UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

Date of report: September 30, 2020

Commission File Number: 001-38844

GENFIT S.A.

(Translation of registrant’s name into English)

 

Parc Eurasanté

885, avenue Eugène Avinée

59120 Loos, France

 

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

☒ Form 20-F ☐ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

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HALF-YEAR

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNDER IFRS

 

 

 

 

FOR THE HALF-YEAR ENDED JUNE 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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TABLE OF CONTENTS

 

 

 

 

 

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

4

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CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

5

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CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS

 

 

 

6

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CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

The expenses incurred in  2019 in relation to the Initial Public Offering are deducted from the share issue premium.

 

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands of euros, except for number of shares and per share amount)

 

Founded in 1999 under the laws of France, GENFIT S.A. (the "Company")is a late-stage biopharmaceutical company dedicated to the discovery and development of innovative therapeutic and diagnostic solutions in metabolic and liver related diseases where there are considerable unmet medical needs, corresponding to a lack of approved treatments.

The Company focuses its research and development (R&D) efforts with the aim to potentially market therapeutic and diagnostic solutions to combat certain metabolic, inflammatory, autoimmune and fibrotic diseases affecting in particular the liver (such as non- alcoholic steatohepatitis - NASH) and more generally gastroenterological diseases.

The consolidated financial statements of the Company include the financial statements of GENFIT S.A. and those of its wholly-owned subsidiaries: GENFIT CORP (U.S. subsidiary) and GENFIT PHARMACEUTICALS SAS (French subsidiary),together referred to in these notes to the consolidated financial statements as "GENFIT" or the "Group".

Major Events in the Period

In May 2020, the Company announced the results from the interim analysis of the RESOLVE-IT Phase 3 trial. Elafibranor did not meet the predefined primary surrogate efficacy endpoint of NASH resolution without worsening of fibrosis, nor the secondary endpoints in the ITT population of 1,070 patients.

The response rate in the 717 patients enrolled on study drug was 19.2% for patients who received elafibranor 120mg compared to 14.7% for patients in the placebo arm. On the fibrosis key secondary endpoint, 24.5% of patients who received elafibranor 120mg achieved fibrosis improvement of at least one stage compared to 22.4% in the placebo arm. The other key secondary endpoint related to metabolic parameters did not achieve statistical significance.

While the topline results do not support an application for accelerated approval of elafibranor by the FDA under Subpart H or conditional approval by the European Medicines Agency (“EMA”), the Company announced, also in May, its intention to review in detail the full dataset and conduct additional analyses in order to understand why the placebo response rate was higher than what was expected before making a decision regarding continuation of the RESOLVE-IT trial.

Events after the Reporting Period

 

After this review process, of which the main steps took place in July, a decision has been made to terminate early the Phase 3 RESOLVE-IT trial evaluating the efficacy and safety of elafibranor in NASH with fibrosis. The costs pertaining to the termination of this study (regulatory activities, final visits for each patient, site closures, data recording, study report production, finalization of the Trial Master File, supply contract termination clause, etc…) are estimated to reach an amount between 19 and 22 million euros, of which some costs in US dollars have been included on the basis of the September 1, 2020 exchange rate.

 

Following this decision, the Group is currently conducting an analysis of its impact on the scientific equipment assets that were dedicated to the RESOLVE-IT study, in order to identify those that would be usable for the study of elafibranor in PBC (ELATIVE), and those that should be divested or discarded. The net accounting value of this

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

equipment as of June 30, 2020 is €2,149 (including leased assets). The potential depreciation and sale proceeds will be assessed during the second half of 2020 upon completion of the analysis.

 

This estimated does not include costs related to the Group’s reorganization projects (see note 2.3 “Other Events after the Reporting Period”).

Major Events in the Period

A new coronavirus strain, COVID-19, was identified in Wuhan, China in December 2019. Since then and particularly since the closing date, the COVID-19 coronavirus has spread to several countries, including the United States. and several European countries, including countries in which the Company has clinical trials in progress, in countries where it plans to conduct clinical trials and in countries in which major subcontractors for carrying out its clinical trials and the production units of the active ingredient suppliers and therapeutic units of elafibranor, its most advanced drug candidate, are located. As of June 30, 2020, closing date of the half-year financial statements, the main impacts of this unprecedented spread of COVID-19 on its activities are the following:

 

Events after the Reporting Period / Impact of the discontinuation of the RESOLVE-IT trial and the COVID-19 pandemic

Some studies that had been put on hold since the beginning of the COVID-19 outbreak have been early terminated or a decision was taken not to initiate them, following the RESOLVE-IT trial termination. These decisions were taken independently of any impact from the COVID-19 situation or any safety concerns regarding the Company’s drug candidates.

