 esterase inhibitor, or rhC1INH, franchise. C1INH is a naturally occurring protein that downregulates the complement cascade in order to control swelling in affected tissues. Our lead product, RUCONEST® is the first and only plasma-free rhC1INH protein replacement therapy. It is approved for the treatment of acute hereditary angioedema, or HAE, attacks. We are commercializing RUCONEST® in the United States, European Union and the United Kingdom through our own sales and marketing organization, and the rest of the world through our distribution network. We are also developing rhC1INH for subsequent indications, including pre- eclampsia, Acute Kidney Injury and we are also investigating the clinical efficacy of rhC1INH in COVID-19. In addition, we are studying our oral precision medicine, leniolisib (a phosphoinositide 3-kinase delta, or PI3K delta, inhibitor), for the treatment of activated PI3K delta syndrome, or APDS, in a registration enabling Phase 2/3 study in the US and Europe. Furthermore, we are also leveraging our transgenic manufacturing technology to develop next-generation protein replacement therapies, most notably for Pompe disease, which program is in the pre-clinical stage.

Our revenues from the sale of RUCONEST® for the treatment of acute HAE attacks were €169.0 million and €135.1 million for the years ended December 31, 2019 and 2018, respectively, and €134.7 million and €123.4 million for the nine months period ended September 30, 2020 and 2019, respectively. We are currently marketing RUCONEST® in the United States, the United Kingdom and the European Union through our own sales force, and RUCONEST® is being sold in South Korea, Israel and certain Central and South American countries through our distributor network.

Key Factors Affecting Our Performance

Our ability to expand approved indications and markets for rhC1INH

We are working to expand the rhC1INH franchise through clinical investigations. In particular, we are developing rhC1INH for use in indications such as COVID-19, pre-eclampsia and acute kidney injury. We are also developing leniolisib for the treatment of APDS and applying our transgenic manufacturing technology to develop an ERT for the treatment of Pompe disease. Our ability to generate revenue from these potential new indications and markets depends on our success in completing development of and commercializing such products and product candidates, which will require a significant investment of time and resources, as well as regulatory approval, and may not ultimately prove successful.

Our ability to commercialize leniolisib, if approved

We entered into a collaboration with Novartis AG, a Swiss multinational pharmaceutical company, in August 2019, pursuant to which we acquired rights to market leniolisib. Upon entering into the collaboration agreement, we paid €17.9 million ($20 million) in upfront payments to Novartis for the leniolisib program. Leniolisib is currently being studied in a Phase 2/3 clinical trial in patients with ADPS in the United States and Europe and we expect to report data from the Phase 2/3 trial of leniolisib in the second half of 2021. If the trial is successful, we intend to apply for approval of leniolisib and, if approved, we plan to start commercializing the drug in the second half of 2022 through our existing commercial infrastructure. If the commercialization effort requires more than the minimal additions we are anticipating, our financial results could suffer.

 

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Our ability to maintain and grow our revenues from our existing commercial product, RUCONEST®, given the impact of the current COVID-19 pandemic

Since a novel strain of coronavirus (SARS-CoV-2) causing a disease referred to as COVID-19 was first reported in December 2019, the disease has spread across the world, including countries in which we have patients and in which we have planned or active clinical trial sites. The outbreak and government measures taken in response thereto have had a significant impact, both direct and indirect, on businesses and commerce as supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services has spiked while demand for other goods and services has fallen. As COVID-19 continues to spread around the globe, we may experience disruptions that could affect our business, preclinical studies and clinical trials. We have experience delays in our planned Phase 2b study of the effects of RUCONEST® in patients undergoing PCI accompanied by contrast-enhanced examinations and our open label, single-arm, multi-stage, multi-center Phase 1/2 study in late-stage pre-eclampsia. It remains uncertain when these clinical trials will resume or the degree to which COVID-19 will impact future clinical trials. See “Risk Factors” for additional information.

International operations and foreign currency exchange

We operate on a global basis with offices, sales and activities throughout the world. Our worldwide operations and sales have increased as a result of the re-acquisition of commercialization rights to RUCONEST® in the United States, the European Union and the United Kingdom and the subsequent and continued expansion of our commercial organizations in the United States, the European Union and the United Kingdom. Our global operations subject our financial results to fluctuations in foreign currency exchange rates, changes in general economic and political conditions in countries where we operate, particularly as a result of ongoing economic instability within foreign jurisdictions, sensitivity to governmental actions relating to tariffs or trade agreements, complex and restrictive employment and labor laws and regulations, as well as union and works council restrictions, sensitivity to changes in tax laws or rulings in jurisdictions across the world, longer payment cycles from customers in certain geographies, and legal compliance costs and risks. In addition, because the majority of our revenues are in dollars, and our reporting currency is in euros, our revenues are subject to fluctuation due to the US dollar to Euro exchange rate.

Our ability to add rare disease assets to our portfolio

Identifying, acquiring and developing new products and product candidates to build shareholder value is key to our goal of becoming a global leader in the treatment of rare diseases. Our future profitability and growth will depend on our ability to acquire and in-license product candidates on favorable terms.

Our ability to shift our marketing efforts and sales from third party distributors to our internal infrastructure

We have fully transitioned the commercialization of RUCONEST® in major international markets to our own sales force, and we currently market RUCONEST® in the United States, the United Kingdom and the European Union through our internal infrastructure. We market RUCONEST® in South Korea, Israel and certain Central and South American countries through our third party distributor network. Our ability to continue transitioning the marketing and sale of RUCONEST® in other jurisdictions from third party distributors to our internal infrastructure could require a significant investment and affect our business.

Components of our Results of Operations

Revenues

We generate revenues from primarily from the sale of vials of RUCONEST® in the United States, the European Union and the United Kingdom through our own sales and marketing organization, and the rest of the world through our distribution network. In accordance with IFRS 15, revenues are recognized when the customer obtains control of the goods. Pursuant to our contracts, the customer obtains control of the product immediately after shipment of the product, which arrives at the customer within a short time frame. Most of our contracts for revenues with customers are subject to chargebacks, discounts and/or rebates relating to customers or to reimbursement claims from government or insurance payers, which we account for on an estimated net basis, with any actual discounts and rebates used to refine the estimates in due course. These variable elements are deducted from revenues in the same period as the related sales are recorded in accordance with our accounting policy as described further in “Critical Accounting Policies and Estimates” and Note 2 to our Annual Financial Statements included elsewhere in this prospectus.

 

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Revenues for the years ended December 31, 2019 and 2018 include deferred license revenue, reflecting license fee payments from Swedish Orphan Biovitrum, or SOBI.

During the first nine months ended September 30, 2020, we no longer received license fee payments given the license agreement with SOBI ended upon re-acquiring commercialization rights to RUCONEST® for all remaining countries of the EU in December 2019, with the effective date of this transaction being January 2020.

Costs of Sales

Costs of sales consist of cost of product sales, relating to actual product sales, and inventory impairments. The impairment stems from the valuation of the inventories against lower net realizable value.

Other income

Other income comprises of grants in the form of annual payroll-tax reimbursement granted by the Dutch and French governments for research and development activities that we conduct in those countries.

Cost of research and development

Costs relating to the preparation and initiation of our product candidates pipeline. Expenditures for development can be recognized as an intangible asset when we can demonstrate that the following criteria are being met:

 

   

Technical feasibility of completing the asset so that it will be available for use of sale is clear;

 

   

Our intention to complete the asset and use or sell it is clear;

 

   

Its ability to use or sell it is clear;

 

   

The probability of future economic benefits is good (there is an existing market for the product which is likely to be available once the product is ready for launch);

 

   

The availability of resources to complete the development is not in question;

 

   

The ability to measure the expenditures on the project reliably is not in question.

Development expenditures that meet these criteria are being capitalized. Expenditures which do not meet these

criteria are taken as expenses through the income statement.

Historically, substantially all of our research and development expenditures have been focused on the development of our rhC1INH franchise. In 2020, a small percentage of our research and development expenditures have been focused on the development of leniolisib. As we continue developing leniolisib until we reach NDA submission, we expect our research and development expenditures related to leniolisib to increase in future periods.

We capitalize certain research and development costs that relate to improvements in our approved product, RUCONEST®. These costs will be reflected in cost of research and development in the event of impairment, or will be amortized after the launch of a product including these improvements, if such improvements are approved. In addition, we have capitalized the cost of the up-front payment to Novartis for leniolisib. If leniolisib is approved for marketing, we will amortize such costs in costs of research and development.

We recognized €0.1 million and €0.3 million expense related to capitalized cost of research and development for the nine-month period ended September 30, 2020 and 2019, respectively. We recognized €1.3 million and €1.3 million of expense related to capitalized cost of research and development for the year ended December 31, 2018 and 2019, respectively. Our research and development expenses have been lower during the course of 2020 thus far, as compared to prior years, as a result of delays from the COVID-19 pandemic, but we expect these expenses to increase in the future as our product candidates mature.

Cost of general and administrative activities

Consists of costs related to administration resources, service fees, legal and due diligence costs (related to transactions with SOBI and Novartis), and depreciation costs for property, plant & equipment and intangible assets. In addition, we expect further increases in our general and administrative costs in future periods as our company continues to grow.

 

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Cost of marketing and sales activities

These costs relate to all expenses incurred to commercialize the product.

Other finance expense

Other finance expense comprise primarily interest paid on our convertible bonds due 2025, a provision for contingent consideration and lease payments and foreign currency results.

In 2016 we completed the acquisition of all North American commercialization rights for our own product RUCONEST® from Valeant. Valeant Pharmaceuticals International changed its name in 2018 to Bausch Health Companies after it acquired Bausch & Lomb. The re-acquired rights are determined as an intangible asset, as part of a business combination. We have paid an upfront amount of $60 million and agreed to pay future amounts up to a further $65 million, of which $40 million have already been paid, based on achievement of sales milestones. In the fourth quarter of 2019, we achieved the sales level which triggered the second US$20 million milestone payment to Bausch Health Companies Inc., which was paid in February 2020. If sales growth continues at or near the current level, there is an increasing likelihood that the final US$25 million will be triggered in a future quarter and paid in 2021 or beyond. Payment of the remaining milestones in the future will not affect profits, because a provision is taken gradually as the likelihood of the milestones being achieved increases. On the balance sheet, this provision is shown under Other Financial Liabilities. The final payment of $25 million, based on achieving the final sales milestone, is considered to be contingent consideration. As the payments will be made in cash the contingent consideration is classified as a financial liability. It is recognized at its fair value at the acquisition date, as part of the total consideration transferred, according IFRS 3.39. Fair value at acquisition-date was based on the probability of achieving the milestones. These fair values are based on risk-adjusted future cash flows discounted using appropriate discount rates. The fair values are reviewed on a regular basis, at least annually, and any changes are reflected in the income statement under financial cost, net.

The amount for the contingent consideration originally arose on the acquisition of the commercialization rights from Valeant Pharmaceuticals in 2016. This represents the present value of the estimated amount probably payable by us in the event of achieving the final sales milestone and is calculated by applying the milestone criteria to probabilities of forecast future revenues and cash flows. The assumptions relating to future revenues and discount rates are based on business forecasts and are therefore inherently judgmental. Future events could cause the assumptions used in these projections to change with a consequent adverse effect on our future results.

Share of net profits in associates using the equity method

Share of net profits in associates comprises the profit resulting from our investment in BioConnection BV (BioConnection). In 2019, we acquired a 43.85% stake in the equity of our fill and finish partner, BioConnection BV. In the Board of Management’s judgement, the investment in BioConnection constitutes an investment in an unconsolidated structured entity, as we have significant influence but do not have control of BioConnection. In particular, the shareholders of BioConnection are prohibited from influencing any activity between the two parties which is in any significant way different from the relationship which existed between the two prior to the investment. We do not control the voting rights or the economic benefits of the entity. Accordingly, we account for our investment in BioConnection by the equity method and do not consolidate the entity as a subsidiary.

Income tax credit (expense)

Income tax credit reflects credit/(expenses) of income tax. As a result of the growth in sales, it is probable that going forward we will be able to use all our remaining net operating tax losses from previous years. During the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, we incurred state and federal income taxes in the United States, in which jurisdiction we have no remaining tax losses available, while in the Netherlands and France we continue to use up our accumulated tax losses. The tax shielding effect of those remaining tax losses is shown on the balance sheet as a deferred tax asset. The deferred tax asset is utilized by being written down by the amount of the tax charge each reporting period, instead of paying the tax due from cash. Once all the tax losses are used up, the deferred tax asset relating to these losses will be completely extinguished and the tax due thereafter will be paid. This is reflected in the fact that although the tax charges are getting larger as we grow in net profits before tax, the amount actually paid (as shown in the cash flow statement) is considerably less.

 

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Results of Operations

The following table sets forth our results of operations for the nine months ended September 30, 2020 and 2019 and for the years ended December 31, 2019 and 2018.

 

     For the Nine Months Ended
September 30,
    For the Year Ended
December 31,
 
     2020     2019     2019     2018  
     (€)     (€)     (€)     (€)  
     (in thousands)  

Revenues

     134,714       123,358       169,022       135,130  

Costs of Sales

     (14,694     (16,278     (21,355     (22,180

Gross Profit

     120,020       107,080       147,667       112,950  

Other Income

     718       292       435       684  

Research & Development

     (23,810     (23,726     (28,368     (28,882

General and Administrative

     (13,670     (10,780     (18,913     (12,221

Marketing and Sales

     (32,113     (30,182     (39,914     (34,539

Other Operating Costs

     (69,593     (64,688     (87,195     (75,642

Operating profit

     51,145       42,684       60,907       37,992  

Fair value loss on revaluation derivatives

     131       (141     (209     (495

Other finance income

     581       769       1,011       18  

Other finance expense

     (18,285     (12,146     (15,259     (36,658

Financial cost, net

     (17,573     (11,518     (14,457     (37,135

Share of net profits in associates using the equity method

     195       439       229       —    

Profit before tax

     33,767       31,605       46,679       857  

Income tax credit (expense)

     (8,171     (7,549     (10,484     24,136  

Profit for the year

     25,596       24,056       36,195       24,993  

Comparison of the Nine Months Ended 30 September 2020 and 2019

Revenues

Revenues increased by €11.4 million, or 9.2%, from €123.4 million for the nine months ended September 30, 2019 to €134.7 million for the nine months ended September 30, 2020. The increase was primarily a result of our increased sales of RUCONEST® in the U.S. market, which increased from €119.0 million in the nine months ended September 30, 2019 to €129.3 million in the nine months ended September 30, 2020.

Two U.S. customers represent approximately €93.9 million (70%) of our revenues for the nine months ended September 30, 2020. For the nine months ended September 30, 2019, the two US customers represent approximately €96.7 million (78%) of our revenues. These customers are large specialty wholesale companies that are specialized in distribution of pharmaceuticals in our and our competitors’ disease area, and that distribute our product.

Revenues in Europe increased by 41.4% from €3.3 million for the nine months ended September 30, 2019 to €4.7 million for the nine months ended September 30, 2020. This increase was primarily caused by the company continuing to build out its EU commercial infrastructure and expanding into new territories following the reacquisition of EU rights for RUCONEST® from SOBI in January 2020.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

U.S.

     129,264        119,039  

Europe

     4,670        3,303  

Rest of World

     780        1,016  

Revenues

     134,714        123,358  

Costs of sales

Costs of sales decreased by €1.6 million, or 9.7%, from €16.3 million for the nine months ended September 30, 2019 to €14.7 million for the nine months ended September 30, 2020. This decrease was primarily caused by a

 

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decreased cost price per vial of RUCONEST® and a significantly lower number of vials of RUCONEST® provided for free in the first nine months ended September 30, 2020 compared to the first nine months ended September 30, 2019. Free vials of RUCONEST® are provided to patients suffering from shortage of their vital HAE medications due to stock-out situations at competitor firms, or to provide intermediate assistance to patients in need during a transfer to RUCONEST® as their primary medication for HAE attacks. Although not appearing as revenue, the costs for these vials is included in Cost of Sales.

The following table summarizes costs of sales for the nine months ended September 30, 2020 and 2019.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

Cost of product sales

     (14,694      (16,276

Inventory impairments

     —          —    

Costs of sales

     (14,694)        (16,276

Gross profit

Gross profit increased €12.9 million, or 12.1%, from €107.1 million for the nine months ended September 30, 2019 to €120.0 million for the nine months ended September 30, 2020. The increase was primarily a result of increased sales of RUCONEST® in the U.S. market and lower costs of sales.

The following table summarizes the geographical breakdown of our gross profit for the nine months ended September 30, 2020 and 2019.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

U.S.

     117,447        105,803  

Europe

     1,905        532  

Rest of World

     668        745  

Gross Profit

     120,020        107,080  

Other Income

Other income related to grants increased €0.4 million, or 145.9%, from €0.3 million for the nine months ended September 30, 2019 to €0.7 million for the nine months ended September 30, 2020. The grants are annual payroll-tax reimbursements granted by the Dutch government for research and development activities.

Cost of research and development

Cost of research and development remained relatively stable at €23.8 million for the nine months ended September 30, 2020 and €23.7 million for the nine months ended September 30, 2019.

Research and development costs for the nine months ended September 30, 2020 mainly relate to preparing for and initiating the clinical studies of rhC1INH in pre-eclampsia and Acute Kidney Injury, and continuing work on the preparation and production of alpha-glucosidase for Pompe disease using our own technology.

Cost of general and administrative activities

In line with the revenue growth, cost of general and administrative activities increased by €2.9 million, or 26.8%, from €10.8 million for the nine months ended September 30, 2019 to €13.7 million for the nine months ended September 30, 2020. The employee base for the nine months ended September 30, 2020 increased to 238.8 FTEs (headcount: 258) from 191.1 FTEs (headcount: 207) for the nine months ended September 30, 2019, representing an increase of 25%.

