UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission File Number 001-37993
OBSEVA SA
(Exact name of registrant as specified in its charter and translation of registrant’s name into English)
Switzerland
(Jurisdiction of incorporation or organization)
Chemin des Aulx, 12
1228 Plan-les-Ouates
Geneva, Switzerland
(Address of principal executive offices)
Brian O’Callaghan
Chief Executive Officer
ObsEva SA
Chemin des Aulx, 12
1228 Plan-les-Ouates
Geneva, Switzerland
Tel: + 41 22 552 38 40
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common shares, par value CHF 1/13 per share | | OBSV | | The Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Common shares, par value CHF 1/13 per share: 79,955,268 common shares outstanding as of December 31, 2021
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | | ☐ | | Accelerated filer | | ☒ |
Non-accelerated filer | | ☐ | | Emerging growth company | | ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
TABLE OF CONTENTS
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INTRODUCTION
Unless otherwise indicated, “ObsEva,” “the Company,” “our Company,” “we,” “us” and “our” refer to ObsEva SA and our consolidated subsidiaries.
We own various trademark registrations and applications, and unregistered trademarks and servicemarks, including “ObsEva” and the ObsEva logo. Trade names, trademarks and service marks of other companies appearing in this Annual Report on Form 20-F are the property of their respective holders. Solely for convenience, the trademarks and trade names in this Annual Report on Form 20-F may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
We present our consolidated financial statements in U.S. dollars and in accordance with International Financial Reporting Standards, or IFRS. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.
The terms “dollar,” “USD” or “$” refer to U.S. dollars, the terms “Swiss Francs” or “CHF” refer to the legal currency of Switzerland and the terms “€” or “euro” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended. Unless otherwise indicated, all references to currency amounts in this Annual Report on Form 20-F are in U.S. dollars.
We have made rounding adjustments to some of the figures included in this Annual Report on Form 20-F. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than present and historical facts and conditions contained in this Annual Report on Form 20-F, including statements regarding our future results of operations and financial positions, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this Annual Report on Form 20-F, the words “anticipate,” “believe,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “ongoing,” “objective,” “plan,” “potential,” “predict,” “should,” “will” and “would,” or the negative of these and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| • | the success, cost, timing and potential indications of our product candidates’ development activities and clinical trials, including ongoing and future trials of linzagolix, ebopiprant and nolasiban; |
| • | our or our collaborators’ ability to obtain and maintain regulatory approval of our product candidates, including linzagolix, ebopiprant and nolasiban, in any of the indications for which we plan to develop them, and any related restrictions, limitations or warnings in the label of an approved product; |
| • | our ability to continue as a going concern and to obtain funding for our operations, including funding necessary to complete the clinical trials of any of our product candidates, and the terms on which we are able to raise that additional capital; |
| • | our plans to research, develop and commercialize our product candidates; |
| • | the timing of our regulatory filings for our product candidates; |
| • | the clinical utility of our product candidates; |
| • | the size and growth potential of the markets for our product candidates; |
| • | our commercialization, marketing and manufacturing capabilities and strategy; |
| • | our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and our ability to operate our business without infringing on the intellectual property rights of others; |
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| • | the timing and amount of milestone and royalty payments we are required to make or that we may receive under our license agreements; |
| • | our ability to attract and retain qualified employees and key personnel; |
| • | our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately; |
| • | the activities of our competitors and the success of competing therapies that are or become available; |
| • | our plans to in-license or acquire additional product candidates; |
| • | how long we will qualify as an emerging growth company or a foreign private issuer; |
| • | our estimates regarding future revenue, expenses and needs for additional financing; |
| • | our ability to build our commercialization organization; |
| • | the duration, severity and impact on our operations and clinical trials of the COVID-19 pandemic; |
| • | regulatory developments in the United States and foreign countries; and |
| • | other risks and uncertainties, including those listed in this section of this Annual Report on Form 20-F titled “Item 3.D—Risk Factors.” |
You should refer to the section of this Annual Report on Form 20-F titled “Item 3.D—Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report on Form 20-F will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should read this Annual Report on Form 20-F and the documents that we reference in this Annual Report on Form 20-F and have filed as exhibits to this Annual Report on Form 20-F completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 20-F, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
This Annual Report on Form 20-F contains market data and industry forecasts that were obtained from industry publications. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this Annual Report on Form 20-F is generally reliable, such information is inherently imprecise.
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SUMMARY OF RISK FACTORS
Our business faces significant risks. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors set forth under the caption “Risk Factors” in Item 3.D. in Part I of this Annual Report on Form 20-F. Some of the more significant risks include the following:
| • | We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability; |
| • | We have a limited operating history and have never generated any revenue from product sales, which may make it difficult to evaluate the success of our business to date and to assess our future viability; |
| • | We will need substantial additional funding to pursue our business objectives. If we are unable to raise capital when needed or on terms favorable to us, we could be forced to curtail our planned operations and the pursuit of our growth strategy; in addition, the incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions; |
| • | We have not generated any revenues, have a history of losses and expect to incur substantial future losses. Our recurring losses, negative cash flows and significant accumulated deficit have raised substantial doubt regarding our ability to continue as a going concern; |
| • | Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams; |
| • | If we do not obtain regulatory approval for and successfully commercialize one or more of our product candidates or experience significant delays in doing so, we may never become profitable; |
| • | Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes, and may be delayed, suspended or terminated for many reasons. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of future results; |
| • | The regulatory approval process of the U.S Food and Drug Administration, or FDA, European Medicines Agency, or EMA, or any comparable foreign regulatory agency may be lengthy, time-consuming and unpredictable, and the results of our clinical trials may not satisfy the requirements of the FDA or other applicable foreign regulatory authorities, and we may incur additional costs or experience delays in completing, or be unable to complete, the development and commercialization of our product candidates; |
| • | Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may be identified during the development of our product candidates, which could prevent or delay regulatory approval and commercialization, increase our costs or necessitate the abandonment or limitation of the development of some of our product candidates; |
| • | We may not be successful in our efforts to in-license or acquire additional product candidates; |
| • | We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success; |
| • | We may become exposed to costly and damaging liability claims at either the clinical or commercial stage, and our product liability insurance may not cover all damages from such claims; |
| • | We have never commercialized a product candidate and we may not be able to successfully commercialize any of our products that receive regulatory approval on our own or with collaborators; |
| • | Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue; |
| • | Off-label use is common in the indications for which our product candidates are under development, which may result in enforcement actions by the FDA and other regulatory agencies for violations of the laws and regulations prohibiting the promotion of off-label uses; |
| • | Even if any of our product candidates receives marketing approval, they will remain subject to ongoing regulatory oversight and they may fail to achieve the degree of market acceptance necessary for commercial success; |
| • | If we are unable to develop sales, marketing and distribution capabilities on our own or through collaborations, or if we fail to achieve adequate pricing or reimbursement, we will not be successful in commercializing our product candidates, if approved; |
| • | If we fail to comply with our obligations under our existing and any future intellectual property licenses with third parties, we could lose license rights that are important to our business; disagreements over contract interpretations could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors; |