Phase 1 studies have been early terminated due to having sufficient data to address research objectives.  The only exception to this is the bioequivalence part of the bioequivalence/food effect study, which has resumed.

Some Phase 2 studies have been early terminated, including the pediatric PK/PD study and the hepatic fat study.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

The Phase 2 combination study will not be conducted.

R&D programs which do not support our two core programs of PBC and NIS4 have been terminated.

The recruitment of the first patient in the Phase 3 study of elafibranor in PBC is planned during the month of September 2020, after a delay from its original schedule in Q1 2020 due to the COVID-19 pandemic. We expect the recruitment period to last 18 months instead of 12 months as originally planned before the COVID-19 pandemic.

2.3.OTHER EVENTS AFTER THE REPORTING PERIOD

Reorganization

Due to the impact on the workforce of the termination of the study on elafibranor in NASH, GENFIT has initiated as of September 29, 2020, a significant reorganization project, which should result in a headcount reduction.

Labcorp

In September, the Company has announced the signature of a new licensing agreement with Labcorp for the development and commercial deployment of an LDT integrating NIS4 technology on the routine clinical care diagnostic tests market in the United States and Canada.

OCEANEs

GENFIT is considering a proposal to the holders of its OCEANEs of a nominal amount of €180 million and due on October 16, 2022 and to its shareholders, of a modification of the terms thereof. The Company aims to initiate this process by the end of the year in order to adapt the structure of its balance sheet to its new strategy.

 

The six-month Consolidated Financial Statements of GENFIT have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), at June 30, 2020. The term IFRS includes International Financial Reporting Standards ("IFRS"), International Accounting Standards (the "IAS"), as well as the Interpretations issued by the Standards Interpretation Committee (the "SIC"), and the International Financial Reporting Interpretations Committee ("IFRIC"). Comparative figures are presented for the year ended December 31, 2019 and the half year ended June 30, 2020.

In accordance with European Commission Regulation No 1606/2002, these consolidated financial statements for the six-month period ended June 30, 2020 have been prepared in accordance with IAS 34 relating to interim financial information, the IFRS standard as adopted by the European Union, and must be read in conjunction with the most recent consolidated annual financial statements for the year ended December 31, 2019.  They do not include all the information required for a complete set of financial statements in accordance with IFRS but a selection of notes explaining significant events and transactions with a view to understanding the changes in the Group's financial position and performance since the last annual consolidated financial statements.

The consolidated financial statements have been prepared using the historical cost measurement basis except for certain assets and liabilities that are measured at fair value in accordance with IFRS.

These condensed consolidated financial statements for the six month period ended June 30, 2020 were prepared under the responsibility of the Board of Directors that approved such statements on September 29, 2020.

The principal accounting methods used to prepare the condensed Consolidated Financial Statements are described below.

All financial information (unless indicated otherwise) is presented in thousands of euros (€).

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

With the exception of the changes mentioned thereafter, the accounting policies applied in these interim six-month consolidated financial statements are the same as those applied in the Group’s consolidated year-end financial statements.

 

The new standards listed below are effective from 1 January 2020 but they do not have a material effect on the Group’s financial statements as of June 30, 2020 financial statements.

It is also to be noted that amendments to IFRS 16 in relation with rent concessions were not applicable for the Group since no concession was obtained by Genfit regarding its rental agreements.

The application decision of the IFRIC decision regarding the rental duration has not been applied to the half-year financial statement; as the Group needs sufficient time, the impact analysis of this final decision by the IFRS IC is still ongoing. Its implementation may result in an extension of the rental period initially considered and cause a review of the rent liabilities and the use rights pertaining to the affected rental agreements.

The main recent changes to the Standards that are required to be applied for an annual period beginning after 1 January 2020 are listed below.