 

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Cost of marketing and sales activities

As a result of revenue growth, cost of marketing and sales activities increased by €1.9 million, or 6.4%, from €30.2 million for the nine months ended September 30, 2019 to €32.1 million for the nine months ended September 30, 2020. The increase was primarily as a result of further expansion of the commercial organization and infrastructure in both the United States and the EU.

Employee benefits

Employee benefits are included in research and development costs, general and administrative costs, or marketing and sales costs based on the nature of the services provided by each employee. Hence, the employee benefits do not recur in the Consolidated Statement of Income as a separate line-item but are separately disclosed in the notes to the Annual Financial Statements.

Employee benefits increased by €5.5 million, or 21.6%, from €25.7 million for the nine months ended September 30, 2019 to €31.2 million for the nine months ended September 30, 2020. The increase was primarily due to the expansion of the organization, as reflected by an increase of 25% in the employee base for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The following table summarizes employee benefits for the years ended September 30, 2020 and 2019.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

Salaries

     (23,373      (19,097

Social security costs

     (2,942      (2,455

Pension costs

     (1,185      (1,201

Share-based compensation

     (3,705      (2,914

Total employee benefits

     (31,205      (25,667

Other finance income

Other finance income decreased by approximately €0.2 million, from €0.8 million for the nine months ended September 30, 2019 to €0.6 million for the nine months ended September 30, 2020, as a result of decreased interest on cash balances due to lower interest rates in the United States. There is no other finance income originating from foreign currency translation. The foreign currency translation result is limited to other finance expenses as disclosed below in ‘Other finance expenses’.

The following table summarizes our other finance income for the nine months ended September 30, 2020 and 2019.

 

     Nine months
ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

Interest income

     581        769  

Other finance income

     581        769  

Other finance expenses

Other finance expenses increased by €6.2 million, or 50.5%, from €12.1 million for the nine months ended September 30, 2019 to €18.3 million for the nine months ended September 30, 2020. This increase was primarily due to the sudden and significant decrease in the US dollar versus the Euro during the nine months ended September 30, 2020. Significant negative currency effects (€9.3 million) were incurred on the cash reserves invested in US government securities and on the continuous inflow of mainly US dollars from revenues.

Next, the interest expenses on loans and borrowings declined significantly due to repayment of the Orbimed loan facility in January 2020 resulting in a decrease of €8.6 million during the nine months ended September 30, 2020. In relation to the repayment of the Orbimed loan facility, the company incurred one-off payments of fees and penalties amounting to €3.8 million being recorded under ‘Other finance expenses’.

 

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Lastly, the company faced increased interest expenses on the convertible bonds, being issued during January 2020. These convertible bonds were issued in order to facilitate repayment of the remaining balance of the loan with Orbimed Advisors and will help the company in expanding its commercialization and manufacturing infrastructure.

The following table summarizes our other finance expenses for the nine months ended September 30, 2020 and 2019.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

Foreign currency results

     (9,297      (321

Interest loans and borrowings

     (346      (8,938

Exit fees and expenses

     (3,775      —    

Interest on convertible bonds

     (3,065      —    

Interest on lease liabilities

     (508      (460

Contingent consideration

     (1,216      (2,427

Other finance expenses

     (78      —    

Other finance expenses

     (18,285      (12,146

Share of net profits in associates using the equity method

Net profits in associates using the equity method for the nine months ended September 30, 2020 decreased from €0.44 million to €0.20 million for the nine months ended September 30, 2019. This is the result of decreased profits from BioConnection B.V. in which the company acquired an interest during 2019.

Income tax credit (expense)

Income tax expense increased €0.7 million (8.2%) from €7.5 million for the nine months ended September 2019 to €8.2 million for the nine months ended September 2020. The decrease in current tax expense of €1.0 million is due to a reclassification from deferred to current tax in 2019 and the true-ups in 2020 of books to federal and state tax returns. The deferred tax expense increase of €1.6 million is primarily due to increased usage of deferred tax assets originating from historical tax losses.

The following table summarizes Pharming’s income tax credit (expense) for the nine months ended September 30, 2020 and 2019.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

Total current tax expense

     (1,000      (2,036

Total deferred tax (expense) benefit

     (7,171      (5,513

Income tax credit (expense)

     (8,171      (7,549

 

Comparison of the Year Ended 31 December 2019 and 2018

Revenues

Revenues increased by €33.9 million, or 25.1%, from €135.1 million for the year ended December 31, 2018 to €169.0 million for the year ended December 31, 2019. The increase was primarily as a result of our increased sales of RUCONEST® in the U.S. market, which increased from €126.6 million in the year ended December 31, 2018 to €162.7 million in the year ended December 31, in 2019.

Two U.S. customers represent approximately €132.1 million (78%) of our revenues in 2019. For 2018, the two US customers represent approximately € 100.3 million (74%) of our revenues. These customers are large specialty wholesale companies that are specialized in distribution of pharmaceuticals in our and our competitors’ disease area and that distribute our product. Revenues for the years ended December 31, 2019 and 2018 include deferred license revenue from the licensing agreement with SOBI. Deferred license revenue increased by €0.7 million, or 87.5%, from €0.8 million in the year ended December 31, 2018 to €1.5 million in the year ended December 31, 2019. The deferred license revenue of €0.8 million in 2018 related to the release of a contractually

 

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specified part of the balance of deferred license revenue held in respect of the SOBI license. The remainder of this balance of license revenue (€1.5 million) was completely recognized in 2019. All of which was released to the income statement immediately upon termination of the SOBI license in December 2019. The following table summarizes our total revenues per geographical segment for the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

U.S.

     162,689        126,636  

Europe

     5,041        7,166  

Rest of World

     1,291        1,328  

Revenues

     169,021        135,130  

As described in the above table, revenues in the Rest of the World remained consistent, at €1.3 million in both 2018 and 2019. Revenues in Europe decreased by 30.6%, from €7.2 million in 2018 to €5.0 million in 2019, due to lower sales levels in the SOBI regions.

Costs of sales

Cost of product sales remained stable at approximately €20.6 million for each of the years ended December 31, 2019 and 2018, while revenues increased. The stable cost of product sales across 2019 and 2018 is primarily due to two reasons. Firstly, in 2019 we were able to further leverage economies of scale, resulting in lower costs per vial RUCONEST®. Secondly, the higher costs in 2018 primarily relate to one-off fees to be paid to Sanofi in respect of unused production time in 2018 and 2019 while source material supplies were very low, before validation of the new facility in 2020.

Inventory impairments related to inventories designated for commercial activities. The impairment stems from the valuation of the inventories against lower net realizable value. The estimation of net realizable value is based on the allocation of inventories to different markets with different prices, based on sales forecast by management, and commercial partners. Actual sales can differ from these forecasts. Costs of sales decreased by €0.8 million, or 3.6%, from €22.2 million for the year ended December 31, 2018 to €21.4 million for the year ended December 31, 2019.

The following table summarizes costs of sales for the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

Cost of product sales

     (20,587      (20,576

Inventory impairments

     (768      (1,604

Costs of sales

     (21,355      (22,180

Gross profit

Gross profit increased €34.7 million, or 30.7%, from €113.0 million for the year ended December 31, 2018 to €147.7 million for the year ended December 31, 2019. The increase was primarily as a result of increased sales of RUCONEST® in the U.S. market. The increased gross profit was primarily due to the lower costs of sales.

The following table summarizes the geographical breakdown of our gross profit for the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

U.S.

     144,780        111,581  

Europe

     1,911        290  

Rest of World

     976        1,079  

Gross Profit

     147,667        112,950  

 

 

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Other Income

Other income related to grants decreased €0.3 million, or 42.9%, from €0.7 million for the year ended December 31, 2018 to €0.4 million for the year ended December 31, 2019. The grants are annual payroll-tax reimbursement granted by the Dutch government for research and development activities.

Cost of research and development

Cost of research and development decreased by €0.5 million, or 1.7%, from €28.9 million for the year ended December 31, 2018 to €28.4 million for the year ended December 31, 2019. The decrease was mainly due to the one-time write back in 2019 of in 2018 impaired capitalized development costs. Research and development costs for the year ended December 31, 2019 mainly relate to preparing for and initiating the clinical studies of rhC1INH in pre-eclampsia and acute kidney injury, and continuing work on the preparation and production of alpha-glucosidase for Pompe disease using our own technology.

Cost of general and administrative activities

In line with the revenue growth, cost of general and administrative activities increased by €6.7 million, or 54.9%, from €12.2 million for the year ended December 31, 2018 to €18.9 million for the year ended December 31, 2019. This increase was primarily as a result of additional administrative resources to support the growing commercial and operations activities in both the United States and the EU. Also, and in line with the aforementioned revenue growth, the employee base for the year ended December 31, 2019 has increased to 189 FTEs from 156 FTEs for the year ended December 31, 2018, representing an increase of 21.2%.

Cost of marketing and sales activities

As a result of revenue growth, cost of marketing and sales activities increased by €5.4 million, or 15.7%, from €34.5 million for the year ended December 31, 2018 to €39.9 million for the year ended December 31, 2019. The increase was primarily as a result of further expansion of the commercial organization and infrastructure in both the United States and the EU.

Employee benefits

Employee benefits are included in research and development costs, general and administrative costs, or marketing and sales costs based on the nature of the services provided by each employee. Hence, the employee benefits do not recur in the Consolidated Statement of Income as a separate line-item but are separately disclosed in the notes to the Annual Financial Statements.

Employee benefits increased by €5.7 million, or 18.9%, from €30.1 million for the year ended December 31, 2018 to €35.8 million for the year ended December 31, 2019. The increase was primarily due to further expansion of the organization and infrastructure in both the United States and the EU. In particular, the increase in social security costs was due to increased health insurance costs in the United States as a result of increased premiums.

The following table summarizes employee benefits for the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

Salaries

     (26,363      (22,887

Social security costs

     (3,364      (2,251

Pension costs

     (1,577      (1,034

Share-based compensation

     (4,449      (3,889

Total employee benefits

     (35,753      (30,061

Additionally, two of the Company’s employees are still in the BPL pension plan from the former CAO Landbouw, which merged into BPL. Both employees signed the change of employment conditions from Pharming in December 1999, which states that they will continue in this pension plan. BPL has the option for

 

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former CAO members to continue, even if the CAO is not applicable anymore. Due to the nature of this plan, moving over towards AEGON means that they will lose the guaranteed pension funds build up during their service years.

Other finance income

Other finance income increased by approximately €1.0 million, from €0.0 million for the year ended December 31, 2018 to €1.0 million for the year ended December 31, 2019, as a result of increased interest on cash balances. There is no other finance income originating from foreign currency translation. The foreign currency translation result is limited to other finance expenses as disclosed below in ‘Other finance expenses’.

The following table summarizes our other finance income the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

Interest income

     1,011        18  

Other finance income

     1,011        18  

Other finance expenses

Other finance expenses decreased by €21.4 million, or 58.3%, from €36.7 million for the year ended December 31, 2018 to €15.3 million for the year ended December 31, 2019. This decrease was primarily due to decreased interest expenses through repayment of a loan facility. Moreover, we saw a decrease in expenses for our contingent consideration. The contingent consideration is related to the present value of the estimated likelihood of meeting all or some of the balance of $25 million remaining out of the $65 million potential sales milestones which formed part of the re-acquisition transaction for North American commercial rights for RUCONEST®. The second milestone, of $20 million, was triggered in the last quarter of 2019, and was paid in February 2020, after the first milestone, also amounting to $20 million was triggered in 2018 and paid in March 2019.

The following table summarizes our other finance expenses for the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

Interest expenses

     —          (10

Foreign currency results

     (460      (1,147

Interest loans and borrowings

     (11,255      (14,301

Interest leases

     (662      —    

Contingent consideration

     (2,882      (21,200

Other finance expenses

     (15,259      (36,658

Share of net profits in associates using the equity method

Net profits in associates using the equity method for the year ended December 31, 2019 increased from zero in the year ended December 31, 2018 to €0.23 million for the year ended December 31, 2019, as a result of our acquired interest in BioConnection B.V. in 2019.

Income tax credit (expense)

Income tax amounts decreased €34.6 million from a net tax credit of €24.1 million in 2018, of which current tax expense was €1.3 million and deferred tax benefit was €25.5 million, to a €10.5 million tax expense for the year ended December 31, 2019, of which current tax expense was €4.1 million and deferred tax expense was €6.4 million.

The net deferred tax benefit of €24.1 million in 2018 was mainly driven by the recognition of carry forward tax losses in 2018. A deferred tax asset has been recognized for these future taxable amounts as it is expected these will be available to utilize those temporary differences and losses. The increase in current tax expense relates to the increased taxable results of Pharming Healthcare Inc.

 

 

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The following table summarizes Pharming’s income tax credit (expense) for the years ended December 31, 2019 and 2018.

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

Total current tax expense

     (4,073      (1,332

Total deferred tax (expense) benefit

     (6,411      25,468  

Income tax credit (expense)

     (10,484      24,136  

Liquidity and Capital Resources

Cash and cash equivalents (excluding restricted cash) amounted to €154.8 million and €63.0 million as at September 30, 2020, and September 30, 2019, respectively. We have financed our operations primarily through sales of our commercial products and the proceeds of debt and equity offerings. We expect that our marketing and sales, research and development and general and administrative costs will increase for the foreseeable future as we continue commercializing our approved products and advancing the clinical development of our product candidates. We expect that our research and development and sales, general and administrative costs will increase in connection with conducting clinical trials for our product candidates and any new product candidates we acquire or develop and due to the costs of seeking marketing approval for our product candidates in Europe, the United States and other jurisdictions.

On January 21, 2020, we issued €125 million aggregate principal amount of 3.00% convertible bonds due 2025. The net proceeds of the issue of the bonds were used to redeem the balance of approximately $51 million of the loan with Orbimed Advisors in full. The remaining balance of the net proceeds will be used to support capital expenditure in relation to the expansion of our commercialization and manufacturing infrastructure and also serve as funding for the launch of leniolisib, if approved, as well as for additional acquisitions/in-licensing opportunities. The bonds were issued at par and bear interest at a rate of 3.00% per annum payable semi-annually in arrears in equal installments. Unless previously converted, redeemed or purchased and cancelled, the bonds will mature on January 21, 2025.

The bonds are convertible into our ordinary shares at an initial conversion price of €2.0028. This initial conversion price is subject to customary adjustment provisions. The number of ordinary shares initially underlying the Bonds is 62,412,622. Any adjustment to the conversion price resulting in an increase in the number of conversion shares may require us to obtain further authorization from our shareholders to issue shares, grant rights to subscribe for shares and exclude pre-emptive rights. We have the option to redeem all, but not some only, of the outstanding bonds in cash at par plus accrued interest at any time, (a) if, on or after February 13, 2023, the parity value on each of at least 20 trading days in a period of 30 consecutive trading days shall have exceeded 130% of the principal amount or (b) if, at any time, 85% or more of the aggregate principal amount of the bonds originally issued shall have been previously converted and/or repurchased and cancelled.

The convertible bonds comprise of two components. The first component is a financial liability, which represents our contractual obligation to deliver cash or another financial asset for payment of interest and principal, if not converted. The second component is an equity instrument as it represents a written call option granting the holder the right, for a specified period of time, to convert it into a fixed number of our ordinary shares.

Cash flows

Operating Activities

Net cash flows generated from operating activities was €55.3 million for the nine months ended September 30, 2020, compared to €50.0 million for the nine months ended September 30, 2019. The increase of €5.3 million was primarily related to the increased operating profit in the first nine months of 2020 compared to the first nine months of 2019.

Net cash flows generated from operating activities was €66.5 million for the year ended December 31, 2019, compared to €40.5 million for the year ended December 31, 2018. The increase of €26.0 million was primarily related to the increased operating profit in 2019.

 

 

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Investing Activities

Net cash flows used in investing activities was €10.2 million for the nine months ended September 30, 2020, compared to net cash flows used investing activities of €22.8 million for the nine months ended September 30, 2019. This decrease is primarily due to the acquisition of the license to leniolisib from Novartis, which occurred in the nine months ended September 30, 2019.

Net cash flows used in investing activities was €25.2 million for the year ended December 31, 2019 and was primarily related to the acquisition of the Novartis license. Net cash flows used in investing activities was €3.8 million for the year ended December 31, 2018 and primarily related to capital expenditure for property, plant and equipment.

Financing Activities

For financing activities the company saw a net cash inflow of €52.6 million for the nine months ended September 30, 2020 as opposed to a net cash outflow from financing activities of €47.3 million for the nine months ended September 30, 2019. The net cash inflow for first nine months of 2020 was primarily related to the proceeds of the issuance of convertible bonds (€122.7 million) in January 2020. In addition, we repaid loans and borrowings at an amount of €49.9 million, which also facilitated lower interest payments on loans and leases (€0.9 million for the nine months ended September 30, 2020 compared to €6.8 million for the nine months ended September 30, 2019).

For financing activities the company saw a net cash outflow of €56.6 million for the year ended December 31, 2019, which was primarily related to the repayment of loans and borrowings and the payment of contingent consideration relating to the 2016 acquisition of all North American commercialization rights for our own product RUCONEST® from Valeant. The net cash outflow from financing activities was €18.0 million for the year ended December 31, 2018, primarily due to the repayment of loans and borrowings and interest on these loans and borrowings.

The table below provides selected cash flow information for the nine months ended September 30, 2020 and 2019. Please note that the strong negative exchange rate effects for the first nine months ended September 30 were caused by a significant decrease in the US dollar versus the Euro over the period.

