English free translation of the French-language 2017 Registration Document – not binding, for information purposes only Page 1 of 292 Genkyotex, a limited company (société anonyme) organized with a Board of Directors and with share capital of €7,785,000.60 Registered office: 218 avenue Marie Curie – Forum 2 Archamps Technopole 74166 Saint-Julien-en-Genevois Cedex, France TRANSLATION OF THE FRENCH REGISTRATION DOCUMENT including the Annual Financial Report FISCAL YEAR ENDED DECEMBER 31, 2017 This document is a free non-binding translation into English prepared for the convenience of English speaking readers, for information purposes only, of the French language “Registration Document 2017” as registered with the Autorité des marchés financiers on April 27, 2018, under number R.18- 037, pursuant to article 212-13 of its General Regulation. The original French version of this document may be used for the purposes of public offering and financial operations if it is supplemented by a securities note approved by the Autorité des marchés financiers. The original French version of this document was prepared by the issuer, and its signatories are responsible for its content. In the event of any ambiguity or conflict between corresponding statements or items contained in this English translation and the original French version, the relevant statements or items of the French version shall prevail. The auditor’s reports apply to the French version of the financial statements. In accordance with Article 28 of Regulation (EC) 809/2004, the following information has been included by reference in this Registration Document: • The financial statements of Genkyotex SA (formerly Genticel) prepared in accordance with IFRS standards for the financial year ended December 31, 2016, as well as the related Statutory Auditors’ report respectively presented on pages 155 to 197 and 250 of the Registration Document filed with the AMF on June 29, 2017, under number R.17-048; • The company financial statements of Genkyotex SA (formerly Genticel) for the financial year ended December 31, 2016, as well as the related Statutory Auditors’ report respectively presented on pages 214 to 249 and 251 to 252 of the Registration Document filed with the AMF on June 29, 2017, under number R.17-048.
Transcript
English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
Page 1 of 292
Genkyotex, a limited company (société anonyme) organized with a Board of Directors and with share capital of €7,785,000.60
Registered office: 218 avenue Marie Curie – Forum 2 Archamps Technopole 74166 Saint-Julien-en-Genevois Cedex, France
TRANSLATION OF
THE FRENCH REGISTRATION DOCUMENT
including the Annual Financial Report
FISCAL YEAR ENDED DECEMBER 31, 2017
This document is a free non-binding translation into English prepared for the convenience of English speaking readers, for information purposes only, of the French language “Registration Document 2017” as registered with the Autorité des marchés financiers on April 27, 2018, under number R.18-037, pursuant to article 212-13 of its General Regulation. The original French version of this document may be used for the purposes of public offering and financial operations if it is supplemented by a securities note approved by the Autorité des marchés financiers. The original French version of this document was prepared by the issuer, and its signatories are responsible for its content. In the event of any ambiguity or conflict between corresponding statements or items contained in this English translation and the original French version, the relevant statements or items of the French version shall prevail. The auditor’s reports apply to the French version of the financial statements. In accordance with Article 28 of Regulation (EC) 809/2004, the following information has been included by reference in this Registration Document:
• The financial statements of Genkyotex SA (formerly Genticel) prepared in accordance with IFRS standards for the financial year ended December 31, 2016, as well as the related Statutory Auditors’ report respectively presented on pages 155 to 197 and 250 of the Registration Document filed with the AMF on June 29, 2017, under number R.17-048;
• The company financial statements of Genkyotex SA (formerly Genticel) for the financial year ended December 31, 2016, as well as the related Statutory Auditors’ report respectively presented on pages 214 to 249 and 251 to 252 of the Registration Document filed with the AMF on June 29, 2017, under number R.17-048.
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TABLE OF CONCORDANCE .......................................................................................................6
2.3. INFORMATION ON STATUTORY AUDITORS WHO HAVE RESIGNED, BEEN DISMISSED OR NOT REAPPOINTED ................................................................................................... 13
2.4. STATEMENT OF FEES PAID TO THE STATUTORY AUDITORS ......................................... 14
3. SELECTED FINANCIAL INFORMATION .............................................................................. 15
3.1. HISTORICAL FINANCIAL INFORMATION ...................................................................... 15
3.2. INTERIM FINANCIAL INFORMATION ........................................................................... 16
6.9. EXPLORATORY RESEARCH PROGRAMS .......................................................................... 75
6.10. PARTNERSHIP WITH THE SERUM INSTITUTE OF INDIA FOR THE USE OF VAXICLASE (GTL003) IN MULTIVALENT VACCINES ........................................................................ 77
6.11. ORGANIZATION OF THE COMPANY ............................................................................ 79
9. ANALYSIS OF FINANCIAL POSITION AND RESULTS............................................................ 86
9.1. COMPARISON OF THE IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE LAST TWO FINANCIAL YEARS ...................................................................................................... 86
9.2. ACTIVITIES OF GROUP COMPANIES OVER THE LAST TWO FINANCIAL YEARS ............... 92
10. CASH AND EQUITY .......................................................................................................... 94
10.1. INFORMATION ABOUT EQUITY, LIQUIDITY, AND SOURCES OF FINANCING .................. 94
10.3. BORROWING TERMS AND FINANCING STRUCTURE .................................................... 95
10.4. POSSIBLE RESTRICTIONS ON THE USE OF CAPITAL ...................................................... 96
10.5. SOURCES OF FINANCING EXPECTED FOR FUTURE INVESTMENTS ................................. 96
11. RESEARCH AND DEVELOPMENT, PATENTS, LICENSES AND OTHER INTELLECTUAL PROPERTY RIGHTS .......................................................................................................................... 97
11.1. PATENTS AND PATENT APPLICATIONS ....................................................................... 97
11.2. OTHER ELEMENTS OF INTELLECTUAL PROPERTY ....................................................... 113
12. TREND INFORMATION .................................................................................................. 114
12.1. KEY TRENDS SINCE THE END OF THE LAST FINANCIAL YEAR ...................................... 114
12.2. KNOWN TRENDS, UNCERTAINTIES, COMMITMENT REQUESTS AND EVENTS REASONABLY LIKELY TO AFFECT THE COMPANY’S OUTLOOK ......................................................... 115
13. PROFIT FORECASTS OR ESTIMATES ............................................................................... 116
14. ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES AND SENIOR MANAGEMENT ................................................................................................................................... 117
14.1. EXECUTIVES AND DIRECTORS ................................................................................... 117
14.2. CONFLICTS OF INTEREST IN THE COMPANY’S ADMINISTRATIVE AND EXECUTIVE BODIES AND SENIOR MANAGEMENT ................................................................................... 122
15. COMPENSATION AND BENEFITS .................................................................................... 124
15.1. COMPENSATION OF CORPORATE OFFICERS .............................................................. 124
15.2. AMOUNTS SET ASIDE BY THE COMPANY OR ITS SUBSIDIARIES TO PROVIDE PENSION, RETIREMENT OR SIMILAR BENEFITS TO DIRECTORS AND EXECUTIVES ....................... 132
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15.3. SHARE SUBSCRIPTION OR PURCHASE OPTIONS; WARRANTS AND FOUNDERS’ WARRANTS ............................................................................................................. 132
15.4. SUMMARY OF TRANSACTIONS BY EXECUTIVES AND THE PERSONS MENTIONED IN ARTICLE L. 621-18-2 OF THE FRENCH MONETARY AND FINANCIAL CODE INVOLVING COMPANY SECURITIES IN THE PAST FINANCIAL YEAR ............................................... 132
19.2. SIGNIFICANT AGREEMENTS WITH RELATED PARTIES ................................................ 143
19.3. STATUTORY AUDITORS’ SPECIAL REPORTS ON REGULATED AGREEMENTS ................ 145
20. FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES .......................................................... 151
20.1. CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017 .................................................... 151
20.2. PRO FORMA FINANCIAL INFORMATION ................................................................... 199
20.3. CORPORATE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017 ....................................................................................................................... 199
20.4. AUDITING OF HISTORICAL ANNUAL FINANCIAL INFORMATION ................................. 227
20.5. DATE OF THE LATEST FINANCIAL INFORMATION ...................................................... 239
20.6. INTERIM AND OTHER FINANCIAL INFORMATION ...................................................... 239
20.7. DIVIDEND DISTRIBUTION POLICY ............................................................................. 239
20.8. LEGAL AND ARBITRATION PROCEEDINGS ................................................................. 240
20.9. SIGNIFICANT CHANGE IN THE FINANCIAL OR BUSINESS SITUATION ........................... 240
20.10. OTHER INFORMATION FROM THE MANAGEMENT REPORT ....................................... 241
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21. ADDITIONAL INFORMATION ......................................................................................... 244
21.1. SHARE CAPITAL ....................................................................................................... 244
21.2. ARTICLES OF INCORPORATION AND BY-LAWS .......................................................... 255
22. MATERIAL AGREEMENTS .............................................................................................. 261
22.1. LICENSE AGREEMENT SIGNED ON FEBRUARY 2, 2015, WITH THE PHARMACEUTICAL COMPANY SERUM INSTITUTE OF INDIA LTD. (SIIL) ................................................... 261
22.2. SERVICE AGREEMENT WITH SYNGENE ...................................................................... 261
22.3. SERVICE AGREEMENT WITH CMED ........................................................................... 262
22.4. RESEARCH CONTRACT WITH THE BAKER HEART AND DIABETES INSTITUTE................ 262
23. THIRD PARTY INFORMATION, STATEMENTS BY EXPERTS AND DECLARATIONS OF ANY INTEREST ..................................................................................................................... 263
24. DOCUMENTS ACCESSIBLE TO THE PUBLIC ...................................................................... 264
25. INFORMATION ON HOLDINGS ...................................................................................... 265
26.1. CORPORATE SOCIAL RESPONSIBILITY (CSR) REPORT ................................................. 266
26.2. REPORT OF THE INDEPENDENT THIRD-PARTY BODY ON CORPORATE SOCIAL, ENVIRONMENTAL AND SOCIETAL INFORMATION ..................................................... 287
English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
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TABLE OF CONCORDANCE
The table of concordance below may be used to identify the following items in this Registration Document:
- The information contained in the annual financial report (Article L. 451-1-2 of the French Monetary and Financial Code and Article 222-3 of the AMF General Regulations);
- The information contained in the annual management report of the Company and the Group, together with the Corporate Governance report (Article L. 225-100-1 of the French Commercial Code).
Annual Financial Report Registration Document
1 Declaration of the person responsible for the annual financial report § 1.2
2 Management Report See index below
3 Statement relating to statutory auditors’ fees § 2.4
4 Consolidated Financial Statements prepared in accordance with IFRS standards § 20.1
5 French GAAP Parent Company Financial Statements § 20.3
6 Report of the Statutory Auditors on the IFRS Consolidated Financial Statements § 20.4.1
7 Report of the Statutory Auditors on the French GAAP Parent Company Financial Statements
§ 20.4.2
Annual Management Report Registration Document
1 Situation and activity of the Group during the past financial year § 6, § 9 and § 14
2 Review of the financial statements and results § 9 and § 14
3 Progress made and difficulties encountered § 6, 9 and 10
4 Main risks and uncertainties
Use of financial instruments by the Company
§ 4
5 Group research and development activities § 11
6 Activities of subsidiaries and controlled companies § 6 and 11
7 Foreseeable developments in the Group’s situation and future outlook § 12
8 Significant events since the financial year-end § 20.1 and § 20.9
9 Main characteristics of internal control and risk management procedures relating to the preparation and processing of accounting and financial information (Article L.225-100-1 5°)
§ 16.5
10 Proposed appropriation of profit or loss § 20.10.2
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11 Non tax-deductible expenses § 20.10.3
12 Dividends distributed over the last three financial years § 20.7.1
13 Information on payment terms for suppliers and customers § 20.10.4
14 Employee share ownership at year end § 17.3
15 Summary of transactions by executives and the persons mentioned in Article L. 621-18-2 of the French Monetary and Financial Code involving Company securities in the past financial year
§ 15.4
16 Acquisition of significant shareholdings in companies domiciled in France, or acquisition of control of such companies; disposal of such shareholdings
§ 7 and 25
17 Information relating to the distribution of share capital and treasury shares – Share repurchase plan
§ 18.1, 18.2 and 21.1.3
18 Changes in the composition of share capital during the financial year § 21.1.7
19 Movements in the share price – Price fluctuation risk § 4.7.5
20 Information relating to the allocation of options for the subscription or purchase of shares and bonus shares
§ 21
21 Table of financial results for the last five financial years § 20.10.1
22 Corporate Governance report See table below
24 Corporate Social Responsibility (CSR) report § 26.1
25 Report of the independent third-party body on corporate social, environmental and societal information
§ 26.2
Corporate governance report Registration Document
1 List of all directorships and positions held in any company by each corporate officer during the financial year
§ 14.1.2
2 Agreements between a corporate officer or shareholder controlling at least 10% of the voting rights of one company and another company in which the first controls over half of the share capital
N/A
3 Summary table of financial delegations in force and their use during the financial year
§ 21.1.5
4 Choice of one of the two methods of exercising general management in accordance with Article L. 225-51-1 of the French Commercial Code
§ 16.1
5 Board of Directors composition and conditions for preparing and organizing its work
§ 14.1.1, 16.3 and 21.2.2
6 Description of the diversity policy applied to members of the Board of Directors
§ 16.3
7 Any limitations placed on the powers of the Chief Executive Officer by the Board of Directors
§ 16.1
8 Reference to a corporate governance code § 16.4
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9 Specific arrangements for the participation of shareholders in the general shareholders’ meeting or the provisions of the by-laws which provide for such arrangements
§ 21.2.5
10 Total compensation and benefits of any kind paid by this company, which may be either controlled or controlling, during the financial year
§ 15.1
11 Description of the distinct fixed, variable and exceptional components of such compensation and benefits as well as the criteria according to which they were calculated or the circumstances under which they were granted
§ 15.1
12 Commitments of any kind entered into by the Company for the benefit of its corporate officers, corresponding to elements of compensation, allowances or benefits due or likely to be due as a result of the assumption, termination or change in their duties or subsequent to the exercise thereof
N/A
13 Ownership structure of the company § 18.1
14 Restrictions in by-laws on the exercise of voting rights and transfer of shares, or clauses of agreements brought to the Company’s attention pursuant to Article L. 233-11 of the French Commercial Code
N/A
15 Direct or indirect holdings in the Company’s share capital of which it is aware pursuant to Articles L. 233-7 and L. 233-12 of the French Commercial Code
§ 18.1
16 List and description of holders of any securities with special control rights N/A
17 Control mechanisms stipulated in a possible employee shareholding system, when control rights are not exercised by the shareholders
N/A
18 Agreements between shareholders of which the Company is aware and which may result in restrictions on the transfer of shares and the exercise of voting rights
N/A
19 Rules applicable to the appointment and replacement of members of the Board of Directors and amendments to the Articles of Association
§ 21.2.2 and §21.2.4
20 Powers of the Board of Directors, in particular with regard to the issue or redemption of shares
§ 21.1.5
21 Agreements entered into by the Company that are amended or terminated in the event of a change of control of the Company, unless such disclosure, other than under a legal obligation to disclose, would seriously prejudice its interests
N/A
22 Agreements providing for severance payments to members of the Board of Directors or employees, if they resign or are dismissed without real and substantial cause or if their employment is terminated as a result of a public tender or exchange offer
N/A
23 Presentation of draft resolutions relating to the principles and criteria for determining, distributing and allocating the fixed, variable and exceptional components of total compensation and benefits of any kind attributable to the Chairman, Chief Executive Officers or Deputy Chief Executive Officers, by virtue of their office
N/A
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English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
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GENERAL OBSERVATIONS
Definitions
For the purposes of this Registration Document and unless otherwise indicated:
➢ “Genkyotex” or “Genticel” or the “Company” refers to Genkyotex (formerly Genticel), a limited company (société anonyme) with a share capital of €7,785,000.60 whose shares are admitted to trading on the Euronext Paris and Euronext Brussels regulated markets, and whose registered office is at 218 avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France. It should further be noted that the General Shareholders’ Meeting of February 28, 2017, approved the change to the Company’s management and governance structure and adopted a one-tier board system. Prior to that date, it was organized with a management board and a supervisory board;
➢ “Genkyotex Suisse” refers to Genkyotex Suisse SA, a Swiss limited liability company with a share capital of CHF 5,262,133 whose registered office is at Chemin des Aulx 16, 1228 Plan-les-Ouates, Switzerland, and which is registered with the Geneva Commercial Register under number CHE-112 747 508;
➢ “Genkyotex Innovation” refers to Genkyotex Innovation SAS, a simplified joint-stock company (société par actions simplifiée) with a share capital of €1,549,731 whose registered office is at 218 avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France, and is registered with the Thonon-Les-Bains Trade and Companies Register under number 528 733 132, and which was merged with Genkyotex SA in 2017;
➢ The “Group” refers to Genkyotex SA and its subsidiary Genkyotex Suisse SA;
➢ “Registration Document” means this registration document filed with the French Financial Markets Authority (AMF);
➢ “Registration Document Date” means the date on which the Registration Document was filed.
Disclaimer
The Registration Document contains information about the Company’s activities and the market in which it operates. This information comes from internal studies or external sources (e.g., industry publications, specialized studies, information published by market intelligence providers, and analysts’ reports). In the Company’s opinion, at the time of writing, this information gives a true and fair view of its reference market and its competitive position in that market. However, this information has not been verified by an independent expert and the Company cannot guarantee that a third party using different methods to collate, analyze or calculate market data would obtain the same results.
This Registration Document also contains information about the Company’s objectives and development strategies. Such statements may be identified by the use of the future or conditional tense and by terms of a prospective nature such as “estimate,” “consider,” “have as objective,” “expect to,” “intend,” “should,” “hope,” “could,” “may” or similar terminology. The readers’ attention is drawn to the fact that these objectives and development strategies are not historical data and should not be interpreted as a guarantee that the stated facts or data will occur, that the assumptions will be borne out or that the objectives will be achieved. By their very nature it is possible that the objectives may not be achieved and that the information in this Registration Document may be proven
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incorrect, the Company being under no obligation to update them, subject to applicable regulations, in particular the General Regulations of the French Financial Markets Authority (“AMF”).
Investors are also advised to take into careful consideration the risk factors described in Section 4 “Risk factors” of this Registration Document before making an investment decision. Should any or all of these risks materialize, they may have a negative impact on the Company’s activity, financial position, profits or objectives. Furthermore, other risks, not yet identified or considered not significant by the Company, may have a similar negative impact and investors may lose all or part of their investment.
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1. PERSONS RESPONSIBLE
1.1. PERSON RESPONSIBLE FOR THE REGISTRATION DOCUMENT
Mr. Ilias (Elias) Papatheodorou, Chief Executive Officer
1.2. DECLARATION OF THE PERSON RESPONSIBLE FOR THIS DOCUMENT
Saint-Julien-en-Genevois, April 27, 2018
I hereby certify, after having taken every reasonable measure to this effect, that the information contained in this Registration Document is, to the best of my knowledge, accurate and does not contain any omission that could affect its meaning.
I hereby certify, to the best of my knowledge, that the financial statements have been prepared in accordance with applicable accounting standards and present a true and fair view of the Company’s assets, financial position and earnings, and that all the companies included in the consolidation, and the information contained in the Management Report shown on pages 6 to 8 fairly reflect changes in the business, earnings and financial position of the Company and all the companies included in the consolidation as well as a description of the main risks and uncertainties that they face.
I have obtained a completion of work letter (lettre de fin de travaux) from the Statutory Auditors, in which they state that they have verified the information relating to the financial position and the financial statements contained in this Registration Document and have read it in its entirety.
Ilias (Elias) Papatheodorou, Chief Executive Officer of Genkyotex
1.3. PERSON RESPONSIBLE FOR THE FINANCIAL INFORMATION
Mr. Alexandre Grassin Chief Financial Officer Address: 218 avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France Telephone: +33 4 80 16 06 07 Email: [email protected]
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2. STATUTORY AUDITORS
2.1. PRINCIPAL STATUTORY AUDITORS
SYGNATURES, audit firm registered on the national list of statutory auditors related to the Compagnie Régionale des Commissaires aux Comptes de Toulouse (Toulouse branch of the French institute of auditors), 8, chemin de la terrasse, BP 45122, 31512 Toulouse Cedex 5 Represented by Laure Mulin Date of re-appointment: March 7, 2014 Duration of term of office: 6 years Expiry date of term: at the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019 GRANT THORNTON, audit firm registered on the national list of statutory auditors related to the Compagnie Régionale des Commissaires aux Comptes de Versailles (Versailles branch of the French institute of auditors), 29, rue du Pont, 92200 Neuilly-sur-Seine Represented by Samuel Clochard Date of appointment: December 20, 2013 Duration of term of office: 6 years Expiry date of term: at the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2018
2.2. ALTERNATE STATUTORY AUDITORS
Philippe Benzoni, statutory auditor registered on the national list of statutory auditors related to the Compagnie Régionale des Commissaires aux Comptes de Toulouse (Toulouse branch of the French institute of auditors), 8, chemin de la terrasse, BP 45122, 31512 Toulouse Cedex 5 Alternate for SYGNATURES Date of re-appointment: March 7, 2014 Duration of term of office: 6 years Expiry date of term: at the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019 IGEC, audit firm registered with the national list of statutory auditors related to the Compagnie Régionale des Commissaires aux Comptes de Paris (Paris branch of the French institute of auditors), 22, rue Garnier, 92200 Neuilly-sur-Seine Alternate for GRANT THORNTON Date of appointment: December 20, 2013 Duration of term of office: 6 years Expiry date of term: at the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2018
2.3. INFORMATION ON STATUTORY AUDITORS WHO HAVE RESIGNED, BEEN DISMISSED OR NOT REAPPOINTED
Not applicable.
English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
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2.4. STATEMENT OF FEES PAID TO THE STATUTORY AUDITORS
The following table shows the Statutory Auditors’ fees paid by the Company in the past two years:
STATUTORY AUDITORS’ FEES (Amounts excluding tax in thousands of euros)
Financial year 2017 (12 months) Financial year 2016 (12 months)
GRANT THORNTON
SYGNATURES GRANT
THORNTON SYGNATURES
For auditing the financial statements 66 64 26 26
For other services directly related to the duties of the Statutory Auditor
- - 5 1
Services unrelated to the auditing of accounts (1)
15 19 17 13
Subtotal 81 83 48 40
Other services
- Tax - - - -
- Other - - - -
Subtotal - - - -
Total 81 83 48 40
(1) In 2017, services other than certifying financial statements, covering services required by laws and regulations (reports related to the Combined General Shareholders’ Meeting on February 28, 2017 and the General Shareholders’ Meeting on June 15, 2017, etc.) as well as services provided upon Genkyotex’s request (review of the 2016 Registration Document and one of the third-party independent Statutory Auditor’s reports on CSR information shown in the 2017 Management Report).
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3. SELECTED FINANCIAL INFORMATION
3.1. HISTORICAL FINANCIAL INFORMATION
The following key financial information shown below is drawn solely from the Group’s consolidated financial statements prepared in accordance with IFRS accounting standards for the financial year ended December 31, 2017, shown in Section 20.1 “Financial Statements prepared in accordance with IFRS standards for the financial year ended December 31, 2017” of the Registration Document. The selected accounting and operational data should be read in conjunction with the information in Section 9 “Review of income statement and statement of financial position” and Section 10 “Cash and capital”.
It should be noted that the figures presented for the 2016 financial year come from the Genkyotex Suisse Group’s consolidated financial statements.
Simplified statement of financial position (in € thousands) IFRS standards
Current liabilities 2,421 1,753 o/w Current financial liabilities 288 - o/w Trade payables and related accounts 1,312 1,203 o/w Other current liabilities 820 550
Simplified statement of profit and loss (in € thousands) IFRS standards
12/31/2017 12 months
Audited
12/31/2016 12 months
Audited
Operating profit and loss 669 526 o/w Sales - -
Current operating expenses (14,773) (6,454) Current operating profit/(loss) (14,104) (5,928) Operating profit/(loss) (25,512) (5,928) Financial income (Expenses) (255) 234 Profit/(loss) before tax (25,768) (5,694) Net profit/(loss) (25,773) (5,853) Earnings (loss) per share (€/share) (0.39) (2.64)
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Simplified statement of cash flow (in € thousands) IFRS standards
Cash flow from investing activities 7,590 - o/w Changes in the scope of consolidation (1) 3,587 - o/w Changes in financial investments (2) 4,006 - o/w Changes in fixed assets (2) -
Cash flow from financing activities (248) 14,490 o/w Capital transactions (3) 136 14,490 o/w Loans (384) -
Impact of exchange rate fluctuations (572) (96)
Change in cash & cash equivalents (2,593) 9,273
(1) The change in scope corresponds to cash and cash equivalents of Genkyotex SA (acquired company from an accounting perspective) as of February 28, 2017. (2) The flows related to changes in financial investments are mainly related to the winding down of term deposits. (3) Capital transactions in 2016 were related to restructuring the Genkyotex Suisse Group.
Net Debt (€ thousands) IFRS standards
12/31/2017 12 months
Audited
12/31/2016 12 months
Audited
Non-current financial debts 115 - Current financial debt 288 - Cash and cash equivalents (11,345) (13,937) Current financial assets (3,280) -
Total net debt (1) (14,222) (13,937)
(1) The amount of cash and financial investments included in current financial assets is greater than the amount of financial debt.
3.2. INTERIM FINANCIAL INFORMATION
Not applicable.
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4. RISK FACTORS
Investors are urged to give consideration to all the information contained in this Registration Document, including the risk factors set forth in this chapter, before deciding to subscribe for or purchase Company shares. The Company has conducted a review of the risks which could have a material adverse effect on the Group, its business, its financial position, its results, its prospects or on its capacity to meet its objectives. To the best of its knowledge, on the date of this Registration Document, there are no other major risks besides those presented in this chapter.
Investors should however note that the list of risks and uncertainties described below is not exhaustive. Other risks or uncertainties which are unknown, or the materialization of which is not considered, on the Date of the Registration Document, as likely to have a material adverse effect on the Group, its business, its financial position, its results or its prospects, may exist or become important factors likely to have a material adverse effect on the Group, its business, its financial condition, its results, its growth or its prospects.
4.1. RISKS RELATED TO THE COMPANY’S BUSINESS AND THE MARKET
4.1.1. Genkyotex identifies and develops selective NADPH Oxidase (NOX) inhibitors to treat specific diseases, the therapeutic benefit of which has not yet been demonstrated
Genkyotex is developing a new therapeutic approach based on the selective inhibition of NOX enzymes which are identified as potentially key factors in the development of certain complex illnesses that are difficult to treat, such as hepatic, pulmonary and renal fibrosis, certain forms of cancer, neurodegenerative diseases or even hearing problems (see chapter 6 of the Registration Document).
The capacity of NOXs to simultaneously regulate protein networks makes them a therapeutic target, the inhibition of which could enable, with a single drug, the simultaneous normalization of multiple mechanisms involved in the onset and progression of many human illnesses, such as fibrosis, inflammation, angiogenesis, tumor growth and neurodegeneration.
Genkyotex is exploring this new area of medicine involving NOX inhibitors. On the date of this Registration Document, no NOX inhibitor has yet been approved for marketing or sale by the competent health authorities.
Accordingly, the prospects for the development and profitability of Genkyotex’s most advanced product candidate, GKT831, for fibrosis, its safety, its efficacy, and its acceptance by patients, prescribers, and paying agencies, are uncertain.
The results for GKT831 in connection with the Phase 1 trials, and the Phase 2 trial for diabetic kidney disease (in which GKT831 had a statistically significant effect on several secondary efficacy endpoints in the liver, which had been predefined in the protocol), the Phase 2 trial to treat primary biliary cholangitis (PBC), the Phase 2 trial launched and led by the Baker Heart and Diabetes Institute of Melbourne to treat diabetic kidney disease (DKD), and more generally results relating to all existing or future products in the Company’s portfolio or based on its technology at the time of the research or pre-clinical phase, may not or could not be confirmed by future trial phases. Such a situation could have a material adverse effect on Genkyotex’s business, results, financial position, and prospects.
4.1.2. GKT831, Genkyotex’s most advanced product candidate, may never obtain market authorization
Genkyotex has already completed for GKT831, its product candidate at the most advanced stage of development, pre-clinical and clinical trials, in Phase 1 and Phase 2. The aim of Phase 1 was to assess the safety and pharmacokinetics of the compound after a single dose and repeated doses, the effect
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of the compound on cytochrome CYP3A4, and the effect of food and micronization on pharmacokinetics. A Phase 2 trial was conducted to assess the safety, and the pharmacokinetic and pharmacodynamic properties, as well as the efficacy of GKT831 in treating diabetic nephropathy patients.
The use of GKT831 for fibrosis of the liver (PBC) requires additional clinical developments to be carried out under a Phase 2 trial launched in June 2017 and, should the latter be successful, a Phase 3 trial.
The development of GKT831, the completion of the Phase 2 clinical trial in progress in the indication for PBC, and, possibly, subsequently, a Phase 3 clinical trial as well as the preparation for marketing authorization and the manufacture of GKT831 under strict manufacturing conditions require, and will continue to require, significant time and financial investments by Genkyotex as well as the attention of its most qualified staff. Accordingly, if Genkyotex does not obtain regulatory authorization for these treatments following these stages, its financial position, results of operations, and prospects will be significantly and adversely affected.
4.1.3. Clinical trials, and especially the ongoing clinical trial led by Genkyotex for GKT831 to treat PBC could be delayed or not occur in a satisfactory manner
Genkyotex’s ability to conduct clinical trials successfully depends on many factors, especially the pace of recruiting patients, eligibility criteria, the size of the eligible patient population, the type of clinical protocol, the proximity of patients to clinical sites, possible secondary effects and competition with other clinical trials conducted on product candidates developed by competing companies with, among other things, financial resources that may be greater than the Company’s.
In general, Genkyotex could encounter difficulties in recruiting and retaining patients to participate in clinical trials of its products and particularly its most advanced product candidate, GKT831 for PBC. As a result of the the clinical trial for PBC (see Section 6.3.2 – page 49) that is currently in progress, difficulties linked to recruiting patients in a trial that includes a placebo may arise. Strict criteria for inclusion in trials could also complicate patient recruitment. Once recruited, the patients participating in such trials could likewise suspend or terminate their participation at any time without cause. Delays in patient recruitment could also increase the cost of clinical trials and delay them, or even cause their cancellation. Finally, if too many patients terminate their participation in a clinical trial, the analysis of the results of such trial could lack sufficient statistical significance.
Clinical trials designed and coordinated by the Company are conducted by companies that specialize in the organization of trials (a contract research organization or CRO) and the quality of their work (the selection of populations, base-line measurements, compliance with protocols, doses, the number of administrations, intermediate delays and the collection of data) is determinant in the analysis and precision of results.
Furthermore, the Company has limited experience in conducting clinical trials at multiple centers and has turned or will turn, now and in the future, to third parties to assist it in supervising and monitoring its trials. A breach or failure by one of such third parties or CROs in performing their task or their failure to comply with applicable regulatory standards could cause delays or even the premature termination of the trials.
In addition, other clinical trials are undertaken or could be undertaken in the future by investigators external to the Group (independent academic research centers) based on the Company’s existing drug candidates. These investigators have autonomy in carrying out these clinical trials (pace, recruitment, protocol, etc.); the Company has only limited control over how they are conducted. The Phase 2 study with GKT831, for a period of 48 weeks, in patients with type 1 diabetes and kidney disease, led by the Baker Heart and Diabetes Institute of Melbourne (Australia) with financial support from the Juvenile Diabetes Research Foundation (JDRF), might not be completed for various reasons such as, in
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particular, failure to recruit patients, the occurrence of a major unforeseen event, the end of JDRF financing, or unsatisfactory progress.
Finally, the appearance during the trials of side effects that are currently unknown could cause delays or even suspend development of the Company’s product candidate. If, after the Company or one of its partners or licensees obtains a marketing authorization, the Company’s products cause side effects which are unacceptable or have not been identified during the clinical trial period, it might be impossible to market, sell or assign them or grant licenses to partners with a view to marketing them, which could have a very material adverse effect on its business and operations, prospects, financial position, results, and growth.
4.1.4. Genkyotex could encounter problems in obtaining, or not obtaining at all, regulatory authorization to develop its candidate products
To obtain a marketing authorization for its candidate products, the Company will be required to show, by long, numerous and very expensive clinical trials, the outcome of which is uncertain, that their use is without danger and effective in humans. Clinical trials are subject to supervision of ethics committees, medical research participants protection committees, as well as regulatory authorities. If the Company does not meet its development schedule, or is unable to conduct the expected clinical trials successfully within applicable time limits, its business and operations could be materially and adversely affected.
The Company’s ability to obtain marketing authorization for its products will depend on several factors, including, but not limited to:
• the possibility of pursuing the development of those of its products presently in early clinical trials, or transferring products presently in pre-clinical development to a clinical stage;
• the ability of its partners or itself to conduct clinical trials successfully and in a timely manner without having to devote significantly greater resources than initially expected;
• its clinical trials showing efficacy and tolerance of its products;
• its products being approved for the indication they are intended to treat, or for any indication of any kind; and
• an announcement by its competitors of more promising clinical results with their own products, which makes the Company’s economic equation unfavorable.
Traditionally in the pharmaceutical and biotechnology industries, it often happens that favorable results of pre-clinical studies and Phase 1/2 clinical trials are not confirmed by later clinical trials. Regulatory authorities in various countries in which the Company intends to market its products could, for example, block initiation of clinical trials, or the pursuit of clinical developments, if the proposed clinical trials do not meet applicable regulatory standards.
Such authorities could likewise interpret results differently from the Company and, in any event, request additional tests, on a discretionary basis (relating, among other things, to the study protocols, the characteristics and number of patients, the length of treatment, the analytical methods, and post-treatment follow-up), or impose additional and unexpected requirements at the time of such trials.
Furthermore, the Company might decide to suspend or terminate clinical trials, or regulatory agencies could so require, if patients are exposed to unexpected risks. Deaths or other adverse events could occur during a clinical trial, because of medical problems linked or not to the treatments administered, forcing the Company to delay or interrupt the trial. In light of the trial’s results, the Company could
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decide to abandon development projects that were initially identified as promising. Finally, products already approved could turn out to be unsafe and be withdrawn from the market, or produce effects different from those initially expected, which could limit or prevent any commercial use. The occurrence of all or some of such events could have material and adverse effects on the Company’s business, results, and prospects.
4.1.5. Even if GKT831, the Company’s leading product candidate, obtains a marketing authorization for fibrosis of the liver and/or the kidney, the Company’s target market could turn out to be less significant than previously considered
The revenues that the Company may receive in connection with the marketing and sale of GKT831 will be limited by the number of patients, by the categories of patients in this group who respond to treatment, by the perception of its therapeutic benefit by health prescribers, by the Company’s ability to achieve appropriate pricing and reimbursement levels of GKT831, and by the impact of competition.
In particular, the Company will have to compete with drugs already on the market as well as other products which may appear from the discovery and exploitation of new molecules.
If the Company does not market and sell GKT831 successfully, its revenue could be diminished, and it could find itself unable to finance the development and marketing of other products for other indications.
4.1.6. The successful marketing and sale of future products by the Company will depend on its ability to attract support from the medical community
If the Company succeeds in obtaining marketing authorization to introduce products based on its technology, it will need time to gain the support of the medical community, including healthcare providers, patients, and third-party payors. The degree of acceptance by the market will depend on many factors, especially:
• the safety and efficacy of its therapeutic products, as demonstrated during clinical trials;
• the existence of undesirable side effects;
• the ease of administration;
• the success of its marketing, sales, and public relations efforts;
• the availability of alternative treatments;
• the pricing;
• the reimbursement policies of governments and other third parties (see Section 4.3.1 of the Registration Document – page 25);
• the effective adoption and implementation of a publication strategy; and
• obtaining the support of recognized external opinion leaders. A lack of or insufficient support from the medical community could have a material and adverse effect on the marketing and sale, and on the Company’s capacity to generate profits, which would have an adverse effect on the Company’s financial position, results and prospects.
4.1.7. Risks related to development partnerships and to the marketing and sale of product candidates incorporating the Vaxiclase platform
Serum Institute of India (“Serum Institute”) is working in partnership with the Company to develop a Diptheria-Tetanus-Pertussis (DtaP) prophylactic acellular vaccine incorporating the Vaxiclase platform (see Sections 6.10 – page 77 and 22.1 – page 261 of the Registration Document for detailed
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information on this partnership). Furthermore, the Company does not rule out the forging of other partnerships to facilitate the development and commercial exploitation of Vaxiclase technology and product candidates which have used this platform.
On February 2, 2015, the Company entered into a license agreement with Serum Institute for the development of multivalent prophylactic vaccines including active ingredients against whooping cough and containing GTL003 (i.e. empty Vaxiclase used as an antigen against whooping cough – for a description of this agreement, see Section 22.1 – page 261 of the Registration Document). Under the terms of this agreement, Serum Institute may terminate the partnership prematurely at any time, upon 90 days’ prior written notice. Should this situation arise, the Company may not manage to sign a contract with a partner of the same quality or under equivalent economic conditions. The development and marketing of product candidates incorporating the Vaxiclase platform will depend on efforts in research and development, marketing and commercial, financial as well as human efforts made by the Company’s partners, and their capacity to complete clinical trials or to manufacture the products developed on an industrial scale. The Company may experience delays, failures or competitive attitudes from its partners.
Furthermore, it is standard practice in a license and development agreement, such as that signed with Serum Institute, for the licensee to pay the licensor in milestone payments and royalties on sales. The Company’s partner may not pay such compensation, particularly in the case of financial difficulties or if the objectives set under the partnership were not achieved or if the number of products sold was insufficient.
Moreover, the Company’s partner may encounter difficulties during one of the various pre-clinical and clinical phases for a particular indication, which could delay the development, production and marketing of the product candidate concerned or even bring its development to a halt. The Company cannot guarantee that the developments of product candidates incorporating the Vaxiclase platform will come to a successful conclusion one day, even in the case of delays consistent with market requirements. Any failure or delay in the development of these products would have an adverse effect on the partnerships entered into by the Company, in particular by endangering all or part of the related milestone payments, and, in turn, the Company’s results, its financial position and its prospects.
At each clinical development phase of a product candidate, the authorization of the competent authorities in the countries concerned, depending on the development plan chosen by the Company’s partner, should be requested before conducting the clinical trials. The entity in charge of the development process must then present the results of its clinical studies to the same authorities. The authorities may deny the authorizations necessary for the clinical trials, have additional requirements (e.g. relating to study protocols, patient characteristics, treatment periods, post-treatment follow-up, differences in the interpretation of the results between local regulatory agencies) and, if applicable, may request additional studies. Any denial or decision by the health authorities requesting additional trials or reviews could interrupt or delay the development of the products concerned. Moreover, the effect of vaccine product candidates is only measurable in trials of a very large scale and long duration or in the case of an epidemic, meaning that the expected effects of these product candidates developed by the Company’s partners during trials may not be apparent in the short term. The absence or delay of an immune response (prophylactic or therapeutic) could also delay, or even suspend, the development of product candidates based on the Vaxiclase platform.
Finally, the appearance of side effects that are currently unknown could cause delays in the development of product candidates incorporating the Vaxiclase platform, or even interrupt it or result in the permanent abandonment of this platform. Moreover, if, after their marketing authorization (“MA”) is obtained by the Company and/or one or more of its partners, the product candidates
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developed by its partners cause side effects which are unacceptable or have not been identified during the clinical trial period, their marketing and sale will not be authorized, which would have an adverse effect on the business, prospects, financial position, results and growth of the Company.
Accordingly, if the studies conducted on the products developed through these partnerships were to reveal problems relating to their safety and/or therapeutic efficacy, or if the use of the platform infringed an intellectual property right of a third party, this could undermine the use and operation of the Vaxiclase technological platform itself and require new research and development efforts, without any guarantee of success.
If such events should arise, the development of product candidates incorporating Vaxiclase and, in turn, any related partnership would be affected, which could have a material adverse effect on the business, prospects, growth, financial position and results of the Company.
In any event, if the Company and/or one or several of its business partners should successfully obtain MA permitting them to market and sell products incorporating the Vaxiclase platform, they may however not have enough time to secure the backing of the medical community, health prescribers and third-party payors.
Even if future products developed by the Company’s partners may have the potential to bring a medical response to a currently unsatisfied requirement, poor market penetration could have an adverse effect on their marketing and sale and on the Company’s capacity to generate profits from agreements it enters into with industrial partners, which could have an adverse effect on the Company’s financial position, results and growth.
4.1.8. The Company could encounter difficulties in the implementation of potential external growth operations
As part of a strategy aimed at diversifying its risks, the Company is assessing a certain number of projects involving the acquisition of companies or technologies. Such acquisitions could facilitate or give the Company access to new compounds or drugs, to new research projects, to new geographical areas or enable it to generate synergies with its existing businesses.
However, if such acquisitions should prove to be necessary, the Company may not be in a position to make these acquisitions under satisfactory conditions (particularly those related to price), or even to effectively incorporate the newly acquired companies or businesses, while achieving its operational objectives, or the desired cost savings or synergies. Moreover, the Company may not be in a position to obtain the financing for these acquisitions under favorable conditions and could be obliged to finance them using cash funds which would have otherwise been allocated to different purposes in the existing businesses.
If the Company encounters difficulties in the implementation or execution of its external growth policy, this could affect its capacity to achieve its financial objectives and to develop its market share, which could have a material adverse effect on its business, financial position, results or prospects.
4.2. RISKS RELATED TO THE COMPANY’S ORGANIZATION
4.2.1. Since Genkyotex is a biopharmaceutical company with no product that has obtained a marketing authorization and with only a single product candidate that has reached the
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clinical trial stage, the absence of revenues from historical products makes it difficult to evaluate its prospects and future financial results
Genkyotex is a biopharmaceutical company with a limited operating history that does not make it possible to estimate its prospects and future revenues. The development of biopharmaceutical products is highly speculative and involves a high degree of uncertainty. The Company’s operations have been so far primarily limited to identifying and developing therapeutic molecules capable of selectively inhibiting NOX enzymes and, on the basis of such technology, to conduct pre-clinical and clinical trials for the purpose of developing, marketing and selling therapeutic solutions. GKT831, the Company’s product candidate at the most advanced stage of development, targets fibrosis of the liver and the kidney and a Phase 2 study has revealed favorable results in terms of safety as well as statistically significant effects on several secondary efficacy endpoints (statistically significant reduction in the GGT liver enzyme and C-reactive protein, a marker for inflammation of the liver).
Notwithstanding the experience and abilities of its management and scientific team, the Company has not yet shown an ability to overcome the great number of risks and uncertainties frequently encountered by companies active in new and rapidly evolving areas such as biopharmaceuticals. The Company’s ability to evaluate its future results or commercial prospects with precision, likewise, is more limited than if it had a long operating history or products that had already received marketing authorization.
As a result, the probability of the Company’s success must be evaluated in light of the numerous potential challenges and contingencies faced by a Company in the business of developing medications at an early stage, most of which are beyond its control. The occurrence of any setback in this connection could harm the Company’s operations and prospects.
4.2.2. Genkyotex does not have extensive manufacturing capability or experience
The Company has chosen to outsource the manufacture of its products.
Its dependence on third parties to manufacture and assemble some of its products and its lack of experience in manufacturing other products on an industrial scale could affect its ability to develop and sell its products within a reasonable time frame and on a competitive basis.
In particular, the Company depends on third parties to produce its most advanced product candidate, GKT831, as well as its second product candidate, GKT771.
Furthermore, dependency on third-party manufacturers involves additional risks to which the Company might not be exposed if it manufactured its product candidates itself, i.e.:
• non-compliance of such third parties with regulatory and quality control standards;
• the breach of such agreements by such third parties;
• the termination or non-renewal of such agreements for reasons beyond its control; and
• the insolvency of such third parties.
If products manufactured by such third-party suppliers do not comply with regulatory standards, sanctions and penalties could be imposed. Such sanctions could include fines, court orders, civil penalties, the refusal of regulatory authorities to grant marketing authorization for its products, delays, the suspension or withdrawal of authorizations, the revocation of product licenses, the seizure or recall of its products, operating restrictions, and criminal prosecutions, all measures which could have a material adverse effect on the Company’s business and operations, its financial position, and its results.
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4.2.3. Genkyotex relies heavily on service providers, particularly Cmed, the CRO selected for the Phase 2 trial on PBC
The organization of the Phase 2 clinical trial on PBC has been entrusted to the British company Cmed, which is primarily responsible for the logistics of the trial, follow-up of the study, and data collection and analysis (refer to Section 22.3 – page 262). Cmed’s performance as part of its engagement, with respect to which the Company, has only financial oversight, will be essential to the quality and timeliness of obtaining results. Although Cmed is a CRO recognized in the market, this type of multinational and complex study could encounter considerable quality problems and delays.
If the Company is unable to maintain its existing collaboration agreements with its partners, or enter into new agreements, it will have to develop and sell its products at its own expense, or turn to other partners. This could increase its capital needs or limit its growth and sales efforts to other areas. In addition, even if the Company, in accordance with its agreements, has included provisions designed to impose strict compliance by its partners with their commitments, it cannot control either the significance or the timing of the resources that its existing and future partners will devote to the development or sale of its products. Such partners might not meet their obligations as set forth in the contracts that it has or may have with them, or as it expected.
Even though the Company tries to include non-compete clauses in its collaboration agreements, no assurance can be given that such restrictions will provide sufficient protection. Its partners could pursue alternative technologies alone or together with others, including its competitors.
4.2.4. Genkyotex is dependent on its key staff and must continue to attract and retain its key employees and scientific advisors
The Company’s success depends largely on the work and experience of its executive management and its key scientific personnel. The loss of their expertise could alter the Company’s ability to reach its objectives. Furthermore, the Company will need to recruit new qualified executives and scientific staff as it expands in areas that require additional abilities, such as marketing, manufacturing, clinical trials, and regulatory affairs. The Company competes with other companies, research organizations, and academic institutions to recruit and retain highly qualified scientific, technical, and management staff. To the extent that such competition is very intense, the Company may be unable to attract or retain such key staff on terms and conditions that are acceptable from an economic point of view. Its inability to attract and retain such key staff could prevent it from reaching its overall objectives.
4.2.5. The Company’s development will depend on its capacity to manage growth
As part of its growth strategy, the Company should be required to develop its operational capacities, which could call for significant involvement from its internal resources.
For this purpose, the Company will, in particular, have to:
• anticipate expenses linked to this growth and the associated financing needs;
• increase the capacity of its existing operating IT, financial and management systems;
• manage the outsourcing of the production of the drugs it develops; and
• manage partnership agreements with industrial partners of the Company in charge of continuing the clinical development, marketing and sale of the Company’s products.
To meet demand within the time frame agreed upon with its future partners, the Company may need to enter into new subcontracting contracts.
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The Company’s inability to manage its growth, or unforeseen difficulties encountered during its expansion, could have a material adverse effect on its business, results, financial position, growth and prospects.
4.3. REGULATORY AND LEGAL RISKS
4.3.1. Risks related to the ever changing legal and regulatory framework in terms of price and reimbursement of drugs
The conditions for fixing the sales price for the reimbursement of drugs are beyond the control of pharmaceutical companies. They are decided respectively by the competent public commissions and agencies and by social bodies or private insurance entities. Against the current backdrop of health expenses management and economic and financial crisis, the pressure on sales prices and the level of reimbursement is increasing, due mainly to the price controls imposed by many governments and the increased difficulty of obtaining and maintaining an acceptable reimbursement rate for drugs.
When the time comes, the conditions for fixing the price and the reimbursement rate for the Company’s products will play a key role in their commercial success. The possibility for the Company to receive royalties from its industrial partner(s) on the sale of its treatments will depend on these price fixing and reimbursement conditions. If the time spent on price negotiations causes a significant delay in the marketing launch or if one of the Company’s drugs does not obtain an appropriate level of reimbursement, its profitability would be reduced.
The Company is also unable to guarantee its ability to maintain, over time, the price level of its drugs or the accepted rate of reimbursement. Under these conditions, its revenues, profitability and prospects could be significantly affected.
4.3.2. Genkyotex is subject to regulations that are numerous and uncertain and it may not be able to obtain the necessary authorizations to market and sell its products
To date, none of the Company’s products, including its most advanced product candidate, GKT831, have received a marketing authorization from any regulatory authority. The Company cannot be sure that it will receive the necessary authorizations to market and sell any of its products. These are subject to many very stringent laws and the applicable regulatory requirements are uncertain and subject to modification. The U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the “EMA”) and the Agence Nationale de Sécurité du Médicament et des Produits de Santé (French agency for the safety of drugs and healthcare products) (the “ANSM”) in France, as well as their counterparts in other countries regulate, among other things, research and development, pre-clinical tests, clinical trials, manufacturing, safety, efficacy, records retention, labeling, and the marketing, sale, and distribution of therapeutic products.
The regulatory process for approving new therapeutic products requires the Company to submit detailed characteristics of the product’s manufacturing process and quality control, as well as pre-clinical and clinical data, and any information making it possible to establish the potential safety and efficacy of the product for each indication. It may also require continual post-marketing studies as well as manufacturing quality controls.
These regulatory steps are costly, may take several years, and their results are unpredictable. The data from pre-clinical and clinical developments may give rise to different interpretations, which could delay obtaining or restrict the scope of regulatory authorization. The requirements of the regulatory process vary greatly from one country to another, so that the Company or its strategic partners may not be able to obtain authorization on a timely basis in each relevant country. Since the Company’s products are based on new, constantly changing technologies and have not been tested on an in-depth basis in humans, the applicable regulatory requirements are still uncertain and could be subject
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to significant changes. Changes in laws and regulations during the development of a product and its regulatory review could cause delays or the denial of authorization.
In the United States, in Europe and in other countries, applicable laws and regulations and changes to them could:
• delay and/or significantly increase the cost of developing, testing, manufacturing and marketing the Company’s products;
• limit the indications for which it might be authorized to market and sell its products;
• impose new, stricter requirements, suspend authorization of the Company’s products or require that the clinical trials being conducted by the Company or marketing and sales be stopped (for example, if unexpected results are obtained during clinical trials by other researchers of products similar to those of the Company); or
• impose restrictive labeling.
If the Company does not comply with the laws and regulations applicable to its business and operations, it could incur sanctions or penalties, which could include refusals to authorize pending applications, product recalls, restrictions on sales or the temporary or permanent suspension of its operations as well as civil and criminal proceedings.
4.4. RISKS RELATED TO INTELLECTUAL PROPERTY
4.4.1. Risks related to intellectual property
It is important for the success of its business that Genkyotex and any of its future licensees, are in a position to obtain, maintain and uphold their patents, intellectual property rights and similar rights (such as trade secrets, business secrets and know-how) in Europe, the United States and in other countries in which Genkyotex may sell its products directly or indirectly. It cannot be ruled out that:
• the Company may fail to develop new inventions that are patentable;
• patent applications that are being reviewed, including certain important patents in several jurisdictions, are not granted;
• the patents which are granted or licensed to its partners or itself are contested or held to be invalid, or the Company may be unable to enforce them;
• the scope of protection granted by a patent is not sufficient to protect the Company from competition; or
• third parties may claim proprietary rights to the patents or other intellectual property rights that the Company owns outright or to which it holds a license.
The grant of a patent does not guarantee its validity or scope and third parties may challenge both aspects. The validity and scope of a patent in the area of biotechnology is highly uncertain and raises complex legal and scientific questions. Until now, no uniform policy has emerged at a worldwide level, in terms of the content of patents granted in the area of biotechnology and the scope of authorized claims. Legal action may be necessary to enforce Genkyotex’s intellectual property rights, protect its trade secrets or determine the validity and scope of its intellectual property rights. Any dispute could entail considerable expense, reduce profits, and not provide the protection sought. The Company’s competitors could successfully challenge in court or through other proceedings the patents the Company uses, has been granted or has had licensed to it, which could have the consequence of reducing the scope of its patents. In addition, such patents could be infringed or successfully avoided as a result of innovations.
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However, the Company may not be in a position to keep protecting its intellectual property rights. In such a case, the Company would lose its technological and competitive edge.
To the best of the Company’s knowledge, its technology is currently effectively protected by the patents and patent applications it has filed. However, if the Company is unable to maintain or protect its intellectual property rights, it could lose its technological and/or competitive edge and be unable to operate profitably.
4.4.2. Risks related to patent portfolios
4.4.2.1. Specific risks related to the infringement of intellectual property rights
The Company’s success will partly depend on its ability to develop its products or technologies which do not infringe patents or other rights of third parties. It is important, for the success of its business, that the Company be in a position to freely exploit its products without them undermining patents or other intellectual property rights, and, in turn, without third parties undermining the Company’s rights, in particular those relating to intellectual property.
The growth of the research industry and the associated increase in the number of patents filed heighten the risk that the Company’s products and technologies may infringe the rights of third parties, in particular those relating to intellectual property.
The Company therefore continues to speed up, as it has done up to now, the preliminary studies it deems necessary in relation to the aforementioned risks, before committing investments aimed at developing its different products/technologies. In particular, it monitors the activities (patent filing in particular) of its competitors.
To the extent that patents combine the use of multiple molecules, the Company should examine and monitor the rights which could have been obtained or which would be obtained in the future by third parties over these molecules or antigens. The Company will therefore be eventually required to take actions to challenge the rights of third parties to be free to exploit its products, or may in some cases have to obtain licenses on specific aspects within the composition of its products or its immunotherapies and for which the Company has not been able to secure protection, mainly because they concern products or processes prior to its research in the field or concern fields which are different, yet related.
Patents belonging to third parties have, for example, been identified by the Company in the field of adjuvants required for preparation and these third-party patents are monitored by the Company to determine their relevance in the context of a long-term exploitation project. Actions could be required by the Company to challenge these patents if required.
However, monitoring the unauthorized use of the Company’s products and technology, and, thus, the infringement of its own intellectual property and other rights, is a delicate task. The Company can therefore not guarantee:
• that it will be able to prevent and seek redress for unauthorized misappropriations or uses of its products and technology, particularly in foreign countries where its rights would not be as well protected due to the territorial scope of industrial property rights;
• that there are no former patents or other rights (particularly those relating to intellectual property) of third parties, likely to cover certain products, processes, technologies, results or activities of the Company and that, as a result, third parties infringe or violate their rights against the Company with a view, in particular, to obtaining damages and/or the cessation of
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its manufacturing activities and/or of the marketing or sale of products, processes and other activities thus incriminated;
• that there are no prior trademarks or other rights of third parties likely to provide grounds for an infringement or liability action against the Company; and/or
• that the Company’s domain names will not be the subject of, by a third party with former rights (e.g. trademark rights), a UDRP (Uniform Dispute Resolution Policy) or similar procedure or infringement proceedings.
Should disputes arise regarding the intellectual property it uses, the Company may be obliged to:
• cease or oversee the cessation of the development, sale or use of any product(s) dependent upon the challenged intellectual property;
• review the design of some of its products/technologies or, in the case of requests concerning trademarks, rename its products, to avoid infringing the intellectual property rights of third parties, which could prove impossible or be long and costly, and could, in fact, impact efforts to market and sell the products concerned by the Company and/or its partners.
Third parties (including employees of the Company) could use or try to use elements of the Company’s technology protected by an intellectual property right, which would place the Company in a harmful situation. The Company may therefore be obliged to take legal or administrative litigation action against these third parties and/or employees to assert its rights, particularly those relating to intellectual property (patents, trademarks, drawings and models or domain names) in court.
Any litigation or dispute, whatever the outcome, could generate substantial costs, affect the Company’s reputation, negatively influence the results and financial position of the Company and potentially not provide the protection or solution sought. The Company’s competitors that have greater resources than the Company could be in a better position to bear the cost of litigation proceedings.
However, as of the date of the Registration Document, the Company had not found itself in any of these situations, nor had it been involved in any disputes, as claimant or defendant, concerning its intellectual property and other rights or those of a third party.
4.4.2.2. Specific risks related to agreements concerning intellectual property and the confidentiality of the Company’s information and know-how
The agreements signed by the Company to protect its technology, its trade secrets and its know-how could prove insufficient
It is important for the Company to protect itself against the unauthorized use and disclosure of its confidential information, its know-how and its trade secrets. Its technologies, processes, methods, know-how and data which are not patented and/or patentable are considered trade secrets that the Company partly attempts to protect through confidentiality agreements. Furthermore, the rules for giving the Company control over any inventions that its employees have created or may create, and their terms of remuneration, are governed by Article L. 611-7 of the intellectual property code which is public policy for French entities of the Group.
Under collaboration, partnership, research or any other type of cooperation agreements entered into between the Company and researchers from university institutions and with other public or private entities, subcontractors or any co-contracting third party, various information and/or products may be entrusted to them particularly for the purposes of conducting certain tests and clinical trials. In such cases, the Company requires the signature of confidentiality agreements. Furthermore, the Company ensures that the collaboration, partnership or research agreements that it signs give it access to the full ownership or, at least, the co-ownership of any results and/or inventions resulting
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from such a collaboration, where it has effectively participated in the creation of such results and/or inventions. The Company also seeks, through the license agreements it signs with its partners, to retain control over the management of patents or to only grant licenses in specific fields in which it does not operate.
It cannot be ruled out that the agreements established to protect the Company’s technology and trade secrets and/or know-how may not provide the protection sought or may be violated, that the Company may not have effective recourse against such violations or that its trade secrets may be disclosed to its competitors or developed independently by them. Furthermore, the Company has very limited control over the conditions under which third parties with which it enters into contracts, themselves engage third parties, and protect their confidential information. This is independent of the fact that the Company takes into account in its agreements with its co-contractors that they undertake to pass on to their own co-contractors these confidentiality obligations.
Such agreements therefore expose the Company to the risk of the third parties concerned (i) claiming entitlement to intellectual property rights over inventions or other intellectual property rights of the Company, (ii) failing to ensure the confidentiality of unpatented innovations or enhancements of the Company’s confidential information and know-how, (iii) disclosing the Company’s trade secrets to its competitors or independently developing these trade secrets and/or (iv) breaching such agreements, without the Company having a suitable solution against such breaches.
As a result, the rights of the Company over its confidential information, its trade secrets and its know-how may not confer the expected protection against the competition and the Company cannot guarantee:
• that its know-how and trade secrets will not be obtained, usurped, circumvented, transferred without its authorization or used by unauthorized third parties;
• that the Company’s competitors have not already developed a technology, products or devices comparable or similar in nature or destination to those of the Company;
• that no co-contractor will claim entitlement to all or part of the intellectual property rights over inventions, knowledge or results that the Company owns itself or in co-ownership, or for which it would be required to hold a license; or
• that the Company’s employees will not claim the rights or the payment of additional compensation or a fair price in consideration of inventions for which they have contributed to the creation.
The occurrence of one or more of such risks could have a material adverse effect on the Group’s business, prospects, financial position, results and growth.
4.4.2.3. The Company is reliant on the good execution by Serum Institute of India Ltd. of its contractual obligations under the terms of the license agreement dated February 2, 2015
On February 2, 2015 the Company entered into a license agreement with the company Serum Institute of India Ltd. (SIIL) for its Vaxiclase technology, as part of the development by SIIL of acellular and multivalent vaccines containing, inter alia, antigens for whooping cough.
SIIL could encounter difficulties in the technical and clinical validation of the Company’s Vaxiclase technology. The resulting delays or failures could delay or even jeopardize the marketing and sale by SIIL of the products concerned.
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SIIL may also fail to take all the necessary measures to achieve the desired results under the license agreement signed with the Company. Budgetary restrictions within SIIL or priority given by SIIL to other development programs, in particular, could delay the validation of the potential of products incorporating Vaxiclase technology.
The Company cannot rule out either that SIIL may wind down its relationship with it. SIIL may also unilaterally terminate the license agreement upon 90 days’ notice and payment of any sums due to the Company. A conflict of interest could arise between certain activities of SIIL and the activities that SIIL provides to the Company. This would cause a loss of know-how and expertise for the Company and may even involve the disclosure of important confidential information in the Company’s research and development system even though SIIL is contractually bound by a duty of confidentiality towards it under the terms of the license agreement.
Such events could have a material adverse effect on the Company’s prospects in terms of potential revenues to be received through this contract, financial position and results, to the extent that intangible asset depreciation (€10.2 million as of December 31, 2017) could result from the occurrence of such events.
4.4.2.4. Risks related to accountability related to products
The Company could be held accountable for the product candidates it develops
The Company may be exposed to liability risks during the clinical development of its products (in particular accountability for the products, in relation to tests of therapeutic products on humans and animals). It may also be held liable by patients participating in the clinical trials for the development of therapeutic products tested and due mainly to unexpected side effects which could result from the administration of these products.
The Company’s liability may also be incurred in the marketing of its products. Civil or criminal proceedings could be brought against the Company by patients, regulatory authorities, pharmaceutical companies, and other third parties using or selling its products. Such actions could include claims resulting from acts by its partners, licensees, and subcontractors over which the Company has little or no control.
The Company cannot guarantee that its insurance coverage is sufficient to respond to actions likely to be brought against it, or to respond to an unforeseen situation.
If it or one of its partners, licensees and subcontractors is held responsible, if it or its partners, licensees and subcontractors are not in a position to obtain and maintain appropriate insurance coverage at an acceptable cost, or if the Company is not in a position to protect itself in any way against liability actions, this would seriously impact the marketing and sale of the Company’s products and more generally be harmful to its business, results, financial position and growth prospects.
4.5. INDUSTRIAL AND ENVIRONMENTAL RISKS
See the “CSR Report” shown in Section 26.1 of this Registration Document.
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4.6. FINANCIAL RISKS
4.6.1. The Company has posted operating losses since its formation and believes this situation could continue. It is possible that it may never be profitable
Since it began operating, the Company has posted operating losses. Such losses reflect both the significance of the expenses incurred in research and development and the weakness of its revenues.
The Company foresees that such losses will continue over the next few years, at least until the marketing and sale of its drug candidates (should that occur), because of the significant investments required for research, development, manufacture, quality control, distribution of its drug candidates, pre-clinical and clinical trials, administrative activities, and activities linked to the development of intellectual property, as well as license agreements for new drug candidates and for the acquisition of new technologies that may become necessary, as the case may be. The Company may never market or sell any drug candidates and, as a result, may never become profitable.
As of December 31, 2017, the accumulated losses according to IFRS standards over the last two financial years ended totaled €32,472 thousand, of which €25,773 thousand account for the loss incurred in the financial year ended December 31, 2017. It is noted that the recognized loss on December 31, 2017, included non-current operating expenses of €11,408 thousand.