The accounting policies used for these interim financial statements are the same as those used for the most recent consolidated annual financial statements.

The condensed, consolidated half year accounts do not include all of the information regarding the management of financial risks which are described in the Registration Statement Form 20 F for the reporting period ended on December 31, 2019.

The nature and exposure of the Group to currency risk has evolved. It had been anticipated that a growing portion of its operations would be denominated in US dollars, and the Group decided not to convert into euros the US dollar denominated cash it raised in March 2019 IPO.  The Company expected to use cash held in US dollars to meet expenses denominated in this currency over the next few years.

Because of the decision to initiate the termination of the RESOLVE-IT trial (see note 2 “Events after the Reporting Period”), the Group has started to implement a cost savings plan in the second half of 2020 and will manage a smaller number of transactions denominated in foreign currencies or indirectly exposed to currency risk.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

The increase in the overall exposure of the Company to this risk will depend, in particular, on:

During the first half of 2020, the Company did not use any specific hedging arrangements in light of the Company’s decision to leave a significant part of its cash and cash equivalents in US dollars.

The following table presents the sensitivity of the cash and cash equivalents and expenses of the Group to a fluctuation of 10% of the US dollar against the Euro in the 2019 and 2020 semesters:

 

 

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

As of June 30, 2020, the Group was only liable for governmental advances or conditional advances with no interest or interest at a fixed rate, generally below market rate, and for fixed-rate bank loans.

As of June 30, 2020 the Group's financial liabilities totaled, €184,637 (€183,619 as of December 31, 2019, net of the equity component of the convertible loan and debt issue costs),. Current borrowings are at a fixed rate. The Group's exposure to interest rate risk through its financial assets is also insignificant due to low market rates and since these assets are mainly euro-denominated Undertakings for the Collective Investment of Transferable Securities (UCITs), medium-term negotiable notes or term deposits with progressive rates denominated in euros or US dollars.

The Group's loans and borrowings mainly consist of bonds convertible or exchangeable into new or existing shares (OCEANE), repayable for a nominal amount of €180 million and maturing on October 16, 2022, government advances related to research projects, of which the repayment in function of the commercial success of the related research project, and bank loans. (see note 12.2.1 “Refundable and conditional advances”)

The Company has conducted a specific review of its liquidity risk and considers that it is able to meet its future maturities. As of June 30, 2020, the Group had €227,316 in cash and cash equivalents and other financial assets (€278,474 as of December 31, 2019). The Company does not believe it is exposed to liquidity risk within the next twelve months. The Company believes that the Group's cash and cash equivalents and current financial instruments are sufficient to ensure its financing, in light of its current projects and obligations, for at least the next twelve months.

 

Credit risk is the risk of financial loss if a customer or counterparty to a financial asset defaults on their contractual commitments. The Group is exposed to credit risk due to trade receivables and other financial assets.

The Group's policy is to manage this risk by transacting with third parties with good credit standards.

The main components of cash equivalents were:

These investments, summarized in the tables below, are short-term, highly liquid and subject to insignificant risk of changes in value. a low risk of changes in value.

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

 

Intangible assets consist mainly of office and administrative software as well as scientific software and license agreements purchased by the Group.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

The following tables show the variations in intangible assets for the half-year ended June 30, 2020:

 

 

 

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

 

Assets related to contracts that were classified as finance leases under IAS 17 are scientific equipment. As mentioned above, these contracts were treated in the same manner under IFRS 16. Their net carrying value as of June 30, 2020 amounted to €1,143 (as of December 31, 2019: €1,413).

In accordance with IFRS 16, the Group has chosen not to present the “right of use” separately from other assets and added them to assets of the same type as the underlying leased assets.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

The right of use asset and depreciation as of June 30, 2020 in the table above are related to :

Regarding equipment dedicated to the RESOLVE-IT study, please see section 6.2 “Major Events in the Period and Events after the Reporting Period”.

 

 

Research tax credit

The research tax credit of €8.125 million due for 2019 was received in May 2020.

The research tax credit of €6,684 receivable as of June 30, 2020 includes:

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

As of June 30, 2020, The research tax credit litigation wascovered by a provision of €1,892, which reflects no change in comparison to December 31, 2019 and appears as a liability in the consolidated statement of financial position..