 

     Nine months ended
September 30,
 
     2020      2019  
     (€)      (€)  
     (in thousands)  

Net cash flows generated from (used in) operating activities

     55,326        50,012  

Net cash flows used in investing activities

     (10,155      (22,758

Net cash flows generated from (used in) financing activities

     52,622        (47,334

Exchange rate effects

     (9,297      2,736  

Net change in cash and cash equivalents

     88,496        (17,344

The table below provides selected cash flow information for the years ended December 31, 2019 and 2018:

 

     Years ended December 31,  
     2019      2018  
     (€)      (€)  
     (in thousands)  

Net cash flows generated from (used in) operating activities

     66,504        40,508  

Net cash flows used in investing activities

     (25,217      (3,769

Net cash flows generated from (used in) financing activities

     (56,647      (17,961

Exchange rate effects

     1,348        2,876  

Net change in cash and cash equivalents

     (14,012      21,654  

 

 

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Contractual Commitments

The table below summarizes our contractual undiscounted obligations at December 31, 2019.

 

     Payments due by period  
     2020      2021      2022      2023      2024      Total      Total
2019 - 2023
 
     (€)      (€)      (€)      (€)      (€)      (€)      (€)  
     (in thousands)  

Trade and other payables

     36,247        —          —          —          —          36,247        28,589  

Derivative financial liabilities

     268        —          —          —          —          268        228  

Loans and borrowings

     49,601        —          —          —          —          49,601        90,230  

Other financial liabilities

     17,836        22,322        28        28        28        40,269        56,823  

Lease liabilities

     3,084        2,602        1,778        1,551        1,200        10,215        443  

Total

     107,063        24,924        1,806        1,579        1,228        136,600        176,313  

The principal debt obligations relate to a debt facility with Orbimed Royalty Opportunities II, LP., which has been subsequently repaid.

We have leases commitments for offices in Leiden, the Netherlands for our corporate headquarters and we lease regional offices and laboratory space.

Other liabilities mainly relate to contingent consideration on the acquisition of all North American commercialization rights for its own product RUCONEST® from Valeant.

Off-Balance Sheet Arrangements

At September 30, 2020, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Quantitative and Qualitative Disclosures about Market Risk

Our operations expose us to some financial risks arising from our use of financial instruments, the most significant ones being liquidity, market risk and credit risk. The Board is responsible for our risk management policies and while retaining responsibility for them it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to our finance function. See Note 31 of our Annual Financial Statements for the year ended December 31, 2019.

Measurement of Share-Based Compensation and Long term incentive plans

The Board of Supervisory Directors have granted share options in accordance with the share option plans to certain directors of the company. Share options are valued at fair value at their grant date in accordance with IFRS 2, “Share-based Payment.” The fair value of the share options is calculated using the Black-Scholes model. The costs of these options are recognized in the income statement (share-based compensation) during the vesting period, together with a corresponding increase in equity (other reserves). Share-based payment charges do not affect liabilities or cash flows in the year of expense since all transactions are equity-settled. Pharming’s employee option plan states that an employee is entitled to exercise the vested options within five years after the date of the grant. The period in which the options become unconditional is defined as the vesting period.

For a limited number of board members and officers, performance shares are granted free of charge. A maximum number of predetermined shares vest three years after the grant date, provided that the participant to the long-term incentive plan, or LTIP, is still in service (continued employment condition), with actual shares to be transferred based on the relative achievement of Pharming’s share price compared to a peer group. The maximum number of shares immediately vests upon a change of control. The fair value is determined using Monte Carlo simulation. The costs of the LTIP are recognized in the income statement during the vesting period. The fair value at the grant date includes the market performance condition (relative total shareholder return performance) but excludes the three-year service condition.

 

 

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The table below summarizes the assumptions which were used in the Black-Scholes model to determine the fair value of options at grant date:

 

     2019     2018  

Expected time to maturity (employees)

     1 – 4 years       1 – 4 years  

Expected time to maturity (Board of Management)

     0.7 years       1.3 years  

Volatility (employees)

     54 – 58     53 – 58

Volatility (Board of Management)

     56     0.00

Risk-free interest rate (employees)

     -0.36 – -0.3     -0.25 – -0.20%  

Risk-free interest rate (Board of Management)

     -0.25%       —  

The range of assumptions which were used in the Monte Carlo simulation to determine the fair value of long-term incentive plan share awards at grant date were:

 

     2019     2018  

Volatilities

     56     56

Risk-free interest rates

     -0.21     -0.41

Dividend yields

     0.00     0.00

Measurement of Warrants

All Pharming warrants are essentially the commitment to issue a fixed number of shares for a fixed amount of cash, but the possibility of cashless exercise (where a holder decides to accept fewer shares so as to avoid paying the relevant amount of cash, thus resulting in a number of shares to issued which can vary downward from the original number) requires that such warrants are treated as financial liabilities. As such, these derivative instruments are initially recognized at fair value and subsequently revalued at fair value through profit or loss with changes in the fair value recognized in the statement of income as they arise. The fair value of the warrants has been determined through the Black-Scholes model, applying the following parameters as at December 31, in each year.

Assumptions used in the Black-Scholes model

 

     2019     2018  

Expected time to maturity of warrants in issue

     1.9 years       2.9 years  

Volatility

     58     58

Risk-free interest rate

     (0.30 )%      (0.10 )% 

Critical Accounting Judgments and Estimates

Our financial statements have been prepared in accordance with IFRS as issued by the IASB. In the application of accounting policies, certain judgments, estimates and assumptions about the value of assets and liabilities for which there is no definitive third-party reference were required. The estimates and associated assumptions are based on historical experience and other factors that were considered to be relevant. Actual results may differ from these estimates. These estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revisions and future periods if the revision affects both current and future periods. For a discussion of the estimates and assumptions used by us in the preparation of our financial statements, see Note 2 of our Annual Financial Statements for the year ended December 31, 2019.

Implications of Being an Emerging Growth Company and a Foreign Private Issuer

We qualify as an “emerging growth company,” as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

a requirement to include only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure in the registration statement of which this prospectus forms a part; and

 

 

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an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act.

We may choose to take advantage of some but not all of these reduced burdens, and therefore the information that we provide holders of shares and ADSs may be different from the information you might receive from other public companies in which you hold equity. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies. We currently prepare our consolidated financial statements in accordance with IFRS as issued by the IASB and as a result we are unable to make use of the extended transition period. However, in the event that we convert to accounting principles generally accepted in the United States (which we do not currently intend to do) while we remain an emerging growth company, we have irrevocably elected to opt out of such extended transition period.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest of the following:

 

   

the last day of the first fiscal year in which our annual revenues were at least $1.07 billion;

 

   

the last day of the fiscal year following the fifth anniversary of the effectiveness of the registration statement of which this prospectus forms a part;

 

   

the date on which we have issued more than $1 billion of non-convertible debt securities over a three-year period; and

 

   

the last day of the fiscal year during which we meet the following conditions: (i) the worldwide market value of our common equity securities held by non-affiliates as of our most recently completed second fiscal quarter is at least $700 million, (ii) we have been subject to U.S. public company reporting requirements for at least 12 months and (iii) we have filed at least one annual report as a U.S. public company.

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

 

   

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

 

   

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

 

   

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

In addition, we will not be required to file annual reports and financial statements with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act, and are not required to comply with Regulation FD, which restricts the selective disclosure of material information.

Both foreign private issuers and emerging growth companies are also exempt from certain more stringent executive compensation disclosure rules for U.S. public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Even if we no longer qualify as an emerging growth company, so long as we remain a foreign private issuer, we will continue to be exempt from such compensation disclosures.

 

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BUSINESS

Overview

We are a global, commercial stage biopharmaceutical company developing innovative protein replacement therapies and precision medicines for the treatment of rare diseases and unmet medical needs. The flagship of our portfolio is our recombinant human C1 esterase inhibitor, or rhC1INH, franchise. C1INH is a naturally occurring protein that downregulates the complement cascade in order to control swelling in affected tissues. Our lead product, RUCONEST® is the first and only plasma-free rhC1INH protein replacement therapy. It is approved for the treatment of acute hereditary angioedema, or HAE, attacks. We are commercializing RUCONEST® in the United States, the European Union and the United Kingdom through our own sales and marketing organization, and the rest of the world through our distribution network. We are also developing rhC1INH for subsequent indications, including pre- eclampsia, Acute Kidney Injury and we are also investigating the clinical efficacy of rhC1INH in COVID-19. In addition, we are studying our oral precision medicine, leniolisib (a phosphoinositide 3-kinase delta, or PI3K delta, inhibitor), for the treatment of activated PI3K delta syndrome, or APDS, in a registration enabling Phase 2/3 study in the US and Europe. Furthermore, we are also leveraging our transgenic manufacturing technology to develop next-generation protein replacement therapies most notably for Pompe disease, which is in preclinical stage.

Our Portfolio

The following chart summarizes the status of our product and our main product candidate portfolio.

 

 

LOGO

Our Marketed Product: RUCONEST® for the treatment of acute HAE attacks

Our lead product, RUCONEST® is the first and only rhC1INH protein replacement therapy that is approved for the treatment of acute hereditary angioedema, or HAE, attacks. HAE is a rare genetic condition that occurs in between approximately 1 in 10,000 and 1 in 50,000 people worldwide. In the United States, the market for acute treatment is estimated to be between 7,000 and 8,000 patients for both acute and prophylactic treatment. HAE is caused by a deficiency of the protein C1INH. This deficiency leads to the uncontrolled activation of the complement cascade, resulting in the over-production of some mediators, leading to the leaking of fluid from blood vessels to the tissue space. The most common symptoms of an HAE attack are caused by overproduction of the bradykinin initiator protein, kallikrein, and thus excessive leakage of fluid into tissue spaces (edema or swelling). Patients may suffer bouts of excruciating abdominal pain, nausea and vomiting that is exacerbated by swelling in the intestinal wall. Airway, or laryngeal, swelling is particularly dangerous and can lead to death by asphyxiation. Untreated, attacks can last between 48 and 120 hours and can be fatal.

Our revenues from the sale of RUCONEST® were €169.0 million and €135.1 million for the years ended December 31, 2019 and 2018, respectively, and €134.7 million and €123.4 million for the nine months period ended September 30, 2020 and 2019, respectively. We are currently marketing RUCONEST® in the United States, the United Kingdom and the European Union through our own sales force, and RUCONEST® is being sold in South Korea, Israel and certain Central and South American countries through our distributor network.

 

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RUCONEST® has been shown to normalize C1INH effects in HAE patients. Returning C1INH activity levels to normal has been shown to be clinically relevant in HAE attack treatment. The standard posology for the treatment of HAE attacks is 50 units per kilogram of the reconstituted product. RUCONEST® is administered through a slow intra-venous (IV) injection. One vial contains 2100 U of lyophilized product to be reconstituted with 14ml of water for injection. RUCONEST® irreversibly binds to several target molecules, including, importantly the coagulation factor FXII and the protease kallikrein, which (when unbound) cleaves a plasma protein into bradykinin and other products. By binding to and chemically deactivating these molecules, RUCONEST® stops the production of bradykinin and all other mediators and thereby stops the HAE attack.

We are currently developing a next-generation low-volume formulation of RUCONEST® for intramuscular administration or other routes of administration, to increase convenience of therapy. We have received approval from the EMA for the extension of the RUCONEST® label to include pediatric patients (aged 2-13 years).

RUCONEST® has regulatory exclusivity in the European Union expiring in 2025 and in the United States biologics reference product exclusivity expiring July 16, 2026.

Additional Development Programs for rhC1INH

rhC1INH for the treatment of COVID-19.

We are currently investigating the potential utility of rhC1INH for the treatment of severe pneumonia resulting from COVID-19 infection. In April 2020, we reported results from a compassionate use program at the University Hospital Basel, Switzerland, in which four male patients and one female patient (between 53-82 years of age) with COVID-19, suffering from related severe pneumonia, who did not improve despite standard treatment, including hydroxychloroquine and lopinavir/ritonavir, had been administered rhC1INH. The results from our compassionate use program do not guarantee that rhC1INH will be deemed a safe and effective treatment for COVID-19. Extensive clinical testing will be required before our rhC1INH can be approved for marketing for the treatment of COVID-19. The results of this compassionate use study were published in a peer-reviewed journal (Frontiers in Immunology). The results from our compassionate use program do not guarantee that rhC1INH will be deemed a safe and effective treatment for COVID-19. Extensive clinical testing and regulatory approval will be required before our rhC1INH will be approved for marketing for the treatment of COVID-19, if at all. Based on the results of the compassionate use program, enrollment commenced in a randomized, controlled, investigator-initiated phase 2 clinical trial for treatment with rhC1INH in up to 150 patients with confirmed COVID-19 infections hospitalized with related severe pneumonia at the University Hospital Basel in Basel, Switzerland. We are also in the process of expanding this trial to centers in Mexico and Brazil. This clinical trial will study whether rhC1INH can control or stop the systemic hyperinflammation syndrome or cytokine storm. We are also preparing to commence a clinical trial for rhC1INH for the treatment of severe pneumonia resulting from COVID-19 infection in the United States. An investigational new drug application was submitted to the U.S. FDA by an investigation partner in June and taken over by us in August of 2020.

rhC1INH for the treatment of acute kidney injury resulting from contrast medium.

Acute kidney injury, or AKI, resulting from contrast medium is a form of kidney damage which occurs in stress situations such as when a patient is injected with contrast medium as part of a contrast-enhanced examination, for example a Computed Tomography, or CT, scan. AKI is a serious and expensive complication in the contrast-enhanced examination setting, where patients are often compromised following minor or major cardiac events. When AKI occurs, it can require dialysis and could lead to prolonged hospitalization or intensive care, which can result in poor long-term outcomes for patients and is extremely expensive. An investigator at the University Hospital Basel conducted a Phase 2 investigator-initiated study of rhC1INH in a double-blind, placebo-controlled clinical trial in 80 randomized patients at risk of AKI resulting from contrast-enhanced examinations. Thirty-nine patients were treated with a placebo, and 38 were treated with the product RUCONEST® totaling 77 patients. Three patients did not receive the angiography that was required to take part in the trial. The primary endpoint of the study was urine NGAL peak change within 48 hours. Other secondary endpoints were cystatin C increase within 24 hours and troponin T peak change within 24 hours. The modified Intention To Treat, or mITT, analysis in the overall population revealed a clear trend (P=0.06) in favor of the RUCONEST® treatment. We observed significant results (p=0.001 n=30) in the relative NGAL difference in a subgroup of patients undergoing percutaneous coronary interventions, or PCI, such as stent insertion. Following this outcome, we have completed preparations for our new Phase 2b study of the effects of RUCONEST® in patients undergoing PCI accompanied

 

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by contrast-enhanced examinations. This study was planned for the first half of 2020, but was halted due to COVID-19.

rhC1INH for the treatment of pre-eclampsia.

We are developing a rhC1INH protein replacement therapy for the treatment of pre-eclampsia. Pre-eclampsia is a life-threatening multisystem disorder in pregnancies leading to maternal and neonatal mortality and morbidity, usually first appearing as hypertension and proteinuria. Treatments include termination of the fetus or premature delivery, which is often associated with high rates of mortality. Even if they can be born safely, consequences for the child can be severe, with growth restrictions, learning difficulties and moderate to severe disabilities affecting over half of such newborns. We are currently conducting an open label, single-arm, multi-stage, multi-center Phase 1/2 study in late-stage pre-eclampsia in the Netherlands and Australia. This study was initiated in 2019, but was halted due to COVID-19.

Our Product Candidate Pipeline

Leniolisib for the Treatment of APDS

We are developing our oral therapy, leniolisib (a phosphoinositide 3-kinase delta, or PI3K delta, inhibitor), for the treatment of activated PI3K delta syndrome, or APDS. APDS is caused by a mutation in the PIK3CD gene that increases activity of phosphoinositide-3-kinase delta, a promoter of activity in the immune system. APDS has an estimated prevalence of 1-2 patients per million. Leniolisib is a small molecule inhibitor of the delta isoform of PI3K delta. In our collaboration with Novartis, we are currently studying leniolisib in a double blind placebo controlled randomized, registration-enabling Phase 2/3 trial followed by an open label extension safety trial which is currently enrolling patients in clinical sites in the United States and Europe. The trial is designed to enroll 30 patients with ADPS. To date, leniolisib was well tolerated in healthy subjects as well as the APDS patients during the Phase 1, first in human trial and the ongoing open label extension trial. The study was temporarily halted due to COVID-19, but has resumed. Subject to COVID-19-related delays, data is expected during the second half of 2021, followed by review by regulatory authorities during 2021 and the first half of 2022. If approved, the drug is planned to launch in the second half of 2022.

Next-Generation Enzyme-Replacement Therapies

Enzyme replacement therapies, or ERTs, have been used to treat enzyme-deficiency disorders, such as alpha-glucosidase for Pompe disease. Utilizing our transgenic manufacturing platform technology, rather than traditional ERT manufacturing methods, we are developing ERTs that are designed to be less immunogenic than approved therapies. Our main initial ERT product candidates is alpha-glucosidase for the treatment of Pompe disease.

Our Strengths

Our key strengths include the following:

 

   

Sales growth of RUCONEST®. Sales growth in the United States of RUCONEST® for the treatment of HAE attacks has continued to increase over the last two years. We have also been building our commercial infrastructure to increase sales in our European territories, principally Germany, France and the United Kingdom. These activities have resulted in worldwide sales growth in 2019 of 25.1%, up from €135.1 million in 2018 to €169.0 million in 2019. In the United States, the growth was more marked as product sales grew to €162.7 million ($182.2 million), up 28.5% from €126.6 million ($149.3 million, at a Euro/Dollar exchange rate of 1.1793) in 2018.