The Company expects that its operating losses will increase in the near future, particularly when:
• some of its drug candidates move beyond the stage of pre-clinical development to clinical development;
• it will be confronted with increased regulatory requirements for the manufacturing and trials of its product candidates (including GKT831, which is its only product in an advanced stage of development);
• it increases its portfolio of drug candidates by adding new drug candidates for future development;
• it develops its research and development activities and buys new technologies, drug candidates or licenses, as the case may be; and
• it has to finance structural expenses consistent with the growth of its business. The amount of net losses and the time needed to reach sustained profitability are difficult to estimate and will depend on several factors, including:
• the degree of advancement of the Company’s research and development activities, particularly pre-clinical developments and clinical trials;
• the schedule of regulatory procedures in connection with the preparation, review, and protection of patents and intellectual property rights;
• changes in collaboration arrangements made by the Company, as the case may be; and
• other factors, a great number of which are beyond the Company’s control.
The increase of these expenses could have a material adverse effect on the Company, its business, financial position, results, growth and prospects.
4.6.2. Risks related to research tax credit
The Company may not be able to continue receiving the research tax credit in future years
To finance its business, the Company uses, among other things, the Crédit d’Impôt Recherche (Research Tax Credit) (“CIR”), which is a tax credit to companies investing significantly in research and development. The research expenses that are eligible for the CIR include, wages and salaries, the amortization of research material, services subcontracted to approved research entities (public or private), and intellectual property expenses.
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The amounts received in 2017 through the CIR 2016 amount to €2,958 thousand. The amount that was requested by the Group through the CIR 2017 to be received in 2018 is €558 thousand.
The Company cannot rule out the possibility that the tax authorities will question the methods used by the Company in calculating research and development expenses or that the CIR may be questioned (for past or future financial years) because of a change in regulation or a challenge from the tax services even though the Company meets the requirements in terms of documentation and eligibility of expenses, given that management’s repossession right is exercised until the end of the third year following the date when the special declaration provided for the calculation of this tax credit was filed. The amounts declared by the Company Genkyotex SA (formerly Genticel) and Genkyotex Innovation SAS (which merged with Genkyotex SA in 2017) for the financial years 2015 to 2017 amount to €7,691 thousand.
If such a situation should arise, this could have an adverse effect on the results, financial position and prospects of the Company.
4.6.3. Risks related to government advances received by the Company
The Company receives government advances and, in the event that these advances stop, should be entitled to receive other sources of financing
The Company has received or shall receive the following repayable aid:
As of the Registration Document Date In thousands of euros
Amount received
Amount repaid
Outstanding amount due
OSEO 2: development and clinical trials of a therapeutic vaccine against cancer and precancerous lesions on the cervix caused by Human papillomavirus (HPV) infection
1,500 1,500 -
OSEO 3: extension of phase I clinical studies of the ProCervix project (GTL001)
812 517 295
Total 2,312 2,017 295
The information regarding the various contracts for advances (payments, repayment schedule or specific clauses) is presented in note 9.1 of the notes to the consolidated financial statements in Section 20.1 – page 151 “Consolidated financial statements prepared in accordance with IFRS standards for the financial year ended December 31, 2017”.
For OSEO (now Bpifrance) repayable advances, if the Company should fail to comply with the contractual conditions set forth in the aid agreements signed, it may be required to repay the sums advanced earlier than planned.
Such a situation could deprive the Company of necessary financial means for its research and development projects, with no guarantee that it would find the necessary additional financial means, the time or the ability to replace these financial resources with others.
4.6.4. Risks related to the future use of tax loss carryforwards
The tax loss carryforwards accumulated by the Company may not be attributable to future profits
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As of December 31, 2017, after taking into consideration the net loss reported for the financial year, the Group had estimated tax loss carryforwards of €120,842 thousand. These were broken down as follows:
• indefinite French tax loss carryforwards of €77,534 thousand
In France, the carryforward of these tax losses is capped at 50% of the taxable profits for the year. This limitation is applicable to the portion of profits exceeding €1 million. The outstanding amount of tax losses may be carried forward to subsequent financial years, and under the same conditions without any time limitation.
• Swiss tax losses of €43,308 thousand
In Switzerland, tax losses can be carried forward for seven years starting from the date they occur.
Refer to note 17 of Section 20.1 – page 151 for more information regarding the accounting treatment of tax losses in financial statements prepared according to IFRS standards.
It cannot be ruled out that regulatory or legislative changes to the taxation of companies may question the possible carryforward, in its entirety or in part, of these former tax losses to future profits or put a time limit on their carryforward.
4.6.5. Dilution risk
The stake of the Company’s shareholders in its capital could be significantly diluted
Since its creation, the Company has issued and granted subscription warrants (BSAs) and stock options. As of the Registration Document date, the full exercise of all of the instruments granting access to the capital awarded and in circulation on that date would allow for the subscription of 1,630,268 new shares, generating a dilution equal to 2.09% based on the existing capital on that date and 2.05% based on the fully-diluted capital (see Section 21.1.4 – page 246 of the Registration Document for detailed information on dilutive instruments.
In connection with its incentive strategy to motivate its executives and employees and to attract and retain qualified personnel, the Company may issue or award shares or new equity securities carrying the right to acquire shares in the future, which could cause further dilution, potentially material, for present and future shareholders of the Company.
In the context of its development, the Company might also use sources of funding that potentially have a dilutive effect for the Company’s shareholders.
4.7. MARKET RISKS
4.7.1. Liquidity risks
The Company may be required to strengthen its equity capital or to obtain additional financing to ensure its growth
Since its creation, the Company has financed its growth by strengthening its equity capital through successive capital increases, obtaining government aid for innovation and repaying outstanding CIR (Crédit d’Impôt Recherche, research tax credit) amounts but has not, to date, resorted to bank loans. As a result, the Company is not exposed to an immediate liquidity risk resulting from the potential implementation of early repayment clauses for such loans.
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Considerable expenditure on clinical study research and development has been incurred since the Group began operating, which has, to date, generated negative cash flows related to operating activities. These amounted respectively to -€5.1 million and -€9.4 million for the financial years ended December 31, 2016 and December 31, 2017.
On the date the Company’s financial statements were closed, the going concern assumption was made, taking into consideration the Company’s financial capacity in terms of its financing needs for the next 12 months.
As of March 31, 2018, the Group had cash and cash equivalents of €12.5m. Given the expected drop in its operating costs, the Company considers that its cash should cover its needs until the third quarter of 2019, which will allow the Phase 2 clinical trial in PBC to be funded over its full term.
The Company has carried out a specific review of its liquidity risk and considers that it is able to meet its future deadlines over the next 12 months from the date of filing the Registration Document.
The Company will continue to have major financing needs in the future for the development of its technology, the continuation of its clinical development program and the equipping of its own pharmaceutical laboratory and, in the longer term, for the production, marketing and sale of its products. The Company could find itself unable to self-finance its growth, which could lead it to seek other sources of financing, particularly via new capital increases.
The Company’s level of financing needs and their scheduling over time depends on matters that are largely beyond the Company’s control, including:
• higher costs and slower progress than those anticipated for its research and development programs and clinical studies;
• the costs of preparing, filing, defending, and maintaining its patents and other intellectual property rights; and
• costs associated with possible requests to change studies, or to include a greater number of patients;
• higher costs and longer lead times than those anticipated to obtain regulatory authorizations for the marketing of its products and access to reimbursement, including time spent preparing application dossiers for the competent authorities; and
• new opportunities for the development of new products or the purchase of technologies, products or companies.
It is possible that the Company may not be able to secure additional capital when it is needed, or that such capital may not be available on financial terms and conditions acceptable to the Company. If the necessary funds should not be available, the Company may be forced to:
• delay, reduce, or eliminate the number or scope of its pre-clinical studies and clinical trials;
• grant licenses of its technologies to partners or third parties; and/or enter into new collaboration agreements on terms and conditions less favorable to it than those that it might have been able to obtain in different circumstances.
To the extent that the Company can raise capital by issuing new shares, the stake of its shareholders could be diluted. Debt financing, where available, could however require the Company and its shareholders to make restrictive commitments.
The occurrence of one or more of such risks could have a material adverse effect on the Company, its business, financial position, results, growth, and prospects.
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4.7.2. Foreign exchange risks
Conducting its business abroad would expose the Company to a higher foreign exchange risk
As of December 31, 2017, the Company’s cash was primarily denominated in euros and Swiss francs. The Company’s cash surplus was invested in investment products exclusively in euros. The initial valuation of intangibles relating to the SIIL contract has been determined based on a business plan for which revenues are denominated in US dollars. A fall in the US dollar against the euro could have an adverse effect on the value of this contract.
The Company did not, at this stage of its development, enter into any hedging arrangements to protect its business against fluctuations in exchange rates, as the expenses anticipated at this stage by the Company are primarily anticipated in euros and Swiss francs. However, the Company cannot rule out that a significant increase in its business abroad, particularly resulting from the license agreement with the pharmaceutical company SIIL (whose revenues are denominated in US dollars), would not subject it to a higher exposure to exchange rate risk.
If the Company does not manage to take effective hedging arrangements against exchange rate fluctuations in the future, its results of operations could be impacted.
4.7.3. Credit risk
The Company manages its available cash prudently, refraining from any investments in speculative instruments or those with a risk of capital loss.
As of December 31, 2017, cash and cash equivalents amounted to €11.3 million and comprised bank accounts and monetary SICAVs (refer to note 6 of Section 20.1 of the Registration Document – page 151). Financial investments, including current financial assets, as of December 31, 2017, amounted to €3.3 million and included a capital bond (capital guaranteed investment) (refer to note 4 of Section 20.1 of the Registration Document – page 151).
Credit risk is associated with deposits with banks and financial institutions. To make its cash investments, the Company works with highly ranked financial institutions and, therefore, does not bear any material credit risk on its cash.
4.7.4. Interest rate risks
The Company has no exposure to interest rate risk as regards the asset items on its balance sheet, to the extent that cash equivalents consist of short-term accounts and that it has not subscribed to any variable-rate debt.
Given the current low level of return on the Company’s investments, it considers that any change of +/-1% would have an insignificant impact on its net income in terms of the amount of losses generated by its operational activities.
As a result, the Company does not consider itself exposed to any major interest rate fluctuation risk.
4.7.5. Risk related to change in the Company’s share price and the stock market valuation
The Company’s securities were admitted to trading on the regulated Euronext Paris and Euronext Brussels markets on April 9, 2014.
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Given the level of the stock market price and market capitalization, and how they have fluctuated since the initial public offering, any failure or delay in the completion of scientific, financial or regulatory steps, could have a material adverse effect on the stock market price and the market valuation of the Company, not to mention its business, financial position, results, growth and prospects.
During the 2017 financial year, the stock market price reached its highest level on May 3, 2017, at €2.55, and its lowest level on October 12, 2017, at €1.44. As of December 31, 2017, the closing price was €1.66.
During the first few months of 2018, the price went from €1.64 on January 2, 2018, to €1.52 on April 26, 2018, resulting in a market capitalization of the Company of around €118 million.
English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
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4.8. INSURANCE AND RISK COVERAGE
The insurance cover taken out by the Company could prove inadequate
The Company has adopted a strategy of covering its principal insurable risks with levels of coverage that it believes are compatible with the nature of its business. The amount of expenditure paid by the Company for all of its insurance policies amounted to €102 thousand for the financial year ended December 31, 2017.
Summary table of insurance policies taken out by the Company:
Type of insurance Insurer Amounts covered Deductible per claim
Civil Liability of Executives
The contract covers executives of the Company and its subsidiaries for any claims made against them during the insurance period (March 1 to February 28) invoking their individual or joint liability and covering any actual or alleged professional misconduct committed in the performance of their duties as executive.
In accordance with Swiss regulations, a local Swiss policy has also been taken out by the subsidiary Genkyotex Suisse SA with the same company.
XL CATLIN
XL CATLIN
EUR 10,000,000 per year
CHF 1,000,000 per year
None
None
Civil Liability for Operations All damages including: ▪ Misconduct ▪ Material and immaterial damage
Including: ✓ Non-consecutive consequential losses ✓ Damage to entrusted property ✓ Sudden and accidental pollution
Defense and Legal Action
A Civil Responsibility for Operations policy has also been taken out with CNA to cover Genkyotex Suisse SA in accordance with Swiss insurance requirements.
CNA (per claim and per year of insurance)
EUR 7,000,000 EUR 1,000,000 EUR 1,500,000
EUR 300,000 EUR 250,000 EUR 500,000
EUR 50,000
(per claim unless otherwise stated)
None
EUR 5,000 per victim EUR 2,000
EUR 2,000 EUR 2,000 EUR 2,000
Disputes in excess of EUR 500
Shipped goods (As part of the GSN000300 clinical study) Transportation
• By maritime, air and ground shipment
• By location and/or occasional transit during transportation
• By parcel post Stock & transit
CHUBB (per claim and per event)
EUR 10,000 EUR 10,000 EUR 10,000
EUR 80,000
(per claim and/or per event and per year)
None
EUR 800
(per claim)
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Type of insurance Insurer Amounts covered Deductible per claim
Company property and operating loss (Plan-les-Ouates)
• Damage to Property (business movable property and equipment, goods and fixtures) ✓ Fire and related risks, Water damage,
Excesses, in the event of natural catastrophes, shall amount to 10% in compensation, i.e. minimum CHF 2,500 and maximum CHF 50,000.
LA MOBILIERE
CHF 584,500
20% of insurance CHF 116,900
CHF 10,000 CHF 5,000
CHF 100,000 CHF 30,000 to CHF 50,000
CHF 300,000
CHF 200
CHF 200
CHF 200 CHF 200
None CHF 200 CHF 200 CHF 200
Corporate liability (Plan-les-Ouates)
Pre-clinical development of drugs in the cardiovascular field
Damage to leased premises
ZURICH
CHF 5,000,000 in the event of bodily injury and/or material
damage
CHF 1,000,000
CHF 100
CHF 500
Insurance for the clinical study GSN000300 in Belgium (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 400,000 per subject EUR 3,000,000 per protocol
None
Insurance for the clinical study GSN000300 in Canada (guarantee effective from 6/15/2017 to 9/30/2018)
AGCS (in accordance with local practices and obligations)
CAD 2,000,000 per claim CAD 5,000,000 per protocol
None
Insurance for the clinical study GSN000300 in Germany (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 500,000 per subject EUR 5,000,000 per protocol
None
Insurance for the clinical study GSN000300 in Spain (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 250,000 per subject
EUR 2,500,000 per year of insurance
None
Insurance for the clinical study GSN000300 in the United Kingdom (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
GBP 5,000,000 per protocol
None
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Type of insurance Insurer Amounts covered Deductible per claim
Insurance for the clinical study GSN000300 in Italy (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
EUR 1,000,000 per subject EUR 5,000,000 per protocol
None
Insurance for the clinical study GSN000300 in the United States (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
USD 5,000,000 per subject USD 5,000,000 per protocol
USD 5,000 per claim
Insurance for the clinical study GSN000300 in Greece (guarantee effective from 6/15/2017 to 9/30/2018)
AGCS (in accordance with local practices and obligations)
EUR 300,000 per subject EUR 5,000,000 per protocol
None
Insurance for the clinical study GSN000300 in Israel (guarantee effective from 6/15/2017 to 9/30/2018)
CNA-HARDY
(in accordance with local practices and obligations)
USD 3,000,000 per subject USD 5,000,000 per protocol
None
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5. INFORMATION ABOUT THE ISSUER
5.1. HISTORY AND DEVELOPMENT OF THE COMPANY
5.1.1. Corporate name of the Company
The Company’s corporate name is: Genkyotex SA.
5.1.2. Place of registration and registration number of the Company
The Company is registered with the Thonon-les-Bains Trade and Companies Register (Registre du commerce et des sociétés de Thonon-les-Bains) under number 439 489 022.
The Company’s NAF code (French business code, formerly “APE” code) is 7211Z.
5.1.3. Date of incorporation and term
The Company was incorporated on October 15, 2001, for a period of 95 years expiring on October 15, 2096, barring early dissolution or extension.
5.1.4. Registered office, legal form and governing law
The Company’s registered office is at 218 avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France. The Company’s contact details are as follows: Telephone: +33 4 80 16 06 07 Website: www.genkyotex.com
The Company is a limited liability company (société anonyme) with a Board of Directors since the General Shareholders’ Meeting of February 28, 2017. Prior to that date, it was organized with a management board and a supervisory board.
The Company, governed by French law, is subject, in operational matters, to Articles L.225-1 et seq. of the French Commercial Code.
5.1.5. History
2001 to 2013 • The Company is founded • Financing rounds totaling €12 million • Completion in 2013 of four Phase 1 clinical trials, which have shown
GKT831 to have very good safety and pharmacokinetics profiles 2014 • Initial Public Offering (IPO) on the regulated market of Euronext in Paris in
April and concomitantly €35 million of funds raised
• €6 million fund raising, through the exercise of BSA Closing 2 (warrants) issued April 22, 2013 and the conversion of a bond issued March 7, 2014
2015 • Completion in 2015 of a Phase 2 trial with GKT831 in diabetic kidney disease. Although this trial did not achieve its primary efficacy endpoint, it did enable the Company to observe a statistically significant effect on several predefined secondary efficacy endpoints
2016 • Results obtained after 12, 18 and 24 months of observation in the Phase 2 trial with GTL001, and the Company’s research projects halted in the field of HPV (i.e., GTL001 and GTL002)
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• Decisive milestone reached in the partnership with Serum Institute of India, regarding the use of GTL003 in multivalent vaccines; the Company receives a $1.2 million milestone payment
• Strategic combination announced with GenKyoTex Suisse Group and contribution agreement signed
2017 • The decision by the Combined General Meeting of the Company’s shareholders on February 28, 2017, approving the combination with GenKyoTex Suisse Group through the in-kind contribution of all GenKyoTex Suisse shares to Genticel, creating a listed French-Swiss group whose activity is primarily dedicated to the development of a portfolio of NOX inhibitors, a new therapeutic class in fibrosis and inflammatory pain. These contributions resulted in the issuance of 62,279,951 new shares to the contributors at a parity of 11.8355 shares of Genkyotex SA (formerly Genticel SA) for each Genkyotex Suisse SA share contributed.
• FDA approval to begin a Phase 2 clinical trial with GKT831 in primary biliary cholangitis (PBC) and commencement at the end of June 2017 of a clinical trial of GKT831 in PBC at more than 50 centers in Europe, North America and Israel, involving 102 patients.
• The launch of a phase 2 clinical trial to evaluate 48-week treatment with GKT831 in patients with Type 1 diabetes and kidney disease led by the Baker Heart and Diabetes Institute of Melbourne, Australia, with the financial support of the Juvenile Diabetes Research Foundation, for a study in multiple study sites across Australia focusing on diabetic nephropathy.
• GKT831, a NOX1 and NOX4 inhibitor, has demonstrated its ability to effectively target cancer-associated fibroblasts (CAFs) and delay tumor growth as part of a study including several preclinical models.
2018 • GKT831, a NOX1 and NOX4 inhibitor that effectively targets cancer-associated fibroblasts (CAFs), abrogated the pro-tumorigenic influence of the tumor micro-environment in a preclinical prostate cancer model.
5.2. INVESTMENTS
5.2.1. Main investments made during the last two financial years
The Company did not make any significant investments during the 2016 financial year. On February 28, 2017, the Company’s shareholders approved the resolutions making the combination with Genkyotex Suisse SA effective in accordance with the contribution agreement entered into on December 22, 2016. Genkyotex Suisse SA was contributed on the basis of a real value of €120 million. This in-kind contribution was paid through the issue of ordinary shares in the Company. On September 28, 2017, the Company acquired 100% of the shares of Genkyotex Innovation SAS from Genkyotex Suisse SA for €2,467,000. This company was merged on November 30, 2017 with retroactive effect for accounting and tax purposes at January 1, 2017.
It is also noted that the Company has devoted a major part of its resources to the research and development of its drug candidates. These research costs are systematically recognized in expenses (see Note 3.1 in Section 20.1 of the Registration Document) and are therefore not shown in this section.
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5.2.2. Main investments since the end of the last financial year
No significant investments have been made since January 1, 2018.
5.2.3. Main investments planned
The Company is not planning, for the moment, to make significant investments in the foreseeable future, for which the Company management bodies have made firm commitments. It will continue, in the future, to devote a major part of its resources to the research and development of its drug candidates.
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6. BUSINESS OVERVIEW
6.1. GENERAL PRESENTATION OF THE GROUP’S ACTIVITIES
Genkyotex is a clinical-stage biopharmaceutical company specializing in the discovery and development of small therapeutic molecules capable of selectively inhibiting NADPH oxidase (or NOX) enzymes. NOXs have been identified as potentially key factors in the development of many complex illnesses which are difficult to treat.
Besides the R&D conducted within the Group, a significant part of its development activities is carried out by Contract Research Organizations (CROs), whose main responsibilities include conducting clinical trials, manufacturing compounds and performing toxicology studies. The Company also relies on the unrivaled expertise of the members of its Scientific Advisory Board, which includes top global experts in NOX science.
A unique therapeutic approach: selective inhibition of NOXs
The function of NOX enzymes, most of which were discovered and characterized by the current members of the Company’s Scientific Advisory Board, is to produce reactive oxygen species (ROS) which act as second messengers in oxidizing target proteins and thus, modulating their function. Through this mechanism, NOX enzymes regulate many biological pathways involved in numerous physiopathological processes.
The capacity of NOXs to simultaneously regulate protein networks makes them an attractive therapeutic target, since their inhibition with a single small molecule has the potential to normalize multiple mechanisms involved in the onset and progression of many human illnesses, such as fibrosis, inflammation, angiogenesis, cancer progression and neurodegeneration.
The NOX family contains seven enzymes called NOX isoforms (NOX1 to NOX5, as well as DUOX1 and DUOX2). To date, no NOX inhibitor has yet been approved and the technological challenge is to identify selective inhibitors of NOXs to obtain an optimal efficacy and safety profile to treat specific disorders.
An initial focus on fibrotic disorders with the drug candidate GKT831
GKT831, a selective NOX1 and NOX4 inhibitor is the most advanced drug candidate developed by Genkyotex - and has shown marked anti-inflammatory and anti-fibrotic properties in a broad range of animal models of hepatic, pulmonary or renal fibrosis. These results, which have been presented in over 30 publications in leading scientific journals, have led the Company to identify fibrotic processes, which are estimated to contribute to around 45% of deaths in the industrialized world, as a key therapeutic target. The Company has identified fibrotic disorders of the liver and, other organs, as the main targets of its drug candidate GKT831.
In the liver, fibrotic pathologies of potential interest to the Company are numerous and include primary biliary cholangitis (PBC), a chronic orphan autoimmune disease causing progressive destruction of the intrahepatic bile ducts which largely affects women (90%), non-alcoholic steatohepatitis (NASH), primary sclerosing cholangitis (PSC), and auto-immune hepatitis.
The Company has conducted four Phase 1 clinical studies which have shown GKT831 to have very good clinical safety and pharmacokinetics profiles. These studies were completed in 2013 and were conducted in a total of 117 healthy subjects.
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The Company also conducted a first, Proof of Concept Phase 2a trial with GKT831 in diabetic kidney disease, which was completed in 2015 and involved 136 patients. Although this trial did not achieve its primary efficacy endpoint, it did enable the Company to demonstrate statistically significant effect on several predefined secondary efficacy endpoints.
In late June 2017, the Company launched a Phase 2 clinical trial of GKT831 in 102 patients with PBC in over 50 centers in Europe, North America and Israel. The preliminary results of this trial are expected in fall 2018 and the final results in the first half of 2019.
For PBC, although it is difficult to estimate the size of the market, given that there is only one non-generic drug currently commercially available (Ocaliva from Intercept Pharmaceuticals), the Company believes that the PBC market, based on the prevalence of this orphan disease and the price of the marketing and sale of Ocaliva, generates revenues of between US$1.5 and 2 billion.
GKT771: a drug candidate with anti-angiogenic, analgesic and anti-inflammatory effects
The second advanced product candidate, GKT771, is a selective inhibitor of NOX1 which, and as the Company’s preclinical research has shown, has anti-angiogenic, analgesic and anti-inflammatory effects. These are three major components in a high number of rheumatic, cutaneous, and opththalmic inflammatory disorders and in various types of inflammatory pain. Genkyotex is currently conducting preclinical studies to prioritize clinical indications for GKT771. In 2018, Genkyotex will be able to submit a regulatory application to obtain authorization to begin the first Phase 1 clinical trial of GKT771 in order to evaluate its safety, pharmacokinetics and, potentially, its pharmacodynamic activity in healthy subjects or patients.
Preclinical research programs
Genkyotex also carries out early preclinical research programs on NOXs, in connection with hearing loss, disorders of the central nervous system and oncology.
Partnership agreement with the Serum Institute of India for Vaxiclase
A partnership for the use of Vaxiclase as an antigen alone (GTL003) was entered into by the Company in February 2015 with the Serum Institute of India (Serum Institute), the largest producer of vaccine doses in the world. This license agreement, which authorizes the Serum Institute to use Vaxiclase to develop its multivalent acellular vaccines against a variety of infectious diseases, including whooping cough, and which covers only regions located outside the United States, Canada, New Zealand, Australia, Japan, EU Member States, Switzerland, Liechtenstein, Norway, Turkey, Israel, Albania, Andorra, Bosnia and Herzegovina, Kosovo, Macedonia, Monaco, Montenegro, Iceland and Serbia, could allow Genkyotex to generate up to US$57 million in revenues, excluding royalties on potential sales (see Section 6.10 of the Registration Document below). The final preclinical stage provided for in this agreement, which was completed in November 2016, opens the way to regulatory preclinical tests conducted by the Serum Institute, prior to the potential clinical development, marketing and sale of vaccines by this organization. Genkyotex reserves the rights for all countries listed above.
Status of the clinical and preclinical development of Genkyotex’s products
The table below summarizes the progress of the clinical and preclinical development of Genkyotex’s products.
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Research and development work, preclinical studies, clinical trials, facilities and the manufacture, marketing and sale of the Company’s products are subject to the regulatory authorities in France (Agence nationale de sécurité du médicament et des produits de santé (ANSM)), Europe (European Medicines Agency (EMA)), the United States (the Food and Drug Administration (FDA)) and in other countries. The Company’s registered office is located in Archamps (France). The Group has 12 employees, 9 of whom are dedicated to research and development. 6.1.1. Competitive advantages
Genkyotex considers itself to have the following competitive advantages:
• The Company has unique NOX expertise, bolstered by its position as first entrant in the field. Founded by scientists who discovered and characterized the majority of NOX enzymes, Genkyotex boasts unrivaled expertise and technological and scientific leadership in this new therapeutic area. The clinical trials conducted to date by the Company have enabled it to demonstrate the clinical feasibility of this therapeutic approach.
• A positive safety profile and proof of pharmacological activity for GKT831. GKT831 has undergone four Phase 1 clinical trials which have shown a favorable safety profile and have demonstrated its pharmacological activity. The Company also conducted a Phase 2 clinical trial assessing GKT831 in diabetic kidney disease (DKD), which was completed in 2015 and involved 136 patients. Although this trial did not achieve its primary efficacy endpoint, it did enable the Company to observe a statistically significant effect on several predefined secondary efficacy endpoints. In addition, the positive safety profile observed during the Phase 2 trial in diabetic DKD supports the further clinical evaluation of GKT831 in the kidneys, liver and other organs for a longer treatment period and at higher doses.
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• The two product candidates GKT831 and GKT771 offer a therapeutic alternative for significant unmet needs. The NOX therapies developed by the Company offer a therapeutic alternative for several indications and in particular for fibrotic disorders, for which there are currently no approved therapies.
• The Company’s technology allows it to target various biological pathways with a single compound. The NOX technology developed by the Company allows it to effectively target multiple biological pathways with a single compound and a positive safety profile. The NOXs also have the advantage of being able to characterize these compounds in several different ways.
• An experienced management team and Board of Directors assisted by a leading Scientific Advisory Board, including some of the world’s most highly regarded specialists in the NOX field. The Chief Executive Officer, the Medical Director, the Chief Financial Officer, the members of the Board of Directors and the four members of the Company’s Scientific Advisory Board, professors Karl-Heinz Krause (University of Geneva), Chihiro Yabe (University of Kyoto), Robert A. Clark (University of Texas) and Dave Lambeth (Emory University Medical School, Atlanta) are highly experienced, with complementary expertise in terms of their training and experience in the pharmaceutical industry. In particular, they boast extensive experience in translational, preclinical and clinical research, regulatory affairs, business development and finance.
6.1.2. Strategy
Genkyotex’s aim is to develop a new approach in the treatment of various illnesses, the needs of which are not currently met at all or are only partly met. The main elements of its strategy are as follows:
• Confirm the efficacy of GKT831 for fibrosis and inflammation in a hepatic disorder. The Company’s main objective is to confirm the efficacy of its most advanced product candidate, GKT831, for the treatment of liver fibrosis and inflammation with a study in PBC. To achieve this objective, the Company launched a Phase 2 clinical trial in late June 2017. This trial is being conducted in more than 50 centers in the United States, Canada, Germany, Belgium, Great Britain, Italy, Greece, Spain and Israel. Success in this trial would open therapeutic strategies for other inflammatory and fibrotic disorders.
• Confirm the efficacy of GKT831 for fibrosis and inflammation in a kidney disorder. The Company concluded an agreement for a Phase 2 clinical trial to evaluate the efficacy and safety of GKT831 for a period of 48 weeks with the Baker Heart and Diabetes Institute of Melbourne, in Australia, in patients with type 1 diabetes and kidney disease. This study is being lead by the Baker Institute. It is financially supported by the Juvenile Diabetes Research Foundation of Australia (JDRF Australia), beneficiary of the Australian Research Council fund dedicated to the Special Research Initiative for Type 1 Juvenile Diabetes, with financial support of the Baker Institute. Patient randomization is underway and a total of 142 patients are targeted for enrollment in up to 15 centers in Australia.
• Conduct the Phase 1 clinical trial to confirm the positive safety profile and demonstrate the pharmacological activity of GKT771. The second most advanced product candidate, GKT771, is a selective inhibitor of NOX1 with anti-inflammatory, anti-angiogenic and analgesic effects, three major components in many rheumatic, cutaneous, and ophthalmic inflammatory disorders and in various types of inflammatory pain. Genkyotex is currently conducting
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preclinical studies to define high-priority clinical indications. In 2018, Genkyotex will be able to submit a regulatory application to obtain authorization to begin the first Phase 1 clinical trial.
• Promote the Company’s NOX platform by conducting further exploratory preclinical research programs. Genkyotex also plans to conduct NOX exploratory preclinical research programs in connection with hearing loss, disorders of the central nervous system and oncology.
• Continue the partnership with the Serum Institute for Vaxiclase and promote the rights held by the Company under this license agreement. The Company plans to continue its partnership with the Serum Institute and to promote Vaxiclase to third parties in the regions (Europe, United States) excluded from the license agreement with the Serum Institute.
6.2. NOX INHIBITION: A NEW AND COMPLEX THERAPEUTIC APPROACH
To date, no NOX inhibitor has been approved by a regulatory authority. The Company’s objective is to identify and obtain authorization for selective inhibitors of NOX isoforms involved in target disorders, in order to obtain an optimal efficacy and safety profile to treat these specific disorders.
NOX enzymes are highly complex biological systems. The identification and development of selective inhibitors therefore require a highly sophisticated technological platform. Since the creation of Genkyotex in 2006, the Company has been a pioneer in this area, relying initially on the scientific knowledge of its founders, whose research teams discovered and characterized the majority of NOX enzymes.
Preclinical studies conducted with NOX inhibitors generated by Genkyotex seem to confirm the role of NOXs in important biological pathways such as fibrosis, inflammation, angiogenesis and tumor growth. These data were generated in collaboration with renowned academic groups and have been published in leading scientific journals, with more than 50 publications to date (see Section 6.14).
The published scientific data suggest in particular that NOX1 and NOX4 isoforms could play a predominant role in the development of inflammatory and fibrotic processes.
6.2.1. Genkyotex’s proprietary NOX platform
Assay complexity
The development of a platform enabling the development of NOX inhibitors is particularly complex. It is currently very difficult, if not impossible, to apply rational drug design to the development of NOX inhibitors, for the following reasons:
- NOXs are 6-helix transmembrane proteins and are therefore very difficult to crystallize, a necessary step for the development of a high-definition tridimensional model;
- It is therefore impossible to correctly model the transmembrane structure of NOXs and extremely difficult to extrapolate the binding format of NADPH; and
- the structure of NOXs is unique, therefore we cannot use a similar crystalline structure as a basis (e.g., modeling of 7TM from bacteriorhodopsin).
It is currently not possible to carry out binding studies. The two NOX substrates, i.e., molecular oxygen and NADPH, are reduced as they interact with NOX enzymes and the resulting product no longer has
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sufficient affinity for the enzyme and is released. To date, it has not been possible to synthesize a radioactive NADPH moiety which is not reduced (e.g., GTPgS which is not hydrolyzed and which remains linked to the subunit of the G protein). Also impossible is the radiolabeling of a ligand of NOXs, as these ligands, apart from those of Genkyotex, do not exist.
The high-throughput screening of molecules is therefore based on a functional test which assesses the inhibitory activity of the candidate molecules on the enzymatic activity of NOXs. These functional tests assess the production of reactive oxygen species (enzymatic products) and the consumption of oxygen and NADPH (enzymatic substrates).
To conduct these enzymatic studies, the Company first had to express each NOX isoform together with its subunits in cells lacking endogenous NOX expression, in order to be certain of the activity measured. Then, it had to express the enzymes at a rather high rate to be able to measure ROS levels (reactive oxygen species). At the same time however, high ROS production kills cells. To overcome this connendrum, the Company constitutively expressed all the necessary subunits in the cells and the catalytic subunit (NOX1-NOX5) was inducibly expressed using tetracycline. In other words, for the chosen isoform to be expressed, cells need to be treated with tetracycline.
The second challenge was to measure ROS in a robust fashion and with high throughput. ROS are highly reactive species with a very short lifespan. Furthermore, the existing ROS detection probes are not yet specific enough for one ROS and may be subject to artefacts. For this, Genkyotex has created a battery of assays with different probes which can be used at high throughput. The Company also developed probe-independent methods which can be used in low throughput format. These tests assess the consumption of molecular oxygen and NADPH, which are the two natural substrates in NOXs.
Cell and membrane-based NADPH oxidase assays
For each NOX isoform, it is currently possible to measure the inhibition of ROS molecules produced by the cells. Accordingly, in order to minimize off-target effects (e.g. inhibition of an enzyme upstream or downstream of the NOXs), Genkyotex developed a membrane assay for each NOX isoform. For this purpose, highly purified membrane preparations were created from each cell line overexpressing the NOX isoforms. These membranes contain the p22 protein and the catalytic subunit (i.e., the NOX isoform). For the NOX1, NOX2 and NOX3 isoforms, the subunits required for their activity were added. These subunits were produced recombinantly in bacteria and highly purified. To the best of the Company’s knowledge, Genkyotex is the only company to have the full NOX battery of tests, including both membrane and cellular systems. The best molecules identified in the membrane tests are also tested in our cells overexpressing the desired isoform. Moreover, as mentioned above, various probes were used, both on the membrane and on entire cells.
Lastly, the candidate molecules for in vivo tests were also tested on cells expressing NOX endogenously and which are related to each of the disorders of interest to the Company.
Negative controls and counter screening trials
To eliminate false positives, the Company has also developed a full battery of tests capable of identifying antioxidants, ROS scavengers and inhibitors of flavoproteins in general. First, to eliminate antioxidants and ROS scavengers, the reduction of DPPH was measured. This molecule is capable of identifying hydrogen donors, i.e., molecules with antioxidant capacity. The Company has also developed a xanthine oxidase assay and a glucose oxidase assay. These two enzymes are also oxidases, which function in a very similar way to NOXs, i.e., production (albeit at a lesser extent) of superoxide and hydrogen peroxide from molecular oxygen. The activity of these two enzymes was measured using the same sensors as those used for the NOX assays. This battery of tests was therefore used to
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eliminate molecules acting mainly via an antioxidant mechanism or through general inhibitors of flavoproteins. Other assays allow for the elimination of other sources of artefacts, such as the direct inhibition of enzymes involved in our ROS detection systems.
6.3. CLINICAL DEVELOPMENT PLAN FOR GKT831
Genkyotex’s most advanced compound is GKT831, a NOX1 and NOX4 inhibitor. These two NOX isoforms play an important role in the development and maintenance of inflammatory and fibrotic disorders. As described below, GKT831 is being evaluated in patients suffering from PBC and in diabetic patients with renal impairment.
Following encouraging preclinical and clinical results, Genkyotex’s objective is to expand the assessment of GKT831 in fibrotic disorders for which an optimal study protocol could be carried out.
6.3.1. Strategic therapeutic area for GKT831: Fibrosing disorders
The preclinical studies conducted to date indicate that GKT831 has direct anti-inflammatory and anti-fibrotic effects. Its anti-inflammatory effects include a reduction in the expression of cytokines, chemokines and adhesion molecules and a reduction in the infiltration of inflammatory cells. Its anti-fibrotic effects include a reduction in the activation of myofibroblasts, the main cellular source of extracellular matrix. These anti-fibrotic effects seem to be due to direct action as they can be reproduced in myofibroblasts cultivated in vitro. These anti-inflammatory and anti-fibrotic properties could be particularly useful in fibrotic disorders in different organs. These disorders are generally due to genetic and environmental factors which cause the parenchymatous cells to suffer, in turn triggering an inflammatory response. The development of fibrosis (i.e., fibrogenesis) then appears as an initially favorable response to cell and tissue damage, but over time, fibrosis contributes to the gradual and often irreversible loss of function of the organs involved. It is estimated that fibrosis contributes to about 45% of deaths in industrialized countries (Wynn T.A, Nature Rev Immunol 2004 Aug; 4(8):583-94; Mehal WZ, Nature Med 2011 May; 17(5):552-3). However, no anti-fibrotic therapy has been approved to date.
Fibrotic disorders include lung diseases such as idiopathic pulmonary fibrosis, skin conditions such as scleroderma and liver diseases of viral, metabolic, cholestatic or immunological origin. Fibrosis also plays a part in renal diseases, such as diabetic nephropathy and focal segmental glomerulosclerosis. Considerable progress has been made in the understanding of fibrogenic mechanisms in recent years. The cellular origin of components of the extracellular matrix and the biological pathways involved in this process are better understood. It emerges that fibrogenesis represents a highly complex process involving a myriad of mediators and interconnected cell types. It also emerges that certain biological pathways play a central role and have the capacity to modulate the gene networks and proteins involved in fibrogenesis. The activation of NOXs therefore seems to represent a major biological pathway, necessary for the action of multiple fibrogenic pathways.
The preclinical studies completed to date with GKT831 seem to confirm this theory, as they have revealed GKT831’s efficacy potential in hepatic, pulmonary and renal fibrosing disorders (see Section Error! Reference source not found. below). The Company’s objective is therefore to assess the therapeutic potential of GKT831 in fibrosing disorders for which there is a significant medical need.
6.3.2. Clinical trials completed on GKT831
The Phase 1 clinical trials conducted in healthy subjects indicated a positive safety profile and good oral bioavailability. These studies also indicated that GKT831 can be administered with meals and is unlikely to induce drug interactions. Finally, the Phase 1 repeated dose study, conducted in the form of a double-blind placebo-controlled study, also provided the first indications of pharmacodynamic activity.
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GKT831 was then assessed in patients with diabetic nephropathy. This international study, conducted in 75 research sites in North America, Europe and Australia, enrolled 155 patients, 136 of whom were randomized and treated with GKT831 or a placebo. The primary efficacy endpoint, a decrease in proteinuria, was not achieved. As described in Section 6.7.2 below, the lack of efficacy in the primary efficacy endpoint could be linked to several factors, including the short duration of the treatment (12 weeks), an insufficient dose, the already intensive medical treatment of these patients or possibly the lack of induction of NOXs in this population. GKT831 did, however, achieve a statistically significant reduction in the plasma concentrations of several markers of inflammation and hepatocyte damage (e.g., hsCRP, GGT).
These results, obtained on those secondary efficacy endpoints predefined in the study protocol, suggest that GKT831 is active in humans. Moreover, the safety profile of GKT831 was shown to be particularly positive, as described in Section 6.7.1 below. This positive safety profile allows for the assessment of GKT831 at higher doses and over a longer treatment period.
6.3.3. Continuation of the clinical assessment of GKT831 in fibrosing disorders of the liver
Following these encouraging results, the Company’s objective is to extend the assessment of GKT831 in fibrotic disorders for which an optimal study protocol could be carried out. Of the various fibrotic disorders, liver diseases represent potential therapeutic targets. GKT831 has generated beneficial effects, particularly anti-inflammatory and anti-fibrotic, in several preclinical models (see Section 6.7.2). Recent publications have also confirmed the induction of NOX1 and/or NOX4 in patients suffering from hepatic fibrosis. Moreover, GKT831 is metabolized in the liver and eliminated by the biliary tracts, accumulating in the liver tissue at a rate that is three to five times greater than that in other organs. This favorable tissue distribution allows for good exposure of the target tissues while minimizing systemic exposure. Inflammatory and fibrotic disorders of the liver include the following illnesses:
• Chronic cholestatic disorders such as primary biliary cholangitis and primary sclerosing cholangitis;
• Metabolic disorders such as non-alcoholic steatohepatitis (NASH);
• Viral disorders such as hepatitis B and C virus;
• Autoimmune hepatitis;
• Chronic alcoholic hepatitis.
6.3.4. Launch of a study in fibrosis and diabetic kidney disease (DKD)
In June 2017, the Company concluded an agreement with the Baker Heart and Diabetes Institute of Melbourne, Australia (the “Baker Institute”) for a Phase 2, 48-week clinical trial, led by the Baker Institute, to evaluate the efficacy and safety of GKT831 in patients with type 1 diabetes and kidney disease. This investigator-initiated study will be carried out at the Baker Institute as well as in multiple study sites across Australia. It is to be wholly financed by the Juvenile Diabetes Research Foundation (JDRF Australia), which is a beneficiary of funding from the Australian Research Council Special Research Initiative in Type 1 Juvenile Diabetes.
Diabetic kidney disease (DKD) is a fibrotic disorder where progressive glomerulosclerosis and interstitial fibrosis lead to end stage kidney disease. GKT831 is a NOX1 and NOX4 enzyme inhibitor that has shown potent anti-fibrotic activity in a broad range of preclinical models, including several DKD models [1-4]. In a previous, short-term Phase 2 trial in patients with type 2 diabetes and kidney disease, GKT831 demonstrated an excellent safety profile and achieved statistically significant reductions in several secondary efficacy endpoints. However, improvements in albuminuria, the study’s primary endpoint, was not achieved after twelve weeks of treatment.
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The Baker Institute study is a placebo-controlled, double blind, randomized, parallel group Phase 2 trial to evaluate the effect of oral GKT831 on the urine albumin-to-creatinine ratio (UACR) in patients with type 1 diabetes and persistent albuminuria despite treatment with optimal standard of care. The primary endpoint of the study is the difference between the UACR of the various patient groups at the end of the 48-week treatment period, adjusted for baseline values. Other secondary evaluation criteria used for this study will help to assess the effect of GKT831 on kidney function (estimated glomerular filtration rate (eGFR)). Blood samples are also taken to evaluate kidney damage markers (KIM-1, NGAL) and to conduct metabolic and transcriptomics analyses. Patients are receiving 200 mg of oral GKT831 or placebo twice a day for 48 weeks. As of the date of the Registration Document, patient randomization is underway; in total, approximately 142 patients are expected to participate in this study at up to 15 research centers in Australia.
6.4. OVERVIEW OF PBC AND ITS MARKET
6.4.1. Overview of PBC
Primary biliary cholangitis (PBC) is a rare chronic auto-immune illness which affects the liver. If not treated correctly, it can lead to cirrhosis, liver failure and death. PBC largely affects women (90%) and ranks as the second most common cause of liver transplants in women in the United States.
The clinical diagnosis of the illness is based on a combination of clinical signs, biochemical anomalies of the liver related to cholestasis and persisting more than six months, and on the presence of antimitochondrial antibodies (AMA). A liver biopsy is sometimes carried out to confirm the diagnosis.
Bile, which contains bile acids, plays a key role in the solubilization of dietary fats. However, these bile acids have detergent properties making them toxic for cells and their lipid membrane. In PBC, the progressive autoimmune destruction of the bile ducts causes bile acids to accumulate in the bile ducts and in the liver, causing cell damage and a chronic inflammatory response. An attempt to repair the tissue is then triggered in the form of hepatic fibrosis.
The first symptoms of PBC typically appear between the ages of 30 and 65 with a higher incidence above the age of 50. The progression of the illness varies considerably from patient to patient, with the average survival rate of patients treated varying by 7.5 years if the symptoms of the illness are observed at diagnosis and by 16 years if the symptoms are not identified at diagnosis.
However, in the long term, this fibrosing response causes a gradual decrease in liver function and raises blood pressure in the portal venous system, which brings blood to the liver (portal hypertension). This liver failure reduces the synthetic capacity of the liver, which can cause a reduction in coagulation factors resulting in a hemorrhagic tendency, and/or plasma proteins, which results in peripheral and intra-abdominal edema (ascites). This liver failure also causes the retention of neurotoxic substances, which can lead to hepatic encephalopathy. Portal hypertension leads to the appearance of esophageal varices, which are the cause of severe digestive hemorrhages. A liver transplant is ultimately needed to prevent death from the condition.
Patients suffering from PBC also have a significantly higher incidence of hepatocellular carcinoma, a particularly aggressive form of cancer. PBC is often connected to other auto-immune illnesses such as Sjögren’s syndrome, scleroderma, Raynaud’s disease and CREST syndrome.
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Although some people suffering from primary biliary cholangitis do not have any apparent symptoms years after their diagnosis, others display a certain number of signs and symptoms.
The first common symptoms are:
• Fatigue;
• Pruritus (itching);
• Xerostomia and xerophthalmia (dry eyes and mouth).
Subsequent signs and symptoms may include:
• Pain in the upper right portion of the abdomen;
• Musculoskeletal pain;
• Jaundice;
• Ascites;
• Cutaneous fat deposits around the eyes and eyelids, or in the creases of the palms, soles of the feet, elbows or knees (xanthelasma);
• Osteoporosis that can lead to bone fractures;
• Higher blood fats;
• Diarrhea (steatorrhea);
• Thyroid problems.
6.4.2. The PBC market
Primary biliary cholangitis (PBC) is a chronic rare disease characterized by an inflammation and progressive destruction of the interlobular bile ducts, with prevalence in Europe, the United States and Japan estimated at between 1.91 and 40.2 per 100,000 inhabitants (Boonstra K. et al., Epidemiology of primary sclerosing cholangitis and primary biliary cirrhosis: a systematic review. J Hepatol. 2012 May; 56(5):1181-8). This variability is due to the small size of series published.
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It does, however, appear that the disease is becoming more prevalent over time. A growing incidence has been noted in Europe, the United States and Japan. This is probably due to a better understanding of the disease and the routine use of new diagnostic equipment such as the detection of antimitochondrial antibodies.
There is a considerable medical need for this illness for which only two drugs have been approved:
• Ursodeoxycholic acid (UDCA), approved specifically for the treatment of PBC, is marketed in the form of a generic drug under the name Ursodiol. It is a bile acid present in small quantities in the human body and whose mechanism of action, in therapeutic doses, is to dilute bile acids more detergent than itself that are present in the liver. Long-term treatment using UDCA improves biochemical liver tests, slows down histological progression and extends survival without liver transplant. Monotherapy using UDCA seems to be sufficient for many patients. However, the survival rate without transplant of patients treated using UDCA remains significantly lower than that of a matching control population based on age and gender. Studies have also shown that between 40% and 50% of patients suffering from PBC do not respond properly to UDCA in monotherapy and therefore remain, despite the treatment, exposed to a high risk of liver failure with the only alternative being a liver transplant. The dosage of the drug, with several daily doses having to be administered, ultimately relieves therapeutic observance problems for certain patients.
• In May 2016, obeticholic acid (OCA), developed by Intercept Pharmaceuticals, obtained an accelerated marketing authorization for the US market from the FDA as an orphan drug for the treatment of PBC, in combination with UDCA, for adults with an insufficient response to UDCA or as monotherapy for patients who did not tolerate UDCA. In December 2016, it also received conditional marketing authorization (MA) from the EMA for the European Union for the treatment of PBC. This drug was first marketed under the name Ocaliva by Intercept Pharmaceuticals, not long after its authorization by the FDA in the United States. The same company also announced the launch of sales in Europe starting in January 2017 and the filing of reimbursement dossiers with several countries in the European Union. The annual cost of treatment per patient is approximately US$70,000 in the United States (Cassidy et al., Nat Rev Drug Discov, 2016), and Intercept Pharmaceuticals reported sales of Ocaliva totaling US$129.2 million for the financial year ending December 31, 2017. In accordance with the post-marketing requirements of the accelerated authorization procedure in the United States and the conditional marketing authorization received from the EMA, Intercept Pharmaceuticals is currently conducting a confirmatory Phase 4 clinical trial of Ocaliva for PBC (Cobalt trial currently at recruitment stage) to confirm and characterize the clinical benefits of the drug with a view to its final authorization.
As a result, there is an ongoing need for new therapeutic options in PBC, as is the case for patients suffering from primary sclerosing cholangitis (PSC).
6.4.3. Key players and molecules under development for PBC
A sample of the main products currently under development for PBC is as follows:
Companies Molecule Mechanism of action
Clinical/marketing stage
Intercept Pharmaceuticals
Genfit
CymaBay
OCA
Elafibranor
MBX-8025
FXR
PPARα
PPAR
Approved (NDA)
Phase 2
Phase 2
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Companies Molecule Mechanism of action
Clinical/marketing stage
Novartis
Fast Forward
LJN452
FFP104
FXR
CD40
Phase 2
Phase 1/2
6.5. OVERVIEW OF NASH AND ITS MARKET
Genkyotex believes that GKT831 also has the potential to directly target fibrogenic processes in patients with another liver disease, namely, non-alcoholic steatohepatitis (NASH). Although there has been no plan or authorization to date for any decision to launch or draft a timetable for the launch of such a trial, this indication could be the subject of a future clinical trial with GKT831.
6.5.1. NASH
Non-alcoholic steatohepatitis (NASH), the hepatic component of metabolic syndrome, covers a variety of illnesses ranging from simple steatosis of the liver to NASH with or without cirrhosis, and hepatocellular carcinoma.
The obesity and type 2 diabetes pandemic, together with improvements in the treatment of chronic viral hepatitis have caused NASH to become the main factor in chronic liver disease, making it the most common cause of liver transplants in 2016 (Banini BA, et al. Abstract #46. Presented at the American College of Gastroenterology Annual Scientific Meeting; Oct. 14-19, 2016; Las Vegas, NV, USA).
More generally, liver cirrhosis is the sixth most common cause of death in developed countries and the ninth in developing countries (Lim YS1, Kim WR. The global impact of hepatic fibrosis and end-stage liver disease; ClinLiver Dis. 2008 Nov; 12(4):733-46).
For reasons that are not yet fully understood, in patients suffering from NASH, steatosis and other factors such as resistance to insulin result in chronic inflammation of the liver and can cause progressive fibrosis and cirrhosis. These pathological processes can cause liver failure and possibly death.
To date, no drug has been approved for the treatment of NASH. The medical need is therefore considerable. However, various therapeutic agents are used off-label, such as vitamin E (an antioxidant), insulin sensitizers (such as metformin), hypolipemiant agents (such as gemfibrozil) and pentoxifylline. Changes in lifestyle, including change of diet and exercise to reduce body weight, and the concurrent treatment of diabetes and dyslipidemia, are commonly accepted components of the standard treatment, but their efficacy has not been convincingly demonstrated in NASH. Histologically, NASH is defined as the presence of hepatic steatosis and inflammation with hepatocyte damage (ballooning), with or without fibrosis. Normally, NASH causes few or no symptoms during the early stages. It is therefore a relatively silent disease until the onset of liver failure, hepatocellular carcinoma, or the development of portal hypertension. Although the presence of simple hepatic steatosis has little impact on mortality of hepatic cause, it does trigger inflammatory and fibrotic processes. It is the presence of hepatic fibrosis that reduces the survival rate of NASH patients.
Hence the importance of identifying new therapeutic strategies to prevent, slow down or reverse hepatic fibrosis. However, most treatments available primarily target the mechanisms responsible for hepatic steatosis.
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In theory, the elimination of steatosis should, over time, induce a regression in fibrotic processes. However, fibrogenesis is a complex process, its causes go far beyond simple steatosis. The presence of a resistance to insulin, the activation of the renin–angiotensin system, the exposure of hepatocytes to bacterial products of enteric origin and genetic factors also play a part in fibrogenic processes. Moreover, patients presenting an advanced stage of fibrosis (F2-F3 (significant to severe fibrosis)) have a risk of developing serious liver complications, particularly cirrhosis and hepatocellular carcinoma.
Different stages in the development of fibrosis
It is therefore important to develop new drugs capable of targeting these fibrotic processes directly and effectively. Such therapies could be used as a first-line treatment, or in conjunction with drugs targeting the metabolic causes of NASH.
Genkyotex believes that GKT831 has the potential to directly target fibrogenic processes in patients with NASH.
6.5.2. The NASH market
There are currently no treatments for NASH on the market and medical prescriptions are based on drugs with no proven efficacy in patients suffering from NASH and are therefore used off label. In most cases, these are drugs prescribed to control type 2 diabetes or hypercholesterolemia.
Against the backdrop of an increasing number of diabetes cases, patients suffering from hypertension and increasing obesity, the prevalence of NASH is expected to rise sharply in the next 10 years. New therapeutic solutions that are specifically approved for this indication are also expected to arrive on the market. In particular, these include many ongoing Phase 3 studies such as those on obeticholic acid by Intercept Pharmaceuticals and PPARα/δ agonist by Genfit. The increased prevalence of this disorder in connection with the arrival on the market of therapies specially approved for NASH suggests a strong increase in the market.
Although it is difficult to estimate the size of the NASH market in the absence of an approved drug to date, on the basis of several studies, the prevalence of the illness (estimated at between 3% and 12% in the United States according to sources (source: NIH, Spengler and Loomba, Mayo Clin Proc)) and the estimated price for the potential marketing of drugs, this global market has been valued at between US$30 and 40 billion per year.
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A sample of the main products currently under development for NASH is listed in the table below:
Companies Molecule Mechanism of action Clinical stage
Intercept
Genfit
Galmed
Novo
Conatus
Gilead
Gilead (Phenex)
Gilead (Nimbus)
OCA
GFT505
Aramchol
Liraglutide
Emricasan
GS-4997
PX-104
NDI-010976
FXR
PPAR
Bile acid conjugate
GLP-1
Caspase
Ask-1
FXR
FAAH
3
3
2
2
2
2
1
2
Novartis LJN452 & LMB763 FXR 2
Allergan (Tobira)
Inventiva Pharma
Cenicriviroc (TBR-652)
IVA337
Dual antagonist CCR2 / CCR5
PPAR
2
2
Table 1: Key players and molecules under development for NASH.
6.6. PRECLINICAL CHARACTERISTICS AND RESULTS FOR GKT831
6.6.1. Stages of development
6.6.1.1. High throughput screening of 150,000 molecules and identification of the chemical series
In 2006, Genkyotex launched a high-throughput screening campaign on a library of 150,000 molecules. This screening in miniaturized NOX assays helped to identify positive molecules based on a Z score, before launching a molecule optimization program for a period of around 18 months.
The positive molecules were tested again at Genkyotex in membrane assays on NOX1 and NOX4, and only the reconfirmed molecules were then tested at several concentrations to determine an IC50. In order to eliminate potential false positives and particularly antioxidant potential, positive molecules were tested in a xanthine oxidase assay.
Several chemical series were identified and the pyrazolopyridine series that GKT831 comes from was selected as the basis for optimization. This chemical series showed promising affinity with NOX at micromolar levels and also showed a good relationship between the chemical structure and activity (Structure Activity Relationship, or SAR) on NOXs and promising ADME (Absorption, Distribution, Metabolism, Elimination) properties.
i. Optimization of the chemical series and identification of GKT831
During the 18 months of optimization of the chemical series, over 700 molecules were synthesized, allowing the identification of GKT000239, GKT901 and GKT831. This optimization helped to considerably improve the affinity of molecules for NOXs, from an affinity of around 10 micromolars to less than 100nM for the best molecules. A better understanding of the SAR also enabled an improvement in the ADME properties of the molecules tested and in the pharmacokinetics of the molecules and therefore their efficacy in vivo.
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During the optimization period, the synthesized molecules were tested in all of the NOX assays developed by Genkyotex (NOX1, NOX2, NOX3, NOX4 and NOX5) to establish their complete selectivity profile and to only develop the most selective molecules for NOX1 and NOX4.
At the end of the 18-month optimization period, three potential preclinical candidates were tested in a preliminary toxicity study in rats and in genotoxicity studies to only select the molecule presenting the best safety profile.
All this information contributed to GKT831’s selection as a preclinical candidate, thereby demonstrating Genkyotex’s ability to conduct high-throughput screening, followed by an optimization campaign to the standards of the pharmaceutical industry.
ii. Physico-chemical characteristics of GKT831
GKT831 is a small organic molecule with low molecular weight (394.85 g/mol) from the pyrazolopyridine dione family. GKT831 is the most successful molecule from this chemical class and was the first NOX inhibitor administered to humans.
The chemical structure of GKT831 is shown in the table below:
The physico-chemical characteristics of GKT831 are summarized in the table below:
Parameters Characteristics
Lipinski’s rule Appearance Hygroscopicity Solubility in water
Large-scale synthesis Stability
Compliance with rules (<5 hydrogen bond donor, <10 hydrogen bond acceptor, MW<500 daltons, log P<5) Pale yellow powder Non-hygroscopic polymorph Moderate water solubility at pH 7 (0.3 mg/mL), water solubility at pH 1.0 (30 mg/mL), soluble in methanol, ethanol and acetonitrile GMP batch up to 60 kg Stability data validated for over 36 months
iii. Pharmacology of GKT831
This molecule is a preferential inhibitor of NOX1 and NOX4 isoforms. Indeed, GKT831 shows an affinity in isolated and purified membrane assays of 90 mM for NOX4 and 150 mM for NOX1, compared with an affinity in the region of 350 mM for NOX3 and NOX5 and over 2 uM for NOX2. GKT831 has also been tested in cellular assays in cells overexpressing each NOX isoform. These have shown an IC50 in the order of 150 nM on NOX4, of around 210 nM for NOX1, in the region of 500 nM for NOX3 and
NN
NH
O
O
Cl
N
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NOX5 and finally of over 2 µM for NOX2. The table below summarizes the inhibitory constant (Ki) of GKT831 on human NOX enzymes.
NOX isoform Ki (µM) Study no.
NOX1 0.150 0.02 GSN000050
NOX2 2.13 0.21 GSN000006
NOX3 0.36 0.15 GSN000264
NOX4 0.09 0.01 GSN000005
NOX5 0.325 0.04 GSN000023
Figure 1: Affinity (Ki) of GKT831 on isolated human NOX enzymes
To demonstrate that GKT831 selectively inhibits the production of ROS via NOXs, GKT831 was tested in two assays of Phase 1, also producing ROS by other enzymatic methods. These consist of xanthine oxidase and glucose oxidase assays. In the xanthine oxidase assay, GKT831 was found inactive with a Ki of over 100 µM, while GKT831 inhibits glucose oxidase with a Ki of 1.7 µM, demonstrating its excellent selectivity for NOXs, compared to other oxidases. It is, however, important to note that GKT831 is a weak electron donor (antioxidant activity) as it reduces DPPH (1,1-Diphenyl-2-picryl-hydrazyl) with an IC50 of 20µM, in other words, at a significantly lower inhibitory constant than that of its NOX inhibition activity.
Two metabolites that are very similar structurally to GKT831 were identified, synthesized and subjected to the same pharmacological tests as GKT831, in order to establish their pharmacology. This involved GKT137184, corresponding to a Phase 1 N-monodemethylation, and GKT137185, corresponding to an N-didemethylation. These two metabolites therefore display a strictly similar activity, affinity and selectivity profile to that of GKT831, hence also contributing to the activity of GKT831.
GKT831 is a specific inhibitor of NOXs as it displayed virtually no affinity on a vast panel of other enzymes, kinases and receptors.
As mentioned above, it was important to verify that GKT831 did not affect the phagocytic function linked to NOX2. GKT831 (25 and 100 µM) does not affect the potential of isolated human phagocytes stimulated by phorbol ester and does not reduce their ability to destroy the Staphylococcus aureus bacteria in vitro. Nor does GKT831 administered over a period of 25 days at a dose of 100 mg/kg/j affect mice’s capacity to successfully kill these Staphylococcus aureus and to effectively reduce the inflammation they induce in vivo.
iv. Mechanism of action: In vitro and in vivo data of GKT831
i.Effect of GKT831 on inflammation and hepatic fibrosis, steatosis and cholestasis models
Effect of GKT831 on a hepatic fibrosis model induced by a toxic agent
To induce hepatic fibrosis, C57BL/6J male mice received repeated intraperitoneal injections of the toxic agent carbon tetrachloride (CCL4) over a six-week period. This study was published in the Journal of Hepatology by Professor David Brenner’s group at the University of California, San Diego.
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In an initial study, mice with a mutated SOD (superoxide dismutase) gene and control mice received injections of CCL4 or a harmless vehicle. The theory was that this specific mutation of SOD, present in a small proportion of patients suffering from amyotrophic lateral sclerosis, induced a physical interaction between SOD and NOX1 and induces the production of ROS by NOX1. This model therefore offered a good experimental system for testing a NOX1 inhibitor. After six weeks of repeated CCL4 injections, acute liver inflammation associated with fibrosis was observed. As expected, the level of inflammation and fibrosis was significantly higher in mice with the mutant form of SOD. GKT831 at a dose of 60 mg/kg per day by oral means for the final three weeks of induction of the liver disorder (therapeutic mode) significantly reduced hepatocellular damage as well as inflammation and hepatic fibrosis. It is important to note that GKT831 also reduced inflammation and fibrosis in the normal mice exposed to CCL4 (Figure 2).
Figure 2: Effect of GKT831 (NOX1/4 inhibitor) on fibrosis deposition in a mouse model with hepatic fibrosis induced by repeated injections of CCL4
Mechanistic research was also conducted in vitro. The main fibrogenic mechanism is the activation of hepatic stellate cells (HSC) by TGF-β and angiotensin 2, to induce the transdifferentiation of these HSC in active myofibroblasts. The co-treatment of these cells with 20 µM of GKT831 prevented the induction of fibrogenic and pro-inflammatory genes.
A second study, also conducted by Professor Brenner and his colleagues, provided a clearer definition of the respective roles of NOX1 and NOX4 in this model. Mice presenting a deletion of NOX1 (NOX1 KO) or NOX4 (NOX4 KO) genes and control mice were given repeated injections of CCL4 for six weeks. As expected, the control mice showed a significant elevation of transaminases and an increase in hepatic fibrosis markers, both in terms of expression of the genes involved in fibrotic pathways and in fibrosis quantification. The severity of this inflammatory and fibrotic phenomenon was significantly reduced in both the NOX1 KO and NOX4 KO mice, suggesting an individual role for each of these two NOX isoforms in the induction of inflammatory and fibrotic processes in hepatic disorders. This probably explains GKT831’s marked efficacy in a vast series of inflammation and hepatic fibrosis models (Figure 3).
