gnft-20f_20191231.htm

Table of Contents

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

 

Commission File Number 001-38844

 

GENFIT S.A.

 

(Exact name of Registrant as specified in its charter and translation of Registrant’s name into English)

 

FRANCE

(Jurisdiction of incorporation or organization)

 

Parc Eurasanté

885, avenue Eugène Avinée

59120 Loos, France

(Address of principal executive offices)

 

Pascal Prigent

Chief Executive Officer

GENFIT S.A.

Parc Eurasanté

885, avenue Eugène Avinée

59120 Loos, France

Tel: +33 (0)3 2016 4000 / Fax: +33 (0)2 2016 4001

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

American Depositary Shares, each representing one ordinary share, nominal value €0.25 per share

GNFT

The Nasdaq Global Select Market

Ordinary shares, nominal value €0.25 per share*

*

The Nasdaq Global Select Market*

*Not for trading, but only in connection with the registration of the American Depositary Shares.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.  None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.  None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.  Ordinary shares:  38,858,617 shares outstanding as of December 31, 2019

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes   No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes   No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Emerging growth company

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No

 

 

 


Table of Contents

 

EXPLANATORY NOTE

 

Genfit S.A. (the “Company”) previously disclosed in a Form 6-K furnished with the Securities and Exchange Commission (the “SEC”) on April 29, 2020 that it was delaying the filing of this Annual Report on Form 20-F for the year ended December 31, 2019 in reliance on the order issued by the SEC on March 4, 2020 in SEC Release No. 34-88318, as extended and amended on March 25, 2020 in SEC Release No. 34-88465 (the “SEC Order”).  The SEC Order provides conditional relief to public companies that are unable to timely comply with their filing obligations as a result of the novel coronavirus (“COVID-19”) outbreak, allowing for the postponement of certain filings required under the Securities Exchange Act of 1934, as amended.

As a result of staffing constraints, remote work transitions, mobilization of our finance, legal and clinical teams normally involved in the drafting of our Annual Report on Form 20-F on key business continuity efforts and coordination of the Company’s response to the COVID-19 pandemic, especially as it relates to the impacts on the clinical development of elafibranor and our other product candidates, and reliance on certain third-parties to assist us in the production of the Annual Report who were also impacted by COVID-19, the filing of this Annual Report on Form 20-F was delayed.

 

 

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I

6

Item 1.

Identity of Director, Senior Management and Advisers

6

Item 2.

Offer Statistics and Expected Timetable

6

Item 3.

Key Information

6

Item 4.

Information on the Company

61

Item 5.

Operating and Financial Review and Prospects

113

Item 6.

Directors, Senior Management and Employees

130

Item 7.

Major Shareholders and Related Party Transactions

153

Item 8.

Financial Information

157

Item 9.

The Offer and Listing

157

Item 10.

Additional Information

158

Item 11.

Quantitative and Qualitative Disclosures About Market Risk

168

Item 12.

Description of Securities Other than Equity Securities

169

PART II

172

Item 13.

Defaults, Dividend Arrearages and Delinquencies

172

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

172

Item 15.

Disclosure Controls and Procedures

172

Item 16A.

Audit Committee Financial Expert

173

Item 16B.

Code of Business Conduct and Ethics

173

Item 16C.

Principal Accountant Fees and Services

174

Item 16D.

Exemptions from the Listing Standards for Audit Committees

174

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

174

Item 16F.

Change in Registrant’s Certifying Accountant

174

Item 16G.

Corporate Governance

175

Item 16H.

Mine Safety Disclosure

175

PART III

175

Item 17.

Financial Statements

175

Item 18.

Financial Statements

175

Item 19.

Exhibits

176

 

 

 

3


Table of Contents

 

INTRODUCTION

Unless otherwise indicated, “GENFIT,” “the company,” “our company,” “we,” “us” and “our” refer to GENFIT S.A. and its consolidated subsidiaries.

“GENFIT,” the GENFIT logo, “RESOLVE-IT”, “NIS4”, “The NASH Education Program”, “The NASH Epidemiology Institute” and other trademarks or service marks of GENFIT S.A. appearing in this Annual Report on Form 20-F, or annual report, are the property of GENFIT S.A. or its subsidiaries. Solely for convenience, the trademarks, service marks and trade names referred to in this annual report are listed without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their right thereto. All other trademarks, trade names and service marks appearing in this annual report are the property of their respective owners. We do not intend to use or display other companies’ trademarks and trade names to imply any relationship with, or endorsement or sponsorship of us by, any other companies.

Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our financial statements included in this annual report are presented in euros and, unless otherwise specified, all monetary amounts are in euros. All references in this annual report to “$,” “US$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” mean U.S. dollars and all references to “€” and “euros,” mean euros, unless otherwise noted. Throughout this annual report, references to ADSs mean ADSs or ordinary shares represented by such ADSs, as the case may be.

4


Table of Contents

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F, or annual report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than present and historical facts and conditions contained in this annual report, including statements regarding our future results of operations and financial positions, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this annual report, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

our plans to develop and commercialize elafibranor, NIS4 and our other drug candidates;

 

the initiation, timing, progress and results of our preclinical studies and clinical trials, including the timing of availability of data from our clinical trials;

 

our ability to successfully expand and advance our pipeline of drug candidates;

 

the timing of our planned regulatory filings;

 

the timing of and our ability to obtain and maintain regulatory approvals;

 

the clinical utility and market acceptance of our drug candidates and diagnostic test;

 

the potential clinical utility of our product candidates and their potential advantages over existing therapies as well as those in development;

 

our ability to establish and maintain manufacturing and supply arrangements for our product candidates;

 

the ability of third parties with whom we contract to successful conduct, supervise and monitor clinical trials for our product candidates;

 

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

 

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

 

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

 

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

 

the impact of the COVID-19 pandemic on our business and operations; and

 

other risks and uncertainties, including those listed in this annual report under the caption “Risk Factors.”

You should refer to the section of this annual report titled “Item 3.D—Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this annual report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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

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

5


Table of Contents

 

PART I

Item 1.

Identity of Director, Senior Management and Advisers.

Not applicable.

Item 2.

Offer Statistics and Expected Timetable.

Not applicable.

Item 3.

Key Information.

A.

Selected Financial Data

The following selected consolidated statement of operations data for the years ended December 31, 2017, 2018 and 2019 and selected consolidated statement of financial position data as of December 31, 2017, 2018 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this annual report. Our audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, as of and for the years ended December 31, 2017, 2018 and 2019.

The following selected consolidated financial data for the years and as of the dates indicated should be read together with, and is qualified in its entirety by reference to, “Item 5. Operating and Financial Review and Prospects” as well as our financial statements and notes thereto appearing elsewhere in this annual report. Our historical results are not necessarily indicative of our results to be expected for any future period.

Selected Consolidated Statement of Operations Data:

 

 

 

 

 

Year ended

 

(in € thousands, except earnings per share data)

 

 

 

2017/12/31

 

 

2018/12/31

 

 

2019/12/31

 

 

 

 

 

(*)

 

 

(*)

 

 

 

 

 

Revenues and other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

118

 

 

 

69

 

 

 

30,839

 

Other income

 

 

 

 

6,737

 

 

 

7,425

 

 

 

10,122

 

Revenues and other income

 

 

 

 

6,856

 

 

 

7,494

 

 

 

40,961

 

Operating expenses and other operating income (expenses)

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

 

 

(54,189

)

 

 

(67,024

)

 

 

(66,170

)

General and administrative expenses

 

 

 

 

(9,421

)

 

 

(9,076

)

 

 

(17,265

)

Marketing and market access expenses

 

 

 

 

 

 

 

(717

)

 

 

(13,708

)

Other operating income (expenses)

 

 

 

 

60

 

 

 

(162

)

 

 

(1,649

)

Operating income (loss)

 

 

 

 

(56,695

)

 

 

(69,484

)

 

 

(57,832

)

Financial income

 

 

 

 

642

 

 

 

728

 

 

 

5,221

 

Financial expenses

 

 

 

 

(3,096

)

 

 

(11,118

)

 

 

(13,110

)

Financial profit (loss)

 

 

 

 

(2,453

)

 

 

(10,391

)

 

 

(7,889

)

Net profit (loss) before tax

 

 

 

 

(59,148

)

 

 

(79,875

)

 

 

(65,721

)

Income tax benefit (expense)

 

 

 

 

3,420

 

 

 

354

 

 

 

576

 

Net profit (loss)

 

 

 

 

(55,728

)

 

 

(79,521

)

 

 

(65,144

)

Basic and diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings (loss) per share (€/share)

 

 

 

 

(1.79

)

 

 

(2.55

)

 

 

(1.76

)

 

(*)

IFRS16 was adopted on January 1, 2019 using the modified retrospective method and 2017 and 2018 have not been restated

6


Table of Contents

 

Selected Consolidated Statement of Financial Position Data:

 

 

 

 

 

As of

 

(in € thousands)

 

 

 

2017/12/31

 

 

2018/12/31

 

 

2019/12/31

 

 

 

 

 

(*)

 

 

 

(*)

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

273,820

 

 

 

207,240

 

 

 

276,748

 

Total - Assets

 

 

 

 

293,183

 

 

 

229,478

 

 

 

309,853

 

Total - Shareholders' equity

 

 

 

 

101,457

 

 

 

20,939

 

 

 

84,065

 

Total - Current liabilities

 

 

 

 

27,106

 

 

 

39,248

 

 

 

43,657

 

Total - Non-current liabilities

 

 

 

 

164,620

 

 

 

169,291

 

 

 

182,132

 

Total - Shareholders' equity & liabilities

 

 

 

 

293,183

 

 

 

229,478

 

 

 

309,853

 

 

(*)

IFRS16 was adopted on January 1, 2019 using the modified retrospective method and 2017 and 2018 have not been restated

B.

Capitalization and Indebtedness

Not applicable.

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

 

D.Risk Factors

Our business faces significant risks. You should carefully consider all of the information set forth in this annual report and in our other filings with the United States Securities and Exchange Commission, or the SEC, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this annual report and our other SEC filings. See Special Note Regarding Forward-Looking Statements above.

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

We cannot be certain that elafibranor or any of our other product candidates will receive regulatory approval, and without regulatory approval, we will not be able to market our product candidates.

Our business currently depends substantially on the successful development and commercialization of elafibranor. Our ability to generate revenue related to product sales will depend on the successful development and regulatory approval of elafibranor in the indications we are developing. This ability to generate revenue is also dependent on the future of the development and marketing of an IVD test using our NIS4 technology.

We have been developing elafibranor in several clinical trials, including a pivotal Phase 3 clinical trial, RESOLVE-IT, for the treatment of non-alcoholic steatohepatitis or NASH, and have initiated a Phase 3 clinical program for the treatment of primary biliary cholangitis or PBC, following promising results in a Phase 2 trial.

In parallel, we are also developing NIS4 to identify patients with NASH and fibrosis who may be appropriate candidates for drug therapy in a context where these patients are difficult to identify based on the currently available diagnostic methods. A successful development of NIS4 as a diagnostic technology used in clinical care could have a significant impact on the development and marketing of product candidates currently under development for the treatment of NASH, including elafibranor.  

In May 2020, we published the top line results of the interim analysis of our Phase 3 RESOLVE-IT trial.  In the trial, elafibranor did not demonstrate a statistically significant effect on the trial’s primary endpoint of NASH resolution without worsening of fibrosis nor did it achieve the key secondary endpoints.

7


Table of Contents

 

Although the results of the interim analysis of our Phase 3 RESOLVE-IT clinical trial do not support our application for accelerated marketing approval from the U.S. Food and Drug Administration or FDA under Subpart H and conditional approval from the European Medicines Agency or EMA, as of the date of this annual report, we are conducting additional analyses of the interim data.  Following these analyses and further discussions with regulatory authorities, we will determine whether to discontinue, amend or continue the RESOLVE-IT trial Even if we decide to continue the trial, there is not guarantee that we would be able to obtain marketing approval from the FDA or EMA for elafibranor in NASH.

We currently have no products approved for sale and we cannot guarantee that we or any of our current and collaborators will ever have marketable products. The development of drug candidates and NIS4 and issues relating to their approval and marketing are subject to extensive regulation by the FDA in the United States, the European Union and EMA in Europe and regulatory authorities in other countries, with regulations differing from country to country.

We (or a future partner of ours) will not be permitted to market our drug candidates in the United States or Europe until we receive approval of a New Drug Application, or NDA, from the FDA or a marketing authorization application, or MAA, from the European Commission (based on the positive opinion of the EMA), as applicable. We have not submitted at this time any marketing applications for any of our product candidates and neither has Terns Pharmaceuticals, our development partner for elafibranor in some territories and for some therapeutic indications, for its products. NDAs and MAAs must include extensive preclinical and clinical data and supporting information to establish the drug candidate’s safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry, manufacturing and controls for the drug. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval.

We have received a fast track designation from the FDA for the development of elafibranor for the treatment of NASH. While the fast track designation for elafibranor in NASH permits close and regular contact between us and the FDA, the FDA and the EMA review processes can take more than one year to complete and approval is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing, before even reviewing the scientific basis. Regulators of other jurisdictions, such as the EMA, have their own procedures for approval of drug candidates. Even if a drug is approved, the FDA or the EMA, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval.

We cannot predict whether our ongoing or planned future trials and studies will be successful or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date, or for ongoing trials, with our interim results. In particular, we are actively reviewing the full interim dataset from our Phase 3 RESOLVE-IT trial of elafibranor in NASH and will be conducting additional analyses. If, following these analyses, we decide to continue the trial,   we cannot predict whether regulators will agree with the conclusions from, or request additional clinical data following, our Phase 3 NASH study to support an application for marketing approval of elafibranor in NASH.

Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates and diagnostics with which we must comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a drug candidate or diagnostic in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or other products. Also, regulatory approval for any of our product candidates may be withdrawn.

If we, our partner Terns Pharmaceuticals or a future partner are unable to obtain approval from the FDA, the EMA or other regulatory agencies for elafibranor, NIS4 and our other product candidates, or if, subsequent to approval, we, our partner Terns Pharmaceuticals or a future partner are unable to successfully commercialize elafibranor, NIS4 or our other product candidates, we will not be able to generate sufficient revenue to become profitable or to continue our operations.

8


Table of Contents

 

We and our partner Terns Pharmaceuticals in some territories and for some indications are developing our lead product candidate, elafibranor for the treatment of NASH, a condition for which no drug has yet been commercialized and for which there is little clinical experience. In PBC, the other major indication for which we and our partner Terns Pharmaceuticals are developing elafibranor, only two treatments have been approved and are currently marketed and they do not fulfill the medical needs of all patients. As a result, our development approach and that of our partner involve new endpoints and methodologies. The outcome of our clinical trials may not be favorable or , even if favorable, regulatory authorities may not find the results of the clinical trials collaborators to be sufficient for marketing approval.

For the last several years, we have been focused, and more recently along with Terns Pharmaceuticals in some territories, on developing therapeutics for the treatment of NASH, a disease for which there are currently no approved drug treatments. Similarly, only two treatments have been approved and are currently marketed for the treatment of PBC and they do not fulfil the medical needs of all patients. As a result, the design and conduct of clinical trials for these diseases and other indications we may pursue will be subject to increased risk.

The FDA and EMA generally require two pivotal clinical trials to approve an NDA or MAA. Furthermore, for full approval of an NDA or MAA, the FDA or EMA, respectively, require a demonstration of efficacy based on a clinical benefit endpoint. The FDA can grant accelerated approval for a new drug if it complies with the following criteria: (1) it treats a serious condition, (2) it provides a meaningful advantage over available therapies and (3) it demonstrates an effect on an endpoint reasonably likely to predict clinical benefit.

Similarly, the EMA may give a positive opinion for conditional marketing authorization based on interim clinical data for a medicinal product for human use if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) unmet medical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market of the medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, including with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data, may be specified in the conditional marketing authorization. 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.

Although we have obtained Fast Track designation from the FDA for elafibranor in the treatment of NASH, which permits more frequent contact between us and the FDA, the potential approval of elafibranor for the treatment of NASH, if we were to decide to continue the RESOLVE-IT trial following the interim results, would depend upon the clinical results from the RESOLVE-IT trial and the review by the FDA and EMA of our or our collaborators applications. As a result, if we decide to continue the trial in view of obtaining regulatory approval of elafibranor in NASH, we or our collaborators may face difficulty in designing an acceptable registration strategy around RESOLVE-IT or any other trials in different subpopulations of NASH patients.

It may be expensive and time consuming to conduct and complete additional preclinical studies and clinical trials that the FDA, EMA and other regulatory authorities may require us to perform. As such, any requirement by the FDA, EMA or other regulatory authorities that we conduct additional preclinical studies or clinical trials could materially and adversely affect our business, financial condition and results of operations. Furthermore, even if we, our partner Terns Pharmaceuticals, or a future collaborator receives regulatory approval of elafibranor for the treatment of NASH, the labelling for our product candidates in the United States, Europe or other countries in which we, our partner Terns Pharmaceuticals, or a future collaborator have received or seek approval may include limitations that could impact the commercial success of our products.

We have obtained breakthrough therapy designation from the FDA for elafibranor in the treatment of PBC and we may seek to avail ourselves of such mechanisms to expedite the development or approval of our elafibranor for another indication or in combination in the future or in order to accelerate the development or approval of our other drug candidates, but such mechanisms may not actually lead to a faster development or regulatory review or approval process, and it may not increase the likelihood that elafibranor will receive marketing approval for this indication.

In 2019, the FDA granted breakthrough therapy designation for elafibranor for the treatment of PBC. We may also seek breakthrough therapy designation for elafibranor in a different indication or in combination or for any other drug candidate that we may develop in the future. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For drugs that are designated as breakthrough therapies, interaction and communication between the FDA and the sponsor can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens.

9


Table of Contents

 

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe a drug candidate meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a drug candidate may not result in a faster development process, review or approval compared to conventional FDA procedures and does not assure ultimate approval by the FDA.

In addition, even if one or more drug candidate qualifies as a breakthrough therapy, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Even though we have obtained orphan drug designation for elafibranor for the treatment of PBC in both the US and EU, we may not be able to obtain or maintain the benefits associated with orphan drug status, including market exclusivity. We may also seek the same designation for elafibranor in a different indication or for any of our other drug candidates, but we may not be able to obtain it or maintain the benefits associated.

Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug may be entitled to a period of marketing exclusivity, which precludes the FDA or the EMA from approving another marketing application for the same drug for that time period.

We have received orphan drug designation in both the US and the EU for elafibranor for the treatment of PBC in 2019, and we or a future partner may request the orphan drug designation for elafibranor in another indication or for other drug candidates that we may develop in Europe and/or the United States.

However, we or our partner may not receive such designation for other drug candidates that we or our partner may develop in Europe and/or the United States or for any other drug candidate in any other jurisdiction, or for elafibranor in any other indication. Even if we or our partner successfully receive the orphan drug designation, the orphan drug designation does not necessarily guarantee market exclusivity on a given market. Even if we or our partner successfully obtain the exclusivity pertaining to the orphan drug designation for any of our drug candidates, this exclusivity may not protect the product efficiently as exclusivity may be suspended under certain circumstances. In the United States, even after a drug is granted orphan exclusivity and approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the European Union, the exclusivity pertaining to the orphan drug designation will not prevent the marketing approval of a similar drug for the same condition if the later drug is shown to be safer, more effective or otherwise clinically superior to the first drug, or if the owner of the market approval of the first product does not have the capacity to deliver sufficient quantities of the product. In addition, if another orphan designated product receives marketing approval and exclusivity for the same condition as the one for which we or a future partner seek to develop a drug candidate, we or our partner may not be able to receive approval of our drug candidate by the relevant regulatory authorities for a significant period of time.

If the FDA does not conclude that certain of our product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates may likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.