 

   

Proven rare-disease commercialization capabilities. We have proven commercialization capabilities in the United States and are now extending our commercialization capabilities from the United Kingdom and certain western European countries to all countries of the European Union. Following re- acquisition of the commercialization rights for RUCONEST® in North America from Bausch Health Inc. in December 2016, we have successfully increased sales of RUCONEST® in the United States from an annual run rate of approximately $30 million to an annual run rate of almost $200 million against fierce competition. We recently re- acquired commercialization rights to RUCONEST® for all remaining countries of the European Union from our former partner SOBI.

 

   

Internal pipeline of product candidates. We are focused on developing our portfolio of product candidates®, expanding rhC1INH clinical development in COVID-19, pre-eclampsia, acute kidney injury and other potential large indications and expanding our pipeline beyond rhC1INH. We are developing a

 

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new low-volume injection version of the full dose of RUCONEST® which can potentially be used for future clinical trials for intravenous, intramuscular or subcutaneous delivery, to improve convenience of therapy. Additionally, we recently enhanced our pipeline through a development collaboration and license agreement that we entered into with Novartis in August 2019 to develop and commercialize leniolisib, a small molecule phosphoinositide 3-kinase delta (PI3K delta) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome, or APDS.

 

   

Transgenic Production Platform Technology. Our unique, scalable, reproducible methodology is a GMP validated process for the production of high-quality recombinant human proteins. The process is supported by clinically proven safety and efficacy data, which demonstrate lower immunogenicity compared with current cell-line or plasma fractionation-based methods. Through our proprietary transgenesis method, we are able to make complex therapeutic proteins which are often difficult to make in other types of bioreactors and which are accepted as human by the body. We have optimized our platform to allow us to generate large quantities of recombinant proteins in a controlled, easily transferrable and scalable fashion.

 

   

Data exclusivity, know-how and intellectual property. Our innovative approach to each and every stage of the process, from concept through to treatment, and our methods are protected by know-how and data exclusivity in Europe until 2025 and in the United States until July 16, 2026. Intellectual property is mainly related to the use of rhC1INH in certain indications.

Our Strategy

Our goal is to be a leading biopharmaceutical company focused on offering treatment options for patients with unmet medical needs, focused on rare diseases. Our three-pillar strategy for achieving our goal is:

 

   

Continuing to grow sales of RUCONEST® through further country launches and increasing acute HAE attack treatment market share. We have fully transitioned commercialization of RUCONEST® in major international markets to our own commercialization organization, including our own sales force. This pertains to the United States, the United Kingdom and the European Union. RUCONEST® is being sold in South Korea, Israel and certain Central and South American countries through our distributor network.

 

   

Expanding indications for rhC1INH and clinical development and commercialization of new recombinant human proteins using our platform technology.

 

     

Developing rhC1INH for additional large unmet indications. We are currently developing rhC1INH for the treatment of several indications with unmet medical need, including severe pneumonia resulting from COVID-19 infection, acute kidney injury and pre-eclampsia.

 

     

Developing next-generation RUCONEST®. We are developing more convenient next-generation forms of RUCONEST® in order to address the needs of patients with HAE. In particular, we are developing a new low-volume injection version of the full dose of RUCONEST® which can be used in future clinical trials for intravenous, intramuscular or subcutaneous delivery to increase convenience of treatment.

 

     

Leverage our transgenic manufacturing technology to develop next-generation protein replacement therapies. We will continue to leverage our transgenic manufacturing technology to develop next-generation protein replacement therapies, such as our product candidate for Pompe disease. We believe protein replacement therapies that are manufactured utilizing our transgenic technology may be less immunogenic than current therapies, which are manufactured using traditional biologic cell-line approaches.

 

   

In-licensing or acquiring drug candidates that are in the late-stages of clinical development and that can potentially leverage the Company’s commercial infrastructure

 

     

Developing leniolisib for the treatment of ADPS. In 2019, we entered into a collaboration with Novartis, pursuant to which we acquired rights to market leniolisib. Leniolisib is currently being studied in a Phase 2/3 clinical trial in patients with ADPS. If the trial is successful, and leniolisib is approved, we will leverage our immunologist-focused sales and marketing infrastructure in the United States, the United Kingdom and the European Union for commercialization.

 

     

Developing or acquiring new programs or companies that can be commercialized using our sales and marketing infrastructure. We intend to continue our search to develop acquire new programs that will be synergistic with our own commercialization organization and its expertise and

 

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experience. We acquired leniolisib from Novartis in 2019 in furtherance of this strategy. We will continue to evaluate additional opportunities to expand our pipeline through acquisitions of complementary programs or companies.

Our Products and Product Candidates

RUCONEST®

Our lead product, RUCONEST® is the first and only rhC1INH protein replacement therapy that is approved for the treatment of acute hereditary angioedema, or HAE, attacks. HAE is a rare genetic condition that occurs in between approximately 1 in 10,000 to 1 in 50,000 people worldwide. In the United States, the market for acute treatment is estimated to be between 7,000 and 8,000 patients for both acute and prophylactic treatment. Our revenues from the sale of RUCONEST® were €169.0 million and €135.1 million for the years ended December 31, 2019 and 2018, respectively, and €134.7 million and €123.4 million for the nine month period ended September 30, 2020 and 2019, respectively.

C1INH Protein Biology

Inside the body, C1INH works by inhibiting the formation of the most important complexes at the top of the complement system and in the contact pathway. The complement system, sometimes known as the complement cascade, is a major component of the immune system, responsible for certain immune-mediated inflammation reactions, including most reactions that cause vascular edema (swelling). Inflammation enables the movement of immune cells through vascular leakage of plasma into tissues that are normally difficult to access. Inflammation also raises the local temperature to activate immune defense mechanisms and inhibit pathogen chemistry. The complement cascade and the contact activation pathway also enhance the ability of antibodies and phagocytic cells (a type of white blood cells) to clear microbes and damaged cells from our bodies, and attack the cell membranes of pathogens.

The complement system can be recruited and brought into action by antibodies and other challenge triggers generated by the adaptive immune system. The complement system consists of a number of complex proteins found in the blood, in general synthesized by the liver, and normally circulating as inactive precursors (pro-proteins). When stimulated by one of several triggers, enzymes called proteases cleave specific proteins to release active fragments called cytokines which initiate an amplifying cascade of further cleavages. The end result of this complement activation cascade is stimulation of the phagocytes to clear foreign and damaged material, inflammation to attract and enable the movement of additional phagocytes, and activation of the cell-killing membrane attack complex.

 

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LOGO

Over 30 proteins and protein fragments make up the complement system, including plasma proteins and specific cell membrane receptors. Once the complement cascade has been triggered, the body also produces a counter-protein, C1INH to start to slow the reaction down. The rate at which the reaction can be slowed down is constant as the body can only produce up to a maximum level of C1INH. This means that serious trigger events can take much longer to resolve than minor ones, because the level of C1INH existing in the plasma, as well as new production can meet the demands of minor releases of cytokines more quickly than major releases.

The most powerful releases of cytokines, sometimes known as “cytokine storms”, can occur so fast that a fatal “shock” reaction or severe damage to organs occurs before the C1INH production can bring the release under control. This dynamic is thought to play an important role in many disease conditions and injury situations, where inflammation or vascular leakage running out of control are responsible for many of the symptoms of those conditions. It can be these resulting symptoms that do the most damage.

rhC1INH may also be useful in the body’s recovery from hypoxic situations, where blood has not been able to circulate properly to bring oxygen to various tissues. The detrimental effects of such hypoxia can be exacerbated upon reperfusion with blood by local activation of the complement cascade caused by the reperfusion itself. In some of these conditions, therefore, there may be a role to play for externally administered C1INH which could act to normalize that situation more quickly, allowing the body to have a less dangerous or more measured response, or to prevent the symptoms entirely. While C1INH is unlikely to cure the underlying problem, this extra supply might allow for the damage caused or even the risk of death to be reduced and/or delayed long enough for the problem to be resolved either naturally or through the intervention of the patient’s physician team.

We have developed the only plasma-free recombinant human C1INH commercial product. Our rhC1NH product has been approved for the treatment of acute HAE attacks, and we and our collaborators are studying rhC1INH for the treatment of other large and unmet indications, including COVID-19, certain acute kidney injuries and pre-eclampsia.

 

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HAE

HAE is a rare genetic disorder in which the patient’s body is unable to manufacture sufficient amounts of a fully functioning version of C1 esterase inhibitor, a protein which is responsible in the body for stopping inflammatory responses to antigen or situation challenges and associated swelling at an appropriate point in the challenge cycles. Abdominal attacks cause abdominal swelling and vomiting, potentially leading to misdiagnosis and unnecessary surgery, and swelling of the skin can lead to disfigurement, disability and pain. Untreated, attacks can last between 48 and 120 hours and can be fatal, especially if the swelling starts at or reaches the throat area. Estimates of the prevalence of the disease vary between 1 in 10,000 and 1 in 50,000, depending on the genetic diversity of the population. Although acute attacks usually begin to be noticed in childhood or adolescence, due to the disorder’s rarity, the condition is often not correctly diagnosed for several years. The condition is stress-related, and there can be considerable variability in the incidence of attacks even within one patient’s year, depending on the stresses they encounter during the year. The frequency of HAE attacks varies between patients, from extreme cases with two to three attacks per week to milder cases with a few attacks per year, with patients experiencing an average of approximately 27 swelling attacks per year.

 

LOGO

The figure above demonstrates the importance of C1INH on the complement cascade, and its significance for HAE

We are currently marketing RUCONEST® in the United States, the United Kingdom, and the European Union through our own internal commercialization organization, and RUCONEST® is being sold in South Korea, Israel and certain Central and South American countries through our distributor network.

Currently, RUCONEST® has regulatory exclusivity in Europe expiring 2025 and in the United States expiring July 16, 2026.

Next-generation RUCONEST®

We are developing a new low-volume injection version of the full dose of RUCONEST® which can be used for clinical trial for intravenous, intramuscular or subcutaneous delivery to improve convenience of treatment.

 

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Subject to approval, the new form of RUCONEST® will be tested in appropriate clinical settings for intramuscular and/or intravenous delivery. We are also exploring additional technologies aimed at painless and or convenient administration. This development program is progressing slower than previously planned, mainly due to high sales demand and patient need for RUCONEST® utilizing existing supplies of rhC1INH, which therefore could not be diverted to validate the new form manufacturing processes and for production of clinical trial materials.

Additional Development Programs for rhC1INH

COVID-19

We are currently developing rhC1INH for the treatment of severe pneumonia resulting from COVID-19 infection. COVID-19 is the disease caused by the novel coronavirus SARS-COV-2, which was declared to be a pandemic by the World Health Organization in March 2020. Systemic hyperinflammation is a hallmark of more severe stages of COVID-19 leading to acute respiratory distress syndrome, mechanical ventilation and ultimately death. We believe that complement activation may lead to a cytokine storm, a dangerous biochemical process that worsens the complications of COVID-19 infection, such as organ failure and death. Because C1INH mediates the complement cascade and inhibits the kallikrein-kinin system, we believe rhC1INH may dampen uncontrolled complement activation and collateral lung damage, reduce capillary leakage and subsequent pulmonary edema and reduce the generation of microthrombi by inhibiting MASP-1 (a human enzyme) induced clot formation and factor XII amplified thrombo-inflammation.

In April 2020, we reported results from a compassionate use program at the University Hospital Basel, Switzerland, in which four male patients and one female patient (between 53-82 years of age) with COVID-19, suffering from related severe pneumonia, who did not improve despite standard treatment, including hydroxychloroquine and lopinavir/ritonavir, had been administered rhC1INH. Following treatment, fever resolved in four of the five patients within 48 hours, and levels of C-reactive protein and the inflammatory cytokine IL-6 decreased significantly. Soon thereafter, four of the five patients were discharged from the hospital as fully recovered. One patient had increased oxygen requirement and was eventually transferred to the ICU for intubation but has also since made a full recovery.

Based on the results of the compassionate use program, enrollment commenced in a randomized, controlled, investigator-initiated clinical trial in up to 150 patients of rhC1INH for the treatment with confirmed COVID-19 infections hospitalized with related severe pneumonia at the University Hospital Basel in Basel, Switzerland. This clinical study in hospitalized patients with COVID-19 seeks to identify if the administration of additional C1 INH can control or stop the systemic hyperinflammation syndrome or cytokine storm. Once results from either an interim analysis or after all patients have been treated, headline data will be made publicly available.

Acute Kidney Injury (AKI)

We are developing a rhC1INH protein replacement therapy for the treatment of acute kidney damage resulting from contrast medium. Acute kidney injury resulting from contrast medium is a form of kidney damage which occurs in stress situations such as when a patient is injected with contrast medium as part of a contrast-enhanced examination, for example a Computed Tomography, or CT, scan. In patients who have impairment of the kidneys prior to such examinations, the difficulty in clearing the injected contrast medium can result in further kidney damage which might be reversible, or which is irreversible and requires permanent dialysis or renal transplantation. AKI is a serious and expensive complication in the contrast-enhanced examination setting, where patients are often compromised following minor or major cardiac events. When AKI occurs, it usually requires dialysis and often leads to prolonged hospitalization or intensive care, which is extremely expensive and often results in poor long-term outcomes for patients, or even death.

Contrast medium injury is responsible for 11% of cases of hospital-acquired renal insufficiency, and is the third most common cause of renal failure after impaired renal perfusion and the use of nephrotic medications. AKI from contrast media is responsible for a third of all hospital-acquired AKI. In addition, AKI affects between 1% and 2% of the general population, and up to 50% of high-risk subgroups following coronary angiography or percutaneous coronary intervention.

In October 2018, we announced positive results from a Phase 2 investigator-initiated study of rhC1INH in a double-blind, placebo-controlled clinical trial in 75 patients at risk of nephropathy resulting from contrast-

 

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enhanced examinations. The study was led by Dr. Michael Osthoff at the University Hospital Basel, Basel, Switzerland. In the study, patients were given either rhC1INH (<84kg: 50 U/kg; >84kg: 4,200 U) or placebo (0.9% sodium chloride). In the sub-group of patients (n=38) undergoing percutaneous coronary interventions, or PCI, such as stent insertions, the intent-to-treat analysis in this group showed that patients on rhC1INH had a median increase in peak urinary Neutrophil Gelatinase-Associated Lipocalin, or NGAL, concentration within 48 hours of 1.8 ng/ml, compared with an increase of 26.2 ng/ml in the placebo arm (p=0.038). As set forth below, this corresponds to a clear difference in the median percentage change in the peak urinary NGAL level within 48 hours of 11.3% in the rhC1INH arm and 205.2% in the placebo arm (p=0.001).

 

LOGO

Following this positive outcome, we have completed preparations for a new Phase 2b study of the effects of RUCONEST® in patients undergoing PCI accompanied by contrast-enhanced examinations. The Phase 2b study will also be initiated by us and led by Dr. Osthoff. This study was planned for the first half of 2020, but was halted due to COVID-19. Subject to COVID-19-related delays, the study is now planned to start in the fourth quarter of 2020.

Pre-eclampsia (PE)

We are developing a rhC1INH protein replacement therapy for the treatment of pre-eclampsia. Pre-eclampsia is a life-threatening multisystem disorder in pregnancies leading to maternal and neonatal mortality and morbidity, usually first detected by hypertension. Proteinuria is a common symptom. Abnormal or impaired spiral artery development between the mother and the fetus may be responsible, which may trigger the complement cascade when these spiral arteries come under stress, especially oxidative stress because of poor blood flow. Treatments include termination of the fetus or very premature birth, which is often associated with very high rates of mortality. Palliative care of the PE-damaged mother and neonatal care of premature babies can drive the costs of pre-eclampsia patients very high. Even if they can be born safely, consequences for the child can be severe, with growth restrictions, learning difficulties and moderate to severe disabilities affecting over half of such newborns.

Almost 2.5 million cases of pre-eclampsia are reported annually, with rates running at between 3% and 10% of all pregnancies in developed countries. In the United States alone, estimated annual cases of pre-eclampsia exceed 120,000. The outcome for both mother and baby can be severe. Each year, 50,000 maternal deaths are recorded for patients who proceed to full-blown eclampsia, while many more are caused by long-term irreversible damage to organs caused by pre-eclampsia while the mother carries her child before birth.

As shown in the table below, a study of C1INH levels in pregnant women have demonstrated that such women have reduced circulating C1INH levels.

 

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Analytical data (mean ±1SD) in normal pregnancy, preeclampsia and in non-pregnant women

 

   

(A)

Normal

pregnancy

(n=20)

 

(B)

Mild

pre-eclampsia

(n=17)

 

(C)

Moderate pre-eclampsia

(n=10)

 

(D)

Non-pregnant women

(n=20)

C1-INH activity (%)   74.3 ± 15.5   64.4 ± 14.0   55.5 ± 15.8   95. ± 10.8
C1-INH antigen (%)   68.2 ± 10.4   62.7 ± 13.3   53.1 ± 8.8   86.5 ± 12.2

We believe that protein replacement therapy with rhC1INH may slow the rate of progress of the condition and thereby reduce the level of damage that it can cause to mother and the unborn baby.

We are conducting an open label, single-arm, multi-stage, multi-center Phase 1/2 study in late-stage pre-eclampsia in the Netherlands and Australia. The study will initially be conducted to assess the tolerability and safety of treatment with RUCONEST® in 30 patients with mid- to late-stage symptomatic PE. This study was initiated in 2019, but was halted due to COVID-19.