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Figure 3: Beneficial effect of the loss of NOX1 and NOX4 on various fibrosis markers in a mouse model with hepatic fibrosis induced by repeated injections of CCL4.
Besides TGF-β and angiotensin 2, multiple pro-inflammatory and fibrogenic signaling pathways had been described. As a result, HSCs were stimulated with ligands inducing the TLR4, Hedgehog and PDGF pathways. Specific reporter genes were used to assess the activation of these biological pathways. GKT831 was able to block these pro-inflammatory and fibrogenic pathways.
Viewed collectively, these results illustrate the capacity of GKT831 to simultaneously block multiple pathogenic biological pathways and validate its NOX1/4 selectivity profile.
Effect of GKT831 in a steatosis and hepatic fibrosis model induced by a high-calorie diet
In an initial study conducted by Professor Natalie Torok’s group at the University of California, Davis, C57BL/6J male mice were fed a high calorie diet for between 12 and 20 weeks to induce hepatic steatosis and secondary inflammation and fibrosis. These mice were treated therapeutically with 60 mg/kg per day of GKT831 orally, or with an inactive vehicle, for six weeks. To confirm the pharmacological approach with a genetic approach, a lineage of mice was produced to eliminate the NOX4 gene in hepatocytes (NOX4 hepKO).
Control mice receiving the high-calorie diet showed a significant increase in hepatic enzymes and the expression of genes involved in inflammatory and fibrogenic pathways. These phenomena were accompanied by an increase in the number of inflammatory cells recruited in the liver, an increased proportion of hepatocytes that had initiated a programmed cell death process and an increase in the quantity of collagen found in the liver tissue. In contrast, in the NOX4 hepKO mice and in mice treated with GKT831, it was possible to observe a significant reduction in transaminases, severe tissue inflammation and cell death, as well as a significant reduction of collagen deposit in the liver (Figure 4).
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Figure 4: Effect of GKT831 on collagen deposits and expression of pro-fibrogenic genes in a mouse model with NASH induced by a high-calorie diet.
Tissue analysis for protein expression involved in the signaling pathways linked to stress and cell death reveals that the specific deletion of NOX4 in hepatocytes will prevent the activation and phosphorylation of many kinases and proteins involved in the induction of cell death.
In the end, the mice put on a high-calorie diet presented lower tolerance to glucose and lower sensitivity to insulin. These two anomalies were also significantly reduced in the NOX4 hepKO mice and in the mice treated with GKT831, suggesting that NOX4 could play an important role in the onset of inflammation and hepatic fibrosis, and in insulin resistance.
A histological analysis also demonstrates that GKT831 does not seem to have any effect on steatosis, despite its considerable anti-inflammatory and anti-fibrotic effect. The mechanism of action of GKT831 therefore seems to be a direct effect on inflammation and fibrogenesis, as it is observed in HSC. This differs from the majority of products under development for NASH, most of which seem to primarily reduce steatosis and the associated lipotoxicity. GKT831 could therefore hold differentiated and especially useful therapeutic potential in patients presenting a more advanced form of NASH and established fibrosis. It is therefore also logical to suppose that GKT831 could be used to achieve powerful therapeutic effects in a large number of patients if it were used in conjunction with a metabolic approach such as PPAR or FXR agonists or even oral anti-diabetic drugs.
Effect of GKT831 on a hepatic fibrosis model induced by hepatic cholestasis
To assess the therapeutic potential of GKT831 in inflammatory and fibrotic disorders of cholestatic origin, the effect of GKT831 was assessed by Professor Natalie Torok’s group at the University of California, Davis, in a bile duct ligation model.
C57BL/6 mice underwent complete bile duct ligation to induce cholestasis. As described above, intra-hepatic accumulation of bile acids causes inflammation of the biliary ducts and hepatocytes. These inflammatory processes, in turn, activate fibrogenic signaling pathways in HSC; leading to the accumulation of collagen in liver tissue. Two additional groups of animals were treated with a daily oral dose of GKT831 (60 mg/kg), either preventively following the ligation of the biliary ducts and over the 3 weeks of the experiment, or therapeutically over the last 15 days of the experiment. Irrespective of whether this was carried out preventively or therapeutically, treatment with GKT831 significantly reduced plasma level of hepatic enzymes and bilirubin. On a local basis, it was possible to observe a significant decrease in the number of hepatocytes in cell death phase, collagen deposit and expression of fibrogenic genes in the liver tissue (Figure 5).
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Figure 5: Effect of GKT831 on the deposition of collagen and the expression of pro-fibrogenic genes in a mouse model with hepatic cholestasis induced by bile duct ligation.
To confirm the role of NOX4 in the induction of hepatocyte cell death and in HSC activation, hepatocytes and HSC were treated with Fas ligand in order to induce cell death. HSCs were spontaneously activated to acquire a fibrotic phenotype and the activation of genes involved in signaling pathways linked to fibrosis. Treatment with GKT831 at the concentration of 20 µM significantly reduces the death of hepatocytes and the activation of the genes involved in the activation of HSC, confirming the important role of NOX1 and NOX4 in the development of fibrosis in cholestatic disorders.
Taken together, the results of this study seem to suggest that treatment with GKT831 provides significant hepatocyte protection and reduces the activation of HSCs in primary and secondary cholestatic disorders of the liver.
ii.Effect of GKT831 on inflammation of the kidney and renal fibrosis models
Effect of GKT831 in a renal fibrosis model induced by diabetes in ApoE mice
Many detailed findings suggest that NOXs, in particular NOX1 and NOX4 (but also perhaps NOX5), play an important role in the development of diabetic complications and in particular, in diabetic nephropathy and arteriosclerosis. The Australian group led by Professors Mark Cooper and Karin Jandeleit-Dahm at the Baker IDI Institute of Melbourne, therefore systematically tested the respective roles of NOX1, NOX2 and NOX4 in these vascular and renal diabetic complications. It is important to note that diabetic nephropathy is a progressive fibrotic illness.
In order to induce these renal and vascular complications, mice deficient in alipoprotein E (ApoE-/-) are made diabetic, using an injection of streptozotocin a few days after birth. After 20 weeks of diabetes, these diabetic ApoE-/- mice develop severe proteinuria, accompanied by glomerulosclerosis as well as renal inflammation and fibrosis [71]. In this study, GKT831 was administered orally on a preventive basis at the dose of 60 mg/kg per day. The results indicate that GKT831 significantly reduces proteinuria, as well as inflammation and fibrogenesis markers (Figure 6).
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Figure 6: Effect of GKT831 on the level of urinary albumin after 10 and 20 weeks of diabetes induced by Streptozotocine in ApoE-/- mice.
Histological observations have confirmed the protective effect of GKT831 on the renal architecture by preventing the loss of the number of glomeruli in the renal cortex. Specific markings were used to show a significant decrease in proliferation markers, inflammatory markers and fibrosis markers confirmed by quantitative analysis.
In this same study, the extent of arteriosclerotic plaques, fibrotic and inflammatory vascular markers and the infiltration of inflammatory cells were also significantly revealed by GKT831 treatment. It is important to note that mice deficient in NOX1 were protected from vascular complications, while mice deficient in NOX4 were protected from renal complications.
These results illustrate the ability of these genetic systems to clarify the specific role of NOX isoforms in specific disorders and therefore, to validate the specific selectivity profile for relevant inhibitors. The renal results were published in the Journal of the American Society of Nephrology and the vascular findings were published in Circulation, the top-ranked publications in each of these therapeutic areas. An independent editorial was published in Circulation to illustrate the importance of these results.
In a second study, animals were left for 30 weeks with diabetes to induce a more severe phenotype in the control animals. GKT831 was administered therapeutically this time for 10 weeks, from week 20 to week 30. The same observations and the same positive results were found with GKT831.
Podocytes play a major role in the modulation of glomerular filtration and their destruction causes leakage of macromolecules, including plasma proteins in urine. Freshly isolated human podocytes were cultured with TGF-β, a growth factor activating signaling pathways of cell proliferation and fibrosis. Treatment of these cells with 10 µM of GKT831 blocked the production of ROS by these cells but also blocked the activation of many genes involved in cell proliferation and in fibrosis.
Effect of GKT831 in a renal fibrosis model in OVE26 mice:
To study the effect of GKT831 in a second diabetic nephropathy model, Professor Hanna Abboud’s group at the University of San Antonio used OVE26 mice. These are transgenic mice with type 1 diabetes from birth, which present rapidly progressing proteinuria associated with severe nephropathy. After 24 weeks of diabetes, control mice present a very high level of proteinuria, coupled with renal hypertrophy. Additional markers show a marked increase in the number of inflammatory cells in the cortex and medulla and an increase in fibrosis markers. Two additional groups of animals received an oral dose of 20 and 40 mg/kg of GKT831 per day therapeutically for 4 weeks, from week 20 to week 24. Treatment with GKT831 significantly reduces proteinuria and renal hypertrophy (Figure 7).
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Figure 7: Effect of GKT831 on the level of urinary albumin after 24 weeks of type 1 diabetes in OVE26 mice.
These improvements are associated with a significant reduction in the infiltration of inflammatory cells in renal tissue and a clear reduction in the level of renal fibrosis. This second study supports the theory that GKT831 has therapeutic potential in renal disorders associated with diabetes.
Effect of GKT831 in a renal fibrosis model in AKITA mice:
In this third diabetic nephropathy model, Professor Kumar Sharma’s group at the University of California, San Diego, used AKITA mice. These mice present a mutation on the Ins2 insulin gene inducing the development of insulin-dependent diabetes from birth. At the age of 28 weeks, the control mice developed exactly the same symptoms and the same characteristics as the OVE26 mice. Additional markers also revealed a significant increase in tissue hypoxia and an increase in the number of cells undergoing programmed cell death. Separately, preliminary studies conducted in patients with diabetic nephropathy indicated the existence of a mitochondrial dysfunction in the kidney, and Krebs cycle anomalies in particular. These anomalies include the inhibition of the fumarate hydratase enzyme, which processes fumarate. Recently, it was reported that fumarate could play an important role in fibrosis, in epigenetic modifications and in tumorigenesis. This inhibition leads to the accumulation of fumarate in urine, which is a relevant biomarker.
Two groups of mice also received therapeutic treatment for 16 weeks with GKT831 at doses of 30 and 60 mg/kg per day. As was the case in the OVE26 mice, mice treated with GKT831 showed a significant improvement in kidney damage and in the level of inflammation and renal fibrosis. Also observed was a significant reduction in the level of hypoxia in the kidney, associated with a reduction in the number of kidney cells undergoing programmed cell death. To a remarkable extent, GKT831 also corrected the metabolic anomalies in renal tissue and tended to normalize urinary fumarate (Figure 8).
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Figure 8: Effect of GKT831 on the level of urinary fumarate after 28 weeks of type 1 diabetes in AKITA mice.
Effects of GKT831 in oncology models:
Induction of NOX enzymes is a major component of the response to cellular stress. In hepatic disorders, such cellular stresses include viral infections, steatosis, alcohol, and the accumulation of bile acids. In cancer, cellular stresses include hypoxia (lack of oxygen), genomic instability, attacks by the immune system, and anticancer treatments. NOX enzymes are proteins whose genes are among the most commonly induced in many types of human tumors. Cancer cells also induce NOX expression in the cells that make up the tumor microenvironment. In this tumor microenvironment, NOX enzymes help to establish favorable conditions for the growth and local or remote spread of malignant tumors. For example, NOX enzymes participate in the induction of neo-vessels that are essential for tumor growth (i.e. tumor angiogenesis). In addition, growth factors produced by tumor cells, such as TGF-β, induce NOXs in fibroblasts present in the tumor microenvironment. These cancer-associated fibroblasts form a fibrous capsule in the tumor periphery. This fibrotic capsule – also called the “tumor stroma” – isolates and protects cancer cells from the immune cells that would detect and kill them. This effect is especially harmful in the context of anti-cancer immunotherapies that are designed to activate precisely those protective immune cells. Such immunotherapeutic treatments, e.g., anti-PD-1, anti-PDL1, and anti-CTLA4 antibodies, as well as therapeutic anti-cancer vaccines, represent the most significant therapeutic advance in the fight against cancer. Unfortunately, these treatments are only effective in 20-30% of patients (depending on the type of cancer). It is commonly understood that the presence of tumor stroma, limiting the infiltration of immune cells into the tumor, represents a major obstacle to the efficacy of immunotherapeutic treatments. Consequently, strategies to deactivate cancer-associated fibroblasts are being actively sought.
Professor Gareth Thomas and his team have demonstrated that NOX4 is significantly induced in many human cancers, and plays a major role in the activation of cancer-associated fibroblasts. In several in vitro and in vivo models, genetic or pharmacological inhibition of NOX4 has been shown to deactivate cancer-associated fibroblasts and delay tumor growth (Figure 9).
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Figure 9: Effect of GKT831 on aSMA expression (a cancer-associated fibroblast activation marker), and tumor growth in a mouse model of oropharyngeal cancer (5PT).
v. Preclinical toxicological data
The toxicological profile of GKT831 was assessed through an extensive panel of regulatory tests in rats and dogs. In rats, GKT831 was tested over a maximum period of 26 weeks and up to a dose of 1,000 mg/kg a day. The compound was extremely well tolerated in rats, which showed no clinical signs, resulting in a NOAEL (no-observed-adverse-effect-level) of 1,000 mg/kg/day.
Moreover, GKT831 was tested over a similar period of 26 weeks in dogs at the maximum dose of 500 mg/kg/day. The NOAEL allocated to this study was 150 mg/kg/day.
All the observations reported for this treatment were at very high doses and are summarized in the table below.
Type of changes
28-day study 13-week study 26-week study
300 mg/kg/d
1,000 mg/kg/d
100 mg/kg/d
750/500 mg/kg/d
150 mg/kg/d
500/300 mg/kg/d
ECG alteration X X (*)
TSH; T4 X X X
Follicular cell hypertrophy X X X
Red blood cells X X X
Bone marrow toxicity X (**)
(*) Only in weeks 1 and 4 (500 mg/kg/d), no signal in weeks 8, 13 and 26. (**) Non-regenerative anemia in a female (week 13).
A new study in dogs at 50, 150 and 300 mg/kg/day for up to 39 weeks showed no clinical signs, no alterations in biochemical or hematologic data, and no organ alterations. The NOAEL allocated to this study was 300 mg/kg/day.
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Two reproductive toxicity studies were also conducted in rabbits (300, 100, 300 mg/kg/day) and in rats (100, 300, 1,000 mg/kg/day) during the embryogenesis period. Neither of these studies demonstrated embryo-fetal toxicity from GKT831.
It should also be noted that GKT831 was not shown to be positive in any GLP (good laboratory practice) studies of genotoxicity, mutagenicity or cytotoxicity. Finally, no neurological or respiratory symptoms were observed during regulatory studies on the central nervous system (CNS) and on respiratory function.
6.7. GKT831 – CLINICAL RESULTS
6.7.1. GKT831 – Phase 1 studies in healthy volunteers (safety and pharmacokinetics)
Four Phase 1 studies have been conducted to date in healthy subjects. The aim of these studies was to assess the safety and pharmacokinetics of the compound after a single dose and repeated doses, to assess the effect of the compound on the CYP3A4 cytochrome and to assess the effect of feeding and micronization on the pharmacokinetics of GKT831. All these studies were conducted in male subjects.
In terms of the compound’s safety, four studies exposed more than 105 healthy volunteers to GKT831. During the repeated dose study, the healthy subjects received up to 900 mg of the compound per day for 10 days. None of the Phase 1 trials identified events linked to the administration of the compound, irrespective of the dose administered: in terms of biochemical or hematological and cardiac parameters, this demonstrates a very good tolerance to GKT831.
The pharmacokinetic properties of the compound were consistent for each of the studies carried out. Oral absorption of the compound is rapid and the Cmax is achieved between 1 and 2 hours after administration. The exposure is proportional to the dose up to 900 mg per day and slightly less above 900 mg per day. The molecule’s half-life is typically between 10 and 20 hours after repeated administration and between 6 and 11 hours after a single administration. Most of the compound is generally eliminated 12 hours after administration, explaining its lack of accumulation over time, substantiating the compound’s good safety profile. GKT138184, which is the primary active metabolite of GKT831, presents similar pharmacokinetic characteristics as those of the parent molecule and its exposure is 60 to 100 times less than for GKT831.
During the drug interaction study, GKT831 was administered with midazolam, which is a substrate of the CYP3A4 cytochrome. The exposure of midazolam increased by 38% and that of its primary metabolite by around 40%. Since the ratio between midazolam and its metabolite is not modified by GKT831, it is not possible to either conclude or rule out that the increase in midazolam is due to an inhibition of CYP3A4. GKT831 is therefore classified as a weak inhibitor of CYP3A4.
In the course of study of interaction with meals, healthy subjects received a single dose of 300 mg of GKT831. The subjects were either fasted or had received a high-fat meal. The findings were an increase in the serum exposure of GKT831 and its metabolite (AUC fasted: 38,200 h.ng/mL; AUC fed: 47,600 h.ng/mL) and an increase in their half-life (T1/2 fasted: 17 hours; T1/2 fed: 29 hours) in subjects who received a meal.
Particular focus was placed on the primary toxicity signals observed during toxicity studies in dogs, particularly modifications of ECG tracings, the plasma concentration of thyroid hormones and the levels of red blood cells and reticulocytes. No modification of the values concerning these parameters could be observed or attributed to the treatment with GKT831 in any of the Phase 1 studies, irrespective of the doses administered.
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6.7.2. GKT831 – Phase 2 safety and efficacy study in a population of patients suffering from diabetic nephropathy
Following the four Phase 1 clinical trials conducted on healthy subjects, an initial Phase 2 clinical trial was conducted to assess the safety, pharmacokinetic and pharmacodynamic properties, as well as the efficacy of GKT831 in patients with diabetic nephropathy.
These were type 2 diabetes patients who developed macroalbuminuria despite optimal medical treatment.
Scientific literature suggests that NOX1 and NOX4 play an important role in the development of many diabetic complications, including renal, cardiovascular and ophthalmic conditions. Based on these publications, the Juvenile Diabetes Research Foundation (JRDF) awarded a research grant, allowing several renowned academic groups to assess the efficacy of GKT831 in diabetic complications models.
These preclinical data, published in leading scientific publications, seem to confirm the therapeutic potential of NOX1 and NOX4 inhibitors (and of GKT831 in particular) in the treatment of diabetic complications (You YH, et al.) Metabolomics reveals a key role for fumarate in mediating the effects of NADPH Oxidase 4 in diabetic kidney disease; J Am Soc Nephrol. 2016 Feb; 27(2):466-81. Gorin Y, et al. Targeting NADPH oxidase with a novel dual Nox1/Nox4 inhibitor attenuates renal pathology in type 1 diabetes; Am J Physiol Renal Physiol. 2015 Jun 1; 308(11):F1276-87. Jha JC, et al. Genetic targeting or pharmacologic inhibition of NADPH oxidase nox4 provides renoprotection in long-term diabetic nephropathy; J Am Soc Nephrol. 2014 Jun; 25(6):1237-54).
Diabetic nephropathy is a chronic progressive fibrosing disorder, with glomerulosclerosis and the development of interstitial fibrosis playing a dominant role in the progression of the illness and specifically the decline in renal function. However, these phenomena are slow and it is not possible to assess the impact of an anti-fibrotic therapy through a short clinical trial.
The aim of this initial Phase 2 (GSN000200) clinical trial was to characterize the safety and pharmacokinetics of GKT831 in this population of patients and to assess the therapeutic efficacy of GKT831 in early markers of glomerular complaints, such as albuminuria. The toxicological data available at the time was sufficient to support a treatment period of no longer than 12 weeks. This clinical trial GSN000200 was a randomized, double-blind, placebo-controlled multicentric study conducted on parallel groups. GKT831 or placebo were administered after a run-in period of four weeks during which antihypertensive treatments (diuretic, anticalcic, β-blockers) were adjusted and those prescribed for diabetic nephropathy (inhibitors of the angiotensin-converting enzyme, angiotensin receptor blockers) were optimized up to the maximal dose tolerated, then kept unchanged during the treatment period. The eligibility of patients to enter this run-in period was assessed during a preliminary selection period of up to four weeks.
In total, 155 subjects were enrolled in 75 research sites. The study was carried out in six countries (United States, Canada, Czech Republic, Poland, Germany and Australia). A total of 136 subjects were still eligible at the end of the run-in period and could be randomized and distributed evenly between the two treatment arms: GKT831 and placebo.
Patients self-administered 100 mg of GKT831 orally morning and night (200 mg per day) or placebo for the first six weeks of the treatment, then 200 mg morning and night (400 mg per day) for the following six weeks. All patients were then monitored for 30 days after the treatment period. The patient retention rate was very high, with 125 patients reaching the end of the full treatment period.
The trial did not achieve its primary efficacy endpoint. No difference was detected between GKT831 and placebo on proteinuria (urinary albumin to creatinine ratio) after 12 weeks of treatment. Nor did
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GKT831 have any impact on other measurements of renal function, such as serum creatinine and the estimated glomerular filtration rate.
However, GKT831 did achieve a statistically significant effect on several secondary efficacy endpoints that were predefined in the protocol. It was decided to assess the anti-inflammatory effect of GKT831, considering its preclinical anti-inflammatory effects, as well as the hepatocellular injury markers. Considering that the subjects included had type 2 diabetes, they may have some degree of non-alcoholic fatty liver disease (NAFLD). GKT831 caused a statistically significant decrease in the GGT liver enzyme and in C-reactive protein (“hs-CRP”), an inflammation marker produced in the liver. There was also a clear but non-significant reduction in other serum markers such as serum amyloid A protein, interleukin 6 (IL-6) and plasminogen activator inhibitor-1 (PAI-1), as well as a reduction in triglycerides.
A positive trend for GKT831 was also observed in diabetic peripheral neuropathy assessed with the VAS 100 mm scale and in erectile dysfunction assessed with the IIEF (International Index of Erectile Function) questionnaire. However, these trends were not statistically significant.
During this trial, GKT831 at a dose of up to 400 mg per day was well tolerated. The number of adverse events (“AE”) was low, with less than 50% of patients reporting at least one AE during the study. Out of a total of 68 patients treated with GKT831, most of the AEs emerging were low in severity, unrelated to the treatment and quickly resolved. The most common AEs related to respiratory tract infections. Other one-off AEs were reported by one or two of the patients treated. The fixed dose escalation after six weeks of treatment did not have any impact on the number of AEs emerging. A slight, clinically insignificant increase in diastolic and systolic arterial pressure was observed in patients treated with GKT831 in comparison to those under placebo. These variations remained within the normal range and were not associated with any clinically significant increase in arterial pressure requiring medical intervention. The incidence of adverse effects was noticeably more frequent in patients receiving placebo (119 cases in the placebo group versus 69 in the GKT831 group), i.e., a 42% decrease. If the adverse effects are categorized by degree of severity, a decrease of 12%, 68% and 93% is observed respectively for side effects of mild, moderate and severe severity (p <0.001). The side effects reported in these patients reflect the natural history of their disease. The effect of GKT831 on the incidence of adverse effects may reflect a decrease in the severity of these diabetic complications.
Finally, in the Phase 2 study, the safety signals observed in the preliminary toxicology studies in animals have not been confirmed. In particular, no signals affecting thyroid, liver, bone marrow or cardiac conduction were observed.
Although this clinical trial did demonstrate the very good safety profile and pharmacodynamic activity of GKT831, it was important to analyze the potential reasons for the lack of activity in the primary efficacy endpoint (albuminuria). There are several possible reasons:
• the duration of treatment: compounds acting on intrarenal hemodynamics and in particular on filtration pressure (such as angiotensin II converting enzyme inhibitors, angiotensin II receptor antagonists and endothelin receptor antagonists), generally achieve a reduction in albuminuria within 12 weeks. However, there were no precedents on which to inform the necessary treatment duration for compounds acting on renal fibrosis and inflammation. It is therefore possible that a treatment of more than 12 weeks may have been needed to demonstrate a nephroprotective effect.
• the dose: the selection of doses for this clinical trial (100 mg 2x/day for six weeks, followed by 200 mg 2x/day for six weeks) was based on several elements. Above all, it was important to ensure exposure of the subjects at levels matching the exposure needed for maximal efficacy in animal models. A 20 mg/kg dose seemed sufficient in mice. However, the data obtained since then
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suggest that a dose of 60 mg/kg is required in some studies to achieve maximal efficacy. This is apparent, for example, in the STAM model which is a model of NASH. In addition, a population pharmacokinetic model was developed, based on PK data obtained in Phase 1 and Phase 2 clinical trials. These data indicate that a significant proportion of patients would not have been sufficiently exposed with the doses chosen, particularly during the first six weeks of treatment when the dose was 100 mg 2x/day.
Importantly, the good safety profile observed during the Phase 2 trial in diabetic nephropathy does support the evaluation of GKT831 over a longer treatment period with higher doses in diseases of the kidney, liver and other organs.
Toward the end of the second half of 2017, Genkyotex initiated a double-blind placebo-controlled Phase 2 study to assess the efficacy and safety of GKT831 in patients with primary biliary cholangitis (PBC), a chronic orphan autoimmune disease.
The Phase 2 clinical trial conducted in patients with diabetic nephropathy revealed a good safety profile, characterized the pharmacokinetic properties of GKT831, and generated encouraging pharmacodynamic data. As described above, these clinical results brought to light elements that should be taken into account to increase the chances of success of subsequent clinical trials.
The design of this second clinical trial in PBC takes these factors into account and was developed to maximize the chances of therapeutic success, by using all available preclinical and clinical data.
In this trial, the duration of the treatment has been extended to 24 weeks, far exceeding the treatment duration generally used in this type of clinical trial (i.e. 12 weeks). The maximum dose will be 400 mg 2x/day for 24 weeks. It is also important to note that GKT831 is eliminated by the biliary ducts, which allows for maximum exposure, specifically where it is desirable. These preclinical data obtained in rats with radioactive GKT831 revealed tissue concentrations three to five times higher in the liver compared with other organs such as the kidney.
The PBC clinical trial allows for significant and prolonged drug exposure in the target organ. Furthermore, the primary efficacy endpoint is GGT (gamma glutamyl transpeptidase), a liver enzyme that is elevated in cases of hepatic inflammation and/or cholestasis. In the Phase 2 clinical trial conducted, GKT831 produced a significant reduction in GGT.
The main objective of this clinical trial will be to assess the efficacy of GKT831 administered for 24 weeks compared to a placebo. Two doses are being evaluated to guide dose selection for future clinical trials. The efficacy of GKT831 will be assessed on the basis of its effects on the following markers: (i) hepatocyte injury (transaminases such as ALT, AST, GGT), (ii) cholestasis and bile duct injury (ALP, GGT), (iii) hepatocyte apoptosis (CK-18), (iv) auto-immunity (auto-antibodies, IL-13, IL-4, IP-10, IFNg, IL-12p70), and (v) pruritis and quality of life. These last two items will be evaluated using a specific, proven tool: the PBC40 questionnaire. The safety of GKT831 will also be assessed in this population of patients, as will the product’s pharmacokinetics.
The study targets a total enrollment of 102 patients (in three groups). Patients are included in the study based on the following major criteria:
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• Primary biliary cholangitis diagnosis defined by the presence of at least two of the following three criteria: (i) history of high alkaline phosphatase, (ii) positive antimitochondrial antibodies, (iii) a liver biopsy with a histological diagnosis of primary biliary cholangitis;
• Alkaline phosphatase level ≥ 1.5x the upper limit of the norm (ULN);
• Plasmatic GGT value above ULN;
• Treatment with ursodeoxycholic acid for at least six months and with a stable dose for at least three months;
• Absence of liver decompensation or cirrhosis;
• Coagulation disorders;
• A history of liver transplant or a MELD score of over 15;
• An elevation in ALT transaminases of over five times the ULN.
The study is being conducted in North America, Europe and Israel.
An interim analysis will be carried out once 90 subjects have completed the week 6 visit.
Genkyotex initiated the study at the end of the second quarter of 2017, with the objective to obtain preliminary results in the fall of 2018 and final results in the first half of 2019.
6.7.3.2. Phase 3 clinical program on PBC
If Phase 2 results on PBC are positive, meetings will be organized with the FDA and EMA to discuss further clinical development.
Given that this is an orphan disease, accelerated registration after completion of the Phase 3 program may be considered, as was the case recently for Intercept Pharmaceuticals’ Ocaliva. However, it is important to note that GKT831 has a different mechanism of action than those of Ocaliva or Ursodiol. It is therefore doubtful that the regulatory agencies will approve an identical Phase 3 program based on the same registration criteria.
Should this situation arise, the beneficial effect of GKT831 on histological criteria such as inflammation, biliary damage and fibrosis, may need to be demonstrated. This research, if necessary, could be carried out as part of the Phase 3 study or in a dedicated clinical trial allowing for the inclusion of a specific patient population for these investigations.
For the development of GKT831 in liver disorders, the safety of GKT831 in patients with liver failure would also need to be demonstrated. This trial is currently planned on 36 subjects in Child-Pugh stages A (12 subjects), B (12 subjects) and C (12 subjects). The pharmacokinetic and safety data obtained in these patients will be useful when it comes to planning the pivotal Phase 3 study.
6.8. GKT771
6.8.1. Overview
GKT771, Genkyotex’s second most advanced drug candidate, is a selective inhibitor of NOX1. This molecule has anti-inflammatory, anti-angiogenic and analgesic effects (see Section 6.8.3 of the Registration Document).
Following 13 months of optimization of the chemical series, Genkyotex selected the compound GKT771 as a clinical candidate, due to its good physiochemical characteristics, its good membrane permeability properties and the fact that it does not cross the blood-brain barrier. Moreover, the
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pharmacokinetic properties measured in different animals make it a very good candidate for peripheral indications in which NOX1 plays an important role.
6.8.2. Stage of development
Genkyotex is currently conducting preclinical studies to define the high-priority clinical indications for GKT771. The indications currently under consideration include rheumatic diseases such as osteoarthritis and inflammatory arthritis, inflammatory skin disorders and various forms of inflammatory pain. If the preclinical trials that are yet to be conducted are positive, Genkyotex will be able to submit a regulatory application in 2018 to obtain authorization to begin the first Phase 1 clinical trial.
6.8.3. Preclinical results
6.8.3.1. High throughput screening of 155,000 molecules / identification of the chemical series
The transfer and miniaturization of the NOX1, NOX2, NOX4 and XO trials allowed for a very high throughput screening campaign to be conducted on more than 155,000 molecules in the three NOX isoforms specified above. This process was used to identify molecules with different pharmacological profiles: selective for NOX1 for one of the screened isoforms, selective for two of the three isoforms, or non-selective. None of these molecules had to show activity on xanthine oxidase. Of these “hit” molecules, it was decided to proceed with further characterization and development of one of them, which was highly selective of NOX1, i.e., GKT3000126.
i. Optimization of the chemical series and identification of GKT771
The GKT300126 hit molecule has an inhibitory constant (Ki) on NOX1 of 1 µM and is completely inactive on NOX2 and xanthine oxidase. Its inactivity was confirmed not only on NOX2 and XO but also on NOX3, NOX4 and NOX5. These results encouraged Genkyotex to launch an optimization campaign on this chemical series. This optimization was carried out over a 13-month period with a neo-synthesis of around 650 molecules. This series was improved not only in terms of its power on NOX1, but also in all the physico-chemical parameters necessary to make it a preclinical candidate.
ii. Pharmacology of GKT771
At the end of this 13-month optimization period, Genkyotex selected GKT771 as a clinical candidate. This molecule is highly selective for the NOX1 isoform, with an inhibitory constant (Ki) of 60 nM. This inhibitory constant was measured in different assays with different ROS detection probes. In the cell tests, IC50 is sub-µM in assays using a probe and around 3 µM in the oxygen consumption test.
iii. Physico-chemical characteristics of GKT771
GKT771 has good physico-chemical characteristics. For example, at 10 µM, there is no activity on the main CYPs and there is no inhibition of hERG at 33 µM. It also presents good membrane permeability properties and does not cross the blood-brain barrier. Moreover, the pharmacokinetic properties measured in different animals make it a very good candidate for peripheral indications in which NOX1 plays an important role.
iv. Mechanism of action: in vitro and in vivo data
Effect of GKT771 on an angiogenesis model in mice
Extensive data suggest that ROS play a key role in the migration, proliferation and survival of endothelial cells that constitute major events in the mechanisms of angiogenesis. Professor Beat
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Imhof’s team at the University of Geneva, was able to demonstrate that NOX1 did indeed play this role. Basically, endothelial cells for which the NOX1 gene was removed show a lower propensity to migrate and to form tubular networks when they are stimulated by angiogenic factors. This mechanism was confirmed in vivo in mice deficient in NOX1, in which a marked reduction in angiogenic activity was observed in response to pro-angiogenic growth factors (Garrido-Urbani S et al., PLoS One al., PLoS One, 2011).
Genkyotex was able to replicate these studies with GKT771. Angioreactors containing angiogenic factors (VEGF and FGF) were placed under the skin of C57BL/6 mice for a period of two weeks. The aim was to induce the recruitment and proliferation of mouse endothelial cells within these angioreactors. At the same time, mice were orally administered GKT771 at doses of 1 and 3 mg/kg twice a day. GKT771 significantly reduced the recruitment and proliferation of endothelial cells in comparison to the control mice, clearly suggesting that NOX1 does play an important role in angiogenesis (Figure 10).
Figure 10: Effect of GKT771 on the recruitment of endothelial cells in angioreactors incubated for two weeks in mice.
Analgesic effect of GKT771 on inflammatory pain models
The chemical mediators released from injured tissue and inflammatory cells increase the perception of pain by lowering the activation threshold of the transient receptor potential vanilloid 1 (TRPV1) through various post-translational mechanisms (Ohta et al. 2006).
In injured or inflamed tissue, a protein called NGF (Nerve Growth Factor) is heavily induced and will bind itself to its receptor TrkA (tyrosine kinase receptor A), which is found on the surface of spinal neurons. A signal will then be sent to the inside of the neurons inducing the translocation of the epsilon isoform of protein kinase C to the plasma membrane. This will activate TRPV1 and send a pain signal to the neuro-sensory system (Kallenborn-Gerhardt W et al., Pharmacol Ther, 2013). Professor Chihiro Yabe’s group revealed that the production of ROS by NOX1 played a leading role in the membrane translocation of PKC. NOX1 KO mice presented lower sensitivity to inflammatory pain (Ibi M et al., J Neurosci, 2008). It is important to note that TRPV1 can be directly activated by various stimuli such as heat, capsaicin, acids and protons.
To test its activity on this nociceptive pathway, GKT771 has therefore been tested in two mouse models with inflammatory pain.
In the first model, mice received a dose of UV on the arch of their paws, inducing an inflammatory reaction accompanied by hyperalgesia. Two and three days respectively after UV radiation, the
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animals underwent a test to measure thermal and mechanical hyperalgesia. A heightened sensitivity was observed in the mechanical and thermal tests in the paws exposed to UV rays, compared to the non exposed paws. GKT771, administered orally at 30 mg/kg twice a day, caused a significant reduction in this hypersensitivity, following exposure to UV rays. (Figure 11).
Figure 11: Effect of GKT771 on thermal hyperalgesia following exposure of mouse plantar vault to UV rays
In a second model, rats received an injection of capsaicin into their paws to induce the direct activation of the TRPV1 receptor and to generate a pain signal. The rats then underwent a mechanical nociception test 30, 60 and 90 minutes after the capsaicin injection. Paws into which capsaicin was administered presented increased sensitivity in the pain test compared to the control paws. A single administration of GKT771 blocked the pain signal in a statistically significant and dose-dependent extent. Mice treated with GKT771 also presented a resistance to mechanical pain that was comparable to what was observed with a potent opiate (morphine) or a TRPV1 antagonist (Figure 12).
Figure 12: Effect of GKT771 on mechanical hyperalgesia following exposure of rat plantar vault to capsaicin
GKT771, which recently qualified as a clinical candidate, is being assessed in a series of regulatory tests in rodents and dogs to determine this compound’s suitability for entry into the clinical stage.
6.8.4. Potential indications
GKT771 displayed anti-angiogenic, analgesic and anti-inflammatory effects, all three of which are major components in many rheumatic diseases, inflammatory skin conditions and various forms of
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inflammatory pain. Genkyotex is currently conducting preclinical studies to define the high-priority clinical indications for GKT771.
6.9. EXPLORATORY RESEARCH PROGRAMS
Genkyotex continues to explore the therapeutic potential of NOX enzyme inhibition in oncology, hearing loss and Parkinson’s disease, and to seek non-dilutive funding opportunities to support the preclinical development of drug candidates in these therapeutic areas. In January 2018, a group of universities published three studies confirming the effectiveness of GKT831 in diabetic retinopathy and nephropathy models1. In 2018, the Company plans to publish additional studies on the therapeutic potential of NOX inhibitors in various indications.
6.9.1. NOX inhibition in hearing loss
Hearing loss affects some 560 million people and is expected to increase to 900 million by 2050 according to the WHO. Disorders of the inner ear are associated with severe morbidity and a loss of quality of life in affected patients. In many of these conditions, the production of ROS is a major mechanism. It seems increasingly clear that the activation of NOX enzymes, and in particular NOX3, plays a key role in many forms of hearing loss. The expression of NOX3 is induced by ototoxic drugs such as cisplatin and aminosides, acoustic trauma and in connection with Ménière’s disease. NOX3 therefore represents an interesting target for the treatment and prevention of disorders of the inner ear. The data obtained to date in animal models seem to confirm the therapeutic potential of NOX3 inhibitors (Tavanai E et al., Eur Arch Otorhinolaryngo, 2016).
The development of pharmacological inhibitors and of genetic strategies targeting NOX3 therefore represents a relevant therapeutic approach. However, the first preclinical studies conducted by Genkyotex suggest that NOX3 may not be the only NOX isoform involved. Furthermore, it would be useful to develop a therapy that could prevent not only hearing impairment, but also the renal and neurological side effects, which again seem to be linked not solely to NOX3.
As a result, Genkyotex is currently assessing the therapeutic potential of a general inhibitor of all NOX isoforms. Genkyotex has already succeeded in demonstrating that this molecule reaches sufficient concentrations in the perilymph and in the tympanic bulla.
Over time, Genkyotex hopes to develop a drug that could be administered before and during chemotherapy cycles based on cisplatin, to prevent multiple toxicities of this excellent chemotherapeutic agent.
6.9.2. NOX inhibition in disorders of the central nervous system
There is increasing evidence that the generation of ROS by NOXs is involved in many disorders of the central nervous system. It has been documented that NOX2 could potentially play a vital role in psychiatric disorders such as schizophrenia and in certain types of epilepsy, multiple sclerosis and neurodegenerative diseases such as Alzheimer’s disease, Creuzfeld-Jacob disease, amyotrophic lateral
1 References
1. Appukuttan B et al. Effect of NADPH oxidase 1 and 4 blockade in activated human retinal endothelial cells. Clin Exp Ophthalmol. 2018 Jan 23. doi: 10.1111/ceo.13155. [Epub ahead of print] 2. Jeong BY, et al. TGF-β-mediated NADPH oxidase 4-dependent oxidative stress promotes colistin-induced acute kidney injury. J Antimicrob Chemother. 2018 Jan 9. doi: 10.1093/jac/dkx479. [Epub ahead of print] 3. Jeong BY et al. Oxidative stress caused by activation of NADPH oxidase 4 promotes contrast-induced acute kidney injury. PLoS One. 2018 Jan 12;13(1):e0191034. doi: 10.1371/journal.pone.0191034. eCollection 2018.
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sclerosis and Parkinson’s disease (Nayernia Z, Jaquet V, Krause KH, 2014. New insights on NOX enzymes in the central nervous system. Antioxid Redox Signal.; 20:2815-37).
When it comes to these neurodegenerative diseases, some studies find that NOX2 could play a key role in inflammation of the microglia and in neuronal cell death (Lelli A, Gervais A, Colin C, Chéret C, Ruiz de Almodovar C, Carmeliet P, Krause KH, Boillée S, Mallat M, 2013. The NADPH oxidase Nox2 regulates VEGFR1/CSF-1R-mediated microglial chemotaxis and promotes early postnatal infiltration of phagocytes in the subventricular zone of the mouse cerebral cortex. Glia. 61:1542-55).
For Parkinson’s disease, several studies have demonstrated the key role played by NOX1 in dopaminergic neurons (Cristóvão AC, Guhathakurta S, Bok E, Je G, Yoo SD, Choi DH, Kim YS., 2012. NADPH oxidase 1 mediates α-synucleinopathy in Parkinson’s disease. J Neurosci. 32:14465-77) in various mouse models of Parkinson’s, the pharmacological or genetic inhibition of NOX1 inhibits the degeneration of dopaminergic neurons induced by toxins such as paraquat, 6-OHDA and MPTP (Zhang F et al., CNS Neurosci Ther, 2014).
As a priority, Genkyotex is assessing the therapeutic potential of NOX inhibitors in Parkinson’s disease.
6.9.3. NOX inhibition in oncology
NOXs are a key component in the response to cellular stress. Cancer cells are affected by many forms of stress, including hypoxia, genome instability, increased metabolic demand, immune surveillance, change in environment during metastasis and the effect of anticancer treatments.
As a result, scientific literature suggests that NOXs could play a role in the multiple stages of tumor growth (Meitzler JL et al., Antioxid Redox Signal, 2014):
• DNA oxidation inducing genetic mutations facilitating tumorigenesis
• Proliferation of cancer cells
• Switches in energy metabolism (e.g., Warburg effect)
• Tumor angiogenesis
• Stromal growth
• Mesenchymal–epithelial transition in the context of metastasis
• Emergence of secondary mutations causing resistance to anticancer therapies
Thanks to academic partnerships, Genkyotex is exploring the potential of selective NOX inhibitors to target key compounds of the tumor’s microenvironment, namely, angiogenesis and tumor stroma. It has recently been shown that GKT831 can attenuate the proliferation and migration of fibroblasts and reduce the expression of pro-fibrotic markers in prostate cancers associated with a densely fibrotic stroma (Sampson N et al., Int J Cancer, 2018). A second group reported similar results in other types of cancers, such as oral-pharyngeal and colorectal cancers (Hanley CJ et al, J Natl Cancer Inst, 2018). A study conducted by Dr. Natalie Sampson et al. at the Innsbruck University of Medicine, the results of which were published in the International Journal of Cancer (https://doi.org/10.1002/ijc.31316), showed that in a preclinical model of prostate cancer, GKT831, an inhibitor of NOX1 and NOX4, has been effective in targeting cancer-associated fibroblasts (CAF) and has halted the tumorigenic effect of the tumoral microenvironment.
CAFs are an essential component of the tumor-associated stromal microenvironment, which is a major driver of prostate cancer progression and independent predictor of disease prognosis.
CAFs are largely driven by cancer-derived cytokines, such as transforming growth factor-β (TGFβ1), which fuels cancer cell proliferation and migration.
The results of this study showed that stromal areas with clusters of intense NOX4 staining were localized adjacent to tumor foci with abundant TGFβ1 expression. In vitro, GKT831 significantly reduced TGFβ1-induced expression of CAF markers at both the mRNA and protein levels.
Additionally, GKT831 halted the proliferation and migration of prostate cancer cells. Collectively, these data demonstrated that GKT831 efficiently disrupts the TGFβ1-NOX4 signaling axis underlying reciprocal epithelial-stromal cell crosstalk, fibroblast activation and stromal-driven tumor cell promoting properties.
The Company considers that these studies highlight the central role of NOX4 in driving CAF activation in prostate cancer. Moreover, the results demonstrate that GKT831 halts the tumor-promoting properties of CAFs, further supporting the Company’s focus on the therapeutic potential of NOX enzyme inhibitors in oncology. This new data follows previous preclinical results published in mid-2017, showing that GKT831 can effectively target CAFs and delay tumor growth in head and neck cancers.
The role of NOX4 in CAFs activation shares many similarities with its role in the activation of myofibroblasts, a key characteristic of fibrogenesis in many fibrotic diseases. GKT831 has also demonstrated potent anti-fibrotic activity in multiple preclinical models of liver, lung, skin, and renal fibrosis.
6.10. PARTNERSHIP WITH THE SERUM INSTITUTE OF INDIA FOR THE USE OF VAXICLASE (GTL003) IN MULTIVALENT VACCINES
On February 2, 2015, the Company entered into a license agreement with the Serum Institute of India Ltd. (the Serum Institute), the largest producer of vaccine doses in the world.
This collaboration is based on the use of Vaxiclase as an antigen in prophylactic vaccine development. In this context, Vaxiclase represents an “active ingredient” that is now called GTL003. Given that GTL003 is a more compact version of the vector used for GTL001 immunotherapy, the good tolerance observed in GTL001 in the Phase 2 study is highly encouraging as regards the tolerance profile of a prophylactic vaccine developed with GTL003 and all the more so, given that the doses of GTL003 that should be used in a prophylaxis context will be significantly lower than those used by Genticel in its therapeutic applications.
This license agreement, which authorizes the Serum Institute to use Vaxiclase to develop its multivalent acellular vaccines against a variety of infectious diseases, including whooping cough, and which covers only regions located outside the United States and Europe, could allow the Company to generate up to US$57 million in revenues, excluding royalties on potential sales.
All aspects of the development of multivalent prophylactic candidates containing GTL003, which is the subject matter of the partnership agreement with the Serum Institute, will now be exclusively carried out by the Serum Institute, as specified in the license agreement dated February 2, 2015.
On November 30, 2016, Genticel announced that it had reached an important milestone in its partnership with the Serum Institute, as GTL003 had achieved the predetermined objectives of the in vivo preclinical tests. This was the last preclinical step planned in the agreement, triggering the milestone payment of US$1.2 million.
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The final preclinical stage provided for in this agreement, which was completed in November 2016, opens the way to regulatory preclinical tests conducted by the Serum Institute, prior to the potential clinical development, marketing and sale of vaccines by this organization.
In the event of clinical development and marketing by the Serum Institute of the vaccines produced through this program, the global agreement could generate up to US$57 million in milestone payments for the Company, in addition to royalties based on sales.
Furthermore, in the fourth quarter of 2016, the Company was granted a new patent in the United States (No. 9,499,809), titled “CyaA-based chimeric proteins comprising a heterologous polypeptide and their uses in the induction of immune responses.” This patent protects Vaxiclase primarily when it is used as a product (GTL003).
Finally, it is not ruled out that certain market players may wish to develop a treatment against HPV and, for this purpose, to enter into a partnership with the Company to use the results obtained during the preclinical phases for GTL001 and GTL002.
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6.11. ORGANIZATION OF THE COMPANY
As of the Registration Document Date, Genkyotex employs 12 people, including eight employees dedicated to research and development. There are five managers in the team, including three in executive management positions. These employees currently include one medical doctor, four PhDs in Science and one MBA.
6.12. SCIENTIFIC ADVISORY BOARD
Genkyotex has a Scientific Advisory Board made up of the three scientists who founded Genkyotex Suisse in 2006, as well as Professor Dave Lambeth. The Company’s Scientific Advisory Board meets regularly to discuss all matters relating to the design of clinical studies as well as the establishment and review of clinical data. The members of the Scientific Advisory Board are:
Karl-Heinz Krause, medical doctor, professor of medicine at the faculty of medicine at the University of Geneva and honorary professor at Beijing Hospital, China. From 1982 to 1989, he trained in internal medicine and infectious diseases at the hospitals of Munich, Geneva and Iowa. Highly active in research on inflammation, since 1998 he has focused his research on mechanisms linked to aging and treatments of age-related illnesses, focusing specifically on the role of the NADPH oxidase family as an important pathological source in the production of oxidative stress. He is a member of the Swiss Academy of Medical Sciences and the American Society for Clinical Investigation. Dr. Krause was one of the founders of Genkyotex.
Chihiro Yabe, PhD in science, medical doctor, professor of pharmacology at the University of Medicine of Kyoto in Japan. In addition to conducting research on diabetes since 2000, she has specialized in research into NOX enzymes. Professor Yabe is an advisor to the Japanese Pharmacological Society, the Japan Diabetes Society and the Japanese Society of Clinical Pharmacology and Therapeutics. Dr. Yabe was one of the founders of Genkyotex.
Robert A. Clark, medical doctor, professor of medicine at the University of Texas in San Antonio. Professor Clark has led many fundamental studies and programs in translational medicine on inflammatory response mechanisms and on the understanding of human phagocyte cells. His group was one of the main contributors to the study of production mechanisms of ROS by NOX2 and in studying the role of NOX2 mutations in the onset of CGD (Chronic Granulomatous Disease). He has recently focused his attention on understanding the function and role of NOXs in aging and neurodegeneration. Mr. Clark was one of the founders of Genkyotex.
Dave Lambeth, PhD in science, doctor, professor at the laboratory of pathology and biochemistry at Emory University in Atlanta. In the 1980s, his research group at Emory University contributed considerably to the understanding of phagocyte NADPH and its method of regulation. His group then became the first to identify the first non-phagocyte NOX, NOX1, in 1999. He went on to make considerable contributions to the discovery of other NOXs and to the understanding of their regulation mechanism.
6.13. ORGANIZATION OF OPERATIONS
Effective June 15, 2017, the Company’s head office was relocated to Archamps in France, where its pharmacology and clinical operations are also located at the Group’s site.
Prior to this date, the Company’s head office was situated in Labège, France.
On the basis of the scientific research conducted by its staff or in collaboration with external scientists, the Company has been able to use leading scientific literature to make its technology known. Below is a list of the main scientific publications used by the Company to validate its scientific and medical approach:
1. Inhibition of Nox4-dependent ROS signaling attenuates prostate fibroblast activation and abrogates stromal-mediated pro-tumorigenic interactions. Sampson N et al. Int J Cancer. 2018 Feb 14. doi: 10.1002/ijc.31316.
2. Effect of NADPH oxidase 1 and 4 blockade in activated human retinal endothelial cells. Appukuttan B et al. Clin Exp Ophthalmol. 2018 Jan 23. doi: 10.1111/ceo.13155.
3. TGF-β-mediated NADPH oxidase 4-dependent oxidative stress promotes colistin-induced acute kidney injury. Jeong BY et al. J Antimicrob Chemother. 2018 Jan 9. doi: 10.1093/jac/dkx479.
4. Oxidative stress caused by activation of NADPH oxidase 4 promotes contrast-induced acute kidney injury. Jeong BY et al. PLoS One. 2018 Jan 12;13(1):e0191034. doi: 10.1371/journal.pone.0191034.
5. Danshenol A inhibits TNF-α-induced expression of intercellular adhesion molecule-1 (ICAM-1) mediated by NOX4 in endothelial cells. Zhao W et al. Sci Rep. 2017 Oct 11;7(1):12953. doi: 10.1038/s41598-017-13072-1.
6. TRAF3IP2 mediates high glucose-induced endothelin-1 production as well as endothelin-1-induced inflammation in endothelial cells. Padilla J et al. Am J Physiol Heart Circ Physiol. 2018 Jan 1;314(1):H52-H64. doi: 10.1152/ajpheart.00478.2017.
7. Targeting the Myofibroblastic Cancer-Associated Fibroblast Phenotype Through Inhibition of NOX4. Hanley CJ et al. J Natl Cancer Inst. 2018 Jan 1;110(1). doi: 10.1093/jnci/djx121.
8. Targeting the vascular and perivascular niches as a regenerative therapy for lung and liver fibrosis. Cao Z et al. Sci Transl Med. 2017 Aug 30;9(405). doi: 10.1126/scitranslmed.aai8710.
10. Signalling mechanisms mediating Zn2+-induced TRPM2 channel activation and cell death in microglial cells. Mortadza SS et al. Sci Rep. 2017 Mar 21; 7:45032. doi: 10.1038/srep45032.
11. APX-115, a first-in-class pan-NADPH oxidase (Nox) inhibitor, protects db/db mice from renal injury. Cha JJ et al. Lab Invest. 2017 Feb 6. doi: 10.1038/labinvest.2017.2.
12. Combined NOX1/4 inhibition with GKT137831 in mice provides dose-dependent reno- and atheroprotection even in established micro- and macrovascular disease. Gray SP et al. Diabetologia. 2017 May; 60(5):927-937. doi: 10.1007/s00125-017-4215-5.
13. NADPH Oxidase 4 (Nox4) Suppresses Mitochondrial Biogenesis and Bioenergetics in Lung Fibroblasts via a Nuclear Factor Erythroid-Derived 2-like 2 (Nrf2)-Dependent Pathway. Bernard K et al. J Biol Chem. 2017 Feb 17, 292(7):3029-3038. doi: 10.1074/jbc.M116.752261.
14. Cyclic mechanical stretch-induced oxidative stress occurs via a NOX-dependent mechanism in type II alveolar epithelial cells. Tanaka T et al. Respir Physiol Neurobiol. 2017 Apr 22; 242:108-116. doi: 10.1016/j.resp.2017.04.007.
15. Tert-butyl hydroperoxide (t-BHP) induced apoptosis and necroptosis in endothelial cells: Roles of NOX4 and mitochondrion. Zhao W et al. Redox Biol. 2017 Apr; 11:524-534. doi: 10.1016/j.redox.2016.12.036.
16. Signalling mechanisms mediating Zn2+-induced TRPM2 channel activation and cell death in microglial cells. Mortadza SS et al. Sci Rep. 2017 Mar 21; 7:45032. doi: 10.1038/srep45032.
17. Involvement of Nox2 and Nox4 NADPH oxidases in early brain injury after subarachnoid hemorrhage. Zhang L et al. Free Radic Res. 2017 Mar; 51(3):316-328. doi: 10.1080/10715762.2017.1311015.
18. Critical role of X-box binding protein 1 in NADPH oxidase 4-triggered cardiac hypertrophy is mediated by receptor interacting protein kinase 1. Chen L et al. Cell Cycle. 2017 Feb 16; 16(4):348-359. doi: 10.1080/15384101.2016.1260210.
19. The role of the Nox4-derived ROS-mediated RhoA/Rho kinase pathway in rat hypertension induced by chronic intermittent hypoxia. Lu W et al. Sleep Breath. 2017 Jan 11. doi: 10.1007/s11325-016-1449-2.
20. Pharmacological inhibition of NOX4 ameliorates alcohol-induced liver injury in mice through improving oxidative stress and mitochondrial function. Sun Q et al. Biochim Biophys Acta. 2017 Jan; 1861(1 Pt A):2912-2921. doi: 10.1016/j.bbagen.2016.09.009.
21. NOX4 supports glycolysis and promotes glutamine metabolism in non-small cell lung cancer cells. Zeng C et al. Free Radic Biol Med. 2016 Dec; 101:236-248. doi: 10.1016/j.freeradbiomed.2016.10.500. Epub 2016 Oct 27.
22. Role of muscular eNOS in skeletal arteries: Endothelium-independent hypoxic vasoconstriction of the femoral artery is impaired in eNOS-deficient mice. Kim HJ et al. Am J Physiol Cell Physiol. 2016 Sep 1; 311(3):C508-17. doi: 10.1152/ajpcell.00061.2016. Epub 2016 Jul 27.
24. Therapeutic potential of NADPH oxidase 1/4 inhibitors. Teixeira G et al. Br J Pharmacol. 2016 Jun 7. doi: 10.1111/bph.13532.
25. NADPH Oxidase-4 Overexpression Is Associated With Epithelial Ciliary Dysfunction in Neutrophilic Asthma. Wan WY et al. Chest. 2016 Jun; 149(6):1445-59. doi: 10.1016/j.chest.2016.01.024.
26. The Nox1/4 Dual Inhibitor GKT137831 or Nox4 Knockdown Inhibits Angiotensin-II-Induced Adult Mouse Cardiac Fibroblast Proliferation and Migration. AT1 Physically Associates With Nox4. Somanna NK et al. J Cell Physiol. 2016 May; 231(5):1130-41. doi: 10.1002/jcp.25210.
27. Off-Target Vascular Effects of Cholesteryl Ester Transfer Protein Inhibitors Involve Redox-Sensitive and Signal Transducer and Activator of Transcription 3-Dependent Pathways. Rios FJ et al. J Pharmacol Exp Ther. 2016 May; 357(2):415-22. doi: 10.1124/jpet.115.230748.
28. Early oxidative damage induced by doxorubicin: Source of production, protection by GKT137831 and effect on Ca(2+) transporters in HL-1 cardiomyocytes. Asensio-López MC et al. Arch Biochem Biophys. 2016 Mar 15; 594:26-36.
29. Chemerin Regulates Crosstalk Between Adipocytes and Vascular Cells Through Nox. Neves KB et al. Hypertension. 2015 Sep; 66(3):657-66. doi: 10.1161/HYPERTENSIONAHA.115.05616.
30. Hepatocyte Nicotinamide Adenine Dinucleotide Phosphate Reduced Oxidase 4 Regulates Stress Signaling, Fibrosis, and Insulin Sensitivity During Development of Steatohepatitis in
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Mice. Bettaieb A et al. Gastroenterology. 2015 Aug; 149(2):468-80.e10. doi: 10.1053/j.gastro.2015.04.009.
31. Inhibition of NOX1/4 with GKT137831: a potential novel treatment to attenuate neuroglial cell inflammation in the retina. Deliyanti D et al. J Neuroinflammation.
32. Deficiency of NOX1 or NOX4 Prevents Liver Inflammation and Fibrosis in Mice through Inhibition of Hepatic Stellate Cell Activation. Lan T et al. PLoS One. 2015 Jul 29; 10(7):e0129743. doi: 10.1371/journal.pone.0129743.
33. Targeting NADPH oxidase with a novel dual Nox1/Nox4 inhibitor attenuates renal pathology in type 1 diabetes. Gorin Y et al. Am J Physiol Renal Physiol. 2015 Jun 1; 308(11):F1276-87. doi: 10.1152/ajprenal.00396.2014.
34. Cholesteryl ester-transfer protein inhibitors stimulate aldosterone biosynthesis in adipocytes through Nox-dependent processes. Rios FJ et al. J Pharmacol Exp Ther. 2015 Apr; 353(1):27-34. doi: 10.1124/jpet.114.221002.
35. NADPH oxidase 4 induces cardiac fibrosis and hypertrophy through activating Akt/mTOR and NFκB signaling pathways. Zhao QD et al. Circulation. 2015 Feb 17;131(7):643-55. doi: 10.1161/CIRCULATIONAHA.114.011079.
36. Antioxidant treatments do not improve force recovery after fatiguing stimulation of mouse skeletal muscle fibers. Cheng AJ et al. J Physiol. 2015 Jan 15; 593(2):457-72. doi: 10.1113/jphysiol.2014.279398.
37. Matrix metalloproteinase-3 causes dopaminergic neuronal death through Nox1-regenerated oxidative stress. Choi DH et al. PLoS One. 2014 Dec 23; 9(12):e115954. doi: 10.1371/journal.pone.0115954.
38. NADPH oxidase, NOX1, mediates vascular injury in ischemic retinopathy. Wilkinson-Berka JL et al. Antioxid Redox Signal. 2014 Jun 10; 20(17):2726-40. doi: 10.1089/ars.2013.5357.
39. Genetic targeting or pharmacologic inhibition of NADPH oxidase nox4 provides renoprotection in long-term diabetic nephropathy. Jha JC et al. J Am Soc Nephrol. 2014 Jun; 25(6):1237-54. doi: 10.1681/ASN.2013070810.
40. NADPH oxidase enzymes in skin fibrosis: molecular targets and therapeutic agents. Babalola O et al. Arch Dermatol Res. 2014 May; 306(4):313-30. doi: 10.1007/s00403-013-1416-8.
41. Pharmacological inhibition of NOX reduces atherosclerotic lesions, vascular ROS and immune-inflammatory responses in diabetic Apoe(-/-) mice. Di Marco E et al. Diabetologia. 2014 Mar; 57(3):633-42. doi: 10.1007/s00125-013-3118-3.
42. NADPH oxidase 1 plays a key role in diabetes mellitus-accelerated atherosclerosis. Gray SP et al. Circulation. 2013 May 7; 127(18):1888-902. doi: 10.1161/CIRCULATIONAHA.112.132159.
43. Nicotinamide adenine dinucleotide phosphate oxidase in experimental liver fibrosis: GKT137831 as a novel potential therapeutic agent. Aoyama T et al. Hepatology. 2012 Dec; 56(6):2316-27. doi: 10.1002/hep.25938.
44. The Nox4 inhibitor GKT137831 attenuates hypoxia-induced pulmonary vascular cell proliferation. Green DE et al. Am J Respir Cell Mol Biol. 2012 Nov; 47(5):718-26. doi: 10.1165/rcmb.2011-0418OC.
45. Liver fibrosis and hepatocyte apoptosis are attenuated by GKT137831, a novel NOX4/NOX1 inhibitor in vivo. Jiang JX et al. Free Radic Biol Med. 2012 Jul 15; 53(2):289-96. doi: 10.1016/j.freeradbiomed.2012.05.007.
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46. The NADPH oxidase (NOX) inhibitor GKT137831 alleviates liver inflammation and fibrosis in a mouse model of non-alcoholic steatohepatitis (NASH). Teixeira G et al. (2014). Keystone Symposia Conference. Fibrosis: from bench to bedside, Keystone.
47. Inhibition of Nox1, 4 and 5 attenuates vasculopathy and inflammation in rats with hypertensive diabetic retinopathy. Deliyanti D et al. ARVO Conference, May 2017.
48. Targeting the Myofibroblastic Cancer-Associated Fibroblast Phenotype Through Inhibition of NOX4. Hanley CJ et al. JNCI J Natl Cancer Inst (2018) 110(1): djx121
49. Inhibition of Nox4-dependent ROS signaling attenuates prostate fibroblast activation and abrogates stromal-mediated pro-tumorigenic interactions. Sampson N et al. Int J Cancer 2018. doi:10.1002/ijc.31316
6.15. EXPERTISE IN PRECLINICAL RESEARCH AND DEVELOPMENT
With GKT831, the Company has, to date, developed one drug candidate from the stage of discovery to completion of Phase 2. The preclinical and clinical research and development steps completed for this first project constitute expertise applicable to new projects such as GKT771.
In particular, the Company has established a network of consultants and subcontractors who allow it to manage and perform all the successive stages in the development of new products: design and production of candidates, development of processes, development of analytical methods, regulatory expertise, animal pharmacology studies, conduct of toxicological studies, pharmacokinetics, formulation, traceability, quality assurance, etc.
A significant portion of the Company’s activities is outsourced to contract research organizations (CRO), which are in particular responsible for carrying out clinical trials, producing compounds and conducting toxicology studies. Above all, this operational model enables Genkyotex to maintain control over its intellectual property, the consultants and CRO used are not themselves granted any rights over this intellectual property.