Other receivables

As of June 30, 2020:

The line item “other receivables” primarily consists of credit notes from suppliers for €352.

Other financial assets consisted of the following:

 

 

The liquidity contract consists of a share buyback program contracted to an investment service provider in order to facilitate the trading listng of the Group’s shares.

As of June 30, 2020, the liquidity account had a cash balance of €843.

As of June 30, 2020, CMC-CIC Market Solutions holds on behalf of Genfit 47,698 shares, recorded as a deduction from equity for €240.

Other assets of €1,968 and €3,540 as of December 31, 2019 and as of June 30, 2020, respectively, consisted of prepaid expenses related to current operating expenses.

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

On October 16, 2017, the Company issued OCEANEs (due October 16, 2022) for an aggregate nominal amount of €180 million.

 

 

 

The conversion of all of the convertible bonds would result in a dilution of 15.6% (expressed as a percentage of share capital at June 30, 2020).

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Other loans and borrowings consisted of the following:

 

 

 

 

The following table summarizes the advance outstanding as of June 30, 2020

BPI FRANCE IT-DIAB

The Group received an advance from BPI France (the BPI France IT-DIAB) as part of a framework innovation aid agreement involving several scientific partners and for which the Group was the lead partner. The contribution expected at each stage by each of the partners in respect of work carried out and results achieved is

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

defined in the framework agreement. With respect to the Group, the aid consisted of a €3,229 conditional advance and a €3,947 non-repayable government grant.The conditional advance is not refundable except in the event of success.

The program ended on December 31, 2014. In the event of success, defined as the commercial spin-offs of the IT-Diab program which involves products for the treatment or diagnosis of type 2 diabetes, the financial returns generated will be used initially to repay the €3,229 conditional advance. The agreement stipulates that the conditional advance will be regarded as repaid in full when the total payments made in this regards by the recipient, discounted at the rate of 5.19%, equal the total amount, discounted at the same rate, of the aid paid. Any further amounts will be classified as additional payments, up to a maximum amount of €14,800.

As provided in the project assistance contract, the Company sent a letter to BPI in December 2019 in order to notify it of the Labcorp and Terns contracts while indicating that elafibranor was now aimed at treating hepatic diseases and no longer Type 2 diabetes as provided for in the aid agreement. Genfit proposed to BPI to establish a statement of abandonment of the IT DIAB project on which the above advance is based. Following this letter, the parties met in March 2020 for the presentation of the Company's arguments and in June 2020 following the results of the RESOLVE IT study. In this context, Genfit is awaiting BPI’s position on new financial terms related to this situation and a draft amendment to the repayable advance agreement.

 

The Group did not take any new loan in 2020.

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

 

 

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

The convertible bond of a nominal amount of €180 million results in the payment of yearly interest of €6,300 (payable semi-annually) and a reimbursement at par due in less than 3 years (in October 2022).

Regarding the IT-DIAB advance, see section 12.2.1 – “Refundable and conditional advances”.

Trade and other payables consist of the following :

 

 

 

 

As of June 30, 2020, this line item amounted to €2,071 (€2,061 as of December 31, 2019).

The accruals recorded are mainly related to the research tax credit. See section 6.23 “Litigation and contingent liabilities”.

In France, pension funds are generally financed by employer and employee contributions and are accounted for as a defined contribution plans with the employer contributions recognized as expense as incurred. The Group has no actuarial liabilities in connection with these plans. Expenses recorded in the half years ended June 30, 2020 and June 30, 2019 amounted to €414 and €451 respectively.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

French law also requires payment of a lump sum retirement indemnity to employees based on years of service and annual compensation at retirement, which are accounted for as a defined benefit plan. Benefits do not vest prior to retirement. The liability is calculated as the present value of estimated future benefits to be paid, applying the projected unit credit method whereby each period of service is seen as giving rise to an additional unit of benefit entitlement, each unit being measured separately to build up the final. At June 30, 2020, pension provisions recorded were €1,503 as compared to €1,408 at December 31, 2019.

For the half years ended June 30, 2020 and June 30, 2019, the provision for retirement indemnities is calculated on the basis of one-half of the expected expenses for the corresponding period, taking into account the updated assumption for the discount rate.