We are currently conducting a clinical-stage program based on drug repositioning to develop an anti-fibrotic drug candidate, nitazoxanide, or NTZ, for which we may seek FDA approval through the Section 505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from trials that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), if applicable to us under the FDCA, would allow an NDA we submit to the FDA to rely in part on data in the public domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development program for our product candidates by potentially decreasing the amount of clinical data that we would need to generate in order to obtain FDA approval. The Phase 2 clinical trial of NTZ in NASH-induced fibrosis was allowed based on the existing FDA evaluations of safety in the currently-approved indication, which is a hallmark of the Section 505(b)(2) regulatory pathway. As we progress the clinical program, we plan to initiate such discussions with the FDA. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as we anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization.

10


Table of Contents

 

In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months or longer depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we or a future partner are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to accelerated product development or earlier approval.

Moreover, even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products.

We are currently considering the development of some of our drug candidates in combination with other treatments, which exposes us to additional risks.

Depending on our decision whether or not to continue development of elafibranor in NASH, we may also consider the development of elafibranor in combination with one of our drug candidates or other approved drugs or drugs in development.

Combinations of some of our drug candidates with other treaments may not provide the expected synergistic outcomes or other complementary effects or patients may not be able to tolerate our drug candidates in association with other treatments. Even if any product candidate that we develop was able to receive market approval or to be marketed to be used in combination with other existing treatments, we would still be exposed to the risk that the FDA, the EMA or other foreign regulatory authorities may withdraw approval for the treatment in combination with our drug candidate or that issues related to safety, efficiency, production or supply occur with these existing treatments.  

We may also evaluate elafibranor or all other future drug candidates in combination with one or more treatments in NASH or PBC that have not yet received market approval from the FDA, the EMA or other similar regulatory authorities. We, our current partner or a future partner may not be able to market and sell elafibranor or any other product candidate that we would develop in combination with these treatments that have not received approval in NASH or PBC if in the end they did not receive market authorization.

 

Delays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our ability and that of Terns Pharmaceuticals, our partner in some territories and for some indications and that of a future collaborators to obtain regulatory approval for elafibranor and our other drug candidates.

Delays in the commencement, enrolment and completion of our clinical trials or those of our partner Terns Pharmaceuticals or any future collaborator could increase our product development costs or limit the regulatory approval of our drug candidates. We currently have underway a number of trials including our pivotal Phase 3 RESOLVE-IT clinical study of elafibranor in NASH and are planning to initiate a Phase 3 pivotal trial in PBC. We may also be required to conduct additional clinical trials of elafibranor or our other drug candidates. In the past, we have experienced some delays in enrolment in our clinical trials and our RESOLVE-IT clinical trial in particular. We continue to work towards expanding our overall elafibranor development program with additional trials and studies, including in pediatric patients and product combinations and we plan on conducting additional development activities with elafibranor in other diseases. Terns Pharmaceuticals, our partner for the development of elafibranor in certain territories and for some indications will also launch new trials recruiting specific patient populations.

The results from these trials may not be available when we expect or we or our collaborators  may be required to conduct additional clinical trials or preclinical studies not currently planned to receive approval for elafibranor as a treatment for the relevant indication. In addition, our clinical programs and those of our partner are subject to a number of variables and contingencies, such as the results of other trials, patient enrolments or regulatory interactions that may result in a change in timing. As such, we do not know whether any future trials or studies in elafibranor or our other product candidates will begin on time or will be completed on schedule, if at all.

 

11


Table of Contents

 

The commencement, enrolment and completion of clinical trials can be delayed or suspended for a variety of reasons, including:

 

inability to demonstrate sufficient safety and efficacy to obtain regulatory approval to commence a clinical trial;

 

inability to validate test methods to support quality testing of the drug substance and drug product;

 

inability to determine dosing and clinical trial design;

 

inability to obtain sufficient funds required for a clinical trial or lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions;

 

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

 

inability to reach agreements on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;

 

discussions with the FDA, EMA or other non-U.S. regulators regarding the scope or design of our clinical trials, which may occur at various times, including subsequent to the initiation of the clinical trial;

 

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

 

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

 

inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by our product candidates;

 

the delay in receiving results from or the failure to achieve the necessary results in other clinical trials;

 

inability to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;

 

lack of effectiveness of product candidates during clinical trials;

 

suspension or termination by a data and safety monitoring board, or DSMB, that is overseeing the clinical trial;

 

changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;

 

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

 

severe or unexpected drug-related adverse effects experienced by patients or any determination that a clinical trial presents unacceptable health risks;

 

a breach of the terms of any agreement with, or for any other reason by, current or future collaborators that have responsibility for the clinical development of any of our product candidates, or investigators leading clinical trials on our product candidates;

 

inability to timely manufacture or deliver sufficient quantities of the product candidate required for preclinical studies or clinical trials;

 

difficulty identifying, recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our trial, the rarity of the disease or condition, the rarity of the characteristics of the population being studied, the nature of the protocol, the risks of procedures that may be required as part of the trial, such as a liver biopsy, the availability of effective treatments for the relevant disease and the eligibility criteria for the clinical trial, and competition from other clinical trial programs for the same indications as our product candidates;

 

global health pandemics such as COVID-19 or natural disasters; and

 

inability to retain enrolled patients after a clinical trial is underway.

12


Table of Contents

 

For example, our RESOLVE-IT trial is a large and complex Phase 3 clinical trial in 2,000 patients, in a disease without any approved therapies and the diagnosis of which generally involves invasive procedures such as liver biopsies. Additionally, there are a number of companies developing product candidates for the treatment of NASH, and, as a result, there may be increased patients in clinical trials involving the treatment of NASH. Furthermore, if one of our competitors’ products is approved by the FDA or another regulatory body for the treatment of NASH before elafibranor is approved, we may experience difficulties enrolling patients in our clinical trials and retaining patients in any of our existing clinical trials. .

As we engage in other large and complicated trials and trials in advanced disease populations, including our planned Phase 3 pivot trial evaluating elafibranor in PBC and a Phase 2 trial evaluating NTZ in liver fibrosis, we may experience a number of complications that may negatively affect our plans or our development programs. Our Phase 3 pivotal trial evaluating elafibranor in PBC in particular is made complex by the small number of patients and the fact that one of our competitor’s product is the only one to have recently received market approval in this indication, which may compromise our ability to retain or recruit patients or finalize the trial on time. Potential discussions with the FDA, the EMA or other regulatory authorities outside the United States or Europe regarding the scope or design of our clinical trials may also happen at any time.

More broadly, changes in the treatment of NASH or PBC, such as the approval of a drug therapy for the treatment of NASH or PBC by one of our competitors, could result in difficulties retaining or enrolling patients in our clinical trials and those of our current or collaborators. Any difficulty retaining patients may in the future delay or produce negative or inconclusive results from our clinical trials, and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. Any delay or compromises with respect to the validity of our clinical trials may have a material adverse effect on our business or decrease our competitive position relative to other biotechnology or pharmaceutical companies.

In addition, if we or our collaborators are required to conduct additional clinical trials or other preclinical studies of our drug candidates beyond those contemplated, our ability or that of our collaborators to obtain regulatory approval of these product candidates and generate revenue from their sales would be similarly harmed.

Clinical failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive of future results and any product candidate that we or our collaborators  advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.

Clinical failure can occur at any stage of our clinical development or those of our current partner or a future partner. Clinical trials may produce negative or inconclusive results, and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we or our collaborators do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us or our current and potential future collaborators, have suffered significant setbacks in Phase 3 clinical trials and at other stages of clinical development in particular in NASH and PBC, even after seeing promising results in earlier clinical trials.

For example, , in May 2020, we published the top line results of the interim analysis of our Phase 3 RESOLVE-IT trial.  Elafibranor did not demonstrate a statistically significant effect on the primary endpoint of NASH resolution without worsening of fibrosis nor on the key secondary endpoints. In addition, if a decision is made to continue the trial to evaluate clinical outcomes,  

we cannot assure you that our RESOLVE-IT trial will achieve positive results.  Furthermore,  regulators may request additional clinical data to support regulatory approval.

In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well-advanced. We or our collaborators may be unable to design and execute a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts. If elafibranor or our other drug candidates are found to be unsafe or lack efficacy for any indication, we or our collaborators will not be able to obtain regulatory approval for them, and our prospects and business may be materially and adversely affected. For example, if the results of our Phase 3 RESOLVE-IT trial of elafibranor or our planned Phase 3 trial evaluating elafibranor in PBC do not achieve the primary efficacy endpoints or demonstrate expected safety, the prospects for approval of elafibranor would be materially and adversely affected in these two therapeutic indications.

13


Table of Contents

 

In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes or differences in trial protocols, patient distribution by clinical investor site, standards of care across sites, differences in composition of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates. If we or our collaborators are unable to bring any of our current or future product candidates to market, or to acquire any marketed, previously approved products, our ability to create long-term shareholder value will be limited.

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

Changes in regulatory requirements, FDA guidance or guidance from the EMA or other European or foreign regulatory authorities, or unanticipated events during our clinical trials, may force us or our current or future collaborators to amend clinical trial protocols or to otherwise alter the regulatory approval or clearance process and timeline for our drug candidates and/or NIS4. Regulatory authorities could also impose additional clinical trial requirements. Amendments to our clinical trial protocols or those of or our current or future collaborators would require resubmission to the FDA, EMA, national clinical trial regulators and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of a clinical trial. If we experience delays completing, or if we terminate, any of our clinical trials, or if we are required to conduct additional clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenue will be delayed.

Due to our limited resources and access to capital, our strategic decisions with respect to the development of certain product candidates may affect the development or timing of our business prospects.

Because we have limited resources and access to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to each. As such, we are currently primarily focused on the development of elafibranor for the treatment of NASH and PBC, and the parallel development of NIS4 for identifying patients with NASH and fibrosis who may be appropriate candidates for drug therapy. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular compounds, programs, product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from more promising opportunities. We may not choose the right product candidates or programs to develop, or may be required to collaborate with third parties to advance a particular product candidate at terms that are less than optimal to us. If we make incorrect determinations regarding the market potential of our product candidates or misread trends in the pharmaceutical industry, our business prospects could be harmed.

Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require our product candidates to be taken off the market, require them to include safety warnings or otherwise limit their sales.

Unforeseen side effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. If severe side effects were to occur, or if elafibranor or one of our other product candidates is shown to have other unexpected characteristics, we may need to either restrict our use of such product to a smaller population or abandon our development of elafibranor for NASH, PBC and other potential indications.

In addition, our product candidates are being developed as potential treatments for severe, life-threatening diseases and, as a result, our trials will necessarily be conducted in a patient population that will be more prone than the general population to exhibit certain disease states or adverse events. For example, NASH patients may suffer from other co-morbidities such as diabetes, cardiovascular disease and obesity that may increase the likelihood of certain adverse events. It may be difficult to discern whether certain events or symptoms observed during our trials were due to our product candidates or some other factor, resulting in our company and our development programs being negatively affected even if such events or symptoms are ultimately determined to be unlikely related to our drugs and drug candidates. We further cannot assure you that additional or more severe adverse side effects with respect to elafibranor, NTZ or any other drug candidate that we would intend for this patient population will not develop in current or future clinical trials or commercial use, which could delay or preclude their regulatory approval or limit their commercial use. However, DSMBs have been constituted in our main trials and are tasked on the one hand with evaluating side effects observed during our studies at regular intervals defined in our study protocols and with issuing recommendations regarding their continuation or the conditions of their continuation on the other hand.

14


Table of Contents

 

If we or others later identify undesirable or unacceptable side effects caused by our products or product candidates:

 

regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

 

we or current or future collaborators may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the labeling of the product;

 

we may be subject to limitations on how we may promote the product;

 

sales of the product may decrease significantly;

 

regulatory authorities may require us or current or future collaborator(s) to take our approved product off the market;

 

we or current or future collaborator(s)  may be subject to litigation or product liability claims; and

 

our reputation or that of our current or future collaborator(s) may suffer.

 

We or our potential future collaborators may not receive the necessary regulatory approvals to market NIS4, our in-vitro diagnostic test (IVD test) for use in clinical care.

Concurrently with our drug candidates development, we are also developing NIS4 in order to identify patients with NASH and fibrosis who may be eligible for therapeutic intervention.

In order to be allowed to market NIS4 as an IVD in the European Union and the United States, the product must achieve CE marking from a qualified Notified Body in Europe and FDA approval/clearance in the United States. Other relevant regulatory requirements must be met to market in other countries.

In the United States, IVD tests are regulated as medical devices. Therefore, to be commercially distributed for clinical care, an IVD diagnostic product must demonstrate, depending on its regulatory classification, either its safety and efficiency through a pre-market approval, or its substantial equivalence to a previously FDA-approved medical device through clearance of a 501(k) premarket notification. This regulatory classification may not be obtained. A clinical trial is almost always required to support a pre-market approval or PMA application and is sometimes required for 510(k) clearance. All clinical studies of medical devices must be conducted in compliance with any applicable FDA and Institutional Review Board requirements.

Alternatively, the product may be marketed as a Laboratory Developed Test or LDT, which does not require FDA approval, but requires the laboratory conducting the test to have been certified under the Clinical Laboratory Improvement Amendments of 1988 Act or CLIA. We have licensed NIS4 to LabCorp to enable them to promote, sell, and run NIS4 testing within their Covance laboratory network within the context of research or clinical trial use. LabCorp/Covance thus independently operates NIS4. This operation is conducted within the framework of the CLIA and establishes quality standards that must be followed in laboratory testing in order to ensure accuracy, reliability and speed of patient test results wherever the test is conducted. This law has instated an accreditation program for clinical laboratories, which LabCorp/Covance has received.

 

We currently do not have any IVD test that has been approved for marketing through such a process and we cannot guarantee that we or potential or future collaborators will ever own marketable IVD tests. We have not submitted any marketing applications for any IVD test, and, in particular, we have not submitted any marketing application for NIS4.

 

As with approval of our drug candidates, the process for obtaining marketing authorization of diagnostic candidates for clinical care is lengthy, uncertain and expensive. In the United States, IVD tests are regulated as medical devices. The Federal Food, Drug, and Cosmetic Act, or the FDCA, and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labelling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance.

15


Table of Contents

 

Concurrently with the FDA approval process for our IVD test, we are collecting data to obtain CE Mark and the subsequent market authorization on the key European markets. Like the U.S. approval process, the CE marking process in Europe may be lengthy and expensive, and the exact date of market approval issuance remains hard to predict.

 

Each regulatory authority may indeed refuse to issue approval, impose its own conditions to such issuance, or require additional data prior to issuance, even when such approval would have been already granted by similar regulatory authorities. Regulatory authorities may also modify their approval policies, particularly by adding new or additional conditions to grant approval. The European Commission, for example, published in 2012 two European regulation proposals in order to replace the currently applicable directives on medical devices. The European Commission indicated at the time that the European regulations may be adopted in 2014 and come into force between 2017 and 2019. Since then, the European Parliament has adopted legislative resolutions on the proposed regulations at first reading on April 2, 2014. The new regulation was unanimously approved by the European Council during its June 2015 session. These modifications mostly require the implementation of a new classification of in-vitro diagnostic medical devices (IVDMD) and the strengthening of requirements regarding the level of detail to be presented about relevance and clinical validation. After its adoption by the European Council on March 7, 2017 and the European Parliament on April 5, 2017, the new (EU) 2017/746 regulation on in-vitro diagnostic medical devices (IVDMD) came into force on May 25, 2017. The transition period will last 5 years, until 2022, during which medical devices manufacturers will be required to update their technical documentation process.

 

We or our potential collaborators may therefore be subject to delays in obtaining the approval required to market NIS4 for clinical care, or even not be successful in receiving approval. Such delay or failure may have an unfavorable impact on our ability to market NIS4 and our ability to generate direct or indirect revenue from this activity.

Even after regulatory approval has been granted or declarations of commercialization have been filed with regulatory authorities, IVD tests remains subject to pharmacovigilance monitoring of incidents and risks of incidents related to their use. Even though these are rare with non-invasive products like IVD tests, such incidents may occur and lead regulatory authorities to suspend or even revoke the market authorization of such products. Regulatory authorities may also conclude that procedures put it place by us or our collaborators are insufficient in order to identify and handle incidents, and could suspend commercialization of the products until these procedures are considered sufficient.

 

We intend for NIS4 to be marketed as a clinical IVD and as such, NIS4 remains a product in development subject to the hazards of diagnostic product development, and there is no assurance that we will be able to achieve commercialization of this product candidate for this market.

 

In January 2019, we entered into a license agreement with Labcorp to allow them to deploy NIS4 in the clinical research space. We believe that leveraging the capabilities of a large diagnostic company such as Labcorp, through its Covance laboratory network, will allow for early adoption of our test, result in third party publication and provide additional evidence of its clinical utility. We intend to benefit from these advantages to support the next step of the deployment of NIS4 for diagnostic use in clinical care.

 

This second step will nevertheless require us to keep gathering clinical data within the framework of trials in which NIS4 is currently being evaluated or within the framework of potential additional clinical trials to come. Like for the clinical trials evaluating our drug candidates, delays in launching, advancing or in the final phase of our clinical trials could result in increased costs, delaying or limiting our ability or that of our collaborators to obtain market authorization for NIS4 for use in clinical care. The results of these trials may not be available at the desired time or we or our collaborators may be required to conduct additional clinical trials that we do not currently plan in order to obtain market authorization for NIS4 for clinical care. Besides, these trials are subject to numerous variable factors and hazards, such as the results of other trials, patient recruitment or discussions with regulatory authorities that may result in schedule changes. Therefore, we do not know if these trials will start or end according to the planned schedule, nor even if they will be launched.

 

16


Table of Contents

 

In these trials, we will continue to use human samples. Even if we have preferred access to the samples collected during the clinical development of elafibranor in NASH, we may be unable to access a sufficient quantity of samples or samples of a sufficient quality or usability, in which case the continuation of the development of NIS4 could be slowed down or even interrupted. The strength of the test initially identified on a relatively limited number of samples could turn out to not be sufficient during potential future validation studies on larger target populations, and notably not display sufficient levels of accuracy and sensitivity in order to allow for the development of a competitive test for clinical care that would be adopted by the medical community. Access to these samples could necessitate the implementation of collaborations or partnerships with hospitals or opinion leaders and we may not be in a position to conclude these collaboration or partnerships within a satisfactory timeframe or under satisfactory conditions.

 

Despite the care applied to the development of NIS4, we may not exclude the appearance after the development phase of inherent defects to the product that were undetectable or inconspicuous defects based on the existing technical and scientific knowledge during the development. A failure may occur at any time during one of these clinical developments. The results of earlier clinical trials does not allow predicting future results and NIS4 may not obtain favorable results in the clinical studies that we will keep conducting. In particular, these may not allow to reinforce the state of knowledge pertaining to it and to demonstrate its clinical utility nor the medico-economic benefit. It is possible, in particular, that NIS4, at the time of its launch on the market for clinical care, will not replace the current tests and medical examinations. In that case, the place of NIS4, initially or as a complement or substitute of certain examinations would have to be assessed through additional clinical studies that would allow evaluating its medico-economic benefit often required to obtain reimbursement. The results of these studies may not allow to define for NIS4 a place that answers the needs of clinical practitioners or to demonstrate its favorable economic outcome. With such results, NIS4 may not obtain reimbursement, especially in European countries, and see its sales stagnate at a low level, or even not be able to be sold.

 

Moreover, the data gathered during these trials and studies are subject to different interpretations, and regulatory authorities may not interpret our data as favorably as us or our collaborators, which may delay, limit or prevent the regulatory authorization for the use of NIS4 as a diagnostic tool for clinical care. Besides, the design of these trials may determine if their results can support the application for market approval and procedural defects of a trial may not be visible before the trial reaches an advanced stage. We or our collaborators may not be able to design and conduct a clinical trial sufficient to support a regulatory market approval of NIS4 for clinical care, which may have a significant unfavorable impact on our perspectives and activities.