6.16. CLINICAL DEVELOPMENT EXPERTISE
An experienced team devoted to clinical development is based at the Company’s premises in Plan-Les-Ouates (Switzerland) and Archamps (France). The clinical team works closely with experts in regulatory affairs, pharmacokinetics and statistical methods.
The clinical development team is responsible for managing all the activities involved in preparation, implementation, management of subcontractors and analysis of the data from Genkyotex’s clinical trials (drafting of the research brochure, establishment of a clinical protocol, requests for scientific advice from regulatory agencies, setup of the clinical trial, monitoring of the clinical trial, selection of a CRO, patient recruitment, management of interactions between the different parties involved, etc.), data analysis and preparation of regulatory reports presenting results.
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7. ORGANIZATIONAL STRUCTURE
7.1. LEGAL STRUCTURE
This is Genkyotex Group’s legal structure as of the Registration Document Date:
7.2. COMPANIES IN THE GROUP
• Genkyotex SA: parent company of the Group, based in Saint-Julien-en-Genevois in France.
• Genkyotex Suisse SA: company established in 2006, located in Plan-Les-Ouates (Geneva) in Switzerland. The Company runs screening programs to identify NADPH oxidase inhibitor molecules.
It should be noted that in 2017, Genkyotex Innovation SAS, a research center specializing in preclinical studies and Phase 1 and 2 clinical trials on NADPH Oxidase inhibitor molecules, was merged into Genkyotex SA.
7.3. FINANCIAL FLOWS WITHIN THE GROUP
As at the Registration Document Date, the following agreements are in effect within the Group:
• cash management agreement signed on April 1, 2012, between Genkyotex Suisse SA and Genkyotex Innovation SAS (merged into Genkyotex SA in 2017). This agreement allows either company’s cash advances to be used as working capital to support its current operations and defines the payment terms.
• research and development services agreement signed on December 29, 2017, between Genkyotex Suisse SA (beneficiary) and Genkyotex SA (service provider), with retroactive effect from January 1, 2017. This agreement sets out the payment terms for R&D assignments performed by Genkyotex SA for the benefit of Genkyotex Suisse SA based on the cost-plus method.
• service agreement signed on January 31, 2018, between Genkyotex Suisse SA (service provider) and Genkyotex SA (beneficiary), with retroactive effect from March 1, 2017. This agreement sets out the terms and conditions of the services rendered by Genkyotex Suisse SA for the benefit of Genkyotex SA based on the cost-plus method.
Genkyotex SA (France)
100% (percentage of capital held and voting rights)
Genkyotex Suisse SA (Switzerland)
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8. REAL ESTATE, PLANT AND EQUIPMENT
8.1. REAL ESTATE AND EQUIPMENT
8.1.1. Real estate leases
As at the Registration Document date, the Group had signed the following leases:
Address 16 Chemin des Aulx, 1228 Plan-les-Ouates, Geneva, Switzerland
Floor area Approx. 281 m2 on the third floor and storage unit No. 600 measuring 67 m2 on the first basement level
Lease term 5 years – renewed on February 1, 2016, and expiring January 31, 2021
2017 rent excluding taxes and bills CHF 94 thousand (approximately €85 thousand, based on the average exchange rate in 2017)
During the term of the lease, the rent may be revised to reflect changes in the Swiss official consumer price index.
Address 218 Avenue Marie-Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois, France Floor area Approximately 154 m2 consisting of a laboratory and offices Lease term August 1, 2011 – July 30, 2020, with the option of terminating
the lease at the end of every three-year period 2017 rent excluding taxes and bills €30 thousand The rent may be revised every three years based on the change in the commercial rent index published by INSEE. 8.1.2. Other property, plant and equipment
The main property, plant and equipment held by the Company is described in Note 3.2 of the Notes to the IFRS financial statements in Section 20.1 of the Registration Document.
8.1.3. Main expense burden on the Company’s intangible assets
None.
8.2. ENVIRONMENTAL ISSUES
The nature of the Company’s activities does not involve any significant environmental risk. See Section 4.5 “Industrial risks.”
See the “Corporate Social Responsibility (CSR) Report” in Section 26.1 of the Registration Document.
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9. ANALYSIS OF FINANCIAL POSITION AND RESULTS
Readers are advised to read the information below regarding the financial position and results of the Company and its subsidiary together with the full Registration Document and in particular the consolidated financial statements prepared in accordance with IFRS for the year ended December 31, 2017. Note that the information below is drawn from the consolidated financial statements presented in section 20.1 of this Registration Document. In the context of the merger between Genkyotex SA (formerly Genticel SA) and the Swiss group Genkyotex, the latter having been considered as the acquirer for accounting purposes, the information presented for the year ended December 31, 2016, relates to the Swiss group, Genkyotex.
9.1. COMPARISON OF THE IFRS CONSOLIDATED FINANCIAL STATEMENTS FOR THE LAST TWO FINANCIAL YEARS
9.1.1. Constitution of Operating Profit and Net Result
Revenue
Given the stage of development of its drug candidates, the Group does not generate any sales.
Operating expenses by destination
Current operating expenses
Research and development expenses
Research expenses are systematically recognized as expenses.
Due to the risks and uncertainties linked to regulatory authorizations and to the research and development process, the six immobilization criteria according to IAS 38, were considered unfulfilled before obtaining marketing authorization (“MA”) on the drugs market. Accordingly, internal development expenses incurred before obtaining MA, mainly consisting of expenses on clinical studies, are reported as expenses.
The breakdown of research and development expenses during the financial years presented is as follows:
RESEARCH AND DEVELOPMENT (amounts in € thousands)
12/31/2017 12/31/2016
Raw materials and consumables (148) (103) Studies and research (4,420) (2,235) Personnel expenses (including post-employment benefits) (1,408) (1,725) Lease expenses (369) (281) Licenses and intellectual property costs (606) (254) Amortization and depreciation (493) (62) Share-based payments (1,990) (44) Other (40) (109)
Research and development expenses (9,475) (4,813)
Research tax credit 500 526 Subsidies 169 -
Subsidies 669 526
Net research and development expenses (8,805) (4,287)
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Research and development expenses consist mainly of:
• Research expenses of €4,420 thousand (up €2,185 thousand compared to 2016, mainly reflecting the costs incurred in Phase 2 clinical trials for the GKT831 product indicated for PBC patients, as well as preclinical work in progress on the GKT771 compound).
• Research personnel expenses of €1,408 thousand (down €317 thousand from 2016).
• A share-based payment expense of €1,990 thousand (compared to €44 thousand in 2016) corresponding to participation certificates granted to employees of Genkyotex Suisse SA.
• Depreciation of fixed assets of €493 thousand (sharply higher than in 2016 due to the amortization of the SIIL contract, whose value was measured as part of the acquisition of Genkyotex SA, the acquired company for accounting purposes).
Research tax credit income amounted to €500 thousand in 2017 compared with €526 thousand in 2016.
The Group also recorded a subsidy of €169 thousand during the 2017 financial year corresponding to the balance of the Neurinox grant receivable.
General and administrative expenses
The breakdown of general and administrative expenses during the financial years presented is as follows:
GENERAL AND ADMINISTRATIVE EXPENSES (amounts in € thousands)
General and administrative expenses (5,299) (1,641)
General and administrative expenses consist mainly of:
• External legal and advisory fees of €1,700 thousand (compared with €189 thousand in 2016), corresponding mainly to the legal (€400 thousand), accounting and audit (€400 thousand), communication (€200 thousand) and listing costs (€100 thousand) associated with a listed company. This also includes special consulting expenses related to the Company’s business sector.
• Administrative and financial personnel expenses of €743 thousand in 2017 (up €163 thousand on 2016).
• A share-based payment expense of €1,848 thousand (compared to €29 thousand in 2016) corresponding to participation certificates granted to employees of Genkyotex Suisse SA.
English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
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Non-current operating expenses
The breakdown of non-current operating expenses during the financial years presented is as follows:
OTHER OPERATING EXPENSES (amounts in € thousands)
12/31/2017 12/31/2016
Cost of listing (10,898) - Restructuring expenses for Genkyotex SA (formerly Genticel) (510) -
Other operating expenses (11,408) -
On February 28, 2017, the Company’s shareholders approved the combination with Genkyotex Suisse SA. Genkyotex Suisse SA was considered the acquirer for accounting purposes in accordance with IFRS 10.
Genkyotex SA, the acquired entity for accounting purposes, does not constitute a business within the meaning of IFRS 3.3. Although IFRS 3 is not applicable, the transaction was treated in substance as a reverse acquisition.
In this context, and in view of the substance of the transactions described above, from an accounting point of view, the difference between the acquisition cost of Genkyotex SA shares (€33,476 thousand) and the various identified items acquired (€22,577 thousand), i.e. €10,898 thousand, can be analyzed as listing costs recognized as expenses. The Group also recorded a net charge of €510 thousand in connection with the restructuring of Genkyotex SA.
Financial income (expenses), net
FINANCIAL INCOME (EXPENSES), NET (amounts in € thousands)
12/31/2017 12/31/2016
Other financial expenses (53) (20) Other financial income 54 30 Exchange (losses) and gains (256) 224
Financial income (expenses), net (256) 234
The financial income mainly reflects gains and losses on changes linked to fluctuations in the EUR/CHF exchange rate on the intragroup accounts of Genkyotex Suisse SA with Genkyotex SA.
Corporate taxes
The Group has not recorded any corporate tax expense.
As of December 31, 2017, the Group had tax loss carryforwards totaling:
• €77,534 thousand in France; The carryforward of tax losses in France is capped at 50% of the taxable profits for the year. This limitation is applicable to the portion of profits exceeding €1 million. The outstanding amount of the tax losses may be carried forward to subsequent financial years, under the same conditions without any time limit.
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The tax rate currently applicable to Genkyotex SA is the rate currently applicable in France, which is 33.33%. This rate will gradually decrease from 2018 onward until it reaches 25% from 2022.
• €43,308 thousand (CHF 50,679 thousand) in Switzerland, broken down as follows: o €3,226 thousand (CHF 3,775 thousand) originating in 2017 and expiring in 2025; o €10,990 thousand (CHF 12,860 thousand) originating in 2015 and expiring in 2023; o €13,250 thousand (CHF 15,505 thousand) originating in 2014 and expiring in 2022; o €11,516 thousand (CHF 13,476 thousand) originating in 2013 and expiring in 2021; o €4,327 thousand (CHF 5,063 thousand) originating in 2012 and expiring in 2020.
The income tax rate applicable to Genkyotex Suisse SA is the currently applicable rate in the Canton of Geneva, which is 24%.
Deferred tax assets are recorded as tax losses which may be carried forward when it is probable that the Company will have future taxable earnings against which these cumulative tax loss carryforwards may be used. In accordance with this principle, no deferred tax assets are recorded in the Company’s financial statements that exceed deferred tax liabilities.
Earnings per share
EARNINGS PER SHARE 12/31/2017 12/31/2016
Weighted average number of outstanding shares 66,107,073 2,537,723
Financial year income (loss) attributable to owners of the parent company (in € thousands)
(25,773) (6,699)
Basic earnings per share (€/share) (0.39) (2.64)
Diluted earnings per share (€/share) (0.39) (2.64)
9.1.2. Analysis of Statement of Financial Position
Intangible assets consist of the SIIL contract, whose value was measured as part of the acquisition of Genkyotex SA, an acquired company for accounting purposes. The fair value of the SIIL contract and extensions was determined using the discounted cash flow (DCF) method, adjusted for the likelihood of occurrence. The fair value of this contract was estimated at €10,697 thousand and is amortized on a straight-line basis over the life of the business plan used for the initial measurement of the contract’s value (i.e., 2017-2035, corresponding to the life of the patent licensed to SIIL).
Property, plant and equipment mainly comprises laboratory equipment and instruments.
Non-current financial assets consist of the cash reserve linked to the liquidity contract and deposits.
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Current assets
CURRENT ASSETS (Amounts in €)
12/31/2017 12/31/2016
Other receivables 1,932 795 Current financial assets 3,280 - Cash and cash equivalents 11,345 13,937
Total current assets 16,557 14,733
Other receivables mainly include:
• research tax credit receivables (€558 thousand in 2017 and €526 thousand in 2016), which were repaid or are due to be repaid in the next financial year);
• deductible VAT and VAT credits for a total of €227 thousand in 2017 (against €102 thousand in 2016);
• credit notes receivable, advances and down payments for €637 thousand in 2017 (compared with €17 thousand in 2016), mainly relating to the down payments made to the contract research organization (CRO) in charge of the trials;
• pre-paid expenses relating to current expenses.
Current financial assets at December 31, 2017, correspond to a capitalization contract worth €3,280 thousand, which the Company plans to redeem in full in 2018.
Cash and cash equivalents consist of bank accounts and short-term investments with original maturities of less than three months.
Shareholders’ equity
SHAREHOLDERS’ EQUITY (Amounts in € thousands)
12/31/2017 12/31/2016
Capital 7,785 4,242 Non-voting shares - 274 Additional paid-in capital 162,015 44,998 Currency translation reserve (2,258) (1,754) Other comprehensive income (316) (450) Reserves – Group share (117,917) (28,395) Income (loss) – Group share (25,773) (6,699)
Shareholders’ equity, Group share 23,535 12,217
Non-controlling interests - -
Total shareholders’ equity 23,535 12,217
The share capital as of December 31, 2017, is fixed at the sum of €7,785,000.60 and is divided into 77,850,006 common shares fully subscribed and paid up for a par value of €0.10.
The change in shareholders’ equity during the 2017 financial year mainly reflects:
• The impact of the acquisition of Genkyotex SA, the acquired entity for accounting purposes by Genkyotex Suisse SA, for €33,476 thousand;
• The loss for the 2017 financial year for -€25,773 thousand.
Please refer to the statement of changes in shareholders’ equity presented in the IFRS financial statements for the year ended December 31, 2017, in Section 20.1 of the Registration Document.
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Non-current liabilities
NON-CURRENT LIABILITIES (Amounts in € thousands)
12/31/2017 12/31/2016
Employee benefit obligations 822 874
Non-current financial liabilities 115 -
Total non-current liabilities 937 874
Employee benefit obligations comprise the defined benefit obligation under Pillar 2 of the Swiss pension system and the provision for retirement benefits for employees under the French system.
Non-current financial liabilities comprise the non-current portion of repayable advances.
Refer to Section 10.1 for more information on the Group’s financing sources.
Current liabilities
CURRENT LIABILITIES (Amounts in € thousands)
12/31/2017 12/31/2016
Current financial liabilities 288 - Trade and related payables 1,312 1,203 Other current liabilities 820 550
Total current liabilities 2,421 1,753
Current financial liabilities primarily include the current portion of repayable advances.
Refer to Section 10.1 for more information on the Group’s financing sources.
English free translation of the French-language 2017 Registration Document – not binding, for information purposes only
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9.2. ACTIVITIES OF GROUP COMPANIES OVER THE LAST TWO FINANCIAL YEARS
9.2.1. Income (loss) of the Company Genkyotex SA
Genkyotex SA’s statutory income statement is set out as follows:
GENKYOTEX SA (Amounts in € thousands)
12/31/2017 12/31/2016
Operating income 5,703 1,336
o/w revenue 4,765 222
Operating expenses (8,563) (12,213)
Operating income (2,860) (10,877)
Financial income (expenses), net (123) 188
Non-recurring income (expenses) (332) 670
Corporate taxes 22 2,959
Net profit/(loss) (3,292) (7,060)
Operating income amounted to €5,703 thousand in 2017 compared to €1,336 thousand in 2016, an increase of €4,367 thousand. This mainly reflects:
• An increase in revenue of €4,543 thousand. In 2017, revenue was generated solely with the subsidiary Genkyotex Suisse SA. The 2016, revenue was generated with the pharmaceutical company Serum Institute of India Ltd. (SIIL) under the license agreement with that company for the Vaxiclase technology;
• A reversal of a provision of €720 thousand which is a result of the Company’s restructuring in 2017. At December 31, 2016, this provision corresponded to the cost of severance pay linked to the second phase of the downsizing plan for €688 thousand and the cost of refurbishing the premises for €32 thousand.
Operating expenses amounted to €8,563 thousand in 2017 compared to €12,213 thousand in 2016, a decrease of €3,650 thousand. This mainly reflects a €3,501 thousand reduction in personnel expenses, restated for the layoff allowance. The downsizing plan concerned 26 employees and took place in two phases: nine people during the first half of 2016, and 17 people between the end of 2016 and the beginning of 2017. Other purchases and external expenses amounted to €6,428 thousand at December 31, 2017, relatively unchanged from the previous financial year. Operating income thus reflected a net loss of -€2,860 thousand at December 31, 2017, compared with a net loss of -€10,877 thousand at December 31, 2016. Financial income (expenses) amounted to -€123 thousand as of December 31, 2017, compared with €188 thousand at December 31, 2016. In 2017, this mainly reflects the accounting loss resulting from the merger with Genkyotex Innovation SAS. In 2016, it primarily included the effects of foreign currency gains and losses and income on financial investments. Exceptional income (expense) amounted to -€332 thousand at December 31, 2017, and consisted mainly of cancellation fees incurred in connection with the Company’s restructuring (termination of commercial leases). After taking into account a research tax credit of -€22 thousand, the net loss amounted to -€3,293 thousand at December 31, 2017, compared with a net loss of -€7,060 thousand at December 31, 2016.
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9.2.2. Activities of subsidiaries
As of December 31, 2017, the only subsidiary of Genkyotex SA is Genkyotex Suisse SA, whose statutory financial statements are presented as follows:
GENKYOTEX SUISSE SA (Amounts in € thousands*)
12/31/2017 12/31/2016
Operating income 2 4
o/w revenue - -
Operating expenses (8,783) (6,789)
Operating income (8,781) (6,785)
Financial income (expenses), net 5,385 26,898
Non-recurring income (expense) - -
Corporate taxes (1) (35)
Net profit/(loss) (3,397) 20,079
* converted at the average EUR/CHF exchange rate for the period
Operating expenses amounted to -€8,783 thousand at December 31, 2017, compared with -€6,789 thousand at December 31, 2016. This represents an increase in operating expenses of €1,994 thousand (€2,166 thousand at constant exchange rates), mainly due to:
• An increase in research costs of €2,704 thousand (€2,823 thousand at constant exchange rates), mainly reflecting costs invoiced by Genkyotex SA under the R&D services contract set up between the companies.
• A decrease in general and administrative expenses (including transaction and capital increase costs) of €441 thousand (€426 thousand at constant exchange rates) in connection with the capital increases carried out by Genkyotex Suisse SA in 2016.
• A decrease in personnel expenses of €230 thousand (€198 thousand at constant exchange rates) in line with a decrease in the average workforce.
Financial income (expenses) amounted to €5,385 thousand at December 31, 2017, compared to €26,898 thousand at December 31, 2016. At December 31, 2017, this item mainly comprised foreign exchange gains of €2,704 thousand, as well as the proceeds from the sale of Genkyotex Innovation SAS shares to Genkyotex SA for €2,544 thousand. At December 31, 2016, it reflected the recognition of €27,373 thousand in income as a result of a reduction in the capital of Genkyotex Innovation SAS. The result is a net loss of -€3,397 thousand at December 31, 2017, compared with net income of €20,079 thousand at December 31, 2016.
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10. CASH AND EQUITY
Readers are also referred to Notes 7 and 9 in the Appendix on the consolidated financial statements prepared in accordance with IFRS standards in section 20.1 of this Registration Document.
10.1. INFORMATION ABOUT EQUITY, LIQUIDITY, AND SOURCES OF FINANCING
10.1.1. Financing by equity capital
The following table summarizes, in terms of value, the main capital increases of Genkyotex SA (formerly Genticel SA) until the date of this Registration Document:
10.1.2. Financing through repayable advances
The Company is the beneficiary of several repayable advances, including advances detailed below which were repaid during the 2017 financial year or were in the process of being repaid as of December 31, 2017. On March 9, 2011, Genkyotex SA (formerly Genticel SA) obtained from OSEO a repayable advance in the amount of €1,500 thousand for the “development and clinical trials of a therapeutic vaccine to combat cancer and precancerous lesions of the cervix caused by the human papillomavirus (HPV)”. As a result of the success of the project, this advance was repaid in quarterly installments between 2013 and 2017. The final repayment was made in June 2017.
On January 11, 2013, Genkyotex SA (formerly Genticel SA) obtained from OSEO a repayable advance of up to €849 thousand “to extend the Phase 1 clinical trials of the ProCervix (GTL001) project.” Following confirmation of completion of the program and after obtaining the statement of expenditure incurred on the project financed by OSEO, the repayable advance was reduced to €812 thousand to take into account the fact that actual expenditure was less than projected. This advance is repaid in quarterly installments between 2014 and 2019.
Period Gross amount raised
in € thousands Transactions
2001 49 Contribution by founders
2003 – 2008 3,163 Capital increase
2008 – 2010 516 Capital increase (P1 preferred shares)
2013 8,357 Capital increase (P3 and P5 preferred shares)
2014 3,246 Exercise of BSA Closing 2
2014 34,670 IPO
2014 2,452 Capital increase (conversion of convertible bonds March 7, 2014)
2015-2016 408 Exercise of BSPCE
2017 120,000 Capital increase of 62,279,951 new shares at a subscription price of €1.9268 per share as payment for the in-kind contribution of Genkyotex Suisse SA shares.
Total 172,861
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10.1.3. Financing through the research tax credit
The Company has benefited from research tax credits since it was founded. The research tax credit (“CIR”) declared for the 2016 financial year (€2,431 thousand) was repaid in 2017. It is also specified that the Genkyotex Suisse group, with which the Company combined in February 2017, held a subsidiary in France which had an outstanding CIR receivable of €526 thousand in 2016.
The Group declared a CIR of €558 thousand for the 2017 financial year.
10.2. CASH FLOW
The following information is taken from the consolidated financial statements presented in section 20.1 of this Registration Document. It should be noted that in the context of the merger with the Genkyotex Suisse group, Genkyotex Suisse SA was treated as the acquirer for accounting purposes. Therefore, the information presented for the 2016 financial year relates to the Genkyotex Suisse group.
10.2.1. Cash flows from operating activities
Cash consumed in operating activities amounted to €9,363 thousand for the financial year ended December 31, 2017, versus €5,120 thousand for the financial year ended December 31, 2016. Cash consumption mainly reflects the Company’s research activities, and is up compared to 2016 reflecting the state of advancement of the studies. 10.2.2. Cash flows from investing activities
Cash generated by investing activities amounted to €7,590 thousand for the financial year ended December 31, 2017, whereas it was nil the previous financial year. Cash flows generated in 2017 mainly represented the cash contributed by Genkyotex SA (formerly Genticel SA), a company acquired for accounting purposes, for €3,587 thousand, and the redemption of term deposits for €4 million. 10.2.3. Cash flows from financing activities
Cash flows from financing activities for the years presented are as follows:
CASH FLOWS FROM FINANCING ACTIVITIES (Amounts in € thousands)
12/31/2017 12/31/2016
Net capital increase from conversion of loans - 13,590 Issuance of Genkyotex Suisse SA participation certificates 159 - Capital increase expenses (32) (224) Repayment of advances (384) - Capital increase by holders of non-controlling interests - 1,131 Purchase/sale of non-voting shares of Genkyotex Suisse SA to employees
9 (7)
Cash flows from financing activities (248) 14,490
The capital increase transactions carried out in the 2016 financial year are linked to the restructuring of the Genkyotex Suisse group.
10.3. BORROWING TERMS AND FINANCING STRUCTURE
Information on the financing of the Group’s activities is provided in Section 10.1 “Information about equity, liquidity and sources of financing” of the Registration Document.
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10.4. POSSIBLE RESTRICTIONS ON THE USE OF CAPITAL
None.
10.5. SOURCES OF FINANCING EXPECTED FOR FUTURE INVESTMENTS
As of the Registration Document Date, the Company has sufficient cash resources to obtain proof of concept in fibrosis (PBC study in progress with GKT831 – see Section 6.7.3.1 of the Registration Document), move forward the development of its second compound (GKT771 – see Section 6.8 of the Registration Document), and continue its research programs in neurodegenerative diseases (see Section 6.9.2 of the Registration Document), hearing loss (see Section 6.9.1 of the Registration Document), and oncology (see Section 6.9.3 of the Registration Document).
To fund its development and its future investments, the Company may resort to equity financing and/or borrowing.
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11. RESEARCH AND DEVELOPMENT, PATENTS, LICENSES AND OTHER INTELLECTUAL PROPERTY RIGHTS
The Company’s activities consist in the discovery, characterization and development of drug candidates.
Most of Genkyotex’s resources are devoted to research and development activities that have enabled the Company to build a technological platform offering the potential to generate innovative therapies for multifactorial diseases such as fibrosis, inflammatory pain and cancer.
The Company’s patent portfolio includes patent applications under examination and patents issued in the United States and other countries.
11.1. PATENTS AND PATENT APPLICATIONS
Intellectual property
The Company’s commercial success will depend partly on its ability to obtain and retain patents, trade secrets and intellectual property and to protect ownership of its technology, its current and future drug candidates and the methods used to develop and produce them.
Patents linked to NOX activity
After a research assessment conducted through screening campaigns involving commercial molecules, followed by the development of new chemical entities through the study of medicinal chemistry and ADME, pharmacokinetic and toxicology studies in vitro and in vivo, Genkyotex submitted several patent families in the United States, Europe and Japan, covering new molecular entities, NADPH oxidase selective inhibitors or NOX (see Table 1.1 below).
Patent families
Name Owner(s)/Holder(s) Status
P1145 Pyrazolopyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1148 Tetrahydroindole derivatives as NADPH oxidase inhibitors Genkyotex
P1181 Pyrazolopyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1182 Pyrazolopyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1183 Pyrazolopyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1184 Pyrazolopyridine derivatives as NADPH oxidase inhibitors Genkyotex
P1253 Pyrazoline dione derivatives as NADPH oxidase inhibitors Genkyotex
P1268 Pyrazolo piperidine-series F Genkyotex Abandoned except in the United States
P1269 Pyrazolo piperidine-series G Genkyotex Abandoned except in the United States
P1471 Use of NOX4 inhibitors in the treatment of osteoporosis Genkyotex Abandoned in certain markets
P1652 Erectile dysfunction Genkyotex Abandoned
P1862 Amido thiadiazoles as NADPH oxidase inhibitors Genkyotex
P1887 Process for the preparation Genkyotex Abandoned
Table 1.1: Table summarizing the patents held by Genkyotex.
The different patent families cover six different chemotypes, of which the pyrazolopyridine family is at the most advanced stage of development.
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The first patent applications relate to two chemical series (P1148 and P1145) identified early in the commercial molecule screening process (libraries). One of these two series (pyrazolopyridines) was then selected for the identification of a molecule of interest for clinical development (GKT136901) and as a starting point for future developments of new chemical entities based on structural variations targeting pyrazolopyridine units.
These developments gave rise to the identification of a new molecule of interest for clinical development (GKT137831) and other active molecules. Given that all these new molecules were developed after the filing of the basic application covering the therapeutic uses of the pyrazolopyridines initially identified, a protection strategy for each of the structural variations targeting the pyrazolopyridine units was put in place (“clustering”) before publication of the basic application covering the therapeutic use of the pyrazolopyridines initially identified and the corresponding patent applications were filed on the same day (P1181-P1184), one specifically covering the clinical candidate GKT831 (P1184).
New structural variations of the pyrazolopyridine units, the development of new selective inhibitors and the characterization of polymorph forms of the clinical compound were covered by subsequent applications (P1253, P1268, P1269 and P1471).
The development of new inhibitors, specific to NOX1 isoforms, also led to the development of a new different chemical series (amidothiazoles).
These developments were the subject of patent applications filed and the Company regularly files such applications to protect its drug candidates and technological processes.
Intellectual property protection policy
Patents linked to the Vaxiclase platform and others (patent portfolio of the former Genticel)
The Genkyotex policy regarding Genticel’s original patent portfolio is to maintain and protect the industrial property covered by the licenses currently in force, particularly with the Institut Pasteur and the Serum Institute of India Private Ltd (Serum Institute).
To date, the main patents and patent applications held by the Company are of three main types (hereinafter referred to collectively as the “Patents”):
• patents for which the Company is the sole proprietor (see Section 11.1.2 below);
• patents co-owned by the Company (see Section 11.1.3 below); and
• licensed patents (see Section 11.1.4 below).
Four families of patents for which Genkyotex is the sole proprietor protect (i) other uses of vaccines based on CyaA (2 families), (ii) the new Vaxiclase platform (1 family) and (iii) the second-generation multivalent HPV vaccine (1 family).
The purpose of this entire patent portfolio is to enable Genkyotex to maintain exclusive rights over the use of its platforms and associated products granted under license to current and future partners.
The table below summarizes the patent families and original patent applications of the former Genticel:
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Genticel products Patent families / patent applications Genticel’s rights over the patent family /
patent applications in question
ProCervix Sixth family: recombinant CyaA-HPV protein Seventh family: polypeptide(s) carried by CyaA and their use to induce therapeutic and prophylactic immune responses Eleventh family: immunotherapeutic vaccine containing HPV16 and HPV18 E7 proteins fused to CyaA for use in subjects infected by HPV
License agreement of July 31, 2008, between Institut Pasteur and Genticel (now Genkyotex) modified by addenda nos. 1 and 2 dated October 23, 2009, and May 4, 2010, (see Section 22.1 of the 2014 Registration Document and Note 22.4 of the IFRS financial statements of Genticel as of December 31, 2015). Property of Genkyotex Property of Genkyotex
Vaxiclase Technology
Eighth family: chimeric proteins based on CyaA containing a heterologous polypeptide and their use for the induction of immune responses
Property of Genkyotex
Multivalent HPV Ninth family: HPV/CyaA chimeric proteins and their use for the induction of immune responses against infection by HPV
Property of Genkyotex
11.1.1. Nature and coverage of patents
The patents granted and the patent applications in progress offer a true picture of Genkyotex’s research and development work and the pace of R&D.
Furthermore, the patents listed in the tables below (see Sections 11.1.2 to 11.1.3 below) are based on a focus on specific properties of the adenylate cyclase protein, originally produced by Bordetella bacteria, which have the characteristic of transporting and delivering molecules of interest in a targeted way to cells involved in the immune response when this combination (molecule of interest + adenylate cyclase) is administered in vivo.
Under these conditions, the inventions covered by the patents are structured around the design of vectors based on adenylate cyclase or modified forms of this protein and around the selection of molecules of interest, particularly of therapeutic interest, which may be administered in a targeted and therefore effective way, to the immune system.
The patents also cover therapeutic applications in the area of treatment of viral infections, such as infections by papillomaviruses. In some cases, they define vaccine product candidates for cancer immunotherapy treatments, in particular with regard to forms of cancer associated with papillomavirus infections.
11.1.2. Patents and patent applications for which Genkyotex is the sole proprietor
Patents linked to NOXs
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Table describing patent P1148 relating to the family of Tetrahydroindole derivatives as NADPH oxidase inhibitors.
P1148: TETRAHYDROINDOLE DERIVATIVES AS NADPH OXIDASE INHIBITORS Owner/Holder: Genkyotex
Reference Country Filing number and
date
Publication number and
date
Grant number and date
Priority date and
max. term Status
P1148PC00 PCT PCT/EP2008/053704 3/28/2008
2008/116926 10/2/2008
Entry into national phase complete
P1148EP00 EP 07109561.6 6/4/2007
2000176 12/10/2008
Abandoned- Priority- claimed
P1148EP01 EP 08718308.3 3/28/2008
2139472 1/6/2010
2139472 13/06/16
3/28/2007 3/28/2028
Patent issued and confirmed in CH, GB, DE, ES, FR, IT. No opposition
P1148US00 US 60/908,414 3/28/2007
Expired- Priority- claimed
P1148US01 US 12/532,567 3/28/2008
2010/0120749 5/13/2010
8,288,432 10/16/2012
3/28/2007 4/9/2029
Patent issued
Table describing patent P1145 relating to the family of pyrazolopyridine derivatives as NADPH oxidase inhibitors.
P1145: PYRAZOLOPYRIDINE DERIVATIVES AS NADPH OXIDASE INHIBITORS Owner/Holder: GenKyoTex
P1253: PYRAZOLINE DIONE DERIVATIVES AS NADPH OXIDASE INHIBITORS Owner/Holder: Genkyotex
Reference Country Filing number and
date
Publication number and
date
Grant number and date
Priority date and
max. term Status
application filed. Awaiting examiner report
P1253JP00 JP 2012-530402 9/27/2010
5707406 3/6/2015
9/28/2009 9/27/2030
Patent issued
P1253KR00 KR 10-2012-7007664 9/27/2010
10-1791273 23/10/2017
9/28/2009 9/27/2030
Patent issued
P1253RU00 RU 2012117796 9/27/2010
2569855 11/3/2015
9/28/2009 9/27/2030
Patent issued
P1253US00 US 13/394,904 9/27/2010
2012-0172352 7/3/2012
9,394,306 7/19/2016
9/28/2009 9/27/2030
Patent issued
Table detailing patent P1862 for the Amido thiadiazoles family as NOX inhibitors
P1862: AMIDO THIADIAZOLES AS NADPH INHIBITORS Owner/Holder: Genkyotex
Reference Country Filing number and
date
Publication number and
date
Grant number and date
Priority date and max.
term Status
P1862EP00 EP 14198597.8 12/17/2014
12/17/2014 Abandoned- Priority- claimed
P1862PC00 PCT PCT/IB2015/059659 12/16/2015
12/16/2015 14198597.8 12/17/2014 12/17/2035
Pending & published on 6/23/2016. Entry into final national phase
P1862AU00 AU 2015365465 12/16/2015
12/17/2014 12/17/2035
Pending. Examination on 12/16/2020
P1862CA00 CA 2,971,357 12/16/2015
12/17/2014 12/17/2035
Pending. Examination on 12/16/2020
P1862CA00 CN 201580074696.5 12/16/2015
107207489A 9/26/2017
12/17/2014 12/17/2035
Pending. Examination pending
P1862EP01 EP 15820629.2 12/16/2015
3233847 10/25/2017
12/17/2014 12/17/2035
Pending. Examination pending
P1862JP00 JP 2017-531807 12/16/2015
12/17/2014 12/17/2035
Pending. Examination on 12/16/2018
P1862KR00 KR 10-2017-7017800 12/16/2015
10-2017-0094263 8/17/2017
12/17/2014 12/17/2035
Pending. Examination on 12/16/2020
P1862MX00 MX MX/a/2017/007884 12/16/2015
12/17/2014 12/17/2035
Pending. Examination pending
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P1862RU00 RU 2017121044 12/16/2015
12/17/2014 12/17/2035
Pending. Examination on 12/16/2018
P1862US00 US 15/536,800 12/16/2015
US-2017-0348296 12/7/2017
12/17/2014 12/17/2035
Pending. Examination pending
Table describing patent P1471 on the use of NOX4 inhibitors in the treatment of osteoporosis.
P1471: USE OF NOX4 INHIBITORS IN THE TREATMENT OF OSTEOPOROSIS Owner/Holder: Genkyotex
Reference Country Filing number and
date
Publication number and date
Grant number and date
Priority date and
max. term Status
P1471EP00 EP 11188782.4 11/11/2011
2591782 5/15/2013
Abandoned – Priority claimed
P1471PC00 PCT PCT/IB2012/056286 11/9/2012
201306897 5/16/2013
Entry into national phase complete
P1471AU00 AU 2012335148
Abandoned (no examination application due on 3/5/2016)
P1471BR00 BR 1120140114005 11/9/2012
5/16/2013
Abandoned – No payment of annuities
P1471CA00 CA 2,855,004 11/9/2012
Abandoned (no examination application or payment of annuities)
P1471CN00 CN 201280055349.4 11/9/2012
103945844 5/16/2013
11/11/2011 11/9/2032
Abandoned
P1471EP01 EP 12798879.8 11/9/2012
5/16/2013 2776027 07/06/2017
11/11/2011 11/9/2032
Patent issued and approved
P1471HK00 HK 14112914.2 11/9/2012
11/11/2011 11/9/2032
Patent accepted on the basis of the European Patent EP00
P1471IL00 IL 232515 11/9/2012
5/16/2013
11/11/2011 11/9/2032
Pending. Examination pending
P1471IN00 IN 1159/MUMNP/2014 11/9/2012
5/16/2013
11/11/2011 11/9/2032
Pending. Examination pending
P1471JP00 JP 2014-540618 11/9/2012
5/16/2013 6228921 20/10/2017
11/11/2011 11/9/2032
Patent issued
P1471KR00 KR 1020147015435 11/9/2012
5/16/2013
11/11/2011 11/9/2032
Pending. Request for examination due November 9, 2017
P1471MX00 MX MX/a/2014/005440 11/9/2012
5/16/2013
11/11/2011 11/9/2032
Abandoned
P1471RU00 RU 2014123672 11/9/2012
5/16/2013
11/11/2011 11/9/2032
Abandoned
P1471SG00 SG 1120140949Y 11/9/2012
5/16/2013
Abandoned
P1471TH00 TH 1401002536 11/9/2012
5/16/2013
Abandoned
P1471UA00 UA a201406455 11/9/2012
11/11/2011 11/9/2032
Abandoned
P1471US00 US 14/357,605 11/9/2012
11/9/2032
Abandoned
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Main patents linked to the Vaxiclase platform and others (patent portfolio of the former Genticel)
Polypeptide(s) carried by CyaA and their use to induce therapeutic and prophylactic immune responses
The purpose of this patent family (“multivalent CyaA vaccine”) is a therapeutic application of the adenylate cyclase vector carrying a polypeptide as an active ingredient. This therapeutic application is defined by the dual purpose of treating a disease and preventing another, and possibly preventing the recurrence of the first disease. This patent family is the result of a focus on new specific properties of the immune response in the context of administration of the vector. Patent applications filed recently have not, up until now, been reviewed by the respective industrial property offices.
Country Priority
date Filing date
Publication no. Date of
issuance Expiry date
Status
EUROPE
1/24/2011 2478915 Provisional application
abandoned 2
AUSTRALIA 1/24/2011 1/24/2012 AU2012210612 1/24/2032 Valid (pending issuance)
BRAZIL 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Valid
CHINA 1/24/2011 1/24/2012 CN103476424 1/24/2032 Valid
SOUTH KOREA 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Valid
UNITED STATES 1/24/2011 10/8/2013 2014-0037670-A1 1/24/2032 Valid
EUROPE 1/24/2011 1/24/2012 2667890 1/24/2032 Valid
HONG KONG 1/24/2011 11/21/2013 1187834 1/24/2032 Valid
RUSSIA 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Valid
INDIA 1/24/2011 1/24/2012 WO2012101112 1/24/2032 Abandoned
JAPAN 1/24/2011 1/24/2012 2014-506562A 1/24/2032 Valid (pending issuance)
JAPAN 1/24/2011 1/24/2012
1/24/2032 Valid
MEXICO 1/24/2011 1/24/2012 MX/a/2013/008606
1/24/2032 Valid
Status of patents and patent applications for the family “Polypeptide(s) carried by CyaA and their use to induce therapeutic and prophylactic immune responses”
Chimeric proteins based on CyaA containing a heterologous polypeptide and their use for the induction of immune responses
The purpose of this patent family (“CyaA-D203/CyaA-D93”) is to achieve a specific construction of adenylate cyclase defined for the preparation of new vectors to deliver therapeutic active ingredients. The invention defined in this patent family is intended to constitute a platform suitable for use in 2 A European patent application determines the priority date of the family when the application is first filed. It
is generally abandoned when an international application (PCT) is filed within 12 months of this priority. This international application is then allocated the priority date of the priority application and allows for the protection period of 12 months to be extended accordingly.
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multiple areas of application. This patent family supports Genkyotex’s Vaxiclase project. An international PCT3 application was confirmed in January 2015, authorizing an extension of markets in which protection is requested.
Statuses of patent applications for the family “Chimeric proteins based on CyaA containing a heterologous polypeptide and their use for the induction of immune responses”
11.1.3. Patents and patent applications co-owned by Genkyotex
Co-owned patents are governed by a co-ownership regulation, where one is in place. In the absence of such a regulation, Articles L. 613-29 et seq. of the French Intellectual Property Code lay down in substance that each of the co-owners may (except to offer fair compensation to other co-owners who
3 The PCT (Patent Cooperation Treaty) is a centralized filing system that allows for a significant number of
markets to be covered on a protective basis and in a simple way. The office authorized to examine the international PCT application carries out a prior art search and sends the corresponding report accompanied by a preliminary opinion on the patentable nature of the invention to the applicant. At the end of the international phase of a PCT application (which lasts 30 months from the priority date), the countries/regions in which the examination of the application should be actually undertaken should be selected.
4 As a reminder, at the end of the international phase of a PCT application (which lasts 30 months from the priority date), the countries/regions in which the examination of the application should be undertaken should be selected.
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do not personally exploit the invention or have not granted an exploitation license), (i) exploit the invention for their own benefit and (ii) grant a non-exclusive exploitation license to a third party (subject to notification of the other co-owners). Moreover, an exclusive exploitation license may only be granted with the agreement of all co-owners or by legal authorization.
Main patents linked to the Vaxiclase platform and others (patent portfolio of the former Genticel)
Recombinant CyaA-HPV protein
This family of patents is co-owned by Genkyotex (formerly Genticel), the Institut Pasteur, CNRS and INSERM (see Section 22 of the 2014 Registration Document regarding the license agreement entered into with the Institut Pasteur concerning this patent family).
Country Priority
date Filing date
Publication no. Date of
issuance Expiry date
Status
EUROPE (confirmed in Sweden, Switzerland, Turkey, Germany, France, Austria,
CHINA 3/18/2004 3/18/2005 CN 1956730A 4/25/2012 3/18/2025 Issued
JAPAN 3/18/2004 3/18/2005 2007-533307 12/20/2013 3/18/2025 Issued
JAPAN 3/18/2004 3/18/2005 5824474 10/16/2015 3/18/2025 Issued
SOUTH KOREA 3/18/2004 3/18/2005 10-1382250
4/1/2014 3/18/2025 Issued
SOUTH KOREA 3/18/2004 3/18/2005 10-1495740 3/18/2025 Issued
INDIA 3/18/2004 3/18/2005 No. 258906 2/14/2014 3/18/2025 Issued
INDIA 3/18/2004 3/18/2005 10337/DELNP/2013 Valid
RUSSIA 3/18/2004 3/18/2005 2441022 1/27/2012 3/18/2025 Issued
UNITED STATES 3/18/2004 12/23/2010 US 8,637,039 1/28/2014 3/18/2025 +189 days
Issued
UNITED STATES 3/18/2004 12/16/2013 US PATENT NO. 9,387,243
7/12/2016 3/18/2025
Issued
Status of patents and patent applications for the family “Recombinant CyaA-HPV protein”
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11.1.4. Patents currently exploited
As of the Registration Document Date, some patents of the former Genticel were commercially exploited by Genkyotex through a license agreement with the Serum Institute of India, or “SIIL” (for more information, see Section 22.1 of the Registration Document).
11.2. OTHER ELEMENTS OF INTELLECTUAL PROPERTY
11.2.1. Trademarks, domain names
genkyotex.biz
genkyotex.com
genkyotex.net
genkyotex.org
genkyotex.info
genkyotex.ch
genkyotex.fr
genkyotex.co.uk
vaxiclase.fr
vaxiclase.com
genticel.fr
genticel.com
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12. TREND INFORMATION
12.1. KEY TRENDS SINCE THE END OF THE LAST FINANCIAL YEAR
12.1.1. Extract from press release dated April 25, 2018
Clinical developments:
Patient enrolment continues in Phase 2 trial of GKT831 in patients with PBC:
Patient enrollment in the Phase 2 clinical trial of GKT831, the Company’s NOX1 and NOX4 inhibitor, in PBC continues across a global network of investigational centers in the United States, Canada, Belgium, Germany, Greece, Italy, Spain, the United Kingdom, and Israel. 53 centers have been initiated to date and are actively screening potential subjects. Planned center activation continues and the Company expects a total of 55 to 60 centers to be activated for this trial. This phase 2 trial is a 24-week, double-blind, placebo controlled, evaluating the safety and efficacy of GKT831 in patients with PBC and inadequate response to ursodeoxycholic acid (UDCA). A total of 102 PBC patients will be enrolled and allocated to placebo or one of two doses of GKT831 (400mg once a day or 400mg twice a day). Screening activity has been robust and activated sites have collectively screened over 90 patients to date. However, due to a slower than expected rate of activation of investigational centers in 4 of the 9 involved countries, patient enrollment is taking longer than anticipated. The Company anticipates that the results of the interim analysis will be available Fall 2018, with final results in H1 2019, versus its initial expectation of H1 2018 for interim results and H2 2018 for final results. Genkyotex expects that the first Independent Safety Monitoring Board (ISMB) meeting will occur in the first half of May and will report its outcome. The first patients enrolled in the study have now completed the full treatment period. To date, no serious adverse events(SAE), Liver Related Adverse Events (LRAE) or drop outs, have been reported.
Phase 2 trial of GKT831 in patients with diabetic kidney disease:
Patient enrollment in the Phase 2 trial evaluating the safety and efficacy of GKT831 in patients with type 1 diabetes and diabetic kidney disease (DKD) also continues. This investigator-initiated Phase 2 trial is a placebo-controlled, double blind, randomized, parallel group study to evaluate the effect of oral GKT831 on the urine albumin-to-creatinine ratio (UACR) in patients with persistent albuminuria despite treatment with optimal standard of care. Patients will receive 200mg of oral GKT831 or placebo twice a day for 48 weeks. A total of 142 patients are planned to be enrolled in the study located in up to 15 investigational centers in Australia. This Phase 2 trial is being fully funded by the Juvenile Diabetes Research Foundation (JDRF) Australia and the Baker Institute.
Research highlights:
• Genkyotex continues the preclinical development of GKT771 and intends to submit a clinical trial application in 2018. GKT771 targets a number of important pathological processes, including angiogenesis, pain processing and inflammation. The Company continues to explore the therapeutic value of NOX inhibition in oncology, hearing loss and Parkinson’s disease, and to seek opportunities for non-dilutive grant financing to support the preclinical evaluation of drug candidates in these therapeutic areas. In January 2018, academic collaborators published three studies demonstrating the efficacy of GKT831 in preclinical models of diabetic eye and kidney diseases
• Data in a preclinical model also showed that GKT831 efficiently targeted cancer associated fibroblasts in prostate cancer and abrogated the pro-tumorigenic influence of the tumor micro-
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environment. The results of this study, which was conducted by Dr. Natalie Sampson and colleagues at the Medical University of Innsbruck, were published in the International Journal of Cancer (https://doi.org/10.1002/ijc.31316).
12.2. KNOWN TRENDS, UNCERTAINTIES, COMMITMENT REQUESTS AND EVENTS REASONABLY LIKELY TO AFFECT THE COMPANY’S OUTLOOK
The Company does not intend to provide forecasts or estimates of profits.
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14. ADMINISTRATIVE, MANAGEMENT AND SUPERVISORY BODIES AND SENIOR MANAGEMENT
14.1. EXECUTIVES AND DIRECTORS
Composition of the Board of Directors and senior management
As at the Registration Document Date, the Board of Directors and senior management are comprised of the following members:
Name Office/Function Date of first
appointment Expiry date of term
Claudio Nessi Chairman of the Board of Directors
Member of the Appointments and Compensation Committee
CGSM 2/28/2017
OGSM called to approve the financial statements
for the year ending 12/31/2019
Ilias (Elias) Papatheodorou
Director and Chief Executive Officer
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2019
Eclosion2 SA represented by Jesús
Martin-Garcia
Director
Member of the Audit Committee
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2019
EdRIP (now Andera Partners)
represented by Gilles Nobécourt
Director
Chair of the Appointments and Compensation Committee
CGSM 7/31/2008 OGSM called to approve the financial statements
for the year ending 12/31/2019
Catherine Moukheibir
Independent Director
Chair of the Audit Committee
Member of the Appointments and Compensation Committee
CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2019
Mary Tanner Independent Director
Member of the Audit Committee
Ratification by CGSM 6/11/2015
OGSM called to approve the financial statements
for the year ending 12/31/2019
Stéphane Verdood Observer CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2019
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Name Office/Function Date of first
appointment Expiry date of term
Joseph McCracken Observer CGSM 2/28/2017 OGSM called to approve the financial statements
for the year ending 12/31/2019
Mr. Benedikt Timmerman had been appointed the Company’s Deputy Chief Executive Officer in charge of overseeing the license agreement signed with SIIL by the Board of Directors at its meeting held at the close of the General Shareholders’ Meeting of February 28, 2017.
At its meeting of May 4, 2017, the Board of Directors decided to revoke his mandate as corporate officer.
For the purposes of their corporate duties, the members of the Board of Directors and senior management are domiciled at the Company’s registered office.
As of the Registration Document Date, the other corporate duties and functions being performed by the members of the Board of Directors and senior management are:
Other current corporate duties outside the Group
Name
Office/Function Company/Entity
Claudio Nessi Director Arsanis Ltd
Director Avitide Ltd
Managing partner NeoMed Management
Managing Director Omega Funds in Boston
Director Anaconda Biotech in Barcelona
Ilias (Elias) Papatheodorou – –
Jesús Martin-Garcia Chairman & CEO GeNeuro SA
Shareholder and Managing Director Eclosion2 SA
Chairman of the Board of Directors Value Management Group
Chairman of the Board of Directors ArisGen SA
Director DepGen SA
Member of the board Union des Associations
Patronales Genevoises (UAPG)
Chairman Association des Industries
Genevoises des Sciences de la Vie (AIGSV)
Gilles Nobécourt Director COMPLIX
Director INOTREM
Director COMPLEXA, Inc
Director GAMAMABS PHARMA
Member of the Supervisory Board INNOCINÉ
Managing Director ANDERA PARTNERS
Catherine Moukheibir Chair of the Board of Directors MedDay
Member of the Board of Directors and the Audit Committee
Cerenis
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Name
Office/Function Company/Entity
Member of the Board of Directors and Chair of the Audit Committee
Zealand pharma
Member of the Board of Directors and the Audit Committee
Ablynx NV
Member of the Board of Directors Orphazyme
Mary Tanner Senior Managing Director EVOLUTION Life Science Partners
Member of the Board of Directors Lineagen, Inc.
Member of the Board of Deans Yale Blavatnik Fund
Member of the Advisory Board Yale School of Management
Expired offices (held in the past five years):
Name Office/Function Company/Entity
Claudio Nessi Director Creabilis S.A.
Director Endosense S.A.
Ilias (Elias) Papatheodorou Chairman of the Board of Directors Priaxon
Jesús Martin-Garcia Executive Fondation Eclosion
Director Melcure
Gilles Nobécourt Director COVAGEN
Director GLYCOVAXYN
Member of the Executive Committee PARVULUS
Catherine Moukheibir Member of the Executive Committee Innate Pharma
Chairman of the Board of Directors Creabilis
Director and Chair of the Audit
Committee OctoPlus NL
Mary Tanner Director Evotec
Director PanGenX
Member of the Board of Deans Yale School of Medicine
Member of the Advisory Board Yale School of Management
Biographies of the Chairman of the Board of Directors, the Chief Executive Officer and Directors:
Claudio Nessi – Chairman of the Board of Directors, a Swiss citizen, born in 1968
Claudio Nessi has 18 years’ experience in venture capital, investing in healthcare both in Europe and the US. He has been an investor and board member of multiple life science companies including Axovan AG, Kuros Biosciences AG, Endosense SA, PregLem SA and Creabilis Ltd. He currently serves on the Board of Directors of Arsanis Ltd., Avitide Ltd., and Anaconda Biomed in Barcelona.
Claudio Nessi joined NeoMed Management in 2001 before becoming a partner in 2004, and he heads NeoMed’s operations in Switzerland. He has also been a partner of Omega Funds in Boston since 2016. He has academic research experience in molecular biology from the Max Planck Institute and the University of Connecticut and has published articles in leading scientific journals.
Claudio Nessi holds an MBA from Erasmus University, the Netherlands, and a Ph.D. in genetics from the University of Pavia, Italy.
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Ilias (Elias) Papatheodorou – Director and Chief Executive Officer, a Greek citizen, born in 1969
Ilias (Elias) brings with him more than 20 years of experience with private and public biotechnology companies, as well as with multinationals (Philip Morris International, The Coca-Cola Company). At Covagen AG, he was instrumental in the closing of a CHF 46 million second round of financing and the subsequent acquisition of Covagen by Janssen Pharmaceuticals, a J&J Group company.
Ilias (Elias) has solid experience in raising capital, business development and license negotiation.
Jesús Martin-Garcia representing Eclosion2 SA – Director, a Swiss citizen, born in 1962
Jesús began his career in 1983 at the World Economic Foundation, then in 1989 with McKinsey & Co, where he directed studies in the pharmaceutical and food industries.
Beginning in 1993, he became an entrepreneur by creating, investing in, and managing numerous start-ups in Switzerland and the United States. He was the co-founder of LeShop in 1996, a company that became the e-commerce leader in Switzerland and was sold to Migros. He was also an initial equity investor and participated in the development of other start-ups such as Silverwire and VTX, during more than 10 years.
In 2003, he founded Eclosion, a public–private partnership, to transform potentially disruptive academic discoveries in the area of life science into medications. This original structure was instrumental in the launch of GeNeuro; Jesús took the helm in 2006 and is now its Chairman and Chief Executive Officer.
Jesús Martin-Garcia holds a degree in economics and in law from the University of Geneva. He also holds an MBA from Harvard Business School. He serves on the boards of biotech companies and industrial and management associations.
Gilles Nobécourt representing Andera Partners, Director, a French citizen, born in 1957
Gilles joined Edmond de Rothschild Investment Partners (now Andera Partners) in 2002.
He was advisor to the French Minister for Industry and Research, then advisor to the Prime Minister’s Cabinet Office, before joining the United Nations High Commission for Refugees as Field Director in Africa and Latin America. He then joined Rhône-Poulenc Group and Rhône-Poulenc Rorer (Aventis), where he was Vice President of Global Operations at RPR Gencell, RPR’s biotechnology division based in San Francisco, USA, then General Manager of a commercial subsidiary in Mexico until 2000. Prior to joining EdRIP (now Andera Partners), Gilles worked at Russell Reynolds Associates as a consultant to pharmaceutical and biotechnology companies.
Gilles graduated from the Paris Institute for Political Sciences (Sciences Po Paris). He holds a Master’s degree in applied economics and a certificate from Stanford University’s Graduate School of Business.
He holds directorships at Complix, Complexa, Genkyotex, Inotrem and Gamamabs, and is a director of the Fondation Ophtalmologique Adolphe de Rothschild.
Catherine Moukheibir, Director, a Lebanese citizen, born in 1959
Catherine Moukheibir has over 20 years of experience in finance including 15 years in the biotechnology industry, holding multiple leadership roles and board roles. Most recently, Catherine
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was a member of the Executive Board of Innate Pharma (from 2011 to 2016). Prior to joining Innate, she was CFO of Movetis, a Belgian biotech company (from 2008 to 2010), for which she led the IPO on Euronext Brussels and then the acquisition by Shire. Previously, she was Director of Capital Markets at Zeltia (from 2001 to 2007), a Spanish biopharma and consumer chemicals company, where she steered its financial strategy. Before joining Zeltia, she was Executive Director of Investment Banking at Salomon Smith Barney and Morgan Stanley. Catherine Moukheibir is currently Chair of the Board of Directors of MedDay Pharmaceuticals and is a member of the boards of Cerenis, Ablynx and Zealand. She has also served on the Board of Directors of Orphazyme since November.
She has an MBA from Yale University.
Mary Tanner, Director, a US citizen, born in 1951
Mary Tanner is co-founder and Senior Managing Director at the consultancy firm Life Sciences Partners LLC, specializing in strategic and financial advice for companies operating in the life sciences and healthcare industries. She is also a Member of the Advisory Board of the Yale School of Management. Based in New York, Mary has held various positions at world-class investment banks such as Lehman Brothers Inc., Bear Stearns & Co. and Peter J. Solomon.
Mary Tanner has over 25 years’ experience in health-related industries. She has developed strong expertise in the pharmaceutical, biotechnology, diagnostic, medical devices and healthcare sectors.
She is a member of the board of directors of Lineagen Inc., a molecular diagnostics company.
She has a BA from Harvard University and speaks fluent French.
Stéphane Verdood, observer, a Belgian citizen, born in 1961
Stéphane is a founding partner of Vesalius Biocapital. Since 2007, he has invested in more than 15 biotech companies. Prior to founding Vesalius Biocapital, Stéphane was a consultant for growth-stage companies. He was a founder and managing partner at Value4Growth, a specialized life science consulting firm, supporting start-ups in all aspects of company formation, product strategy and fund-raising. He began his career with Arthur Andersen as an information technology auditor. After having led the mergers and acquisitions division of Arthur Andersen in Belgium from 1989 to 1995, he founded and led Arthur Andersen’s business consulting division in Belgium and Luxembourg. He served on the European Board of Partners of Arthur Andersen. Stéphane has an MBA and a degree in commercial engineering from the Catholic University of Leuven (Belgium).
Joseph McCracken, observer, a US citizen, born in 1953
Dr. McCracken has more than 25 years of experience in business development roles at biotechnology and pharmaceutical companies. Most recently he was Global Head of Business Development & Licensing at Roche Pharma, where he was responsible for Roche Pharma’s global in-licensing and out-licensing activities. Prior to joining Roche Pharma, Dr. McCracken held the position of Vice President, Business Development at Genentech for more than 10 years. He was also at one time the Director of Business Development and Representative Director of Genentech Ltd., Genentech’s wholly owned subsidiary in Japan, and has also held the positions of Vice President of Technology Licensing and Alliances at Aventis, and Vice President of Worldwide Business and Technology Development at Rhône-Poulenc Rorer SA.
Dr. McCracken holds a Bachelor of Science in microbiology, a Master of Science in pharmacology and a Doctorate of Veterinary Medicine from Ohio State University.
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Declarations relating to Board and senior management members
During the last five years, no member of the Company’s Board of Directors or senior management:
• was convicted of fraud, perjury or any other official sanction or penalty against him/her/it by governmental or regulatory authorities;
• was involved in an insolvency, bankruptcy, receivership, or liquidation as an executive or officer; or
• has been prevented by a court from acting as a member of an administration, management, or supervisory body or from being involved in the management or conduct of the business and affairs of an issuer.
Composition of the Supervisory Board and Executive Board prior to the change in the Company’s management and governance structure on February 28, 2017
As of December 31, 2016, the Company’s Supervisory Board was comprised of eight members:
• Thierry Hercend, Chairman,
• Gerald Möller, Vice Chairman,
• Caroline Laplane, Member,
• Edmond de Rothschild Investment Partners represented by Raphaël Wisniewski, Member,
• Bpifrance Investissement represented by Olivier Martinez, Member,
• Didier Hoch, Member,
• Rainer Strohmenger, Member,
• Mary Tanner, Member.
As of December 31, 2016, the Company’s Board of Directors was comprised of two members: Benedikt Timmerman (Chairman) and Martin Koch (Member).
Due to the change in the Company’s management and governance structure adopted by the General Shareholders’ Meeting of February 28, 2017, all the persons cited above resigned their respective mandates, to take effect at the close of that General Shareholders’ Meeting.
14.2. CONFLICTS OF INTEREST IN THE COMPANY’S ADMINISTRATIVE AND EXECUTIVE BODIES AND SENIOR MANAGEMENT
There are no family relationships between the individuals cited above.
Mr. Papatheodorou and Ms. Tanner are direct and/or indirect shareholders in the Company and/or holders of securities giving access to Company capital.
Mr. Martin-Garcia and Mr. Gilles Nobécourt each represent the management companies (Eclosion2 and Andera Partners (formerly EdRIP), respectively) that manage the funds of the Company’s shareholders.
Mr. Nessi is managing partner of NeoMed Management, a management company that administers certain funds that hold shares of the Company.
There is a related-party agreement as described in Section 16.2 of this Registration Document.
To the Company’s best knowledge and subject to the relationships described above and the personal interests involved in the agreements disclosed in Section 16.2 of this Registration Document, there is
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no current or potential conflict of interest between their duties to the Company and the personal interests and/or other duties of the individual members of the management and of the board of directors of the Company.
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15. COMPENSATION AND BENEFITS
15.1. COMPENSATION OF CORPORATE OFFICERS
Compensation in financial years 2017 and 2016
The following tables show the compensation and other benefits due and/or paid to corporate officers in office in the financial years 2017 or 2016.
Table 1: Summary of compensation, options and shares granted to each executive corporate officer
Summary of compensation, options and shares allocated to each executive corporate officer
Compensation for the financial year (detailed in Table 2) N/A CHF 312,500 Value of multi-year variable compensation awarded during the financial year
N/A - CHF
Value of options granted during the financial year (detailed in Table 4) N/A - CHF Value of free shares granted during the financial year (detailed in Table 6) N/A - CHF
Total N/A CHF 312,500
TOTAL equivalent in euros (for information purposes only, based on the average exchange rates of the financial years in question)
N/A €281,152
Benedikt Timmerman – Chairman of the Management Board – director in charge of development (2) (3)
Compensation for the financial year (detailed in Table 2) €206,809 €69,530 Value of multi-year variable compensation awarded during the financial year
-€ -€
Value of options granted during the financial year (detailed in Table 4) -€ -€ Value of free shares granted during the financial year (detailed in Table 6) -€ -€
Total €206,809 -€
Martin Koch – Member of the Management Board – Chief Administrative & Financial Officer (2)
Compensation for the financial year (detailed in Table 2) €155,015 €25,836 Value of multi-year variable compensation awarded during the financial year
-€ -€
Value of options granted during the financial year (detailed in Table 4) -€ -€ Value of free shares granted during the financial year (detailed in Table 6) -€ -€
Total €155,015 €25,836
Marie-Christine Bissery – Member of the Management Board – R&D Director (4)
Compensation for the financial year (detailed in Table 2) €167,406 N/A Value of multi-year variable compensation awarded during the financial year
-€ N/A
Value of options granted during the financial year (detailed in Table 4) -€ N/A Value of free shares granted during the financial year (detailed in Table 6) -€ N/A
Total €167,406 N/A
Sophie Olivier – Member of the Management Board – Chief Medical Officer (4)
Compensation for the financial year (detailed in Table 2) €207,266 N/A Value of multi-year variable compensation awarded during the financial year
-€ N/A
Value of options granted during the financial year (detailed in Table 4) -€ N/A Value of free shares granted during the financial year (detailed in Table 6) -€ N/A
Total €207,266 N/A (1) In the Group’s new structure, Ilias (Elias) Papatheodorou assumed the functions of Chief Executive Officer on February 28, 2017. The compensation presented for the 2017 financial year relates to Ilias (Elias) Papatheodorou’s employment contract with Genkyotex Suisse SA. (2) As a result of the adoption by the General Shareholders’ Meeting of February 28, 2017, of a one-tier board structure, the functions of the Management Board members Martin Koch and Benedikt Timmerman were terminated at the close of that General Shareholders’ Meeting. (3) In the Group’s new structure, Benedikt Timmerman assumed the functions of Deputy Chief Executive Officer from February 28 to May 4, 2017. It should also be noted that Benedikt Timmerman’s employment contract ended in August 2017 and a severance payment of €173,268 was paid to him. (4) Marie-Christine Bissery and Sophie Olivier resigned their mandates as members of the Management Board on September 8, 2016.