As part of the measurement of the retirement indemnity to employees, the following assumptions were used for all categories of employees:

 

 

 

The discount rates are based on the market yield at December 31, 2019 and at June 30, 2020 on high quality corporate bonds.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

The following table presents the changes in the present value of the defined benefit obligation:

 

 

The actuarial difference mainly results from the change in discount rate.

 

 

Ordinary shares are classified under shareholders’ equity. Any shareholder, regardless of nationality, whose shares are fully paid-in and registered for at least two years, is entitled to double voting rights under the conditions prescribed by law (Article 32 of the Company’s bylaws).

At June 30, 2020, 2,326,600 shares have been held for more than two years and entitle their holders to double voting rights (5.99% of the issued share capital).

Changes in share capital in 2020

None.

Changes in share capital in 2019

The Chairman and CEO, acting on a decision and delegation from the Board of Directors on March 13, 2019, decided on March 26, 2019, in accordance with the 17th and 18th resolutions of the Shareholders Meeting of June 15, 2018, to proceed with a capital increase by offering ordinary shares in the form of American Depositary Shares in the United States and a private placement of ordinary shares in Europe and other countries outside the United States. This transaction led to the issuance of 7,647,500 new shares representing a subscription of a gross amount of €137.6 million. Settlement delivery took place on March 29, 2019 and the share capital has been increased accordingly.

In addition, the Chief Executive Officer, acting on a decision and delegation from the Board of Directors on November 27, 2019, determined on December 16, 2019, with retroactive effect to December 15, 2019, that some of the performance and attendance conditions of the AGA D 2016-1 and AGA D 2016-2 and all of the AGA S 2016-2 free shares had been satisfied. 7,796 free shares were thus definitively vested and the same number of new shares were created. The share capital was increased accordingly.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Finally, the Chief Executive Officer, acting on a decision and delegation from the Board of Directors on November 21, 2017, determined on January 2, 2020, with retroactive effect to December 31, 2019, that some of the performance and attendance conditions of the AGA D 2017-1 and all of the AGA S 2017-1 free shares has been satisfied. As a result, 19,400 free shares definitively vested and the same number of new shares were created and the share capital was increased accordingly.

At December 31, 2019, the total number of shares comprising the share capital, taking into account the above, was 38,858,617 shares.

Other income consisted of the following:

A of June 30, 2020 , the Group recognized in “Other operating income” €509 for exchange gains on trade receivables linked to services denominated in US dollars (€623 were recognized as financial income in the first half of 2019).

 

 

 

 

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

Research and development expenses at each reporting date take into account estimates for ongoing activities subcontracted as part of the clinical trials and not yes invoiced, on the basis of detailed information provided by subcontractors and reviewed by the Group’s internal departments.  The accuracy of these estimates for some types of expenses improves with the progression of the trials and the review of their determination methods.

The decrease in subcontracting cost in 2020 is due to the suspension or termination of some studies in the context of the COVID-19 pandemic. See note 2 “Major Events in the Period and Events after the Reporting Period”.

The personnel expenses are similar since the growth in workforce (203 as of June 30, 2020 vs. 174 as of June 30, 2019) is compensated by the absence of incentive bonuses in 2020.

The change in “other operating expenses” is related in particular to the costs related to the facilities and their maintenance, intellectual property expenses, and more particularly the increase in expenses related to the preparation of the marketing of elafibranor in NASH.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

Headcount at June 30

 

 

Share-based compensation is granted by GENFIT to employees, executive officers, board members and consultants.

Share-based compensation granted to employees and executive officers in 2014 through 2019 corresponds to redeemable share warrants ("Bons de Souscriptions et/ou d'Acquisition d'Actions" or "BSAAR"), stock options ("SO") and free shares ("actions gratuites" or "AGA")

Share-based compensation granted to board members and consultants in 2014, 2015, 2017 and 2019 corresponds to share warrants ("Bons de Souscriptions d'Actions" or "BSA").

For the measurement of this share-based compensation, the Group has determined that under IFRS, its consultants were not equivalent to employees.

Under these programs, holders of vested instruments are entitled to subscribe to shares of the Company at a pre-determined exercise price. All of the plans are equity settled. The terms and conditions of these plans are detailed in the 2019 Universal Registration Document.

No instruments were exercised during the year, 2019 and the first half of 2020.