 

Changes in regulatory requirements or guidelines issued by the regulatory authorities, or unforeseen events occurring during these trials may force us or our collaborators to alter the protocol or impose new requirements within the framework of these trials, which may result in higher costs and delays in the development schedule of NIS4. If delays occurred in the completion of these clinical trials, or if they were terminated, or if additional clinical trials were required besides the planned ones, this would impact the commercial perspectives of NIS4 and our ability to generate direct or indirect industrial revenue from this product would be delayed.

 

We are developing NIS4  to diagnose NASH patients eligible for therapeutic intervention in a field where no non-invasive test has been approved nor commercialized for clinical care to date and for which clinical experience is currently limited. Our development approach relies therefore on new methodologies. It is thus possible that, in this context, our clinical trials do not meet a favorable outcome or that, despite a favorable outcome, regulatory authorities evaluate that the results of our clinical trials or those of our collaborators are insufficient to grant market approval for an IVD test using the NIS4 technology for clinical care. Despite the care applied to the development of NIS4, we may not exclude the appearance after the development phase of inherent defects to the product that were undetectable or inconspicuous defects based on the existing technical and scientific knowledge during the development.

Risks Related to the Commercialization of Our Drug Candidates and Diagnostic Test

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

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

 

being subject to proprietary rights held by others;

17


Table of Contents

 

 

failing to obtain or otherwise manufacture commercial supply of our approved products;

 

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

 

failing to establish sales, marketing and distribution capabilities to effectively market and sell elafibranor and NIS4 in the United States, Europe and other territories;

 

having adverse side effects that make their use less desirable;

 

difficulties in negotiating and securing coverage and adequate reimbursement, or the failure to do so, from third-party payors for elafibranor, NIS4 or any of our other drug candidates, if approved or cleared;

 

inability to secure market acceptance by patients and the medical community of elafibranor, NIS4 or any of our other drug candidates, if approved or cleared;

 

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

 

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

Even if approved, our product candidates may not achieve broad market acceptance among physicians, patients and healthcare payors, and as a result our revenues generated from their sales may be limited.

The commercial success of elafibranor, NIS4 or our other drug candidates, if approved or cleared, will depend upon their acceptance among the medical community, including physicians, healthcare payors and patients. Given that no products are currently approved for the treatment of NASH and a limited number of products for the treatment of PBC, we do not know the degree to which elafibranor would be accepted as a therapy, if approved. There are, however, a number of products being developed by other companies for the treatment of NASH, and elafibranor may compete with these products for market acceptance in the future, if any of them are approved. Additionally, we cannot be assured that NIS4 will be accepted by the medical community as a means of identifying NASH patients who may be appropriate candidates for drug intervention, and even if NIS4 is used, a physician may still require additional testing (e.g. liver biopsy) to confirm diagnosis. The degree of market acceptance of elafibranor, NIS4 and any of our other drug candidates that may be approved will depend on a number of factors, including:

 

changes in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for any of our product candidates, such as competitors’ product candidates for the treatment of NASH and PBC or an alternative to liver biopsy for the diagnosis of NASH;

 

limitations in the approved clinical indications or patient populations for our product candidates;

 

demonstrated clinical safety and efficacy compared to other products;

 

limitations or warnings, including boxed warnings, contained in our drug candidates’ FDA- or EMA-approved labeling;

 

in the case of elafibranor, our ability and that of our partner, Terns Pharmaceuticals or of a potential future collaborator to access the under-diagnosed NASH market or the PBC market;

 

for NIS4, our ability, that of our partner, Covance/Labcorp or of a potential future collaborator to access the clinical research market and, if applicable, develop an IVD test for clinical care;

 

lack of significant adverse side effects;

 

sales, marketing and distribution support;

 

availability of coverage and adequate reimbursement from managed care plans and other third-party payors;

 

timing of market introduction and perceived effectiveness of competitive products;

 

the degree of cost-effectiveness;

 

availability of alternative therapies or diagnostic solutions at similar or lower cost, including generics and over-the-counter products;

 

the extent to which our product candidates are approved for inclusion on formularies of hospitals and managed care organizations;

18


Table of Contents

 

 

whether our drug or diagnostic candidates are designated under physician diagnostic and treatment guidelines for the treatment of the indications for which we, our partner, Terns Pharmaceuticals or a potential future partner have received regulatory approval;

 

adverse publicity about our product candidates or favorable publicity about competitive products;

 

convenience and ease of administration of our product candidates; and

 

potential product liability claims.

If our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients, the medical community and healthcare payors, sufficient revenue may not be generated from these products and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.

If we, or our current or future partners are unable to establish sales, marketing and distribution capabilities for elafibranor or our product candidates,  we may not be successful in commercializing those product candidates if and when they are approved.

We have no sales, marketing or distribution experience and if we are unable to establish sales, marketing and distribution capabilities, we may not be successful in commercializing our product candidates if and when they are approved. To develop internal sales, distribution and marketing capabilities, we have already begun to invest significant amounts of financial and management resources, and we may continue to do so, even prior to any confirmation that our product candidates will be approved. In particular, if elafibranor obtains marketing authorization in an indication, we may decide to market elafibranor in certain territories by ourselves, and/or market it in other territories in collaboration with one or more pharmaceutical partner and/or specialized local distributor. For example, in June 2019, we entered into a licensing and collaboration agreement with Terns Pharmaceuticals to develop and commercialize elafibranor for the treatment of NASH and PBC in mainland China, Hong Kong, Macau and Taiwan (Greater China). Additionally, in connection with the development of NIS4, we entered into a license agreement with LabCorp to allow them to develop and deploy NIS4 in the clinical research space through their subsidiary Covance. If we decide to market any of our products ourselves, we would need to develop our own sales and marketing capabilities. For elafibranor or any other product candidates where we decide to perform sales, marketing and distribution functions ourselves or through third parties, we could face a number of additional risks, including:

 

we or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;

 

our sales personnel may be unable to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products;

 

the cost of securing or establishing a marketing or sales force may exceed the revenues generated by any products; and

 

our direct sales and marketing efforts may not be successful.

If we are unable to establish our own sales, marketing and distribution capabilities and decide to enter into arrangements with third parties to perform these services for the products on the markets or indications that are not already subject to licensing agreements, our revenue and our profitability, if any, are likely to be lower than if we were to sell, market and distribute any products that we develop ourselves. Additionally, such collaboration agreements with current or potential collaborators may limit our control over the marketing of our products and expose us to a number of risks, including the risk that the partner will not prioritize the marketing of the product candidate or diagnostic test candidate or does not provide sufficient resources for its commercialization.

 

19


Table of Contents

 

We have entered into, and may continue to seek and form, strategic alliances or enter into licensing or co-marketing arrangements to commercialize our approved drugs or diagnostic products, and we may not realize the benefits of such arrangements.

We may enter into licensing arrangements with third parties that we believe will complement or augment our commercialization efforts, particularly with respect to elafibranor and the diagnostic use of NIS4 for clinical care. For example, we have entered into a licensing and collaboration agreement with Terns Pharmaceuticals to develop and commercialize elafibranor for the treatment of NASH and PBC in Greater China and we have entered into a license agreement with LabCorp to allow them to deploy NIS4 in the clinical research space. Any of these relationships may require us to incur costs, increase our near and long-term expenditures, issue securities that dilute our existing shareholders or disrupt our management and business. Our likely collaborators include, in the case of elafibranor, large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies, or, in the case of NIS4, a major global diagnostic company. If we enter into any such arrangements with any third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of elafibranor or any other product candidate. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction.

Collaborations involving elafibranor, NIS4 or any of our other drug candidates pose the following risks to us:

 

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;

 

collaborators may not perform their obligations as expected;

 

collaborators may not pursue commercialization or may elect not to continue or renew commercialization programs based on changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

 

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidate if the collaborators believe that competitive products are more likely to be successfully commercialized under terms that are more economically attractive than ours;

 

a collaborator with marketing and distribution rights to one or more product candidates may not commit sufficient resources to the marketing and distribution of any such product candidate;

 

collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation;

 

collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

 

disputes may arise between the collaborators and us that result in the delay or termination of the commercialization of our product candidate or that result in costly litigation or arbitration that diverts management attention and resources;

 

we may lose certain valuable rights under circumstances identified in our collaborations, including if we undergo a change of control;

 

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates;

 

collaborators may learn about our discoveries and use this knowledge to compete with us in the future;

 

there may be conflicts between different collaborators that could negatively affect those collaborations and potentially others;

 

the number and type of our collaborations could adversely affect our attractiveness to future collaborators or acquirers;

20


Table of Contents

 

 

collaboration agreements may not lead to commercialization of our product candidate in the most efficient manner or at all. If a present or future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our commercialization program under such collaboration could be delayed, diminished or terminated; and

 

collaborators may be unable to obtain the necessary marketing approvals.

If future collaboration partners fail to develop or effectively commercialize elafibranor, NIS4 or any other drug candidate for any of these reasons, such product candidate may not be cleared for sale and our sales of such product candidate, if approved, may be limited, which would have an adverse effect on our operating results and financial condition.

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

Even if we or our collaborators receive regulatory approval for a product candidate, this approval may carry conditions that limit the market for the product or put the product at a competitive disadvantage relative to alternative therapies or diagnostic solutions. For instance, a regulatory approval may limit the indicated uses for which we or our collaborators can market a product or the patient population that may utilize the product, or may be required to carry a warning, such as a boxed warning, in its labelling and on its packaging. Products with boxed warnings are subject to more restrictive advertising regulations than products without such warnings. These restrictions could make it more difficult to market any product candidate effectively.

Additionally, any of our product candidates for which we or our collaborators obtain marketing approval, as well as the manufacturing processes, post-approval studies and measures, labelling, advertising and promotional activities for such products, among other things, will be subject to continual requirements of and review by the EMA, FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping.

Approved drugs that are manufactured or distributed in the United States pursuant to FDA approvals are subject to pervasive and continuing regulation by the EMA and the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, drug sampling and distribution, advertising and promotion and reporting of adverse experiences with the drug.

After approval, most changes to the approved drug, such as adding new indications or other labelling claims and some manufacturing and supplier changes are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for marketed drugs, as well as new application fees for certain supplemental applications. Once approval is granted, the FDA may issue enforcement letters or withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the drug reaches the market. Corrective action could delay drug distribution and require significant time and financial expenditures. Later discovery of previously unknown problems with a drug, including adverse effects of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labelling 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 risk evaluation and mitigation strategy, or REMS. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use. Elements to assure safe use can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can be costly to establish and can materially affect the potential market and profitability of the drug. In addition, even if we or our collaborators obtain accelerated or conditional marketing approval for one of our product candidates, as we had envisioned for elafibranor in NASH on the basis of an interim analysis, like all companies using the Subpart H and conditional approval pathway, we or our collaborators would be required to continue the  trial post-marketing in order to demonstrate the efficacy of the drug candidate on clinical benefit based on a composite endpoint of clinical outcomes. Depending on the outcome, the FDA or EMA could revoke the previously granted approval.

 

Other potential consequences include, among other things:

 

restrictions on the marketing or manufacturing of the drug, suspension of the approval, complete withdrawal of the drug from the market or product recalls;

21


Table of Contents

 

 

fines, warning letters or holds on post-approval clinical trials;

 

refusal of the FDA to approve applications or supplements to approved applications, or suspension or revocation of drug approvals;

 

drug seizure or detention, or refusal to permit the import or export of drugs; or

 

injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labelling, advertising and promotion of drugs 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. 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, including civil, criminal and administrative penalties. However, physicians may, in their independent medical judgment, prescribe legally available products for off-label uses. The FDA does not regulate the behavior of physicians in their choice of treatments but the FDA does restrict manufacturer’s communications on the subject of off-label use of their products.

Similarly, if NIS4 is authorized for marketing for clinical care in the United States, the test will be subject to quality system regulation, or QSR, labelling regulations, registration and listing, the Medical Device Reporting regulation which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur and the Reports of Corrections and Removals regulation which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA. The FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from an untitled or public warning letter to more severe sanctions such as fines, injunctions and civil penalties; recall or seizure of products; operating restrictions and partial suspension or total shutdown of production; refusing requests for 510(k) clearance or PMA approval of new products; withdrawing 510(k) clearance or PMAs already granted; and criminal prosecution.

Accordingly, assuming we or our current or future collaborators receive marketing approval for one or more of our product candidates, we and our collaborators will continue to expend time, money and effort in all areas of regulatory compliance.

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

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

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

22


Table of Contents

 

United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates, but also have their own methods and approval process apart from Medicare determinations. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us or our collaborators to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

The continuing efforts of third-party payors of healthcare costs to contain or reduce costs of healthcare may negatively affect our or our collaborators commercialization prospects, including:

 

the ability to set a price we believe is fair for our or our collaborators’ products, if approved;

 

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

 

the ability to generate revenues and achieve profitability; and

 

the availability of capital.

Our or our collaborators’ ability to obtain an acceptable reimbursement rate for our drugs from third-party payors will be determined in the coming years, in particular at the end of the development of elafibranor in NASH and PBC, which is our most advanced drug candidate. We cannot be sure that coverage and reimbursement will be available for any potential product candidate that we or our collaborators may commercialize and, if reimbursement is available, what the level of reimbursement will be. Since no drug has yet been commercialized in NASH and few have been in PBC, we are currently working internally on market access and pricing, but cannot predict the conditions of elafibranor’s future reimbursement. However, because negotiations with the payors are traditionally based on the results (intermediate, or otherwise) of Phase 3 clinical trials,  we have only had preliminary discussions with the organizations concerned. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we or our collaborators obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing approval.

In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, ACA, is significantly impacting the provision of, and payment for, healthcare. With regard to pharmaceutical products specifically, the ACA, among other things, expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare prescription drug benefit. Some of the provisions of the ACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the ACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, it has enacted laws that modify certain provisions of the ACA, such as removing penalties, starting January 1, 2019, for not complying with the ACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. In addition, the Centers for Medicare & Medicaid Services, or CMS, promulgated regulations to give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces.

On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall. It is unclear how such litigation and other efforts to repeal and replace the ACA will impact the ACA and our business.

23


Table of Contents

 

In addition, both the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012 have instituted, among other things, mandatory reductions in Medicare payments to certain providers. However, the Medicare sequester reductions under the Budget Control Act of 2011 will be suspended from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic. Additional legislative proposals to reform healthcare and government insurance programs, along with the trend toward managed healthcare in the United States, could influence the purchase of medicines and reduce coverage and/or reimbursement of our product candidates, if approved.

Moreover, recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for the 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. Further, 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. Additionally, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase 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, at the same, has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage plans the option to use step therapy for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. 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. At the state level, legislatures are increasingly passing legislation and implementing 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.

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

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

24


Table of Contents

 

Failures to reimburse NIS4, if commercialized for clinical care, or changes in reimbursement rates by third-party payors and variances in reimbursement rates could materially and adversely affect our revenues and could result in significant fluctuations in our revenues.

Our ability or that of a potential future collaboraters to commercialize NIS4 also will depend in part on the extent to which coverage and adequate reimbursement for this test will be available from third-party payors, such as government health administration authorities, private health insurers and other organizations. Insurance coverage and reimbursement rates for diagnostic tests are uncertain, subject to change and particularly volatile during the early stages of a newly commercialized diagnostic test. It is uncertain as to what extent third-party payors will provide coverage for NIS4, if commercialized for clinical care. We will also likely experience volatility in the coverage and reimbursement of the IVD test due to contract negotiation with third-party payors and implementation requirements.

The reimbursement amounts we receive from third-party payors will vary from payor to payor, and, in some cases, the variation is material. Third-party payors have increased their efforts to control the cost, utilization and delivery of healthcare services. These measures have resulted in reduced payment rates and decreased utilization for the diagnostic test industry. From time to time, Congress has considered and implemented changes to the Medicare fee schedules in conjunction with budgetary legislation, and pricing for tests covered by Medicare is subject to change at any time. Reductions in the reimbursement rate provided by third-party payors may occur in the future. Reductions in the price at which NIS4 is reimbursed could have a material adverse effect on our revenues. If we and our potential future collaborators are unable to establish and maintain broad coverage and adequate reimbursement for NIS4 or if third-party payors change their coverage or reimbursement policies with respect to the IVD test, our revenues could be materially and adversely affected.

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

Our future profitability will depend on our or our collaborators’ ability to commercialize our product candidates in the United States, Europe and other territories around the world. If we or our collaborators commercialize our product candidates in international markets, we would be subject to additional risks and uncertainties, including:

 

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

 

the burden of complying with complex and changing non-U.S. regulatory, tax, accounting and legal requirements, many of which vary between countries;

 

different medical practices and customs in non-U.S. countries affecting acceptance in the marketplace;

 

tariffs and trade barriers;

 

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

 

longer accounts receivable collection times;

 

longer lead times for shipping;

 

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

 

workforce uncertainty in countries where labor unrest is common;

 

language barriers for technical training;

 

reduced protection of intellectual property rights in some countries outside the United States, and related prevalence of generic alternatives to therapeutics;

 

foreign currency exchange rate fluctuations and currency controls;

 

differing reimbursement landscapes globally;

 

uncertain and potentially inadequate reimbursement of our products; and

 

the interpretation of contractual provisions governed by laws outside the United States in the event of a contract dispute.

25


Table of Contents

 

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

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

Future sales of our product candidates, if they are approved, will be dependent on purchasing decisions of and reimbursement from government health administration authorities, distributors and other organizations. As a result of adverse conditions affecting the global economy and credit and financial markets, including disruptions due to political instability, the COVID-19 pandemic or otherwise, these organizations may defer purchases, may be unable to satisfy their purchasing or reimbursement obligations, or may delay payment for elafibranor, NIS4 or any of our product candidates that are approved for commercialization in the future. In addition, there have been concerns for the overall stability and suitability of the euro as a single currency given the economic and political challenges facing individual Eurozone countries. Continuing deterioration in the creditworthiness of Eurozone countries, the withdrawal of one or more member countries from the European Union, or the failure of the euro as a common European currency or an otherwise diminished value of the euro could materially and adversely affect our future product revenue from European sales of our products.

 

Risks Related to the Dependency on Third Parties

We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively as if we performed these functions ourselves.

Under our supervision, we outsource substantial portions of our operations to third-party service providers, including preclinical studies and clinical trials, collection and analysis of data and manufacturing of our drug candidates and the realization of certain analyses pertaining to NIS4 as a LDT on the clinical research market. In particular, we subcontract the design and/or conduct of our clinical trials to CROs, as well as the manufacturing of our active ingredients and therapeutic units to contract manufacturing organizations, or CMOs, especially with regard to our Phase 3 RESOLVE-IT trial and our Phase 3 clinical trial evaluating elafibranor in PBC. We also contract with external investigators and other specialized services providers, for example with respect to certain statistical analyses, to perform services such as carrying out and supervising, and collecting, analyzing and formatting of data for our trials. Although we are involved in the design of the protocols for these trials and in monitoring them, we do not control all the stages of test performance and cannot guarantee that the third parties will fulfil their contractual and regulatory obligations. In particular, a contractor’s failure to comply with protocols or regulatory constraints, or repeated delays by a contractor, could compromise the development of our products or result in liability for us. Such events could also inflate the product development costs borne by us.

This strategy means that we do not directly control certain key aspects of our product development, such as:

 

the quality of the product manufactured;

 

the delivery times for therapeutic units (pre-packaged lots specifically labeled for a given clinical trial);

 

the clinical and commercial quantities that can be supplied; and

 

compliance with applicable laws and regulations.

Additionally, our development activities or clinical trials conducted in reliance on third parties may be delayed, suspended, or terminated if:

 

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

 

we replace a third party; or

 

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

26


Table of Contents

 

We may not be able to control the performance of third parties in their conduct of development activities. In the event of a default, bankruptcy or shutdown of, or a dispute with, a third party, we may be unable to enter into a new agreement with another third party on commercially acceptable terms. Further, third-party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product candidates. In addition, our third-party agreements usually contain a clause limiting such third party’s liability, such that we may not be able to obtain full compensation for any losses we may incur in connection with the third party’s performance failures. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.