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Table 2: Summary of compensation granted to executive corporate officers The following tables show the compensation due to executive corporate officers for the financial years ended December 31, 2016, and December 31, 2017, and the compensation received by them during those financial years.
Summary of compensation granted to executive corporate officers
TOTAL €207,266 €237,266 N/A N/A (1) for the financial year. (2) during the financial year. (3) In the Group’s new structure, Ilias (Elias) Papatheodorou assumed the functions of Chief Executive Officer on February 28, 2017. The compensation presented for the 2017 financial year relates to Ilias (Elias) Papatheodorou’s employment contract with Genkyotex Suisse SA. (4) As a result of the adoption by the General Shareholders’ Meeting of February 28, 2017, of a one-tier board structure, the functions of the Management Board members Martin Koch and Benedikt Timmerman were terminated at the close of that General Shareholders’ Meeting. (5) In the Group’s new structure, Benedikt Timmerman assumed the functions of Deputy Chief Executive Officer from February 28 to May 4, 2017. It should also be noted that Benedikt Timmerman’s employment contract ended in August 2017 and a severance payment of €173,268 was paid to him. (6) Marie-Christine Bissery and Sophie Olivier resigned their mandates as members of the Management Board on September 8, 2016.
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Table 3: Attendance fees and other compensation received by non-executive corporate officers
Attendance fees and other compensation received by non-executive corporate officers
Non-executive corporate officers Amounts paid
in FY 2016 Amounts paid
in FY 2017
Claudio Nessi – Chairman of the Board of Directors (1)
Attendance fees N/A -€
Other compensation N/A -€
ANDERA PARTNERS (formerly Edmond de Rothschild Investment Partners) represented by Gilles Nobecourt (1)
Attendance fees N/A -€
Other compensation N/A -€
ECLOSION SA represented by Jesús Martin-Garcia (1)
Attendance fees N/A -€
Other compensation N/A -€
Mary Tanner (1) (2) Attendance fees €40,000 €13,333
Other compensation -€ -€
Catherine Moukheibir (1) Attendance fees N/A -€
Other compensation N/A -€
Thierry Hercend – Chairman of the Supervisory Board (2)
Attendance fees -€ -€
Other compensation (4) €80,000 €28,333
Dr. Gérard Moller – Vice Chairman of the Supervisory Board (2)
Attendance fees €40,000 €6,667
Other compensation -€ -€
Edmond de Rothschild Investment Partners represented by Raphaël Wisniewski (2)
Attendance fees -€ -€
Other compensation -€ -€
KURMA LIFE SCIENCES PARTNERS represented by Philippe Peltier (3)
Attendance fees -€ N/A
Other compensation -€ N/A
BPI France Investissement represented by Olivier Martinez (2)
Attendance fees -€ -€
Other compensation -€ -€
Dr. Didier Hoch (2) Attendance fees €20,000 €3,333
Other compensation (5) €1,000 -€
Dr. Rainer Strohmenger (2) Attendance fees -€ -€
Other compensation -€ -€
Caroline Laplane (2) Attendance fees -€ -€
Other compensation -€ -€
(1) The Directors were appointed after the General Shareholders’ Meeting on February 28, 2017 adopted a one-tier board structure. (2) As a result of the adoption by the General Shareholders’ Meeting of February 28, 2017, of a one-tier board structure, the functions of the members of the Supervisory Board were terminated at the close of that General Shareholders’ Meeting. (3) Resigned his mandate as member of the Supervisory Board on December 1, 2016. (4) Fees received as Chairman of the Supervisory Board in the amount of €13,333 in 2017 (€20,000 in 2016) and under his consultancy contract in the amount of €15,000 excluding taxes in 2017 (€60,000 excluding taxes in 2016). (5) Fees received by Hoch Strategy SARL, whose manager is Dr. Didier Hoch.
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Table 4: BSAs (warrants) or BSPCEs (founders’ warrants) granted to each executive corporate officer by the Company or any company in its Group in the financial years ended December 31, 2016, and December 31, 2017
None
Table 5: BSA and BSPCE warrants exercised by each executive corporate officer in the financial years ended December 31, 2016, and December 31, 2017
None
Table 6: Free shares granted to executive corporate officers during the financial years ended December 31, 2016, and December 31, 2017
None
Table 7: Free shares that became available to executive corporate officers during the financial years ended December 31, 2016, and December 31, 2017
None
Table 8: History of grants of BSAs or BSPCEs to executive corporate officers
See the tables in Section 21.1.4 of the Registration Document.
Table 9: BSAs or BSPCEs granted to the top 10 employees who are not corporate officers, and the warrants exercised by them
BSPCEs GRANTED TO THE TOP 10 EMPLOYEES WHO ARE NOT CORPORATE
OFFICERS AND BSPCEs EXERCISED BY THEM IN 2017
Total number of BSPCEs granted /
shares subscribed or
bought
Weighted average
subscription price per
share
No. and date of plan
Number of BSPCEs
granted / shares
subscribed or bought
BSPCEs granted, during the period, by the issuer and any company included in the scope of BSPCE allocation, to the top 10 employees of the issuer and of any company included in this scope, with the highest number of BSPCEs thus granted (aggregate numbers)
- - - -
BSPCEs held on the issuer and above-referenced companies, exercised during the year by the top 10 employees of the issuer and of those companies, with the highest number of BSPCEs thus exercised (aggregate numbers)
- - - -
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BSPCEs GRANTED TO THE TOP 10 EMPLOYEES WHO ARE NOT CORPORATE
OFFICERS AND BSPCEs EXERCISED BY THEM IN 2016
Total number of BSPCEs granted /
shares subscribed or
bought
Weighted average
subscription price per
share
No. and date of plan
Number of BSPCEs
granted / shares
subscribed or bought
BSPCEs granted, during the period, by the issuer and any company included in the scope of BSPCE allocation, to the top 10 employees of the issuer and of any company included in this scope, with the highest number of BSPCEs thus granted (aggregate numbers)
100,000 (1) 4.19 BSPCE March 2016
3/1/2016 100,000
BSPCEs held on the issuer and above-referenced companies, exercised during the year by the top 10 employees of the issuer and of those companies, with the highest number of BSPCEs thus exercised (aggregate numbers)
28,596 3.11
BSPCE Dec. 2010 12/17/2010
15,080
BSPCE Sept. 2011 9/30/2011
9,000
BSPCE February 2013
2/15/2013 1,500
BSPCE Dec. 2013 12/20/2013
3,016
(1) Only 1 employee received options in FY 2016
Table 10: History of allocations of free shares
None.
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Table 11:
Breakdown of compensation terms and other benefits granted to executive corporate officers:
Start date of term of office: Date appointed: February 28, 2017
End date of term of office: At the close of the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019
Claudio Nessi – Chairman of the Board of Directors
X X
X X
Start date of term of office: Date appointed: February 28, 2017
End date of term of office: At the close of the General Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019
Benedikt Timmerman – Chairman of the Management Board
X (4) X (4)
X X (4)
Start date of term as Deputy Chief Executive Officer:
Date appointed: February 28, 2017
End date of term as Deputy Chief Executive Officer:
May 4, 2017
Start date of term as Chairman of the Management Board:
Most recent renewal date: April 22, 2013
End date of term as Chairman of the Management Board:
At the close of the General Shareholders’ Meeting of February 28, 2017
Martin Koch – Member of the Management Board – Chief Administrative & Financial Officer
X (5) X X X
Start date of term of office: Most recent renewal date: April 22, 2013
End date of term of office: At the close of the General Shareholders’ Meeting of February 28, 2017
Marie-Christine Bissery – Member of the Management Board – R&D director
X (6) X X X (6)
Start date of term of office: Most recent renewal date: April 22, 2013
End date of term of office: Resigned on September 8, 2016
Sophie Olivier – Member of the Executive Board – Chief Medical Officer
X (7) X X X (7)
Start date of term of office: Appointed September 11, 2014, effective October 1, 2014
End date of term of office: Resigned on September 8, 2016 (1) Ilias (Elias) Papatheodorou’s employment contract was signed with Genkyotex Suisse SA. (2) In accordance with the Swiss system, employees receive old-age insurance and pension benefits consisting of two components: a minimum pension from the government (AVC, 1st pillar) and a mandatory occupational pension plan (LPP, 2nd pillar). (3) The employment contract provides non-compete compensation equal to 100% of base annual pay and benefits (CHF 250,000 in 2017). (4) Benedikt Timmerman’s employment contract ended on August 18, 2017. (5) Martin Koch’s employment contract ended on July 11, 2017. (6) Marie-Christine Bissery’s employment contract ended on November 17, 2016. (7) Sophie Olivier’s employment contract ended on May 5, 2017.
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Compensation policy for executive corporate officers
In accordance with the provisions of Article L. 225-37-2 of the French Commercial Code, the “principles and criteria for determining, distributing and allocating fixed, variable and exceptional components” of total compensation and benefits of any kind that may be granted to the chairman, chief executive officers or deputy chief executive officers as corporate officers, shall be subject to a resolution based on shareholder votes during the Ordinary Annual General Shareholders’ Meeting called to approve the financial statements for the financial year ended.
As a result, the French Sapin II law of December 9, 2016, established new regulations relating to voting at the General Shareholders’ Meeting on the compensation of executive corporate officers of companies whose shares are listed for trading on Euronext Paris. There are two types of voting:
- a first ex-ante vote pertaining to the principles and criteria used to determine, distribute and allocate the fixed, variable and exceptional components of total compensation and benefits of any kind that may be granted to the Chairman of the Board of Directors and to the Chief Executive Officer of Genkyotex as corporate officers (Article L. 225-37-2 of the French Commercial Code). This vote on the compensation policy applicable to each of the Company’s executive corporate officers will be submitted for vote on a yearly basis;
- a second ex-post roll call vote at the Ordinary General Shareholders’ Meeting after the vote to approve the executive corporate officer compensation policy pertaining to the amounts of the compensation paid or allocated for the year ended to each executive corporate officer (Article L. 225-100 of the French Commercial Code). This yearly vote requires that payment of the compensation to the concerned executive corporate officers include variable or exceptional items based on the previous financial year, where applicable.
15.1.2.1 Compensation principles and criteria for executive corporate officers
This report on compensation principles for corporate officers was adopted on February 28, 2018 by the Board of Directors. In accordance with the provisions of Article L. 225-37-2 of the French Commercial Code, it describes the principles and criteria for determining, distributing and allocating fixed, variable and exceptional components of total compensation and benefits of any kind that may be granted to corporate officers.
This report will be subject to shareholder approval during the Annual General Meeting on June 13, 2018, as part of its Resolutions 8 and 9.
As a result, considering the recent change in the Company’s management and governance structure from adopting the Board of Directors structure, a new executive corporate officer compensation policy was put in place as of March 1, 2017. However, given the short time elapsed since completely renewing its governance structure, the Company is unable to comprehensively revamp the compensation policy for its executive corporate officers at this stage.
When the Company changed its governance structure, the Board of Directors decided that the Chairman and CEO functions would not be compensated at this stage.
At a meeting on February 28, 2018, the Board of Directors decided to renew the compensation policy for its executive corporate officers for the financial year 2018.
As a result, the Chairman will not receive attendance fees, annual or multi-annual variable compensation, nor benefit from any severance arrangements. However, depending on how the
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Company’s business progresses, the Board of Directors, on the recommendation of the Appointments and Compensation Committee, could review the compensation policy and include a performance-based compensation plan and/or stock option plan. Approval by the General Shareholders’ Meeting will be required for any changes to the Chairman’s compensation policy.
The Chief Executive Officer will also not be granted any fixed or variable compensation as a corporate officer for 2018. The Chief Executive Officer may, however, receive stock options and/or performance shares. However, depending on how the Company’s business progresses, the Board of Directors, on the recommendation of the Appointments and Compensation Committee, could review the compensation policy and include benefits in kind and variable compensation which would be based on performance criteria. In this case, approval by the General Shareholders’ Meeting will be required for any modification of the Chief Executive Officer’s compensation policy.
All compensation arrangements will be voted on by the Board of Directors based on a proposal by the Appointments and Compensation Committee, which takes into consideration the level and difficulties of the responsibilities, the field of activity and industry practices.
Executive corporate officers do not receive attendance fees for their corporate duties.
The Company does not offer severance arrangements or supplemental pension plans for corporate duties.
None of the corporate officers concerned receive compensation or benefits of any kind mentioned in Articles L. 225-37-2 and R. 225-29-1 of the French Commercial Code for their corporate duties.
However, Ilias (Elias) Papatheodorou, the Company’s Chief Executive Officer, receives compensation under an employment contract that predates his functions as a corporate officer at the Company and ties him to the Genkyotex Suisse SA subsidiary as the Chief Executive Officer of that subsidiary. For informational purposes, a stock option plan was put in place in early 2018 for all Genkyotex Group salaried employees. As Mr. Papatheodorou has an employment contract with the Genkyotex Suisse SA subsidiary, he was awarded 583,616 stock options in his capacity as an employee. The features of this plan are detailed in Section 21.1.4.3 of the Registration Document.
15.1.2.2 Executive corporate officer compensation and benefits in respect of their duties as corporate officers for the financial year 2017
Compensation and benefits of Claudio Nessi, Chairman of the Board of Directors, for the financial year 2017
Claudio Nessi was appointed Chairman of the Board of Directors on February 28, 2017. He was not paid or allocated compensation or benefits of any kind for the financial year 2017 due to his position as Chairman of the Board of Directors.
In accordance with Article L. 225-100 of the French Commercial Code, the Company shall submit the above-mentioned items related to Claudio Nessi for the financial year 2017 to the shareholders (Resolution 6 submitted to shareholders during the Annual General Shareholders’ Meeting to be held on June 13, 2018).
Compensation and benefits of Elias (Ilias) Papatheodorou, Chief Executive Officer, for the financial year 2017
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Elias (Ilias) Papatheodorou was appointed Chief Executive Officer on February 28, 2017. He was not paid or allocated compensation or benefits of any kind for the 2017 financial year due to his position as Chief Executive Officer of the Company.
In accordance with Article L. 225-100 of the French Commercial Code, the Company shall submit the above-mentioned items related to Elias (Ilias) Papatheodorou for the financial year 2017 to the shareholders (Resolution 7 submitted to shareholders during the Annual General Shareholders’ Meeting to be held on June 13, 2018).
15.2. AMOUNTS SET ASIDE BY THE COMPANY OR ITS SUBSIDIARIES TO PROVIDE
PENSION, RETIREMENT OR SIMILAR BENEFITS TO DIRECTORS AND EXECUTIVES
The amounts set aside or measured by the Company or its subsidiaries for pension payments, retirement packages or other benefits to directors and executives relate only to the legally required retirement packages for French employees and the intra-company mandatory defined benefit scheme for Swiss employees. They are calculated on the same basis as for the Group’s other employees.
15.3. SHARE SUBSCRIPTION OR PURCHASE OPTIONS; WARRANTS AND FOUNDERS’ WARRANTS
The terms and conditions of each BSA, BSPCE and stock option plan are disclosed in detail in Section 21.1.4 of the Registration Document.
15.4. SUMMARY OF TRANSACTIONS BY EXECUTIVES AND THE PERSONS MENTIONED IN ARTICLE L. 621-18-2 OF THE FRENCH MONETARY AND FINANCIAL CODE INVOLVING COMPANY SECURITIES IN THE PAST FINANCIAL YEAR
None.
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16. BOARD PRACTICES
16.1. COMPANY MANAGEMENT
When the Company changed its governance and management structure via Shareholder vote at the General Shareholders’ Meeting on February 28, 2017, a decision was made to separate the functions of Chairman of the Board of Directors and Chief Executive Officer.
In fact, the Chairman of the Board of Directors organizes and directs the work of the Board, and reports on this work to the General Shareholders’ Meeting. The Chairman oversees the proper functioning of the Company’s bodies and ensures, in particular, that directors are capable of fulfilling their duties. The Chairman chairs Board meetings, but in the event of a tie, does not cast the deciding vote within the Board.
The Chairman of the Board of Directors ensures ongoing dialog and discussion between the Board of Directors and the management team, especially with regards to implementing strategy and reviewing the Company’s key projects. The Chairman also ensures that the Board’s specialized committees are operating well and have open and productive lines of communication with the Board of Directors.
The Chief Executive Officer is responsible for the Company’s management and he or she is not limited in any particular way by the Board of Directors.
Changes are described in Section 14 “Administrative, management and supervisory bodies and senior management” and in Section 21.2 “Articles of Incorporation and By-laws” of this Registration Document.
16.2. CONTRACTS BINDING CORPORATE OFFICERS AND THE GROUP
Mr. Ilias (Elias) Papatheodorou, appointed Chief Executive Officer of the Company on February 28, 2017, has an employment contract with Genkyotex Suisse SA as its Chief Executive Officer.
There are no other contracts binding a corporate officer to the Company or to any company of the Group.
16.3. BOARD OF DIRECTORS AND SPECIALIZED COMMITTEES – CORPORATE GOVERNANCE
Developments regarding the composition of the Board of Directors and information about its members are presented in Chapters 14 “Administrative, management and supervisory bodies and senior management” and 21.2 “Articles of Incorporation and By-laws” of this Registration Document.
The members of the Board of Directors may be paid attendance fees, which are distributed among them, based on attendance records at Board meetings and their participation in specialized committees.
To date, only the independent members of the Board of Directors are paid attendance fees.
New rules of procedure (Board charter) were adopted by the Board of Directors at its meeting of February 28, 2017.
The Board charter specifies the rules of conduct and the obligations of its members. Board members separately undertake to maintain their independence of analysis, judgment and action, and to actively participate in the work of the Board. They inform the Board of any conflicts of interest that may involve
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them. Moreover, the Board charter reaffirms the current regulations on the communication and use of inside information and specify that its members must refrain from trading in Company shares when they have inside information. All members of the Board of Directors are also obligated to declare to the Company and to the AMF (French Financial Markets Authority) any direct or indirect trading they do in Company shares.
The Board of Directors believes that Ms. Catherine Moukheibir and Ms. Mary Tanner are two independent members within the meaning of the Corporate Governance Code for small and medium enterprises as updated in September 2016 by MiddleNext and approved as a standard code by the AMF, to the extent that Ms. Catherine Moukheibir and Ms. Mary Tanner:
• are not and have not been in the past five years, employees or executive corporate officers of the Company or of a company in its group;
• do not have and have not had in the past two years a significant business relationship with the Company or its group (as customer, supplier, competitor, service provider, creditor, banker, etc.);
• are not major shareholders of the Company or hold a significant percentage of voting rights;
• have no close or family relationship with any corporate officer or major shareholder; and
• have not been auditors of the Company in the past six years.
The number of Board of Directors meetings reflects the various events in the life of the Company. Thus, the Board does not meet more frequently than Company events justify and at least four (4) times per year.
In the financial year ended December 31, 2017, after the change in the Company’s management and governance structure, its Board of Directors met seven times, and the average attendance rate of members of the Supervisory Board was 92.85%.
The Board of Directors also has two specialized committees: an Audit Committee and an Appointments and Compensation Committee.
The Audit Committee monitors issues relating to the preparation and verification of accounting and financial information and, for that purpose, has the following main duties:
- monitor the process of preparing financial information and, as appropriate, make recommendations to guarantee its integrity;
- monitor the effectiveness of internal control and risk management systems, and, as appropriate, internal audits of procedures relating to the preparation and processing of accounting and financial information, without undermining its independence;
- oversee the Statutory Auditors’ review of the separate and consolidated annual financial statements;
- issue a recommendation regarding the appointment of Statutory Auditors by the General Shareholders’ Meeting and issue a recommendation to the Board of Directors when the term of office of the Statutory Auditor(s) comes up for renewal;
- ensure that the Statutory Auditors carry out their assignment and take into consideration the findings and conclusions of the French audit control board (Haut conseil du commissariat aux comptes / H3C) following their audits;
- ensure that the Statutory Auditors meet the independence requirements; take any necessary measures as needed;
- approve the provision of non-audit services by the Statutory Auditors (Article L. 822-11-2 of the French Commercial Code);
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- report on a regular basis to the Board of Directors regarding the progress of its assignments and on the results of the statutory audit, how it contributed to the integrity of financial information, and the role it played in that process. The Audit Committee immediately reports any problems encountered;
- review the Company’s procedures for receiving, storing and treating complaints concerning internal accounting and control, audit-related issues as well as documents sent by employees anonymously and confidentially that may call into question accounting or auditing practices;
- in general, offer all appropriate advice and recommendations in the above-mentioned areas.
The Audit Committee is composed of: Catherine Moukheibir (Chair of the Audit Committee), the company Eclosion2 SA represented by Jesús Martin-Garcia, and Mary Tanner.
The Appointments and Compensation Committee’s tasks are:
• regarding appointments: - submit recommendations to the Board of Directors for the Chief Executive Officer and
Deputy Chief Executive Officers, when appropriate, the composition of the Board of Directors and its committees;
- propose to the Board of Directors on an annual basis a list of directors who qualify as “independent member” in terms of the criteria defined in the MiddleNext Code;
- prepare a list of individuals who can be recommended as Chief Executive Officer, Deputy Chief Executive Officer or Director;
- prepare a list of directors who can be recommended as a member of a Board of Directors committee;
• regarding compensation: - review the key objectives proposed by the Chief Executive Officer and his or her Deputy
Chief Executive Officers, when appropriate, in terms of compensation for non-corporate-officer executives of the Company and the Group, including free-share plans and share subscription or purchase options;
- review the compensation of non-corporate-officer executives, including free-share plans and share subscription or purchase options, pension and insurance plans and benefits in kind;
- submit recommendations and proposals to the Board of Directors regarding: ▪ the compensation, pension and insurance plans, benefits in kind, and other
monetary rights, including in the case of cessation of business for the Chief Executive Officer and Deputy Chief Executive Officers, if any. The Appointments and Compensation Committee proposes compensation amounts and structures and, in particular, the rules for setting the variable portion taking into account the Company’s strategy, objectives and results as well as market practices, and
▪ free-share plans, share subscription or purchase options and any other similar incentive mechanisms and, in particular, allocations by name to the Chief Executive Officer and to Deputy Chief Executive Officers, if any;
- review the total attendance fees and the system for allocating them among the members of the Board of Directors, as well as the conditions for the reimbursement of any expenses incurred by Board members;
- prepare and submit reports, if any, specified by the rules of procedure of the Appointments and Compensation Committee;
- submit any other recommendations that may be requested of it by the Board of Directors or the Chief Executive Officer regarding compensation.
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The Appointments and Compensation Committee is composed of the company Andera Partners (formerly Edmond de Rothschild Investment Partners), represented by Gilles Nobécourt (Chair of the Appointments and Compensation Committee), Catherine Moukheibir and Claudio Nessi.
As of December 31, 2017, the Board of Directors has two women representing 33.33% of the Board members.
The Company applies the exemption defined in Article L. 225-18-1 of the French Commercial Code, which states that when the Board of Directors comprises at most eight members, the difference between the number of men and women directors may not exceed two.
The Board of Directors also has two observers, namely, Stéphane Verdood and Joseph McCraken. Observers are invited to Board of Directors meetings on the same terms as the Board members and have the same right to receive information prior to the meetings on the same terms and conditions as the Board members. They attend Board meetings in an advisory capacity only (see Section 21.2.2 of this Registration Document for the statutory provisions concerning observers).
16.4. STATEMENT REGARDING CORPORATE GOVERNANCE
The Company has designated the Corporate Governance Code for small and medium enterprises as updated in September 2016 by MiddleNext (the “MiddleNext Code”) as standard code.
The Company intends to comply with all the recommendations of the Corporate Governance Code for small and medium enterprises. The table below lists out the various recommendations from this Code and specifies whether the Company complies with the recommendation or not.
R3 - Composition of the board – Presence of independent members
X
R4 - Information on board members X
R5 - Structure of board meetings and committees X
R6 - Committee set up X
R7 - Implementation of Board internal rules and procedures X
R8 - Independence of each board member X
R9 - Board member terms of office X
R10 - Board member compensation X
R11 - Implementation of a mechanism for assessing the Board’s performance
X (1)
R12 - “Shareholder” relations* X
Executive power
R13 - Definition and transparency of compensation for executive corporate officers
X (2)
R14 - “Executive” preparation and succession*
X (3)
R15 - Combined employment contract and corporate mandate
X (4)
R16 - Severance pay X
R17 - Supplementary retirement plans X
R18 - Stock options and free share awards X (5)
R19 - Review of key areas of concern* X
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*New recommendations shown in the version of the code of corporate governance published by MiddleNext in September 2016 compared to the version published by MiddleNext in December 2009.
(1) Given the change in the Company’s management and governance structure in 2017, it would be prudent to allow the Board of Directors some time to operate under this new structure before assessing its performance. The Board will carry out a self-assessment after the approval of the 2017 annual financial statements. (2) The mandates of the Company’s executive corporate officers (Chairman of the Board of Directors and CEO) are not at this stage remunerated. (3) Considering the recent change in the Company’s governance and management structure, which took place during the 2017 financial year, the issue of “executive” succession will be included on the agenda for the next specialized committee or Board meeting. (4) No executive corporate officer of the Company may carry out an employment contract and a corporate office within the same Company at the same time; however, Mr. Ilias (Elias) Papatheodorou holds an employment contract with Genkyotex Suisse SA, which was signed prior to his appointment as Chief Executive Officer of the Company. (5) No stock option plan and/or free share awards have been set up in the financial year 2017. However, a stock option plan was set up in early 2018 for all group employees. This plan does not require the achievement of performance conditions to exercise these options. Mr. Papatheodorou, who holds an employment contract within the Genkyotex Suisse SA subsidiary, has received 583,616 stock options as an employee. The characteristics of this plan are specified in Section 21.1.4.3 of the Registration Document.
16.5. INTERNAL CONTROL
As of the Registration Document Date, the Company has the following internal control procedures in place: Organization of the accounting and finance department The accounting function is outsourced under the supervision of the Chief Financial and Administrative Officer. The Company is diligent in maintaining a separation between the preparation and supervision of its financial statements and uses independent experts to measure complex accounting items (pension obligations, value of shareholders’ equity instruments) and/or relies on subjective assumptions. Payroll and review of tax issues are entrusted to chartered accountants. The financial statements, prepared in accordance with French and IFRS standards, produced with the assistance of an independent audit firm, are submitted to the Company’s co-auditors. Budget process The Company prepares an annual projected spending budget per project, taking into account actual spending, revenue adjustments and expenses remaining to be incurred. These factors are reviewed on a regular basis at Board meetings. Delegation of powers The Company has put in place a procedure for delegating powers, including signing powers for the payment of invoices and the placing of purchase orders.
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Since the merger on February 28, 2017, the Company has integrated and harmonized the various operational systems and procedures used within the two companies, such as the financial and accounting systems. On the date of the Registration Document, the Company continued to implement and carry out the new harmonized systems and procedures.
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17. EMPLOYEES
17.1. NUMBER OF EMPLOYEES AND BREAKDOWN BY POSITION
Operational organizational chart
At the Registration Document Date, the Group’s operational organizational chart appears as follows:
Number and breakdown of employees
At the close of the stated financial periods, the workforce broke down as follows:
Breakdown by activity 12/31/2017 12/31/2016
Research & Development 8 4 Administrative employees 4 3
TOTAL 12 7
In addition, as of December 31, 2016, the Genkyotex Suisse group employed 10 people (7 people in Research & Development and 3 people in administrative positions).
17.2. HOLDINGS AND STOCK OPTIONS OF CORPORATE EXECUTIVES
See Sections 15.3 “Share subscription or purchase options; warrants and founders’ warrants” and 18.1 “Shareholding structure and voting rights” in the Registration Document.
17.3. EMPLOYEE HOLDINGS IN THE COMPANY’S SHARE CAPITAL
In accordance with Article L. 225-102 of the French Commercial Code, the Company states that no employee savings plan has been implemented for the employees of the Company. See Section 18.1 “Shareholding structure and voting rights” in the Registration Document.
Chief Executive
Officer
Chief Medical Officer
Head of
Pharmacology
Associate Scientist
Junior Scientist (in vivo
pharmacology)
Head of Screening and Biotechnology
Senior Scientist and Screening
ManagerTechnician
Clinical Officer
Chief Financial and
Administrative Officer
Secretary-accountant
Financial Controller
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17.4. PROFIT SHARING AND EQUITY INTEREST AGREEMENTS
None.
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18. MAJOR SHAREHOLDERS
18.1. SHAREHOLDING STRUCTURE AND VOTING RIGHTS
As of the date of the Registration Document, to the best of the Company’s knowledge, the shareholder base broke down as follows:
Total 77,850,006 100.00% 79,480,274 100.00% 77,850,006 100.00% 15,570,055 100.00%
(1) Including the 470,334 BSA warrants and the 1,159,934 stock options issued and allocated by the Company at the Registration Document date, exercisable or not, giving right to 470,334 and 1,159,934 new shares of the Company, respectively.
(2) Theoretical voting rights. All shares have the same voting rights, except treasury shares.
(3) Shares held as of March 31, 2018, under the liquidity contract with Oddo et Cie on April 18, 2014.
For the record, following the approval of the in-kind contribution of the Swiss company GenKyoTex shares by the Company’s General Shareholders Meeting on February 28, 2017, the shareholders of the contributing company received 62,279,951 new ordinary shares in compensation for their contribution, representing 80% of the Company’s share capital; consequently, the “Free float” line was impacted between December 31, 2016, and February 28, 2017.
Furthermore, Swiss company Venture Incubator AG (Baarerstrasse 86A, 6300 Zug) declared on January 22, 2018 that it had crossed below the thresholds of 5% of the capital and voting rights of Genkyotex and held 3,779,515 Genkyotex shares representing as many voting rights, i.e., 4.85% of the capital and voting rights of the Company.
18.2. SIGNIFICANT SHAREHOLDERS NOT REPRESENTED ON THE BOARD OF DIRECTORS
None.
18.3. VOTING RIGHTS OF MAIN SHAREHOLDERS
At the date of the Registration Document, the voting rights of each shareholder were equal to the number of shares held by each of them. The bylaws of the Company do not allow double voting rights.
18.4. CONTROL OF THE COMPANY
In the meaning of Article L. 233-3 of the French commercial code, no controlling shareholder of the Company existed at the date of the Registration Document.
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The Company did not make any arrangement to protect against abusive exercise of control of the Company.
To the Company’s knowledge, there is no concerted action (action de concert) among its shareholders.
18.5. AGREEMENTS THAT COULD TRIGGER A CHANGE OF CONTROL
To the Company’s knowledge, there is no agreement which, if implemented, could trigger a change in control of the Company.
18.6. PLEDGE OF THE COMPANY’S SHARES
To the Company’s knowledge, no pledges regarding its shares have been made.
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19. RELATED PARTY TRANSACTIONS
19.1. INTRA-GROUP TRANSACTIONS
See Section 7.3 “Financial flows within the Group”.
19.2. SIGNIFICANT AGREEMENTS WITH RELATED PARTIES
At the General Shareholder’s Meeting of February 28, 2017, the Company’s shareholders approved the change to the Company’s management and governance structure and adopted a one-tier board structure. All the functions of the members of the Supervisory Board and the members of the Management Board were terminated at the close of that General Shareholders’ Meeting.
It should also be noted that no new agreement was signed with corporate officers between January 1, 2017, and the Registration Document Date. Mr. Papatheodorou, the Company’s Chief Executive Officer, has an employment contract with the Company’s Swiss subsidiary, Genkyotex Suisse SA.
19.2.1. Consulting agreement signed between the Company and Hoch Strategy SARL
The Company benefits from Mr. Hoch’s advice in assessing the commercial potential of its products, which is an essential aspect of the value of the projects that it carries out. The Company pays €3,000 per day for consulting services provided, excluding expenses. This agreement signed in previous years was automatically renewed in 2016 (the Company having previously been a dual structure with a Management Board and a Supervisory Board).
Mr. Hoch performed the functions of a member of the Supervisory Board until February 28, 2017.
The fees paid to Hoch Strategy SARL, which is managed by Mr. Hoch, amounted to €1,000 in 2016. No fees were paid under this agreement during the period from January 1, 2017, to February 28, 2017.
The consulting agreement signed between the Company and Hoch Strategy SARL has been terminated.
19.2.2. Consulting contract signed between the Company and Mr. Hercend
The Company benefits from Mr. Hercend’s expert advice in the field of immunology (Mr. Hercend being a Doctor of Medicine and a Doctor of Immunology Sciences). The Company pays €15,000 per quarter for consulting services provided. This agreement signed in previous years was automatically renewed in 2016 (the Company having previously been a dual structure with a Management Board and a Supervisory Board).
Mr. Hercend performed the functions of Chairman of the Supervisory Board until February 28, 2017.
The fees paid to Mr. Hercend under this agreement amounted to €60,000 (excl. tax) in the financial year 2016. The fees paid under this contract totaled €15,000 excluding tax for the period from January 1, 2017, to February 28, 2017.
The consulting contract signed between the Company and Mr. Hercend has been terminated.
Employment contract signed between the Company and Mr. Timmerman
The Company signed a permanent employment contract with Mr. Timmerman as Chief Executive Officer in charge of the Company’s development. This agreement, which had been signed in previous years, ended in 2017.
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Mr. Timmerman performed the functions of Chairman of the Management Board until February 28, 2017, and then Deputy Chief Executive Officer until May 4, 2017.
The compensation received by Mr. Timmerman for his employment contract amounted to €206,809 in 2016 and €69,530 from January 1, 2017, to May 4, 2017.
Employment contract signed between the Company and Mr. Koch
The Company signed a permanent employment contract with Mr. Koch as the Company’s Chief Financial Officer. This agreement, which had been signed in previous years, ended in 2017.
Mr. Koch performed the functions of member of the Management Board until February 28, 2017.
The compensation received by Mr. Koch from his employment contract amounted to €155,015 in 2016, and €25,836 from January 1, 2017, to February 28, 2017.
Employment contract signed between the Company and Ms. Bissery
The Company signed a permanent employment contract with Ms. Bissery as the Company’s R&D Director. This agreement, which had been signed in previous years, ended in 2016.
Ms. Bissery performed her functions as a member of the Management Board until September 8, 2016, her date of resignation from the Board, and her employment contract was terminated on November 17, 2016.
The compensation received by Ms. Bissery from her employment contract amounted to €167,406 in 2016.
Salary payments owed to related parties under the terms of their previously signed
employment contracts still in force on January 1, 2017
As of the Registration Document Date, the total salary payments owed to related parties under the terms of their previously signed employment contracts still in force on January 1, 2017 amount to €95,3665.
It should be noted that all the members of the Supervisory Board and of the Management Board resigned their positions at the close of the General Shareholders’ Meeting of February 28, 2017, and are therefore, as of this date, no longer considered to be related parties, with the exception of Mr. Benedikt Timmerman who was appointed Deputy Chief Executive Officer but whose term of office ended on May 4, 2017.
5 Unaudited data
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19.3. STATUTORY AUDITORS’ SPECIAL REPORTS ON REGULATED AGREEMENTS
19.3.1. Statutory Auditors’ Special Report on regulated agreements in effect in the financial year ended December 31, 2017
“
GENKYOTEX
STATUTORY AUDITORS' SPECIAL REPORT ON REGULATED AGREEMENTS AND COMMITMENTS
General Shareholders’ Meeting to approve the financial statements for the year ended December 31, 2017
___________
This is a free translation into English of the Statutory Auditors’ special report on regulated agreements and commitments issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. It should be understood that the agreements and commitments reported on are only those provided by the French Commercial Code and that the report does not apply to related party agreements described in IAS 24 or other equivalent accounting standards..
___________ To the shareholders, As Statutory Auditors of your company, we present to you our report on related-party agreements and commitments. It is our duty to report to you, based on the information provided to us, the key features of and benefits to the Company, of the agreements and commitments of which we have been informed or which we have identified during our assignment, without being required to form an opinion as to their usefulness or appropriateness or to search for undisclosed agreements and commitments. According to the provisions of Article R.225-31 of the French Commercial Code, it is your duty to assess the benefits of entering into these agreements and commitments when they are submitted for your approval. It is also our duty, where appropriate, to inform you of the information referred to in article R.225-31 of the French Commercial Code relating to the continuation, in the period under review, of agreements and commitments approved by General Shareholders’ Meetings in previous years. We carried out the investigations that we considered necessary to comply with the professional guidelines issued by the Compagnie nationale des commissaires aux comptes in respect of this assignment. The guidelines focus on verifying that the information presented is consistent with underlying source documents. AGREEMENTS AND COMMITMENTS SUBMITTED FOR THE APPROVAL OF THE GENERAL SHAREHOLDERS’ MEETING
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We inform you that we have not been advised of any agreement or commitment authorised and concluded in the period of review to be submitted for the approval of the general shareholders’ meeting in accordance with the provisions of article L.225-38 of the French Commercial Code.
AGREEMENTS AND COMMITMENTS PREVIOUSLY APPROVED BY THE GENERAL SHAREHOLDERS' MEETING In accordance with Article R.225-30 of the French Commercial Code, we have been informed that the following agreements and commitments approved by a General Shareholders’ Meeting in previous years were still in force in the past year. Agreement with Mr Benedikt TIMMERMAN Person concerned: Benedikt TIMMERMAN, Chairman of your Company’s Executive Board until the 28th of February 2017, Chief Operating Officer from the 28th of February to the 4th of May 2017 On February 22, 2010, your Supervisory Board authorized your Company to sign a permanent employment contract with Mr Benedikt TIMMERMAN as Chief Executive Officer in charge of the Company’s development. For the financial year ended December 31, 2017, Mr Benedikt TIMMERMAN received for his functions as Chief Executive Officer in charge of the Company’s development gross compensation of €69,530. Agreement with Mr Martin KOCH Person concerned: Martin KOCH, member of your Company’s Executive Board until the 28th of February 2017 On February 22, 2010, your Supervisory Board authorized an addendum to the permanent employment contract of Mr Martin KOCH, Chief Financial and Administrative Officer, changing his compensation. For the financial year ended December 31, 2017, Mr Martin KOCH received for his functions as Chief Financial and Administrative Officer gross compensation of €25,836.
Neuilly-sur-Seine and Toulouse, April 11th, 2018
The Statutory Auditors
French original signed by
Grant Thornton
French Member of Grant Thornton International
Samuel Clochard
Sygnatures
Laure Mulin
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Partner
Partner
”
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19.3.2. Statutory Auditors’ Special Report on regulated agreements in effect in the financial year
ended December 31, 2016
GENTICEL LIMITED COMPANY WITH CAPITAL OF €1,557,005.50
Registered office:
516 Rue Pierre et Marie Curie 31670 Labege, France
STATUTORY AUDITORS’ SPECIAL REPORT
ON REGULATED AGREEMENTS AND COMMITMENTS General Shareholders’ Meeting to approve the financial
statements for the year ended December 31, 2016
This is a free translation into English of the Statutory Auditors’ special report on regulated agreements and commitments issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. It should be understood that the agreements and commitments reported on are only those provided by the French Commercial Code and that the report does not apply to related party agreements described in IAS 24 or other equivalent accounting standards.
To the Shareholders,
As Statutory Auditors of your company, we present to you our report on related-party agreements and commitments.
It is our duty to report to you, based on the information provided to us, the key features of and benefits to the Company, of the agreements and undertakings of which we have been informed or which we have identified during our assignment, without being required to form an opinion as to their usefulness or appropriateness or to search for undisclosed agreements and undertakings. According to the provisions of Article R. 225-58 of the French Commercial Code, it is your duty to assess the benefits of entering into these agreements and commitments when they are submitted for your approval.
It is also our duty, where appropriate, to inform you of the information referred to in Article R. 225-58 of the French Commercial Code relating to the continuation, in the period under review, of agreements and undertakings approved by General Shareholders’ Meetings in previous years.
We carried out the investigations that we considered necessary to comply with the professional guidelines issued by the Compagnie nationale des commissaires aux comptes in respect of this assignment. The guidelines focus on verifying that the information presented is consistent with underlying source documents.
AGREEMENTS AND COMMITMENTS SUBMITTED FOR THE APPROVAL OF THE GENERAL SHAREHOLDERS’ MEETING
In accordance with Article L. 225-88 of the French Commercial Code, we have been informed of the following agreements and undertakings previously approved by your Supervisory Board.
Agreement with Doctor Thierry Hercend
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Person concerned: Thierry Hercend, Chairman of your Company’s Supervisory Board
On December 1, 2015, your Supervisory Board authorized the renewal, for 2016, of a contract originally signed with Dr. Thierry Hercend in 2008. His mission is to:
• assist the Management Board in defining and setting up a pre-clinical and clinical technological development strategy;
• assist the Company in raising funds to support its structural growth.
Benefit to the Company of the Supervisory Board’s agreement or commitment:
Your Company benefits from Mr. Hercend’s expert advice in the field of immunology (Mr. Hercend being a Doctor of Medicine and a Doctor of Immunology Sciences).
This contract renewal took effect January 1, 2016, for a 12-month automatically renewable term. His services will be remunerated in the form of a fixed monthly payment of €5,000 plus VAT.
For the financial year ended December 31, 2016, the expense recognized by your Company was €60,000 (excl. tax).
Agreement with Doctor Didier Hoch
Person concerned: Didier Hoch, independent member of your Company’s Supervisory Board.
On December 1, 2015, your Supervisory Board authorized the renewal, for 2016, of a contract originally signed with Dr. Hoch in 2011. His mission is to advise the Company on:
• marketing development • market access strategy
Benefit to the Company of the Supervisory Board’s agreement or commitment:
The Company benefits from Mr. Hoch’s advice in assessing the commercial potential of its products, which is an essential aspect of the value of the projects that it carries out.
This contract renewal took effect January 1, 2016, for a 12-month automatically renewable term. Each intervention by Dr. Hoch is remunerated at a flat daily rate of €3,000 plus VAT. Travel expenses are reimbursable on presentation of supporting documentation.
For the financial year ended December 31, 2016, your Company paid €1,000 in fees and €1,878.80 in travel expenses.
AGREEMENTS AND COMMITMENTS PREVIOUSLY APPROVED BY THE GENERAL SHAREHOLDERS’ MEETING
In accordance with Article R. 225-57 of the French Commercial Code, we have been informed that the following agreements and commitments approved by a General Shareholders’ Meeting in previous years were still in force in the past year.
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Agreement with Mr. Benedikt Timmerman
Person concerned: Benedikt Timmerman, Chairman of your Company’s Executive Board
On February 22, 2010, your Supervisory Board authorized your Company to sign a permanent employment contract with Mr. Benedikt Timmerman as Chief Executive Officer in charge of the Company’s development.
For the financial year ended December 31, 2016, Mr. Benedikt Timmerman received for his functions as Chief Executive Officer in charge of the Company’s development, gross annual compensation of €206,809.
Agreement with Mr. Martin Koch
Person concerned: Martin Koch, member of your Company’s Executive Board
On February 22, 2010, your Supervisory Board authorized an addendum to the permanent employment contract of Mr. Martin Koch, Chief Financial and Administrative Officer, changing his compensation.
For the financial year ended December 31, 2016, Mr. Martin Koch received for his functions as Chief Financial and Administrative Officer gross annual compensation of €155,015.
Agreement with Ms. Marie-Christine Bissery
Person concerned: Marie-Christine Bissery, member of your Company’s Executive Board
On December 2, 2015, your Company signed an addendum to Ms. Marie-Christine Bissery’s employment contract, giving her a new role as Development Director, stemming from the splitting of the Research Director’s function into two: Development Director and Scientific Director.
For the financial year ended December 31, 2016, Ms. Marie-Christine Bissery received for her functions a gross annual compensation of €167,406.
Neuilly-sur-Seine and Toulouse, February 27, 2017
Statutory Auditors
GRANT THORNTON French Member of Grant Thornton International
Samuel Clochard
SYGNATURES
Laure Mulin
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20. FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES
20.1. CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Genkyotex SA (formerly Genticel SA) Notes 12.31.2017 12.31.2016
Consolidated Statement of Financial Position € thousands € thousands
Reserves attributable to owners of the parent company (117 917) (28 395)
Net income (loss) for the period attributable to owners of the parent (25 773) (6 699)
Equity attributable to owners of the parent 23 535 12 217
Non controlling interests - -
Total equity 23 535 12 217
Employee benefit obligations 10 822 874
Non-current financial debts 9 115 -
Total non-current liabilities 937 874
Current financial debts 9 288 -
Trade payables 1 312 1 203
Other current l iabilities 12 820 550
Total current liabilities 2 421 1 753
Total Liabilities and equity 26 893 14 844
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CONSOLIDATED INCOME STATEMENT
(1) Minority interests as of December 31, 2016, were related to the percentage stake of Genkyotex Suisse SA in Genkyotex Innovation SAS (see Note 2.2).
Genkyotex SA (formerly Genticel SA) Notes 12.31.2017 12.31.2016
12 months 12 months
Consolidated Income Statement € thousands € thousands
Revenue - -
Cost of sales - -
Gross margin - -
Net research and development expenses
Research and development expenses 14.1 (9 475) (4 813)
Subsidies 14.1 669 526
General and administrative expenses 14.2 (5 299) (1 641)
Current operating income (loss) (14 104) (5 928)
Other operating income - -
Other operating expenses 15 (11 408) -
Operating income (loss) (25 512) (5 928)
Financial expenses 16 (309) (20)
Financial income 16 54 254
Pre-tax profit (loss) (25 768) (5 694)
Income tax expenses 17 (5) (158)
Net income (loss) for the period (25 773) (5 853)
Attributable to owners of the parent (25 773) (6 699)
Non controlling interests (1) - 846
31.12.2017 31.12.2016
Basic earnings (losses) per share (€/share) 18 (0.39) (2.64)
Diluted earnings (losses) per share (€/share) 18 (0.39) (2.64)
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(1) Minority interests as of December 31, 2016, were related to the percentage stake of Genkyotex Suisse SA in Genkyotex Innovation SAS (see Note 2.2).
Genkyotex SA (formerly Genticel SA) 12.31.2017 12.31.2016
12 months 12 months
Consolidated Statement of comprehensive income € thousands € thousands
Net income (loss) for the period (25 773) (5 853)
Actuarial gains (losses) 129 79
Tax effect 5 (9) Net other comprehensive income (losses) not to be reclassified to profit or loss
in subsequent periods134 70
Currency translation differences (504) (240) Net other comprehensive income (losses) that can be reclassified to profit or
loss in subsequent periods(504) (240)
Comprehensive income (loss) (26 143) (6 022)
Attributable to owners of the parent (26 143) (6 895)
Non controlling interests (1) - 872
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CONSOLIDATED CHANGES IN NET EQUITY
(1) Minority interests as of December 31, 2015, were related to the percentage stake of Genkyotex Suisse SA in Genkyotex Innovation SAS (see Note 2.2).
The term “change in scope” shown in the various consolidated financial statement tables as of December 31, 2017, corresponds to the impact from the acquisition of Genkyotex SA, an entity acquired for accounting purposes (see Note 2.2) by Genkyotex Suisse SA.
(-) Elimination of depreciation of intangible assets 3.1 (476) -
(-) Elimination of depreciation of property, plant and equipment 3.2 (39) (74)
(-) Provision for defined benefit obligation 10 (55) (29)
(-) Provision reversals 11 30 -
(-) Costs related to share-based payments 8.5 (3 838) (73)
(-) Change in deferred taxes 17 (4) 2
(-) Gain (loss) on assets sold (1) -
(-) Interest received 6 -
(-) Interest capitalized on the capital bond 52 -
(-) Listing cost 15 (10 898) -
(-) Unwinding of advances 9 (12) -
Self-financing capacity before cost of net financial debt and taxes (10 538) (5 678)
(-) Change in working capital requirements (net of depreciation of trade
receivables and inventories) (1 256) (598)
Taxes paid (81) (39)
Cash flow from operating activities (9 363) (5 120)
Cash flow from investing activities
Acquisitions of property, plant and equipment 3.2 (2) -
Time deposits recorded in current financial assets 4 000 -
Financial interests 6 -
Changes in scope (1) 3 587 -
Cash flow from investing activities 7 590 -
Cash flow from financing activities
Capital increase net of conversion of bonds to shares (2) 9 13 590
Issuance of non-voting shares 8 159 -
Share capital increase costs (32) (224)
Repayment of conditional borrowings and advances 9 (384) -
Capital contributions from holders of non-controlling interests (2) 1 131
Other cash flows from financing activities (treasury shares) 9 (7)
Cash flow from financing activities (248) 14 490
Impact of exchange rate fluctuations (572) (96)
Increase (decrease) in cash (2 593) 9 273
Cash & cash equivalents – beginning of the period 6 13 937 4 664
Cash & cash equivalents – end of the period 6 11 345 13 937
Increase (decrease) in cash (2 593) 9 273
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BREAKDOWN OF CHANGES IN WORKING CAPITAL REQUIREMENT (WCR)
Breakdown of change in working capital requirement (WCR)
(€ thousands)
31.12.2017 31.12.2016
Other receivables (2 276) (839)
Trade payables and related accounts 526 51
Social security l iabilities 456 483
Tax liabilities 88 (292)
Other creditors and miscellaneous liabilities (50) -
Total change (1 256) (598)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise specified, the amounts referred to in this note are in thousands of euros, except for the data relating to shares. Some amounts may be rounded up or down in order to calculate the financial information in the consolidated financial statements. Consequently, the totals in some tables may not correspond exactly to the sum of the previous figures.)
Note 1: Activity and significant events
The information below forms the notes to the consolidated financial statements prepared in accordance with IFRS as of December 31, 2017.
The consolidated financial statements for Genkyotex SA were adopted by the Board of Directors on February 28, 2018 and authorized for publication.
1.1 The Company and its activity
Created in October 2001, Genkyotex SA (formerly Genticel SA) is a French limited liability company (société anonyme) with the following corporate purpose in France and internationally: research, study, development, manufacturing and distribution of medicines and drug and health products in the field of human and animal health.
Genkyotex SA has been listed on the Euronext market in Paris and Brussels since April 8, 2014.
Registered office: 218 avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France
Trade and Companies Register: 439 489 022 RCS of Thonon les Bains.
Genkyotex SA is hereinafter referred to as the “Company”. The group formed by Genkyotex SA and Genkyotex Suisse SA is hereinafter referred to as the “Group”.
1.2 Significant events of the year
January 2017:
Genkyotex Suisse SA allocated 180,000 non-voting shares at a subscription price of CHF 1 (approximately €0.93): 169,854 were issued on that date, and 10,146 were held in treasury by Genkyotex Suisse SA.
February 2017:
• The Company’s shareholders approved the resolutions giving effect to the combination with Genkyotex Suisse SA in accordance with the contribution agreement signed on December 22, 2016, and the change of name from “Genticel” to “Genkyotex”.
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The General Shareholders’ Meeting approved:
(i) the transfer to the Company, by all shareholders of Genkyotex Suisse SA, of the 5,262,133 ordinary shares they hold in the latter, representing 100% of its capital and voting rights;
(ii) the issue by the Company of 62,279,951 new shares for shareholders of Genkyotex Suisse SA as compensation for this contribution. They thereby received 11.8355 Company shares for each Genkyotex Suisse SA share contributed. This exchange ratio was agreed between the Company and the shareholders of Genkyotex Suisse SA on the basis of a real value for Genkyotex Suisse SA of €120 million and for the Company of €30 million.
As a result of the completion of the contribution, the former shareholders of Genkyotex Suisse SA hold 80% of the share capital and voting rights in the Company.
The combination has resulted in a new Franco-Swiss Group named “Genkyotex”, whose primary business is developing a portfolio of a new therapeutic class of NOX inhibitors in fibrosis and inflammatory pain.
May 2017:
• The Company announced that the US Food & Drug Administration (FDA) had accepted its IND (Investigational New Drug) application for GKT831, its NOX1 and NOX4 inhibitor, authorizing Genkyotex to assess this drug candidate in a Phase 2 clinical trial on primary biliary cholangitis (PBC).
June 2017:
• The Company announced that it was recruiting patients to participate in its phase 2 clinical trial for GKT831, its NOX 1 and 4 enzyme inhibitor to treat primary biliary cholangitis (PBC).
• The Company announced that world-renowned diabetes experts, Professor Mark Cooper, Head of the Department of Diabetes at Monash University, and Professor Jonathan Shaw, Deputy Director of Clinical and Population Health at the Baker Heart and Diabetes Institute in Melbourne, Australia, will direct a phase 2 clinical trial to assess the efficacy and safety of the Company’s flagship drug candidate, GKT831, in patients with type 1 diabetes and kidney disease (diabetic nephropathy). This trial is funded by the Australian Juvenile Diabetes Research Foundation (JDRF Australia), which receives designated funding from the Australian Research Council for the Special Research Initiative for Type 1 Juvenile Diabetes, with support from the Baker Institute.
August 2017:
• The Company announced that GKT831, its NOX1 and NOX4 inhibitor, had demonstrated its ability to effectively target cancer-associated fibroblasts (CAF) and delay tumor growth, as part of a study including several preclinical models.
November 2017:
• Merger-absorption of Genkyotex Innovation SAS by Genkyotex SA with retroactive effect for accounting and tax purposes as of January 1, 2017.
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Note 2: Accounting principles, rules and methods
2.1 Principles used when preparing the financial statements
Statement of compliance
The Company prepared its consolidated financial statements in accordance with IFRS (International Financial Reporting Standards) as published by the International Accounting Standards Board (IASB) and adopted by the European Union as of the date the financial statements were prepared.
This reference framework, available on the European Commission website, incorporates the international accounting standards (IAS and IFRS) and the interpretations of the Interpretations Committees (IFRS Interpretations Committee, or IFRS IC and the Standing Interpretations Committee, or SIC).
The accounting principles, methods and options adopted by the Company are described below. In some cases, IFRS allow a choice between the application of a benchmark treatment and another approved treatment.
Changes in the presentation of the financial statements
Presentation of the consolidated income statement
The presentation of the consolidated income statement has changed from that used by Genkyotex Suisse SA for the year ended December 31, 2016.
The changes involve the creation of a subtotal for “profit from ordinary activities” and “other operating income” and “other operating expenses” line items. They are intended to increase the clarity of the Group’s performance and the consolidated income statement. In accordance with ANC recommendation No. 2013-03, current operating profit/(loss) includes all profit and loss from the companies’ operating activities less any significant items that may not be considered as inherent to the Group’s business due to their unusual amount or nature (see note 15).
In accordance with IAS 1, the Company reclassified comparative information, it being understood that the Group did not identify any non-current operating income or expenses as of December 31, 2016.
Presentation of Notes to the Consolidated Financial Statements
The presentation of Notes to the Consolidated Financial Statements prepared according to IFRS accounting standards has changed in relation to that used in years ending prior to the financial year ended December 31, 2016.
The modifications concern primarily the structure and order of the notes to the financial statements by reference topic. They are intended to increase readability and relevance of financial statements prepared according to IFRS standards and to facilitate their assimilation, in accordance with AMF recommendations and with work carried out by the international accounting standards setter.
Most of the accounting principles shown now appear with each reference note, so that readers can easily understand the financial data being presented. The principles for preparing the financial statements, changes of method and the use of judgments and estimates can still be found in Note 2.
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Principles used when preparing the financial statements
The Company’s consolidated financial statements have been prepared in accordance with the historical cost principle, with the exception of financial instruments measured at their fair value.
Going concern
The Company is a company which focuses on inventing and developing new treatments. The loss-making position over the reference periods is not unusual for a company at this stage of development.
The Company has been able to finance its activities to date and has raised funding that will enable it to cover its expenses in the short term. The Company will need additional funds to continue its development plan and this may also depend on attaining development milestones, achieving favorable clinical outcomes and/or achieving commercial success. Given that none of these factors can be guaranteed, there is substantial uncertainty regarding the Company’s ability to continue its activities in the future.
Given the cash position as of December 31, 2017, the Board of Directors deems that the Company will be able to cover its needs for at least the next 12 months. As such, the financial statements were prepared on a going concern basis.
To cover its future needs, the Company will continue to seek additional funds. This could include raising additional funding from current investors, new investors and/or the conclusion of licensing agreements or collaboration contracts.
Accounting methods
The Company has adopted all the mandatory standards for the 2017 consolidated financial statements.
Standards, amendments and interpretations applicable to reporting periods starting on or after January 1, 2017
• Amendments to IAS 12 – Deferred Tax: Recovery of Underlying Assets
• Amendments to IAS 7 – Disclosure Initiative
These new texts adopted by the European Union do not have a significant impact on the Group’s financial statements.
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Standards, amendments and interpretations not yet adopted by the Group
Standards, amendments to standards and interpretations adopted by the European Union but not yet mandatory for 2017 financial statements
• IFRS 9 – Financial instruments
• IFRS 15 – Revenue from ordinary course of business as part of contracts with customers
• Clarifications to IFRS 15
• IFRS 16 – Leases
• Amendments to IFRS 4 – Applying IFRS 9 with IFRS 4
Standards and interpretations adopted by IASB but not yet adopted by the European Union as of December 31, 2017
• IFRS 14 – Regulatory Deferral Accounts
• IFRS 17 – Insurance Contracts
• IFRIC 22 – Foreign currency transactions and advance consideration
• IFRIC 23 – Uncertainty over Income Tax Treatments
• Amendments to IFRS 2 – Classification and measurement of share-based payment transactions
• Amendments to IFRS 9 – Prepayment Features with Negative Compensation
• Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures
• Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
• Amendments to IAS 40 – Transfers of investment property
• IFRS Improvement (2014-2016 cycle)
The Group is currently evaluating the impacts following the first application of these new regulations and does not expect a significant impact on its financial statements, with the exception of IFRS 16.
IFRS 16 must be applied from January 1, 2019 or adopted early as of January 1, 2018, with IFRS 15. The Group does not intend to adopt IFRS 16 early. IFRS 16 removes the distinction between operating and finance leases and provides for reporting of all leases in the lessee’s balance sheet, with recognition of an asset (representing the right to use the leased asset during the term of the contract) and a liability (in respect of the obligation to pay the lease). The standard will also affect the presentation of the income statement (operating profit and financial expenses) and the cash flow statement (flows from operating activities and flows from financing activities).
Real estate rental contracts will thus be restated in applying IFRS 16 (see Note 21.1).
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2.2 Scope and consolidation methods
Scope
According to IFRS 10, subsidiaries are all the entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The subsidiaries are consolidated by the full consolidation method beginning on the date on which the Group acquires control. They are deconsolidated as of the date on which control ceases to be exercised.
In connection with the combination of Genkyotex SA and Genkyotex Suisse SA on February 28, 2017 (see Note 1.2), Genkyotex Suisse SA was considered the buyer from an accounting standpoint in light of IFRS 10. These financial statements have thus been prepared in keeping with the IFRS consolidated financial statements of Genkyotex Suisse SA.
Genkyotex SA, the acquired entity from an accounting standpoint, does not constitute a business within the meaning of IFRS 3.3. As such, the completed transaction may therefore not be treated as a business combination (IFRS 3.B19). IFRS standards do not have any provisions recognizing this type of transaction from an accounting standpoint. Consequently, proper accounting treatment was determined with regard to IAS 8, paragraphs 10-12. Although IFRS 3 is not applicable, the transaction was treated in substance as a reverse acquisition.
Against this backdrop and with regard to the substance of operations described above, from an accounting standpoint, the difference between the acquisition cost of Genkyotex SA shares and the various acquired elements can be analyzed as listing costs to be reported as expenses (IFRS 2.13A), it being specified that:
• The acquisition cost of Genkyotex SA shares (€33,476 thousand) was determined from the number of outstanding shares and the closing market price on February 28, 2017.
• The assets acquired and liabilities assumed from Genkyotex SA were revalued on a preliminary basis at the estimated fair value as of February 28, 2017, leading to net assets transmitted being valued at €22,577 thousand. Please see Notes 3.1 and 15 for more information on the assumptions used.
The scope of consolidation is as follows:
1 Company merged with Genkyotex SA in November 2017 with retroactive effect as of January 1, 2017. 2 In December 2016, the Genkyotex Suisse group underwent corporate restructuring, resulting in them wholly owning Genkyotex Innovation SAS as of December 31, 2016.
Percent
interest
Percent
control
Percent
interest
Percent
control
GENKYOTEX SUISSE SA SWITZERLAND
GENKYOTEX SA FRANCE 100.00% 100.00% N/A N/A
GENKYOTEX INNOVATION SAS FRANCE N/A* N/A* 100.00% 100.00%
EXCHANGE RATE (for 1 EUR)
Average rate Closing rateAverage rate Closing rate
CHF 1.1115 1.1702 1.0902 1.0739
12.31.2016
Country
12.31.2016
12.31.2017
12.31.2017
Parent company
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2.3 Reporting currency
Given the change in the scope of consolidation as explained above and to give the financial information for the new group greater visibility, the Company presents its consolidated financial statements in euros (EUR) from January 1, 2017, although Genkyotex Suisse SA (the parent company from an accounting standpoint) prepared its consolidated financial statements in Swiss francs (CHF) up to this date. The comparative consolidated financial statements are presented in euros (EUR).
The consolidation currency translation adjustments were reset to zero as of January 1, 2011, the date that Genkyotex Suisse SA (the parent company from an accounting standpoint) switched to IFRS. The cumulative consolidation currency translation adjustments are disclosed as if the Group had used the euro (EUR) as the reporting currency for its consolidated financial statements since this date.
The effects of the change of reporting currency on the comparative consolidated financial statements are as follows:
• The various assets and liabilities items in euros (EUR) correspond to the amounts published in Swiss francs (CHF), translated at the closing rate for the period;
• Recalculation of the consolidation currency translation adjustments has an impact on the breakdown of total equity between the currency translation reserve and the other components of equity, as well as on the amount of other comprehensive income, involving the following:
• The amounts shown in the income statement and in the consolidated cash flow statement in
euros (EUR) correspond to the amounts published in Swiss francs (CHF) converted at the average rate for the period.
2.4 Conversion method
2.4.1 Recognition of foreign currency transactions
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates as of the date this transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currency are converted into functional currency at the exchange rate on the closing date.
Differences resulting from the settlement or conversion of monetary items are recognized as income.
2.4.2 Conversion of financial statements of companies whose functional currency is not the euro
The financial statements of companies whose functional currency is not the euro (EUR) are converted as follows:
• Statement of financial position items are converted using the closing rate for the year;
Reserves attributable to owners of the parent company (41 401) (38 552) 3 459 (35 093)
Equity attributable to owners of the parent 13 120 12 217 - 12 217
Non controlling interests - - - -
Total equity 13 120 12 217 - 12 217
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• Income statement items are converted at the average exchange rate for the period. The exchange differences arising on conversion for consolidation are recognized in the “currency translation reserve”.