Leniolisib for the treatment of Activated Phosphoinositide 3-kinase Delta Syndrome

We are developing our oral precision medicine, leniolisib (a phosphoinositide 3-kinase delta, or PI3K delta, inhibitor), for the treatment of activated PI3K delta syndrome, or APDS. We, in partnership with our collaborator, Novartis, are currently studying leniolisib in a double blind placebo controlled randomized, registration-enabling Phase 2/3 trial followed by an open label extension safety trial which is currently enrolling patients in clinical sites in the United States and Europe.

APDS, is a chronic primary immunodeficiency. Primary immunodeficiencies, or PIDs, lead to immune system dysregulation with numerous complications. More than 300 gene mutations are known to cause PIDs, and the estimated prevalence of PIDs are 1 in 1,200. APDS is caused by a mutation in the PIK3CD gene that increases activity of phosphoinositide-3-kinase delta, a promoter of activity in the immune system APDS has an estimated prevalence of 1-2 patients per million. Such a mutation which increases the activity of a molecule rather than suppressing it is called a gain-of-function mutation. Individuals APDS often have lymphoproliferation and poorly functioning white blood cells, particularly B cells and T cells. Beginning in childhood, people with APDS develop recurrent infections, particularly in the lungs, sinuses, and ears. Over time, recurrent respiratory tract infections can lead to a condition called bronchiectasis, which damages the passages leading from the windpipe to the lungs, or bronchi, and can cause breathing problems. People with APDS may also have chronic active viral infections, commonly Epstein-Barr virus or cytomegalovirus infections. Sufferers also frequently develop lymphomas and other cancers. Another possible feature of activated PI3K delta syndrome is abnormal clumping of white blood cells. These clumps can lead to enlarged lymph nodes, or lymphadenopathy, or the white blood cells can build up to form solid masses, or nodular lymphoid hyperplasia, usually in the moist lining of the airways or intestines. While lymphadenopathy and nodular lymphoid hyperplasia are noncancerous, or benign, activated PI3K delta syndrome also increases the risk of developing a form of cancer called B-cell lymphoma.

 

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Leniolisib is a small molecule inhibitor of the delta isoform of the 110 kilodalton, or kDa, catalytic subunit of class IA PI3K with immunomodulating and potentially antineoplastic activities. Leniolisib inhibits the production of phosphatidylinositol-3-4-5-trisphosphate, or PIP3. PIP3 serves as an important cellular messenger specifically activating the protein-serine/threonine kinase AKT (via PDK1) and regulates a multitude of cell functions such as proliferation, differentiation, cytokine production, cell survival, angiogenesis, and metabolism. Unlike PI3K alpha and PI3K beta which are ubiquitously expressed, PI3K delta and PI3K gamma are expressed primarily in cells that are hematopoietic in origin. The central role of PI3K delta in regulating numerous functions of cells of the adaptive immune system (B cells and T cells) as well as the innate immune system (neutrophil, mast cells, and macrophages) strongly indicates the PI3K delta is a valid and potentially effective therapeutic target for several immune diseases.

 

LOGO

We, in partnership with our collaborator Novartis, are currently studying leniolisib to assess the efficacy and safety of leniolisib in patients with APDS. The study, a phase 2/3 potentially registration enabling study is composed of 2 sequential parts, the first part including 6 patients was an open-label dose escalation study that was designed to assess the safety, tolerability, pharmakodynamics and pharmacokinetics of leniolisib, a dose-finding study that has since completed. The second part is a randomized, blinded, placebo-controlled study that that includes 30 additional patients and is designed to assess the efficacy of leniolisib in APDS patients. (NCT: NCT02435173) The co-primary endpoints of the second part of the study are (i) change in the size of lesions from baseline and (ii) change in baseline in percentage f naive B cells out of total B cells.

The first part of the phase 2/3 clinical trial with 6 APDS patients was conducted as a 12-week, open-label, multisite, within-subject, dose-escalation study of oral leniolisib to assess safety, pharmacokinetics, and effects on lymphoproliferation andimmune dysregulation. Oral leniolisib led to a dose-dependent reduction in PI3K/AKT pathway activity assessed ex vivo and improved immune dysregulation. We observed normalization of circulating transitional and naive B-cells, reduction in PD-11CD41 and senescent CD571CD42 T cells and decreases in elevated serum immunoglobulin M and inflammatory markers including interferon g, tumor necrosis factor, CXCL13, and CXCL10 with leniolisib therapy. After 12 weeks of treatment, all patients showed amelioration of lymphoproliferation with lymph node sizes and spleen volumes reduced by 39% (mean; range, 26%-57%) and 40% (mean; range, 13%- 65%), respectively. Leniolisib tolerated well and improved laboratory and clinical parameters in APDS, supporting the specific inhibition of PI3Kd as a potential therapy in APDS and other diseases characterized by overactivation of the PI3Kd pathway. (Blood, 23 November 2017 – Volume 130, Number 21.)

Previous to the ongoing phase 2/3 study, five clinical studies, 3 in healthy volunteer studies and 2 in-patient studies have been conducted. As of June 26, 2020, 238 healthy subjects have been investigated, 168 had received leniolisib and 70 had received placebo. Single doses of leniolisib up to 400 mg and multiple doses up to 140 mg bid for 14 days have been administered to 168 subjects and were assessed to have been well tolerated. Across the entire clinical development one SAR case of skin rash has occurred (in a patient with Primary Sjögren`s syndrome “pSS”) during clinical development of leniolisb thus far, there were n=15 other cases of

 

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leniolisb-related skin rash adverse events of lower intensity. These were observed both in healthy subject studies (n=5) and in the study investigating patients with pSS (n=10). In all of these cases skin rash was suspected to be related to leniolisib. Furthermore, skin rash is a known class effect of PI3Kd inhibitors.

This study was temporarily halted due to COVID-19 but has since resumed. Subject to COVID-19-related delays, data is expected during the second half of 2021, followed by review by regulatory authorities during the first half of 2022. If approved, the drug is planned to launch in the second half of 2022.

Next-Generation Enzyme Replacement Therapies

Alpha-Glucosidase, for the treatment of Pompe Disease

We are developing a next-generation alpha-glucosidase replacement therapy for the treatment of Pompe disease. Pompe disease, also known as Acid Maltase Deficiency or Glycogen Storage Disease type II, is an inherited muscular myopathy disorder caused by the build-up of a complex sugar called glycogen in the body’s cells. It affects around 1 in 40,000 people in general, varying within different ethnic groups. Pompe disease is a rare multisystem genetic disorder that is characterized by absence or deficiency of the lysosomal enzyme alpha-glucosidase, or GAA. This enzyme is required to break down, or metabolize, the complex carbohydrate glycogen and convert it into the simple sugar glucose. Glycogen is a thick, sticky substance and failure to achieve proper breakdown results in massive accumulation of lysosomal glycogen in cells, particularly in cardiac, smooth, and skeletal muscle cells.

Pompe disease is a single-disease continuum with variable rates of disease progression and different ages of onset. The infantile form is characterized by severe muscle weakness and abnormally diminished muscle tone, or hypotonia, without muscle wasting, and usually manifests within the first few months of life. Additional abnormalities may include enlargement of the heart, or cardiomegaly, the liver, or hepatomegaly, and/or the tongue, or macroglossia. Without treatment, progressive cardiac failure usually causes life-threatening complications by the age of 12 to 18 months. Pompe disease can also present in childhood, adolescence or adulthood, collectively known as late-onset Pompe disease. The extent of organ involvement may vary among affected individuals, but skeletal muscle weakness is usually present with minimal cardiac involvement. Initial symptoms of late-onset Pompe disease may be subtle and may go unrecognized for years.

We are currently studying our alpha-glucosidase therapy in IND-enabling studies.

Competition

The life sciences industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing products and new products that may become available in the future. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs.

Companies that complete clinical trials, obtain required regulatory authority approvals and commence commercial sale of their drugs before their competitors may achieve a significant competitive advantage, and our commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop and commercialize. Our competitors may also obtain FDA, EMA or other regulatory approval for their products more rapidly than we obtain approval, which could result in our competitors establishing a strong market position for either the product or a specific indication before we are able to enter the market. Drugs resulting from our research and development efforts or from our joint efforts with collaboration partners therefore may not be commercially competitive with our competitors’ existing products or products under development.

We consider several companies to be our current and future competitors in the HAE space, including, but not limited to, BioCryst, Kalvista, CSL Behring, and Takeda. However, other companies may also develop alternative treatments for the diseases we have identified as being potentially treated with rhC1INH. To the extent those alternative treatments are more efficacious, less expensive, more convenient or produce fewer side effects, our market opportunity would be reduced.

 

 

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With regards to competition for leniolisib. We are currently not aware of any continuing development programs with regards to APDS, however, as several programs were halted in early stage of development, these could be re- started at any time and may deliver products that, if efficacious and safe, could compete successfully against leniolisib and may significantly reduce our future market opportunity.

We anticipate that we will face intense and increasing competition as new products and therapies enter the market and advanced technologies become available in both the HAE space and in upcoming pipeline projects. We expect any treatments that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, delivery, patient friendliness, price and the availability of reimbursement from government and other third-party payors.

Manufacturing

Our Transgenic Production Technology Platform

Our proprietary transgenic manufacturing technology platform is the foundation upon which we have built our company. We have developed a unique, scalable, reproducible, current Good Manufacturing, or cGMP, validated methodology for the production of high-quality recombinant human proteins. Our manufacturing process utilizes transgenic animals to produce human recombinant proteins in their milk. This process enables the production of the protein in the milk of the animals without the animals suffering or being altered in other aspects of their biology. We are leveraging this process to manufacture RUCONEST®, as well as clinical trial supplies for our rhC1INH and other protein replacement therapy product candidates.

Our Manufacturing Facilities

Once the animal lines (rabbits and cattle) are produced, we raise them at specialized facilities that incorporate protections against contamination of their environment, high standards of animal husbandry, and security. In these facilities the consistent and regulated handling of animals is carefully monitored. The resulting milk goes through several stage of cGMP processes. The “downstream” processes includes the purification, involving standard technologies such as various chromatography and filtration steps, followed by formulation and sterile filling into lyophilized powder product in vials ready for reconstitution. As the demand for RUCONEST® and the needs of our clinical trials continue to increase, we have and continue to invest substantially in expanding all of these capabilities. We have entered into downstream manufacturing and supply agreements with, among others, Sanofi and BioConnection for the production of rhC1INH, the drug substance of RUCONEST®. We are also in the process of developing additional upstream manufacturing facilities of our own and have also initiated the design stage for the construction of our first purification plant. In the future, if successful with development of any of the subsequent indications for rhC1INH, additional facilities may have to be built or rented and we may also have to contract additional (downstream) purification capacity beyond that. As we continue to expand the capacity and range of products, it is uncertain whether and to what extent we will be able to develop such capabilities or enter into such partnerships or agreements on a timely basis and on acceptable terms. Even if a partnership or agreement has been concluded, the possibility exists that these partners fail to live up to the agreements made with them or that we are unable to maintain such agreements. A failure to develop and/or sufficiently contract additional manufacturing capacity on a timely basis could have significant detrimental consequences for our business, financial position, results of operations, prospects and as result of that may also have a negative effect on the market price of our shares.

Intellectual Property

Patents

Patents, know how, trade secrets and other intellectual property rights are important to the success of our business. We use patents and licensing to protect our products and technology and are careful to develop products that don’t infringe on the intellectual property rights of third parties. Currently, we have several patent applications granted and pending in jurisdictions including the United States, Europe and Japan. The patent positions of pharmaceutical companies can be uncertain and may involve complex legal and factual questions.

It is uncertain whether pending patent applications will be successful, that these patents will afford adequate protection and that the existing patents will not be challenged. Failure to obtain patents may result in expensive and protracted proceedings to defend our proprietary rights.

The success of our company also depends, in part, on the ability of our licensors to obtain, maintain and enforce their intellectual property rights to the extent required for us to develop and commercialize our products.

 

 

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We actively seek to protect the intellectual property and proprietary technology that we believe is important to our business, including seeking, maintaining, enforcing and defending patent rights and protecting our related know-how for our technology platform and related therapeutics and processes, whether developed internally or licensed to or from third parties. Our success will depend on our ability to obtain and maintain patent and other protections including data/market exclusivity for our product candidates and platform technology, preserve the confidentiality of our know-how and operate without infringing the valid and enforceable patents and proprietary rights of third parties. See the “Risk Factors – Risks Related to Intellectual Property” section of this prospectus.

Our policy is to seek to protect our proprietary position early, generally by filing an initial priority filing in the European Patent Office. This is followed by the filing of an international patent application under the Patent Cooperation Treaty, or PCT, claiming priority from the initial application(s) and then filing regional and national applications for patent grant in territories including, for example, the United States and Europe. In each case, we determine the strategy and territories required after discussion with our patent attorneys, and, where applicable, collaboration partners so that we obtain relevant coverage in territories that are commercially important to our technologies and product candidates. With respect to our product candidates and related methods that we intend to develop and commercialize in the normal course of business, we will seek patent protection covering formulation, the indicated use, and the method of administration. We may also pursue patent protection with respect to manufacturing and drug development processes when possible. We intend to additionally rely on data exclusivity, market exclusivity, other regulatory exclusivities and patent term extensions when available. We also rely on trade secrets and know-how relating to our underlying platform technology and product candidates. In each case, we seek to balance the value of patent protection against the advantage of keeping know-how confidential.

Issued patents can provide exclusivity on claimed subject matter for varying periods of time, typically starting on the date of patent grant and expiring at the end of the legal term of a patent in the country in which it is granted. From the date of filing, provisional protection is present to the scope of the later granted claims. In general, patents provide exclusionary rights for 20 years from the filing date of a non-provisional patent application in a particular country, or for a PCT international patent application, from the international filing date, assuming all maintenance fees are paid. In some instances, patent terms may be increased or decreased, depending on the laws and regulations of the country or jurisdiction that grants the patent. In the United States, a patent term may be shortened if a patent is terminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee. A U.S. patent’s term may be lengthened by a patent term adjustment which compensates a patentee for administrative delays by the USPTO in granting a patent. The patent term of a European patent is 20 years from its filing date, which, unlike in the United States, is not subject to patent term adjustments in the same way as U.S. patents. When using a priority filing, the priority year can be added to the patent term of 20 years from the filing; the patent term may thus be 21 years from the priority date.

The level of protection afforded by a patent may vary and depends upon many factors, including the type of patent, the scope of its claim coverage, claim interpretation and patent law in the country or region that granted the patent, the validity and enforceability of the patent under such laws, and the availability of legal remedies in each particular country.

In certain regions or countries, regulatory-related patent extensions may be available to extend the term of a patent that claims an approved product or method. Regulatory-based patent term extensions allow patentee to recapture a portion of patent term effectively lost as a result of the regulatory review period for a product candidate. The term of a United States patent that covers an FDA-approved drug or biologic, for example, may be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions are available in Europe, Japan and other jurisdictions to extend the term of a patent that covers an approved drug, for example Supplementary Protection Certificates in Europe. In particular, a maximum of five and a half years of supplementary protection can be achieved in Europe for an active ingredient or combinations of active ingredients of a medicinal product protected by a basic patent, if a valid marketing authorization exists (which must be the first authorization to place the product on the market as a medicinal product) and if the product has not already been the subject of supplementary protection. In the future, if and when our additional products receive FDA approval, we expect to apply for regulatory patent term extensions on patents covering those products. We anticipate that some of our issued patents may be eligible for patent term extensions in certain

 

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jurisdictions based on an approved product or method, but such extensions may not be available and therefore its commercial monopoly may be restricted solely to patent term.

As of September 30, 2020, we solely owned 147 granted patents, of which 8 are U.S.-issued, and 33 pending patent applications, of which 2 are U.S. pending patent applications. Commercially or strategically important non-U.S. jurisdictions in which we hold issued or pending patent applications include (in addition to Europe): the United Kingdom, China, Japan, Canada, Israel, Australia and New Zealand. We also have exclusive license to 211 patents and patent applications from Novartis related to leniolisib.

Our granted patents and pending patent applications include the making of C1INH in the milk of transgenic mammals. In addition, our pending patent applications also include claims for the use of C1INH in pre-eclampsia.

Our current patent application family directed to C1INH in the milk of transgenic mammals expires in 2026 in the United States by patent term extension; the regular expiry dates in the rest of the world is 2021; in Europe there is patent term extension until 2025 in some countries. Our current patent families covering use of C1INH in pre-eclampsia, if and when granted, would not be expected to expire until at least 2039.

Trademarks

We currently have registered trademarks in the EU, the United States and key international markets we intend to focus on for our company name “Pharming” with the associated logo, as well as on “RUCONEST®” with its associated logo. We have obtained trademark protection for other marks, including ones for potential names of certain products in development. With the assistance of outside counsel we regularly assess which marks we should register and where, and we have effective systems to ensure that renewals are timely filed. We also maintain watch services and ensure that our marks are not being infringed internationally.

Material Agreements

Novartis Development Collaboration and License Agreement

On August 12, 2019, we entered into a License Agreement, or the Novartis License Agreement, with Novartis International Pharmaceutical AG, or Novartis, pursuant to which Novartis granted to us an exclusive license to develop and commercialize leniolisib (CDZ173), a small molecule phosphoinositide 3-kinase delta (PI3Kd) inhibitor being developed by Novartis to treat patients with Activated Phosphoinositide 3-kinase Delta Syndrome, or APDS. Under the terms of the agreement, the license is exclusive even as to Novartis and its affiliates, and we are permitted to sublicense the exclusive license, pursuant to the terms of the agreement. Effective May 8, 2020, Novartis International Pharmaceutical AG merged into Novartis Pharma AG. As a result, all assets and liabilities of Novartis International Pharmaceutical AG, including the Novartis License Agreement, became assets and liabilities of Novartis Pharma AG.