| • | We rely on third parties to conduct our preclinical studies and clinical trials and if these third parties perform in an unsatisfactory manner, our business could be substantially harmed; |
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| • | The inability to obtain supply of the materials for our product candidates or the failure of, or loss of, our exclusive supplier for the API for linzagolix would materially and adversely affect our business; |
| • | Any future collaborations with third parties may not be successful; |
| • | Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed; |
| • | Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set; |
| • | If we are unable to comply, or have not fully complied, with applicable federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations, we could face substantial penalties; |
| • | If we fail to comply with our obligations under any existing or future intellectual property licenses with third parties or if such licenses are subject to a disagreement over contract interpretation, we could lose license rights that are important to our business or be subject to a narrowing of the scope of our rights to the relevant intellectual property or technology or an increase of our obligations to our licensors; |
| • | If we are unable to obtain and maintain patent protection for our technology and product candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively; |
| • | We may become involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time-consuming and unsuccessful. Our inability to protect our intellectual property rights, confidential information and trade secrets could harm our business and competitive position; |
| • | We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties; |
| • | Our business could be materially adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 pandemic; |
| • | Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel; |
| • | Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties; |
| • | We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations; |
| • | Concentration of ownership of our common shares among our existing executive officers, directors and principal shareholders may prevent new investors from influencing significant corporate decisions; |
| • | As a Swiss stock corporation, the rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions; as a foreign private issuer, we have the option to follow certain home country governance practices rather than the corporate governance requirements of Nasdaq; |
| • | Our status as a Swiss stock corporation means that our shareholders enjoy certain rights and we are subject to certain corporate limitations that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs; and |
| • | As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase in the future, which could adversely affect our net income and cash flows. In addition, future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders. |
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PART I
Item 1. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business faces significant risks. You should carefully consider all of the information set forth in this Annual Report and in our other filings with the United States Securities and Exchange Commission, or the SEC, including the following risk factors which we face and which are faced by our industry. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This report also contains forward-looking statements that involve risks and uncertainties. Our results could materially differ from those anticipated in these forward-looking statements, as a result of certain factors including the risks described below and elsewhere in this Annual Report and our other SEC filings. See “Special Note Regarding Forward-Looking Statements” above.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.
Since our inception, we have incurred significant operating losses. Our net loss was $58.4 million and $83.0 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had accumulated losses of $467.8 million, out of which $30.6 million were offset with share premium. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We have devoted substantially all of our efforts to in-licensing and developing our product candidates, linzagolix, ebopiprant and nolasiban, as well as capital raising, and building our management team. Our Marketing Authorization Application, or MAA, submitted to the European Medicines Agency, or EMA, for YSELTY® (linzagolix 100mg and linzagolix 200mg) for the treatment of women with uterine fibroids received a positive CHMP opinion on December 16, 2021. Our New Drug Application, or NDA, was submitted to the U.S. Food and Drug Administration, or FDA, for YSELTY® for the treatment of women with uterine fibroids and was accepted for review by the FDA, with a target action date of September 13, 2022 under the Prescription Drug User Fee Act (PDUFA). However, we cannot assure you that YSELTY® will receive regulatory approval or, if YSELTY® were to receive regulatory approval, that the commercialization of YSELTY® would be successful. For example, in February 2022, we announced that based on ongoing communications with the EMA, further questions on the MAA for linzagolix may be forthcoming, thereby extending the application timeline. We may be unable to commercialize our product candidates on a timely basis or at all. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will remain significant if and as we:
| • | continue the ongoing and planned clinical development of linzagolix and nolasiban and make required milestone payments for linzagolix under license agreements; |
| • | conduct nonclinical studies required for the continued development and regulatory approval of our existing clinical programs, including an environmental assessment for linzagolix; |
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| • | initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue; |
| • | continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies; |
| • | continue to develop, maintain, expand and protect our intellectual property portfolio; |
| • | pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials; |
| • | ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval; |
| • | prepare for the commercialization of certain product candidates; |
| • | hire additional clinical, regulatory, scientific, commercial and accounting personnel; and |
| • | incur additional legal, accounting and other expenses in operating as a public company. |
To become and remain profitable, we must develop and eventually commercialize one or more product candidates with significant market potential. This will require us or our licensees to be successful in a range of challenging activities, including completing clinical trials of linzagolix, ebopiprant and nolasiban, or any other future product candidates that we may pursue, developing commercial scale manufacturing processes, obtaining marketing approval, manufacturing, marketing and selling any current and future product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements.. We may never succeed in any or all of these activities and, even if we do, we may never generate sufficient revenue to achieve profitability.
Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of expenses or when, or if, we will obtain marketing approval to commercialize any of our product candidates. If we are required by the FDA or other regulatory authorities such as the EMA, to perform studies and trials in addition to those currently expected, or if there are any delays in the development, or in the completion of any planned or future preclinical studies or clinical trials of our current or future product candidates, including due to the COVID-19 pandemic or other health pandemics, our expenses could increase and profitability could be further delayed.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.
We have a limited operating history and have never generated any revenue from product sales, which may make it difficult to evaluate the success of our business to date and to assess our future viability.
We commenced operations in 2012, and our operations to date have been largely focused on in-licensing and developing our product candidates, including conducting preclinical studies and clinical trials, raising capital, and building our management team and infrastructure. We have not yet demonstrated an ability to successfully obtain regulatory approvals, manufacture products on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Additionally, the markets for our product candidates are competitive, complex and have characteristics that differ by geography. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products.
We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. We will need to eventually transition from a company with a research and development focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays, and may not be successful in such a transition.
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We will need substantial additional funding to pursue our business objectives. If we are unable to raise capital when needed or on terms favorable to us, we could be forced to curtail our planned operations and the pursuit of our growth strategy.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. We expect our expenses to remain significant in connection with our ongoing activities, particularly as we continue to develop our product candidates. Our expenses could increase beyond our current expectations if the FDA, EMA or other foreign regulatory agencies require us to perform clinical trials and other studies in addition to those that we currently anticipate. In addition, our product candidates, if approved, may not achieve commercial success. Our revenue, if any, will be derived from sales of products that may not become commercially available for a number of years, if at all. Additionally, if we obtain marketing approval for our product candidates, we expect to incur significant expenses related to manufacturing, marketing, sales and distribution. We also expect to continue to incur additional costs associated with operating as a public company.