The exchange rates used to prepare the consolidated financial statements are as follows:
2.5 Use of judgments and estimates
To prepare the financial statements in accordance with IFRS, the Group has made judgments and estimates that could affect the amounts presented under assets and liabilities as of the reporting date, and the amounts disclosed under income and expenses for the period.
Such estimates are made by the Group’s management based on the assumption of business continuity and on the information available at the time. These estimates are ongoing and are based on past experience as well as various other factors judged to be reasonable and form the basis for assessment of the carrying amount of assets and liabilities. The estimates may be revised if the circumstances on which they are based change or as a result of new information. Actual results may differ significantly from these estimates if the assumptions or conditions change.
The key significant estimates or judgements made by the Group relate to the following in particular:
• Valuation of share subscription options and non-voting shares allocated to employees, executives and external service providers: o The fair value measurement of share-based payments is based on the Black & Scholes option
valuation model which makes assumptions about complex and subjective variables. These variables notably include the value of the shares, the expected volatility of the share price over the lifetime of the instrument, and the present and future behavior of the holders of those instruments. There is a high, inherent risk of subjectivity when using an option valuation model to measure the fair value of share-based payments in accordance with IFRS 2.
o The valuation assumptions adopted are disclosed in Note 8.
• Defined benefit plans: o Defined benefit plans are reported in the balance sheet based on an actuarial valuation of
the obligations at period-end, less the fair value of the plan’s assets. This valuation is determined by using the projected unit credit method while taking into account the workforce turnover rate, mortality probability and actuarial assumptions based on management estimates.
o The valuation assumptions adopted are disclosed in Note 10.
• Valuation of charges directly related to capital increases o The Group exercised its judgment to determine the marginal costs directly attributable to
the issuance of new shares. These charges were posted to equity (see Note 7).
• Non-recognition of deferred tax assets net of deferred tax liabilities: o The measurement of identifiable deferred tax assets requires Management to make
estimates about the time period over which the deferred losses will be used up and about the level of future taxable income, based on the tax strategies adopted.
o The accounting principles applied by the Group for the recognition of deferred tax assets are set out in Note 17.
EXCHANGE RATE (for 1 EUR)
Average rate Closing rate Average rate Closing rate
CHF 1,1115 1,1702 1,0902 1,0739
31/12/2017 31/12/2016
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• Valuation of the license agreement signed with SIIL (for use of the Vaxiclase platform) and extensions to this contract: o The estimated fair value of the SIIL contract and extensions was calculated based on the
discounted cash flow (DCF) method, adjusted for the likelihood of some impact on the 2017-2035 business plan. In doing so, the Company’s management used estimates to determine:
- future flows for the period 2017-2035, corresponding to the life of the patent underlying the license sold to SIIL;
- the probability of success of the various stages of clinical development; - the discount rate.
o The valuation assumptions adopted are disclosed in Note 3.1.
• Cost of listing: o The cost of combining Genkyotex SA and the Genkyotex Suisse group was determined as the
difference between the purchase price of Genkyotex SA and the fair value of the assets and liabilities assumed on the date of the combination.
o The assumptions used to determine the purchase price and the fair value of assets and liabilities assumed are disclosed in Note 15.
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Note 3: Intangible assets and property, plant and equipment
3.1 Intangible assets
Accounting principles
Research and development expenses
Research and development costs are recognized as expenses when they are incurred. Costs incurred on development projects are recognized as intangible assets when the following criteria are fulfilled:
• it is technically feasible to complete the intangible asset so that it will be available for use or sale;
• management intends to complete the intangible asset and use or sell it;
• it is possible to use or sell the intangible asset;
• it can be demonstrated that the intangible asset will likely generate economic benefits in the future;
• adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and
• the expenditure attributable to the intangible asset during its development can be reliably measured.
Regarding the expenses incurred for developing a medicinal product and due to the risks and uncertainties inherent in the R&D process and in obtaining regulatory authorizations, the six criteria for capitalizing expenses are only deemed to be met if the medicinal product has received marketing authorization.
Consequently, internal development expenses are recorded as R&D costs at the time they are incurred.
SIIL contract (for use of the Vaxiclase platform) and extensions to this contract
As part of the valuation of the assets and liabilities assumed from Genkyotex SA, the Company carried out a provisional valuation of the SIIL contract and extensions to this contract as of February 28, 2017.
Genkyotex SA (formerly Genticel SA) signed a license agreement with the company for its Vaxiclase technology, as part of the development by SIIL of acellular and multivalent vaccines containing antigens for whooping cough. In return for access to and use of the Vaxiclase platform in the authorized indication, the Company could receive up to US$57,000,000 in initial payments and milestone payments on development and sales, based on criteria defined in the terms and conditions of the agreement, as well as royalties as a percentage of net sales.
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The estimated fair value of the SIIL contract and extensions was calculated based on the discounted cash flow (DCF) method, adjusted for the likelihood of some impact. The main valuation assumptions are as follows:
• The business plan for the period 2017-2035, corresponding to the life of the patent
underlying the license sold to SIIL (disregarding a terminal value).
• The probability of success of the various stages of clinical development (based on a study
conducted by Biomedtracker in 2016 who undertook a retrospective analysis of the
probability of success of the various stages of clinical development in 9,985 trials between
• The discount rate of 16%, based particularly on a risk premium of the French securities
market, an average beta originating from a sample of French biotechnology companies
listed on Euronext and a risk premium specific to the Company.
Software
Software license acquisition costs are posted to assets based on the costs incurred to acquire and bring the software concerned online.
Other intangible assets
In application of the IAS 38 criteria, intangible assets acquired are recognized under assets at their acquisition cost.
Amortization charge and duration
When an asset has a finite useful life, depreciation is calculated using the straight-line method to spread the cost over the estimated useful life, specifically:
Items Amortization period
Software 1 year – straight line
SIIL contract and extensions 19 years – straight line (2017-2035 business plan corresponding to the life of the patent underlying the license sold to SIIL)
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INTANGIBLE ASSETS
(Amounts in € thousands)Software
SIIL contract and
extensionsTotal
GROSS VALUE
Statement of financial position as of December 31, 2015 19 - 19
Acquisition - - -
Disposal - - -
Transfer - - -
Currency translation effects - - -
Statement of financial position as of December 31, 2016 19 - 19
Acquisition - - -
Disposal (2) - (2)
Transfer - - -
Currency translation effects - - -
Changes in scope - 10 697 10 697
Statement of financial position as of December 31, 2017 17 10 697 10 714
CUMULATIVE AMORTIZATION
Statement of financial position as of December 31, 2015 19 - 19
Increase - - -
Decrease - - -
Currency translation effects - - -
Statement of financial position as of December 31, 2016 19 - 19
Increase - 476 476
Decrease (2) - (2)
Currency translation effects - - -
Changes in scope - - -
Statement of financial position as of December 31, 2017 17 476 493
NET BOOK VALUE
At December 31, 2015 - - -
At December 31, 2016 - - -
At December 31, 2017 - 10 221 10 221
The amortization charge for intangible assets is recognized in the income statement as:
• “General and administrative expenses” for amortization charges related to accounting
software;
• “Research and development expenses” for the amortization expense relating to the SIIL
contract and extensions and the software used by the laboratory.
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3.2 Property, plant and equipment
Accounting principles
Property, plant and equipment are valued at their acquisition cost. Asset items are depreciated according to the actual useful life of the asset.
The following depreciation periods and methods are used:
Items Amortization period
Furniture and computer equipment 3 to 5 years – straight line
Laboratory equipment 5 to 8 years – straight line
General fixtures and fittings 8 to 10 years – straight line
The amortization charge for property, plant and equipment is recognized in the income statement as:
• “General and administrative expenses” for depreciation of general facilities, fixtures and
fittings, computer and office equipment;
• “Research and development expenses” for laboratory equipment and other laboratory
assets.
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3.3 Impairment in value of intangible assets and property, plant and equipment
PROPERTY, PLANT AND EQUIPMENT
(Amounts in € thousands)
Equipment and
tooling
Office
equipment,
computer
equipment,
furniture
Total
GROSS VALUE
Statement of financial position as of December 31, 2015 633 101 734
Acquisition - - -
Disposal - - -
Transfer - - -
Currency translation effects 4 1 5
Statement of financial position as of December 31, 2016 637 102 739
Acquisition 2 - 2
Disposal (78) (1) (79)
Transfer - - -
Currency translation effects (40) (8) (48)
Changes in scope - - -
Statement of financial position as of December 31, 2017 521 93 614
CUMULATIVE DEPRECIATION
Statement of financial position as of December 31, 2015 481 87 567
Increase 64 11 75
Decrease - - -
Currency translation effects 4 1 4
Statement of financial position as of December 31, 2016 548 99 646
Increase 36 3 39
Decrease (77) (1) (78)
Currency translation effects (36) (8) (44)
Changes in scope - - -
Statement of financial position as of December 31, 2017 470 93 563
NET BOOK VALUE
At December 31, 2015 152 15 167
At December 31, 2016 89 4 93
At December 31, 2017 51 1 51
Accounting principles
Assets with an indefinite useful life or which have not yet been depreciated are subject to an annual impairment test.
Assets in the process of being depreciated are subject to an impairment test when an internal or external index indicates that they may have lost value.
Impairment is recognized when the net carrying amount of an asset exceeds its recoverable value. The recoverable value of an asset is its fair value less selling costs, or its utility value, whichever is higher.
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During the reference periods, the Company has only had depreciable assets. As of December 31, 2017, there was no internal or external indication that they were impaired.
The Company has also updated the model for evaluating the license agreement signed with SIIL (for use of the Vaxiclase platform) and extensions to this contract as of December 31, 2017. The sensitivity of the assumptions used in the valuation model is as follows:
• A 1-point increase in the discount rate would not generate an impairment;
• A 5-point decrease in the probability of success of different phases would generate an impairment of around €1 million;
• A 10% deterioration in the business plan would not lead to an impairment.
• It is noted that there is no evidence of impairment in the valuation assumptions as of December 31, 2017.
Note 4: Financial assets
The capital bond features the following characteristics:
• “eurofund” investment (diversified, mostly bonds) with a continuous capital guarantee based on a “ratchet effect”, i.e., guaranteed interest payment,
• guaranteed minimum yield of 2.25% net of expenses, only for the current period subscribed until December 31, 2015,
• full discretionary use of funds via total or partial redemption at any time, subject to contractual redemption penalties in the first three years: 2% of the amount redeemed in the first 12 months; 1.5% of the amount redeemed between months 13 and 24; 1% of the amount redeemed between months 25 and 36; 0% thereafter (August 2017).
• no legal or contractual lock-in provisions (no preventive detention period).
FINANCIAL ASSETS
(Amounts in € thousands)12.31.2017 12.31.2016
Liquidity contract 49 -
Guarantees 15 15
Total non-current financial assets 64 15
Capitalisation contract 3 280 -
TOTAL CURRENT FINANCIAL ASSETS 3 280 -
Accounting principles
The Group’s financial assets are made up of:
• loans and receivables initially reported at fair value and subsequently evaluated at
amortized cost, using the effective interest rate method. Collateral deposits are non-
derivative financial assets with fixed or determinable payments that are not quoted on an
active market.
• financial assets at fair value through income or loss. These represent assets held for trading
purposes. They are measured at their fair value and changes in fair value are reported
through profit and loss. Some assets can also voluntarily be classified in this category. This
category includes the capital bond and term deposits. These assets fall under category 1,
defined by IAS 7.
Financial assets having a term of maturity of over one year are classified under “Non-current
financial assets”.
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Redemption of the capital bond is expected during the 2018 financial year. Note 5: Other receivables
(1) Research tax credit (“CIR”) The research tax credit declared by the Group for 2016 was €2,958 thousand (€2,432 thousand for Genkyotex SA and €526 thousand for Genkyotex Innovation SAS). The amount of research tax credit the Group declared for the 2017 financial year amounted to €558 thousand.
OTHER RECEIVABLES
(Amounts in € thousands)12.31.2017 12.31.2016
Research tax credit (1) 558 526
Value Added Tax 227 102
State – Income tax expenses 81 -
Social security receivables 168 6
Outstanding receivables, advances and installments (2) 637 17
Pre-paid expenses (3) 230 142
Other 32 2
Total other receivables 1 932 795
Accounting principles
Research tax credit
Research tax credits are granted to the Group’s French companies by the French State as an incentive to conduct technical and scientific research. Companies with expenses that meet the eligibility criteria receive a tax credit that can be used to pay the corporate income tax due in the year in which it is granted, as well as in the following three financial years or, as the case may be, any surplus tax paid can be reimbursed. In the absence of taxable income, and in view of the Company’s beneficiary company community SME status, the CIR receivable from the French State is paid in the year following the year for which it is granted. The research tax credit is recorded in assets for the year it was granted that corresponds to the year during which eligible expenses giving rise to a tax credit were incurred. The research tax credit is presented in the income statement under subsidies in “research and development expenses”. Competitiveness and Employment Tax Credit (CICE)
The tax credit for competitiveness and employment (crédit d’impôt pour la compétitivité et l’emploi or “CICE”) is a French tax scheme for which the French companies in the Group are eligible. The Group uses this tax credit through its research and development effort. In view of the beneficiary companies’ community SME status, the CICE may be reimbursed in the year following that in which it was granted. The CICE tax credit is reported as a reduction of personnel costs in the income statement. Subsidies
Subsidies received are reported as soon as the corresponding receivable becomes certain, taking into consideration the conditions specified when the subsidy was granted.
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(2) Amounts receivable, advances and installments paid primarily involve installments paid to the Contract Research Organization (CRO) responsible for studies. (3) Prepaid expenses are related to the day-to-day activity of the Group and mainly concern fees. Note 6: Cash and cash equivalents
(1) Funds recorded in escrow accounts as of December 31, 2016 relate to funds raised as part of a capital increase carried out by Genkyotex Suisse SA in December 2016, which was recorded in the Trade Registry in January 2017. Note 7: Capital
CASH AND CASH EQUIVALENTS
(Amounts in € thousands)12.31.2017 12.31.2016
Bank accounts 11 343 5 007
Escrow accounts (1) - 8 930
Money market funds (SICAV) 1 -
Total cash and cash equivalents 11 344 13 937
12.31.2017
Share Capital (in € thousands) 7 785
Number of shares 77 850 006
o/w ordinary shares 77 850 006
Par value of shares (in euro) €0.10
Accounting principles
Cash and short-term deposits recognized in the balance sheet include cash at banks, cash at hand, and short-term deposits with an initial maturity of less than three months.
Cash equivalents are held for trading purposes, are easily convertible into a known amount of cash and exposed to negligible risk that they will change in value. They are measured at their fair value and any changes in value are recorded as financial income. These assets fall under category 1, defined by IFRS 7.
For cash flow statement purposes, net cash consists of cash and cash equivalents as defined above.
Accounting principles
Ancillary costs directly attributable to the issuance of shares or stock options are reported, net of tax, as a deduction from equity.
Liquidity contract The portion of the contract invested in the Company’s treasury shares is reported as a deduction from Company equity at acquisition cost. The income from the sale of these treasury shares is also reported directly in equity. The cash reserve for the liquidity contract is shown under “Non-current financial assets”.
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This number of shares excludes share subscription warrants (“BSAs”) and founders’ warrants (“BSPCEs”) granted to certain investors and to certain natural persons, whether or not employees of the Group, that have not yet been exercised. As of December 31, 2016, the share capital of Genkyotex SA was €1,557 thousand. On February 28, 2017, Company shareholders approved the contribution in kind of Genkyotex Suisse SA shares to Genkyotex SA. In return for this contribution, Genkyotex SA issued 62,279,951 new shares at a subscription price of €1.9268 each for Genkyotex Suisse SA shareholders. This transaction generated a capital increase of €6,228 thousand and a premium of €113,771 thousand. As a result, Genkyotex SA’s share capital as of December 31, 2017 amounted to €7,785 thousand made up of 77,850,006 fully subscribed and paid-up ordinary shares, each with a par value of €0.10. Capital management The Group’s policy is to maintain a sound capital base, to preserve the confidence of investors and creditors, and to support the Company’s future growth. Following the Company’s IPO on the regulated Euronext market in Paris and Brussels, on April 18, 2014, a liquidity contract was signed with Banque Oddo et Cie with a view to limiting intra-day volatility in the Company’s share price. For this purpose, the Company entrusted €200 thousand to this establishment, so that it could carry out purchase and sale transactions on the Company’s shares. As of December 31, 2017, under this contract, 70,270 ordinary shares were removed from equity and €49 thousand in cash was entered as non-current financial assets. Capital increase expenses Genkyotex SA incurred fees as part of the operation to combine it with the Genkyotex Suisse group. Direct costs related to the combination are recorded as expenses for the period in which the costs are incurred or services are rendered, excluding issuance costs of equity share capital instruments issued in compensation for the contribution (€159 thousand in 2016 and €105 thousand in 2017), which are deducted from share capital in accordance with IAS 32. Dividends The Company paid no dividend in the financial years presented.
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Note 8: Share-based payments
Warrants issued to the benefit of financial investors of Genkyotex SA
Genkyotex SA (formerly Genticel SA) issued 133,334 warrants to investors in July 2008 (exercise period: 10 years). They are treated as equity instruments.
Share subscription warrants (BSAs) of Genkyotex SA
The following table summarizes the option plans issued and the assumptions adopted for IFRS 2 valuation:
Type Allocation date 12.31.2016 Forfeited 2.28.2017 Forfeited 12.31.2017
In accordance with the IFRS 2 standard, the cost of transactions settled in equity instruments is reported under expenses for the period in which the rights to benefit from the share capital equity instruments are acquired, as counterpart to a capital increase. The Group has applied IFRS 2 to all the equity instruments granted to employees, members of the Board of Directors and to external service providers such as consultants. The fair value of the warrants granted to employees is measured via the Black-Scholes option valuation model. The same applies to the options granted to other natural persons supplying similar services, as their market value is not determinable. All methods used in measuring the fair value of such options are disclosed below:
• The share price used is equal to the stock market price or to the investor subscription price
or by reference to internal valuations;
• The risk-free rate is based on the average lifetime of the instruments;
• Volatility is calculated with reference to a sample of listed companies in the biotechnology
sector, as of the date the instruments are subscribed and over a period equal to the lifetime
of the option.
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Genkyotex SA Founders’ share subscription warrants (BSPCEs)
The following table summarizes the option plans issued and the assumptions adopted for IFRS 2 valuation:
Non-voting shares of Genkyotex Suisse SA
On January 16, 2017, Genkyotex Suisse SA allocated 180,000 non-voting shares, 169,854 of which were issued on that date, and 10,146 were held as treasury shares by Genkyotex Suisse SA. The fair value of the non-voting shares is equal to the difference between the share value as determined in connection with the merger (€22.80) and the par value paid by their beneficiaries (CHF 1, approximately €0.93).
On the same date, Genkyotex Suisse SA converted all non-voting shares outstanding to ordinary shares. This operation ended the restriction period to which the non-voting shares were subject.
Number of
warrants
allocated
Exercise period Exercise price VolatilityRisk-free
RECONCILIATION BETWEEN REPAYMENT VALUE AND VALUE IN
THE BALANCE SHEET (Amounts in € thousands)
Repayment
value
12/31/2017
Amortized cost Fair valueBalance sheet value
Gross amount Share < 1 year From 1 to 5 yrs > 5 years
Repayable advances 410 291 119 -
Short-term borrowings 1 1 - -
Total financial debts 411 292 119 -
Current financial debts 292
Non-current financial debts 119
CURRENT AND NON-CURRENT FINANCIAL LIABILITIES BY
MATURITY IN REPAYMENT VALUE
(Amounts in € thousands)
12.31.2017
Accounting principles
Unless otherwise indicated, loans and borrowings are reported at amortized cost, calculated using the Effective Interest Rate (EIR) method, in accordance with IAS 39. The portion of financial debts due within one year is presented as “Current financial debt”.
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9.1 Repayable advances
Breakdown of repayable advances by maturity, in repayment value
OSEO Innovation repayable advance – OSEO 2 On March 9, 2011, Genkyotex SA (formerly Genticel SA) obtained from OSEO an interest-free repayable advance for the “development and clinical trials of a therapeutic vaccine to combat cancer and precancerous lesions of the cervix caused by the human papillomavirus (HPV)” for a total of €1,500 thousand. Following the success of the project, this advance was repaid as follows:
• €50 thousand per quarter from September 30, 2013 to June 30, 2014 on the last day of the quarter;
CHANGE IN REPAYABLE ADVANCES AND SUBSIDIES
(Amounts in € thousands)OSEO 2 – HPV
OSEO 3 –
ProCervix
(GTL001)
Total
At December 31, 2015 - - -
Cash inflow - - -
Repayment - - -
Subsidies - - -
Financial expenses - - -
At December 31, 2016 - - -
Changes in scope 248 526 774
Cash inflow - - -
Repayment (250) (134) (384)
Subsidies - - -
Financial expenses 2 10 12
At December 31, 2017 0 402 402
BREAKDOWN OF REPAYABLE ADVANCES BY MATURITY, IN
REPAYMENT VALUE
(Amounts in € thousands)
OSEO 2 – HPV
OSEO 3 –
ProCervix
(GTL001)
Total
At December 31, 2017 - 410 410
Share < 1 year - 291 291
Share 1 ≥ 5 years - 119 119
Share > 5 years - - -
Accounting principles
The Group benefits from a certain amount of public aid, in the form of conditional subsidies and advances. They are reported in accordance with IAS 20. These advances are granted at below market interest and measured at amortized cost, in accordance with IAS 39:
• The interest rate advantage is measured by using a discount rate corresponding to a
market rate on the date the aid is granted. The amount resulting from the interest rate
advantage obtained when the repayable interest-free advance is granted is considered to
be a subsidy recorded under income in the statement of comprehensive income.
• The financial cost of the repayable advances, calculated at the market interest rate, is then
recorded under financial expenses.
In the event of failure of the project, the abandonment of the receivable is recorded under subsidies.
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• €75 thousand per quarter from September 30, 2014 to June 30, 2015 on the last day of the quarter;
• €125 thousand per quarter from September 30, 2015 to June 30, 2017 on the last day of the quarter. OSEO Innovation repayable advance – OSEO 3 On January 11, 2013, Genkyotex SA (formerly Genticel SA) obtained from OSEO an interest-free repayable advance “to extend the Phase I clinical trials of the ProCervix (GTL001) project” for a total of €849 thousand. Following confirmation of completion of the program and after obtaining the statement of expenditure incurred on the project financed by OSEO, the repayable advance was reduced to take into account the fact that actual expenditure was less than projected. The aid was thus reduced to €812 thousand and an amendment was signed on September 5, 2014, to change the repayment dates.
This repayable advance is repaid according to the following schedule:
• Quarterly from September 30, 2014 to June 30, 2015: €19 thousand
• Quarterly from September 30, 2015 to June 30, 2016: €29 thousand
• Quarterly from September 30, 2016 to June 30, 2017: €38 thousand
• Quarterly from September 30, 2017 to June 30, 2018: €57 thousand
• Quarterly from September 30, 2018 to March 31, 2019: €60 thousand
• The balance on June 30, 2019: €60 thousand Furthermore, the agreement provides for an annual repayment equal to 40% of the ex-tax proceeds from the sale or assignment of licenses, patents or know-how relating to all or part of the results of the aided program, received for the previous year and 40% of the ex-tax proceeds generated by the marketing or use by the beneficiary for its own purposes, of prototypes, pre-series or models produced as part of the aided program. The amounts owed to OSEO under this arrangement are to take priority and must be completed at the last due date, according to the above repayment plan. This arrangement will not cause the Company to pay to OSEO an amount greater than the aid received.
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Note 10: Employee benefit obligations
10.1 Swiss employees
The defined benefit obligation related to the 2nd pillar Swiss pension scheme is assessed using the following assumptions:
EMPLOYEE BENEFIT OBLIGATIONS
(Amounts in € thousands)12.31.2017 12.31.2016
Swiss employees 819 863
French employees 3 11
Employee benefit obligations 822 874
Accounting principles
The Group provides retirement, death and disability benefits to its employees in line with local customs and requirements through pension payments by Social Security bodies, which are funded by Group and employee contributions (defined contribution scheme) in Switzerland and France, the countries where the Group operates. The Group also provides retirement, death and disability benefits to its Swiss and French employees through the following defined benefits plans:
• For Swiss employees, Genkyotex Suisse SA’s compulsory company-wide defined benefit
scheme through a plan which is funded through employer (50%) and employee
(50%) contributions. This company-specific plan has been in place since Genkyotex Suisse
SA was founded and all Swiss employees of this company are beneficiaries of the plan. On
retirement, the plan participant will receive his/her accumulated savings, which consist of
all contributions paid in by the employer and the employee (net of any withdrawals) and
the interest granted on those savings, which are fixed, according to the law for the
compulsory part and at the discretion of the Council of the Foundation for the optional
part. At retirement age, the plan’s participant will be entitled to choose between a lump
sum payment or an annuity, or a combination of the two.
• Employees of the Group’s French companies are entitled to a retirement lump sum
payment at the time of retirement.
Pension plans, similar compensation and other employee benefits that qualify as defined benefit plans (in which the Group guarantees an amount or defined level of benefits) are reported in the balance sheet, based on an actuarial valuation of the obligations at period-end, minus the fair value of the plan’s assets. This valuation is determined by using the projected unit credit method, taking into account staff turnover and mortality probability. Any actuarial spreads are reported in equity under “Other comprehensive income”. The Group’s payments into defined contribution plans are reported under expenses on the income statement for the period to which they relate. Retirement expenses (cost of services rendered and interest expense) are presented in operating income (loss).
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Mortality rate Assumptions regarding future mortality are based on advice, statistics publications and experience. The weighted average duration of the retirement obligation is as follows:
Changes to the retirement obligation and the fair value of retirement benefit plan assets are as follows:
Age at retirement
Discount rate 0.75% 0.70%
Mortality tableLPP 2015
generation
LPP 2015
generation
Salary revaluation rate 1.00% 1.00%
Retirement pension inflation rate 0.50% 0.50%
Rate of return of savings accounts 0.75% 0.70%
Turnover rate 10.00% 10.00%
ACTUARIAL ASSUMPTIONS12.31.2017 12.31.2016
Voluntary retirement
64 years old for women / 65 years
old for men
12.31.2017 12.31.2016
Weighted average duration of retirement commitment 29.80 29.80
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(1) The plan amendment corresponds to a reduction in the conversion rate from share capital to annuity.
Sensitivity analysis as of December 31, 2017
Changes in prepaid expenses / (payables) in the statement of financial position are broken down as follows:
Amounts in € thousandsDefined benefit
plan obligation
Fair value of the
plan’s assets
Employee
benefit
obligations
December 31, 2015 1 784 (908) 876
Cost of services rendered 407 - 407
Plan amendment (1) (134) - (134)
Interest expense 14 (8) 6
Employee contribution - (128) (128)
Subtotal included in the income statement 288 (136) 152
Amounts paid / received (223) 223 -
Return on assets (excluding interest expenses) - (4) (4)
Actuarial gains and losses related to changes in demographic
assumptions44 - 44
Actuarial gains and losses related to changes in financial
assumptions52 - 52
Other actuarial gains / (losses) (136) - (136)
Subtotal included in other items of comprehensive income (40) (4) (44)
Employer contributions - (128) (128)
Currency translation effect 16 (9) 8
December 31, 2016 1 825 (962) 863
Cost of services rendered 330 - 330
Interest expense 12 (7) 5
Employee contribution - (94) (94)
Subtotal included in the income statement 342 (101) 241
Amounts paid / received (124) 124 -
Return on assets (excluding interest expenses) - (3) (3)
Actuarial gains and losses related to changes in financial
assumptions
(20) - (20)
Other actuarial gains / (losses) (96) - (96)
Subtotal included in other items of comprehensive income (117) (3) (119)
Employer contributions - (94) (94)
Currency translation effect (155) 83 (72)
December 31, 2017 1 771 (952) 819
(Amounts in € thousands)
Sensitivity test 0.50%Assumption
used: 1%1.50%
Retirement commitment 1 722 1 771 1 823
Sensitivity test 0.25%Assumption
used: 0.75%1.25%
Retirement commitment 2 060 1 771 1 532
Sensitivity test 0.00%Assumption
used: 0.50%1.00%
Retirement commitment 1 652 1 771 1 904
Pension inflation rate
Salary revaluation rate
Discount rate
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Group contributions for the 2018 retirement plan are estimated at €93 thousand. Asset classes from the retirement plan and their respective allocations are as follows:
The following table shows estimated benefit payments for the next ten years: 2018 €51 thousand 2019 €45 thousand 2020 €39 thousand 2021 €34 thousand 2022 €29 thousand 2023-2027 €90 thousand
Amounts in € thousands 12.31.2017 12.31.2016
Prepaid retirement expenses / (to be paid) at the beginning
of the year(231) (205)
Charges due by the Company for retirement expenses (241) (152)
Contributions paid by the Company 94 128
Currency translation effects 26 (2)
Prepaid retirement expenses / (to be paid) at the end of the
year(352) (231)
Allocation (in € thousands) 12.31.2017 12.31.2016
Liquidity 28 23
Obligations 566 578
Mortgages 159 156
Shares 47 59
Real estate 127 116
Other investments 27 30
Total 952 962
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10.2 French employees
The main actuarial assumptions used to measure retirement packages are as follows:
The following shows the change in retirement provisions:
(1) In accordance with IAS 19, the impact of the reduced benefits plan concerning Genkyotex SA was reported as a reduction in the past services cost.
Age at retirement
Collective bargaining agreement
Discount rate
(IBOXX Corporates AA)1.30% 1.31%
Mortality table INSEE 2017 INSEE 2015
Salary revaluation rate 2.00% 2.00%
Turnover rate High High
Social security expense ratio
Managers
Non-managers
44%*
42%
43%
44%
*excluding managers benefiting from withholding tax
ACTUARIAL ASSUMPTIONS
Voluntary retirement age
Pharmaceutical Industry
12.31.2017 12.31.2016
Amounts in € thousands Retirement
commitment
At December 31, 2015 32
Cost of services rendered 5
Interest expense 0
Actuarial gains and losses (27)
At December 31, 2016 11
Cost of services rendered (1) (93)
Interest expense 1
Actuarial gains and losses (9)
Changes in scope 94
At December 31, 2017 3
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Note 11: Provisions
The provisions for layoffs correspond to estimating residual severance pay that would be payable in the collective layoff plan in progress as of February 28, 2017 for Genkyotex SA. This provision has been used over the period. Note 12: Other current liabilities
Beginning of
the period
Changes in
scopeProvision
Reversal with
purpose
Reversal
without
purpose
End of period
Provisions for layoffs - 30 (30) -
Provisions - 30 - (30) - -
Beginning of
the period
Changes in
scopeProvision
Reversal with
purpose
Reversal
without
purpose
End of period
Provisions for layoffs - -
Provisions - - - - - -
PROVISIONS
(Amounts in € thousands)
12.31.2016
PROVISIONS
(Amounts in € thousands)
12.31.2017
OTHER CURRENT LIABILITIES
(Amounts in € thousands)12.31.2017 12.31.2016
Bonus (including social security contributions) 282 -
Payroll & related accounts 142 141
Social security & other welfare programs 176 147
State – Income tax expenses - 117
Other taxes and similar 170 145
Other liabilities 51 -
Other current liabilities 820 550
Accounting principles
Provisions correspond to commitments resulting from litigation and various risks, the outcome and value of which are uncertain, that the Company may face as part of its activities.
A provision is reported when the Company has an obligation to a third party, resulting from a past event that is likely to cause an outflow of resources to the benefit of that third party without a counterpart at least equivalent to it, and future outflows of cash can be reliably estimated. The amount reported in provisions is the estimated expense necessary to extinguish the obligation, discounted if necessary at the end of the period.
Accounting principles
The fair value of current liabilities is equivalent to their carrying amount in the balance sheet, taking into account the extremely short deadlines for payment.
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Note 13: Financial assets and liabilities and impact on income or loss
Accounting principles
The Company has established three categories of financial instruments depending on their valuation methods and uses this classification to disclose some of the information required by IFRS 7:
• Level 1: financial instruments listed on an active market;
• Level 3: financial instruments whose valuation methods rely entirely or partly on unobservable inputs, an unobservable input being defined as one whose measurement relies on assumptions or correlations that are not based on the prices of observable market transactions for a given instrument on the valuation date, nor on observable market data on the valuation date.
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The Company’s assets and liabilities are measured as follows at the year-end of the financial years presented:
Note 14: Breakdown of expenses and items by function
Value –
statement of
financial position
Fair value
Fair value
through profit
(loss)
Loans and
receivables
Debt at
amortized cost
Non-current financial assets 64 64 64
Other receivables 1 932 1 932 1 932
Current financial assets 3 280 3 280 3 280
Cash and cash equivalents 11 345 11 345 1 11 344
Total assets 16 621 16 621 3 281 13 340 -
Trade payables 1 312 1 312 1 312
Other current liabilities 820 820 820
Total liabilities 2 133 2 133 - - 2 133
HEADERS – STATEMENT OF FINANCIAL POSITION
(amounts in € thousands)
12.31.2017 Value – BALANCE SHEET per IAS 39
Value –
statement of
financial position
Fair value
Fair value
through profit
or (loss)
Loans and
receivables
Debt at
amortized cost
Non-current financial assets 15 15 15
Other receivables 795 795 795
Cash and cash equivalents 13 937 13 937 13 937
Total assets 14 748 14 748 - 14 748 -
Trade payables 1 203 1 203 1 203
Other current liabilities 550 550 550
Total liabilities 1 753 1 753 - - 1 753
12.31.2016 Value – BALANCE SHEET per IAS 39
HEADERS – STATEMENT OF FINANCIAL POSITION
(amounts in € thousands)
InterestChange in fair
valueInterest
Change in fair
value
Assets
Fair value through profit (loss) 52
Cash and cash equivalents 6 4 -
IMPACTS – INCOME STATEMENT
(amounts in € thousands)
12.31.2017 12.31.2016
Accounting principles
The Group presents its income statement by function in two categories:
• Research and development;
• General and administrative expenses. Expenses are broken down on the basis of cost accounting. The research tax credit and operating grants are presented in subsidies and are deducted for the research and development costs. Operating grants are recorded, taking into account the rate of corresponding expenses so as to adhere to the principle of matching revenues and expenses, as the case may be.
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14.1 Research and Development
Study and research costs for the 2017 financial year correspond to the costs incurred in connection with the Phase 2 trial of its GKT831 product in PBC and the preclinical work in progress on the GKT771 compound.
The share-based payment expense recognized for the 2017 financial year is linked to non-voting shares allocated to employees of Genkyotex Suisse SA on January 16, 2017 (see Note 8).
Subsidies
The Group recognized €169 thousand in operating subsidies corresponding to the remainder of the Neurinox grant. In January 2011, Genkyotex Innovation SAS had signed a consortium agreement with 13 members on a five-year research program entitled “NEURINOX – NOX Enzymes as mediators of inflammation-triggered neurodegeneration: modulating NOX enzymes as novel therapies” (the Neurinox project).
RESEARCH AND DEVELOPMENT
(Amounts in € thousands)12.31.2017 12.31.2016
Raw materials and consumables (148) (103)
Studies and research (4 420) (2 235)
Personnel expenses (1 340) (1 703)
Expenses related to retirement commitments (68) (22)
Lease expenses (369) (281)
Licenses and intellectual property costs (606) (254)
Depreciation and amortization (493) (62)
Share-based payments (1 990) (44)
Other (40) (109)
Research and development expenses (9 475) (4 813)
Research tax credit 500 526
Subsidies 169 -
Subsidies 669 526
Net research and development expenses (8 805) (4 287)
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14.2 General and administrative expenses
Fees incurred in 2017 primarily relate to legal fees (€0.4 million), accounting and audit fees (€0.4 million), communication fees (€0.2 million) and listing fees (€0.1 million), which are all common for listed companies. Specific consulting costs related to the Company’s industry are also included.
The share-based payment expense recognized for the 2017 financial year is linked to non-voting shares allocated to employees of Genkyotex Suisse SA on January 16, 2017 (see Note 8). Note 15: Other operating income and expenses
GENERAL AND ADMINISTRATIVE EXPENSES
(Amounts in € thousands)12.31.2017 12.31.2016
Travel expenses and assignments (289) (172)
Lease expenses (52) (39)
Fees (1 700) (189)
Insurance (94) (17)
Marketing and sales expenditure (142) (34)
Taxes and duties (84) (33)
Personnel expenses (705) (573)
Expenses related to retirement commitments (38) (7)
Attendance fees (47) (20)
Amortization (9) (13)
Transaction costs (133) (488)
Share-based payments (1 848) (29)
Other (157) (27)
General and administrative expenses (5 299) (1 641)
OTHER OPERATING EXPENSES
(Amounts in € thousands)12.31.2017 12.31.2016
Cost of l isting (10 898) -
Restructuring expenses for Genkyotex SA (formerly Genticel) (510) -
Other operating expenses (11 408) -
Accounting principles
Other operating income and expenses include significant items that may not be considered as inherent to the Group’s day-to-day activity due to their nature or non-habitual character.
They may include, in particular:
• costs relating to the merger/acquisition of companies;
• certain restructuring costs;
• other operating income and expenses such as a provision relating to a highly material dispute;
• a capital gain or loss on sale or substantial and unusual depreciation of non-current assets.
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15.1 Listing cost
As indicated in Note 2.2, the difference between the acquisition cost of shares of Genkyotex SA and the various acquired elements can be analyzed as a cost.
Acquisition price The acquisition price was determined using the number of Genkyotex SA shares outstanding and the closing market price as of February 28, 2017.
• Number of Genkyotex SA shares as of February 28, 2017: 15,570,055 shares;
• Closing share prices on February 28, 2017: €2.15.
Assumed assets and liabilities The assets acquired and liabilities assumed by Genkyotex SA underwent the following preliminary revaluations at fair value as of February 28, 2017:
(1) The assets acquired were provisionally revalued at €10,697 thousand, corresponding to the estimated fair value of the SIIL contract (for use of the Vaxiclase platform) and extensions to this contract (see Note 3.1 Intangible assets). (2) It is noted that the carrying amount of repayable advances is essentially the same as their fair value as of February 28, 2017. Consequently, in the interest of simplicity, they have not been revalued. Furthermore, the Group may adjust the fair value of the assets and liabilities assumed from Genkyotex SA for 12 months after the date of acquisition.
(Amounts in € thousands) Cost of listing
Acquisition price 33 476
Net assets transmitted (22 577)
Total 10 898
(Amounts in € thousands) IFRS dataPreliminary
reassessment
Assets and
liabilities
assumed after
reassessment
Acquired assets 14 292 10 697 24 988
intangible assets (1) - 10 697 10 697
non-current financial assets 63 - 63
trade and related receivables 28 - 28
other receivables 3 383 - 3 383
current financial assets 7 231 - 7 231
cash and cash equivalents 3 587 - 3 587
Assumed liabilities 2 411 - 2 411
o/w employee benefit obligations 94 - 94
o/w current and non-current financial liabilities (2) 775 - 775
o/w provisions 30 - 30
o/w trade payables and related accounts 667 - 667
o/w other current liabilities 845 - 845
Net assets transmitted 11 881 10 697 22 577
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15.2 Restructuring costs
The Group incurred a net expense of €510 thousand as part of its Genkyotex SA restructuring efforts from March 1, 2017 to December 31, 2017:
• Cost of layoffs including severance pay and social security contributions of €608 thousand;
• Impact of plan curtailment on provision for retirement packages of -€98 thousand (see Note 10.2). Note 16: Net financial income (expenses)
Gains and losses on currency translation as of December 31, 2017 primarily represent the impact of fluctuations in the EUR/CHF exchange rate on the intragroup accounts of Genkyotex Suisse SA with Genkyotex SA.
Note 17: Income taxes
NET FINANCIAL INCOME AND EXPENSES
(Amounts in € thousands)12.31.2017 12.31.2016
Other financial expenses (53) (20)
Other financial income 54 30
Currency gains and losses (256) 224
Net financial income (expenses) (256) 234
Accounting principles
Net financial income includes:
• Expenses related to the financing of the Company: Interest paid and unwinding of repayable advances and financial liabilities.
• Interest income from term deposits and the capital bond. Gains and losses on currency translation are reported under financial profit and loss.
Accounting principles
Taxable assets and liabilities for this and previous financial years are valued at the amount expected to be recovered or paid by the tax authorities. The tax rates and tax regulations used to calculate these amounts are those which were adopted or partially adopted at the end of the period. Deferred taxes are reported using the variable deferral method for all temporary differences existing at the end of the reporting period between the tax base of assets and liabilities and their carrying amount on the balance sheet, as well as on deferrable losses. The main temporary differences relate to deferrable tax losses. Deferred tax assets are reported as deferrable tax losses when it is probable that the Company will have future taxable profits to which those unused tax losses could be applied. The measurement of identifiable deferred tax assets requires Management to make estimates about the time period over which the deferred losses will be used up and about the level of future taxable income, based on the tax strategies adopted.
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Tax rate and tax loss carryforwards
Genkyotex Suisse SA had approximately €43,308 thousand (CHF 50,679 thousand) in tax loss carryforwards as of December 31, 2017, which break down as follows:
• €3,226 thousand (CHF 3,775 thousand) originating in 2017 and expiring in 2025;
• €10,990 thousand (CHF 12,860 thousand) originating in 2015 and expiring in 2023;
• €13,250 thousand (CHF 15,505 thousand) originating in 2014 and expiring in 2022;
• €11,516 thousand (CHF 13,476 thousand) originating in 2013 and expiring in 2021;
• €4,327 thousand (CHF 5,063 thousand) originating in 2012 and expiring in 2020. The tax rate on applicable income for Genkyotex Suisse SA is the rate that is currently applicable in the Swiss Canton of Geneva (24%).
Genkyotex SA has tax losses in France that can be carried forward indefinitely totaling €77,534 thousand as of December 31, 2017.
The tax rate on applicable income for Genkyotex SA is the rate that is currently applicable in France (33.33%). This rate will gradually decrease starting in 2018 to reach 25% by 2022.
In accordance with the principles described above, no deferred tax assets have been recognized beyond deferred tax liabilities in the Group’s consolidated financial statements as of December 31, 2017. Deferred tax assets are reported as deferrable tax losses, when it is more probable than improbable that the Company will have future taxable profits to which those unused tax losses could be applied.
Additionally, no deferred tax liabilities were reported based on the re-evaluation of the SIIL contract (see Note 15.1), in view of the exemption under IAS 12.15 in the event of acquisition of assets.
Reconciliation between theoretical tax and effective tax
The permanent differences include the impact of the research tax credit (non-taxable operating income).
TAX PROOF
(Amounts in € thousands)12.31.2017 12.31.2016
Net profit/(loss) (25 773) (5 853)
Income tax expenses (5) (158)
Profit/(loss) before tax (25 768) (5 694)
Current tax rate 24.00% 24.00%
Theoretical tax at current rate 6 184 1 367
Non-taxable items (3 189) (6 295)
Share-based payments (921) (18)
Tax loss not activated adjusted for tax deferral (2 300) 4 881
Impact from differences in tax rate 221 (94)
Income tax expenses (5) (158)
Effective tax rate 0.02% 2.78%
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Nature of deferred taxes
Note 18: Earnings per share
Given that Genkyotex Suisse SA has been considered the buyer from an accounting standpoint under IFRS 10 (see Note 2.2), earnings per share as of December 31, 2017 take into account the weighted average number of Genkyotex Suisse SA shares for the period from January 1 to February 28, 2017 and the weighted average number of Genkyotex SA shares for the period from March 1 through December 31, 2017.
NATURE OF DEFERRED TAXES
(Amounts in € thousands)12.31.2017 12.31.2016
Retirement 158 209
Other 39 -
Tax loss carryforward in France 25 842 -
Tax loss carryforward in Switzerland 10 394 11 001
Total items that have a deferred tax asset nature 36 433 11 210
Total items that have a deferred tax liability nature (33) (679)
Total items that have a deferred tax nature 36 401 10 531
Weighted average number of outstanding shares 66 107 073 311 154 1 971 650 254 919
Net income (loss) for the period attributable to owners of the
parent (in € thousands)(25 773) (821) (5 204) (673)
Basic earnings per share (€/share) (0.39) (2.64) (2.64) (2.64)
Diluted earnings per share (€/share) (0.39) (2.64) (2.64) (2.64)
EARNINGS PER SHARE 12.31.2016
Accounting principles
Basic earnings per share are calculated by dividing the net profit attributable to Company shareholders by the weighted average number of the shares outstanding during the financial year.
Diluted earnings per share are calculated by adjusting the net income attributable to the holders of ordinary shares and the weighted average number of ordinary shares in circulation by the effects of all the dilutive potential ordinary shares.
If, when calculating diluted earnings per share, taking into account instruments giving deferred access to capital (BSA and BSPCE) creates an anti-dilutive effect, those instruments are not taken into account. In this way, diluted earnings per share are identical to basic earnings per share.
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Earnings per share as of December 31, 2016 take into account Genkyotex Suisse SA’s weighted average number of outstanding shares (ordinary shares, non-voting shares (shares without voting rights), preferred shares), with the understanding that all the different share classes were converted to ordinary shares in January 2017.
Note 19: Segment information
Note 20: Related parties
20.1 Compensation due to corporate officers
After the Combined General Shareholders’ Meeting on February 28, 2017 approving the merger between Genkyotex SA and Genkyotex Suisse Group, Genkyotex SA’s governance structure was modified. While it was a company with a Management Board and Supervisory Board in the past, the Company became a limited liability company (société anonyme) with a Board of Directors. The table below shows compensation:
• For the 2017 financial year: o For Genkyotex Suisse SA executives from January 1, through February 28, 2017; o For the Chief Executive Officer, the Deputy Chief Executive Officer and members of the Board
of Directors of Genkyotex SA from March 1 to December 31, 2017;
• For Genkyotex Suisse SA executives for the 2016 financial year.
No post-employment benefits were granted to members of the Board of Directors or to executives, with the exception of the mandatory defined benefit scheme applicable for Swiss employees under the 2nd pillar of the Swiss social security system.
The variable components of compensation were allocated on the basis of performance criteria.
EXECUTIVE COMPENSATION
(Amounts in € thousands)12.31.2017 12.31.2016
Fixed compensation due 308 582
Variable compensation due 128 208
Benefits in kind 16 42
Employer contributions to the retirement plan 28 72
Share-based payments 3 629 63
Attendance fees 47 20
TOTAL 4 156 986
Accounting principles
The Group operates in only one business segment, the research and development of pharmaceutical products.
Assets, operating losses as well as research and development fees are localized in France and in Switzerland.
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The methods used to calculate the fair value of share-based payments are explained in Note 8.
Note 21: Off-balance sheet commitments
21.1 Commercial leases
Lease agreements
As part of its activity, the Group has signed a number of lease agreements:
• For its premises in Plan-Les-Ouates in Switzerland;
• For its premises dedicated to clinical development in Saint-Julien-en-Genevois in France. The addresses of these premises are, respectively: 16 Chemin des Aulx, 1228 Plan-Les-Ouates, Geneva, Switzerland and 218 Avenue Marie-Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois, France.
Expenses and commitments
The rent payments reported during the 2017 financial year and the commitments up to the next potential rent breaks are as follows:
21.2 Guarantee
A bank guarantee for €22 thousand (CHF 24 thousand) was provided to the landlord of the Plan-Les-Ouates premises.
21.3 Contractual obligations
21.3.1 Licensing agreement with the Pasteur Institute
On February 22, 2006, Genkyotex SA (formerly Genticel SA) signed a licensing agreement with the Pasteur Institute. This agreement mainly provides for:
• Royalties on the net receipts by the Company, related to HPV in the two predefined geographic regions (absence of revenue by the Company in this area to date);
• A share in the cost of maintaining the patents;
• The Pasteur Institute is responsible for obtaining the issuance and assuring the continuing validity of patents. However, the Company will reimburse the Pasteur Institute 25% or 50% (depending on the type of patent) of the direct external expenses incurred by the Pasteur Institute to maintain and extend the patents;
• A guaranteed annual minimum;
• Since 2009, Genkyotex SA has had to pay a minimum annual royalty of €50,000 to the Pasteur Institute for the human and veterinary vaccines used;
Plan-Les-Ouates, Switzerland Parking space – space 1 2.1.2011 1.31.2021 11 10 21 -
Plan-Les-Ouates, Switzerland Parking space – space 2 10.1.2007 9.30.2018 8 6 - -
Plan-Les-Ouates, Switzerland Parking space – space 3 10.1.2013 9.30.2018 2 2 - -
Location Lease agreement Lease start date End date of
lease
Rental
expenses for
2017 (in €
thousands)
Commitment until the next termination period or
next three-year period (French lease) – in €
thousands
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• A counterpart in terms of veterinary vaccines;
• Genkyotex SA will have to pay €100,000 to the Pasteur Institute upon request for authorization of clinical trials on animals and €150,000 upon the first marketing authorization of the product. Additionally, Genkyotex SA will pay the Pasteur Institute an annual royalty of 3.5% of net receipts;
• A royalty in the case of sub-licensing (to date, the Company has not signed this type of agreement);
• A counterpart in terms of human vaccines. At each stage of development, Genkyotex SA will pay the Pasteur Institute the following amounts:
- The product enters Phase 1: €50 thousand - The product exits Phase 1: €130 thousand - The product exits Phase 2: €160 thousand - The product exits Phase 3: €310 thousand - The product receives its first marketing authorization: €610 thousand
The product GTL001 (ProCervix, Genticel SA’s first product candidate) completed its Phase 1 in May 2014. The first Clinical Study Report was published on January 20, 2015. In December 2016, due to the disappointing results of the Phase 2 clinical trial in terms of the therapeutic efficacy obtained with GTL001, the Company decided to terminate its development program of treatments against the Human Papillomavirus (HPV) infection. No payment will thus be made for the product exiting phase 2.
21.3.2 Research contract with Baker Heart and Diabetes Institute
On June 28, 2017, the Company announced that world-renowned diabetes experts, Professor Mark Cooper, Head of the Department of Diabetes at Monash University, and Professor Jonathan Shaw, Deputy Director of Clinical and Population Health at the Baker Heart and Diabetes Institute in Melbourne, Australia, will direct a phase 2 clinical trial to assess the efficacy and safety of the Company’s flagship drug candidate, GKT831, in patients with type 1 diabetes and kidney disease (diabetic nephropathy).
This study, undertaken with researchers, will be carried out at the Baker Institute as well as in several clinical centers across Australia. It will be funded by the Australian Juvenile Diabetes Research Foundation (JDRF), which receives funds from the Australian Research Council for the Special Research Initiative in Type 1 Juvenile Diabetes, with financial support from the Baker Institute. As part of this study, Genkyotex will provide the GKT831 compound compliant with Good Manufacturing Practices (GMP).
Note 22: Financial risk management and assessment
Genkyotex SA may find itself exposed to various types of financial risk: market risk, credit risk and liquidity risk. When necessary, Genkyotex SA implements simple measures proportional to its size, to minimize the potential adverse effects of those risks on its financial performance. It is Genkyotex SA’s policy not to use financial instruments for speculative purposes. Interest rate risk
Genkyotex SA is not significantly exposed to interest rate risk, to the extent that:
• its cash and cash equivalents and financial assets include term deposits and a capital bond,
• no variable rate debt has been obtained. Credit risk
Credit risk is associated with deposits with banks and financial institutions. For its cash investments, Genkyotex SA uses top-tier financial institutions and therefore does not carry significant credit risk on its cash.
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Foreign exchange risk
The main risks related to impacts of changes in foreign exchange rates are considered insignificant, except for the SIIL contract where milestone revenue and royalties are denominated in dollars (see Note 3.1). The Company, at its present stage of development, does not use hedging instruments to protect its activity from exchange rate fluctuations. However, the Company cannot rule out the possibility that a major increase in its activity will increase its exposure to exchange rate risk. In such a case, the Company would consider adopting an appropriate policy to hedge such risks. Equity risk
The Company does not hold equity investments or marketable securities on a regulated market. Liquidity risk
Taking into account the available cash and cash equivalents as of December 31, 2017, the Company does not have significant exposure to liquidity risk.
To cover its future needs, the Company will continue to seek additional funds. This could include raising additional funding from current investors, new investors and/or the conclusion of licensing agreements or collaboration contracts.
Note 23: Statutory Auditors’ fees
(1) In 2017, services unrelated to the auditing of financial statements, covering services required by applicable laws and regulations (reports related to the Combined General Shareholders’ Meeting on February 28, 2017, and the General Shareholders’ Meeting on June 15, 2017, etc.), as well as services provided upon Genkyotex’s request (review of the 2016 Registration Document and Report by one of the Statutory Auditors, appointed as an independent third party, on the CSR information included in the 2017 management report).
Note 24: Post-balance sheet events
February 2018:
STATUTORY AUDITORS’ FEES
(Amounts in € thousands excl. tax)GRANT
THORNTONSYGNATURES
GRANT
THORNTONSYGNATURES
For auditing the financial statements 66 64 26 26
For other services directly related to the duties of the Statutory
Auditor- - 5 1
Services unrelated to the auditing of accounts (1) 15 19 17 13
Subtotal 81 83 48 40
Other services
- Tax - - - -
- Other - - - -
Subtotal - - - -
Total 81 83 48 40
Financial year 2017 (12
months)
Financial year 2016 (12
months)
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• GKT831, the Company’s most advanced drug candidate, demonstrated its ability to inhibit tumor stimulation from fibroblasts associated with cancer in a new preclinical study.
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20.2. PRO FORMA FINANCIAL INFORMATION
Not applicable.
20.3. CORPORATE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017
BALANCE SHEET – ASSETS
Genkyotex SA 12.31.2016
Balance sheet – Assets in eurosGross
amount
Accumulated
depreciation
/
amortization
Net book
valueNet book value
Stock subscribed but not called - - - -
Intangible assetsIncorporation costs - - - - Development costs - Concessions, patents, similar rights 3.1 - - - 41 664
Other intangible assets 3.1 - - - -
Property, plant and equipment Land - - - - Buildings - - - - Technical equipment, tooling 3.1 140 760 113 454 27 305 - Other property, plant and equipment 3.1 6 757 6 757 - 41 766
Property, plant & equipment in progress 3.1 - - - - Advances and installments
Results for the year (profit or loss) (3 292 523) (7 059 720)
Operating grants Untaxed provisions
Total equity 129 611 935 13 575 456
Other equity Income from the issue of equity instruments - - Conditional advances 10 410 143 957 223
Total other equity 410 143 957 223
Provisions for risks and contingencies Provisions for risks 9 1 852 - Provisions for contingencies 9 - 720 061
Total provisions 1 852 720 061
Debts Convertible bonds - - Other bonds - - Bank borrowings and debt 5 1 055 169 Borrowings, other financial debt 11 399 642 - Advances and installments received on orders in progress Trade and related payables 11 1 385 044 571 263
Tax and social security payables 11 161 826 1 081 496
Debts on assets and related accounts Other l iabilities 11 140 990 78 679
Accruals Prepaid income
Total debts 2 088 558 1 731 607
Unrealized gains on foreign exchange 2 571 -
Total liabilities 132 115 059 16 984 347
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INCOME STATEMENT
Genkyotex SA
Income statement in euros
Operating income Goods sold - - Production sold 14 4 765 239 222 300
Revenue 4 765 239 222 300
Stored production (43 661) Operating subsidies 15 169 410 200
Reversals of depreciation and provisions, transfers of expenses 16 731 691 75 174
Other income 36 919 1 082 222
Total operating income 5 703 259 1 336 235
Operating expenses Purchase of trading goods - - Change in inventories of trading goods - - Purchase of raw materials, other supplies 46 925 60 089
Change in inventory of raw materials and supplies - 52 560
Other purchases and external expenses 17 6 427 773 6 515 511
Other taxes, levies and similar payments 59 004 103 451
Salaries and wages 1 406 680 3 141 584
Social security contributions 314 909 1 392 953
Operating provisions Depreciation and amortization expenses on fixed assets 20 830 72 568
Provision on current assets - - Provision for loss and contingencies - 720 061
Other expenses 286 895 154 083
Total operating expenses 8 563 015 12 212 860
Profit/(loss) from operating activities (2 859 756) (10 876 625)
Financial income 18 36 352 195 531
Financial expenses 18 159 124 7 410
Financial income (expenses), net (122 772) 188 121
Profit/(loss) before tax (2 982 529) (10 688 504)
Non-recurring income 19 35 994 823 498
Non-recurring expenses 19 367 553 153 969
Exceptional income (loss) (331 559) 669 529
Employee profit-sharing - -
Income taxes 20 (21 564) (2 959 255)
Profit or loss for the year (3 292 523) (7 059 720)
Notes12/31/2016
12 months
12/31/2017
12 months
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NOTES TO THE ANNUAL FINANCIAL STATEMENTS
(Unless indicated otherwise, the amounts mentioned in this note are denominated in euros.)
Note 1: Overview of activity and significant events
The information below constitutes the Notes to the annual financial statements for the financial year ended December 31, 2017.
Each of the financial years presented last for 12 months and run from January 1 to December 31.
The financial statements as of December 31, 2017, were approved by the Board of Directors on February 28, 2018.
1.1 The Company and its activity
Created in October 2001, Genkyotex SA (formerly Genticel SA) is a French limited liability company (société anonyme) with the following corporate purpose in France and abroad: research, study, development, manufacturing and distribution of medicines and drug and health products in the field of human and animal health.
The Company’s therapeutic approach is primarily based on the selective inhibition of NOX enzymes which amplify many pathological processes such as fibroses, inflammation, the perception of pain, the development of cancer and neurodegeneration.
The Company has been listed on the Euronext market in Paris and Brussels since April 8, 2014.
Registered office: 218 avenue Marie Curie – Forum 2 Archamps Technopole,
74166 Saint-Julien-en-Genevois Cedex, France
Trade and Companies Register: 439 489 022 RCS of Thonon les Bains. 1.2 Significant events of the year
1st quarter of 2017:
• After Genticel SA halted its research activities in 2016 and its merger with Genkyotex Suisse, the Company has focused on a new area of research, described in section 1.1.
• End of the collective downsizing process initiated in 2016 for Genticel SA’s previous operations in Toulouse and Paris. This employee downsizing plan involved 26 employees and took place in two phases: 9 people during the first half of 2016 and 17 people between the end of 2016 and early 2017.
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February 2017:
• The Company’s shareholders approved the resolutions giving effect to the combination with Genkyotex Suisse SA in accordance with the contribution agreement signed on December 22, 2016, and the change of name from “Genticel” to “Genkyotex”.
The General Shareholders’ Meeting approved:
(i) the transfer to the Company, by all shareholders of Genkyotex Suisse SA, of the 5,262,133 ordinary shares they hold in the latter, representing 100% of its capital and voting rights; (ii) the issue by the Company of 62,279,951 new shares for shareholders of Genkyotex Suisse SA as compensation for this contribution. They thereby received 11.8355 Company shares for each Genkyotex Suisse SA share contributed. This exchange ratio was agreed between the Company and the shareholders of Genkyotex Suisse SA on the basis of a real value for Genkyotex Suisse SA of €120 million and for the Company of €30 million.
As a result of the completion of the contribution, the former shareholders of Genkyotex Suisse SA held 80% of the share capital and voting rights of the Company. This merger resulted in the creation of the Franco-Swiss group “Genkyotex”.
May 2017:
• The Company announced that the US Food & Drug Administration (FDA) had accepted its IND (Investigational New Drug) application for GKT831, its NOX1 and NOX4 inhibitor, authorizing Genkyotex to assess this drug candidate in a Phase 2 clinical trial on primary biliary cholangitis (PBC).
June 2017:
• The Company announced that it was recruiting patients to participate in its phase 2 clinical trial for GKT831, its NOX 1 and 4 enzyme inhibitor to treat primary biliary cholangitis (PBC).
• The Company announced that world-renowned diabetes experts, Professor Mark Cooper, Head of the Department of Diabetes at Monash University, and Professor Jonathan Shaw, Deputy Director of Clinical and Population Health at the Baker Heart and Diabetes Institute in Melbourne, Australia, will direct a phase 2 clinical trial to assess the efficacy and safety of the Company’s flagship drug candidate, GKT831, in patients with type 1 diabetes and kidney disease (diabetic nephropathy).
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August 2017:
• The Company announced that GKT831, its NOX1 and NOX4 inhibitor, had demonstrated its ability to effectively target cancer-associated fibroblasts (CAF) and delay tumor growth, as part of a study including several preclinical models.
September 2017:
• The Company acquired 100% of the shares of Genkyotex Innovation SAS from Genkyotex Suisse SA for €2,466,936 (see Note 3.2).
November 2017:
• Merger-absorption of Genkyotex Innovation SAS with retroactive effect from an accounting and tax perspective as of January 1, 2017. Information relating to impacts from this merger are detailed in Note 21.
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Note 2: Accounting principles, rules and methods
2.1 Basis for preparation of the financial statements
The accounting conventions have been adopted in compliance with the principle of prudence and in accordance with the following basic assumptions:
• business continuity;
• consistency of methods from one financial period to the next;
• independence of financial years – segregation of accounting periods.
and, in accordance with the general rules for the preparation and presentation of annual financial statements under French generally accepted accounting principles, in particular the regulatory provisions in the general accounting plan (ANC rule 2016-07 of November 4, 2016, amending ANC regulation 2014-03 of June 5, 2014 and the regulations issued subsequently by the French Accounting Standards Authority).
The historical cost method has been adopted as the basic method of accounting.
The Board of Directors applied the principle of going concern considering the Company’s financial capacity (available cash) to cover its financing needs over the next 12 months.
To cover its future needs, the Company will continue to seek additional funds. This could include raising additional funding from current investors, new investors and/or the conclusion of licensing agreements or collaboration contracts.
The Company focuses on inventing and developing new treatments. The loss-making position over the reference periods is not unusual for a company at this stage of development.
The main measurement methods used are described below. 2.2 Intangible assets
Intangible assets are valued at their acquisition cost or at their production cost.
The following depreciation periods and methods are used:
Items Amortization period
Software 1 year – Linear
Patents Period of validity
In accordance with the most frequently encountered and accepted industry practices, development work is assigned to expenses due to the risks and uncertainties linked to regulatory authorizations and the development process. Although the six activation criteria specified in Articles 211-1 to 211-3 of the General Accounting Plan (must be identifiable, controlled by the Company, have future economic benefits, used longer than one financial year, can be reliably measured) were deemed not to have been satisfied once the marketing authorization for the vaccine was obtained, this is no longer the case for the Company.
Expenses incurred in filing, maintaining and protecting “internal” patents developed by the Company are reported in dedicated lines under operating expenses and follow the same accounting principles as development expenses.