We rely entirely on third parties for the manufacturing of our drug candidates and the future manufacturing of the NIS4 test kit for the clinical care including one manufacturer for the active ingredient in elafibranor and another manufacturer for the therapeutic units of elafibranor used in our clinical trials. Our business could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.

We do not intend to manufacture the drug products nor the NIS4 test kits that we plan to sell if the latter is approved on the routine care market. We currently have agreements with a contract manufacturer for the production of the active pharmaceutical ingredients and the formulation of sufficient quantities of drug product for our preclinical studies and clinical trials that we plan to conduct prior to and after seeking regulatory approval and, if applicable, for the manufacturing of the first commercial lots of the product. We rely on one supplier for the active ingredient in elafibranor and another manufacturer for the therapeutic units of elafibranor used in our clinical trials and, if applicable, for the provision of the first commercial lots. If either of those contract manufacturers should cease to provide services to us for any reason, we likely would experience delays in advancing our clinical trials and, if applicable, for the commercial launch while we identify and qualify one or more replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us.

While we believe that our current inventory and drugs in production at various levels of the production chain are sufficient for our needs on a short-term basis, a failure at both of the storage sites of the therapeutic units used for the RESOLVE-IT study and for our planned Phase 3 study evaluating elafibranor in PBC, in the process of being initiated, would be critical.

We are also in the process of qualifying duplicate  manufacturing units  for our active ingredient and therapeutic units; however, the process has not been completed and we have had to face the temporary closing of one of these units for a duration of 15 days due to a suspected case of COVID-19, even though this unit has indicated to us that this would not affect the provision of future clinical lots. However, in case of failure of these units, we may not be able to enter into additional long-term commercial supply agreements for elafibranor with other third-party manufacturers on terms sufficiently advantageous to us. We do not have agreements for long-term supplies of any of our other product candidates. We currently obtain these supplies and services from our third-party contract manufacturers on a purchase order basis.

Additionally, the facilities used by any contract manufacturer to manufacture elafibranor or any of our other product candidates must be the subject of a satisfactory inspection before the FDA, the EMA or the regulators in other jurisdictions that approve the product candidate manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture material that conform to our specifications and current good manufacturing practice requirements of any governmental agency whose jurisdiction to which we are subject, our products or product candidates will not be approved or, if already approved, may be subject to recalls or other enforcement action.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the products or product candidates, including:

 

the possibility that we are unable to enter into or renew a manufacturing agreement with a third party to manufacture elafibranor or our product candidates;

 

the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and

 

the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-party manufacturer.

27


Table of Contents

 

Any of these factors could cause the delay of approval or disruption of commercialization of our products or product candidates, cause us to incur higher costs, prevent us or our potential future collaborators from commercializing our products and product candidates successfully or disrupt the supply of our products after commercial launch. Furthermore, if any of our contract manufacturers fail to deliver the required commercial quantities of finished product on acceptable commercial terms and we or our current or future collaborators are unable to find one or more replacement manufacturers capable of production at substantially equivalent cost, volume and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply and to have any such new source approved by the government agencies that regulate our products.

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

We have limited experience in product development and marketing and may seek to enter into collaborations with third parties for the development and potential commercialization of our product candidates including those at an early and preclinical stage, particularly those candidates outside of our main therapeutic areas of interest. In January 2019, we entered into a license agreement with LabCorp to allow them to deploy NIS4 in the clinical research space. Should we seek to collaborate with additional third parties with respect to our development programs, we may not be able to locate a suitable collaborator and may not be able to enter into an agreement on commercially reasonable terms or at all. In June 2019, we entered into a collaboration and license agreement with Terns Pharmaceuticals, Inc., or Terns, pursuant to which we granted Terns rights to develop and commercialize elafibranor in Greater China for the treatment of NASH and PBC. Even if we succeed in securing collaborators for the development and commercialization of our product candidates, we have limited control over the amount and timing that our collaborators may dedicate to the development or commercialization of our product candidates. These collaborations pose a number of risks, including that the collaborators may:

 

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

 

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

 

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

 

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

 

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

 

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

Thus, collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. For example, although we have entered into a license agreement with LabCorp/Covance to use NIS4 for clinical research purposes, LabCorp is under no obligation to do so and may choose not to further develop and deploy the test. There is no guarantee that our collaboration with LabCorp will result in widespread clinical or commercial use of NIS4 for clinical care. Similarly, although we have entered into a collaboration and license agreement with Terns for the treatment of NASH and PBC with elafibranor in Greater China, Terns is under no obligation to do so and may choose not to further develop and market elafibranor in either indication or within all relevant territories. There is no guarantee that our partnership with Terns will successfully result in a generalized clinical or commercial use of elafibranor for these indications and in those jurisdictions.

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

28


Table of Contents

 

We depend on LabCorp/Covance for the development of NIS4 for the clinical research market.

We depend on LabCorp (through its subsidiary, Covance) for the development of NIS4 in the clinical research market.

 

Even though we have no reason to expect a failure at this time, any failure of LabCorp/Covance may have a significant unfavorable effect both on the development and commercialization of NIS4, and therefore on our activity, perspectives, financial situation and results.

 

This collaboration exposes us to the following risks:

 

 

the means and resources used within the framework of this agreement remain for the most part at the discretion of LabCorp/Covance;

 

LabCorp/Covance might not fulfill its contractual obligations;

 

LabCorp/Covance might interrupt the commercialization or decide to interrupt or not renew the commercialization programs due to a change in strategic orientation, a lack of financing or external factors such as an acquisition that would reallocate resources or induce different priorities;

 

LabCorp/Covance might develop, independently or with the assistance of third parties, in-vitro tests that are in direct or indirect competition with NIS4 if it believes that it is easier to successfully commercialize competing products under more attractive economic conditions than ours;

 

LabCorp/Covance, as exclusive holder of the commercialization and distribution rights on NIS4 on the clinical research market for a set time period, might not allocate sufficient resources to these activities;

 

LabCorp/Covance might not protect or defend our intellectual property rights in an appropriate manner or might use exclusive information that belongs to us in a manner resulting in disputes that may compromise or discredit our exclusive information or expose us to potential disputes;

 

LabCorp/Covance might not respect the property rights of third parties, which might expose us to litigation and potentially involve our liability;

 

disputes might arise between us and LabCorp/Covance, which could result in delays or suspension of the commercialization of NIS4, or legal action or costly procedures that would monopolize resources as well as divert management’s attention;

 

we might lose certain important rights obtained through this partnership, notably in the case of change of control of our company;

 

the collaboration might be terminated and, in such case, require additional financing to further develop or market NIS4;

 

LabCorp/Covance has access to our discoveries and might use this information to develop future competing products;

 

the collaboration, due to its nature, might have a negative impact on our attractiveness for collaborators or potential acquirers;

 

the collaboration might not result in the development and commercialization of NIS4 in an optimal fashion or never fulfill its objectives. and

 

if LabCorp/Covance were to take part in a merger, the continuity of advancement and the central nature of our commercialization program might be delayed, reduced or suspended by it.  

We depend on Terns Pharmaceuticals for the development and commercialization of elafibranor on the Greater China territory in NASH and PBC

Our only drug candidate licensed to date is elafibranor, whose development and commercialization rights in Greater China in NASH and PBC have been licensed to Terns Pharmaceuticals in June 2019.

29


Table of Contents

 

Terns Pharmaceuticals is the only decision-maker for the development and commercialization of elafibranor in the defined indications and territories. Even though we have no reason to expect a failure at this time, any failure of Terns Pharmaceuticals may have a significant unfavorable effect both on the development and commercialization of elafibranor, and therefore on our activity, its perspectives, financial situation and results.

 

This collaboration exposes us to the following risks:

 

 

the means and resources used within the framework of this agreement remain significantly at the discretion of Terns Pharmaceuticals;

 

Terns Pharmaceuticals might not fulfill its contractual obligations;

 

Terns Pharmaceuticals might interrupt the commercialization or decide to interrupt or not renew the commercialization programs due to a change in strategic orientation, a lack of financing or external factors such as an acquisition that would reallocate resources or induce different priorities;

 

Terns Pharmaceuticals might develop, independently or with the assistance of third parties, products that are in direct or indirect competition with elafibranor if they believe that it is easier to successfully commercialize competing products under more attractive economic conditions than ours;

 

Terns Pharmaceuticals, as holder of the commercialization and distribution rights on elafibranor in certain territories, might not allocate sufficient resources to these activities;

 

Terns Pharmaceuticals might not protect or defend our intellectual property rights in an appropriate manner or might use exclusive information that belongs to us in a manner resulting in disputes that may compromise or discredit our exclusive information or expose us to potential disputes;

 

Terns Pharmaceuticals might not respect the property rights of third parties, which might expose us to litigation and potentially involve our liability;

 

disputes might arise between us and Terns Pharmaceuticals, which could result in delays or suspension of the commercialization of elafibranor in the relevant territories, or legal action or costly procedures that would monopolize resources as well as divert management’s attention;

 

we might lose certain important rights obtained through this collaboration, notably in the case of change of control of our company;

 

this collaboration might be terminated, and in that case, would require additional financing to continue the development or commercialization of elafibranor in the relevant territories and indications;

 

Terns Pharmaceuticals has access to our discoveries and might use this information to develop future competing products;

 

the collaboration, due to its nature, might have a negative impact on our attractiveness for future collaborators or potential acquirers;

 

the partnership might not result in the development and commercialization of elafibranor in the relevant territories and indications in an optimal fashion or never fulfill its objectives.

 

If Terns Pharmaceuticals were to take part in a merger, the continuity of advancement and the central nature of our commercialization program might be delayed, reduced or suspended by it; and

 

Terns Pharmaceuticals might not receive the required market approvals.  

The manufacturing facilities of our third-party manufacturers of drug candidates as well as  the central testing laboratories of LabCorp/Covance. If these third-parties fail to comply with applicable regulations or maintain these approvals, our business will be materially harmed.

We do not currently and do not intend in the future to manufacture the drug candidates we or our collaborators intend to sell. We outsource the manufacturing of our products to third parties, who are, in turn, subject to ongoing regulation and periodic inspection by the EMA, FDA and other regulatory bodies to ensure compliance with current Good Manufacturing Practices, or cGMP. Any failure to follow and document their adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of products for commercial sale or clinical trials, may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for our products.

30


Table of Contents

 

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

 

levying fines and other civil penalties;

 

imposing consent decrees or injunctions;

 

requiring us or our current or future collaborators to suspend or put on hold one or more of our clinical trials;

 

suspending or withdrawing regulatory approvals;

 

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

 

requiring us or our current or future collaborators or our third-party manufacturers to suspend manufacturing activities or product sales, imports or exports;

 

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

 

mandating product recalls or seizing products;

 

imposing operating restrictions; and

 

seeking criminal prosecutions.

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

The deployment of NIS4 as an LDT depends on the ability of the central laboratories of our partner LabCorp/Covance that conduct the diagnostic test to retain their CLIA certification, which certification sets quality standards that must be followed in laboratory testing in order to ensure accuracy, reliability and speed of test results for the patients wherever the testing is conducted. We do not plan on manufacturing the test kits that we plan on marketing and that will be associated with NIS4 if it were to be approved on the market of routine care; and the manufacturing sites of the contractor that we or our potential collaborators may choose for their production would also be subject to significant authorizations and regulations.

Our production costs may be higher than we currently estimate.

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

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

 

contamination of the controlled atmosphere area;

 

unusable premises and equipment;

 

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

 

unavailable qualified personnel;

 

power failure of extended duration; and

 

logistical error.

31


Table of Contents

 

In addition, a rise in the cost of raw material or in direct or indirect energy rates, a shortage of raw material used to make our drug candidates may increase or stopped product manufacturing and increase logistical costs. Any of these risks, should they occur, could disrupt our activities and compromise our financial position, results, reputation or growth.

 

Risks Related to Our Operations

 

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

The success or lack thereof of our research and development programs will have a significant impact on our headcount, and the scope of our operations, as will  the potential commercialization of our drug candidates in Europe, the United States and other territories.  In the event of commercialization, we would need to  continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. We may not be successful in conducting these activities.

We could also need to reduce our headcount and scope of our operations.  Our management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these activities. Due to our limited resources, we may not be able to effectively manage these tasks.  This may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. These changes in  our operations may lead to significant costs and may divert financial resources from other projects, such as the development of our product candidates. If our management is unable to effectively manage these changes efficiently, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage our operations.

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

Our success depends to a significant degree upon the technical and management skills of our co-founders, scientific advisers, senior management team, including, in particular, Pascal Prigent, our chief executive officer, Jean-François Mouney, our chairman, and Dean Hum, our chief operating officer. The loss of the services of Messrs. Prigent, Mouney or Hum would likely have a material adverse effect on us. Our success also will depend upon our ability to attract and retain additional qualified scientific, management, marketing, technical, and sales executives and personnel. We compete for key personnel against numerous companies, including larger, more established companies with significantly greater financial resources than we possess. In addition, there is risk of departures or difficulties in hiring qualified personnel following the announcement of disappointing clinical results, such as those we announced in May regarding our Phase 3 RESOLVE-IT trial.  There can be no assurance that we will be successful in attracting or retaining such personnel, and the failure to do so could harm our operations and our growth prospects.

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

Our research and development processes for our product candidates involve the controlled use of hazardous materials, including chemicals and biological materials. We cannot eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. During their work, our researchers come into contact with a number of potentially dangerous substances, including in particular (1) genetically modified organisms, or GMO, the safety of which is overseen in France by the Ministry in charge of Research with the assistance of High Council for Biotechnologies (or the Haut Conseil des Biotechnologies), (2) animals used for experimentation, the authorization of which is overseen by the local préfet with the assistance of the local Department for the Protection of People, or DDPP (for Direction départementale de la protection des populations) and (3) human samples. This research is subject to application for authorization from the competent authorities, in particular the National Drug and Health Product Authority, or ANSM (for Autorité Nationale de Sécurité du Médicament et des produits de santé) to assess the usefulness of the research, ensure that patients have been properly informed, and assess the management of information obtained from the sampling.

32


Table of Contents

 

We may be subject to fines or sued for any injury or contamination resulting from our use or the use by third parties of these materials, and our liability may exceed any insurance coverage and our total assets, and we may also suffer reputational harm. European, French and U.S. federal, state, local or foreign laws and regulations govern the use, manufacture, storage, handling and disposal of these hazardous materials and specified waste products, as well as the discharge of pollutants into the environment and human health and safety matters. Compliance with health, safety and/or environmental laws and regulations may be expensive and may impair our research and development efforts. If we fail to comply with these requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs or capital expenditures for control equipment or operational changes necessary to achieve and maintain compliance. Furthermore, we could face the rejection, suspension or withdrawal of regulatory approval for our drugs candidates or NIS4 if they had received market approval. In addition, we cannot predict the impact on our business of new or amended health, safety and/or environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted and enforced.

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

Our growth strategy could include potentially in-licensing rights to drug candidates in clinical development, and in the future, we may acquire companies or technologies facilitating or enabling us to access to new medicines, new research projects, or new geographical areas, or enabling us to express synergies with our existing operations. If such acquisitions occur in the future, we may not be able to identify appropriate targets or make acquisitions under satisfactory conditions, in particular, satisfactory price conditions. In addition, we may be unable to obtain the financing for these acquisitions on favorable terms, which could require us to finance these acquisitions using our existing cash resources that could have been allocated to other purposes. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture.

We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

Our internal information technology systems and those of our current or future collaborators or those of our third-party contractors or consultants, may fail or suffer security breaches, any of which could result in a material disruption of our product development and commercialization programs.

Despite the implementation of security measures, our internal information technology systems and those of our current or future collaborators, or third-party contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs.

In the ordinary course of our business, we collect and store sensitive data, including, among other things, legally protected patient health information, personally identifiable information about our employees, intellectual property and proprietary business information. We manage and maintain our applications and data utilizing on-site systems and outsourced vendors. These applications and data encompass a wide variety of business critical information, including research and development information, commercial information and business and financial information. Because information systems, networks and other technologies are critical to many of our operating activities, shutdowns or service disruptions at our company or vendors that provide information systems, networks or other services to us pose increasing risks. Such disruptions may be caused by events such as computer hacking, phishing attacks, ransomware, dissemination of computer viruses, worms and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as power outages, natural disasters (including extreme weather), terrorist attacks or other similar events. Such events could have an adverse impact on us and our business, including loss of data and damage to equipment and data. In addition, system redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient to cover all eventualities. Any of these developments could result in a disruption of our operations, damage to our reputation or a loss of revenues. In addition, we may not have adequate insurance coverage to compensate for any losses associated with such events. For example, the loss of clinical trial data for our product candidates could result in delays in our regulatory approval efforts or those of our current or collaborators and significantly increase our costs to recover or reproduce the lost data.

33


Table of Contents

 

We could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company and our vendors, including personal information of our employees and patients, and company and vendor confidential data, as could information stored in the networks or systems of our current or future collaborators. In addition, outside parties may attempt to penetrate our systems, those of our current or future collaborators or those of our vendors or fraudulently induce our personnel or the personnel of our current or future collaborators or our vendors to disclose sensitive information in order to gain access to our data and/or systems.

We may experience threats to our data and systems, including malicious codes and viruses, phishing and other cyber-attacks. The number and complexity of these threats continue to increase over time. If a material breach of our information technology systems or those of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged. We could be required to expend significant amounts of money and other resources to repair or replace information systems or networks. In addition, we could be subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely. As we outsource more of our information systems to vendors, engage in more electronic transactions with payors and patients, and rely more on cloud-based information systems, the related security risks will increase and we will need to expend additional resources to protect our technology and information systems. In addition, there can be no assurance that our internal information technology systems or those of our third-party contractors, or our consultants’ efforts to implement adequate security and control measures, will be sufficient to protect us against breakdowns, service disruption, data deterioration or loss in the event of a system malfunction, or prevent data from being stolen or corrupted in the event of a cyberattack, security breach, industrial espionage attacks or insider threat attacks which could result in financial, legal, business or reputational harm.

Use of social media may materially and adversely impact our reputation.

Unauthorized communications, such as press releases or posts on social media, purported to be issued by us, may contain information that is false or otherwise damaging and could have an adverse impact on the price of our securities. Negative or inaccurate posts or comments about us, our research and development programs, and our directors or officers could seriously damage our reputation.

In addition, our employees and collaborators and other third parties with whom we have business relationships  may use social media and mobile technologies inappropriately, for which we may be held liable, or which could lead to breaches of data security, loss of trade secrets or other intellectual property or public disclosure of sensitive information. Such uses of social media and mobile technologies could have a material adverse effect on our reputation, business, financial condition and results of operations.

We are exposed to a number of regulatory and commercial risks related to the United Kingdom leaving the European Union if the United Kingdom and the European Union are not able to come to an agreement regarding the modalities of the withdrawal of the United Kingdom.

The United Kingdom left the European Union on January 31, 2020, a development commonly known as Brexit. Given the lack of precedent in the history of the European Union, the financial, commercial, regulatory and legal consequences of the withdrawal of the United Kingdom from the European Union are unclear. Brexit is source of economic and financial uncertainty on a worldwide scale and might notably generate volatility in exchange rate and regulatory changes. Furthermore, following the Brexit vote in the United Kingdom, the European Union has decided to transfer the EMA headquarters from the United Kingdom to the Netherlands, which has affected the work of the EMA and might delay the granting of market approval for requests submitted for new products to this European authority.

34


Table of Contents

 

Our clinical trials in the United Kingdom are subject to the requirements of the Medicines and Healthcare products Regulatory Agency or MHRA and the regulations of the EMA. If, following Brexit, the United Kingdom and the European Union are not able to come to an organized withdrawal agreement, there may be a significant uncertainty regarding the continued application of such regulations in the United Kingdom. We are currently conducting the RESOLVE-IT clinical trial on elafibranor in NASH in the United Kingdom and plan to open new investigation sites in the United Kingdom for our trial evaluating elafibranor in PBC and other indications. In that context, we may not be certain that these trials will not be affected it the UK and the EU are not able to come to an organized withdrawal agreement. Furthermore, if we or our potential future collaborators obtain market approval within the European Union, this market approval may not allow us to commercially market our product candidates in the United Kingdom and we or our potential future collaborators may not be in a position to obtain the required approval from the British regulatory authority. If we or our potential collaborators need to obtain additional approvals in the United Kingdom, we will have to bear additional costs which could be considerable.