No new plans were put in place in the first half of 2020.

The expense recognized pursuant to IFRS 2 was €513 as of June 2020 and €1,645 in 2019

.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

 

 

Financial expenses for loans and borrowings are due to the interest on the OCEANEs, mainly due to interest payments at a rate of 3.5% and the discounting of the bond debt at an effective interest rate of 7.2%. The discounting of bond debt consists of bringing the amount of the debt component of the bond issue to the amount that will be repaid (or converted) at maturity, by the recognition of a theoretical annual interest expense resulting from the accretion over the period of an amount equivalent to the equity component at an effective interest rate.

The increase in financial income is due to the increase in interest on term accounts.  GENFIT has decided to keep some of its cash in US dollars.  See note 6 “Cash and cash equivalents”.

At June 30, 2020, the tax loss carry forwards for the Company amounted to €440,561, (€384,471 as of December 31, 2019).

Such carry forwards can be offset against future taxable profit within a limit of €1 million per year, plus 50% of the profit exceeding this limit. Remaining unused losses will continue to be carried forwards indefinitely.

The Group’s main sources of deferred tax assets and liabilities as of June 30, 2020 related to:

Tax losses carry forwards: €440,561 (compared to €384,471 as of December 31, 2019);

Temporary differences related to:

The Company offsets its deferred tax assets and liabilities (€1,572 and €2,629, respectively), as permitted by IAS 12, resulting in a net deferred tax liability of €1,057.

The income tax benefit for the period is mainly due to the decrease in the net deferred tax liability over the period.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Oher than as it relates to deferred tax assets recognized based on the available deferred tax liabilities, no other deferred tax asset has been recognized as it is not probable that taxable profit will be available to offset deductible temporary differences and tax loss carry forwards.

The components of the earnings (loss) per share computation are as follows:

 

 

Basic loss per share is equal to diluted loss per share.

Class Action

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, captioned Schwartz v. Genfit S.A. et al., 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. The complaint alleges 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. The complaint seeks unspecified compensatory damages. We and the defendants intend to defend the matter vigorously. The financial impact of this action cannot be evaluated at this time.

Dispute over research tax credit calculation

In 2014, the Company was under a tax audit at the end of which the French tax authorities questioned part of the Research Tax Credit (CIR) received by the Company for the 2010 fiscal year. The tax audit was extended to the CIR for the 2011 and 2012 fiscal years.

This tax audit was also extended to the 2014 CIR as part of a documentary audit the purpose of which was to apply the rules described below.

The dispute with the French tax authorities pertained mainly to collaborative research alliances with companies partners in the pharmaceutical industry. The tax authorities contended that, in these alliances, the Company is acting as a sub-contractor, which should reduce the basis on which the CIR was computed by deducting amounts billed by the Company to the other party. The Company maintained that the contracts governing these collaborative research alliances included reciprocal provisions concerning intellectual property, the shared governance of the research programs, risk sharing, conditions governing the termination of the agreements and the terms of compensation, which demonstrate that they were not sub-contracting agreements.

On April 5, 2018, the Administrative Court of Montreuil partially accepted the Company’s claims on the CIR for 2010, 2011 and 2012, in particular, on the qualification of collaborative research. On June 28, 2018, the

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Administrative Court of Montreuil accepted the Company’s claim on the CIR for 2014. On September 11, 2018, following the judgment, the Company was repaid €432.

On July 25, 2018, and then on October 28, 2018, the Company was informed that the Ministry of Action and Public Accounts, appealed the aforementioned judgments.

On June 18, 2019, the Court of Appeals of Montreuil delivered its judgment on the first judgment and gave the Company the right to take into account the depreciation of certain assets eligible for the CIR but reversed the decision of the Administrative Tribunal Court as it related to the collaboration research for the CIRs 2010, 2011 and 2012 relates to the collaboration research for the CIRs received in connection with the 2010, 2011 and 2012 fiscal years. The Company will have to reduce the base of its CIR by the amounts invoiced to its partners.

The Company has decided not to appeal the Court of Appeals decision, and therefore has recognized a provision totaling €1,892, which includes the 2014 CIR and for which it did not seek to continue before the court of appeals during a hearing in March 2020, which has ended this dispute. The Company still awaits the final calculation by the tax authorities.