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2.3 Property, plant and equipment
Property, plant and equipment are valued at their acquisition cost (purchase price plus ancillary expenses) or at their production cost.
Asset items are depreciated according to the actual useful duration of the asset.
The following depreciation periods and methods are used:
Items Amortization period
Fixtures and fittings 9 years – Linear
Fixtures equipment 5 years – Linear
Hardware and tools 5 years – Linear
Office furniture and computer equipment 3 to 5 years – Linear
2.4 Financial assets
Equity securities
Equity securities are reported in the balance sheet at the acquisition cost. Their value is reviewed on a yearly basis by referring to their value-in-use. Value-in-use is determined using the risk-adjusted net present value (rNPV) valuation method. The Company believes this method is the best suited for the biotechnology sector in that it includes the following key parameters: progress of clinical trials / projects, probability of success, future sales estimates and associated risk.
When applicable, an impairment is recorded via a provision if the value-in-use becomes less than the acquisition cost.
Loans and receivables
Loans and receivables are measured at their nominal value. These items are impaired via a provision to reduce them to their value-in-use at year-end, if necessary.
Liquidity contract
The cash part (i.e., cash, strictly speaking), is reported in “Other capitalized receivables” and the shares portfolio is reported in “Treasury shares” based on periodic statements of the transactions conducted by the service provider. The gains or losses made from purchasing or selling treasury shares are recorded in non-recurring income (loss). The portfolio is measured at period-end at cost price. A provision for financial impairment is reported if an unrealized loss is identified.
2.5 Receivables
Receivables are measured at their par value. A provision for impairment is constituted when the inventory value is less than the carrying amount.
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Research tax credit
Research tax credits are granted to companies by the French State as an incentive for technical and scientific research. Companies with expenses that meet the eligibility criteria (research expenses in France, or, since January 1, 2005, within the European Union or another State party to the agreement on the European Economic Area, and having entered into a tax agreement with France that contains an administrative assistance clause) receive a tax credit that can be used to pay the corporate income tax due in the year in which it is granted, as well as in the following three financial years or, as the case may be, any surplus tax paid can be reimbursed.
The research tax credit is presented in the income statement under “income taxes”.
The Company has benefited from research tax credits since it was founded.
Competitiveness and Employment Tax Credit
In accordance with the ANC information note dated February 28, 2013, the Competitiveness and Employment Tax Credit (CICE) is recognized as a reduction of personnel costs. The Company uses this tax credit for its research and development efforts.
Subsidies
Subsidies received are reported as soon as the corresponding receivable becomes certain, taking into consideration the conditions specified when the subsidy was granted.
Operating grants are recorded as operating income, taking into account the rate of corresponding expenses so as to adhere to the principle of matching revenues and expenses, as the case may be. 2.6 Marketable securities
Marketable securities are shown as assets for their acquisition value.
Provisions for potential impairment are determined by comparing the acquisition value and the probable realizable value.
The capital bond subscribed in financial year 2014 with NATIXIS LIFE for an initial amount of €5,000 thousand (net book value of €3,042 thousand as of December 31, 2017 after a partial redemption carried out in 2016), is similar to available cash and cash equivalents invested in the short/medium-term and is recorded as such on the balance sheet in the “Marketable securities” line item based on:
• the Company’s investment objectives (surplus cash assets in liquid and available form with the expectation of using them to finance its activities in the near future, with no real intention to hold them for the long term),
• of these characteristics: investments in euro-denominated funds and guaranteed minimum returns, unfettered use of funds, including total or partial redemption at any time (subject to contractual penalties in the event of redemption in the first three years, i.e. until late August 2017),
• no legal or contractual lock-in provisions (no preventive detention period).
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2.7 Cash and cash equivalents
Cash and cash equivalents include the following assets: current accounts at banks, interest-bearing surplus cash accounts, and interest-bearing term-deposit accounts immediately accessible, regardless of contractual term. 2.8 Capital increase expenses
Capital increase and contribution expenses are posted directly to the issuance and contribution premiums.
2.9 Provisions for loss and contingencies
These provisions, recorded in compliance with CRC regulation No. 2000-06 are intended to cover loss and contingencies that could occur due to events in progress or that already took place. The amount of these provisions is quantifiable depending on the subject, but their realization, due date or amount are uncertain.
The Company recognizes a provision for loss and contingencies when an obligation to a third party exists on the date the accounts are closed, for which it is probable or certain that, on the close date, the obligation will result in a payment to this third party without an amount at least equivalent in return, and for which the amount may be reliably measured.
That reported amount corresponds to the reliable estimate of the cost for eliminating the obligation. 2.10 Retirement benefit
The amounts of future payments corresponding to benefits granted to employees are valuated according to an actuarial method using assumptions concerning changes in salaries, retirement age and mortality, and are then brought back to their present value.
These commitments are not subject to provisions, but are shown in off-balance sheet commitments in Note 23.1. 2.11 Conditional advances
Advances received from public bodies to fund the Company’s research activities or for regional business development, reimbursements for which are conditional, are presented as liabilities under “Conditional advances”, and their characteristics are detailed in Note 10. 2.12 Foreign currency transactions
Income and expenses in foreign currencies are recorded in their equivalent value on the transaction date.
Profit or loss from currency exchange on trade receivables and payables are recorded in operating profit / (loss) in accordance with the new provisions of ANC (French Accounting Standards Authority) regulation 2015-05 (Art. 946-65 and 946-66 of the modified French GAAP).
Existing receivables and payables in foreign currencies at year-end are translated at the exchange rate in effect on that date.
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The difference resulting from translating payables and receivables into foreign currencies at the latest rate is recorded in the “currency translation adjustments” line item under balance sheet assets and liabilities. Currency translation adjustments – assets are subject to a provision for loss and contingencies for the same amount.
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Note 3: Intangible assets, property, plant and equipment and financial assets
3.1 Intangible assets and property, plant and equipment
(1) Impacts from the merger-absorption of Genkyotex Innovation SAS, see Note 3.2 and Note 21.
3.2 Financial assets
(1) Impacts from the merger-absorption of Genkyotex Innovation SAS, see Note 3.2 and Note 21.
Other financial assets comprise:
• guarantee deposits paid under simple lease agreements for French premises;
• liquidity contract.
GROSS VALUE OF FIXED ASSETS
(Amounts in euros)12.31.2016 Acquisitions Disposals Merger (1) 12.31.2017
Other items of intangible assets 95 522 - 97 022 1 500 -
Total intangible assets 95 522 - 97 022 1 500 -
General facilities, fixtures and fittings 42 819 881 50 466 147 526 140 760
• Genkyotex Suisse SA On February 28, 2017, the Company’s shareholders approved the resolutions to make the merger with Genkyotex Suisse SA official in accordance with the contribution agreement signed on December 22, 2016. Genkyotex SA was brought in based on an actual value of €120,000,000.
As of December 31, 2017, the Company conducted an impairment test (see Note 2.4).
The value-in-use determined using the risk-adjusted net present value valuation (rNPV) method, the method used to determine contribution values, is greater than its book value.
As a result, no impairment was recorded as of December 31, 2017.
• Genkyotex Innovation SAS
On September 28, 2017, the Company acquired 100% of the shares of Genkyotex Innovation SAS from Genkyotex Suisse SA for €2,466,936.
On November 30, 2017, the merger-absorption of Genkyotex Innovation SAS by Genkyotex SA took place with retroactive effect from an accounting and tax perspective as of January 1, 2017. Information relating to impacts from this merger are detailed in Note 21.
Other financial assets
Other financial assets comprise guarantee deposits paid under simple lease agreements for French locations and the liquidity contract.
• Liquidity contract Following the Company’s IPO on the regulated Euronext market in Paris and Brussels, on April 18, 2014, a liquidity contract was signed with Banque Oddo et Cie with a view to limiting intra-day volatility in the Company’s share price. For this purpose, the Company entrusted €200 thousand to this establishment so that it could carry out purchase and sale transactions on the Company’s shares.
ITEMS 12.31.2017 12.31.2016
Initial payment on April 22, 2014 200 000 200 000
Total gain or loss for sales over the year (35 043) (30 515)
Allowance or reversal of provision for unrealized loss (4 578) (1 246)
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Note 4: Trade receivables, other receivables and advances
4.1 Trade receivables
Trade receivables solely consist of receivables with the Genkyotex Suisse SA subsidiary as of December 31, 2017.
4.2 Details of receivables and breakdown by due date
(1) In the absence of taxable income, and in view of the Company’s community SME status, the Company may request that the Research tax credit (“CIR”) be repaid the year after it is recorded. The CIR for 2017 totaled €558 thousand and reimbursement is scheduled for 2018.
(2) Advances and installments mainly involve installments paid to CMED, a Contract Research Organization (CRO) in charge of studies and clinical trials.
(3) Group receivables relate to the Genkyotex Suisse SA subsidiary.
TRADE RECEIVABLES AND RELATED ACCOUNTS
(Amounts in euros)12.31.2017 12.31.2016
Trade receivables and related accounts 5 551 693 53 342
Total gross trade receivables and related accounts 5 551 693 53 342
Impairment of trade receivables and related accounts - -
Total net impairment of trade receivables and related accounts - -
Total net trade receivables and related accounts 5 551 693 53 342
Gross Amount ≤ 1 year > 1 year
Of fixed assets
Other financial assets 185 164 - 185 164
Total fixed assets 185 164 - 185 164
Of current assets
Trade receivables 5 551 693 5 551 693 -
Research tax credit – Status (1) 558 187 558 187
Corporate competitiveness tax credit – Status 125 125 -
Tax payment – Status 80 850 80 850 -
Value Added Tax 208 887 208 887 -
Advances and installments (2) 604 184 604 184 -
Receivables from suppliers 32 594 32 594 -
Group (3) 9 731 9 731 -
Other receivables 23 889 23 889 -
Total current assets 7 070 141 7 070 141 -
Pre-paid expenses 145 067 145 067 -
Grand total 7 400 371 7 215 207 185 164
STATEMENT OF RECEIVABLES
(Amounts in euros)
12.31.2017
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Note 5: Short-term investments and cash
The table below shows a breakdown of short-term investments and cash:
(1) Capital bond taken out with Natixis (see Note 2.6) Note 6: Breakdown of income receivables
Income receivables break down as follows over the two financial years presented:
Note 7: Equity
7.1 Changes in equity
Changes in equity throughout 2017 were as follows:
On February 28, 2017, Company shareholders approved the contribution in kind of Genkyotex Suisse SA shares to the Company on February 28, 2017. In return for this contribution, the Company issued 62,279,951 new shares at a subscription price of €1.9268 each for Genkyotex Suisse SA shareholders. This transaction generated a €6,228 thousand capital increase and a contribution premium of €113,771 thousand.
The Company recognized the fees related to this transaction less the contribution premium for €670 thousand.
12.31.2017 12.31.2016
Value in use Value in use
Marketable securities/Mutual funds 940 940
Capitalisation contract (1) 3 042 128 3 042 128
Short-term deposits - 5 045 833
Bank accounts and cash in hand 1 647 041 4 662 073
Short-term borrowings (1 055) (169)
Total Investment Securities and Net Cash 4 689 054 12 750 805
INVESTMENT SECURITIES AND CASH
(Amounts in euros)
BREAKDOWN OF INCOME TO BE RECEIVED
(Amounts in euros)12.31.2017 12.31.2016
Tax and social security receivables
State – income to be received 853 3 352
Total tax and social security receivables 853 3 352
7.2 Composition of share capital and detail by share category
As of December 31, 2017, the share capital was set at €7,785,000.60, divided into 77,850,006 fully subscribed and paid-up ordinary shares with a par value of €0.10.
This number of shares excludes share subscription warrants (“BSAs”) granted to certain investors and to certain natural persons that have not yet been exercised.
7.3 Dividend distribution
The Company paid no dividends in the financial years presented. Note 8: Equity instruments
8.1 Share subscription warrants
In addition, the Company issued 133,334 warrants to financial investors in July 2008 which had the following characteristics:
• exercise period: 10 years;
• exercise price: €3.
COMPOSITION OF SHARE CAPITAL12.31.2017 12.31.2016
Capital (in euro) 7 785 001 1 557 006
Number of shares 77 850 006 15 570 055
o/w Ordinary shares 77 850 006 15 570 055
Par value of shares (in euro) €0.10 €0.10
Type Allocation date
Number of
warrants
allocated
Exercise
period
Initial
exercise price
BSA 10/2008 10/24/2008 30 800 10 years €3.00
BSA 02/2010 2/14/2010 155 200 10 years €3.00
BSA 12/2013 12/20/2013 116 000 10 years €4.00
BSA 09/2014 9/12/2014 35 000 10 years €5.79
Plan features
Type Allocation date 12.31.2016 Allocated Exercised Forfeited 12.31.2017
(1) As of December 31, 2016, this provision corresponded to the cost of severance pay negotiated in the second phase of collective layoffs on economic grounds at the end of 2016 as well as the cost from the layoffs announced in 2017 relating to the second phase.
(2) As of December 31, 2016, this provision corresponded to the cost of restoring the Labège
premises to their original condition arising from the Company’s contractual obligations when it gave notice of quitting at the end of 2016.
Type Allocation date
Number of
warrants
allocated
Exercise
period
Initial
exercise price
BSPCE 02/2007 28 000 10 years €2.90
BSPCE 04/2009 4/9/2009 88 460 10 years €3.00
BSPCE 12/2010 12/17/2010 217 400 10 years €3.00
BSPCE 06/2012 6.26.2012 13 000 10 years €3.00
BSPCE 12/2012 12/11/2012 11 750 10 years €3.00
BSPCE 02/2013 2/15/2013 19 320 10 years €3.00
BSPCE 12/2013 12/20/2013 121 314 10 years €4.00
BSPCE 05/2014 5/14/2014 481 491 10 years €6.77
BSPCE 07/2015 7/3/2015 45 000 10 years €5.66
Plan features
Type Allocation date 12.31.2016 Allocated Exercised Forfeited 12.31.2017
Provisions for restoring premises to former status (2) 32 000 - 32 000 - -
Prov. for loss on currency translation - 1 852 - 1 852
Total provisions for risks and contingencies 720 061 1 852 720 061 - 1 852
PROVISIONS
(amount in euros)
12.31.2017
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Note 10: Conditional advances
Conditional advances consist of repayable advances granted by public bodies (OSEO Innovation, which became BpiFrance).
The table below shows a breakdown of and changes to conditional advances:
OSEO Innovation repayable advance – OSEO 2
On March 9, 2011, Genkyotex SA (formerly Genticel SA) obtained from OSEO an interest-free repayable advance for the “development and clinical trials of a therapeutic vaccine to combat cancer and precancerous lesions of the cervix caused by the human papillomavirus (HPV)” for a total of €1,500 thousand.
Following the success of the project, this advance was repaid as follows:
• €50 thousand per quarter from September 30, 2013 to June 30, 2014, on the last day of the quarter;
• €75 thousand per quarter from September 30, 2014 to June 30, 2015, on the last day of the quarter;
• €125 thousand per quarter from September 30, 2015 to June 30, 2017, on the last day of the quarter.
OSEO Innovation repayable advance – OSEO 3
On January 11, 2013, Genkyotex SA (formerly Genticel SA) obtained from OSEO an interest-free repayable advance “to extend the Phase I clinical trials of the ProCervix (GTL001) project” for a total of €849 thousand. Following confirmation of completion of the program and after obtaining the statement of expenditure incurred on the project financed by OSEO, the repayable advance was reduced to take into account the fact that actual expenditure was less than projected. The aid was thus reduced to €812 thousand and an amendment was signed on September 5, 2014, to change the repayment dates.
The Company repaid this advance as follows:
• Quarterly from September 30, 2014 to June 30, 2015: €19 thousand
• Quarterly from September 30, 2015 to June 30, 2016: €29 thousand
• Quarterly from September 30, 2016 to June 30, 2017: €38 thousand
• Quarterly from September 30, 2017 to June 30, 2018: €57 thousand
• Quarterly from September 30, 2018 to March 31, 2019: €60 thousand
• The balance on June 30, 2019: €60 thousand
Furthermore, the agreement provides for an annual repayment equal to 40% of the ex-tax proceeds from the sale or assignment of licenses, patents or know-how relating to all or part of the results of
CHANGES IN REPAYABLE ADVANCES
(Amounts in euros)OSEO 2 OSEO 3 Total
At December 31, 2016 375 000 582 223 957 223
(+) Cash inflow - - -
(-) Repayment (375 000) (172 080) (547)
(+/-) Other movements - - -
At December 31, 2017 - 410 143 410 143
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the aided program, received for the previous year and 40% of the ex-tax proceeds generated by the marketing or use by the beneficiary for its own purposes, of prototypes, pre-series or models produced as part of the aided program.
The amounts owed to OSEO under this arrangement are to take priority and must be completed at the last due date, according to the above repayment plan. This arrangement will not cause the Company to pay to OSEO an amount greater than the aid received. Note 11: Maturity of debts at year-end
(1) Miscellaneous financial liabilities relate to the Genkyotex Suisse SA subsidiary.
Payables break down as follows over the present two financial years:
(1) As of December 31, 2016, this line item contained €397 thousand in expenses to be paid pertaining to the restructuring plan: layoff severance pay, notice time not worked and outplacement.
(2) As of December 31, 2016, this line item contained €281 thousand in expenses to be paid pertaining to the restructuring plan: financing CSP contracts and social security contributions on layoff severance pay and notice time not worked.
(3) As of December 31, 2017, invoices not received primarily comprised services rendered by CMED (a Contract Research Organization in charge of studies and clinical trials), rebilling services between Switzerland and France, legal and financial fees as well as the annual royalty with the Pasteur Institute (see Note 23.3).
BREAKDOWN OF PAYABLES
(Amounts in euros)12.31.2017 12.31.2016
Bank borrowings and debt
Accrued interest to be paid 200 169
Total bonds 200 169
Trade and related payables
Payables / invoices not received (3) 1 001 412 422 043
Total trade payables and related accounts 1 001 412 422 043
Tax and social security payables
Personnel – provision for paid holidays 3 902 82 052
Personnel expenses to be paid (1) 3 773 399 327
Social security contributions to be paid (2) 85 701 344 747
State – Payables 35 723 26 773
Total tax and social security payables 129 099 852 899
Directors loan accounts - -
Other l iabilities 90 281 70 281
Total other debts 90 281 70 281
Grand total 1 220 992 1 345 392
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Note 13: Accruals
The amount of prepaid expenses by type are broken down as follows:
The amount of prepaid expenses only involve operating expenses. There was no prepaid income as of December 31, 2016 or 2017. Note 14: Revenue and other operating income
As of December 31, 2017, revenue was solely generated with the Genkyotex Suisse SA subsidiary as part of the applicable service and R&D contract that took retroactive effect as of January 1, 2017.
As of December 31, 2016, revenue (#706) and other operating income (#751100) had been made with the pharmaceutical company Serum Institute of India Ltd. (SIIL):
• €222,300 ($250,000) relating to the delivery of Vaxiclase and related services
• €1,081,760 ($1,200,000) relating to a milestone payment.
In February 2015, the Company signed a license agreement with SIIL for its Vaxiclase technology, as part of the development by SIIL of acellular and multivalent vaccines containing antigens for whooping cough. In return for access to and use of the Vaxiclase platform in the authorized indication, the Company could receive up to US$57,000,000 in initial payments and milestone payments on development and sales, based on criteria defined in the terms and conditions of the agreement, as well as royalties as a percentage of net sales. No revenue was recorded for this contract during 2017.
Note 15: Operating subsidies
The Company recognized €169 thousand in operating subsidies corresponding to the remainder of the Neurinox grant. This amount is related to a consortium agreement signed in 2011 with 13 members
PRE-PAID EXPENSES
(Amounts in euros)12.31.2017 12.31.2016
Costs for capital increase / securities transactions - 383 271
Property rental - 27 833
Movable property rentals - 4 497
Insurance 30 961 14 036
Maintenance equipment and other items - 4 053
R&D and consulting service providers 114 106 74 163
Other - 9 813
Total pre-paid expenses 145 067 517 666
REVENUE AND OTHER OPERATING INCOME BY GEOGRAPHIC
REGION
(Amounts in euros)
12.31.2017 12.31.2016
Switzerland 4 765 239 -
India - 222 300
Total revenue by geographic region (#706) 4 765 239 222 300
Switzerland - -
India - 1 081 760
Total other operating income
by geographic region (#751100)0 1 081 760
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on a five-year research program called “NEURINOX – NOX Enzymes as mediators of inflammation-triggered neurodegeneration: modulating NOX enzymes as novel therapies” (the Neurinox project). Note 16: Expense transfers
Note 17: Other purchases and external expenses
Other purchases and external expenses mostly comprise services rendered by CROs (Contract Research Organizations), for €3,710 thousand in 2017, legal and financial fees, property rentals, communication fees, rebilling services between Genkyotex Suisse SA and Genkyotex SA, insurance and expenses related to managing intellectual property. Note 18: Financial income and expenses
(1) see Note 21.
In accordance with the new provisions of ANC regulation 2015-05, currency gains and losses on trade
receivables and payables have been recognized in operating profit/(loss) since January 1, 2017. In
2017, the Company recognized €36,837 in operating currency translation gains and €166,273 in
currency translation losses.
RECLASSIFICATION OF EXPENSES
(Amounts in euros) 12.31.2017 12.31.2016
Personnel expense reclassifications 11 404 44 708
Other 226 30 466
Total expense reclassifications 11 630 75 174
FINANCIAL INCOME
(Amounts in euros)12.31.2017 12.31.2016
Currency translation gains - 75 237
Interest income 35 107 58 026
Net income from disposals of marketable securities - 62 268
Reversal of impairment on treasury shares 1 245 -
Total financial income 36 352 195 531
FINANCIAL EXPENSES
(Amounts in euros)12.31.2017 12.31.2016
Currency translation losses - 6 158
Provision for risk of loss on currency translation 1 852 -
Provision for impairment on treasury shares 4 578 1 246
Interest expenses 16 574 7
Merger deficit (1) 136 121 -
Total financial expenses 159 124 7 411
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Note 19: Extraordinary income and expenses
(1) Cancellation payments followed the Company restructuring and corresponded in particular to the €111 thousand cancellation payment for the commercial lease located in Paris.
Note 20: Income taxes
As the Company is operating at a loss, it does not pay income taxes.
The amounts recognized in the income statement for income taxes pertain to:
• the 2017 Research Tax Credit (CIR) for €558 thousand;
• a downward correction of the 2016 Research Tax Credit when preparing 2016 tax returns for €537 thousand.
The amount of tax losses carried forward indefinitely available to the Company amounted to €77,534 thousand as of December 31, 2017.
The tax rate applicable to the Company is the currently applicable rate in France, which is 33.33%. Note 21: Information required for the merger-absorption of Genkyotex Innovation SAS
The items contributed by Genkyotex Innovation SAS were valuated based on their net book value as of December 31, 2016, and in accordance with accounting regulations enacted by Regulation No. 2004-01 dated May 4, 2004 of the Accounting Regulations Committee (which became the French Accounting Standards Authority) and whose rules for application were defined by the CNC Emergency Committee in their notice 2005 C dated May 4, 2005, 2006 B dated July 5, 2006 and 2007 D dated June 15, 2007.
The merger absorption took place on November 30, 2017 with retroactive effect from an accounting and tax perspective as of January 1, 2017. On this date, net assets contributed totaled €30,143 thousand and break down as follows:
NON-RECURRING INCOME
(Amounts in euros)12.31.2017 12.31.2016
Income from disposals of transferred assets - 23 200
Profit on prescribed payables - 29 218
Waiver of BPI debt / repayable advance from Magenta - 768 817
Bonuses from share buyback 22 664 -
Miscellaneous non-recurring income 13 330 2 264
Total non-recurring income 35 994 823 498
NON-RECURRING EXPENSES
(Amounts in euros)12.31.2017 12.31.2016
Penalties, fines, donations 3 872 10 101
Adjustment of 2014-2015 management fees for the capital bond - 41 114
Net book value of transferred assets 78 554 67 277
Cancellation penalties (1) 166 878 -
Losses from the share buyback 35 043 30 515
Non-recurring expenses on business transactions 83 206 4 962
Total non-recurring expenses 367 553 153 969
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The merger-absorption of Genkyotex Innovation SAS generated a €136 thousand merger deficit:
It was considered a “true” merger deficit and was recognized in financial expenses (see Note 18).
The main impacts from transferring the Genkyotex Innovation SAS business on November 30, 2017 (before eliminating reciprocal entries) are as follows:
NET ASSETS CONTRIBUTED
(Amounts in euros)01.01.2017
Assets contributed 32 137 656
Property, plant and equipment 42 379
Financial fixed assets 15 137
Trade and related receivables 897 768
Other receivables 29 931 738
Cash 1 228 474
Pre-paid expenses 22 159
Liabilities contributed 1 994 826
Miscellaneous borrowings and financial debt 1 502 734
Trade and related payables 433 976
Tax and social security payables 58 116
Net assets contributed 30 142 830
MERGER DEFICIT
(Amounts in euros)01.01.2017
Net book value of Genkyotex Innovation SAS securities 2 466 936
Net assets contributed (30 142 830)
Capital reduction during the interim period 27 812 015
Merger deficit 136 121
OPERATING INCOME OF GENKYOTEX INNOVATION SAS
(Amounts in euros)11.30.2017
Revenue 917 061
Operating subsidies 169 410
Other income 27 650
Total operating income 1 114 121
Purchase of raw materials, other supplies 42 377
Other purchases and external expenses 981 445
Other taxes, levies and similar payments 2 069
Salaries and wages 93 289
Social security contributions 38 800
Depreciation charges on assets 13 906
Other current expenses from day-to-day operations 3 194
Total operating expenses 1 175 080
Profit/(loss) from operating activities (60 959)
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Note 22: Related parties
22.1 Executive compensation (excluding granting capital instruments)
Following the Combined General Shareholders’ Meeting on February 28, 2017, Genkyotex SA’s governance structure was changed. While it was a company with a Management Board and Supervisory Board in the past, the Company became a limited liability company (société anonyme) with a Board of Directors.
The table below shows compensation allocated by the Company:
• To corporate officers who were members of the Supervisory Board and Management Board for the 2016 financial year;
• To corporate officers who were members of the Supervisory Board and Management Board from January 1 to February 28, 2017 and to the Chief Executive Officer, to the Deputy Chief Executive Officer and to members of the Board of Directors from March 1 to December 31, 2017.
No post-employment benefits were granted to members of the Board of Directors.
All compensation was paid during the financial years presented except for attendance fees. Note 23: Commitments given
23.1 Retirement benefits
Calculation method
The purpose of actuarial valuation is to produce a discounted estimate of the value of Genkyotex SA’s commitments for retirement benefits provided for in the collective agreements.
These obligations related to legal or agreement-related retirement payments have been valuated on the closing dates for the three financial years presented. These payments are not recognized as provisions in the Company’s financial statements, but constitute an off-balance sheet commitment.
This amount is determined at different closing dates based on an actuarial valuation that uses the projected unit credit method, taking into account staff turnover and mortality probability.
Executive compensation
(Amounts in euros)12.31.2017 12.31.2016
Fixed compensation 91 346 746 741
Benefits in kind 4 020 9 755
Attendance fees 70 476 100 000
Consulting fees 3 333 61 000
Total 169 175 917 496
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Actuarial assumptions
The main actuarial assumptions used to measure retirement packages are as follows:
Calculated commitments
Calculated commitments for retirement payments are broken down as follows:
23.2 Commercial leases
The Company signed a lease agreement for its premises dedicated to clinical development in Saint-Julien-en-Genevois, France, as part of its business. These premises are located at: 218 Avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois, France.
Expenses and commitments
23.3 Licensing agreement with the Pasteur Institute
On February 22, 2006, Genkyotex SA (formerly Genticel SA) signed a licensing agreement with the Pasteur Institute. This agreement mainly provides for:
• Royalties on the net receipts by the Company, related to HPV in the two predefined geographic regions (absence of revenue by the Company in this area to date);
ACTUARIAL ASSUMPTIONS
Age at retirement
Collective agreements
Discount rate
(IBOXX Corporates AA)1.30% 1.31%
Mortality table INSEE 2017 INSEE 2015
Salary revaluation rate 2.00% 2.00%
Staff turnover High HighSocial security expense ratio
Managers
Non-managers
44%*
42%
43%
44%
*excluding managers benefiting from withholding tax
Voluntary retirement age
between 65 and 67
12.31.2017 12.31.2016
Pharmaceutical Industry
RETIREMENT BENEFITS
(Amounts in euros)12.31.2017 12.31.2016
Amount of commitments 3 111 767
Lease agreementsEffective start
date of lease
End date of
lease
Occupancy
expenses
(excl. charges)
at
12/31/2017
≤ 1 year From 1 to 5
yrs > 5 years
Saint Julien en Genevois building 8.1.2011 8.1.2020 30 108 30 108 47 671 -
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• A share in the cost of maintaining the patents; The Pasteur Institute is responsible for obtaining the issuance and assuring the continuing validity of patents. However, the Company will reimburse the Pasteur Institute 25% or 50% (depending on the type of patent) of the direct external expenses incurred by the Pasteur Institute to maintain and extend the patents;
• A guaranteed annual minimum; Since 2009, Genkyotex SA (formerly Genticel SA) has had to pay a minimum annual royalty of €50,000 to the Pasteur Institute for the human and veterinary vaccines used.
• A counterpart in terms of veterinary vaccines; Genkyotex SA (formerly Genticel SA) will have to pay to the Pasteur Institute €100,000 upon request for authorization of clinical trials on animals and €150,000 upon the first marketing authorization of the product. Additionally, Genkyotex SA (formerly Genticel SA) will pay the Pasteur Institute an annual royalty of 3.5% of net receipts;
• A royalty in the case of sub-licensing (to date, the Company has not signed this type of agreement);
• A counterpart in terms of human vaccines; At each stage of development, Genkyotex SA (formerly Genticel SA) will pay the Pasteur Institute the following amounts:
- The product enters Phase 1: €50 thousand - The product exits Phase 1: €130 thousand - The product exits Phase 2: €160 thousand - The product exits Phase 3: €310 thousand - The product receives its first marketing authorization: €610 thousand
The product GTL001 (ProCervix, Genticel SA’s first product candidate) completed its Phase 1 in May 2014. The first Clinical Study Report was published on January 20, 2015. In December 2016, due to the disappointing results of the Phase 2 clinical trial in terms of the therapeutic efficacy obtained with GTL001, the Company decided to terminate its development program of treatments against the Human Papillomavirus (HPV) infection. No payment will thus be made for the product exiting phase 2.
23.4 Research contract with Baker Heart and Diabetes Institute
On June 28, 2017, the Company announced that world-renowned diabetes experts, Professor Mark Cooper, Head of the Department of Diabetes at Monash University, and Professor Jonathan Shaw, Deputy Director of Clinical and Population Health at the Baker Heart and Diabetes Institute in Melbourne, Australia, will direct a phase 2 clinical trial to assess the efficacy and safety of the Company’s flagship drug candidate, GKT831, in patients with type 1 diabetes and kidney disease (diabetic nephropathy).
This study, undertaken with researchers, will be carried out at the Baker Institute as well as in several clinical centers across Australia. It will be funded by the Australian Juvenile Diabetes Research Foundation (JDRF), which receives funds from the Australian Research Council for the Special Research Initiative in Type 1 Juvenile Diabetes, with financial support from the Baker Institute. As part of this study, Genkyotex will provide the GKT831 compound compliant with Good Manufacturing Practices (GMP).
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Note 24: Workforce
The Company’s average workforce over the past two financial years are as follows:
The workforce included three employees as of December 31, 2017. Note 25: Table of subsidiaries and equity investments
Note 26: Statutory Auditors’ fees
Note 27: Post-balance sheet events
February 2018:
• GKT831, the Company’s most advanced drug candidate, demonstrated its ability to inhibit tumor stimulation from fibroblasts associated with cancer in a new preclinical study.
For other services directly related to the duties of the Statutory
Auditor- - 5 1
Services unrelated to the auditing of accounts (1) 15 19 17 13
Subtotal 81 83 48 40
Other services
- Tax - - - -
- Other - - - -
Subtotal - - - -
Total 81 83 48 40
Financial year 2017
(12 months)
Financial year 2016
(12 months)
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20.4. AUDITING OF HISTORICAL ANNUAL FINANCIAL INFORMATION
20.4.1. Report of the Statutory Auditors on the consolidated financial statements prepared in accordance with IFRS as of December 31, 2017
“
Company GENKYOTEX
STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017 ___________
This is a translation into English of the statutory auditors’ report on the consolidated financial statements of the Company issued in French and it is provided solely for the convenience of English speaking users. This statutory auditors’ report includes information required by European regulation and French law, such as information about the appointment of the statutory auditors or verification of the information concerning the Group presented in the management report. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
___________ To the annual shareholders meeting, Opinion
In compliance with the engagement entrusted to us by your Annual General Meeting, we have audited the accompanying consolidated financial statements of Genkyotex for the year ended December 31, 2017. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2017 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. The audit opinion expressed above is consistent with our report to the Audit Committee. Basis for Opinion
Audit Framework
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We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. Independence We conducted our audit engagement in compliance with independence rules applicable to us, for the period from January 1, 2017, to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 or in the French Code of ethics (code de déontologie) for statutory auditors. Justification of Assessments - Key Audit Matters
In accordance with the requirements of Articles L.823-9 and R.823-7 of the French Commercial Code (code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period, as well as how we addressed those risks. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the consolidated financial statements.
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Accounting treatment of the Strategic Combination between Genkyotex (ex-Genticel) and Genkyotex Suisse
Key Audit Matter Our response
In the context of the Strategic Combination between Genkyotex (ex-Genticel) and Genkyotex Suisse SA carried out on February 28, 2017, Genkyotex Suisse SA was considered as the purchaser from an accounting perspective according to the IFRS. As indicated in paragraph 2.2 " Scope and consolidation methods " in note 2 "Accounting principles, rules and methods" in the notes of Consolidated financial statements, the transaction was accounted for as a reverse acquisition. Consequently, the consolidated financial statements was prepared as a continuation of the IFRS Genkyotex Suisse SA consolidated financial statements.
In the context of the fair value valuation of Genkyotex SA (formerly Genticel SA) identifiable assets and liabilities., the valuation of the SIIL contract and its extensions at February 28, 2017 amounted to 10.7 million euros. As indicated in paragraph 3.1 "Intangible asset" of Note 3 "
Intangible assets and property, plant and equipment " in the notes to the consolidated financial statements, the estimated fair value of the SIIL contract and its extensions was based on a Discounted Cash Flow model (DCF).Furthermore, the difference between the acquisition price of Genkyotex SA (formerly Genticel SA) and the fair value of the identifiable assets acquired and the liabilities assumed, can be analyzed as a listing cost of 10,9 M€. Consequently this amount was accounted for as an expense as indicated in paragraph 15.1 "Listing cost" of the note 15 "Other operating income and expenses" of the notes to the consolidated financial statements.
This strategic combination was considered as a key
audit matter, given the materiality of the
corresponding impacts in the accounts and the
importance of management's estimates in
determining the accounting treatment to be retained
as well as the assessment of the fair value of acquired
assets and liabilities assumed.
Our procedures included :
- Assessing the appropriateness of the accounting treatment used to record this combination in the consolidated financial statements
- Assessing the appropriateness of the valuation model used to determine the fair value of the SIIL contract and its extensions as well as the discount rate applied with the support of our valuation specialists
- Evaluating key estimates, including the assumptions underlying the cash flow projections and the probability of success applied
- Performing sensitivity analysis on key assumptions
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Accounting for research and development costs Key Audit Matter Our response
Studies and researches supported in 2017 amounted to 4 420 K€ and represent 47% of the research and development costs. As indicated in note 14.1 of the notes to the consolidated financial statements, they represent the costs incurred as part of phase II clinical trial for the GKT831 product for the PBC indication and the pre-clinical work in progress on the GKT771 compound.
The deployment of clinical trials phase II is implemented in many centres and the assessment of the expenses incurred over the period requires to obtain reliable data on the part of the contract research company (Contract Research Organization – CRO) in charge of studies. These data are also subject to a critical review on the part of the Manager of the clinical trials in Genkyotex.
Costs included in the studies and researches are from
different natures, represent a large volume of
operations for a significant amount. Their validation
involve actions from several actors: Genkyotex
accounting department, Manager of the clinical trials
of Genkyotex and the project manager of the CRO.
Therefore, there is a risk of error related to
completeness of the cost of studies and researches
incurred at the end of the year that we have
considered to be a key audit matter.
Our work was to appreciate the data retained by management to determine costs of studies and researches incurred at the date of the closing period. We :
- Obtained an understanding of the internal control procedures in place to identify and validate expenditures of studies and researches engaged at the end of the year,
- Performed a sampling of tests of details on supporting documents to confirm the amount of the expense incurred and its related period.
- Got a direct confirmation of the CRO on the
balance due on December 31, 2017.
1. Verification of the Information Pertaining to the Group Presented in the Management
Report As required by law we have also verified in accordance with professional standards applicable in France the information pertaining to the Group presented in the management report of the board of directors. We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements. Report on Other Legal and Regulatory Requirements
Appointment of the Statutory Auditors
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We were appointed as statutory auditors of Genkyotex by the annual general meeting held on 20 December 2013. As at 31 December 2017, Grant Thornton and Sygnatures were in the 5th year and 5th year of total uninterrupted engagement, which are the 4th year and 4th year since securities of the Company were admitted to trading on a regulated market, respectively. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to cease operations. The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of internal control and risks management systems and where applicable, its internal audit, regarding the accounting and financial reporting procedures. The consolidated financial statements were approved for issuance by the Board of Directors. Statutory Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Objectives and audit approach Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As specified in Article L.823-10-1 of the French Commercial Code (code de commerce), our statutory audit does not include assurance on the viability of the Company or the quality of management of the affairs of the Company. As part of an audit conducted in accordance with professional standards applicable in France, the statutory auditor exercises professional judgment throughout the audit and furthermore:
• Identifies and assesses the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, designs and performs audit procedures
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responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control.
• Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management in the consolidated financial statements.
• Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, future events or conditions may cause the Company to cease to continue as a going concern. If the statutory auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the consolidated financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein.
• Evaluates the overall presentation of the consolidated financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtains sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. The statutory auditor is responsible for the direction, supervision and performance of the audit of the consolidated financial statements and for the opinion expressed on these consolidated financial statements.
Report to the Audit Committee We submit a report to the Audit Committee which includes in particular a description of the scope of the audit and the audit program implemented, as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding the accounting and financial reporting procedures that we have identified. Our report to the Audit Committee includes the risks of material misstatement that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period and which are therefore the key audit matters. We describe these matters in this audit report. We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) N° 537/2014, confirming our independence within the meaning of the rules applicable in France such as they are set in particular by Articles L.822-10 to L.822-14 of the French Commercial Code (code de commerce) and in the French Code of Ethics (code de déontologie) for statutory auditors. Where
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appropriate, we discuss with the Audit Committee the risks that may reasonably be thought to bear on our independence, and the related safeguards.
Neuilly-sur-Seine and Toulouse, April 11th, 2018
The Statutory Auditors
French original signed by
Grant Thornton
French Member of Grant Thornton International
Samuel Clochard
Partner
Sygnatures
Laure Mulin
Partner
”
20.4.2. Statutory Auditors’ Report on the annual financial statements as of December 31, 2017
“
Statutory auditors’report on the financial statements
Company GENKYOTEX
For the year ended 31 December 2017 This is a translation into English of the statutory auditors’ report on the financial statements of the Company issued in French and it is provided solely for the convenience of English speaking users. This statutory auditors’ report includes information required by European regulation and French law, such as information about the verification of the management report and other documents provided to shareholders. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders of Genkyotex
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Opinion
In compliance with the engagement entrusted to us by your annual general meeting, we have audited the accompanying financial statements of Genkyotex for the year ended 31 December 2017. In our opinion, the financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as at 31 December 2017 and of the results of its operations for the year then ended in accordance with French accounting principles. The audit opinion expressed above is consistent with our report to the Audit Committee.
Basis for Opinion
Audit Framework We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Statutory Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. Independence We conducted our audit engagement in compliance with independence rules applicable to us, for the period from 01 January 2017 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 or in the French Code of ethics (code de déontologie) for statutory auditors. Emphasis of Matter
We draw attention to the following matter described in Note 2.12 and 18 to the financial statements relating to change in presentation of commercial exchange gain or loss through the income statement. Our opinion is not modified in respect of this matter. Justification of Assessments - Key Audit Matters
In accordance with the requirements of Articles L.823-9 and R.823-7 of the French Commercial Code (code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were of most significance in our audit of the financial statements of the current period, as well as how we addressed those risks.
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These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the financial statements.
Impairment test of investments in subsidiaries (Genkyotex Suisse) Key Audit Matter Our response
As at December 31, 2017 the net carrying value of equity investment in Genkyotex Suisse is M€ 120 and represent 91% of total assets. The equity investments are recorded at their historical cost (purchase cost or contribution value).
When applicable, an impairment is recorded via a provision if the value-in-use becomes less than the acquisition cost.
As indicated in paragraph 2.4 « Financial Assets » in Note 2 « Accounting principles, rules and methods » of the notes of the annual financial statements, the value in use is determined using the Risk-adjusted Net Present Value (rNPV) valuation method which includes progress of clinical trials and projects, probability of success, estimates of future sales and associated risk.
We identified the valuation of investments in
subsidiaries as a key audit matter given the
materiality of the amount with regard to the total
assets and due to the sensitivity of the valuation
model to the judgement and assumptions used.
To assess the reasonableness of the value in use of investments in subsidiaries estimated by the management, our work consisted mainly in verifying that this estimation was based on an appropriate justification of the valuation method used and :
- Verifying the appropriateness of the valuation model and the discount rate used with the support of our valuation specialists
- Evaluating key estimates, including the assumptions underlying the cash flow projections and the probability of success applied
- Performing sensitivity analysis on key
assumptions
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Accounting for research and development costs Key Audit Matter Our response
As indicated in note 17 of the notes to the annual financial statements, studies and researches supported in 2017 amounted to 3 710 K€ and represent 43% of operating expenses. They represent the costs incurred as part of phase II clinical trial for the GKT831 product for the PBC indication and the pre-clinical work in progress on the GKT771 compound.
The deployment of clinical trials phase II is implemented in many centres and the assessment of the expenses incurred over the period requires to obtain reliable data on the part of the contract research company (Contract Research Organization – CRO) in charge of studies. These data are also subject to a critical review on the part of the Manager of the clinical trials in Genkyotex.
Costs included in the studies and researches are
from different natures, represent a large volume of
operations for a significant amount. Their
validation involve action from several actors:
Genkyotex accounting department, Manager of the
clinical trials of Genkyotex and the project manager
of the CRO. Therefore, there is a risk of error
related to completeness of the cost of studies and
research incurred at the end of the year that we
have considered to be a key audit matter.
Our work was to appreciate the data retained by management to determine costs of studies and research incurred at the date of the closing period. We :
- Obtained an understanding of the internal control procedures in place to identify and validate expenditures of studies and research engaged at the end of the year,
- Performed a sampling of tests of details on supporting documents to confirm the amount of the expense incurred and its related period.
- Got a direct confirmation of the CRO on the
balance due on December 31, 2017.
Verification of the Management Report and of the Other Documents Provided to Shareholders
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law. Information given in the management report and in the other documents provided to Shareholders with respect to the financial position and the financial statements
We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given in the management report of the Board of Directors and in the other documents provided to the Shareholders with respect to the financial position and the financial statements. Information relating to corporate governance
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We attest that the Board of Directors’ report on corporate governance sets out the information required by Articles L. 225-37-3 and L. 225-37-4 of the French Commercial Code.
Concerning the information given in accordance with the requirements of Article L. 225-37-3 of the French Commercial Code (code de commerce) relating to remunerations and benefits received by the directors and any other commitments made in their favour, we have verified its consistency with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your company from controlling and controlled companies. Based on these procedures, we attest the accuracy and fair presentation of this information. Other information
In accordance with French law, we have verified that the required information concerning the purchase of investments and controlling interests and the identity of the shareholders and holders of the voting rights and the cross-shareholdings has been properly disclosed in the management report. Report on Other Legal and Regulatory Requirements
Appointment of the Statutory Auditors
We were appointed as statutory auditors of Genkyotex by the annual general meeting held on 20 December 2013. As at 31 December 2017, Grant Thornton and Sygnatures were in the 5th year and 5th year of total uninterrupted engagement, which are the 4th year and 4th year since securities of the Company were admitted to trading on a regulated market, respectively. Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with French accounting principles and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to cease operations. The Audit Committee is responsible for monitoring the financial reporting process and the effectiveness of internal control and risks management systems and where applicable, its internal audit, regarding the accounting and financial reporting procedures. The financial statements were approved by the Board of Directors. Statutory Auditors’ Responsibilities for the Audit of the Financial Statements
Objectives and audit approach
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Our role is to issue a report on the financial statements. Our objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As specified in Article L.823-10-1 of the French Commercial Code (code de commerce), our statutory audit does not include assurance on the viability of the Company or the quality of management of the affairs of the Company. As part of an audit conducted in accordance with professional standards applicable in France, the statutory auditor exercises professional judgment throughout the audit and furthermore:
• Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control.
• Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management in the financial statements.
• Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of his audit report. However, future events or conditions may cause the Company to cease to continue as a going concern. If the statutory auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein.
• Evaluates the overall presentation of the financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation.
Report to the Audit Committee We submit a report to the Audit Committee which includes in particular a description of the scope of the audit and the audit program implemented, as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding the accounting and financial reporting procedures that we have identified.
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Our report to the Audit Committee includes the risks of material misstatement that, in our professional judgment, were of most significance in the audit of the financial statements of the current period and which are therefore the key audit matters that we are required to describe in this report. We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) N° 537/2014, confirming our independence within the meaning of the rules applicable in France such as they are set in particular by Articles L.822-10 to L.822-14 of the French Commercial Code (code de commerce) and in the French Code of Ethics (code de déontologie) for statutory auditors. Where appropriate, we discuss with the Audit Committee the risks that may reasonably be thought to bear on our independence, and the related safeguards.
Neuilly-sur-Seine and Toulouse, April 11th 2018
The Statutory Auditors
French original signed by
Grant Thornton
French Member of Grant Thornton
International
Samuel Clochard
Partner
Sygnatures
Laure Mulin
Partner
”
20.5. DATE OF THE LATEST FINANCIAL INFORMATION
The latest financial information was prepared on December 31, 2017.
20.6. INTERIM AND OTHER FINANCIAL INFORMATION
Not applicable.
20.7. DIVIDEND DISTRIBUTION POLICY
Dividends and reserves distributed by the Company over the last three financial years
None.
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Distribution policy
In view of the Company’s stage of development, no dividend distribution policy has been initiated for the short term.
20.8. LEGAL AND ARBITRATION PROCEEDINGS
As of the Registration Document Date, there exist no governmental, legal or arbitrage proceedings of which the Company is aware, that are pending or threaten the Company, are likely to have or having had a significant impact on the financial position or profitability of the Company and/or the Group during the past twelve months.
20.9. SIGNIFICANT CHANGE IN THE FINANCIAL OR BUSINESS SITUATION
To the Company’s knowledge, there has been no significant change in the Company’s financial position or business situation since December 31, 2017.
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20.10. OTHER INFORMATION FROM THE MANAGEMENT REPORT
Table of results for the last five financial years
Profit/(loss) after tax, employee shareholding, but before depreciation, amortization and provisions
(1.74) (0.78) (0.87) (0.40) (0.05)
Profit/(loss) after tax, employee shareholding and depreciation, amortization and provisions
(1.55) (0.62) (0.68) (0.45) (0.04)
Dividend per share - - - - -
EMPLOYEES
Employee workforce as of December 31 30 31 34 7 3
Amount of payroll at year-end 1,613,396 2,293,217 2,380,102 3,141,584 1,406,680
Amount paid in employee benefits for the year 698,910 981,534 1,000,641 1,392,953 314,909
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Proposed appropriation of income for 2017
After deducting all expenses, taxes and depreciation, the Company’s earnings, calculated in accordance with French accounting standards (see Section 20.3 of the Registration Document) show a loss of €3,292,523.42 that we propose to allocate to prior retained earnings and losses.
Non tax-deductible expenses
In accordance with Article 223 quater of the French General Tax Code, there were no sumptuary expenses or non-deductible expenses referred to in Article 39-4 of this code in the financial statements for the year ended December 31, 2017.
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Information on payment terms for suppliers and customers
In accordance with the provisions of Articles L. 441-6-1 and D. 441-4 of the French Commercial Code, we would like to inform you of information relating to supplier and customer payment terms mentioned in Article D. 441-4 of the French Commercial Code, and in particular, invoices received and issued that have not been paid as of the year-end which are overdue (table shown in paragraph I of Article D. 441-4 of the French Commercial Code):
Amounts in € thousands
Article D. 441-I paragraph 1: Overdue invoices received but not paid as of year-end Article D. 441-I paragraph 2: Overdue invoices issued but not paid as of year-end
0 days (for informational purposes only)
1 to 30 days 31 to 60 days
61 to 90 days
91+ days Total (1+ days)
0 days (for informational purposes only)
1 to 30 days 31 to 60 days 61 to 90 days 91+ days Total (1+ days)
(A) Installments of late payment
Number of invoices concerned
33
16 1
6
Total amount of invoices concerned, including tax
212 97 51 19 5 172 3,505 349 0 266 1,432 2,046
Percentage of the total amount of purchases for the year excluding tax
3% 1% 1% 0% 0% 3%
Percentage of revenue for the year including tax
74% 7% 0% 6% 30% 43%
(B) Invoices excluded from (A) relating to unrecognized or disputed payables and receivables
Number of invoices excluded
- - - - - - - - - - - -
Total amount of invoices excluded, excluding tax
- - - - - - - - - - - -
(C) Benchmark payment terms used (contractual or legal time frame – Article L. 441-6 or Article L. 443-1 of the French Commercial Code)
Payment terms used to calculate payment delays
- Legal deadlines: Article L. 441-6 of the French Commercial Code - Legal deadlines: Article L. 441-6 of the French Commercial Code
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21. ADDITIONAL INFORMATION
21.1. SHARE CAPITAL
21.1.1. Amount of Share Capital
As of the Registration Document Date, the Company’s share capital is €7,785,000.60 divided into 77,850,006 ordinary shares with a par value of €0.10 each, fully paid-up and of a single class.
21.1.2. Securities Not Representing Equity
None.
21.1.3. Buyback by the Company of its Own Shares
The Combined Ordinary and Extraordinary General Meeting of June 15, 2017, authorized the Board of Directors, with the power to further delegate under the conditions provided by law, to implement, for a period of eighteen (18) months from the date of the Meeting, a share buyback plan in accordance with (i) Articles L. 225-209 et seq. of the French Commercial Code, (ii) European Regulation No. 596/2014 of April 16, 2014, on market abuse and its delegated regulations, and (iii) Title IV of Book II of the AMF General Regulations The main terms of this authorization are as follows: Maximum number of shares that can be redeemed: 10% of the equity capital on the date that the shares are redeemed. When the shares are redeemed to stimulate trading and liquidity, the number of shares used for the calculation of this 10% limit corresponds to the number of shares purchased, less the number of shares resold over the term of this authorization. Objectives of the share buyback plan:
• to ensure the liquidity of Company shares through an investment services provider under a liquidity contract, in accordance with the ethics charter recognized by the French Financial Markets Authority (AMF);
• to permit it to honor its obligations under stock option plans, free-share allocation plans, employee savings plans or other allocations of shares to the employees and executives of the Company or companies related to it;
• to permit it to deliver shares upon the exercise of rights attached to securities giving access to its capital;
• to purchase shares to be held for future use as exchange or payment in a potential external growth transaction; or
• to cancel all or part of the shares bought back by way of a capital reduction.
Maximum purchase price: €15 per share, excluding fees and charges. The number of shares purchased by the Company for future use as payment or exchange in a merger, demerger or contribution may not exceed 5% of the total number of shares. The maximum amount of funds that can be earmarked for share buyback: €10 million. During the year ended December 31, 2017, the Company traded in its own shares as part of the liquidity contract signed for a period of one year with an independent financial services provider. As of December 31, 2017, the Company held 70,270 of its own shares, representing 0.09% of the share capital, purchased for a total cost price of €121,227.
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Disposals of treasury shares under the liquidity contract generated a net capital loss of €35,043 in the 2017 financial year. The following table summarizes the position:
ITEMS 12/31/2017
Initial payment on 4/22/2014 €200,000
Net loss from sales in 2017 financial year -€35,043
Securities account (line 277100 “treasury shares”) number of treasury shares cost price of treasury shares closing price of treasury shares
As of March 31, 2018, the Company held 73,234 treasury shares.
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21.1.4. Securities convertible, exchangeable, or with warrants attached
As of the Registration Document Date, securities giving access to the Company’s share capital and currently valid confer the right to subscribe to 1,630,268 new shares: 470,334 shares through the exercise of warrants (BSAs) and 1,159,934 through the exercise of stock options (i.e., 2.09% of the outstanding capital on the Registration Document Date).
Number of shares subscribed as of Registration Document Date
0 0 0 0 0 0
Total number of BSAs lapsed or canceled as of Registration Document date
0 0 0 0 0 0
Unexercised BSAs outstanding on Registration Document Date
666,670 30,800 2,700 152,500 116,000 35,000
Total number of shares available for subscription on Registration Document Date
133,334 30,800 2,700 152,500 116,000 23,333
Total number of shares resulting from the exercise of BSAs, taken into account for the purposes of the table in Section 18.1 of the Registration Document: 470,334
133,334 30,800 2,700 152,500 116,000 35,000
The BSAs listed in the above table are transferable in accordance with the issuance terms and conditions of each BSA (for certain further conditions). Each holder of a BSA should refer to the issuance terms and conditions of their BSAs in order to become acquainted with the conditions of transfer.
* BSAs held by the FCPR Biodiscovery II mutual investment fund, whose management company is Andera Partners. ** Each BSA 31-Jul-2008 is attached to one P1 share issued by the Company’s General Shareholders’ Meeting of July 31, 2008. (1) BSAs attached to 666,670 P1 class preference shares issued by the General Shareholders’ Meeting of July 31, 2008. Each BSA (i) is exercisable at any
time by their holder no later than July 31, 2018, and (ii) gives the right to subscribe to one-fifth of a Genkyotex share. (2) The BSAs are all available for subscription as of the Registration Document Date. (3) One-third of the BSAs are exercisable at the expiry of each year elapsed counting from September 11, 2014, provided that the holder is still in
service at the Company on the anniversary date concerned.
Date of Board meeting 11/30/05 02/02/07 04/09/09 12/17/10 09/30/11 - 12/11/12 02/15/13 12/20/13 12/20/13 05/14/14 12/09/14 04/23/15 07/03/15 03/01/16
Total number of shares available for subscription on Registration Document Date
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total number of shares resulting from the exercise of BSPCEs, taken into account for the purposes of the table in Section 18.1 of the Registration Document: 0
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
* After taking into account the 100-for-1 par value split of shares decided by the General Shareholders’ Meeting of July 31, 2008 (1) These BSPCEs have all expired as of the Registration Document Date.
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Stock options
Stock options
Jan-2018
Date of General Shareholders’ Meeting June 15, 2017
Date of Board of Directors’ Meeting January 9, 2018
Total number of stock options granted 1,159,934
Total number of shares available for subscription if exercised 1,159,934
of which available for subscription by corporate officers 583,616
Corporate officer concerned: Elias (Ilias) Papatheodorou 583,616
Stock options exercise start date 01/08/19
Stock options expiry date 01/08/28
Subscription price of one share 1.67
Exercise terms & conditions (1)
Number of shares subscribed as of Registration Document Date 0
Total number of stock options exercised, canceled or expired 0
Unexercised stock options outstanding on Registration Document Date 1,159,934
Total number of shares available for subscription on Registration Document Date 0
Total number of shares resulting from the exercise of stock options, taken into account for the purposes of the table in Section 18.1 of the Registration Document: 0
1,159,934
(1) These stock options are non-transferable. They are not exercisable on the Registration Document Date. A quarter of the stock options are exercisable upon the expiration of each year elapsed from January 9, 2018, provided that the holder is still in service at the Company on the anniversary date concerned.
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21.1.5. Authorized capital
The issuance resolutions in effect, approved by the Combined Ordinary and Extraordinary General Shareholders’ Meeting of June 15, 2017, are summarized below:
Delegation of authority Main applicable legal and
regulatory provisions Period of validity /
Expiration Cap
Price calculation
method
Implemented as of
Registration Document
Date
Delegation of authority to the Board of Directors to increase capital by issuing ordinary shares and/or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, and/or to securities giving access to future equity instruments, with shareholders’ pre-emptive rights maintained.
Articles L.225-129 to L.225-129-6, L.225-132, L.225-133, L.225-134,
L.228-91, L.228-92 and L.225-93 of the French Commercial Code
26 months €3,850,000 (1) None
Delegation of authority to the Board of Directors to increase capital immediately or in the future by issuing ordinary shares or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, with shareholders’ pre-emptive rights waived and public offering.
Articles L.225-129 to L.225-129-6, L.225-135, L.225-135-1, L.225-136, L.228-91, L.228-92 and L.225-93 of
the French Commercial Code
26 months €3,850,000 (1) See (2)
None
Delegation of authority to the Board of Directors to increase capital by issuing ordinary shares and/or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, and/or securities giving access to future equity instruments, with shareholders’ pre-emptive rights waived, to be issued as part of an offer to qualified investors or a restricted circle of investors as defined in paragraph II. of Article L.411-2 of the French Monetary and Financial Code
91, L.228-92 and L.228-93 of the French Commercial Code
26 months €1,555,000 (1) subject to a limit of 20% of the share capital per
12-month period See (3)
None
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Delegation of authority Main applicable legal and
regulatory provisions Period of validity /
Expiration Cap
Price calculation
method
Implemented as of
Registration Document
Date
Delegation of authority to the Board of Directors to increase capital by issuing ordinary shares and/or any transferable equity instruments giving access to other equity instruments or giving entitlement to debt securities, and/or to securities giving access to future equity instruments, with shareholders’ pre-emptive rights waived, to the benefit of a category of persons that meet specific criteria (i.e., companies or investment funds habitually investing in “small cap” growth stocks (i.e., of which market capitalization when listed does not exceed €1 billion) (including, but not limited to, any innovation mutual fund, venture capital fund, professional investor fund, or proximity investment fund) in the health, life sciences, or biotechnology sectors participating in the issue with a single investment exceeding €50,000 (issue premium included), capped at 50 subscribers))
138, L.228-91 et seq. of the French Commercial Code
18 months €1,555,000 (1) See (4)
None
Authorization to the Board of Directors, when issuing shares or any securities with shareholders’ pre-emptive rights waived, to set the issue price subject to a limit of 10% of the share capital and in accordance with the conditions set by the General Shareholders’ Meeting
Articles L.225-136, 1°) of the French Commercial Code
26 months Subject to a limit of 10% of share
capital See (5)
None
Delegation of authority to the Board of Directors to increase, in the event of a capital increase, the number of securities to be issued with shareholders’ pre-emptive rights waived or maintained
Articles L.225-129, L.225-129-2, L.225-135-1 et seq., L.228-91 and L.228-92
of the French Commercial Code 26 months Subject to a limit of 15% of the
initial issue (1) (6)
Same price as the initial
issue
None
Delegation of authority to the Board of Directors to issue ordinary shares or any securities giving access to Company capital, in the event of a tender offer that includes an exchange component initiated by the Company
Articles L.225-129 to L.225-129-6, L.225-148, L.228-91 and L.228-92 of
the French Commercial Code 26 months €3,850,000 (1)
None
Delegation of authority to the Board of Directors to issue Company ordinary shares or securities giving access in any way immediately or in the future to Company ordinary shares, subject to a limit of 10% of existing share capital, to be used as payment for in-kind contributions of equity instruments or securities giving access to the capital of third-party entities outside a public exchange offer
Article L.225-147 of the French Commercial Code
26 months Subject to a limit of 10% of
existing share capital on the date of the transaction in question (1)
None
Delegation of authority to the Board of Directors to increase capital by incorporating premiums, reserves, profits or other means
Articles L.225-129, L.225-129-2 and L.225-130 of the French Commercial
Code 26 months €500,000
None
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(1) These amounts are not cumulative. The maximum cumulative cap authorized by the General Shareholders’ Meeting as the par value of capital increases, is set at €3,850,000.
(2) The issue price of shares and securities will be set by the Board of Directors and will equal at least the weighted average listed share price over the three trading days immediately preceding the date on which it is set, minus any legally authorized discount (currently 5%) and adjusted for any difference in entitlement dates, it being understood that the issue price of securities giving access to capital shall be the sum immediately taken by the Company, plus any that may be taken by it subsequently – thus, for each share issued pursuant to the issuance of these securities, it is at least equal to the issue price defined above.
(3) The issue price of shares will be set by the Board of Directors and will equal at least the weighted average listed share price over the three trading days immediately preceding the date on which it is set, minus any legally authorized discount (currently 5%) and adjusted for any difference in entitlement dates, it being understood that the issue price of securities giving access to capital shall be the sum immediately taken by the Company, plus any that may be taken by it subsequently – thus, for each share issued pursuant to the issuance of these securities, it is at least equal to the issue price defined above.
Delegation of authority Main applicable legal and
regulatory provisions Period of validity /
Expiration Cap
Price calculation
method
Implemented as of
Registration Document
Date
Authorization to the Board of Directors to grant options to subscribe or buy ordinary shares in the Company
Articles L.225-177 to L.225-185 of the French Commercial Code
38 months 4,500,000
shares, subject to a limit of one-third of share capital (7)
See (8)
Yes (up to 1,159,934). 3,340,066
options remaining to be
issued
Authorization to the Board of Directors to allocate existing or future shares free of charge
Article L.225-197-1 et seq. of the French Commercial Code
38 months 4,500,000 shares, subject to a
limit of 10% of share capital (7)
None
Delegation of authority to the Board of Directors to issue and allocate share subscription warrants to the benefit of (i) members and observers on the Company’s Board of Directors in office on the allocation date who are not employees or executives of the Company or of any of its subsidiaries or (ii) persons related by a service or consulting contract to the Company or any of its subsidiaries or (iii) members of any existing or future committee of the Board of Directors who are not employees or executives of the Company or of any of its subsidiaries.
Article L.225-129 et seq., L.225-138-I, L.228-91 and L.228-92 of the French
Commercial Code 18 months 4,500,000 shares (7) See (9) None
Authorization to the Board of Directors for the Company to purchase its own shares
Articles L.225-209 et seq. of the French Commercial Code 18 months
Subject to a limit of 10% of the total number of shares
See (10) None
Authorization to the Board of Directors to reduce share capital by canceling shares as part of the authorization to buy back its own shares
Article L.225-209 of the French Commercial Code
18 months
Subject to a limit of 10% of share capital in any 24-month period
None
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(4) The issue price of shares will be set by the Board of Directors and will be equal to at least the volume-weighted average listed share price over a period of between five and thirty consecutive trading days from among the thirty trading days immediately preceding the date on which the issue price is set, adjusted for any difference in entitlement dates and potentially reduced by a maximum 20% discount.