Under the terms of the Novartis License Agreement, we made an upfront payment of $20 million to Novartis in August 2019. Novartis has completed all the preclinical and clinical work to date and will continue to run the ongoing registration-enabling trial and the ongoing open label extension study. We are working alongside Novartis to complete enrollment of the ongoing registration enabling trial. If approved, we will plan to commercialize leniolisib through our existing commercial infrastructure in the United States and Europe and expect to look for ways to make the drug available in other markets worldwide. Pursuant to the agreement, we agreed to make certain milestone payments to Novartis in an aggregate amount of up to $200 million upon (i) the completion of certain regulatory milestones and (ii) the achievement of certain leniolisib sales milestones. We also agreed to make tiered royalty payments to Novartis, calculated as low double-digit to high-teen percentage of net sales of leniolisib.

The agreement will terminate on a licensed product-by-licensed product and country-by-country basis upon the expiration of the royalty term for such licensed product in such country, and will terminate in its entirety upon the expiration of the royalty term with respect to the last licensed product then being developed, manufactured or commercialized in all countries of the territory. The royalty term ends on the last to occur of (i) the expiration of the last to expire valid claim of the licensed patents that covers such licensed product in such country; (ii) the expiration of any regulatory exclusivity for such licensed product in such country; or (iii) the ten (10) year anniversary of the first commercial sale of the licensed product in such country. Either party may terminate the agreement upon a material breach by the other party that is not cured within a specified period after receiving written notice. We have the right to terminate the agreement for any reason upon specified prior written notice to Novartis.

 

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Valeant Asset Purchase Agreement Agreement

On August 9, 2016, we entered into an Asset Purchase Agreement with Salix Pharmaceuticals, Inc., Santarus, Inc., Valeant Pharmaceuticals Luxembourg S.a r.l., Valeant Pharmaceuticals North America LLC and Pharming Americas B.V.. Salix Pharmaceuticals, Inc., Santarus, Inc., Valeant Pharmaceuticals Luxembourg S.a r.l. and Valeant Pharmaceuticals North America LLC are referred to as Sellers. Pursuant to the Asset Purchase Agreement, we acquired all North American commercialisation rights for our own product RUCONEST® from the Sellers. Bausch Health Companies Inc. (formerly Valeant Pharmaceuticals International, Inc.) Valeant Pharmaceuticals International, Inc., the parent company of the Sellers, changed its name in 2018 to Bausch Health Companies, Inc. after it acquired Bausch & Lomb.

Under the terms of the Asset Purchase Agreement, we have paid an upfront amount of US$60 million and agreed to pay future amounts up to a further US$65 million based on achievement of sales milestones, of which $40 million have already been paid. In the fourth quarter of 2019, we achieved the sales level which triggered the second US$20 million milestone payment to Bausch Health Companies Inc., which was paid in February 2020. If sales growth continues at or near the current level, there is an increasing likelihood that the final US$25 million will be triggered in a future quarter and paid in 2021 or beyond.

Sales and Marketing

We currently employ sales and marketing teams in the United States, countries of the European Union and United Kingdom. In addition, we utilize commercialization partners for the sale of RUCONEST® in South Korea, Israel and certain parts of Central and South America.

Government Regulation and Product Approval

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and non-U.S. statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the drug development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve a pending NDA or BLA, withdrawal of an approval, imposition of a clinical hold, issuance of warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

The process required by the FDA before a drug may be marketed in the United States generally involves:

 

   

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;

 

   

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

 

   

approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated;

 

   

performance of adequate and well-controlled clinical trials, in accordance with good clinical practice, or GCP, requirements to establish the safety and efficacy of the proposed drug for each indication;

 

   

payment of user fees;

 

   

submission to the FDA of an NDA or BLA;

 

   

satisfactory completion of an FDA advisory committee review, if applicable; satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP requirements, and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;

 

   

satisfactory completion of an FDA inspection of selected clinical sites to assure compliance with GCPs and the integrity of the clinical data; and

 

   

FDA review and approval of the NDA or BLA.

 

 

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Preclinical Studies

Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must continue to oversee the clinical trial while it is being conducted.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined. In Phase 1, the drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an initial indication of its effectiveness. In Phase 2, the drug typically is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. In Phase 3, the drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the safety and efficacy of the product for approval, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product.

Progress reports detailing the results of the clinical trials must be submitted, at least annually, to the FDA, and more frequently if SAEs occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements, or if the drug has been associated with unexpected serious harm to patients.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA or BLA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA or BLA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA or BLA for a new molecular entity, respectively biological entity, review and act on the submission. This review typically takes twelve months from the date the NDA or BLA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision.

In addition, under the Pediatric Research Equity Act, certain NDAs, BLAs or supplements to an NDA or BLA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

 

 

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The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs or BLAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA or BLA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA or BLA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCP requirements.

The testing and approval process for an NDA or BLA requires substantial time, effort and financial resources, and takes several years to complete. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval of an NDA or BLA on a timely basis, or at all.

After evaluating the NDA or BLA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA or BLA and may require additional clinical or preclinical testing in order for FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000, there is no reasonable expectation that sales of the drug in the United States will be sufficient to offset the costs of developing and making the drug available in the United States. Orphan drug designation must be requested before submitting an NDA or BLA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If the FDA approves a sponsor’s marketing application for a designated orphan drug for use in the rare disease or condition for which it was designated, the sponsor is eligible for a seven-year period of marketing exclusivity,

 

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during which the FDA may not approve another sponsor’s marketing application for a drug with the same active moiety and intended for the same use or indication as the approved orphan drug, except in limited circumstances, such as if a subsequent sponsor demonstrates its product is clinically superior. During a sponsor’s orphan drug exclusivity period, competitors, however, may receive approval for drugs with different active moieties for the same indication as the approved orphan drug, or for drugs with the same active moiety as the approved orphan drug, but for different indications. Orphan drug exclusivity could block the approval of one of our products for seven years if a competitor obtains approval for a drug with the same active moiety intended for the same indication before we do, unless we are able to demonstrate that grounds for withdrawal of the orphan drug exclusivity exist, or that our product is clinically superior. Further, if a designated orphan drug receives marketing approval for an indication broader than the rare disease or condition for which it received orphan drug designation, it may not be entitled to exclusivity.

Post-approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications, manufacturing changes or other labeling claims, are subject to further testing requirements and prior FDA review and approval. There also are continuing annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as application fees for supplemental applications with clinical data.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market.

Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

 

   

restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

 

   

fines, warning letters or holds on post-approval clinical trials;

 

   

refusal of the FDA to approve pending NDAs, BLAs or supplements to approved NDAs, BLAs, or suspension or revocation of product approvals;

 

   

product seizure or detention, or refusal to permit the import or export of products; or

 

   

injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label, although physicians, in the practice of medicine, may prescribe approved drugs for unapproved indications. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

 

 

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In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Federal and State Fraud and Abuse, Data Privacy and Security, and Transparency Laws and Regulations

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws and regulations restrict business practices in the biopharmaceutical industry. These laws may impact, among other things, our current and future business operations, including our clinical research activities, and sales, marketing and education programs and constrain the business or financial arrangements and relationships with healthcare providers and other parties through which we market, sell and distribute RUCONEST® and other products for which we obtain marketing approval. These laws include anti-kickback and false claims laws and regulations, data privacy and security, and transparency laws and regulations, including, without limitation, those laws described below.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting some common activities from prosecution, the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated.

A person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act or the civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

Federal false claims laws, including the federal civil False Claims Act, prohibits any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Additionally, pharmaceutical and other companies also have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved, and thus non-reimbursable, uses.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, imposes specified requirements on certain types of individuals and entities, including covered entities (health plans, health

 

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clearinghouses, and certain healthcare providers) and their business associates and their subcontractors relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which are not pre-empted by HIPAA, differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the CMS information related to payments or other transfers of value made to physicians, as defined by such law, and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and investment interests held by the physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its relationships with physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives during the previous year.

We may also be subject to state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, as well as state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Additionally, certain state and local laws require the registration of pharmaceutical sales representatives.

Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

Coverage and Reimbursement

The future commercial success of RUCONEST®, and our product candidates or any of our collaborators’ ability to commercialize any approved product candidates successfully will depend in part on the extent to which governmental payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers and other third-party payors provide coverage for and establish adequate reimbursement levels for our product candidates. Government health administration authorities, private health insurers and other organizations generally decide which drugs they will pay for and establish reimbursement levels for healthcare. In particular, in the United States, private health insurers and other third-party payors often provide reimbursement for products and services based on the level at which the government, through the Medicare or Medicaid programs, provides reimbursement for such treatments. In the United States, the European Union, or EU, and other potentially significant markets for our product candidates, government authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which often has resulted in average selling prices lower than they would otherwise be. Further, the increased emphasis on managed healthcare in the United States will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and

 

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laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical coverage and reimbursement policies and pricing in general.

Third-party payors are increasingly imposing additional requirements and restrictions on coverage and limiting reimbursement levels for medical products. For example, federal and state governments reimburse covered prescription drugs at varying rates generally below average wholesale price. These restrictions and limitations influence the purchase of healthcare services and products. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug development. Additionally, coverage policies and third-party reimbursement rates may change at any time. Therefore, even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future. Legislative proposals to reform healthcare or reduce costs under government insurance programs may result in lower reimbursement for RUCONEST® and product candidates or exclusion of RUCONEST® or our product candidates from coverage. The cost containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduce our revenues from the sale of any approved product candidates. We cannot provide any assurances that we will be able to obtain and maintain third-party coverage or adequate reimbursement for RUCONEST® and our product candidates in whole or in part.

There have been several U.S. government initiatives over the past few years to fund and incentivize certain comparative effectiveness research, including creation of the Patient-Centered Outcomes Research Institute under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider RUCONEST® or our product candidates, once approved, to be cost-effective compared to other available therapies, they may not cover such products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product on a profitable basis.

In addition, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Further, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products paid by consumers. The Department of Health and Human Services, or HHS, has solicited feedback on some of these measures and has implemented others under its existing authority. On July 24, 2020, the Trump administration announced four executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals, including a policy that would tie Medicare Part B drug prices to international drug prices; one that directs HHS to finalize the Canadian drug importation proposed rule previously issued by HHS and makes other changes allowing for personal importation of drugs from Canada; one that directs HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for discounts for plans, pharmacies, and pharmaceutical benefit managers; and one that reduces costs of insulin and epipens to patients of federally qualified health centers. While some of these and other measures may require additional authorization to become effective, Congress and the Trump administration have each indicated

 

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that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. These and other healthcare reform initiatives may result in additional reductions in Medicare and other healthcare funding. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic. For example, on August 6, 2020, the Trump administration issued another executive order that instructs the federal government to develop a list of “essential” medicines and then buy them and other medical supplies from U.S. manufacturers instead of from companies around the world, including China. The order is meant to reduce regulatory barriers to domestic pharmaceutical manufacturing and catalyze manufacturing technologies needed to keep drug prices low and the production of drug products in the United States.

Foreign Corrupt Practices Act, Dutch anti- bribery laws and Other Laws

The FCPA prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts.

Our operations are also subject to non-U.S. anti-corruption laws such as Dutch anti-bribery laws as contained in the Dutch Criminal Code (Wetboek van Strafrecht). These laws generally prohibit companies and persons (including us and our employees) and intermediaries from offering, providing, requesting or accepting, directly or indirectly, a gift promise or service, or anything else of value, to or from domestic or foreign government officials or to or from other persons employed or acting as an agent in relation to an act or omission to be committed or having been committed in the official’s office or, as it concerns other persons employed or agents, in violation of the other person’s duty.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the Netherlands and the United States and authorities in the European Union, including, for example, applicable export control regulations, trade and economic sanctions and embargoes on certain countries, persons, groups, entities, projects or activities, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as trade control laws.

Failure to comply with the FCPA, Dutch anti-bribery laws and other anti-corruption laws and trade control laws could subject us and others involved to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses.

Review and Approval of New Drug Products in the European Union

In the European Union, medicinal products, including advanced therapy medicinal products, or ATMPs, are subject to extensive pre- and post-market regulation by regulatory authorities at both the European Union and national levels. ATMPs comprise gene therapy products, somatic-cell therapy products and tissue engineered products, which are cells or tissues that have undergone substantial manipulation and that are administered to human beings in order to regenerate, repair or replace a human tissue. RUCONEST® is regulated as ATMPs in the European Union. There is legislation at a European Union level relating to the standards of quality and safety for the collection and testing of human blood and blood components for use in cell-based therapies, which could apply to our products. Additionally, there may be local legislation in various European Union Member States, which may be more restrictive than the European Union legislation, and we would need to comply with such legislation to the extent it applies.

Clinical Trials

Clinical trials of medicinal products in the European Union must be conducted in accordance with European Union and national regulations and the International Conference on Harmonization, or ICH, guidelines on Good Clinical Practices, or GCP. Additional GCP guidelines from the European Commission, focusing in particular on

 

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traceability, apply to clinical trials of ATMPs. The sponsor must take out a clinical trial insurance policy, and in most European Union countries, the sponsor is liable to provide “no fault” compensation to any study subject injured in the clinical trial.

Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent authority, and a positive opinion from an independent ethics committee. The application for a clinical trial authorization must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. Currently, clinical trial authorization applications must be submitted to the competent authority in each EU Member State in which the trial will be conducted. Under the new Regulation on Clinical Trials, which is currently expected to take effect in 2021, there will be a centralized application procedure where one national authority takes the lead in reviewing the application and the other national authorities have only a limited involvement. Any substantial changes to the trial protocol or other information submitted with the clinical trial applications must be notified to or approved by the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with cGMP. Other national and European Union-wide regulatory requirements also apply.

During the development of a medicinal product, the EMA and national medicines regulators within the European Union provide the opportunity for dialogue and guidance on the development program. At the EMA level, this is usually done in the form of scientific advice, which is given by the Scientific Advice Working Party of the Committee for Medicinal Products for Human Use, or CHMP. A fee is incurred with each scientific advice procedure. Advice from the EMA is typically provided based on questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical studies, and pharmacovigilance (also known as drugs safety) plans and risk-management programs. Given the current stage of the development of our product candidates, we have not yet sought any such advice from the EMA. However, to the extent that we do obtain such scientific advice in the future, such advice will, in accordance with the EMA’s policy, be not legally binding with regard to any future marketing authorization application of the product concerned.

Marketing Authorizations

In order to market a new medicinal product in the European Union, a company must submit and obtain approval from regulators of a marketing authorization application, or MAA. The process for doing this depends, among other things, on the nature of the medicinal product.

The centralized procedure results in a single marketing authorization, or MA, granted by the European Commission that is valid across the EEA (i.e., the European Union as well as Iceland, Liechtenstein and Norway). The centralized procedure is compulsory for human drugs that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions, and viral diseases, (iii) officially designated orphan medicines and (iv) advanced-therapy medicines, such as gene therapy, somatic cell therapy or tissue-engineered medicines. The centralized procedure may at the request of the applicant also be used in certain other cases. Therefore, the centralized procedure would be mandatory for the products we are developing.

The Committee for Advanced Therapies, or CAT, is responsible in conjunction with the CHMP for the evaluation of ATMPs. The CAT is primarily responsible for the scientific evaluation of ATMPs and prepares a draft opinion on the quality, safety and efficacy of each ATMP for which a marketing authorization application is submitted. The CAT’s opinion is then taken into account by the CHMP when giving its final recommendation regarding the authorization of a product in view of the balance of benefits and risks identified. Although the CAT’s draft opinion is submitted to the CHMP for final approval, the CHMP may depart from the draft opinion, if it provides detailed scientific justification. The CHMP and CAT are also responsible for providing guidelines on ATMPs and have published numerous guidelines, including specific guidelines on gene therapies and cell therapies. These guidelines provide additional guidance on the factors that the EMA will consider in relation to the development and evaluation of ATMPs and include, among other things, the preclinical studies required to characterize ATMPs; the manufacturing and control information that should be submitted in a marketing authorization application; and post-approval measures required to monitor patients and evaluate the long term efficacy and potential adverse reactions of ATMPs. Although these guidelines are not legally binding, we believe that our compliance with them is likely necessary to gain and maintain approval for any of our product candidates.

 

 

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Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA by the EMA is 210 days. This excludes so-called clock stops, during which additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP. At the end of the review period, the CHMP provides an opinion to the European Commission. If this is opinion favorable, the Commission may then adopt a decision to grant an MA. In exceptional cases, the CHMP might perform an accelerated review of an MAA in no more than 150 days. This is usually when the product is of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation.

The European Commission may grant a so-called “marketing authorization under exceptional circumstances”. Such authorization is intended for products for which the applicant can demonstrate that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use, because the indications for which the product in question is intended are encountered so rarely that the applicant cannot reasonably be expected to provide comprehensive evidence, or in the present state of scientific knowledge, comprehensive information cannot be provided, or it would be contrary to generally accepted principles of medical ethics to collect such information. Consequently, marketing authorization under exceptional circumstances may be granted subject to certain specific obligations, which may include the following:

 

   

the applicant must complete an identified program of studies within a time period specified by the competent authority, the results of which form the basis of a reassessment of the benefit/risk profile;

 

   

the medicinal product in question may be supplied on medical prescription only and may in certain cases be administered only under strict medical supervision, possibly in a hospital and in the case of a radiopharmaceutical, by an authorized person; and

 

   

the package leaflet and any medical information must draw the attention of the medical practitioner to the fact that the particulars available concerning the medicinal product in question are as yet inadequate in certain specified respects.