 

The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our preclinical studies and clinical trials.

In December 2019, a novel strain of coronavirus disease, SARS-CoV-2, identified as COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of May 2020, has spread to a number of countries, including the United States, across Europe and in France, where we are headquartered, and in countries where we have planned or ongoing clinical trials, or where our important subcontrators – for clinical research and manufacturing of our API and drug product for elafibranor are located. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities have been closed and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

Strict confinement measures have been taken by the governments in the majority of countries where there has been a COVID-19 outbreak. Although as of the date of this Annual Report, some confinement measures have been lifted, there is no guarantee that governments will not take additional measures in the event there is a new outbreak of the disease in certain regions.

In response to the spread of COVID-19, we have made several changes to our operations, including:

 

putting all of our Phase 1 clinical trials on hold;

 

suspending the initiation of combination studies and our planned Phase 3 study of elafibranor in PBC;

 

suspending enrollment of patients in our pharmacokinetic/pharmacodynamics trial of elafibranor in pediatric patients with NASH and in our Phase 2 clinical trial assessing liver fat;

 

enacting remote working for certain of our employees, including most of our general administrative and finance personnel, and applying social distancing and other safety measures for employees who continue to work at our offices and in the laboratories; and

 

strictly limiting business travel to that which is considered absolutely critical to our operations.

As a result of the COVID-19 pandemic, we may experience disruptions that could severely impact our business, preclinical studies and clinical trials, including:

 

delays or difficulties in manufacturing active pharmaceutical ingredients or drug products used in our clinical trials, including interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;

 

delays or difficulties in enrolling patients in our clinical trials;

 

delays or difficulties in clinical site initiation, including initiation of their activities, in particular for newly launched trials or trials in preparation, difficulties in recruiting clinical site investigators and clinical site staff;

 

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

35


Table of Contents

 

 

interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

 

limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

 

delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

 

delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;

 

changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

 

delays in necessary interactions with local regulators, in particular the FDA and EMA, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

 

delay in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; and

 

refusal of the FDA or EMA to accept data from clinical trials in affected geographies.

In addition, the outbreak of COVID-19 could disrupt our operations for a significant period of time, due to absenteeism or inability to work from home by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to mandated quarantines. COVID-19 could also impact members of our board of directors, resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full board of directors or its committees needed to conduct meetings for the management of our affairs.

The global outbreak of  COVID-19 continues to rapidly evolve. The extent to which COVID-19 may impact our business, clinical trials and financial situation will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in France, the United States and other countries, business closures or business disruptions and the effectiveness of actions taken around the world to contain and treat the disease. In addition, the world economy has been strongly impacted by the epidemic and many economists, governments and business leaders predict a severe impact on gross world product. We cannot predict the extent of the impact of this epidemic on the financial markets or on our stock price and as a result, on our ability to obtain additional funding if we should seek to raise additional funding.

 

Risks Related to Intellectual Property

If we are unable to obtain and maintain sufficient patent protection for our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability or that of a potential future partner to commercialize our product candidates successfully may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary product candidates. If we do not adequately protect our intellectual property, competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel product candidates that are important to our business. The patent application and approval process is expensive and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.

 

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

 

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

36


Table of Contents

 

 

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

 

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

 

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

 

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

 

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

 

our compositions and methods may not be patentable;

 

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

 

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

Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in post-grant review procedures, oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such challenges may result in loss of exclusivity 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. In addition, 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.

For example, on May 15, 2019, Nashpharm, a French company, brought before the Paris High Court (Tribunal de Grande Instance de Paris) an action for a declaration of invalidity against the French part of European patent 2 504 005 related to the use of the drug candidate elafibranor. This action is under review by the pre-trial judge. No court date has been set. A negative decision on this patent could have a significant negative impact on us.

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

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications, or ANDAs, to the FDA, in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are competing in a non-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives or those of our current of future collaborators.

37


Table of Contents

 

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

Even if we have or obtain patents covering our product candidates or compositions, we may still be prevented from making, using, selling, offering for sale, or importing our product candidates or technologies because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering compositions or products that are similar or identical to ours. These filings could materially affect our ability or that of current or future collaborators to develop our product candidates or sell our products, if they are approved. Because patent applications can take many years to issue and are not published for a period of time after filing, there may be currently pending applications unknown to us that may later result in issued patents that our product candidates or compositions may infringe. These patent applications may have priority over patent applications filed by us.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful and issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.

If we initiate legal proceedings against a third party to enforce a patent covering one of our product candidates or technologies, the defendant could counterclaim that the patent covering one of our product candidates or technologies is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and unenforceability of an asserted patent or patents are common. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness, written description or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review and/or inter partes review and equivalent proceedings in foreign jurisdictions, such as, opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. Similarly, we may initiate proceedings before the Patent Trial and Appeal Board, or PTAB, of the USPTO, such as post grant review, or PGR, derivation, or inter partes review, against patents granted to third parties. For example, NTZ, which we are evaluating as an anti-fibrotic in an investigator-initiated Phase 2 clinical trial, has been commercialized by Romark Laboratories (Romark) for use as an anti-parasitic drug. We have a number of granted U.S. patents covering the use of NTZ as an anti-fibrotic in certain organs, including in the liver for the treatment of liver fibrosis consecutive to NASH. Romark has obtained a reissued U.S. patent which claims the use of NTZ in liver fibrosis. This delays us from obtaining issued patents with similar claims in the U.S. and prompts additional proceedings in the USPTO against such patent or against other third party applications or patents or consider the need or benefit of entering into a license agreement with such third party or parties in order to exploit such patent alone or together with Romark or such other third party or parties. In the event that we do not prevail or the settlement terms with the adverse party are unfavorable, or we are unable to reach an agreement on terms sufficiently favorable to us, our ability to market our product candidates may be affected or delayed. The outcome following legal assertions of invalidity and unenforceability in the PTAB or the federal courts is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates.

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, because of the substantial amount of discovery required in connection with intellectual property litigation, in particular, in the United States, there is a risk that some of our confidential information could be compromised by disclosure during 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 a material adverse effect on the price of our ADSs or ordinary shares. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims in the federal courts, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

38


Table of Contents

 

In addition, if one of our patents is revoked or abandoned as a result of an adverse court decision or a settlement, we may face the risk that government, private third party payers or purchasers of pharmaceuticals products may claim damages alleging that they have over-reimbursed or overpaid for a drug. Biopharmaceutical patents and patent applications involve highly complex legal and factual questions, which, if determined adversely to us, could negatively impact our patent position.

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

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

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

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates and use our technologies without infringing the intellectual property and other proprietary rights of third parties. If any third-party patents or patent applications are found to cover our product candidates or their methods of use, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our product candidates, including interference proceedings before the USPTO. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

39


Table of Contents

 

If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could, in certain circumstances, be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims may also be made that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

Developments in patent law in the United States and in other jurisdictions could have a negative impact on our business.

From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress, the USPTO or similar foreign authorities may change the standards of patentability and any such changes could have a negative impact on our business. In addition, the Leahy-Smith America Invents Act, or the America Invents Act, which was signed into law in 2011, includes a number of significant changes to U.S. patent law. These changes include a transition from a “first-to-invent” system to a “first-to-file” system, changes to the way issued patents are challenged, and changes to the way patent applications are disputed during the examination process. In certain areas, these changes may favor larger and more established companies that have greater resources to devote to patent application filing and prosecution. The USPTO has developed new regulations and procedures to govern the full implementation of the America Invents Act, and many of the substantive changes to patent law associated with the America Invents Act, and, in particular, the first-to-file provisions, became effective on March 16, 2013. Substantive changes to patent law associated with the America Invents Act, or any subsequent U.S. legislation regarding patents, may affect our ability to obtain patents, and if obtained, to enforce or defend them.

Furthermore, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances for diagnostic method claims and gene patents.

In view of these and other U.S. federal appellate cases, we cannot guarantee that our efforts to seek patent protection for our tools and biomarkers will be successful.

If we do not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for extending the term of patents covering each of our product candidates, our business may be materially harmed.

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. We expect to seek extensions of patent terms for certain patents in the United States and, if available, in other countries where we are prosecuting patents and seeking approval of various products. Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments; similarly, selected patents outside the U.S., may be eligible for supplementary protection certificate, or SPC, under corresponding legislation in Europe and several other countries.

Depending upon the circumstances, the Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

40


Table of Contents

 

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

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

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

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

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

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

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

41


Table of Contents

 

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

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

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

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

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

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

 

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

 

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

 

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

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

42


Table of Contents

 

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

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we will need to build name recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively.

 

Risks Related to Legal and Other Compliance Matters

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

Healthcare providers, physicians and others in the healthcare and pharmaceutical sector will play a primary role in the clinical development and potential regulatory approval of our product candidates and their recommendation and prescription, if approved. Our arrangements with them and third party payors as well as our activities expose us to broadly applicable federal and state fraud and abuse and other healthcare laws, which may restrict these arrangements and relations through which we research and develop our products, and if approved, we or our current or collaborators will market and distribute them. These laws may thus impact, among other things, our research, development, proposed sales, marketing and education programs of our product candidates that obtain marketing approval. Restrictions under applicable U.S. federal, state and non-U.S. healthcare laws and regulations include, but are not limited to, the following:

 

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

 

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

 

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

 

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

 

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

43


Table of Contents

 

 

analogous state or non-U.S. laws and regulations, such as state anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers, marketing and/or transparency laws applicable to manufacturers that may be broader in scope than the federal requirements, laws that require biopharmaceutical companies to comply with the biopharmaceutical industry’s voluntary compliance guidelines, laws requiring manufacturers to declare information related to payment and other gratification to physicians and other healthcare providers or to publicly divulge the expenses related to marketing products and communicate information on their price, and laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect as HIPAA, thus complicating compliance efforts;

 

the Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business such as our US subsidiary Genfit Corp. 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 requires 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. The FCPA presents particular challenges for the pharmaceutical industry since, in many countries, hospitals are managed by the government, and their physicians and other employees are considered foreign public agents. As such, some payments to hospitals related to clinical trials and other work have been regarded as irregular payments to foreign agents and lead to enforcement action on the basis of the FCPA; and.

 

the equivalent anticorruption laws in foreign countries, such as the French law of December 9 2016 or the UK Bribery Act of 2010 that may also be invoked under similar circumstances related to corrupt practices.

Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, possible exclusion from government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could substantially disrupt our operations. If the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, and fraud laws may prove costly. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

We are subject to laws and regulations related to data privacy, both in the United States and the European Union whose breach might have a significant negative impact on our activities.

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 its respective implementing regulations imposes certain requirements on covered entities relating to the privacy, security, and transmission of certain individually identifiable health information, known as protected health information. Among other things, HITECH, through its implementing regulations, makes HIPAA’s security standards and certain privacy standards directly applicable to business associates, defined as a person or organization, other than a member of a covered entity’s workforce, that creates, receives, maintains, or transmits protected health information on behalf of a covered entity for a function or activity regulated by HIPAA. HITECH also strengthened the civil and criminal penalties that may be imposed against covered entities, business associates, and individuals, 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 attorneys’ fees and costs associated with pursuing federal civil actions. In addition, other federal and state laws may govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and may not be preempted by HIPAA, thus complicating compliance efforts.

44


Table of Contents

 

We may collect, process, use or transmit personal data of persons located within the European Union during the course of our activities, including clinical trials conducted within the European Union. Furthermore, we may market those of our drug candidates that receive market approval within the European Union.

In addition, third parties (principally CROs during clinical trials) manage a significant part of the personal data we may use.

The collection and use of personal data related to health within the European Union are subject to the General Data Protection Regulation (EU) 2016/679 or GDPR. This regulation lays out requirements to set a legal basis for personal data processing of identifiable persons and the transfer of such information outside the European Economic Area, including the United States, by providing such persons with information regarding the use of their personal data, securing personal data, entering in data processing agreements with third parties that process personal data, responding to requests from individuals to exert their rights regarding their personal data, reporting security violations involving personal date to the relevant national data protection authority and the affected individuals, nominating data protection officers, conducting an impact study on data protection and record keeping. The GDPR imposes new responsibilities regarding the personal data we handle and we may have to implement additional procedures to guarantee compliance with the new data protection rules.

There is significant uncertainty related to the manner in which data protection authorities will seek to enforce compliance with GDPR. For example, it is not clear if the authorities will conduct random audits of companies doing business in the EU, or if the authorities will wait for complaints to be filed by individuals who claim their rights have been violated. In any case, the costs associated with ensuring GDPR compliance be onerous and non-compliance with GDPR requirements and the national laws of EU member states related to data protection, including data managed by third parties for which we are not able to verify their compliance with GDPR may trigger significant fines, other administrative sanctions and civil lawsuits against us, which could adversely affect our business, financial condition, results of operations and prospects.

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

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with legal requirements or the requirements of FDA, EMA and other government regulators, provide accurate information to applicable government authorities, comply with fraud and abuse and other healthcare laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us.

In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of, including trading on, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

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

The risk that we may be sued on product liability claims is inherent in the development and commercialization of biopharmaceutical and diagnostic products that are intended to be tested and evaluated on humans in an initial phase, then commercialized. Side effects of, or manufacturing defects in, products that we develop could result in the deterioration of a patient’s condition, injury or even death. For example, our liability or that of our current or collaborators could be sought after by patients participating in the clinical trials in the context of the development of the therapeutic or diagnostic products tested and unexpected side effects resulting from the administration of these products.

45


Table of Contents

 

Once a product is approved for sale and commercialized, the likelihood of product liability lawsuits increases. Criminal or civil proceedings might be filed against us by patients, regulatory authorities, biopharmaceutical companies and any other third party using or marketing our products. These actions could include claims resulting from acts by our partners, licensees, service providers and subcontractors, over which we have little or no control. These lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities and may be forced to limit or forgo further commercialization of the affected products, which may harm our reputation. Patients may not follow warnings identifying potential known side effects, including some patients who should not be using our drug candidates.

We maintain product liability insurance coverage for our clinical trials at levels which we believe are appropriate for our clinical trials and at levels granted by insurers to biopharmaceutical companies like us. Nevertheless, our insurance coverage may be insufficient to reimburse us for any expenses or losses we may suffer. In addition, insurance coverage has become more and more expensive, and in the future, we may not be able to obtain or maintain sufficient insurance coverage at an acceptable cost or for sufficient amounts to otherwise protect against potential product or other legal or administrative liability claims by us or our current or potential collaborators. A successful liability claim against our products may lower the value of our stock, and if the decision awards damages that exceed our insurance coverage, might reduce our available funds and have and unfavorable effect on our activities. It could notably prevent or inhibit the commercial production and sale of any of our product candidates that receive regulatory approval. Product liability claims could also harm our reputation, which may adversely affect our ability to commercialize our products successfully.

 

 

Risks Related to our Financial Position and Capital Needs

Currently, we have no products approved for commercial sale, and to date we have not generated any recurring revenue from product sales. As a result, our ability to reduce our losses and reach profitability is unproven, and we may never achieve or sustain profitability.

We have never generated profits from product sales and we do not expect to be profitable in the foreseeable future. We have incurred net losses over the last years, including a net loss of €65.1 million for the year ended December 31, 2019. Our revenue and other income in 2019 resulted principally from the $35 million upfront payment we received under our collaboration and license agreement with Terns Pharmaceuticals and from tax credits, including research tax credits, in France.  Until June 30, 2018, we had nominal revenues from the sublease of a portion of our corporate headquarters to a third party. Historically, we have also received funding from co-research alliances with other pharmaceutical companies, although we do not currently have any such alliances in place. The only material revenue that we have recorded in the recent past is the upfront payment in 2019 upon signature of our collaboration and license agreement with Terns Pharmaceuticals.

 

We are exposed to foreign exchange risk as a growing portion of our operations are denominated in US dollars, and as a result, following our March 2019 IPO on the Nasdaq Global Select Market, we chose not to convert the dollar-denominated gross proceeds into euros. We do not currently have recurring revenues in euros, dollars or other currencies, and as a result, we expect to face an increase in our exposure to exchange rate risk.

 

We have devoted substantially all of our resources to our research and development efforts relating to our drug candidates and NIS4 diagnostic program, providing general and administrative support for our operations, protecting our intellectual property and engaging in activities to prepare for the potential commercialization of our drug candidates and NIS4. With the exception of the upfront payment under the collaboration and licensing agreement with Terns Pharmaceuticals, we have not yet generated any direct or indirect profit from the sale of our products or technologies as we do not yet have any products approved for sale.

We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for elafibranor and NIS4. We could also continue to have significant expenses related to the preparation for commercialization of our products, and additional infrastructure and personnel in the United States, Europe and other territories to support our product development and commercialization efforts and operations as a public company in both France and the United States. We anticipate that any such losses could be significant for the next several years as we continue the development of elafibranor and its potential commercialization, in certain indications.  In addition, until a decision is taken with respect to the discontinuation, amendment or continuation of our RESOLVE-IT trial in NASH, in the Fall 2020, we will continue to have expenses for this trial.

46


Table of Contents

 

We also plan to seek FDA, marketing authorization of NIS4 and CE marking in Europe with the EMA. During the regulatory development process for NIS4, our expenses could increase if we are required by the FDA or EMA, to perform studies or trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of any of our product candidates.

Our ability to be profitable in the future will depend on our ability and that of our current or collaborators to obtain marketing approval for and commercialize our product candidates, particularly our lead product candidate, elafibranor, and NIS4 for clinical care.

Our ability to be profitable in the future will depend on our ability to obtain marketing approval for and commercialize our product candidates, particularly our lead product candidate, elafibranor and a diagnostic test using NIS4 technology for clinical care. We may not be successful in our efforts to obtain such approval and to commercialize our products.

 

Obtaining marketing approval will require us to be successful in a range of challenging activities, including:

 

obtaining positive results in our clinical trials;

 

regulatory bodies determining that clinical data are sufficient, without further clinical data, to support an application for approval, whether or not conditional or accelerated;

 

obtaining approval to market elafibranor;

 

obtaining positive results in our formal validation studies required to commercialize NIS4 for clinical care;

 

expanding our manufacturing of commercial supply for elafibranor;

 

establishing sales, marketing and distribution capabilities to effectively market and sell elafibranor and NIS4 in the United States, Europe and in other territories;

 

market acceptance by patients and the medical community of elafibranor;

 

market acceptance by patients and the medical community of NIS4 as a diagnostic complement to liver biopsy for clinical care;

 

negotiating and securing coverage and adequate reimbursement from third-party payors for elafibranor and NIS4; and

 

expanding our contract manufacturing for the commercial supply of elafibranor and the manufacturing under license under the diagnostic kit accompanying the potential commercialization of NIS4 for clinical care.

We are conducting pre-commercial activities, such as patient profiling, intended to better understand how physicians care for and diagnose NASH patients. NASH is a disease with no approved drug therapy. As such, there is significant uncertainty in the degree of market acceptance that future treatments or diagnostic tools will have among NASH patients and their healthcare providers as well as third-party payors.

Even if we or our collaborators receive marketing approvals for our product candidates and commence our commercial launch, we may not be able to generate significant revenues in the near term. We cannot foresee if our product candidates will ever be accepted as a therapy in PBC eventually resulting in sustained revenues and it may take the passage of a significant amount of time to generate significant sustained revenues even if elafibranor becomes accepted as a therapy in PBC.

 

NASH is currently an under-diagnosed disease, and we believe that NIS4 will facilitate the diagnosis and identification of NASH patients who may be well suited for drug therapy. If a test using our NIS4 technology does not obtain marketing authorization, we may not be able to reach enough NASH patients to successfully generate significant revenues.