(5) Subject to a limit of 10% of existing Company capital (existing on the transaction date) in any consecutive 12-month period, the Board of Directors can deviate from the price-setting conditions specified in the aforementioned
authorizations and set the issue price for ordinary shares and/or other securities giving immediate or future access to issued capital, as follows:
− the issue price of an ordinary share will be at least equal to the weighted average share price during the three trading days immediately preceding the date the price is set, potentially discounted by up to 15%, it being understood that in no case can it be lower than the par value of a Company share on the date that the shares in question are issued,
− the issue price of securities giving access to capital shall be the sum immediately taken by the Company, plus any sum it may take subsequently, thus, for each share issued as a consequence of the issuance of these securities,
at least equal to the issue price defined in the paragraph above.
(6) 15% or any other percentage that may be set by the applicable regulation.
(7) These amounts are not cumulative. The cumulative cap authorized by the General Shareholders’ Meeting as the maximum number of securities giving access to capital is set at 4,500,000 shares.
(8) The per-share purchase price or subscription price will be set by the Board of Directors on the day that the option is granted and cannot be less than the average listed share price over the twenty trading days immediately preceding the date of the Board’s decision to grant the options, rounded to the next higher eurocent, not including purchase options, at the average purchase price for Company treasury shares, rounded to the next higher eurocent
(9) The subscription price of BSAs will be set by the Board of Directors on the BSA issue date and must be at least equal to 5% of the weighted average listed share price over the five trading days immediately preceding the date on which those BSAs are granted by the Board of Directors. The subscription price of a share upon the exercise of a BSA will be set by the Board of Directors on the day that the BSAs are granted and will be equal to at least the weighted average listed share price over the twenty trading days immediately preceding the date of the Board’s decision to grant those BSAs.
(10) The maximum purchase price per share (excluding fees and commissions) is €15, with an overall cap of €10 million, it being understood that this purchase price will be adjusted as necessary to take into account capital transactions
(particularly in the case of incorporation of reserves, allocation of free shares, split or reverse-split).
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21.1.6. Disclosures regarding the capital of any Group company that is the object of a conditional or unconditional option or agreement to buy
To the Company’s knowledge, there is no option or any conditional or unconditional agreement providing for the introduction of such an option on the capital of the Company or Group companies.
21.1.7. Change in equity capital
The Company was registered in the trade and companies register on October 15, 2001, with initial equity capital of €48,500.
The equity capital was then increased, several times, reaching €7,785,000.60 on February 28, 2017, as the result of a capital increase by the issuance of 62,279,951 new shares.
The following table summarizes changes in equity capital since the Company’s Initial Public Offering.
21.2.1. Company Purposes (Article 3 of the Articles of Association)
The Company has the following purpose, in France and abroad:
• research, study, development, production, manufacturing and distribution of medicines and drug and sanitary products in the field of human and animal health
using any means and in particular by setting up new French or foreign companies, acquisition, contribution, merger, alliance, demerger, loans, guarantees, endorsements, advances, commissions or otherwise.
And in general, any operation, business or financial, commercial, industrial or real estate enterprise of any kind, in particular those directly or indirectly connected with the above mentioned purpose or any other similar or related purpose that may facilitate, encourage or develop its industry, commerce, and services.
21.2.2. Statutory or other provisions relating to the members of executive and management bodies
Membership
The Company is administered by a Board of Directors composed of natural persons or legal entities, whose number is set by the Ordinary General Shareholders’ Meeting within legal limits.
A legal entity must, if appointed, designate a natural person as a permanent representative to the Board of Directors. The permanent representative’s term of office is the same as that of the legal entity that he or she represents. Should a legal entity revoke its permanent representative’s right to represent it, it must provide a replacement as promptly as possible. The same applies in the event of the death or resignation of a permanent representative.
The term of office for directors is three (3) years. A director’s term of office ends after the Ordinary General Shareholders’ Meeting called to approve the financial statements for the past financial year and held in the year during which that director’s term of office expires.
Directors are always eligible for re-election; they may be removed at any time by action taken at a general shareholders’ meeting.
If one or more seats on the Board are vacated by the death or resignation of a director, the Board can, between two General Shareholders’ Meetings, make a provisional appointment.
The provisional appointments made by the Board of Directors must be submitted for ratification at the very next Ordinary General Shareholders’ Meeting.
Should the appointment not be ratified, the previous deliberations and actions taken by the Board will continue with no less force or validity.
When the number of directors becomes less than the legal minimum, the remaining directors must immediately convene an Ordinary General Shareholders’ Meeting with a view to increasing the Board membership.
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An employee of the Company can be appointed to the Board as a director. His or her employment contract must, however, correspond to effective employment. In such a case, he or she does not lose the benefit of his or her employment contract.
The number of directors bound to the Company by an employment contract must not exceed one third of the directors in office.
The number of directors over 70 years of age must not exceed one third of the directors in office. If a member exceeds this age limit during his or her term of office, the member is automatically deemed to have resigned at the close of the next General Shareholders’ Meeting.
Chairmanship
The Board of Directors chooses a Chairman from among its own members, who must be a natural person. The Board sets his or her term of office, which cannot exceed his or her term as Director, and it can revoke his or her functions at any time. The Board sets his or her compensation.
The Chairman of the Board of Directors organizes and directs the work of the Board, and reports on this work to the General Shareholders’ Meeting. The Chairman oversees the proper functioning of the Company’s bodies and ensures, in particular, that directors are capable of fulfilling their duties.
The Chairman of the Board may not be more than 75 years old. If the Chairman reaches this age limit during his or her term as Chairman, he or she is at the point deemed to have resigned from office. His or her term of office continues until the next Board of Directors meeting in the course of which his or her successor will be appointed. Subject to this provision, the Chairman of the Board is always eligible for reappointment.
Board of Directors practices
The Board of Directors meets as often as required in the interests of the Company.
The directors are convened to Board meetings by the Chairman. They can be convened by any means, written or orally. The Chief Executive Officer may also ask the Chairman to convene a Board meeting to consider a specific agenda. Directors representing a third of the Board members can also validly convene a Board meeting. In such a case, they must set and provide the agenda.
For Board deliberations to be valid, at least half of the Board members must be present.
Board decisions are taken by majority vote; in the case of a tie, the Chairman does not cast the deciding vote.
The Board charter adopted by the Board of Directors provides that, for quorum and majority purposes, members may be deemed present at a meeting if they attend by videoconference or telephone conference in accordance with applicable regulations. This provision is not applicable for the adoption of decisions relating to Articles L. 232-1 and L. 233-16 of the French Commercial Code.
Powers of the Board of Directors
The Board of Directors determines the strategies for the Company’s business and ensures their implementation. Subject to the powers expressly given to the Shareholders’ Meetings and within the
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limits of the corporate purpose, it addresses all questions related to the Company’s proper functioning and governs, by its decisions, the affairs that concern it.
In its relations with third parties, the Company is committed by the actions of the Board of Directors even if they are inconsistent with the corporate purpose, unless the Company can prove that the third party knew that the act was outside that purpose or that it could not ignore it given the circumstances, excluding the fact that the publication of the Articles of Association alone is sufficient proof.
Observers
An Ordinary General Shareholders’ Meeting may appoint observers. The Board of Directors may also appoint one observer directly, subject to ratification by the next General Shareholders’ Meeting.
Observers are appointed for a three (3) year term expiring at the close of the Ordinary General Shareholders’ Meeting called to approve the financial statement for the financial year elapsed.
The college of observers studies the questions that the Board of Directors or its Chairman submit to it for review and opinion. Observers attend Board meetings and take part in the deliberations with a consultative voice only, and their absence does not affect the validity of deliberations.
They are convened to Board of Directors meetings on the same terms as the Board members.
The Board of Directors may remunerate observers by allocating them a portion of the attendance fees granted by the General Shareholders’ Meeting to members of the Board of Directors.
Executive management
The Company’s general management function is the responsibility of either the Chairman of the Board of Directors or another natural person appointed by the Board of Directors and holding the title of Chief Executive Officer (CEO).
The Chief Executive Officer is vested with the most extensive powers to act on behalf of the Company in any circumstance. He or she exercises these powers within the limit of the corporate purpose and subject to the powers that the law expressly grants to the General Shareholders’ Meeting and to the Board of Directors.
He or she represents the Company in its relations with third parties. The Company is bound even by acts of the Chief Executive Officer that are not within the scope of the corporate purpose, unless the Company can prove that the third party knew that the act was beyond the scope of said purpose or the third party could not be unaware of it given the circumstances, although the mere publication of the Articles of Association does not suffice as such proof.
The Chief Executive Officer may not be more than 65 years old.
If the Chief Executive Officer is a director, his or her term of office as CEO must not exceed that of his or her directorship.
The Board of Directors can revoke his or her appointment as CEO at any time. If the revocation is decided for no fair reason, it may give rise to a claim for damages, unless the Chief Executive Officer takes on the role of Chairman of the Board of Directors.
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At the proposal of the Chief Executive Officer, the Board of Directors may appoint one or more natural persons as Deputy Chief Executive Officer, with the responsibility of assisting the Chief Executive Officer.
With the consent of the Chief Executive Officer, the Board of Directors determines the scope and extent of the powers granted to Deputy Chief Executive Officers. The Board sets their compensation. If a Deputy Chief Executive Officer is a director, his or her term of office in that function must not exceed that of his or her directorship.
With respect to third parties, Deputy Chief Executive Officers have the same powers as the Chief Executive Officer; in particular, they have the authority to participate in legal proceedings.
There can be no more than five Deputy Chief Executive Officers.
The position of Deputy Chief Executive Officer can be revoked at any time by the Board of Directors on the recommendation of the CEO. If the revocation is decided for no fair reason, it may give rise to a claim for damages.
A Deputy Chief Executive Officer may not be more than 65 years old. When a Deputy CEO reaches this age limit, he or she is deemed to have resigned his or her office. His or her term of office continues until the next Board of Directors meeting in which his or her successor may be appointed.
21.2.3. Rights, privileges and restrictions attached to shares in the Company
Form of securities
Shares may be registered or bearer shares, at the choice of the shareholder. They cannot be in the form of bearer shares until they are fully paid up.
The shares and all other securities issued by the Company are registered in an individual account, subject to the terms and conditions provided for by the applicable legal and regulatory provisions.
Voting right
The voting right attached to shares is proportional to the share of capital that they represent and each share gives the right to at least one vote, subject to applicable legal and regulatory provisions.
The Articles of Association expressly prohibit any mechanism that grants full double voting rights to shares held in registered form in the name of the same shareholder for at least two years (General Shareholders’ Meeting of June 11, 2015).
Rights to dividends and profits
Each share confers a right to the Company’s profits and assets and to the surplus from liquidation in proportion to the fraction of the number and par value of existing shares that it represents.
Pre-emptive right
Company shares benefit from a pre-emptive right to capital increase under the terms and conditions specified in the French Commercial Code.
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Limitation on voting rights
No provision of the Articles of Association restricts the right to vote attached to shares.
Identifiable bearer securities
The Company may also, under the statutory and regulatory conditions in force, demand at any time, on a paid basis, from any authorized body, the name, or if a legal entity, the corporate name, nationality and address of holders of securities conferring immediate or future voting rights at its own shareholders’ meeting, as well as the number of securities held by each of them and any restrictions that may apply to those securities.
21.2.4. Procedure for modifying shareholders’ rights
Shareholders’ rights as explained in the Company’s Articles of Association can be modified only by an Extraordinary General Shareholders’ Meeting.
21.2.5. General Shareholders’ Meetings
General Shareholders’ Meetings are convened and deliberate under the conditions laid down in applicable laws and regulations. When the Company wishes to call a meeting by electronic means rather than by post, it must first obtain the consent of the shareholders involved and their electronic addresses.
The meetings are held at the registered office or at any other place specified in the notice of meeting.
The right to participate in General Shareholders’ Meetings is governed by applicable laws and regulations and is, in particular, conditional on the registration of shares in the name of the shareholder or of the authorized intermediary registered on the shareholder’s behalf, by 12:00 a.m. (midnight) Paris time, of the second business day before the Meeting, either in the registered share accounts kept by the Company or in the bearer share accounts kept by the authorized intermediary.
Shareholders, if not personally attending the meeting, can choose any of the following three methods to participate:
• assign a proxy in accordance with applicable laws and regulations,
• vote by correspondence; or
• send a form of proxy to the Company without indicating a delegate,
in accordance with applicable laws and regulations.
The Board of Directors may organize, in accordance with applicable laws and regulations, the participation and voting of shareholders at meetings via videoconferencing or other telecommunications methods that allow shareholders to be identified. If the Board of Directors decides to exercise this option for a particular meeting, it must state this decision in the notice of meeting. Shareholders participating in meetings by videoconference or by any other telecommunication method indicated above that the Board of Directors may choose, are deemed to be present for the purposes of calculating quorum and majority.
General Shareholders’ Meetings are chaired by the Chairman of the Board of Directors. Failing which, the Meeting itself can elect a chairman for its meeting.
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The roles of scrutineers are performed by the two willing shareholders present at the start of the Meeting who represent the greatest number of votes. The meeting officers appoint a secretary, who may be chosen from outside the members of the Meeting.
An attendance sheet is maintained under the conditions provided by law.
An Ordinary General Shareholders’ Meeting on first convocation may validly deliberate only if the shareholders present or represented possess at least one fifth of the shares with voting rights. An Ordinary General Shareholders’ Meeting on second convocation may validly deliberate regardless of the number of shareholders present or represented.
Resolutions of Ordinary General Shareholders’ Meetings are passed by a majority of the shareholders present or represented.
An Extraordinary General Shareholders’ Meeting on first convocation may only validly deliberate if the shareholders present or represented possess at least one quarter of the shares with voting rights. An Extraordinary General Shareholders’ Meeting on second convocation may validly deliberate only if the shareholders present or represented possess at least one fifth of the shares with voting rights.
Resolutions of Extraordinary General Shareholders’ Meetings are passed by a two-thirds majority of the shareholders present or represented.
Copies or excerpts of the minutes of the meeting are validly certified by the Chairman of the Board of Directors, by a director performing the functions of a Chief Executive Officer, or by the Secretary of the Meeting.
Ordinary and Extraordinary General Shareholders’ Meetings exercise their respective powers under the conditions provided by law.
21.2.6. Provisions to delay, defer or prevent a change of control
The Articles of Association do not contain any provisions to delay, defer or prevent a change of control of the Company.
21.2.7. Breach of statutory thresholds
None.
21.2.8. Special stipulations governing changes to capital
There are no special stipulations in the Company’s Articles of Association governing changes to its capital that would be more stringent than provided by law.
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22. MATERIAL AGREEMENTS
The main terms of material agreements are summarized below:
22.1. LICENSE AGREEMENT SIGNED ON FEBRUARY 2, 2015, WITH THE
PHARMACEUTICAL COMPANY SERUM INSTITUTE OF INDIA LTD. (SIIL)
On February 2, 2015, the Company signed a license agreement with the pharmaceutical company Serum Institute of India Ltd. (SIIL) for its Vaxiclase technology, as part of the development by SIIL of acellular and multivalent vaccines containing antigens for whooping cough.
The license granted by the Company to SIIL ensures the introduction of the Vaxiclase technology platform in multivalent vaccines that protect against (among others) the bacterium Bordetella pertussis, the agent responsible for whooping cough. The license covers every country in the world, with the exception of the main pharmaceutical markets, notably the United States of America, Canada, New Zealand, Australia, Japan, Israel, Turkey and wider Europe.
In return for access to and use of the Vaxiclase platform in the authorized indication, the Company could receive up to US$57 million in initial payments and milestone payments on development and sales, based on criteria set out in the terms of the agreement, as well as royalties as a percentage of net sales.
Furthermore, additional options permit the extension of the collaboration to markets not yet included in the agreement.
The agreement was signed for a period expiring on the date on which SIIL no longer owes royalties to the Company under the agreement, or, if later, on the date on which all the obligations of all parties specified in the agreement have been satisfied or have expired. The parties may, however, terminate the license agreement early in the following cases:
• at the request of either party, in the event the other party has materially breached or defaulted in the performance of any of its material obligations, not remedied within 90 days;
• by SIIL, at any time after February 2, 2016, and without cause, subject to 90 days’ prior written notice; and
• at the request of either party, if the other party is the subject of collective insolvency proceedings or finds itself insolvent.
22.2. SERVICE AGREEMENT WITH SYNGENE
On May 2, 2017, Genkyotex signed a framework service agreement with Syngene International Limited, a CRO (contract research organization, specialized in the manufacture and characterization of pharmaceutical substances and medical drugs), to provide the necessary products for the preclinical studies and Phase 1 clinical trials with GKT771 in patients. This agreement was signed for an initial term of three years, automatically renewable for an additional year.
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22.3. SERVICE AGREEMENT WITH CMED
On January 12, 2017, Genkyotex Group signed a framework service agreement with Cmed, a CRO (contract research organization, specialized in clinical trial services), to conduct the Phase 2 clinical trial in PBC. This agreement was signed for an initial term of five years, automatically renewable for an additional year. The study will be conducted in more than 60 centers.
22.4. RESEARCH CONTRACT WITH THE BAKER HEART AND DIABETES INSTITUTE
On June 28, 2017, the Company announced that the world-renowned diabetes experts, Professor Mark Cooper, Head of the Department of Diabetes at Monash University, and Professor Jonathan Shaw, Deputy Director of Clinical and Population Health at the Baker Heart and Diabetes Institute in Melbourne, Australia, will lead a Phase 2 clinical trial to evaluate the efficacy and safety of the company’s lead drug candidate, GKT831, in patients with type 1 diabetes and renal failure (diabetic kidney disease).
This investigator-initiated study will be conducted at the Baker Institute and in several clinical centers across Australia. It will be funded by the Juvenile Diabetes Research Foundation of Australia (JDRF Australia), a beneficiary of the Australian Research Council fund dedicated to the Special Research Initiative for Type 1 Juvenile Diabetes, with financial support from the Baker Institute. As part of this study, Genkyotex will provide the GKT831 compound compliant with good manufacturing practices (GMP).
With the exception of the contracts described below, the Genkyotex Group has only entered into contracts relating to the normal course of business.
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23. THIRD PARTY INFORMATION, STATEMENTS BY EXPERTS AND DECLARATIONS OF ANY INTEREST
None.
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24. DOCUMENTS ACCESSIBLE TO THE PUBLIC
Copies of this Registration Document are available free of charge from the Company’s registered office (218 avenue Marie Curie – Forum 2 Archamps Technopole, 74166 Saint-Julien-en-Genevois Cedex, France).
This Registration Document can also be consulted on the Company’s website (www.genkyotex.com) and on the AMF website (www.amf-france.org).
The Articles of Association, minutes of general shareholders’ meetings and other Company documents, as well as historical information and all assessments and reports issued by an expert at the Company’s request, which are required to be available to the shareholders in accordance with applicable laws, can be consulted free of charge at the Company’s registered office.
The regulated information, under the meaning of the AMF General Regulations, is also available on the Company’s website (www.genkyotex.com).
Information concerning the entities in which the Company holds a proportion of the share capital that could have a material impact on the valuation of its assets and liabilities, its financial position or its results is provided in Sections 7 “Organizational structure” and 20 “Financial information concerning the Company’s assets and liabilities, financial position and profits and losses” of the Registration Document.
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26. APPENDICES
26.1. CORPORATE SOCIAL RESPONSIBILITY (CSR) REPORT
1. CORPORATE SOCIAL AND ENVIRONMENTAL INFORMATION
Late 2016 and early 2017 were marked by the strategic combination of Genticel and Genkyotex. The Company’s therapeutic approach is primarily based on the selective inhibition of NOX enzymes which amplify many pathological processes such as fibroses, inflammation, the perception of pain, the development of cancer and neurodegeneration. The Company’s corporate name as well as its trade name was thus changed from “Genticel” to “Genkyotex”. As a result of the completion of the contribution in kind, Genkyotex S.A. became a Swiss subsidiary of Genkyotex, and its corporate name was changed to “Genkyotex Suisse SA”. Therefore, the “Group” referred to in the following report is composed of the two companies GENKYOTEX SA and GENKYOTEX Suisse S.A. In light of this business combination carried out in early 2017, it was decided for this CSR report to present only the information relating to the financial year from January 1, 2017 to December 31, 2017. This is because the comparison with Genticel’s internal data for the financial year ended December 31, 2016, lacks relevance given the difference between the Genticel and Genkyotex organizations in 2016 prior to their combination. 1.1. Employment and social information
Taking into account the facts set out above, the Group was obliged to reorganize. A downsizing plan for economic reasons was implemented for former Genticel employees in both the 2016 and 2017 financial years. As of December 31, 2017, there are no longer any Genticel employees or directors among the Genkyotex workforce. In view of these significant changes, we will only present Genkyotex figures for 2017 as comparison with 2016 data is not relevant.
a) Employment:
The Group carries out research and development activities in the medical sector. As such, its employees are at the heart of its business model. To motivate and retain all its key personnel over the long term, the Group has implemented a talent management policy.
Organizational structure:
The Group’s organizational structure at December 31, 2017, reflecting its recent restructuring as described above, is as follows:
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Workforce:
Following the combination of Genticel and Genkyotex, the seven employees still working at Genticel at December 31, 2016, left the Group at the end of their contractual notice periods (March and April 2017). Genticel’s Chief Executive Officer, Benedikt Timmerman, and its Chief Financial Officer, Martin Koch, left the Group in the second half of 2017.
The information presented below concerns only the internal data of Genkyotex entities and excludes the data relating to Genticel restructuring presented above.
Thus, as of December 31, 2017, the Group had 12 employees. The Group strengthened its team during the year by appointing a financial controller and a clinical trials manager.
To ensure it has suitable resources for its development, the Group prioritizes stable, long-term employment. Thus, as of December 31, 2017, all employees were on permanent contracts.
Breakdown by geographic region:
As of 2017, the Group has two geographical locations:
- The Group’s research center and its registered office are located in Geneva, Switzerland, where nine of its 12 employees work.
- Its clinical and pharmacological activities are located in Archamps, France.
0
2
4
6
8
10
employees inFrance
employees inSuisse
Déc. 2017 3 9
Breakdown of workforce by geographic region
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Breakdown by sex (M/F):
At December 31, 2017, women represented 58% of the Group’s contractual employees.
The breakdown of employees by sex is as follows:
The Group employs a policy of non-discrimination in pay at the time of hiring. Irrespective of the professional category, the methods for managing compensation and assessing individual added value are identical for women and men. The same applies for access to training.
Skills:
The Group’s personnel is characterized by a high level of qualification. As at December 31, 2017, 10 employees had a degree equivalent to or higher than a Master’s degree (i.e. 83% of employees). Of these 10 employees, five hold a doctorate.
All staff members have experience in research and innovation management.
Breakdown of employees by function:
At December 31, 2017, eight of the 12 employees were assigned to the R&D department (i.e. 67% of personnel), compared to only four employees assigned to management and administrative functions. This demonstrates the importance Genkyotex attaches to research.
- 1 2 3 4 5 6 7
Déc. 2017
Women 7
Men 5
Breakdown by sex M / F in number of employees
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Length of service:
As at December 31, 2017, the average age of employees was 39.4 years of age, with an average length of service of about 5.1 years.
The Group has a well-balanced distribution of its workforce, between young professionals and more experienced employees.
Workforce movements:
During the 2017 financial year, the Group hired three new employees, all on permanent contracts. Two people were employed in Archamps while the other person is at the office in Switzerland. Only one person left the Group (the reason for departure was other than a dismissal). The effectiveness of the Group’s retention and incentive/motivation policy is also reflected in the low staff turnover rate. For 2017, the turnover rate was 8% (for employees on permanent contracts).
Compensation:
Payroll is one of the main items of operating expenses. With research being the Group’s main activity, investments in human capital are substantial.
Personnel expenses by year 2,017
As a percentage of revenue NA
As a percentage of operating expenses 13.84%
Total amount in € thousands 2,045
Compensation levels for employees are defined solely on the basis of the position held. There is no difference in pay between two employees holding a similar position. The Group has established a bonus policy based on the achievement of the Group’s common objectives and the achievement of individual, measurable, quantitative targets. Bonus criteria and
2
5
4
1
Breakdown by age group
20-29 30-39 40-49 50-65
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amounts are set during the annual employee performance review, based on the objectives set the previous year during their performance review with their line manager. A summary report on the previous year is compiled in order to validate the achievement of objectives/targets and the final allocation of bonuses.
b) Work organization:
The employment contracts of French employees are governed by the French pharmaceutical industries collective bargaining agreement (“Convention collective des industries pharmaceutiques”). Employment contracts concluded between the Group and its employees include confidentiality and loyalty agreements and, for some managers, a non-competition clause.
In Switzerland, there is no distinction between managers and non-managers. The working week is 40 hours for all employees working in Switzerland. The three French employees have a non-manager status, so their working week is set at 35 hours. Given the constraints imposed by their functions, some employees are required to work overtime, though such use of overtime hours remains limited.
It should be noted that the group does not work with temporary staffing agencies.
Absenteeism:
The only absences recorded in 2017 were related to paid leave (a total of 109 days for all Group employees). This represents about 5% of the days worked in 2017. Employees also have the option of telecommuting.
c) Labor relations
As of December 31, 2017, the Group employed three people in France. Therefore, pursuant to French statutory provisions, the Group is under no obligation to appoint employee representatives.
d) Health and safety:
Employee safety and the management of working conditions are key elements of the Group’s sustainable development policy. Genkyotex has made the mandatory disclosures for its facilities and has received the approvals required to carry out its activities. Inspections and technical checks of its facilities are carried out in accordance with the applicable laws in each country. Staff have the necessary accreditations and training in the use of all equipment, as well as in hygiene and safety.
At the end of 2017, two sets of internal rules and regulations were being drafted for France and Switzerland, respectively. These documents summarize the main rules that every employee must follow, particularly in terms of work relations, working time, and employer and employee responsibilities. They will be in force in 2018. Group personnel are provided with personal protective gear (lab coat, disposable gloves, safety goggles, etc.). In addition, all new employees receive general training in laboratory risk prevention.
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This training is provided by the Quality/HSE Director and is part of the new employee orientation process. The laboratory’s scientific and technical personnel are trained in essential practices that help ensure the health and safety of people. A Group internal procedure defines the safety rules to be followed in the laboratory (storage and handling of chemical and biological products, personal protective gear, decontamination of work benches, glassware and work surfaces, procedures to be followed in the event of an accident, etc.). This “Safety and Discipline” procedure was updated in 2017. A standard operating procedure (SOP) for personnel health and safety was also implemented for the laboratory at the Archamps site (GI0004).
In 2017, the Group did not identify any incidents that could be qualified as occupational accidents, whether for its employees, trainees or apprentices.
No occupational or work-related illnesses were reported in 2017, whether for employees, trainees or apprentices. No permanent disability was reported to the Group for the 2017 financial year.
e) Training:
The Group has implemented a human resources management policy with the aim of attracting and retaining the best talent. Among other things, this includes a proactive compensation policy and a training budget suited to the needs of its business and its employees, as well as support for career development.
In 2017, 30 hours of training were completed following French classes for one staff member hired during the year and 72 hours of training were dedicated to preparation for a graduate diploma in clinical trial management.
Employees also participated in a conference on transgenics in 2017.
f) Equal treatment:
Given the makeup of its current workforce, the Group has no legal obligation concerning this subject other than that relating to the male/female distribution within its Board of Directors. Two of the eight members of the Board are women, for a share of 25%, which complies with the regulatory guidelines.
With regard to the hiring of new employees, in order to fight against discrimination in hiring, the Group strives to make an objective selection based on the requirements of the positions to be filled. To meet its objectives, the Group first defines the missions to be managed and the skills required for the position.
This makes it possible to define the type of training, experience and specific knowledge required. It also ensures a non-discriminatory approach during hiring since this process offers the same opportunities to all candidates.
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1.2. Environmental information
Over the 2017 financial year, the Group’s activities were distributed between the two sites as follows: - The Archamps site has a research laboratory where molecules developed by the Group are
tested on animals; - The Plan-les-Ouates site has tertiary activities and a research laboratory.
Owing to their nature as described above, the Group’s activities have a low environmental impact. Its activities do not include industrial production or distribution, and therefore do not involve the significant use of raw materials for the production of goods intended for sale. Nor do its activities entail significant discharges into the environment or greenhouse gas emissions. Genkyotex’s activities do not require the use of municipal gas or any other specific gas. They do not generate any particular noise pollution for personnel or local residents. In addition, the Group conducts its research activities within an extremely restrictive pharmaceutical regulatory framework, to which it conforms. The Group received all the approvals required to carry out its activities. In this context, only the following indicators have been selected as relevant:
- General environmental policy; - Circular economy: waste prevention and management; - Circular economy: sustainable use of resources.
a) General environmental policy:
In order to limit the use of transportation and its environmental impact, the Group strives to make maximum use of video and teleconferencing systems for its internal and external meetings. It is important to note that the Group rents its laboratories and offices in Geneva and Archamps. It is therefore not a decision-maker as to the facilities installed which could have an impact on the environment and sustainable development. Nevertheless, the activities and investments that the Group controls are carried out with the desire to limit their environmental impact as much as possible. Since its inception, the Group has paid special attention to the handling of chemical materials. The Group purchases such materials for research and development purposes. Because of its size, the handling of chemical products is limited in volume and is strictly monitored by tracking materials from the moment they are stored until they are removed. To this end, the Group has entrusted the treatment of its waste to specialized service providers (see the next point).
b) Circular economy: waste prevention and management:
The waste produced by the Group at the Plan-les-Ouates site is separated into two categories:
To treat its waste, the Group has implemented a stringent process. Chemical waste is collected by a specialized carrier. Such waste is first stored in plastic containers and then placed in protected access areas (rack area). Biological waste is stored in collection bins supplied by the collecting company. In Archamps, waste management is handled by the lessor, Forum 1 Archamps Technopole (the collector is Suez), and in Plan-les-Ouates by Swiss Recycling Services (SRS). The companies in charge of waste management keep track of the waste collected. Both companies handle biological and chemical waste.
Overall, the Group generates limited amounts of waste, which results mainly from laboratory tests. Based on the waste collection records issued for 2017 by the two aforementioned service providers, the Group produced 1.02 tons of waste for 2017.
• Chemical waste There is no SOP for chemical waste as it is managed by specialized groups.
• Biological waste Solid waste is collected in cardboard dispensers. Liquid waste is stored on the Lab12 rack. A specialized company removes the containers as soon as they are full. After disposal, the company sends a waste disposal report for infectious healthcare activities to Genkyotex. There is no written SOP for biological waste because it is managed by a specialized company.
• Veterinary medicines Within the Group, these products are exclusively anesthetic and psychotropic drugs. In conformity with the regulations, they are stored in a locked cabinet. The uses and disposals of medicines as well as narcotic and psychotropic drugs are described in two specific SOPs.
• Animal waste Dead animals are stored in a special freezer at -20°C. They are regularly collected by Monnard, a company specializing in the safe handling and incineration of animal carcasses.
Finally, an annual inventory of all chemicals stored by the group is carried out at both the Archamps and Plan-les-Ouates sites.
Measures taken to conserve or enhance biodiversity:
For its R&D activities, the Group uses genetically modified organisms supplied by the Janvier Labs or Charles River laboratories. Genkyotex has a specific authorization for animal testing. Genkyotex does not breed animals on its premises; the only animals used for research are those supplied by the Janvier Labs or Charles River laboratories. Precautionary measures approved by the French health and safety authorities (DDPP74) are in place to ensure that the animals used by Genkyotex on the Archamps site can be brought in and out of the premises without risk. All measures implemented are verified by the competent authorities. The authorization is valid for five years and will be renewed in January 2018 after further verification by the DDPP. All personnel who work in the premises where animals are handled have a “Module 1”, the highest accreditation level for animal testing. All animal handling is carried out in conformity with French law.
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In addition, the person in charge of the laboratory in Plan-les-Ouates obtained certification in 2012 as a Level 2 Biosafety Officer, in accordance with Swiss law. All methods for handling genetically-modified organisms (GMOs) are set out in SOPs and testing protocols, which allows their use to be precisely defined and standardized. To protect biodiversity from all risks associated with the use of GMOs, the Group requires its personnel to comply with stringent safety rules. It has also upgraded the premises in which GMOs are used to be in conformity with the applicable regulations. GMOs are handled in the facilities at Plan-les-Ouates and in the containment laboratory. The Group has requested and obtained the necessary authorizations for the handling of GMOs.
Actions against food waste:
Since the Company is not involved in the agri-food sector, measures relating to food waste do not apply.
c) Circular economy: sustainable use of resources: The Group’s activity is focused on R&D and not on the production of goods of biological origin. Purchases of raw materials are therefore immaterial (laboratory consumables are the only form of “raw material” used by the Group and represent only 2% of operating expenses). The Group performs laboratory tests using reagents or living organisms. Despite its low environmental impact, the Group applies standard rules for consumption, sorting and recycling. This translates into the following actions:
• Specific paper recycling dispensers in Geneva and Archamps;
• Used battery collectors in Geneva and Archamps;
• Recycling bins for used bottles, printer cartridges and light bulbs at Archamps. Similarly, energy and water consumption are limited, respectively, to the simple use of IT tools (and other electrical equipment) and sanitary facilities by employees. Water consumption is insignificant. Electricity consumption is approximately 33,529 kWh per year for the Archamps site and 50,793 kWh per year for the Plan-les-Ouates site. For both sites, this represents combined emissions of approximately 4 tons of CO2 equivalent (using the ADEME carbon footprint calculator v7.1 with an estimated 0.072 kg CO2 eq. per kWh for France and 0.026 kg CO2 eq. per KWh for Switzerland).
As the Group does not have a vehicle fleet, no other criteria for monitoring CO2 equivalent emissions have been adopted. Finally, global climate change and changes in biodiversity have no direct impact on the analyses carried out by the Group.
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Owing to its activity, the Group has had to make a significant number of domestic and international flights over the past two years. It has therefore introduced criteria to monitor its CO2 emissions resulting from this type of travel. This information has been estimated on the basis of internally collected data, and only takes into account the impact of the fuel consumed for the flights. The greenhouse gas emissions have been estimated at 76.9 tons of CO2 eq. for approximately 165,000 km traveled. As the number of trips made by train is very low, this criterion was not used for CO2 emissions estimates.
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1.3. INFORMATION ON SOCIETAL COMMITMENTS TO SUSTAINABLE DEVELOPMENT
GENKYOTEX policy on labor and regional hiring:
Since its inception, the Group has attracted qualified and skilled employees, most of whom have come from the regions where it operates. Hiring on permanent contracts has always been largely preferred over fixed-term contracts, which only help to manage temporary peaks of activity or to replace absent employees. The Group’s policy is to hire young employees on permanent contracts and to offer them appropriate training programs. Each year, the Group also offers internships and apprenticeships to a certain number of students. The Group welcomes anyone with the skills necessary for its development, on a non-discriminatory basis.
Measures taken to promote the health and safety of consumers:
Consumer health and safety are the Group’s core business: research and development of NOX enzyme inhibitor molecules, which could represent an innovative therapeutic option for a wide range of human pathologies such as fibrosis, inflammation, cancer and central nervous system disorders. Research activities in this field of study are ongoing and major milestones are described in Section 6 of the Registration Document. The development of a new drug candidate follows a very rigorous evaluation process, during which the safety of the drug candidate’s use remains the dominant concern, both for the Group developing the product and for the regulatory authorities in charge of its evaluation. There are no medicines without adverse effects: The main concern of the Group and the evaluation agencies, such as the European Medicines Agency (EMA) and the Food and Drug Administration (FDA) in the United States, is to ensure that the risk/benefit ratio remains very favorable to the patient being treated throughout the product’s development and marketing. As a result, the Group is required to comply with current standards (Good Laboratory Practices/Good Manufacturing Practices/Good Clinical Practices), as well as the regulations established by the bodies in charge of evaluating these new drugs and protecting public health, such as the above-mentioned organizations. The toxicological profile of GKT831 was evaluated through a comprehensive panel of regulatory examinations in rats and dogs, as described in the registration document. The compound was well tolerated in rats, which showed no clinical signs, resulting in a NOAEL (no observed adverse effect level) of 1,000 mg/kg/day. GKT831 was also tested over a similar maximum period of 26 weeks in dogs, with a maximum dose of 500 mg/kg/day. The NOAEL assigned to this study was 150 mg/kg/day. On this basis, four Phase 1 studies have been conducted to date on healthy subjects (a full description is provided in the registration document). The objective of these studies was to evaluate the safety and pharmacokinetics of the compound after single and repeated dose injection in order to assess the effects of the compound on cytochrome CYP3A4 as well as the effects of nutrition and micronization on the pharmacokinetics of GKT831. In these four studies, 102 healthy male subjects were exposed to GKT831 (and 12 to a comparable placebo). The evaluation included doses up to 1,800 mg by single increasing injection, and doses of 900 mg/day were evaluated in a repeat-dose injection study (either GKT831 or a comparable placebo
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was administered over a consecutive 10-day period). At any dose level, none of the Phase 1 studies uncovered any incidents related to the component’s administration. In other words, there were no safety signals or dose increment limitations. This demonstrates very high tolerance to GKT831. Subsequently, a Phase 2 clinical trial was conducted with patients suffering from diabetic kidney disease (DKD). The trial’s objective was to evaluate the safety, tolerability and efficacy of GKT831 in this patient population. It was conducted in seven countries in North America, Europe and Australia. The Group received regulatory approvals from the relevant health authorities prior to starting the trial. Over 12 weeks, 136 patients were treated, with one half receiving GKT831, and the other half receiving a comparable placebo on a random basis. During this clinical trial, GKT831 (68 patients) was again very well tolerated. Moreover, the patients treated with GKT831 reported fewer adverse events than those treated with placebo (68 patients). All subjects participating in the study were monitored by an oversight committee to ensure their safety. All serious adverse reactions were reported to the competent authorities in line with applicable local and national laws and regulations. In June 2017, the Group announced the launch of the Phase 2 clinical trial with patients suffering from primary biliary cholangitis. The trial is taking place in nine North American and European countries. Regulatory approvals have been obtained from the competent health authorities in seven countries, with two additional options expected in the coming weeks. A total of 102 patients will be included in the trial, 68 of whom will receive GKT831. The safety of the subjects participating in the trial is being monitored by an independent oversight committee. Clinical safety data are reviewed by the committee on fixed, pre-determined dates, with the committee also responding to pre-defined questions in conformity with the safety charter. Finally, a trial led by an Australian researcher will be conducted on GKT831 in patients with type 1 diabetes and diabetic kidney disease. This trial will include 142 patients who will receive GKT831 or a comparable placebo for 48 weeks. The first subject started the eligibility tests before the end of 2017. At the same time, the Group is making progress on a second molecule called GKT771. The Group plans to launch the first clinical trial by the end of the first half of 2018. The Group is currently completing a panel of preclinical safety and toxicology studies on the compound to confirm that GKT771 can be safely tested in humans. Preclinical data will be submitted to the competent authorities with the clinical trial application (CTA).
Relations with people or organizations affected by the Group’s activity:
In order to report on its activities and developments during the financial year, the Group provides its shareholders and financial stakeholders with all regulatory information, together with the press releases it has issued.
Significant events that took place in 2017 (excluding quarterly presentations) were noted in the press releases and are as follows:
• On February 28, 2017, Genticel’s shareholders approved the resolutions implementing the strategic combination between Genticel and Genkyotex pursuant to the contribution agreement signed on December 22, 2016, between Genticel and Genkyotex shareholders,
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as well as the change in the Company’s name from “Genticel” to “Genkyotex” from February 28, 2017.
• Genkyotex is activating its global network of investigational centers participating in the ongoing Phase 2 clinical trial of GKT831, the Company’s NOX1 and NOX4 inhibitor, in primary biliary cholangitis (PBC). Patient enrollment is on track to deliver interim results in H1 2018 and full results in H2 2018. In total, over 50 centers across the United States, Canada, Belgium, Germany, Greece, Italy, Spain, UK, and Israel, are expected to participate in the trial.
• The second phase 2 trial with GKT831 is fully funded by the Juvenile Research Foundation Australia and the Baker Institute. This investigator-initiated Phase 2 clinical trial to evaluate the efficacy and safety of GKT831 in diabetic kidney disease (DKD) is on track to enroll the first patient by the end of 2017, as planned. This 48-week trial will include 142 patients and is being led by two world-renowned diabetes experts, Professor Mark Cooper, Head of the Department of Diabetes at Monash University, and Professor Jonathan Shaw, Deputy Director at the Baker Heart and Diabetes Institute (both in Melbourne, Australia).
• On August 3, 2017, the Company announced that GKT831 efficiently targeted cancer associated fibroblasts (CAFs) and delayed tumor growth in multiple preclinical models. The presence of a fibrotic tumor microenvironment is associated with a poor prognosis and resistance to multiple anti-cancer therapies. The effects of GKT831 in CAFs are consistent with its effects in myofibroblasts in fibrotic disorders. The results from this study were published in the Journal of the National Cancer Institute.
Subcontracting and suppliers:
The Group has not established specific CSR criteria in the selection of its suppliers. Its selection criteria are based on the ability of suppliers to meet Genkyotex’s requirements, which may relate to products, procedures, manufacturing processes and equipment, personnel qualifications, quality management systems or deadlines. When the Group selects several suppliers during a call for tenders, each supplier is required to make a presentation based on specific criteria (operational capabilities, location of the project team, general views about the proposed project, etc.). In this way, the Group creates shared value by involving suppliers and healthcare professionals in its process.
This procedure applies to all the Company’s suppliers, and therefore concerns the following supplier families:
- The clinical research organizations (CROs) that conduct the trials; - The contract manufacturing organizations (CMOs) that provide the necessary research
materials.
Some of these are also ISO accredited. These are mainly “quality” standards. Currently, the Group’s activity is focused on R&D and Genkyotex subcontracts with numerous companies for operations relating to tests and clinical trials. To date, the Group has entered into some 30 outsourcing contracts, with Groupe CMED being its main subcontractor.
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NOTE ON METHODOLOGY:
This report presents the Genticel CSR data of the companies Genkyotex SA and Genkyotex Suisse SA – i.e. “the Group” – for the 2017 financial year. The 2017 financial year covers the period from January 1, 2017 to December 31, 2017. The Group has two geographical locations: Geneva, Switzerland and Archamps, France.
All indicators are monitored by the financial controller and the chief financial officer. Social indicators are produced using a summary drawn from non-accounting data, relying in particular on workforce data from payroll and personnel files.
Environmental indicators are monitored using non-accounting data. This monitoring is used to estimate electricity consumption, which is presented in this report. For the CO2 equivalent emissions factor, we have adopted an estimated emissions factor of 72g CO2 eq. per kWh, using the ADEME carbon footprint calculator v7.1.
For waste, the consumption presented corresponds to actual consumption based on supplier invoices for the period from January 1 to November 30, 2017, and is estimated for the month of December 2017 on a pro rata basis.
A correspondence table below presents all the CSR indicators required by law and identifies the criteria that the Company has or has not adopted, with relevant comments. For each criterion selected, the method of data collection and verification used by the Company is specified below.
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CSR INDICATORS FOR THE GENKYOTEX GROUP IN THE 2017 FINANCIAL YEAR
Grenelle 2 Article 225 GRI G4 Report Section
Indications to be reported
Scope of reporting and consolidation of significant entities
Genkyotex Group, composed of Genkyotex SA (located in France) and its subsidiary Genkyotex Suisse SA (located in Switzerland).
G4-18 1
Social Information
Employment
Total workforce
Description: employees working for the employer under a current employment contract or under a suspended employment contract in the event of leave or illness, regardless of the type of contract Years of collection: FY 2017 Data collection methods: Excel table monitored by the financial controller Information system used: monitoring of non-accounting data Exclusion: employees outside the Group are not taken into account (temporary employees, interns, employees belonging to an external company) Specific features: to be broken down by sex, age, type of contract, length of service and working time (full-time/part-time) Validation channel: financial controller
LA 1 1.1.a)
Breakdown of employees by sex
Description: based on the workforce at December 31, 2017 Data collection methods: Excel table monitored by the financial controller Information system used: monitoring of non-accounting data Exclusion: see total workforce Validation channel: financial controller
LA 12 1.1.a)
Breakdown of employees by age
Description: average age and age group based on the workforce at December 31, 2017 Data collection methods: Excel table monitored by the financial controller Information system used: monitoring of non-accounting data Exclusion: see total workforce Validation channel: financial controller
LA 12 1.1.a)
Breakdown of employees by geographic region
Description: breakdown by location based on the workforce at December 31, 2017 Data collection methods: Excel table monitored by the financial controller Information system used: monitoring of non-accounting data Exclusion: see total workforce Validation channel: financial controller
LA 1 1.1.a)
Hiring and dismissals
Description: monitoring of hiring and dismissals in 2017 to be broken down by geographical location. Data collection methods: this includes dismissals only. Other types of departures from the Company are not
LA 1 1.1.a)
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included. Similarly, layoffs following the combination of Genticel and Genkyotex are not included. Information system used: monitoring of non-accounting data Validation channel: financial controller
Compensation
Description: total amount, percentage of revenue and payroll costs. Amount by category Data collection methods: based on personnel expenses presented in Note 17 to the consolidated financial statements Source: Financial controller
EC1 & EC5 1.1.a)
Changes in compensation
Description: comparison of the above data Data collection methods: based on monitoring of personnel expenses presented in Note 17 to the consolidated financial statements Source: Financial controller
EC1 & EC5 1.1.a)
Work organization
Organization of working time
Description: based on French and Swiss labor laws and the terms and conditions of staff employment contracts Validation channel: Financial controller
LA 1.1.b)
Absenteeism
Description: weekly monitoring of the number of employees’ days of absence (employees on permanent contracts + fixed-term contracts + apprentices) under contract with the employer, based on the total workforce at December 31, 2017. Data collection methods: SILAE software extraction Exclusion: paid vacation days, public holidays and maternity leave. Similarly, employees not belonging to the Company (temporary workers, interns, employees belonging to an external company) are not included. Validation channel: Financial controller
LA 7 1.1.b)
Labor relations
Organization of dialogue between management and employees
Exclusion: pursuant to French statutory provisions, and given the number of employees in France, the Group is under no obligation to appoint employee representatives.
LA 4 1.1.c)
Summary of collective bargaining agreements
Description: no collective bargaining agreements were signed in 2017 No election of employee representatives in light of statutory requirements. Validation channel: data centralized and verified by the financial controller
LA NA
Health and safety
Occupational health and safety conditions
Description: two sets of internal rules and regulations (one for France and one for Switzerland) summarize the main rules that every employee must follow, particularly in terms of work relations, working time, and employer and employee responsibilities. A “Safety and Discipline” procedure on the safety rules to be followed in the laboratory was updated in 2017.
LA 5 to LA 8 1.1.d)
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A standard operating procedure (SOP) for personnel health and safety was also implemented for the laboratory at the Archamps site (GI0004). Data collection method: year 2017 Validation channel: financial controller
Summary of collective bargaining agreements with trade unions on matters of occupational health and safety
Data collection methods: there are no specific agreements within the Group. However, the Group ensures that its personnel comply with medical examination requirements. Employees’ certificates of fitness are kept in their personal files. Validation channel: financial controller
LA 8 1.1.d)
Frequency and severity of accidents at work
Description: the Group did not report any accidents at work or commuting accidents in 2017 Validation channel: financial controller
LA 6 1.1.d)
Occupational illnesses
Description: the Group did not identify any occupational illnesses reported within the Company in 2017. Validation channel: financial controller
LA 7 1.1.d)
Training
Training policies implemented
Description: the Group has implemented a human resources management policy with the aim of attracting and retaining the best talent. Among other things, this includes a proactive compensation policy and training courses suited to the needs of its business and its employees, as well as support for career development. Data collection methods: year: 2017 Information system used: interview Validation channel: financial controller
LA 11 1.1.e)
Total number of training hours
Description: number of training courses taken. Description of the main training topics. Data collection methods: year 2017 Information system used: monitoring of non-accounting data Validation channel: financial controller
LA 9 1.1.e)
Equal opportunities
Measures taken to promote male/female equality
Description: given the makeup of its current workforce, the Group has no legal obligation concerning this subject relating to these employees. Two of the eight members of the Supervisory Board are women. Information system used: monitoring of non-accounting data Validation channel: information centralized and verified by the financial controller
LA 13 1.1.f)
Measures taken to encourage the employment and integration of persons with disabilities
Description: the Group did not take any specific actions in 2017. It complies with the requirements of Swiss and French laws. None of its employees has any recognized disability Data collection methods: year 2017 Information system used: monitoring of non-
LA 13 1.1.f)
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accounting data Validation channel: financial controller
Anti-discrimination policy
Description: description of the hiring process based on the qualifications and skills required which promotes the fight against all forms of discrimination. Data collection methods: 2017 Information system used: monitoring of non-accounting data Validation channel: financial controller
LA 16 1.1.f)
Promotion and compliance with the ILO conventions
Respect for freedom of association and the right to collective bargaining
Description: compliance with the relevant French and Swiss labor laws Validation channel: financial controller
HR 5 & LA 6 NA
Elimination of discrimination in matters of employment and occupation
see anti-discrimination policy HR 4, LA 13,
LA 14 & LA 15 1.1.f)
Elimination of forced or compulsory labor
Exclusion: since the Group operates only in Switzerland and France, it complies with the labor laws of these two countries, which prohibit forced or compulsory labor.
HR 6 NA
Effective abolition of child labor
Exclusion: since the Group operates only in Switzerland and France, it complies with the labor laws of these two countries, which prohibit child labor.
HR 5 NA
Environmental information
General environmental policy
Organization of the Company to take into account environmental issues and, where appropriate, environmental certification or evaluation procedures
Description: the Group has contracted with specific service providers to handle its waste based on the type of waste (Monnard for veterinary waste, SRS and Suez for other waste). Data collection methods: monitoring of contracts using non-accounting sources / internal waste management procedure. Validation channel: financial controller
Environmental management
approach
1.2.b)
Training and information for employees on environmental protection
Description: as indicated above, to protect the environment where it operates, the Group has put in place strict waste management procedures. The Group trains its personnel in these procedures and also informs them about the rigorous management of these issues. Data collection methods: monitoring of non-accounting sources Validation channel: financial controller
1.2.a)
Resources allocated to the prevention of environmental risks and pollution
Description: the nature of the Group’s activities does not involve any significant environmental risk. The Group therefore does not devote any specific resources to this subject.
EN 30 NA
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Amount of provisions and guarantees for environmental risks (excluding risk of prejudice)
Description: the nature of the Group’s activities does not involve any significant environmental risk. The Group has no provision on its balance sheet for such risks.
EN 20 & EC 2 NA
Pollution
Measures for the prevention, reduction and repair of discharges into the air, water or soil seriously affecting the environment
Description: the Group is not the owner of its premises and does not directly manufacture goods. Its impact is therefore deemed immaterial with respect to discharges into the air, or to water and soil use. For its international activities, the Group uses the technology at its disposal (conference calls, Skype, etc.) to efficiently organize its communications and limit travel by its employees.
EN 22, EN 23, EN 24 & EN 26
NA
Consideration of noise pollution and all forms of pollution specific to an activity
Description: - noise pollution deemed immaterial. - pollution related to the Company’s activity in terms of CO2 deemed immaterial
EN 24 NA
Circular economy: waste prevention and management
Measures for the prevention, recycling, reuse, other forms of recovery and disposal of waste
Description: quantify the Group’s waste production in tons (waste generated by laboratory tests). The Group also has standard operating procedures (SOPs) for waste treatment. Data collection methods: for calendar year 2017 Source: monitoring of non-accounting data Validation channel: financial controller
EN 23, EN27 & EN31
1.2.b)
Actions against food waste
Exclusion: since the Group is not involved in the agri-food sector, this indicator is immaterial / cannot be taken into account
N/A NA
Circular economy: sustainable use of resources
Water consumption and supply based on local restrictions
Exclusion: indicator deemed non-applicable in light of the above information.
EN 8, EN 9 & EN 10
NA
Consumption of raw materials
Description: due to the Group’s R&D focused activity, it has made little use of raw materials. The Group performs laboratory analyses. It only acquires laboratory animals for research purposes. It also purchases laboratory reagents which it uses on living organisms. Source: monitoring of non-accounting data Validation channel: financial controller
EN 1 2
Raw materials and measures taken to improve efficiency in their use
Exclusion: indicator deemed immaterial / of low significance in light of the above comments.
EN 2, EN7 & EN10
NA
Energy consumption
Description: since the Group is not a manufacturer, its electricity consumption is limited to the simple use of IT tools and electrical equipment made available to its employees. There are no company vehicles, and employees use their own vehicles or public transportation to get to their workplace.
EN3, EN4 &EN5
1.2.c)
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Reported energy source: Electricity Unit of measurement: KWh Exclusion from scope: Data collection method: energy invoices (and not meter readings), consumption prorated over 12 months. Year 2017 Validation channel: financial controller
Measures taken to improve energy efficiency and the use of renewable energy
Description: recent sites where the Group does not own the premises in which it carries out its activity. Information not material.
EN 6 & EN 7 NA
Land use Exclusion: criterion deemed irrelevant in view of the Group’s activity.
EN 27 NA
Climate change
Significant greenhouse gas emissions generated by the Company’s activities, in particular by the use of the goods and services it produces
Description: the Group deems its emissions to be immaterial. However, GHG emissions related to its electricity consumption and air travel were monitored for information purposes. Data collection method: internal monitoring Validation channel: financial controller
EN15 to EN21 1.2.c)
Adapting to the consequences of climate change
Exclusion: criterion deemed irrelevant to the Group’s business.
EN 19 NA
Protection of biodiversity
Measures taken to conserve or enhance biodiversity
Description: as mentioned above, the Group does not directly conduct clinical trials. In order to protect biodiversity from any risks associated with conducting such trials, the Group requires its service providers to comply with stringent safety rules and regulations specific to the countries where the trials are being carried out. Moreover, global climate change and changes in biodiversity have no direct impact on the analyses carried out by the Group.
EN 11 to 14 1.2.b)
Information relating to societal commitments to promote sustainable development
Territorial, economic and social impact of the Company’s business
In terms of employment and regional development
Description: number of jobs created or maintained Data collection methods: year 2017 Information system used: Excel file, monitoring of personnel via non-accounting data Validation channel: financial controller
EC 9 2
On neighboring or local populations
Exclusion: no specific actions by the Group. EC6 SO 02 &
SO10 NA
Relations with people or organizations affected by the Company’s activity, including associations for social integration, educational institutions, environmental protection associations, consumer associations and local residents
Conditions for dialogue with such individuals or organizations
Description: the Group makes all regulated information available to its shareholders and financial stakeholders on its website. The Group also issues press releases to report on developments in its business and organization. Validation channel: financial controller
PR5 2
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Partnership or sponsorship actions
Description: no specific actions by the Group. SO 01 NA
Subcontracting and suppliers
Social and environmental challenges reflected in the purchasing policy
Description: to meet the Group’s needs in the context of its R&D services, the Group relies primarily on CMOs and CROs that are currently selected according to quality criteria (selection based on specific skills and know-how), and particularly good manufacturing practices (GMP criteria). Information system used: monitoring of non-accounting data Validation channel: financial controller
EC 9 & HR 5 to 7
2
The importance of subcontracting and consideration given to suppliers and subcontractors’ CSR policies
Description: the Group has not established specific CSR criteria in the selection of its suppliers. Its selection criteria are based on the ability of suppliers to meet Genkyotex’s requirements, which may relate to products, procedures, manufacturing processes and equipment, personnel qualifications, quality management systems or deadlines. Information system used: interview Validation channel: financial controller
HR10 & HR11 2
Fairness of commercial practices
Actions taken to prevent all forms of corruption
Description: the Group does not currently generate any sales. Its suppliers are selected on the basis of technical criteria. It has not put in place any binding measures with regard to an anti-corruption policy
SO 3 to SO 5 2
Measures taken to promote the health and safety of consumers
Description: the Group currently provides mainly intangible research and development services. These R&D activities are ongoing and the main advances are presented in the registration document.
PR 1 & PR 2 2
Other actions undertaken to promote human rights
Other actions undertaken to promote human rights
Exclusion: the Group’s scope of action and commitment is limited to France and Switzerland where human rights are respected
HR1 NA
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26.2. REPORT OF THE INDEPENDENT THIRD-PARTY BODY ON CORPORATE SOCIAL, ENVIRONMENTAL AND SOCIETAL INFORMATION
GENKYOTEX
Report by one of the Statutory Auditors, appointed as independent third party, on the consolidated human resources, environmental and social information included in the management report
For the year ended December 31, 2017
___________
This is a free English translation of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
___________ To the shareholders, In our capacity as Statutory Auditor of Genkyotex Company, (the “Company”), appointed as independent third party and certified by COFRAC under number 3-12116, we hereby report to you on the consolidated human resources, environmental and social information for the year ended December 31, 2017, included in the management report (hereinafter named "CSR Information"), pursuant to article L. 225-102-1 of the French Commercial Code (Code de commerce). Company’s responsability The Board of Directors is responsible for preparing a company's management report including the CSR Information required by article R.225-105-1 of the French Commercial Code in accordance with the guideline used by the Company (hereinafter the "Guidelines"), summarised in the management report and available on request from the company's head office.
Independence and quality control Our independence is defined by regulatory texts, the French Code of ethics (Code de déontologie) of our profession and the requirements of article L. 822-11-3 of the French Commercial Code. In addition, we have implemented a system of quality control including documented policies and procedures regarding compliance with the ethical requirements and applicable legal and regulatory requirements.. Statutory Auditor’s responsibility On the basis of our work, our responsibility is to:
- attest that the required CSR Information is included in the management report or, in the event of non-disclosure of a part or all of the CSR Information, that an explanation is provided
6Whose scope is available at www.cofrac.fr
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in accordance with the third paragraph of article R. 225-105 of the French Commercial Code (Attestation regarding the completeness of CSR Information);
- express a limited assurance conclusion that the CSR Information taken as a whole is, in all material respects, fairly presented in accordance with the Guidelines (Conclusion on the fairness of CSR Information).
Our work involved 4 persons and was conducted between December 2017 and March 2018 during a week period. We performed our work in accordance with the order dated 13 May 2013 defining the conditions under which the independent third party performs its engagement and with the professional guidance issued by the French Institute of statutory auditors (Compagnie nationale des commissaires aux comptes) relating to this engagement. 1. Attestation regarding the completeness of CSR Information Nature and scope of our work On the basis of interviews with the individuals in charge of the relevant departments, we obtained an understanding of the Company’s sustainability strategy regarding human resources and environmental impacts of its activities and its social commitments and, where applicable, any actions or programmes arising from them. We compared the CSR Information presented in the management report with the list provided in article R. 225-105-1 of the French Commercial Code. For any information that is not disclosed, we verified that explanations were provided in accordance with article R. 225-105, paragraph 3 of the French Commercial Code. We verified that the CSR Information covers the scope of consolidation, i.e. the Company, its subsidiaries as defined by article L. 233-1 and the controlled entities as defined by article L. 233-3 of the French Commercial Code. Conclusion Based on the work performed, we attest that the required CSR Information has been disclosed in the management report. 2. Conclusion on the fairness of CSR Information Nature and scope of our work We conducted two interviews with the persons responsible for preparing the CSR Information in the departments in charge of collecting the information and, where appropriate, responsible for internal control and risk management procedures, in order to:
- assess the suitability of the Guidelines in terms of their relevance, completeness, reliability, neutrality and understandability, and taking into account industry best practices where appropriate;
- verify the implementation of data-collection, compilation, processing and control process to reach completeness and consistency of the CSR Information and obtain an understanding of the internal control and risk management procedures used to prepare the CSR Information.
We determined the nature and scope of our tests and procedures based on the nature and importance of the CSR Information with respect to the characteristics of the Company, the human
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resources and environmental challenges of its activities, its sustainability strategy and industry best practices. Regarding the CSR Information that we considered to be the most important7:
- at parent entity and Genkyotex Suisse entity level, we referred to documentary sources and conducted interviews to corroborate the qualitative information (organisation, policies, actions), performed analytical procedures on the quantitative information and verified, using sampling techniques, the calculations and the consolidation of the data. We also verified that the information was consistent and in agreement with the other information in the management report;
- at the level of a representative sample of entities selected by us8 on the basis of their activity, their contribution, their location and a risk analysis, we conducted interviews to verify that procedures are properly applied, and we performed tests of details, using sampling techniques, in order to verify the calculations and reconcile the data with the supporting documents. The selected sample represents on average 100% of headcount considered as material data of social issues and between 41% and 60% of quantitative environmental data considered as material data of environmental issues.
For the remaining CSR Information, we assessed its consistency based on our understanding of the company. We also assessed the relevance of explanations provided for any information that was not disclosed, either in whole or in part. We believe that the sampling methods and sample sizes we have used, based on our professional judgement, are sufficient to provide a basis for our limited assurance conclusion; a higher level of assurance would have required us to carry out more extensive procedures. Due to the use of sampling techniques and other limitations inherent to information and internal control systems, the risk of not detecting a material misstatement in the CSR information cannot be totally eliminated. Conclusion Based on the work performed, no material misstatement has come to our attention that causes us to believe that the CSR Information, taken as a whole, is not presented fairly in accordance with the Guidelines
7 Social information : Employment (Total workforce, breakdown of employees by sex, age and geographic region,
hiring and dismissals), Organization of working time and Absenteeism, Health and safety (Occupational health and safety conditions, Frequency and severity of accidents at work, Training (Training policies implemented, Total number of training hours)
Environmental information : Circular economy (Waste prevention and management, sustainable use of resources), Climate change (Significant greenhouse gas emissions generated by the Company’s activities, in particular by the use of the goods and services it produces)
Information relating to societal commitments : Fairness of commercial practices (Measures taken to promote the health and safety of consumers)
8 Genkyotex and Genkyotex Suisse
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Toulouse, April 11th, 2018
The Statutory Auditor
French original signed by
Sygnatures
Laure Mulin
Partner
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GLOSSARY
Abbreviation / Term Definition
MA .................................................
Phase 1: Study of the behavior of a molecule tested in an organism, on the basis of time (the pharmacokinetics of absorption and elimination) and analysis of safety and tolerance in humans. This phase is conducted on a small number of healthy volunteers
Phase 2: Assessment of the safety and efficacy of the molecule and determination of the therapeutic dose of the molecule
Phase 3: Comparison of the efficacy of a new drug to the treatment of reference. This phase involves a large number of patients. Patients are selected in accordance with precise criteria designed to determine the efficacy and benefits of the drug being tested as a new standard treatment for the disease concerned