A marketing authorization under exceptional circumstances is subject to annual review to reassess the risk-benefit balance in an annual reassessment procedure. Continuation of the authorization is linked to the annual reassessment and a negative assessment could potentially result in the marketing authorization being suspended or revoked. The renewal of a marketing authorization of a medicinal product under exceptional circumstances, however, follows the same rules as a “normal” marketing authorization. Thus, a marketing authorization under exceptional circumstances is granted for an initial five years, after which the authorization will become valid indefinitely, unless the EMA decides that safety grounds merit one additional five-year renewal.

The European Commission may also grant a so-called “conditional marketing authorization” prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional marketing authorizations may be granted for product candidates (including medicines designated as orphan medicinal products), if (i) the risk-benefit balance of the product candidate is positive, (ii) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (iii) the product fulfills an unmet medical need, and (iv) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

The European Union medicines rules expressly permit the EU Member States to adopt national legislation prohibiting or restricting the sale, supply or use of any medicinal product containing, consisting of or derived from a specific type of human or animal cell, such as embryonic stem cells. While the products we have in development do not make use of embryonic stem cells, it is possible that the national laws in certain EU Member States may prohibit or restrict us from commercializing our products, even if they have been granted an EU marketing authorization.

Data Exclusivity

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reference product for which regulatory data exclusivity has expired. If a marketing authorization is granted for a medicinal product containing a new active substance, that product benefits from eight years of data exclusivity, during which generic marketing authorization applications referring to the data of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity, during which such generic products may not be placed on the market. The two-year period may be extended to three years if during the first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved. There is no guarantee that a product will be considered by the EU regulatory authorities to be a new active substance, and products may not qualify for data exclusivity.

There is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product, for example, because of differences in raw materials or manufacturing processes. For such products, the results of appropriate preclinical or clinical trials must be provided, and guidelines from the EMA detail the type of quantity of supplementary data to be provided for different types of biological product. There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and so it is unlikely that biosimilars of those products will currently be approved in the European Union. However, guidance from the EMA states that they will be considered in the future in light of the scientific knowledge and regulatory experience gained at the time.

Pediatric Development

In the European Union, companies developing a new medicinal product must agree to a Pediatric Investigation Plan, or PIP, covering all subsets of pediatric population, with the EMA and must conduct pediatric clinical trials in accordance with that PIP, unless a deferral or waiver applies, (for example, because the relevant disease or condition occurs only in adults). The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six month extension of the protection under a supplementary protection certificate (if any is in effect at the time of approval) or, in the case of orphan medicinal products, a two year extension of the orphan market exclusivity. This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.

Post-Approval Controls

The holder of a marketing authorization must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, or QPPV, who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.

All new marketing authorization applications must include a risk management plan, or RMP, describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the marketing authorization. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs are routinely available to third parties requesting access, subject to limited redactions. All advertising and promotional activities for the product must be consistent with the approved summary of product characteristics, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the European Union. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country to another.

Pricing and Reimbursement in the European Union

In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost effectiveness of a particular product candidate to currently available therapies (so-called health technology assessments) in order to obtain reimbursement or pricing approval. In general, governments influence the price of medicinal products in the European Union through their

 

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pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other EU Member States allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription medicines, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

Pricing outside of the USA and European Union

Outside the USA and European Union and the territories where our distributors are active, no commercialization exists, except providing the product on a name patient basis.

Employees

As of September 30, 2020, we had 258 employees. Of these employees, 134 employees are engaged in research and development activities. We have no collective bargaining agreements with our employees and we have not experienced any work stoppages.

Facilities

In Leiden, the Netherlands, we have our administrative offices (including laboratories) and offices for executive management located on Darwinweg 24 2333 CR Leiden and Vondellaan 47 2332 AA Leiden, respectively.

The office spaces on Darwinweg 24 2333 CR Leiden, the Netherlands have a lease term through 2026. The office spaces on Vondellaan 47 2332 AA Leiden have a lease term through 2029. In addition, we also lease regional offices in the United States, located on 10 Independence Boulevard Warren, New Jersey with a lease until 2025.

In addition to our office spaces, we own a production facility in the province of Noord-Brabant, the Netherlands; we lease a production facility in the province of Noord-Brabant, the Netherlands; a (cattle) facility in the province of Zuid-Holland, the Netherlands, and; a research and development facility near Paris, France.

We believe that our current facilities are adequate to meet our needs for the near future and that suitable additional or alternative space will be available on commercially reasonable terms to accommodate our foreseeable future operations.

Legal Proceedings

From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business.

As from October 2016 we commercialize RUCONEST® directly in France. We have been notified by the French Committee for Health Care Products, or CEPS, that we are obliged to refund approximately €750,000 in connection with sales of RUCONEST® in 2018 pursuant to pre-agreed pricing arrangements with our former licensee. As we were not party to such agreement, we are currently in a procedure opposing this claim.

 

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MANAGEMENT

Board Structure

Until December 11, 2020, we had a two-tier board structure consisting of a board of management (bestuur) and a separate board of supervisory directors (raad van commissarissen). In connection with the listing of our ADSs on Nasdaq as contemplated by this prospectus, we converted our two-tier board structure into a one-tier board structure, with a single board of directors consisting of executive directors and non-executive directors, pursuant to a deed of amendment to our articles of association. This deed of amendment was executed on December 11, 2020, shortly before the listing of our ADSs on Nasdaq. We refer to this reorganization in this prospectus as the “corporate reorganization”. Our Chief Executive Officer serves as our executive director.

Our management team is comprised of our managing directors together with our executive officers. Our management team is comprised of our executive directors and our executive officers and be referred to as the Executive Committee.

Executive Officers and Directors

The following table sets forth information regarding our executive officers and directors, including their ages, as of December 22, 2020. Our executive directors are also executive officers.

 

Name

  Age    

Position(s)

 

Term Expiring

Executive Directors:

     

Sijmen de Vries, MD MBA

    61     Chief Executive Officer   2021

Executive Officers:

     

Jeroen Wakkerman

    51     Chief Financial Officer  

Bruno M.L. Giannetti, MD PhD

    68     Chief Medical Officer   2021

Anne-Marie de Groot

    39     Chief Ethics & Compliance Officer  

Mireille Sanders, MSc

    51     Chief Operations Officer  

Stephen Toor

    49     Chief Commercial Officer and GM Americas  

Non-Executive Directors:

     

Paul Sekhri

    62     Chairperson   2023

Deborah Jorn, MBA (1)(2)

    62     Vice Chairperson   2023

J. Barrie Ward, PhD (2)(3)

    81     Director   2021

Aad de Winter, LLM (1)(3)

    67     Director   2021

Barbara Yanni (1)

    66     Director   2024

Mark Pykett

    56     Director   2024

 

(1)

Member of the Audit Committee

(2)

Member of the Remuneration Committee

(3)

Member of the Corporate Governance Committee

Executive Directors

Sijmen de Vries, MD MBA. Dr. De Vries has been our Chief Executive Officer since 2008 and he has also served in the capacity of interim Chief Financial Officer from May 2020 through November 16, 2020, upon the commencement of Mr. Wakkerman’s tenure as Chief Financial Officer. Prior to joining Pharming, Dr. De Vries was the CEO of 4-Antibody and Morphochem AG. Dr. De Vries also held senior business and commercial positions at Novartis, Novartis Ophthalmics and at SmithKline Beecham Pharmaceuticals plc. Dr. De Vries holds an MD degree from the University of Amsterdam and an MBA in General Management from Ashridge Management College (UK). Dr. De Vries is also a non-executive director of Midatech Pharma plc.

Executive Officers

Jeroen Wakkerman. Mr. Wakkerman has been our Chief Financial Officer since November 2020. From 2015 to 2020, Mr. Wakkerman served as chief financial officer of Nutreco N.V., a global leader in animal nutrition and

 

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aquafeed. Prior to that, Jeroen served as chief financial officer of SHV Energy N.V., as finance director at Calor Gas (UK) and has also held several financial and commercial positions at Unilever and Rabobank. Jeroen holds an MSc degree in Business Economics from the University of Groningen and is a Chartered Treasurer (UK) and a Chartered Management Accountant (UK).

Bruno M.L. Giannetti, MD PhD. Dr. Giannetti has been our Chief Medical Officer since 2019. Dr. Giannetti served as our Chief Operating Officer from 2006 until 2019. Prior to joining Pharming in 2006, Dr. Giannetti was the CEO of AM Pharma B.V., President and founder of CRM Clinical Trials GmbH (now Topcro GmbH) and President and CEO of Verigen AG. He has served as senior management consultant for pharmaceutical R&D projects at Coopers & Lybrand (in Switzerland and the UK). Dr. Giannetti was also worldwide Vice-President Marketing and Medical Information at Immuno, Austria and Head of Clinical Research at Madaus AG. Dr. Giannetti holds a PhD in Chemistry and a MD PhD degree in Medicine from the University of Bonn and has been appointed visiting Professor at the Pharmaceutical Faculty of the University of Seville (Spain).

Anne-Marie de Groot, M.A. Prior to being appointed Chief Ethics & Compliance Officer on 15 December 2020, Ms. De Groot served as our Senior Vice President, Organizational Development since 2016. From 2014 to 2015, Ms. De Groot was our Director of Corporate Development. Prior to 2014, Ms. De Groot held various positions at Randstad, Janssen Pharmaceuticals and Pharming. She holds a Bachelor in Social Work and a Bachelor in Human Resources Management from Hogeschool Leiden.

Mireille Sanders, MSc. Prior to being appointed Chief Operations Officer on 15 December 2020, Mrs. Sanders served as our Senior Vice President, Operations since 2019. From 2016 until 2019, Ms. Sanders served as Head of Clinical Supply Chain Strategic Management and Systems at Janssen Pharmaceuticals, a Johnson & Johnson company. Prior to Janssen, Ms. Sanders held senior positions at MSD/Merck, from 2007 until 2015. She holds a MSc in Chemical Engineering from the Technical University Eindhoven in the Netherlands.

Stephen Toor. Prior to being appointed Chief Commercial Officer and GM Americas on 15 December 2020, Mr. Toor served as President and General Manager of Pharming Healthcare, our US operations, since 2020. From 2017 to 2020, Mr. Toor was the Senior Vice President and General Manager, US. Prior to Pharming, Mr. Toor was Senior Director, Sales and Marketing – Immunology, Orphan and Mature Brands at Bausch Health (formerly Valeant) from 2013 to 2016. Prior to 2013, Mr. Toor held positions at Pharmacia/Pfizer and ScheringPlough/Merck. He holds a BA (Hons) in European and American History from Manchester Metropolitan University.

Non-Executive Directors

Paul Sekhri. Mr. Sekhri has been the Chairman of our Board of Directors since 2016 and has served as a director since 2015. Mr. Sekhri was appointed the President and CEO of eGenesis, Inc. in January 2019. Prior to joining eGenesis, Inc., Mr. Sekhri served as President and CEO of Lycera Corp. from February 2015 through December 2018. From April 2014 through January 2015, Mr. Sekhri served as Senior Vice President, Integrated Care at Sanofi. From May 2013 through March 2014, Mr. Sekhri served as Group Executive Vice President, Global Business Development and Chief Strategy Officer for Teva Pharmaceutical Industries Ltd. Prior to joining Teva, Mr. Sekhri spent five years as Operating Partner and Head of the Biotechnology Operating Group at TPG Biotech, the life sciences venture capital arm of TPG Capital. From 2004 to 2009, Mr. Sekhri was Founder, President, and Chief Executive Officer of Cerimon Pharmaceuticals, Inc. Prior to founding Cerimon, Mr. Sekhri was President and Chief Business Officer of ARIAD Pharmaceuticals, Inc. Previously, Mr. Sekhri spent four years at Novartis, as Senior Vice President, and Head of Global Search and Evaluation, Business Development and Licensing for Novartis Pharma AG. Mr. Sekhri also developed the Disease Area Strategy for Novartis, identifying those specific therapeutic areas upon which the company would focus. Mr. Sekhri’s first role at Novartis was as Global Head, Early Commercial Development. Mr. Sekhri completed graduate work in Neuroscience at the University of Maryland School of Medicine, where he also received his BS in Zoology. Mr. Sekhri is currently a member of the Board of Directors of Alpine Immune Sciences, Inc., BiomX Inc. Veeva Systems Inc. and Ipsen S.A., and Chairman of the Board of Compugen Ltd. Additionally, Mr. Sekhri is on the Board of Directors of the TB Alliance, and, as an avid classical music enthusiast, is on the Boards of The Metropolitan Opera, The Knights the Patrons Council of Carnegie Hall and the orchestra of St Luke’s. Mr. Sekhri is also an active member of the Patrons Council of Carnegie Hall.

Deborah Jorn, MBA. Ms. Jorn has served as a director since 2019. Ms. Jorn was Executive Vice President of Corporate and Commercial Development at Eyepoint Pharmaceuticals from 2016 to 2018. Prior to joining Eyepoint, she was Executive Vice President and Group Company Chair at Bausch Health (formerly Valeant

 

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Pharmaceuticals) where she led the dermatology, gastroenterology and HAE businesses. Ms. Jorn was Chief Global Marketing Officer at Bausch & Lomb prior to its acquisition in 2013 by Bausch Health where she led the launch of several new products and the integration of Ista Pharmaceuticals following acquisition. Previously, she was Group Vice President of Women’s Healthcare and Fertility (2008-2010) and Allergy and Respiratory (2004-2008) at Schering Plough Corporation prior to its acquisition by Merck and Co., Inc. Ms. Jorn was also at Johnson & Johnson as the Worldwide Vice President of Internal Medicine and Early Commercial input. She began her career at Merck and for more than 20 years held roles of progressive responsibility in various functional areas including R&D, Regulatory and Sales and Marketing. Ms. Jorn also serves on the board of directors of Viveve Medical, Inc. and she served as a member of the board of directors of Orexigen Therapeutics, Inc. from May 2016 until July 2018.

J. Barrie Ward, PhD. Dr. Ward has served as a director since 2007. Dr. Ward has held senior management positions in the UK, US and Singapore at several pharmaceutical and biotechnology companies, including Glaxo Group Research Ltd, Virus Research Institute Inc., Avant Immunotherapeutics Inc. and KuDOS Pharmaceuticals Ltd. and board positions at Cancer Research Technology Ltd., Spirogen SARL, CellCenteric Ltd. and BergenBio AS. His most recent senior management position was CEO of KuDOS Pharmaceuticals Ltd, which was sold to AstraZeneca in 2006. Mr. Ward holds a PhD in microbiology from the University of Bath, UK.

Aad de Winter, LLM. Mr. De Winter has served as a director since 2009. Mr. De Winter began his career at AMRO Bank in 1980. He worked in the areas of capital markets, investment banking and institutional investor relationship management. In 1990, Mr. De Winter became senior Advisor Corporate and Institutional Finance at NIBC (formerly De Nationale Investerings Bank). As of 1998, Mr. De Winter was at NYSE Euronext (now Euronext), Amsterdam responsible for advising and admitting companies to the stock exchange in Amsterdam as Director Listing & Issuer Relations. As of January 2009, until July 2015, Mr. De Winter was an Associate Partner at First Dutch Capital, Amsterdam and from 2008 to end of 2013, he was a member of the China and India working group at the Holland Financial Centre which was, inter alia, focused on attracting Chinese and Indian companies to a (cross) listing on Euronext Amsterdam. Since 2010 he is an Associate Partner at Nederlandsche Participatie Exchange (NPEX), an innovative online financing and trading platform for securities of SME companies. Mr. De Winter has more than three decades of experience in assisting companies with stock exchange listings for various capital markets instruments. He holds a law degree from Erasmus University, Rotterdam, specializing in corporate law.

Barbara Yanni. Ms. Yanni has served as a director since December 2020. Ms. Yanni was Vice President and Chief Licensing Officer at Merck & Co. (MRK), a pharmaceutical company, from November 2001 until her retirement in March 2014. Prior to this, Ms. Yanni served in various roles at Merck including in corporate development, financial evaluation, and tax. Ms. Yanni currently serves on the board of directors of two public biotechnology companies: Trevena, Inc. and Vaccinex, Inc. Ms. Yanni is also a member of the board of directors of Mesentech, Inc., a private Canadian biotechnology company. Ms. Yanni earned a J.D. from Stanford Law School and an A.B. from Wellesley College. She also holds a Masters of Law in Taxation from New York University. Before joining Merck in 1985 Barbara was a tax lawyer in New York City.

Mark Pykett, VMD, PhD. Dr. Pykett has served as a director since December 2020. Dr. Pykett has been the Chief Scientific Officer of PTC Therapeutics, Inc. since 2018. Dr. Pykett was the President and Chief Executive Officer of Agilis Biotherapeutics from 2014 until its acquisition by PTC Therapeutics in 2018. Prior to Agilis, Dr. Pykett served as CEO of Navidea Biopharmaceuticals, President of Alseres Pharmaceuticals, President of Cygenics, and President and CEO of Cytomatrix. Dr. Pykett holds a PhD in Molecular Biology from the University of Pennsylvania, a VMD from the University of Pennsylvania School of Veterinary Medicine and a B.A. in Biology from Amherst College.