If elafibranor, NIS4 or any of our other product candidates fails in clinical trials or does not gain regulatory approval, or if elafibranor, NIS4 or any of our other product candidates do not achieve market acceptance, we may never become profitable. Our net losses have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital. Because of the numerous risks and uncertainties associated with pharmaceutical and diagnostic product development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.

47


Table of Contents

 

We will require substantial additional funding to commercialize our products, if approved, which may not be available to us or our current or future collaborators on acceptable terms, or at all, and, if not so available, may require us or them to delay, limit, reduce or cease our operations.

We are currently advancing elafibranor through clinical development for multiple indications and other drug candidates through preclinical development. Additionally, we are also planning formal validation studies of NIS4 in preparation for submitting the test for marketing authorization for clinical care. Developing pharmaceutical and diagnostic products, including conducting preclinical studies and clinical trials, along with obtaining necessary validation, is expensive.

Subject to obtaining regulatory approval of any of our drug candidates or NIS4, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate incurring significant expenses as we prepare for the potential commercialization of elafibranor in NASH, including significant expenses relating to our sales, marketing and distribution capabilities and increasing our drug manufacturing activities. We also anticipate incurring significant expenses in connection with our planned commercialization of NIS4, along with an increase in our product development, scientific, commercial and administrative personnel and expansion of our facilities and infrastructure in the United States, France and other countries. We also expect to incur additional costs associated with operating as a public company in the United States and further plan on expanding our operations in the United States, Europe and in other territories. We will continue to require substantial additional capital in connection with our continuing operations, including continuing our clinical development and pre-commercialization activities. Because successful development of our drug candidates and diagnostic program is uncertain, we are unable to estimate the actual funds required to complete the research and development and commercialization of our products under development.

Our stock price may never reach a price at which the bondholders will deem conversion economically viable, in which case we would need to repay the nominal amount at maturity in October 2022. The terms of our convertible bonds require us to meet certain operating covenants, and if we fail to comply with those covenants the bondholders would be able to accelerate our repayment obligations. Additionally, the conversion of some or all of our bonds into ordinary shares would dilute the ownership interests of existing shareholders.

In October 2017, we issued bonds convertible and/or exchangeable into new and/or existing ordinary shares due October 16, 2022, for a nominal amount of €180.0 million, or 6,081,081 bonds that would convert into 6,081,081 new ordinary shares if such bonds were settled into new ordinary shares in the event of conversion. The bonds bear interest at a nominal rate of 3.5% payable semi-annually in arrears on April 16 and October 16 of each year with a first interest payment date having occurred of April 16, 2018. As of the date of this Annual Report, our stock price has decreased significantly following the announcement that elafibranor did not demonstrate a statistically significant effect on the RESOLVE-IT trial’s primary endpoint of NASH resolution without worsening of fibrosis nor did it achieve the key secondary endpoints. If our stock price does not reach a price at which the bondholders will deem conversion economically viable, we will be required to repay the nominal amount at maturity in October 2022.

Our ability to repay the bonds at maturity depends in part on our future performance, which is subject to the success of our research and development programs and future operations, as well as on economic, financial and competitive factors that are beyond our control. In addition, we may incur additional debt in the future, some of which may be secured debt. Even if we are permitted by the terms and conditions of the convertible bonds to incur additional debt or to take other measures with regard to the incurrence of new debt, the terms of the bonds could reduce our ability to repay new debts at maturity.

The agreement governing the bonds contains customary negative covenants and events of default. The negative covenants include restrictions on creating other liens on our assets, incurring certain additional indebtedness and engaging in certain mergers or acquisitions. If we default under the agreement governing the bonds, the bondholders may accelerate all of our repayment obligations, which would significantly harm our business and prospects and could cause the price of our ordinary shares to decline.

48


Table of Contents

 

Finally, the conversion of some or all of our currently outstanding convertible bonds into ordinary shares would dilute the ownership interests of existing shareholders, including holders of our ADSs. Any sales in the public market of the ordinary shares issuable upon such conversion or any anticipated conversion of our convertible bonds into ordinary shares could adversely affect prevailing market prices of our ordinary shares.

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

As a French biopharmaceutical company, we have benefited from certain tax advantages, including, for example, the French Research Tax Credit, or CIR (Crédit d'Impôt Recherche), which is a French tax credit aimed at stimulating research and development. The CIR can be offset against French corporate income tax due and the portion in excess, if any, may be refunded. The CIR is calculated based on our claimed amount of eligible research and development expenditures in France and was €8.1 million for the year ended December 31, 2019. We believe, due to the nature of our business operations, that we will continue to be eligible to receive the CIR tax credit. However, if the French Parliament decides to eliminate, or to reduce the scope or the rate of, the CIR benefit, either of which it could decide to do at any time, our results of operations could be adversely affected.

The French tax authorities, with the assistance of the Research and Higher Education Ministry, may audit each research and development program in respect of which a CIR benefit has been claimed and assess whether such program qualifies in its view for the CIR benefit. In 2014, we were subject to such an audit, at the end of which, the French tax authorities questioned part of the CIR benefit received by us as a result of certain of our expenditures incurred in 2010. The audit continued for our 2011 and 2012 CIR returns. We received proposed adjustments in December 2014 (for the 2010 CIR) and in December 2015 (for the 2011 and 2012 CIR). This tax audit was also extended to the 2014 CIR as part of a documentary audit, the purpose of which was to determine whether we were acting as a sub-contractor in our collaborative research alliances with companies in the pharmaceutical industry, which would reduce the basis on which the CIR is computed. The French tax authorities contend that in these alliances we were acting as a sub-contractor. However, we have disputed this finding. Although the tax authorities have partially granted some of our arguments, the Ministry of Finance appealed the decision and prevailed.  We elected not to appeal that decision in order not to engage further legal fees on a matter that cannot be decided by the Cour de Cassation (French supreme court).  We cannot guarantee that the French tax authorities will not challenge the basis of the calculation of our CIR for future years, which could have an adverse effect on our results of operations and our financial position.

 

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

The market price of our equity securities may be volatile or may decline regardless of our operating performance.

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

 

announcements of clinical trial results;

 

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

 

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

 

competition from existing products or new products that may emerge;

 

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

 

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

 

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

 

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

 

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

 

additions or departures of key management or scientific personnel;

49


Table of Contents

 

 

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

 

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

 

announcement or expectation of additional debt or equity financing efforts;

 

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

 

general economic and market conditions.

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

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

We sometimes estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies, clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical programs, receipt of marketing approval, or a commercial launch of a product. The achievement of many of these milestones may be outside of our control. All of these milestones are based on a variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:

 

our available capital resources or capital constraints we experience;

 

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

 

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

 

other actions, decisions or rules issued by regulators;

 

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

 

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

 

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

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

The dual listing of our ordinary shares and our ADSs may adversely affect the liquidity and value of our ordinary shares and ADSs.

Our ADSs are listed on the Nasdaq Global Select Market, and our ordinary shares trade on Euronext Paris. We cannot predict the effect of this dual listing on the value of our ADSs and ordinary shares. However, the dual listing of our ADSs and ordinary shares may dilute the liquidity of these securities in one or both markets and may adversely affect the trading market or price for our ADSs and ordinary shares.

50


Table of Contents

 

We are currently the subject of securities class action litigation and may become subject to additional litigation, which could harm our business and financial condition.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant share price volatility in recent years. We may have actions brought against us by shareholders relating to past transactions, changes in our stock price or other matters. In this respect, on May 14, 2020, following our announcement that elafibranor had not achieved the primary or key secondary endpoints of the RESOLVE-IT trial, a purported shareholder class action complaint was filed in state court in the Commonwealth of Massachusetts, naming us, our board of directors and certain members of our senior management as defendants, and alleging that we made materially misleading statements about the development of elafibranor in connection with our U.S. initial public offering in violation of U.S. federal securities laws. We intend to vigorously defend this action. However, this and future actions could give rise to substantial damages, and thereby have a material adverse effect on our financial position, liquidity, or results of operations. Even if this action is not resolved against us, the uncertainty and expense associated with shareholder actions could harm our business, financial condition and reputation. Litigation can be costly, time-consuming and disruptive to business operations. The defense of lawsuits could also result in diversion of our management's time and attention away from business operations, which could harm our business..

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

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

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

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

Further, under French law, the determination of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared and presented in accordance with accounting standards applicable in France. In addition, payment of dividends may subject us to additional taxes under French law. Therefore, we may be more restricted in our ability to declare dividends than companies not based in France.

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

51


Table of Contents

 

Future sales, or the possibility of future sales, of a substantial number of our ADSs or ordinary shares could adversely affect the price of our ADSs and ordinary shares.

As of December 31, 2019, we had 38,858,617 ordinary shares issued and outstanding. Sales of a substantial number of our ADSs or ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our securities and could impair our ability to raise capital through the sale of additional equity securities. A substantial number of our ordinary shares and ADSs are now generally freely tradable, subject, in the case of sales by our affiliates, to the volume limitations and other provisions of Rule 144 under the Securities Act. If holders of these shares sell, or indicate an intent to sell, substantial amounts of our securities in the public market, the trading price of our securities could decline significantly.

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

We are a French company with limited liability. Our corporate affairs are governed by our bylaws and by the laws governing companies incorporated in France. The rights of shareholders and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders in companies governed by the laws of U.S. jurisdictions. For example, in the performance of its duties, our board of directors is required by French law to consider the interests of our company, its shareholders, its employees and other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder or holder of ADSs. See the sections of this annual report titled “Item 6. Directors, Senior Management and Employees—Board Practices” and the documents referenced in “Item 10. Additional Information—Memorandum and Articles of Association.”

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

Certain members of our board of directors and senior management and certain experts named in this annual report are non-residents of the United States, and all or a substantial portion of our assets and the assets of such persons are located outside the United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. Additionally, it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Courts outside the United States may refuse to hear a U.S. securities law claim because non-U.S. courts may not be the most appropriate forums in which to bring such a claim. Even if a court outside the United States agrees to hear a claim, it may determine that the law of the jurisdiction in which the non-U.S. court resides, and not U.S. law, is applicable to the claim. Further, if U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters of procedure would still be governed by the law of the jurisdiction in which the non-U.S. court resides. In particular, there is some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in France. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered but is intended to punish the defendant. French law provides that a shareholder, or a group of shareholders, may initiate a legal action to seek indemnification from the directors of a corporation in the corporation’s interest if it fails to bring such legal action itself. If so, any damages awarded by the court are paid to the corporation and any legal fees relating to such action may be borne by the relevant shareholder or the group of shareholders.

The enforceability of any judgment in France will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and France do not currently have a treaty providing for recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters.

52


Table of Contents

 

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

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

 

under French law, the owner of 95% of voting rights of a public company listed on a regulated market in a Member State of the European Union or in a state party to the European Economic Area, or EEA, Agreement, including from the main French stock exchange, has the right to force out minority shareholders following a tender offer made to all shareholders;

 

under French law, certain foreign investments in companies incorporated under French laws are subject to the prior authorization from the French Minister of the Economy, where all or part of the target’s business and activity relate to a strategic sector, such as energy, transportation, public health, telecommunications, etc.;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

our bylaws can be changed in accordance with applicable French laws and regulations;

53


Table of Contents

 

 

the crossing of certain thresholds has to be disclosed and can impose certain obligations; see the documents referenced in the section of this annual report titled “Item 10. Additional Information—Memorandum and Articles of Association;”

 

transfers of shares shall comply with applicable insider trading rules and regulations and, in particular, with the Market Abuse Directive and Regulation dated April 16, 2014; and

 

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

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

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

A holder of ADSs may instruct the depositary of the ADSs to vote the ordinary shares underlying his or her ADSs. Otherwise, such holder will not be able to exercise voting rights unless he or she withdraws the ordinary shares underlying the ADSs that he or she holds. However, a holder of ADSs may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for a holder of ADSs’ instructions, the depositary, upon timely notice from us, will notify him or her of the upcoming vote and arrange to deliver our voting materials to him or her. We cannot guarantee to any holder of ADSs that he or she will receive the voting materials in time to ensure that he or she can instruct the depositary to vote his or her ordinary shares or to withdraw his or her ordinary shares so that he or she can vote them. If the depositary does not receive timely voting instructions from a holder of ADSs, it may give a proxy to a person designated by us to vote the ordinary shares underlying his or her ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that a holder of ADSs may not be able to exercise his or her right to vote, and there may be nothing he or she can do if the ordinary shares underlying his or her ADSs are not voted as he or she requested.

Holders of ADSs are not holders of our ordinary shares.

A holder of ADSs is not treated as one of our shareholders and does not have direct shareholder rights. French law governs our shareholder rights. The depositary is the holder of the ordinary shares underlying ADSs. The deposit agreement among us, the depositary and all persons directly and indirectly holding ADSs sets out ADS holder rights, as well as the rights and obligations of the depositary.

A double voting right is attached to each registered share which is held in the name of the same shareholder for at least two years. However, the ordinary shares underlying our ADSs will not be entitled to double voting rights as the depositary will hold the shares underlying our ADSs in bearer form.

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

According to French law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these securities on a pro rata basis unless they waive those rights at an extraordinary meeting of our shareholders by a two-thirds majority vote or individually by each shareholder. However, ADS holders will not be entitled to exercise or sell such rights unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary will not make rights available to purchasers of ADSs unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. Further, if we offer holders of our ordinary shares the option to receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities under the

54


Table of Contents

 

Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive dividends in shares and may experience dilution in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

Holders of ADSs may be subject to limitations on the withdrawal of the underlying ordinary shares.

Temporary delays in the cancellation of ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, a holder of ADSs may not be able to cancel his or her ADSs and withdraw the underlying ordinary shares when he or she owes money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.

ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiffs in any such action.

The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. 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. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner 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 and the depositary. If a lawsuit is brought against either or both of us and the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have, including results that could be less favorable to the plaintiffs in any such action.

Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. 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 U.S. federal securities laws and the rules and regulations promulgated thereunder.

55


Table of Contents

 

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

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

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

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

We are also exempt from provisions set forth in Nasdaq rules which require an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock. Consistent with French law, our bylaws provide that a quorum requires the presence of shareholders having at least (1) 20% of the shares entitled to vote in the case of an ordinary shareholders’ general meeting or at an extraordinary shareholders’ general meeting where shareholders are voting on a capital increase by capitalization of reserves, profits or share premium, or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general meeting. If a quorum is not present, the meeting is adjourned. There is no quorum requirement when an ordinary general meeting is reconvened, but the reconvened meeting may consider only questions which were on the agenda of the adjourned meeting. When an extraordinary general meeting is reconvened, the quorum required is 20% of the shares entitled to vote, except where the reconvened meeting is considering capital increases through capitalization of reserves, profits or share premium. For these matters, no quorum is required at the reconvened meeting. If a quorum is not present at a reconvened meeting requiring a quorum, then the meeting may be adjourned for a maximum of two months.

As a foreign private issuer, we are required to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Under French law, the audit committee may only have an advisory role and appointment of our statutory auditors, in particular, must be decided by the shareholders at our annual meeting. Therefore, our shareholders may be afforded less protection than they otherwise would have under Nasdaq’s corporate governance standards applicable to U.S. domestic issuers. For an overview of our corporate governance practices, see “Item 6. Directors, Senior Management and Employees—Board Practices.”

56


Table of Contents

 

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

We are an “emerging growth company,” as defined in the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. We have not taken advantage of, and do not intend to take advantage of, the extended transition period provided under Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.

We cannot predict if investors will find our ADSs less attractive because we may rely on these exemptions. If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs and the price of our ADSs may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (2) December 31, 2024; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; and (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

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

While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2020. In the future, we would lose our foreign private issuer status if we fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. We will remain a foreign private issuer until such time that more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies: (1) the majority of our executive officers or directors are U.S. citizens or residents; (2) more than 50% of our assets are located in the United States; or (3) our business is administered principally in the United States.

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

57


Table of Contents

 

Changes to U.S. and non-U.S. tax laws could materially adversely affect our company.

Our tax treatment is subject to the enactment of, or changes in, tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate, including those related to the Organization for Economic Co-Operation and Development’s, or OECD, Base Erosion and Profit Shifting, or BEPS, Project, the European Commission’s state aid investigations and other initiatives. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance.

Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, U.S. federal tax legislation enacted in 2017 informally titled the Tax Cuts and Jobs Act or (the “Tax Act”) enacted many significant changes to the U.S. tax laws. Future guidance from the U.S. Internal Revenue Service, or IRS, and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to the Tax Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.

If we are a passive foreign investment company, there could be adverse U.S. federal income tax consequences to U.S. holders.

Based on our analysis of our income, assets, activities and market capitalization for our taxable year ended December 31, 2019, we believe that we were not classified as a passive foreign investment company, or PFIC, for the taxable year ended December 31, 2019. Whether we are a PFIC for any taxable year will depend on our assets and income (including whether we receive certain non-refundable grants or subsidies, and whether such amounts along with reimbursements of certain refundable research tax credits and certain intercompany service payments will constitute gross income for purposes of the PFIC income test) in each year, and because this is a factual determination made annually after the end of each taxable year there can be no assurance that we will not be considered a PFIC in any taxable year. In addition, we hold a substantial amount of cash and cash equivalents. Because the calculation of the value of our assets may be based in part on the value of our ordinary shares or ADSs, the value of which may fluctuate considerably, our PFIC status may change from year to year and it is difficult to predict whether we will be a PFIC for the current year or any future year. Therefore, we have not yet made any determination as to our expected PFIC status for the current year. Even if we determine that we are not a PFIC after the close of a taxable year, there can be no assurance that the IRS will agree with our conclusion. Our U.S. counsel expresses no opinion regarding our conclusions or our expectations regarding our PFIC status.

58


Table of Contents

 

Under the Internal Revenue Code of 1986, as amended, or the Code, a non-U.S. company will be considered a PFIC for any taxable year in which (1) 75% or more of its gross income consists of passive income or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property and certain rents and royalties. In addition, for purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. If we are a PFIC for any taxable year during which a U.S. holder (as defined below under “Item 10. Additional Information—Taxation”) holds our ordinary shares or ADSs, we will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding years during which the U.S. holder owns the ordinary shares or ADSs, regardless of whether we continue to meet the PFIC test described above, unless the U.S. holder makes a specified election once we cease to be a PFIC. If we are classified as a PFIC for any taxable year during which a U.S. holder holds our ordinary shares or ADSs, the U.S. holder may be subject to adverse tax consequences regardless of whether we continue to qualify as a PFIC, including ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements. For further discussion of the PFIC rules and the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see the section of this annual report titled “Item 10. Additional Information—Taxation.”

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

If a U.S. holder is treated as owning, directly, indirectly or constructively, at least 10% of the value or voting power of our ordinary shares or ADSs, such U.S. holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group, if any. Because our group currently includes one U.S. subsidiary, our non-U.S. subsidiary (and any other non-U.S. subsidiaries we form or acquire in the future) could be treated as controlled foreign corporations, regardless of whether we are treated as a controlled foreign corporation. A United States shareholder of a controlled foreign corporation may be required to annually report and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with controlled foreign corporation reporting obligations may subject a United States shareholder to significant monetary penalties. We cannot provide any assurances that we will furnish to any United States shareholder information that may be necessary to comply with the reporting and tax paying obligations applicable under the controlled foreign corporation rules of the Code. U.S. holders should consult their tax advisors regarding the potential application of these rules to their investment in our ordinary shares or ADSs.

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

As a public company, we must maintain effective internal control over financial reporting in order to accurately and timely report our results of operations and financial condition. In addition, as a public company listed in the United States, the Sarbanes-Oxley Act will require, among other things, that we assess the effectiveness of our internal control over financial reporting beginning with our annual report for the fiscal year ending December 31, 2020 that we intend to file in 2021.

The rules governing the standards that must be met for our management to assess our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act are complex and require significant documentation, testing and possible remediation. These stringent standards require that our audit committee be advised and regularly updated on management’s review of internal control over financial reporting. We are in the process of designing, implementing, and testing the internal control over financial reporting required to comply with this obligation. This process is time-consuming, costly, and complicated. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal controls over financial reporting beginning with our annual report following the date on which we are no longer an “emerging growth company,” which may be through December 31, 2024. Our management may not be able to effectively and

59


Table of Contents

 

timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that are now applicable to us as a public company listed in the United States.