As of December 31, 2021, our cash and cash equivalents was $54.7 million. Subsequent to December 31, 2021 and through February 28, 2022, we raised additional gross proceeds of $4.6 million from the sale of additional treasury shares as part of our “at the market”, or ATM, program, obtained EUR 5 million upon signing our licensing agreement with Theramex HQ UK Limited, or Theramex, and received $8.3 million of net proceeds issued in the second tranche under our convertible note financing agreement with JGB Management, Inc.
We expect our current cash and cash equivalents will be sufficient to fund our operations (without consideration of any commercialization expenses) into the third quarter of 2022. This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we expect. Changes may occur beyond our control that would cause us to consume our available capital before that time, including changes in and progress of our development activities and changes in regulation. Our future capital requirements will depend on many factors, including:
| • | the scope, progress, results and costs of our ongoing, planned and any future required clinical trials for linzagolix, nolasiban and any other future product candidates; |
| • | the timing and amount of milestone payments we are required to make or that we may receive under our license agreements; |
| • | the extent to which we in-license or acquire other product candidates and technologies; |
| • | the number and development requirements of other product candidates that we may pursue; |
| • | the costs, timing and outcome of regulatory review of our product candidates; |
| • | the duration and severity of the COVID-19 pandemic, including due to emerging variant strains of the virus with varying degrees of vaccine resistance, and the impact of the COVID-19 pandemic on our operations and on global capital markets, which may affect our ability to access our ATM program or conduct other offerings; |
| • | the costs and timing of future commercialization activities, including drug manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; |
| • | the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; |
| • | our ability to establish strategic collaborations; and |
| • | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims. |
We will require additional capital to complete our planned clinical development and commercialization programs for our current product candidates to seek regulatory approval and may determine to engage in equity or debt financings or enter into credit facilities for other reasons. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved.
In addition, we may not be able to timely secure debt or equity financing on favorable terms or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and
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operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing shareholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common shares. Further, as a Swiss corporation we have less flexibility to raise capital, particularly in a quick and efficient manner. As a result, we may not be able to access the capital markets as frequently as comparable U.S. companies. See the Risk Factor entitled “Our status as a Swiss corporation means that our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs” for additional information related to our ability to timely raise capital. If we are unable to obtain funding on a timely basis on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidates, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired.
The incurrence of debt may impact our financial position and subject us to additional financial and operating restrictions.
In October 2021, we entered into a securities purchase agreement, or the Securities Purchase Agreement, with certain funds and accounts managed by JGB, which is structured to provide up to $135 million in borrowing capacity, available in nine tranches through the issuance of convertible notes to JGB. In January 2022, we amended the Securities Purchase Agreement with respect to certain terms and conditions for the second tranche under the Securities Purchase Agreement, and accelerated the issuance of the second tranche. The availability of each of the seven remaining tranches will be subject to our meeting certain conditions, including, among others, that our volume-weighted average price is not below $3.00 per share for five or more trading days during the 30 days prior to a tranche funding date. The second tranche was funded on January 28, 2022, the third tranche will be funded in May 2022 and each subsequent tranche will be funded 90 days after the preceding tranche. Our overall leverage and certain covenants and obligations contained in the related documentation could adversely affect our financial health and business and future operations by, among other things:
| • | making it more difficult to satisfy our obligations, including under the terms of the Securities Purchase Agreement; |
| • | limiting our ability to refinance our debt on terms acceptable to us or at all; |
| • | limiting our flexibility to plan for and adjust to changing business and market conditions and increasing our vulnerability to general adverse economic and industry conditions; |
| • | limiting our ability to use our available cash flow to fund future acquisitions and to make dividend payments; and |
| • | limiting our ability to obtain additional financing for working capital, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity. |
In addition, the Securities Purchase Agreement is secured by an account control agreement in favor of JGB, and we are obligated to maintain a minimum cash amount of $25 million in such deposit account, subject to additional incremental increases totaling $27.0 million in aggregate depending on the amount of debt outstanding under the Securities Purchase Agreement. Our obligations under the notes are guaranteed by all of our subsidiaries pursuant to a corporate guaranty agreement entered into in connection with the Securities Purchase Agreement. Upon the occurrence and during the continuance of an event of default, JGB may declare all outstanding principal and accrued and unpaid interest under the notes immediately due and payable and exercise the other rights and remedies provided for under the notes, the Securities Purchase Agreement and related loan documents.
The LIBOR calculation method may change and LIBOR is expected to be phased out after 2021.
Interest on the outstanding principal balance of the loans under the 2019 Facility is calculated based on one-month LIBOR, plus an applicable margin. On July 27, 2017, the U.K. Financial Conduct Authority, or the FCA, announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. In the meantime, actions by the FCA, other regulators or law enforcement agencies may result in changes to the method by which LIBOR is calculated. At this time, it is not possible to predict the effect of any such changes or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere.
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Our recurring losses, negative cash flows and significant accumulated deficit have raised substantial doubt regarding our ability to continue as a going concern.
We have incurred recurring losses since inception, including net losses of $58.4 million for the year ended December 31, 2021. As of December 31, 2021, we had accumulated losses of $467.8 million, of which $30.6 million were offset with share premium. We expect to continue to generate operating losses for the foreseeable future. As of December 31, 2021, we had cash and cash equivalents of $54.7 million. We have prepared our consolidated financial statements assuming that we will continue as a going concern which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. In October 2021, we entered into the Securities Purchase Agreement with certain funds and accounts managed by JGB Management, Inc. The Securities Purchase Agreement is structured to provide $135 million in borrowing capacity, available in nine tranches, with the first tranche funded at the initial closing in October 2021 and the second tranche funded in January 2022 in connection with certain amendments to the Securities Purchase Agreement. The subsequent tranches under the Securities Purchase Agreement will be available subject to us meeting certain conditions, including, among others, that our volume-weighted average price is not below $3.00 per share for five or more trading days during the 30 days prior to a tranche funding date (the “Minimum Stock Price”). The availability of future funding under the Securities Purchase Agreement is dependent on whether the Minimum Stock Price condition will be met at future tranche dates. To date, we have funded our operations through equity and debt offerings and through payments from licensors. We believe that our current cash and cash equivalents are only sufficient to fund our operating expenses into the third quarter of 2022 and this raises substantial doubt about our ability to continue as a going concern. These factors individually and collectively indicate that a material uncertainty exists that may cast significant doubt about our ability to continue as a going concern within one year from the date of the issuance of the consolidated financial statements. Our future viability is dependent on our ability to raise additional capital to finance our future operations. We have an active ATM program and can potentially raise funds through equity or debt offerings. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to shareholders. We may receive future milestone payments from licensors but that is dependent on achieving certain regulatory or commercial milestones that may never happen. We may seek additional funding through public or private financings, debt financing or collaboration agreements. The inability to obtain funding, as and when needed, would have a negative impact on our financial condition and ability to pursue our business strategies. If we are unable to obtain the required funding to run our operations and to develop and commercialize our product candidates, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Management continues to explore options to obtain additional funding, including through collaborations with third parties related to the future potential development and/or commercialization of our product candidates. However, there is no assurance that we will be successful in raising funds, closing a collaboration agreement, obtaining sufficient funding on terms acceptable to us, or if at all, which could have a material adverse effect on the our business, results of operations and financial conditions.