 

Biotech Avenir SAS and The NASH Epidemiology InstituteTM , an endowment fund set up by the Company, are related parties within the meaning of IAS 24.9.

The registered office of Biotech Avenir SAS and that of The NASH Epidemiology InstituteTM are located at the same address as the Company. These domiciliations are provided without charge.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Biotech Avenir

Biotech Avenir SAS is a holding company incorporated in 2001 by the Company's founders. Most of its share capital is currently held by individuals, i.e., the four co-founders of the Company and approximately thirteen Company employees.

Jean-François Mouney, the Chairman of the Company, is also the Chairman of Biotech Avenir SAS.

At June 30, 2020, Biotech Avenir SAS held 4.86% of the share capital of the Company.

The Company did not carry out any transactions with Biotech Avenir in 2020, with the exception of the domiciliation without charge.

The NASH Epidemiology Institute TM

The NASH Education Program TM (which became The NASH Epidemiology Institute TM ) endowment fund was created in November 2016 at the initiative of the Group to develop and finance disease awareness activities targeting medical professionals and the general public.

The transactions carried out between the Group and The NASH Epidemiology Institute TM totaled €2 in the first half 2020 and €32 in the first half 2019. The Group has no obligations with respect to The NASH Epidemiology Institute TM as of June 30, 2020.

PCAS Group

Mr. Frédéric Desdouits, administrator of the Company since June 2014 and currently a member of the Board of Directors of the Company, has been appointed CEO of the PCAS Group in March 2019. The active ingredient of elafibranor being produced by a production unit of the PCAS Group since 2014 and Mr. Desdouits having become its CEO, he has therefore become a related party per IAS 24.9 since March 2019.

In January 2020, the Company signed a Memorandum of Understanding with PCAS with the intent to manage the conditions under which the PCAS Group will implement internally and at the request of the Company a second production source of the active principle in an intent to secure its supply, and realize the necessary investment for this operation and the increase in production capacity for the active ingredient in order to prepare for a potential NDA. PCAS will bear the cost of the transfer of technology between the current production unit and this second supply source, of €255, except in case of discontinuation of the RESOLVE-IT program. Because of the decision made on July 22, 2020 to terminate it, this cost will be included in the costs of study termination, which will be recognized in the second half of 2020. See note 2 “Major Events in the Period and Events after the Reporting Period”.

On September 2, 2019, the Board of Directors accepted the resignation of the Chairman and Chief Executive Officer of the Company and decided to separate the roles of Chairman of the Board of Directors and Chief Executive Officer of Genfit SA with effect from September 16, 2019.

At the same meeting, the Board of Directors appointed the Chief Executive Officer of the Company and confirmed the former Chairman and Chief Executive Officer in his functions as Chairman of the Board of Directors and member of certain committees of the Company's Board of Directors.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Under these conditions, the following table details the compensation paid to the Chairman and Chief Executive Officer in during the during the half year 2019. A second table presents the compensation paid to the Chief Executive Officer during the half year 2020 (after the change in governance).

 

 

Within this total, only the portion of the amounts paid in 2019 to the Chairman and Chief Executive Officer pursuant to  the 13th resolution of the Annual General Meeting of June 13, 2019, for the part of the Incentive Plan corresponding to that portion of work on the initial public offering of the Company on the Nasdaq Global Select Market carried out in 2018, i.e.,  ¾ of the amount due, i.e. a gross amount of €562,893. However, in May 2020, the Chairman of the Board of Directors decided to the balance of €187,631 gross, which had been accounted for in the 2019 fiscal year..  

The Chairman of the Board of Directors, Jean-François Mouney, receives a fixed compensation. He also has use of a company vehicle and the Group’s insurance and disability plan. These benefits are totaled in the table above in the "Other compensation" line. The Chairman of the Board of Directors also receives attendance fees granted for his participation in the work of some of the committees of the Board of Directors.

The Chief Executive Officer’s corporate contract contains a clause whereby, in the event of termination, he would receive a non-compete indemnity equal to: twelve (12) months of fixed compensation, calculated on the basis of the gross amounts due for the past twelve months ended and increased, where applicable, by the amount of the annual variable compensation due for the previous year. This compensation is intended to compensate the prohibition made to the Chief Executive Officer, for a period of 12 months following the termination of his functions, for whatever reason, to work in any way whatsoever with certain companies carrying out a directly competitive activity of the Company.