In connection with the audit of our consolidated financial statements as of and for the year ended December 31, 2018, our independent registered public accounting firm identified a control deficiency in our internal control over financial reporting that constituted a material weakness in our internal control over financial reporting. As defined in the standards established by the U.S. Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

Our independent registered public accounting firm identified the material weakness attributable to our lack of expertise regarding complex and unusual IFRS accounting treatment for our convertible bonds and their associated deferred tax impacts. As such, our controls over financial reporting were not designed or operating effectively, and as a result there was an error in our previously issued financial statements for the year ended December 31, 2017 that required us to restate our financial statements for that year.

We have historically retained the services of an external consultant to assist us with complex and unusual IFRS accounting treatment, such as in the case of our convertible bonds. In an effort to remediate our material weakness, we have engaged additional personnel, both internal and external, with appropriate training, and have redesigned our supervision controls, including with respect to the documentation of assumptions used and the development of accounting positions, and we have reassessed the necessary qualifications for any external consultants. We will continue to enhance our controls in this regard. In connection with the audit of our financial statements for the year ended December 31, 2019, no material weaknesses have been identified.  However, there can be no assurance that we will be successful in maintaining the remediation measures described above. There is also no assurance that we have identified all of our material weaknesses or that we will not in the future have additional material weaknesses.

If we fail to maintain the remediation efforts or to meet the demands that have been placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. There is no assurance that we will be able to maintain the remediation efforts, or that in the future, additional material weaknesses will not exist or otherwise be discovered. If our efforts to remediate the material weakness identified are not sustainable, or if other material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, which could result in our failure to meet our reporting obligations in a timely manner under the Exchange Act, additional restatements of our consolidated financial statements, a decline in the price of our ADSs, suspension or delisting of our ADSs from the Nasdaq Global Select Market, and could adversely affect our reputation, results of operations and financial condition.

The Public Company Accounting Oversight Board, or PCAOB, is currently unable to inspect the audit work and practices of auditors operating in France, including our auditor.

 Our auditors, Ernst & Young et Autres, are registered with the Public Company Accounting Oversight Board (PCAOB). The PCAOB’s cooperative arrangement with the French audit authority expired in December 2019, preventing inspections of registered firms in France until a new arrangement is concluded.  Such inspections assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. As a result, our investors may not realize the potential benefits of such inspections until such new arrangement, which is under negotiation, is concluded and inspections in France resume.

 

60


Table of Contents

 

 

 

Item 4.

Information on the Company.

A.

History and Development of the Company

We were incorporated as a French société anonyme, or S.A., on September 21, 1999. Our principal executive offices are located at Parc Eurasanté, 885 avenue Eugène Avinée, 59120 Loos, France. We are registered at the Register of Commerce and Companies of Lille Métropole (Registre du commerce et des sociétés) under the number 424 341 907. In July 2003, we incorporated our wholly owned U.S. subsidiary, Genfit Corp. Our other wholly owned subsidiary, Genfit Pharmaceuticals SAS, was incorporated in France in December 2011. Our telephone number at our principal executive offices is +33 3 20 16 40 00. Our agent for service of process in the United States is Corporation Service Company, located at 1180 Avenue of the Americas, Suite 210, New York, NY 10036.

Our actual capital expenditures for the years ended December 31, 2017, 2018 and 2019 amounted to €2.8 million, €3.0 million and €2.1 million, respectively. These capital expenditures primarily consisted of IT and scientific equipment, and office fixtures. We expect our capital expenditures to remain significant  as we continue our research and development efforts and advance the clinical development of elafibranor, as well as NIS4 and our other drug candidates, in the United States, Europe and elsewhere. We anticipate our capital expenditures in 2020 to be financed from our existing cash and cash equivalents and/or new bank loans. For the near future, our investments will mainly remain in France where our research and development facilities are currently located.

The SEC maintains an Internet site that contains reports, proxy information statements and other information regarding issuers that file electronically with the SEC.  The address of that site is http://www.sec.gov.  Our website address is www.genfit.com. The reference to our website is an inactive textual reference only and information contained in, or that can be accessed through, our website or any other website cited in this annual report is not part of this annual report.

B.

Business Overview

Overview

We are a late-stage clinical biopharmaceutical company dedicated to the discovery and development of innovative drug candidates and diagnostic solutions targeting metabolic and liver-related diseases where there is considerable unmet medical need. We are a leader in the field of nuclear receptor-based drug discovery with a rich history and strong scientific heritage spanning two decades. Since 2016, we have been evaluating  our most advanced drug candidate, elafibranor, in a pivotal Phase 3 clinical trial as a potential treatment for nonalcoholic steatohepatitis, or NASH (the RESOLVE-IT trial). On May 11, 2020, we published the topline data from the interim analysis. Elafibranor did not demonstrate a statistically significant effect on the primary endpoint, which is NASH resolution without worsening of fibrosis, nor did it achieve the key secondary endpoints.  Based on the preliminary results of this interim readout, we do not see a path for accelerated approval under Subpart H or conditional approval by the FDA and EMA. However, before taking a final decision about the future of RESOLVE-IT, we  are actively reviewing the full dataset and will conduct additional analyses, including some aimed at understanding why response rates in the placebo arm of the trial were higher than expected. Depending on insights gained from these additional analyses, and after alignment with regulatory authorities, we will make the decision whether to discontinue altogether, amend or continue the previously planned extension phase of the RESOLVE-IT trial.

Elafibranor is also being evaluated as a potential treatment for primary biliary cholangitis, or PBC. PBC is an autoimmune disease unrelated to the metabolic origins of NASH and is independent from our evaluation of elafibranor in NASH. In December 2018, we announced positive preliminary results from our Phase 2 clinical trial in PBC, and presented the full dataset at ILC-EASL in April 2019. In the first quarter of 2020, the Phase 3 PBC program was launched, with an expected trial initiation later in 2020. Our drug discovery efforts are based on selecting appropriate nuclear receptors as targets and utilizing rational drug design to optimize our drug candidates. A key differentiator of our growth strategy is our NASH non-invasive biomarker-based diagnostic program based on four biomarkers to identify patients with NASH who may be appropriate candidates for drug therapy. After a first licensing agreement signed with LabCorp in January 2019 to make our NIS4 technology available through their subsidiary Covance in clinical research, we are now implementing a dual-track commercial approach. Our scientific and clinical

61


Table of Contents

 

expertise, translational disease-driven approach and strong bioinformatics capabilities have allowed us to build a scientific platform through which we discover and develop our drug candidates and diagnostic tools.

NASH is a liver disease that affects millions of people and for which there are currently no approved therapies. NASH is characterized by an accumulation of fat, inflammation and degeneration of hepatocytes, and may ultimately lead to life-threatening conditions like cirrhosis, liver failure or liver cancer requiring liver transplant. The global market for the treatment of NASH is growing rapidly and is projected to reach $20 billion by 2025. With no approved treatment, NASH can ultimately lead to potentially life-threatening complications like cirrhosis, hepatic impairment, liver cancer or death. It is the second cause of liver transplant in the U.S. after hepatitis C, and is expected to become the leading cause in the near future. A study published in Journal of Hepatology indicated that 17.3 million people may have NASH in the United-States in 2016, and suggested that the total could reach 27 million by 2030. In the five major European markets (France, Germany, Italy, Spain and United Kingdom) this population is estimated at 12.6 million in 2016 and expected to reach 18.3 million by 2030.

Elafibranor, a dual agonist of the nuclear receptors PPARα and PPARδ, is currently in Phase 3 development for the treatment of NASH. We reported interim results from the RESOLVE-IT Phase 3 trial on May 11, 2020.  Elafibranor did not meet the predefined primary endpoint of NASH resolution without worsening of fibrosis in the intend-to-treat or ITT population of 1,070 patients. Elafibranor also did not achieve statistical significance with respect to the other key secondary endpoints of the trial related to metabolic parameters. It is too early to conclude on the exact consequences of the trial outcome, but at this stage we do not expect to be able to pursue accelerated approval under Subpart H (FDA) or conditional approval (EMA) for elafibranor patients in NASH. Further analyses will be conducted following the recommendations from the RESOLVE-IT Steering Committee. In June 2019, we signed a strategic collaboration and licensing agreement with Terns Pharmaceuticals for the development and commercialization of elafibranor in NASH and PBC in Greater China.

 

Despite the interim results from the RESOLVE-IT trial, we are continuing with our other advanced development programs, which are independent of our elafibranor in NASH development program:

NIS 4 program: NASH is a silent disease. Patients often have no symptoms until the first signs of liver failure, and the lack of an accurate, non-invasive diagnostic tool contributes to under-diagnosis. Currently, liver biopsy is the standard for diagnosis, and variation in clinical practice and physician reluctance lead to under-diagnosis. Our blood-based NIS4 is a novel, standalone diagnostic technology that we believe can address the urgent need for a non-invasive, cost-effective, accessible and validated test to identify NASH patients who may be appropriate candidates for drug intervention, thereby decreasing the need for liver biopsy. We believe NIS4 has the potential to benefit patients, improve overall clinical care and facilitate the identification of NASH patients to be treated. Following the first agreement signed with LabCorp in January 2019, we are now developing a two-fold commercial strategy. First, we anticipate marketing NIS4 as a laboratory-developed test or LDT in the second half of 2020, via a licensing agreement with one or more central lab partner(s). Such deployment aims at expanding the use of NIS4 beyond the clinical research field only. In parallel, we intend to advance the program with the submission of NIS4 as an IVD (In Vitro Diagnostic), with an FDA marketing submission targeted in the first half of 2021.

 

PBC: We are also developing elafibranor for the treatment of PBC, a chronic, progressive liver disease that leads to inflammation and scarring of the small bile ducts in the liver. Although a relatively rare disease mainly affecting women, PBC can develop into cirrhosis and other serious liver complications. There is currently no cure for PBC, and the two drugs approved for the treatment of PBC are limited by drug intolerance, lack of patient response and safety issues. Based on our clinical data, we believe elafibranor’s unique mechanism of action can provide benefits for patients with PBC without significant side effects, such as the serious liver injury or death and pruritus that have been associated with approved PBC treatments. We presented the full dataset of the Phase 2 clinical trial evaluating elafibranor for the treatment of PBC at the International Liver Congresses organized by EASL in 2019, showing that elafibranor met the primary endpoint of the trial with statistical significance compared to placebo in both doses evaluated, and also achieved with high statistical significance compared to placebo, the composite endpoint which has been used for drug registration of the second line treatment. In 2019, elafibranor received breakthrough therapy designation from the FDA for the treatment of PBC, and orphan drug designation from both FDA and EMA. Based on the positive Phase 2 results, we launched our Phase 3 PBC development program in early 2020 and are preparing for trial initiation later in 2020.

62


Table of Contents

 

We are also advancing a clinical-stage program based on drug repositioning to develop an anti-fibrotic drug. Our lead drug candidate in this program, nitazoxanide, or NTZ, is an approved anti-parasitic agent that has shown promising activity against fibrosis in our preclinical disease models. See “Nitazoxanide Program for the Treatment of Fibrosis—Preclinical and Clinical Program.” In December 2018, we announced the initiation of an investigator-initiated Phase 2 proof-of-concept trial to evaluate NTZ for the treatment of NASH patients with significant or severe fibrosis. That trial is ongoing.

Our TGFTX1 preclinical program is focused on the discovery and development of innovative drug candidates targeting RORγt, a nuclear receptor involved in certain inflammatory and autoimmune diseases. We are currently conducting pre-IND studies for a topical treatment of mild to moderate psoriasis.

The following table summarizes our drug candidate and diagnostic development pipeline.

 

 

 

Our company was co-founded in 1999 by Jean-François Mouney, now Chairman of the Board of Directors. Our shares have been listed on the Euronext Paris under the symbol “GNFT” since 2006, and we became a dual-listed company in March 2019 after a global offering and U.S. IPO on the Nasdaq Global Select Market, raising gross proceeds totaling $155 million. Our American Depositary Shares, or ADS, are listed on the Nasdaq Global Select Market under the symbol “GNFT”. We are led by an executive team and board of directors with deep experience at leading biotech companies, large pharmaceutical companies and academic institutions. We have now almost 200 employees at our offices in Lille and Paris, France and Cambridge, Massachusetts. The chair of our scientific advisory board, Bart Staels, is the other co-founder of our company and a world-renowned expert in nuclear receptors. Our scientific advisory board is comprised of internationally recognized key opinion leaders in the field of metabolic and inflammatory diseases, with a particular focus on the liver and gastroenterology. We believe the expertise of our leadership and the strength of our relationships within the academic and clinical communities are critical to our ability to execute on our mission as we progress our development pipeline.

A note about the evolving COVID-19 pandemic and its potential consequences on our business

The unprecedented spread of COVID-19 – characterized as a pandemic by the World Health Organization on March 11, 2020 – is impacting the global health and business ecosystem, Genfit included. During this evolving crisis, our priorities are to ensure the safety and well-being of our employees, of the patients and healthcare professionals involved in our clinical trials, as well as the integrity of our ongoing clinical trials. We remain committed to ensuring business continuity and have been monitoring the situation closely. In light of our priorities and in accordance with the recently issued guidance documents of the FDA and the EMA, we have worked with our contract research organizations, trial sites and investigators to critically reassess all our existing programs. On March 31, 2020, we announced a series of measures, and have updated our shareholders about the estimated impact on our programs. As of the date of this Annual Report, with the exception of our RESOLVE-IT Phase 3 trial of elafibranor in NASH (until a decision regarding its discontinuation, amendment or potential continuation is taken in the Fall 2020) and our NIS4 program, as well as the investigator-initiated NTZ trial, we have suspended or put on-hold all of our other programs.  While the situation is expected to subside over time, it is still unclear at the time of publication of this Annual Report how long it will last. Therefore, corporate guidance provided in this document may be subject to further adjustments which, by nature, cannot

63


Table of Contents

 

be precisely anticipated. See also Item 3.D Risk Factors – “The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our preclinical studies and clinical trials.”

 

Our Strengths

We believe the following strengths will allow us to successfully continue our activities in drug and diagnostic research and development for metabolic and liver-related diseases:

 

Our Phase 3 program in PBC was launched in the first quarter of 2020, and we anticipate trial initiation later in 2020, subject to ongoing impacts of the COVID-19 pandemic on the timing.  Positive results from our Phase 2 clinical trial formed a strong rationale for further evaluation of elafibranor in this indication. PBC is an autoimmune disease, and as such, this program is independent from our investigations of elafibranor in NASH..We disclosed topline results of the Phase 2 trial of elafibranor in PBC in December 2018 and presented the full Phase 2 dataset in April 2019, showing that elafibranor met the primary endpoint of our Phase 2 clinical trial, which was the change at week 12 in serum alkaline phosphatase or ALP from baseline. Compared to placebo, treatment with 80 mg and 120 mg elafibranor resulted in mean decrease from baseline of –52% and –44%, respectively, each with high statistical significance. With respect to the composite endpoint used for registration of the second line treatment, the elafibranor 80 mg and 120 mg treatment groups achieved with high statistical significance mean response rates of 67% and 79%, as compared to 6.7% for the placebo group. We also observed a beneficial trend on pruritus – a major symptom of PBC –but remains to be confirmed in a larger Phase 3 trial as these results were not statistically significant.  

 

Our diagnostic program has the potential to expand market opportunity through better patient identification and stratification.  Our NIS4 technology is designed to identify patients with NASH and fibrosis who may be appropriate candidates for drug intervention. We believe that broad adoption of a blood-based diagnostic test - if validated and authorized for marketing as an IVD or LDT – could not only help address the unmet need of under-diagnosed NASH, but could also provide physicians with a tool to identify patients who may potentially benefit from drug treatment. NIS4 has the potential to also allow stronger engagement of diabetologists, endocrinologists, cardiologists and primary care physicians in the identification and clinical management of patients with NASH and fibrosis. In January 2019, we entered into a license agreement with LabCorp to deploy NIS4 in the clinical research space, and LabCorp has moved forward with several large pharmaceutical companies to incorporate NIS4 testing within the scope of their NASH clinical trials. Later in 2019, at the Liver Congress organized by AASLD, we presented additional data about NIS4 suggesting that it was also able to outperform other non-invasive diagnostics in identifying NASH with fibrosis in the specific population of patients with type 2 diabetes, a known risk factor for NASH.

 

We remain a pioneer in the NASH field. Our early move into this specific therapeutic area and our focus on the challenges associated with this emerging field and its complicated pathology gave us the opportunity to develop in-depth regulatory expertise, as well as significant commercial knowledge following the extensive research work carried out with payers and future prescribers. Our network and connections with key experts have grown over time, and we believe it represents a major asset. Our long-standing position and the experience acquired over the years could make us a valuable partner for any pharmaceutical company willing to develop an ambitious plan in NASH, regardless of its development stage: from the identification of early drug candidates to the design of robust and well-informed commercial strategies, and including the set-up and optimization of relevant regulatory pathways. We are actively involved in the NASH stakeholder community, and play an active role within The Liver Forum, an international institution bringing together the most prominent stakeholders in the field and key opinion leaders. We also participate in academic consortia, such as the biomarkers consortia in the United States and Europe, which are dedicated to improving diagnosis. We also work with patient advocacy groups including the Global Liver Institute, American Liver Forum and the European Liver Patient Association. We also spearhead disease awareness through The NASH Education Program, which is a GENFIT public health initiative. In 2018, after having established a large and diversified coalition of key stakeholders, The NASH Education Program organized the first edition of the International NASH day (June 12 of each year). The Global Liver Institute and other prominent patient advocacy groups, built upon this inaugural success to take the lead in organizing the second edition held on June 12, 2019.

 

Our pipeline includes other compounds and combination approaches.  In December 2018, we announced the initiation of an investigator-initiated Phase 2 proof-of-concept trial to evaluate NTZ for the treatment of NASH patients with significant or severe fibrosis. If this Phase 2 trial demonstrates anti-fibrotic activity in these patients, we plan to develop NTZ as a combination therapy as part of our strategy in NASH, in addition to development as a standalone monotherapy in fibrotic diseases. Our TGFTX1 program is in preclinical development in certain inflammatory and

64


Table of Contents

 

 

autoimmune diseases. The strategic partnership signed with Terns Pharmaceuticals or Terns in 2019 also increased our capacity to expand our NASH program, as a result of the research and development agreement between both parties. Backed by experienced investors in the pharmaceutical industry, Terns has a robust pipeline of early-stage candidates that we believe present interesting opportunities for our collaboration as a result of the diversity of their mechanisms of action.

 

Our experienced team is comprised of industry leaders in metabolic and liver-related diseases with global expertise in science, regulatory affairs, market access and commercialization. In September 2019, we announced the appointment of Pascal Prigent as CEO, and Jean-François Mouney’s decision to transition to full-time Chairman of the Board. Mr. Prigent joined us in May 2018 as Executive Vice President of Marketing and Commercial Development, had been a key member of our Executive Committee, and instrumental in achieving several major corporate objectives including the collaboration with Terns Pharmaceuticals . In 2019, we added Dr. Carol L. Addy as our Chief Medical Officer. We believe that the breadth of experience and accomplishments of our management team, board of directors and scientific advisory board, combined with our broad network of established relationships with leaders in the industry and medical community, provide us with unique insights into drug development and commercialization, and have allowed us to bring together top researchers to build interdisciplinary research and development teams.

 

We have entered into major collaborations with the potential to deliver value for patients, physicians and shareholders. With two strategic deals signed in 2019, we has demonstrated its ability to identify high value partners the we believe can maximize the potential of our key assets and their value. Our collaborator Terns Pharmaceuticals: its profile – with key investors like Orbimed, Vivo Capital or Lilly Asia Ventures and management with deep experience at companies like Gilead and Novartis – provides assurance of great leadership, and the R&D collaboration paves the way to generate further value in the future. Our collaborator LabCorp is well known in diagnostics worldwide and we believe their involvement in several on-going NASH trials make them the right collaborator to make our NIS4 technology available for as many patients as possible, as early as possible.