Raising additional capital may cause dilution to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue streams.
Until such time as we can generate substantial product revenue, if ever, we expect to finance our operations through a combination of equity offerings, royalty financing, debt financings, and license and development agreements in connection with any future collaborations. Other than the Securities Purchase Agreement, we do not have any committed external source of funds. In the event we seek additional funds, we may raise additional capital through the sale of equity or convertible debt securities. In such an event, our shareholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common shares. Royalty financing, if available, may only provide future payments contingent upon development, regulatory or commercial milestones and royalty payments as a percentage of our future sales. Debt financing, if available, could result in increased fixed payment obligations and may involve agreements that include restrictive covenants, such as limitations on our ability to incur additional debt, make capital expenditures, acquire, sell or license intellectual property rights or declare dividends, and other operating restrictions that could hurt our ability to conduct our business.
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Further, if we raise additional capital through collaborations, strategic alliances, or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us.
Fluctuations in exchange rates may adversely affect our results of operations.
Our reporting and functional currency is in U.S. dollars. A change in the concentration of our business activities could result in an increased effect of exchange rates on our financial position and results of operations. We do currently hedge against certain currency risks, see “Item 11— Quantitative and Qualitative Disclosures about Market Risks” for more information regarding our exposure to currency fluctuations. There is no assurance that we will, in the future, be successful in fully or even adequately hedging our currency risk.
Risks Related to the Development of Our Product Candidates
We depend entirely on the success of a limited number of product candidates, which are in clinical development. If we do not obtain regulatory approval for and successfully commercialize one or more of our product candidates or we experience significant delays in doing so, we may never become profitable.
We do not have any products that have received regulatory approval and may never be able to develop marketable product candidates. We expect that a substantial portion of our efforts and expenses over the next few years will be devoted primarily to linzagolix and nolasiban, and as a result, our business currently depends heavily on the successful development, regulatory approval and commercialization of these product candidates. We cannot be certain that our product candidates will receive regulatory approval or will be successfully commercialized even if they receive regulatory approval. The research, testing, manufacturing, safety, efficacy, labeling, approval, sale, marketing and distribution of our product candidates are, and will remain, subject to comprehensive regulation by the FDA, EMA and comparable foreign regulatory agencies. Failure to obtain regulatory approval for our product candidates in the United States, the European Union or other jurisdictions will prevent us from commercializing and marketing our product candidates. The success of our product candidates will depend on several additional factors, including:
| • | completing clinical trials that demonstrate their efficacy and safety; |
| • | need for additional clinical trials necessitated by future interactions with regulatory authorities; |
| • | receiving marketing approvals from applicable regulatory authorities; |
| • | completing any post-marketing studies required by applicable regulatory authorities; |
| • | establishing and maintaining commercial manufacturing capabilities; |
| • | launching commercial sales, marketing and distribution operations; |
| • | the prevalence and severity of adverse events experienced with our product candidates; |
| • | acceptance of our product candidates by patients, the medical community and third-party payors; |
| • | a continued acceptable safety profile following approval; |
| • | obtaining and maintaining coverage and adequate reimbursement from third-party payors for our product candidates; |
| • | competing effectively with other therapies, including with respect to the sales and marketing of our product candidates, if approved; and |
| • | qualifying for, maintaining, enforcing and defending our intellectual property rights and claims. |
Many of these factors are beyond our control, including the time needed to adequately complete clinical testing, the regulatory submission process, potential threats to our intellectual property rights and changes in the competitive landscape. It is possible that none of our product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully complete clinical trials, obtain regulatory approval or, if approved, commercialize our product candidates, which would harm our business, financial condition and results of operations.
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Clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Furthermore, results of earlier preclinical studies and clinical trials may not be predictive of results of future preclinical studies or clinical trials.
The risk of failure for our product candidates is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive regulatory approval. To obtain the requisite regulatory approvals to market and sell any of our product candidates, we must demonstrate through extensive preclinical studies and clinical trials that our product candidates are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trial process.
In addition, the results of preclinical studies and earlier clinical trials may not be predictive of the results of later-stage clinical trials. The results generated to date in preclinical studies or clinical trials for our product candidates do not ensure that later preclinical studies or clinical trials will demonstrate similar results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical and earlier stage clinical trials. For example, we announced on November 7, 2019 that the IMPLANT 4 Phase 3 clinical trial of nolasiban in women undergoing embryo transfer following in-vitro fertilization, or IVF, did not meet the primary endpoint of an increase in ongoing pregnancy rate at 10 weeks. Based on these results, we discontinued our previously ongoing nolasiban IVF program. A number of companies in the biopharmaceutical industry have suffered significant setbacks in later-stage clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials, and we cannot be certain that we will not face similar setbacks for our other product candidates. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in clinical trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and other clinical trial protocols, and the rate of dropout among clinical trial participants. Additionally, in the case of our late-stage clinical product candidates, results may differ in general on the basis of the larger number of clinical trial sites and additional countries and languages involved in Phase 3 clinical trials. Different countries have different standards of care and different levels of access to care for patients. These differences may, in part, drive the heterogeneity of the patient populations that enroll in our studies and that may affect clinical trial results.
In addition, because we in-licensed linzagolix from Kissei Pharmaceutical Co., Ltd., or Kissei, and ebopiprant and nolasiban from Ares Trading S.A., an affiliate of Merck Serono, we were not involved in and had no control over the preclinical and clinical development of these product candidates prior to entering into these in-license agreements. In addition, we are relying on Kissei and Merck Serono to have conducted such research and development in accordance with the applicable protocol, legal, regulatory and scientific standards, having accurately reported the results of all clinical trials conducted prior to our acquisition of linzagolix, ebopiprant and nolasiban, and having correctly collected and interpreted the data from these studies and trials. To the extent any of these has not occurred, expected development time and costs may be increased which could adversely affect the marketing approval for and any future revenue from these product candidates.