In addition, the Chief Executive Officer, except in the event of gross negligence within the meaning of labor law, shall receive severance pay equal to: twelve (12) months of fixed compensation, calculated on the basis of the gross amounts due for the twelve past completed months and increased, where applicable, by the amount of annual variable compensation due for the previous year. This compensation will be paid one month after his effective termination of activity within the Group. The compensation will not be paid if, on his initiative, the Chief Executive Officer leaves the Company to exercise new functions or changes functions within the Group, or even if he has the possibility of asserting in the short term his retirement rights. It is also specified that any sum paid under the non-competition clause will be deducted from the sums due under the severance pay and vice

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

versa. The total and maximum commitment represented by this indemnity (gross, employer charges and payroll tax) as of June 30, 2020 would amount to €399.

The directors’ fees and other compensation due and paid to the non executive directors are as follow:

 

 

The attendance fees of Mr. Jean-François Mouney, which are presented above, refer to the period from January 1 to June 30, 2020.

In addition, the Company has provided corporate officers, directors and members of the Executive Committee a “directors and officers” insurance against claims relating to certain actions they may take in the performance of their duties. For the12-month period starting in March 2020, the insurance premium including the IPO insurance policy premium for the implementation of this insurance coverage amounted to €1,316.

 

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(amounts in thousands of euros, except for number of shares and per share amount)

 

Subcontracting agreements

The Group enters into contracts in the normal course of business with clinical research organizations (CROs) for clinical trials, as well as with Contract Manufacturing Organizations (CMOs) for clinical and commercial supply manufacturing, commercial and pre-commercial activities, research and development activities and other services and products for operating purposes.  The Group’s agreements generally provide for termination with specified periods of advance notice. Such agreements are generally cancelable contracts and not included in the description of the Group’s contractual obligations and commitments.

In 2019, the Company signed a Memorandum of Understanding with one of its CMOs to be followed by an implementation contract with the CMO to set up a second supply and manufacture source of elafibranor.

The costs related to the transfer of technology required for the establishment of the second source of supply and manufacturing, as well as the costs of manufacturing the registration lots are borne by the CMO and serve as a basis for calculating the penalties that would be payable by the Group in certain cases of early termination of the MoU or its implementation contract. The amount of these penalties could reach a maximum of €1,360. The circumstances under which the RESOLVE-IT study was discontinued are among the cases excluding the payment of penalties.

Deposits and guarantees

GENFIT has guaranteed its rental payment obligation under the lease agreement for the headquarters in Loos, France in the amount of €542 at June 30, 2020 (€542 as of December 31, 2019). The amount of first demand guarantee has been elevated to €590 as of August 22, 2020, as after the extension of its headquarters in April 2019.

Obligations in respect of the co-ownership of intellectual property rights

To date, the Company has not been required to license any third-party intellectual property to develop drug candidates and biomarker candidates that comprise its portfolio of proprietary programs and products.

The Company ensures, with regard to these programs, that the collaboration or subcontracting agreements that it is required to enter into, systematically stipulate that the results of the research are the Company's property. This is particularly the case for research consortia, in which the Group is associated with university laboratories and other biotechnology companies. It therefore holds all the intellectual property rights over its portfolio of proprietary programs and products.

On the other hand, the agreements signed in the framework of the Company's historical co-research alliances with partners in the pharmaceutical industry provided that the intellectual property rights of the drug candidates developed under these alliances belonged to the partners. These agreements also provided that the Company had intellectual property rights over the innovative technologies discovered on this occasion, even if it had to grant a royalty free and non-exclusive license to the industrial partner for the purpose of developing drug candidates discovered under the co-research programs.

To date, Sanofi remains the only industrial partner likely to still have exploitation rights on a drug candidate developed as part of its historical co-research alliance with the Company and therefore able to use on a royalty-free basis, but not exclusively, technologies developed by the Company under this program. The other historic partners have informed the Company of their decision not to exploit or stop exploiting the results of joint research. Nevertheless, to date, Sanofi has not communicated to the Company its desire to continue the development of this program despite the last research phase shared with the Company's teams having ended in May 2015.

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

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