 

Our Strategy

Our goal is to become a leader in the development and commercialization of innovative therapies and diagnostics in metabolic and liver-related diseases. The key elements of our strategy to achieve this goal include:

 

Evaluate the full Phase 3 RESOLVE-IT dataset (72-week, 1,070 patients) to engage discussions with regulatory agencies, and inform our decision on the future of the program.  We believe it is necessary to better understand the high response rate observed in the placebo arm of the interim results of RESOLVE-IT. Placebo response rates for NASH resolution across most NASH trials were historically within the range of 5 to 9%. However, in the RESOLVE-IT trial, the response rate among the placebo group was nearly 15%, even though placebo patients had the same disease, similar baseline characteristics and were enrolled at the same centers, and were following largely similar protocols. This variability across trials raises a fundamental question for experts in the NASH field, and remains unexplained. We have therefore decided to follow recommendations from the RESOLVE-IT Steering Committee and plan to have all of the trial biopsies re-read, in order to inform our decision regarding RESOLVE-IT trial continuation. We believe this new data will also be useful for the whole NASH ecosystem given that accelerated approval  by the FDA under Subpart H and conditional approval from the EMA are based on this type of histological criteria. Beyond these analyses, we will also conduct further analyses in various sub-populations. While these additional analyses are not expected to affect the current regulatory outcome in the short term, they will assist us in informing a decision as to whether there is an opportunity to continue development of elafibranor in NASH.

 

Rapidly advance the Phase 3 clinical development of elafibranor for the treatment of PBC. We are advancing clinical development of elafibranor for the treatment of adult patients with PBC who have had inadequate response to ursodeoxycholic acid, or UDCA. In December 2018, we announced positive preliminary results from our Phase 2 clinical trial evaluating elafibranor for the treatment of PBC, and later presented the full dataset during the International Liver Congress organized by EASL in April 2019. We have now launched the Phase 3 program and are continuing to discuss the clinical development strategy with the FDA to be in a position to initiate the clinical trial later in 2020.

 

Progress our diagnostic program in NASH, with a dual-track commercialization strategy for NIS4 technology. In 2017, we began the product and regulatory development phases for our novel, blood-based technology designed to identify patients with NASH and fibrosis who may be appropriate candidates for drug therapy. The objective is to offer an attractive means of decreasing the need for liver biopsies, and address a well-known and significant unmet need in the field. Today, the clinical reference to diagnose and stage NASH is liver biopsy, which is an invasive and costly procedure that may be associated with procedural complications. It is also a non-scalable option, while the prevalence of

65


Table of Contents

 

 

the disease and the number of suspected patients in need of further evaluation are high. Therefore, a non-invasive diagnostic solution optimized for use in NASH remains a high unmet need. NIS4 technology is already deployed in the clinical research field through our commercial partner LabCorp-Covance, and expansion plans are underway, with a goal to commercialize this technology as an LDT beyond the clinical research environment.

 

Continue to assess our combination program in NASH, and advance other drug candidates in our pipeline. In addition to developing our other drug candidates to independently target metabolic and liver-related diseases, we believe elafibranor’s unique approach in targeting PPARα and PPARδ creates opportunities to explore combination therapies, either with our other drug candidates, third-party drug candidates or approved drugs. We believe combining mechanisms could offer optimal benefits through complementary pathways. The program that would be aimed at evaluating the potential synergies between elafibranor and antidiabetic drugs from the GLP-1 agonist class, and from the SGLT2 inhibitor class, will be reevaluated in the coming months, in light of the conclusions derived from the full Phase 3 interim dataset analyses, including in sub-populations. In our development program for fibrotic diseases, we have chosen to initially advance NTZ into Phase 2 clinical development. In December 2018, we announced the initiation of an investigator-initiated Phase 2 proof-of-concept trial to evaluate NTZ for the treatment of fibrosis in NASH patients with significant or severe fibrosis. We believe NTZ could be developed as an anti-fibrotic monotherapy but also as combination therapy.

 

Reinforce the strategic collaboration with Terns Pharmaceuticals in the development of joint R&D projects. In June 2019, we signed a strategic collaboration agreement with Terns Pharmaceuticals for the development of elafibranor for the treatment of NASH and PBC in Greater China, and we also undertook to develop joint R&D projects in liver disease, including the development of combinations with Terns’ proprietary compounds. The potential of this program in NASH will be reevaluated following the conclusions of the analysis of the full dataset of the RESOLVE-IT interim results.

 

Leverage business development opportunities in our main therapeutic areas and remain open to opportunities that could create value for the Company, whether through forging new strategic partnerships or new scientific collaborations; and

 

Refocus our public awareness effort in NASH, and concentrate our activity on challenges related to diagnostic tools. The NASH Education Program, a public health initiative we created in 2016, is dedicated to the development and funding of NASH awareness and education activities aimed at the medical community and the general public. We believe that this program, through the production and dissemination of essential medical knowledge, can increase early diagnosis of NASH patients and provide physicians and patients with critical information about diagnostic and therapeutic solutions in development.

Our Drug Candidates and Diagnostic Development Programs

NASH—A Silent, Serious and Widespread Disease with No Approved Treatments

Overview

NASH is a silent disease, meaning patients have no symptoms until first signs of liver failure appear, and is notably under-diagnosed. With no approved drug treatments, NASH can lead to life-threatening conditions like cirrhosis, liver failure, liver cancer and death. NASH is the second leading indication for liver transplantation in the United States, behind hepatitis C, but is also the most rapidly growing indication and is expected to eventually become the primary cause. A study published in the Journal of Hepatology estimates that there were approximately 17.3 million adults with NASH in the United States in 2016 and projects that this number will grow to approximately 27.0 million by 2030; in the five major European markets, France, Germany, Italy, Spain and the United Kingdom, these numbers were estimated to be 12.6 million in 2016 and 18.3 million by 2030. NASH is a critical public health concern and an area with high unmet medical need.

We are developing our lead drug candidate, elafibranor, for the treatment of NASH, a severe form of non-alcoholic fatty liver disease, or NAFLD. NAFLD is the buildup of fat in the liver, called hepatic steatosis, that is not caused by alcohol consumption. As the disease progresses, the liver is exposed to chronic inflammation and liver cell degradation (manifested as hepatocyte “ballooning”). A patient has NASH when the three components—steatosis, inflammation and damage—are all present. Without treatment, NASH leads to fibrosis, which is the accumulation of non-functional scar tissue, as the body tries to heal itself. Because the accumulation of scar tissue leads to tissue remodeling, development of fibrosis leads to progressive loss of liver function which may ultimately lead to life-threatening conditions like cirrhosis, liver failure or liver cancer. Approximately 20% of NASH patients will go on to develop cirrhosis, and almost half of patients with cirrhosis will develop liver failure. Studies

66


Table of Contents

 

show that NASH patients have a 10 times greater risk of dying from a liver-related disorder than the general population. In addition to its serious effects on the liver, NASH multiplies the risk of a patient developing cardiovascular problems, such as myocardial infarction, stroke and peripheral vascular accident, which also contribute to higher mortality rates in NASH patients. In fact, cardiovascular disease is the leading cause of death in NASH patients.

The following image depicts the progression of a normal liver through the development of NASH and its eventual consequences.

 

 

 

Causes, Diagnosis and Assessment of NASH

Although experts are still studying the multiple possible causes, it is generally accepted that NASH is a consequence of high-sugar, high-fat diets and insufficient physical exercise. As such, the disease is closely associated with metabolic disorders and NASH patients can have some or all of the following disorders: obesity, type 2 diabetes, hyperglycemia and abnormal levels of triglycerides and cholesterol. As the obesity and type 2 diabetes pandemic has increased, so too has the number of NASH cases worldwide.

Today, the clinical standard to formally diagnose NASH and stage fibrosis in a patient suspected of having NASH is the liver biopsy. When a liver biopsy shows steatosis, ballooned cells and inflammation, with or without fibrosis, the patient is diagnosed with NASH. Physicians use various scoring scales to assess the extent of disease severity and fibrosis in NASH patients:

 

The NAFLD Activity Score, or NAS, provides a numerical score and assesses the severity of the disease for patients who have NASH. The NAS includes three sub-score components—steatosis (0-3), hepatocellular ballooning (0-2) and inflammation (0-3).

 

The NASH Clinical Research Network fibrosis staging system ranks a patient’s level of fibrosis on a scale of F0 to F4. No fibrosis is F0; mild, significant and severe fibrosis is F1, F2 and F3, respectively, and cirrhosis is F4.

The histological spectrum of NAFLD is quite large and both NAS and fibrosis stage can be used to define a patient’s risk of developing cirrhosis, liver failure, liver cancer, liver transplant and liver death. The presence of NASH is the underlying cause of fibrosis, and fuels the fibrosis progression from stage to stage. Not surprisingly, the higher the fibrosis stage, the more advanced the disease, the greater the risk of developing major liver complications.

Although the natural history of the disease is not fully understood, a consensual definition of a NASH patient at risk of liver complications has emerged. According to this definition, a patient presenting with active NASH (NAS≥4) and significant fibrosis (F≥2) should be considered “at risk” and may be an appropriate candidate for drug intervention.

Market Opportunity

67


Table of Contents

 

The treatment of NASH is an urgent public health challenge. Despite the growing burden of NASH on public health systems resulting from high prevalence and morbidities and mortality associated with the disease, there are currently no FDA-approved therapies for the treatment of NASH. Existing drugs have been tested off-label for assessing potential efficacy on NASH and liver fibrosis but have failed because of lack of efficacy, unacceptable side effects or both.

As the global epidemic of obesity fuels NAFLD prevalence, NASH has become one of the most common liver disorders. Global Data estimates the NASH market in the seven major markets (France, Germany, Italy, Japan, Spain, the United Kingdom and the United States) at approximately $143 million as of 2017, with the potential to reach up to $18.3 billion by 2026.

Our Solution: Elafibranor for the Treatment of NASH

Our two-pronged strategy for developing solutions for NASH patients consists of developing  drug candidates for patients with NASH and developing an IVD test to aid in the diagnosis of at-risk NASH patients.

Elafibranor is a dual-agonist acting simultaneously on two nuclear receptors, PPARα and PPARδ, that control expression of key genes of inflammation, lipid metabolism, glucose metabolism and insulin sensitivity, oxidative stress and fibrosis. These two receptors play an important role in numerous processes involved in the development of NASH and its co-morbidities, as outlined below.

 

The activation of PPARα as well as PPARδ confer anti-inflammatory activities through the repression of independent and complementary pathways. Thus, the dual activation of PPARα and PPARδ is thought to be advantageous over single agonism of either of the targets alone.

 

PPARα and PPARδ in the liver increase mitochondrial β-oxidation which can lead to fatty acid degradation, or catabolism, and the decrease of liver fat.

 

The activation of PPARα decreases oxidative stress, which occurs in part through the upregulation of anti-oxidant genes.

 

PPARα activation leads to a beneficial cardioprotective lipid profile which includes a decrease in total cholesterol, remnant cholesterol, LDL-cholesterol and triglycerides, and an increase in HDL-cholesterol.

 

The activation of PPARδ increases insulin sensitivity, which can occur in part by its activity to increase mitochondrial function and energy expenditure. This increased insulin sensitivity improves glucose homeostasis, lowers the elevated plasma free fatty acid levels associated with obesity and decreases hyperinsulinemia, which in turn decreases lipogenesis.

 

PPARα activation has shown a beneficial effect on the microvasculature. It is reasonable to hypothesize that this effect would also be operative in the liver, reducing inflammation and improving vascular activity in NASH patients.

 

The combined activation of PPARα and PPARδ, leading to decreased inflammation, oxidative stress, liver fat and insulin resistance, has a beneficial impact on the liver as is evidenced by the activity of elafibranor to decrease markers of liver dysfunction, including alanine aminotransferase, or ALT, aspartate aminotransferase, or AST, and gamma-glutamyl transferase, or GGT.

An important distinction between elafibranor and some of the other third-party programs targeting PPARs in NASH is that elafibranor does not have any pharmacological PPARγ activity as shown by studies in disease models and in clinical trials. Elafibranor has not shown the unwanted side effects most commonly associated with PPARγ activation, such as weight gain, edema, and fluid retention, which are associated with increased risk of heart failure.

NASH is closely associated with obesity and type 2 diabetes and is considered to be the liver manifestation of the metabolic syndrome. Similar to many metabolic diseases such as type 2 diabetes, NASH is a multifaceted disease with multiple components, including insulin resistance, inflammation, oxidative stress, increased liver fat and dyslipidemia. A therapeutic intervention that can address multiple NASH components may provide optimal clinical benefit and have the best probability to attain the histological endpoints required for drug registration for the treatment of NASH patients.

Our Clinical Program for Elafibranor in the Treatment of NASH

RESOLVE-IT—Our Pivotal Phase 3 Clinical Trial

Based on the results obtained in our Phase 2b clinical trial of elafibranor in treating NASH patients, we are currently evaluating elafibranor for the treatment of NASH in a global pivotal Phase 3 clinical trial, RESOLVE-IT. The trial began in the first quarter of 2016 and is expected to enroll approximately 2,000 patients at approximately 270 sites throughout the world. In May 2020, we announced the results of the  interim analysis of the first 1,070 enrolled patients after 72 weeks of treatment in

68


Table of Contents

 

order to evaluate the efficacy of elafibranor, based on a single primary histological endpoint, resolution of NASH without worsening of fibrosis, as a basis for accelerated marketing approval from the FDA and conditional marketing approval from the EMA.

RESOLVE-IT is a randomized, double-blind, placebo-controlled (2:1) Phase 3 clinical trial enrolling patients with NASH (NAS≥4) and fibrosis (F2 or F3, stages at which fibrosis is significant but has not yet reached cirrhosis). Patients will receive either elafibranor 120 mg or placebo once daily. The primary endpoint at the interim analysis, which has been performed on the interim cohort comprised of the first 1,000 patients enrolled and after 72 weeks of treatment, is the proportion of elafibranor-treated patients achieving NASH resolution without worsening of fibrosis as compared to placebo. The trial also had a key secondary histological endpoint on fibrosis and key secondary endpoints on metabolic parameters..

In April 2018, we announced that we had achieved enrollment of the first 1,000 patients in the interim cohort, which was planned to support the Subpart H approval pathway.  This pathway requires continuation of  the trial through the extension period for all 2,000 patients, at which time the full patient population will be evaluated for a composite endpoint of clinical outcomes. The trial also aimed to evaluate improvement of cardiometabolic profiles in patients treated with elafibranor versus patients treated with placebo. Throughout the duration of the trial, the safety is continuously monitored by the Data Safety Monitoring Board, or DSMB, an independent committee that provides recommendations on continuation of the trial.

During the recruitment, we focused on the balanced distribution of treatments across all sites and countries, based on stratification according to gender, presence of diabetes and disease severity. We have enrolled patients in more than 270 sites across North America, Europe, Australia, Latin America, Turkey and South Africa. Interim baseline data on the initial cohort show that the patients recruited into the trial to date have the expected metabolic co-morbidities which include type 2 diabetes, hypertension, dyslipidemia and obesity. Thus, the baseline characteristics of the trial population are consistent with the expected associated risk factors for patients with NASH and fibrosis.

Seven pre-planned safety reviews of the data have been performed by the DSMB. In each of the reviews, including the most recent one in November 2019, the DSMB recommended continuation of the trial without any modification after analysis of the safety data set, including adverse events and laboratory data. This recommendation, taking into account an increasing number of patients exposed to treatment for longer periods of time, is consistent with our observations in previous Phase 1 and Phase 2 clinical trials that support elafibranor’s favorable tolerability profile and lack of demonstrated safety concerns.

Interim results

The RESOLVE-IT Phase 3 trial evaluated the effect of elafibranor compared to placebo in 1,070 patients (ITT population) with biopsy proven NASH as defined by NAS greater than or equal to 4, fibrosis stage 2 or 3. Patients were randomized 2:1 to receive elafibranor 120mg or placebo once daily, with a follow-up liver biopsy at week 72 to evaluate histologic endpoints (resolution of NASH without worsening of fibrosis or fibrosis improvement of at least one stage). Patients with no biopsy results at week 72 were considered as non-responders in the efficacy analysis.

Elafibranor did not demonstrate a statistically significant effect on the primary endpoint of NASH resolution without worsening of fibrosis.

 

69


Table of Contents

 

Baseline characteristics

Patient inclusion criteria for RESOLVE-IT were similar to those in previously conducted late stage trials in patients with non-cirrhotic NASH. The baseline characteristics demonstrated that the trial was well balanced, with 717 patients randomized to elafibranor and 353 randomized to placebo. The mean age of patients was 55 years old, with men representing approximately 60% of the patients and women approximately 40%, which was planned based upon the relatively higher prevalence of NASH in men compared to women. Approximately one-half of enrolled patients had type 2 diabetes.  The relative proportion of patients with fibrosis stage F2 and F3 was 47.2% and 52.8%, respectively.  The majority of patients enrolled had NAS>6 (approximately 56% in the elafibranor arm and approximately 62% in the placebo arm), indicative of a robust NASH population.  The table below summarizes the characteristics of the ITT population of this trial.

 

 

Statistics

Elafibranor

Placebo

Overall

ITT Set (F2-F3)

N

717

353

1070

Age (Years)

Mean (SD)

54.35 (12.06)

55.04 (11.10)

54.58 (11.75)

Sex

Female

N(%)

283 (39.5)

137 (38.8)

420 (39.3)

Male

N(%)

434 (60.5)

216 (61.2)

650 (60.7)

Fibrosis Stage

Stage 2

N (%)

338 (47.1)

167 (47.3)

505 (47.2)

 

Stage 3

N (%)

379 (52.9)

186 (52.7)

565 (52.8)

Type 2 Diabetes

No

N (%)

361 (50.3)

178 (50.4)

539 (50.4)

 

Yes

N (%)

356 (49.7)

175 (49.6)

531 (49.6)

NAS

4

N (%)

104 (14.5)

45 (12.7)

149 (13.9)

 

5

N (%)

209 (29.1)

90 (25.5)

299 (27.9)

 

6

N (%)

239 (33.3)

120 (34.0)

359 (33.6)

 

7

N (%)

146 (20.4)

92 (26.1)

238 (22.2)

 

8

N (%)

19 (2.6)

6 (1.7)

25 (2.3)

 

Interim efficacy results at week 72

The primary surrogate efficacy endpoint at week 72 was NASH resolution without worsening of fibrosis, with NASH resolution defined as a ballooning score equal to 0 and an inflammation score equal to 0 or 1 and no worsening of fibrosis defined by a fibrosis score not increasing from baseline.  In the ITT population, 19.2% of those treated with elafibranor (N=138) achieved NASH resolution without the worsening of fibrosis compared to 14.7% of patients randomized to placebo (N=52) (p value of p=0.07).  

On the key secondary endpoint in the ITT population, 24.5% of patients treated with elafibranor (N=176) achieved fibrosis improvement of at least one stage compared to 22.4% (N=79) of patients randomized to placebo (p value of p=0.445).

The data are summarized in the table below.

 

ITT (missing biopsy = non-responder)

Elafibranor 120mg

Placebo

P-Value

N

%

N

%

Primary Endpoint

NASH Resolution without worsening of fibrosis

138/717

19.2

52/353

14.7

0.0659

Key secondary Endpoint

Fibrosis improvement of at least one stage

176/717

24.5

79/353

22.4

0.4457

 

70


Table of Contents

 

The key secondary metabolic endpoints included triglycerides, non-HDL cholesterol, HDL-cholesterol, LDL-cholesterol, HOMA-IR in nondiabetic patients, and HbA1c in diabetic patients), and statistically significant reductions were seen in triglycerides and non-HDL cholesterol.

Safety and tolerability results

Elafibranor was generally well tolerated over the 72 weeks of exposure, which is consistent with previously co