Clinical trials may be delayed, suspended or terminated for many reasons, which will increase our expenses and delay the time it takes to develop our product candidates.
We may experience delays in our ongoing or future preclinical studies or clinical trials, and we do not know whether future preclinical studies or clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. The completion of clinical trials for our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including:
| • | the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials; |
| • | the delay or refusal of regulators, Ethics Committees or institutional review boards, or IRBs, to authorize us to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines; |
| • | delays or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
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| • | delays in patient enrollment and variability in the number and types of patients available for clinical trials; |
| • | the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects; |
| • | having clinical sites deviate from the trial protocol or dropping out of a trial; |
| • | negative or inconclusive results, which may require us to conduct additional preclinical studies or clinical trials or to abandon projects that we expect to be promising; |
| • | safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks; |
| • | regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or safety concerns, among others; |
| • | lower than anticipated retention rates of patients and volunteers in clinical trials; |
| • | the inability to enroll a sufficient number of patients in clinical trials due to social and cultural stigmas or sensitivities around reproductive therapies; |
| • | disruptions or difficulties, or other restrictions, in initiating, enrolling, conducting or completing clinical trials due to the COVID-19 pandemic; |
| • | our CROs or clinical trial sites failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, deviating from the protocol or dropping out of a trial; |
| • | delays relating to adding new clinical trial sites; |
| • | difficulty in maintaining contact with patients after treatment, resulting in incomplete data; |
| • | delays in establishing the appropriate dosage levels; |
| • | the quality or stability of the product candidate falling below acceptable standards; |
| • | the inability to produce or obtain sufficient quantities of the product candidate to complete clinical trials; and |
| • | exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical trials. |
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs or Ethics Committees of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board for such trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
Further, conducting clinical trials in foreign countries, which we are doing for our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to the clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries. Certain of the sites in our ongoing EDELWEISS 3 clinical trial are located in Ukraine. Tensions between Ukraine and Russia have escalated in recent months, culminating in Russia's recent invasion of Ukraine. While our clinical trial sites in Ukraine continue to manage their patients, if political or civil conditions require it, our sites may need to delay or suspend clinical trial activities. Similarly, conducting clinical trials in the United States, which we are doing for our product candidates, presents risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in the United States to adhere to the clinical protocol, managing additional administrative burdens associated with United States regulatory schemes, as well as economic risks relevant to the United States. For example, in January 2021, we announced our decision to discontinue our EDELWEISS 2 clinical trial and its extension, due to challenging patient screening and enrollment, as well as persisting difficult environment of the ongoing COVID-19 pandemic.
If we experience delays in the completion, or termination, of any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenue from sales of any of these product candidates will be delayed or not realized at all.
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We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenue from product sales. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates.
The regulatory approval process of the FDA, EMA or any comparable foreign regulatory agency may be lengthy, time-consuming and unpredictable.
Our future success is dependent upon our ability to successfully develop, obtain regulatory approval for and then successfully commercialize one or more of our product candidates. The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market any of our product candidates in the United States or abroad until we receive regulatory approval of a New Drug Application, or NDA, from the FDA or approval of a Marketing Authorization Application, or MAA, from the EMA or other applicable foreign regulatory agency.
Prior to obtaining approval to commercialize a product candidate in any jurisdiction, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, EMA or any comparable foreign regulatory agency, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. The FDA, EMA or any comparable foreign regulatory agency can delay, limit or deny approval of our product candidates or require us to conduct additional preclinical or clinical testing or abandon a program for many reasons, including:
| • | the FDA, EMA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our clinical trials; |
| • | negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA, EMA or any comparable foreign regulatory agency for approval; |
| • | serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates; |
| • | our inability to demonstrate to the satisfaction of the FDA, EMA or the applicable foreign regulatory agency that our product candidates are safe and effective for their proposed indications; |
| • | the FDA’s, EMA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from preclinical studies or clinical trials; |
| • | our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety or other perceived risks; |
| • | the FDA’s, EMA’s or the applicable foreign regulatory agency’s requirement for additional preclinical studies or clinical trials; |
| • | the FDA’s, EMA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling or the specifications of our product candidates; |
| • | the FDA’s, EMA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or |
| • | the potential for approval policies or regulations of the FDA, EMA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval. |
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Any of our current or future product candidates could take a significantly longer time to gain regulatory approval than expected or may never gain regulatory approval. This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of our product candidates.
In November 2020, we submitted a MAA to the EMA for the treatment of uterine fibroids in adult women of reproductive age. In December 2021, the CMPH of the EMA adopted a positive opinion recommending approval of linzagolix. In February 2022, we announced that based on ongoing communications with the EMA, further questions on the MAA for linzagolix may be forthcoming, thereby extending the application timeline. If approved by the European Commission, linzagolix would be the only GnRH receptor antagonist with a non-hormonal option to address the needs of women who cannot or do not want to take hormones.
In September 2021, we submitted a NDA to the FDA, for linzagolix for the treatment of uterine fibroids. The NDA submission includes the positive PRIMROSE 1 and PRIMROSE 2 full data package including week 52 data and post treatment follow-up data up to week 76 for both trials. The NDA for linzagolix has been accepted for review by the FDA, with a target action date of September 13, 2022 under the Prescription Drug User Fee Act (PDUFA).
Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.
While we have previously sought, and intend to seek in the future, formal advice and guidance from the FDA or other applicable foreign regulatory agencies prior to advancing our product candidates into further studies or pivotal clinical trials, the results of our clinical trials may not satisfy the requirements of the FDA or other applicable foreign regulatory authorities, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate.
We generally plan to seek regulatory approval to commercialize our product candidates in the United States, the European Union and other key global markets. With regard to each of our product candidates, we may experience delays or encounter issues in the development program in the relevant jurisdictions, including imposition of a clinical hold, failed studies, inconclusive or hard-to-interpret results, safety or efficacy issues, refusal to file the application, or refusal to approve it. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements of such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical trials, commercial sales, pricing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot ensure that we will obtain approval in any other jurisdiction. Failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval elsewhere. Failure to obtain marketing authorization for our product candidates will result in the inability to market and sell such products. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates or may grant approvals for more limited patient populations than requested.
Even if we eventually complete clinical testing and receive approval of an NDA or foreign marketing application for our product candidates, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials, including Phase 4 clinical trials or the implementation of a Risk Evaluation and Mitigation Strategy, or REMS, which may be required to ensure safe use of the drug after approval. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would adversely impact our business and prospects.
Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, or serious adverse or unacceptable side effects may be identified during the development of our product candidates, which could prevent or delay regulatory approval and commercialization, increase our costs or necessitate the abandonment or limitation of the development of some of our product candidates.
Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any stage of testing. Clinical trials, such as our initial Phase 2 clinical trial for nolasiban and our IMPLANT 4 Phase 3 clinical trial of nolasiban, often fail to demonstrate definitive efficacy or safety of the product candidate studied for the target indication.
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Moreover, undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Accordingly, we may need to abandon their development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in preclinical or early-stage testing have later been found to cause side effects that restricted their use and prevented further development of the compound for larger indications.
For example, in evaluation of linzagolix to date, patients have experienced adverse events consistent with the suppression of estradiol, including hot flashes and irregular uterine bleeding. Occurrence of serious treatment-related side effects could impede subject recruitment and clinical trial enrollment or the ability of enrolled patients to complete the trial, require us to halt the clinical trial, and prevent receipt of regulatory approval from the FDA, EMA or any comparable foreign regulatory agency. They could also adversely affect physician or patient acceptance of our product candidates or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly.
Additionally, if one or more of our product candidates receives regulatory approval, and we or others later identify undesirable side effects caused by these product candidates, a number of potentially significant negative consequences could result, including:
| • | withdrawal by regulatory authorities of approvals of such product; |
| • | seizure of the product by regulatory authorities; |
| • | restrictions on the marketing of the product or the manufacturing process for any component thereof; |
| • | requirement by regulatory authorities of additional warnings on the label, such as a “black box” warning or contraindication; |
| • | requirement that we implement a REMS or create a medication guide outlining the risks of such side effects for distribution to patients; |
| • | commitment to expensive additional safety studies prior to launch as a prerequisite of approval by regulatory authorities of such product; |
| • | commitment to expensive post-marketing studies as a prerequisite of approval by regulatory authorities of such product; |
| • | the product may become less competitive; |
| • | initiation of legal action against us claiming to hold us liable for harm caused to patients; and |
| • | harm to our reputation and resulting harm to physician or patient acceptance of our products. |
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, financial condition, and results of operations.
We depend on enrollment of patients in our clinical trials for our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could be adversely affected.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. Successful and timely completion of clinical trials will require that we enroll a sufficient number of patients who remain in the study until its conclusion. If patients are unwilling to participate in our clinical trials because of a lack of familiarity with our approach to the treatment of reproductive health conditions, negative publicity from adverse events in the reproductive health field or for other reasons, including competitive clinical trials for similar patient populations and general social or cultural stigmas and sensitivities towards reproductive health, our timelines for recruiting patients, conducting clinical trials and obtaining regulatory approval of potential products may be delayed. These delays could result in increased costs, delays in advancing our product development, delays in testing the effectiveness of our technology or termination of our clinical trials altogether.
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We cannot predict how successful we will be at enrolling patients in future clinical trials. Patient enrollment is affected by other factors including:
| • | the eligibility criteria for the trial in question; |
| • | the perceived risks and benefits of the product candidate in the trial; |
| • | clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating or drugs that may be used off-label for these indications; |
| • | the size of the patient population required for analysis of the trial’s primary endpoints; |
| • | competition for patients for competitive product candidates undergoing clinical trials; |
| • | the efforts to facilitate timely enrollment in clinical trials; |
| • | the design of the trial; |
| • | the patient referral practices of physicians; |
| • | our ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| • | the ability to monitor patients adequately during and after treatment; |
| • | the risk that patients enrolled in clinical trials will drop out of the trials before completion; |
| • | the ability to obtain and maintain patient consents; |
| • | the proximity and availability of clinical trial sites for prospective patients; |
| • | any delays, disruptions or restrictions due to the COVID-19 pandemic or other health pandemics, or as a result of geopolitical tensions or conflicts; and |
| • | the efficiency with which our external vendor, or contract research organization (CRO), manages the logistics of patient recruitment, randomization, and follow-up within the clinical trial. |
In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. We expect that some trial sites that participate in our clinical trials may also participate in clinical trials being conducted to develop competitive compounds, which will reduce the number of patients who are available for our clinical trials at such clinical trial site.
For example, in January 2021, we announced our decision to discontinue our EDELWEISS 2 clinical trial and its extension, due to challenging patient screening and enrollment, as well as persisting difficult environment of the ongoing COVID-19 pandemic. Certain of the sites in our ongoing EDELWEISS 3 clinical trial are located in Ukraine. Tensions between Ukraine and Russia have escalated in recent months, culminating in Russia's recent invasion of Ukraine. While our clinical trial sites in Ukraine continue to actively manage their patients, if political or civil conditions require it, our sites may need to delay or suspend clinical trial activities.
Delays in the completion of any clinical trial of our product candidates will increase our costs, slow down our product candidate development and approval process, and delay or potentially jeopardize our ability to commence product sales and generate revenue. In addition, many of the factors that may lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We may not be successful in our efforts to in-license or acquire additional product candidates for other serious conditions compromising women’s reproductive health and pregnancy.
A significant element of our strategy is to further build and expand our pipeline of product candidates through in-licensing or acquiring additional product candidates for other serious conditions compromising women’s reproductive health and pregnancy. Currently, we do not have the internal expertise, nor do we intend to develop the internal expertise, necessary to discover new chemical entities for therapeutic purposes. As a result, if we are not able to identify and acquire additional product candidates, we will not be able to expand our pipeline. Even if we are successful in continuing to build our pipeline
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through in-licensing or acquisitions, the potential product candidates that we in-license or acquire may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval and achieve market acceptance.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. For example, we have expended substantial efforts and expenses to nolasiban, and we announced on November 7, 2019 that the IMPLANT 4 Phase 3 clinical trial of nolasiban in women undergoing embryo transfer following IVF did not meet the primary endpoint of an increase in ongoing pregnancy rate at 10 weeks. Based on these results, we discontinued our previously ongoing nolasiban IVF program. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements, including our license, development and commercialization agreement with Organon & Co., or Organon, for ebopiprant, in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
We may become exposed to costly and damaging liability claims, either when testing our product candidates in the clinic or at the commercial stage, and our product liability insurance may not cover all damages from such claims.
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing, and use of pharmaceutical products. We currently have no products that have been approved for commercial sale. However, the current and future use of product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, or others selling such products. Any claims against us, regardless of their merit, could be difficult and costly to defend, and could compromise the market acceptance of our product candidates or any prospects for commercialization of our product candidates, if approved.
Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use our product candidates.
Although we maintain standard product liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any product candidate. As the expense of insurance coverage is increasing, we may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Risks Related to Commercialization of Our Product Candidates
We have never commercialized a product candidate and we may lack the necessary expertise, personnel and resources to successfully commercialize any of our products that receive regulatory approval on our own or together with collaborators.