Foreign Private Issuer Exemption

We are a “foreign private issuer,” as defined by the SEC. As a result, in accordance with Nasdaq rules, we will comply with home country governance requirements and certain exemptions thereunder rather than complying with Nasdaq corporate governance standards. While we expect to voluntarily follow most Nasdaq corporate governance rules, we may choose to take advantage of the following limited exemptions:

 

   

Exemption from filing quarterly reports on Form 10-Q containing unaudited financial and other specified information or current reports on Form 8-K upon the occurrence of specified significant events;

 

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Exemption from Section 16 under the Exchange Act, which requires insiders to file public reports of their securities ownership and trading activities and provides for liability for insiders who profit from trades in a short period of time;

 

   

Exemption from the Nasdaq rules applicable to domestic issuers requiring disclosure within four business days of any determination to grant a waiver of the code of conduct and ethics to directors and officers;

 

   

Exemption from the requirement to obtain shareholder approval for certain issuances of securities, including shareholder approval of share option plans;

 

   

Exemption from the requirement that our audit committee have review and oversight responsibilities over all “related party transactions,” as defined in Item 7.B of Form 20-F;

 

   

Exemption from the requirement that our board of directors has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

Exemption from the requirements that director nominees are selected, or recommended for selection by our board of directors, either by (1) independent directors constituting a majority of our board of director’s independent directors in a vote in which only independent directors participate, or (2) a committee comprised solely of independent directors, and that a formal written charter or board resolution, as applicable, addressing the nominations process is adopted.

Furthermore, Nasdaq Rule 5615(a)(3) provides that a foreign private issuer, such as us, may rely on home country corporate governance practices in lieu of certain of the rules in the Nasdaq Rule 5600 Series and Rule 5250(d), provided that we nevertheless comply with Nasdaq’s Notification of Noncompliance requirement (Rule 5625), the Voting Rights requirement (Rule 5640) and that we have an audit committee that satisfies Rule 5605(c) (3), consisting of committee members that meet the independence requirements of Rule 5605(c)(2)(A)(ii). We intend to comply with the Nasdaq corporate governance rules applicable to foreign private issuers, which means that we are permitted to follow certain corporate governance rules that conform to Dutch requirements in lieu of many of the Nasdaq corporate governance rules. Accordingly, our shareholders will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. We may utilize these exemptions for as long as we continue to qualify as a foreign private issuer. For an overview of differences between corporate governance principles for a Netherlands public company such as us and those that are applicable to a Delaware corporation, see “Description of Share Capital and Articles of Association-Differences in Corporate Law.”

Committees of our board of directors

The board of directors has appointed from among its non-executive members an audit committee, a remuneration committee and a corporate governance committee.

Audit Committee

The audit committee consists of Mr. De Winter (Chairperson), Ms. Jorn and Ms. Yanni. The tasks performed by the audit committee include supervision of the operation of our internal risk management and control systems, including supervision of the enforcement of the relevant legislation and regulations, and supervising the operation of codes of conduct; the provision of financial information by Pharming (such as choice of accounting policies, application and assessment of the effects of new rules, information about the handling of estimated items in the annual accounts, forecasts and work of external auditors); compliance with recommendations and observations of our external auditor; our policy on tax planning; relations with our external auditor, including, in particular, his independence, remuneration and any non-audit services for Pharming; our financing; and the applications of information and communication technology (ICT). The composition of our audit committee is consistent with the best practice provisions of the DCGC.

The audit committee is governed by a charter that complies with applicable Nasdaq rules, which charter is available on our website at www.pharming.com.

 

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Remuneration Committee

The remuneration committee consists of Ms. Jorn (Chairperson) and Mr. Ward. The tasks performed by the remuneration committee include the preparation of proposals to our board of directors for our remuneration policy; the preparation of proposals for the compensation of the individual members of our board of directors; and preparing our remuneration report to be included in our annual report. The composition of our remuneration committee is consistent with the best practice provisions of the DCGC.

The remuneration committee is governed by a charter that complies with applicable Nasdaq rules, which charter is available on our website at www.pharming.com

Corporate Governance Committee

The corporate governance committee consists of Mr. Ward (Chairperson) and Mr. De Winter. The tasks performed by the corporate governance committee include monitoring compliance with the DCGC. The composition of our corporate governance committee is consistent with the best practice provisions of the DCGC. The corporate governance committee will also be responsible for director nominations.

The corporate governance committee is governed by a charter that complies with applicable Nasdaq rules, which charter is available on our website at www.pharming.com

Code of Conduct and Alert Reporting Procedure

We have adopted a code of conduct which outlines the principles of legal and ethical business conduct under which we do business. The code of conduct applies to all of our management, employees and contractors. The full text of the code of conduct is available on our website at www.pharming.com. The information and other content appearing on our website are not part of this prospectus.

In addition, we have adopted an Alert Reporting Procedure pursuant to which all Pharming personnel and contractors can report suspected irregularities within Pharming.

Compensation of Executive Officers and Directors

Overview of our Remuneration Policy

In accordance with Dutch law, the remuneration packages for the directors and executive officers are determined by the board of directors, without the involvement of the executive directors in the deliberations and decision-making concerning their own remuneration. The board of directors is authorized to determine the remuneration packages of the executive and non-executive directors in accordance with the remuneration policy that has to be adopted every four years by the General Meeting of Shareholders.

Before listing of our ADSs on Nasdaq, an updated remuneration policy, that has been aligned with the revised European Union Shareholder Rights Directive (“SRD II”) and prevailing best practices, was adopted at the General Meeting of Shareholders. Arrangements in the form of shares or rights to subscribe for shares will each time remain subject to the approval of the shareholders at the General Meeting, notwithstanding the adopted policy.

Our remuneration policy has been designed to support our continuous efforts aimed at improving the overall performance, facilitating growth and sustainable success and enhancing the other long-term value and interests of our company, providing remuneration packages that are competitive to attract the required executive and non-executive talent and expertise for reaching these objectives in accordance with the long-term strategy.

The remuneration policy is based on the overarching principle that the average level of total remuneration of both the executive directors and officers is consistent with the position of our company relative to the benchmark groups that are relevant to us. With regards to the 2020 benchmark groups, we are comfortably positioned in the upper quartile of the EU benchmark group, with regards to revenues and profitability. For the US benchmark, we are positioned well into the top 50% in relation to revenues and profitability. A comparison with a peer group is periodically made. Every two years, an independent consultant makes a market comparison (remuneration benchmark). The peer group each time consists of a group of European and US integrated and commercial stage listed companies active in Life Sciences, reflecting our company’s operating areas and the markets most relevant in relation to the recruitment and retention of top talent, including the important US market.

 

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A consistent and competitive remuneration structure, which applies across the workforce, is another core principle of our remuneration policy to promote a culture of shared purpose and performance, focusing all executive directors, executive directors and all staff members on delivering on our mission, vision and strategy and creating long-term stakeholder value.

We disclose information regarding remuneration paid to the executive and non-executive directors in the Remuneration Report, as part of the Annual Report of the company, in line with the applicable rules and regulations. The remuneration amounts paid to executive officers are not required to be disclosed according to Dutch law.

Executive Directors and Officers

The remuneration packages of the executive directors and officers consist of:

 

   

Fixed remuneration in the form of an annual base salary

 

   

Variable remuneration in the form of:

 

   

Short-term incentives, in the form of an annual bonus of cash, shares and/or share options as a percentage of the fixed component, and

 

   

long-term incentives, in the form of equity grants; and

 

   

Others benefits, including contribution of pension premiums, travel allowance and holiday allowance.

The respective fixed and variable remuneration elements are explained below:

Historical Remuneration of the Management Board

The following table reflects the remuneration amounts paid to the members of the Board of Management over the years 2015 through 2019, to the extent still in office (in thousands of euros):

 

    

Fixed
remuneration

  

Short term
variable:
annual bonus

  

Share based
payments

  

Post-
employment
benefits

  

Other

  

TOTAL

Sijmen de Vries,

   2019: 507    2019: 310    2019: 487    2019: 72    2019: 32    2019: 1,408

CEO

   2018: 490    2018: 428    2018: 325    2018: 81    2018: 32    2018: 1,356
   2017: 475    2017: 330    2017: 536    2017: 79    2017: 32    2017: 1,452
   2016: 454    2016: 258    2016: 736    2016: 79    2016: 32    2016: 1,559
   2015: 432    2015: 194    2015: 1,055    2015: 76    2015: 32    2015: 1,789

Bruno Giannetti,

   2019: 331    2019: 170    2019: 289    2019: 70    2019: 8    2019: 868

CMO

   2018: 320    2018: 233    2018: 201    2018: 77    2018: 8    2018: 839
   2017: 309    2017: 186    2017: 328    2017: 78    2017: 15    2017: 916
   2016: 287    2016: 148    2016: 445    2016: 75    2016: 36    2016: 991
   2015: 282    2015: 106    2015: 636    2015: 72    2015: 25    2015: 1,121

The remuneration amounts paid to executive officers, other than the abovementioned individuals as members of the Board of Management, are not required to be disclosed according to Dutch law and accordingly are not disclosed herein. Robin Wright, who previously served on our Board of Management and as our Chief Financial Officer, departed the company in 2020.

 

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Share Option plan

The following table gives an overview of changes in option holdings of the members of the Board of Management in 2019 and 2018, the exercise prices and expiration dates:

 

    1 January
2018
    Granted
2018-2019
    Exercised
2018-2019
    Forfeited/
Expired
2018-2019
    31 December
2019
    Exercise
Price (€)
    Expiration
date
 

B.M. Giannetti

             
    1,625,000       —         (1,625,000     —         —         0.09       14 May 2018  
    7,200,000       —         (5,760,000     (1,440,000     —         0.341 -1.130       17 June 2019  
      1,600,000           1,600,000       0.805       20 Sept 2023  

Total

    8,825,000       1,600,000       (7,385,000     (1,440,000     1,600,000      

S. de Vries

             
    2,500,000       —         (2,500,000     —         —         0.09       14 May 2018  
    12,000,000       —         (9,600,000     (2,400,000     —         1.130       17 June 2019  
      2,800,000           2,800,000       0.805       20 Sept 2023  

Total

    14,500,000       2,800,000       (12,100,000     (2,400,000     2,800,000      

R. Wright

             
    1,000,000       —         —         —         1,000,000       0.355       28 Oct 2020  
    4,000,000       —         —         —         4,000,000       0.209 - 1.130       25 May 2021  

Total

    5,000,000       —         —         —         5,000,000      

In service:

             

31 December 2018

    28,325,000       4,400,000       (19,485,000     (3,840,000     9,400,000      

Long Term Incentive Plan

The executive directors and executive officers were eligible to participate in our company’s Long Term Incentive Plan (LTIP). Under the plan, participants receive shares in our company, the number of which is dependent upon the performance of Pharming’s share price over a three-year period when compared to a peer group of European biotech companies.

The below table reflects the number of LTIP shares granted and vested over the years 2015 – 2019 for the members of the Board of Management:

 

Amounts in € ‘000

   Year      Granted      Settled     Forfeited      Not vested     Reserved at 31
December 2019
 

B.M. Giannetti

     2019        131,331        —         —          —         131,331  
     2018        85,005        —         —          —         25,000  
     2017        429,762        —         —          —         125,000  
     2016        314,955        (251,964     —          (62,991     —    
     2015        217,450        (130,470     —          (86,980     —    

S. de Vries

     2019        201,050        —         —          —         201,050  
     2018        130,131        —         —          —         130,131  
     2017        657,902        —         —          —         657,902  
     2016        482,151        (385,721     —          (96,430     —    
     2015        332,884        (199,730     —          (133,154     —    

R. Wright

     2019        125,476        —         —          —         125,476  
     2018        81,215        —         —          —         81,215  
     2017        410,599        —         —          —         410,599  
     2016        287,234        (229,787     —          (57,447     —    
     2015           —         —          —         —    

Total

     2019        457,857        —         —          —         457,857  
     2018        296,351        —         —          —         296,351  
     2017        1,498,263        —         —          —         1,498,263  
     2016        1,084,340        (867,472     —          (216,868     —    
     2015        550,334        (330,200     —          (220,134     —    

 

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An overview of the maximum number of LTIP shares granted in 2016-2019 and in total as well as the fair value per share award is as follows:

 

Participant category

   2016      2017      2018      2019      Total  

Board of Supervisory Directors

     —          725,000        125,000        205,000        1,055,000  

Board of Management

     —          1,498,263        296,351        457,857        2,252,471  

Senior managers

     80,000        1,290,000        967,500        2,000,000        4,337,500  

Total

     80,000        3,513,263        1,388,851        2,662,857        7,644,971  

Fair value per share award (€)

     0.079        0.407        0.671        0.345     

The following table provides an overview of LTIP shares granted, forfeited or issued in 2017-2019 as well as the number of LTIP shares reserved at 31 December 2019:

 

Participant category

   Granted      Forfeited      Not vested      Reserved at
31 December
2019
 

Board of Supervisory Directors

     1,055,000        (220,000      —          835,000  

Board of Management

     2,252,471        —          —          2,252,471  

Senior managers

     4,337,500        (100,000      —          4,237,500  

Total

     7,644,971        (320,000      —          7,324,971  

Current Year Remuneration

Fixed Compensation

The following table reflects the annual base salary (fixed remuneration) for the executive directors as of the financial year 2020:

 

Position

   Fixed remuneration amount  

CEO

     EUR 538,000  

Other Executive Directors

     EUR 400,000  

The Board of Directors, without the participation of the executive directors for their remuneration, may upon proposal of the Remuneration Committee decide to increase the base salary of executive directors and officers within the restrictions set by the remuneration policy, provided that the amount of the increase does not exceed the average salary increase of the employees of our company. Based on a recent benchmark analysis, it has been decided to increase the individual fixed remuneration of the executive directors in multiple (benchmarked) annual stages until the end of 2023 to bridge the 10% gap with the median.

Variable Compensation

The variable part of the remuneration of the executive directors and officers is linked to the performance of each of our officers and directors against a set of financial and non-financial targets that is consistent with and supportive of the strategy and long-term interests of our company. Risk alignment is also embedded in the target setting to promote sound and effective risk management. At the end of the relevant performance period, the Board of Directors, without the participation of the executive directors for their performance, will determine whether the targets have been achieved. We provide in our Remuneration Report, included in each Annual Report, a retrospective explanation of actual performance against the objectives set for the preceding year. The components of variable compensation from 2020 onwards are set forth below:

Short-term Incentive

The individual on-target bonus for the CEO, as from the financial year 2020, has been set at 70% of the gross annual salary and for other executive directors and officers at 50% of the gross annual salary.    

 

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Long-term Incentive

Executive directors and officers will also participate in the revised Long Term Incentive (LTI) program. Under this program, ordinary shares in Pharming are granted, subject to the achievement of predefined long-term strategy oriented performance objectives and targets, which apply a defined weighting, that have been set at the start of a three-year performance period. The performance objectives include the Total Shareholder Return (40% weighing) and the achievement of long-term strategy oriented objectives (60% weighing). The peer group used to determine the Total Shareholder Return is composed of the companies included in the AMX Index and the NASDAQ Biotechnology Index, represented by the IBB ETF, respectively, equally weighted.

For the executive directors, the on-target value of the shares to be awarded under the LTI is set at 300% of the gross annual salary for the CEO (representing 50% below the lowest quartile of the US benchmark group and just below the top quartile of the EU benchmark group for the executive directors) and 200% for other executive directors and officers (representing between 20 and 30% below the lowest quartile of the US benchmark group and just in the top quartile of the EU benchmark group for the executive directors). The maximum value of the shares that can vest under the LTI is set at 450% of the gross annual salary for the CEO and 300% for other executive directors and officers. Executive directors are required to retain the shares awarded under the LTI for a minimum of five years from the date of grant.

The implementation of the new three-year vesting scheme under the LTI program has a major impact on the current remuneration packages of existing executive directors for the period 2020-2023, as the executive directors’ current packages feature annual option and share grants. The share-based compensation under the existing packages and plans over this three-year period would have resulted in three option grants, with guaranteed vesting of a total of 8,400,000 options for the CEO on the basis of continued tenure over the three-year period. In addition, the executive directors would have been eligible for three annual long-term incentive plan restricted share grants of up to 30% of the base salary.

To mitigate the described impact, we have agreed to a one-off transition arrangement with the CEO as approved at the General Meeting of Shareholders held prior to the listing of the ADS on Nasdaq. This one-off transition arrangement provides for (i) the conversion of the total number of 8,400,000 options for the CEO into one grant for a total number of 4,200,000 shares, which vesting will be governed by the performance-based criteria of the new LTI program, and (ii) the vesting of the performance shares, to be granted to the CEO for 2020, in three annual tranches in the first quarter of 2021, 2022 and 2023. This arrangement will be subject to a waiver by the CEO of all (contractual and other) rights and entitlements under the share option and long-term incentive plans.

CEO Pay Ratio

For 2019, the pay ratio between the compensation of the CEO and the mean compensation of employees (excluding the CEO) was 7.7 to 1 (2018: 7.5 to 1). Compensation in each case comprises all salary, bonus, share-based compensation in cash or in kind and pension contributions. The pay ratio between the mean compensation of members of the Board of Management and the mean compensation of employees (excluding BoM) was 5.4 to 1 (2018: 5.3 to 1).

The below table provides a summary of the five-year development of the remuneration of the respective executive officers versus company performance and the evolution of the average employee salaries:

 

Annual % change    2019 vs 2018     2018 vs 2017     2017 vs 2016     2016 vs 2015     2015 vs 2014  

Director’s remuneration

          

Board of Management

          

Sijmen de Vries, CEO

     4     (7 %)      (7 %)      (13 %)      (11 %) 

Bruno Giannetti, COO/CMO

     3     (8 %)      (8 %)      (12 %)      (11 %) 

Robin Wright, CFO

     (8 %)      (2 %)      1     n/a     n/a  

Company performance - increase/(decrease)

          

Revenues

     25     51     465     47     (49 %) 

Gross Profit

     31     46     590     86     (66 %) 

Operating Profit

     60     73     290     10     (546 %) 

Net Result

     45     133