We have never commercialized a product candidate. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, in-licensing or acquiring our product candidates and undertaking preclinical studies and clinical trials of our product candidates. We currently have no sales force, marketing or distribution capabilities. If any of our product candidates are approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, or to outsource these functions to a third party. For example, in October 2021, we announced a strategic relationship with Syneos Health to commercialize linzagolix. Either of these options could be expensive, time-consuming and delay launch of our product candidates, and these costs may be incurred in advance of any approval of our product candidates. In addition, we may not be able to hire a sales force that is sufficient in size or has adequate expertise in the medical markets that we intend to target. Any failure or delay in
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the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our products. While we have a Chief Commercial Officer and Chief Transformation Officer to lead the strategic and logistical planning of these activities, including market access, the success of such activities once undertaken may be influenced by several factors outside of our control.
Entering into collaboration agreements with respect to marketing, sales or distribution may cause our product revenue to be lower than if we directly marketed or sold any approved products. In addition, any revenue we receive will depend in whole or in part upon the efforts of these third-party collaborators, which may not be successful and are generally not within our control. If we are unable to enter into such arrangements on acceptable terms, we may not be able to successfully commercialize any approved products.
If we are not successful in commercializing any approved products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
We operate in a highly competitive and rapidly changing industry.
Biopharmaceutical product development is highly competitive and subject to rapid and significant technological advancements. Our success is highly dependent upon our ability to in-license, acquire, develop and obtain regulatory approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated, well-established pharmaceutical companies who already possess a large share of the market, specialty pharmaceutical and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in the United States, the European Union and other jurisdictions.
With respect to linzagolix, in July 2018, the first compound from the oral gonadotropin-releasing hormone, or GnRH, receptor antagonist class, Orilissa® (elagolix 150 mg QD and 200mg BID), received regulatory approval in the United States for the treatment of pain associated with endometriosis. AbbVie Inc. has been commercializing Orilissa in the United States since August 2018. In May 2020, AbbVie received regulatory approval in the United States for Orihnn® (elagolix 300mg BID, estradiol 1mg and norethindrone acetate 0.5 mg QD) for the management of heavy menstrual bleeding associated with uterine fibroids. In May 2021, Myovant received regulatory approval in the United States for Myfembree® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for the management of heavy menstrual bleeding associated with uterine fibroids. In July 2021, Myovant received regulatory approval in the EU for Ryeqo® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for treatment of moderate to severe symptoms of uterine fibroids in adult women of reproductive age. Ryeqo® will be commercialized by Gedeon Richt. In September 2021, Myovant announced that the FDA accepted for review a supplemental New Drug Applications, sNDA for Myfrembree® (relugolix 40 mg, estradiol 1mg, and norethindrone acetate 0.5 mg) for the management of moderate to severe paid associated with endometriosis. The FDA set a target action date of May 6, 2022. We also anticipate competing with GnRH receptor agonists, including Lupron (leuprolide acetate), marketed by AbbVie Inc. and Takeda Pharmaceuticals, the progestin Visanne (dienogest), which is approved for the treatment of endometriosis outside the United States and marketed by Bayer, and ulipristal acetate, a Selective Progesterone Receptor Modulator, or SPRM, which is approved for intermittent treatment of moderate to severe symptoms of uterine fibroids in adult women who have not reached menopause when uterine fibroid embolization and/or surgical treatment options are not suitable or have failed outside the United States and marketed by Gedeon Richter in Europe and other regions, and by Allergan in Canada. Ulipristal acetate, experienced severe label restrictions of usage in 2018 which were further restricted in early 2021, due to post marketing liver safety issues. Allergan had submitted an NDA for ulipristal acetate but disclosed receipt of a complete response letter from the FDA in August 2018 that the NDA is not approvable in its current form and requesting additional information. Enrollment in Phase 3 clinical trials of vilaprisan, another SPRM developed by Bayer Schering for the treatment of uterine fibroids and endometriosis, was halted by Bayer Schering after long-term toxicology studies in rodents indicated a potential problem. In addition, oral contraceptives and nonsteroidal anti-inflammatory drugs, or NSAIDs, are routinely used as a first-line therapy for the treatment of symptoms associated with endometriosis and uterine fibroids and have a meaningful success rate at mitigating the symptoms associated with these conditions.
With respect to ebopiprant, Tractotile (atosiban) is approved to delay preterm birth outside of the United States, and we anticipate potential competition as a single agent, if not used in combination with ebopiprant given their different mechanisms of action. In terms of clinical development, it is our understanding that GlaxoSmithKline terminated the in-house development of retosiban, an oxytocin receptor antagonist, designed to delay preterm birth. Currently available prostaglandin synthesis inhibitors, such as NSAIDs may also represent competitive therapies, some of which may be used off-label as standard of care, despite risk of serious side effects for the neonates. Another potential competitive therapy frequently used off-label are calcium channel blockers, such as nifedipine. Makena, which is registered in the United States
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for preventing preterm delivery in high-risk patients, is seen as a complement rather than a competitor for ebopiprant, due to its mechanism of action in the prevention rather than treatment of preterm labor. However, in October 2020, the FDA proposed that Makena be withdrawn from the market based on its conclusion that the available evidence does not show Makena is effective for its approved use.
With respect to nolasiban, there are no other oxytocin receptor antagonists approved either for oral administration or for use in connection with IVF. However, it is our understanding that Ferring Pharmaceuticals Inc. has barusiban in its development pipeline, an oxytocin receptor antagonist, to be administered subcutaneously, that may be developed for use in connection with IVF. Nevertheless, to our knowledge, no new clinical trial activity has been publicly announced since completion of a Phase 2 trial in 2015. Ferring Pharmaceuticals’ atosiban, an oxytocin receptor antagonist, to be administered by continuous infusion, has been used off-label in investigator-initiated trials in connection with IVF outside the United States.
We may also compete with other companies acquiring and developing or marketing drug therapies or products for women’s reproductive health diseases. Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the biopharmaceutical industry could result in even more resources being concentrated among a small number of our competitors.
Competition may further increase as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, products that are more effective or less costly than any product candidate that we may develop.
Established biopharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving FDA, EMA or any comparable foreign regulatory agency approval for or commercializing drugs before we do, which would have an adverse impact on our business and results of operations.
The availability of our competitors’ products could limit the demand and the price we are able to charge for any product candidate we commercialize, if any. The inability to compete with existing or subsequently introduced drugs would harm our business, financial condition and results of operations.
The successful commercialization of certain of our product candidates will depend in part on the extent to which governmental authorities and health insurers establish coverage and adequate reimbursement levels, as well as pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for our product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
The availability of coverage and adequate reimbursement by governmental healthcare programs, such as Medicare and Medicaid, private health insurers and other third-party payors, are essential for most patients to be able to afford products such as our product candidates, if approved. Our ability to achieve acceptable levels of coverage and reimbursement for products by governmental authorities, private health insurers and other organizations will have an effect on our ability to successfully commercialize and attract additional collaboration partners to invest in the development of our product candidates. Coverage under certain government programs, such as Medicare, Medicaid and Tricare, may not be available for certain of our product candidates. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. We cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for any product that we may develop, and any reimbursement that may not be adequate to make our products affordable for patients or profitable for us and may become available, may be decreased or eliminated in the future.
Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider our product candidates and other therapies as substitutable and only offer to reimburse patients for the less expensive product. Even if we show improved
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efficacy or improved convenience of administration with our product candidates, pricing of existing drugs may limit the amount we will be able to charge for our product candidates. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates and may not be able to obtain a satisfactory financial return on products that we may develop.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse health care providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Obtaining and maintaining reimbursement status is time-consuming and costly. No uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
In the European Union, for example, the main legal instrument governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC, or the Price Transparency Directive. The aim of the Price Transparency Directive is to ensure the transparency of measures established by European Union countries to control the pricing and reimbursement of medicinal products. It defines a series of procedural requirements designed to verify that national pricing and reimbursement decisions do not create obstacles to the pharmaceutical trade within the European Union’s Internal Market. The Price Transparency Directive does not, however, provide any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in individual EU member states, except as far as is necessary to achieve the level of transparency required by the Price Transparency Directive. The national authorities of the individual EU member states are free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. Some individual EU member states adopt policies according to which a specific price or level of reimbursement is approved for the medicinal product. Other EU member states adopt a system of reference pricing, basing the price or reimbursement level in their territory either, on the pricing and reimbursement levels in other countries, or on the pricing and reimbursement levels of medicinal products intended for the same therapeutic indication. Furthermore, some EU member states impose direct or indirect controls on the profitability of the company placing the medicinal product on the market.
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Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
Even if any of our current or future product candidates, including linzagolix, or nolasiban receive regulatory approval, or if our licensed product candidate, ebopiprant, receives regulatory approval, they will remain subject to ongoing regulatory oversight.
Even if any of our current or future product candidates, including linzagolix, or nolasiban receive regulatory approval, or if our licensed product candidate, ebopiprant, receives regulatory approval, they will be subject to extensive and ongoing regulatory requirements for manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, sampling and record-keeping. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMP, regulations and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval, all of which may result in significant expense and limit our ability to commercialize such products. In addition, any potential regulatory approvals received for our product candidates, out-licensed product candidates, or future product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools.
The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability. Moreover, if there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include imposing fines on us, imposing restrictions on the product or its manufacture and requiring us to recall or remove the product from the market. The regulators could also suspend or withdraw our marketing authorizations, requiring us to conduct additional clinical trials, change our product labeling or submit additional applications for marketing authorization. If any of these events occurs, our ability to sell such product and generate revenue may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could adversely affect our business, financial condition and results of operations.
Off-label use is common in the indications for which our product candidates are under development, which may result in enforcement actions by the FDA and other regulatory agencies for violations of the laws and regulations prohibiting the promotion of off-label uses.
Although physicians, in the practice of medicine, may prescribe approved drugs for unapproved indications, pharmaceutical companies are prohibited from marketing or promoting their drug products for uses outside the approved label, a practice known as off-label promotion. Certain of our product candidates or licensed product candidates, including ebopiprant and nolasiban, are under development for indications for which off-label use is common. For example, nifedipine and NSAIDS are prescribed off-label for the treatment of preterm labor, although they are not approved for this use. Similarly, the anticipated market for linzagolix is characterized by the use of oral contraceptives as a first-line therapy, which have been prescribed off-label for the treatment of a variety of indications. To the extent the price of our product candidates, if approved, is significantly higher than the prices of commercially available products that are frequently prescribed off-label, physicians may recommend and prescribe these commercial alternatives instead of writing prescriptions for our products. Either of these outcomes may adversely impact our results of operations by limiting how we price our product and increasing our competition.
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In addition, if any of our product candidates are approved, our product labeling, advertising and promotional materials would be subject to regulatory requirements and continuing review by the FDA, Department of Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. If we are found to have improperly promoted off-label uses of our product candidates, if approved, we may become subject to significant liability. Such enforcement has become more common in the industry. If we are found to have promoted our products for any such off-label uses, the federal government could levy civil, criminal or administrative penalties, and seek fines against us. The FDA or other regulatory authorities could also require that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
In the United States, engaging in the impermissible promotion of our products, following approval, for off-label uses can also subject us to false claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute drug products through, for example, corporate integrity agreements, and debarment, suspension or exclusion from participation in federal and state healthcare programs. These false claims statutes include, among others, the federal civil False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing others to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the government declines to intervene, the individual may pursue the case alone. These false claims lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements regarding certain sales practices promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have an adverse effect on our business, financial condition, results of operations and prospects.
Even if any of our product candidates receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
Even if the FDA, EMA or any comparable foreign regulatory agency approves the marketing of any product candidates that we develop, physicians, patients, third-party payors or the medical community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may not be successful. If linzagolix, ebopiprant, nolasiban or any future product candidate that we develop does not achieve an adequate level of acceptance, we may not generate significant product revenue or any profits from operations or receive significant royalties under our license agreement with Organon & Co., or Organon, for ebopiprant, or with Theramex HQ UK Limited, or Theramex, for linzagolix. The degree of market acceptance of linzagolix, ebopiprant, nolasiban or any of our future product candidates that are approved for commercial sale will depend on a variety of factors, including:
| • | the efficacy and potential advantages compared to alternative treatments; |
| • | effectiveness of sales and marketing efforts; |
| • | the cost of treatment in relation to alternative treatments, including any similar generic treatments; |
| • | our ability to offer our products, if approved, for sale at competitive prices; |
| • | the convenience and ease of administration compared to alternative treatments; |
| • | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
| • | the strength of marketing and distribution support; |
| • | the availability of third-party coverage and adequate reimbursement, and patients’ willingness to pay out-of-pocket in the absence of third-party coverage or adequate reimbursement; |
| • | the prevalence and severity of any side effects; |
| • | any restrictions on the use of our products, if approved, together with other medications; and |
| • | other potential advantages over alternative treatment methods. |
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Our efforts to educate physicians, patients, third-party payors and others in the medical community on the benefits of our products, if approved, may require significant resources and may never be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our product candidates. Because we expect sales of our product candidates, if approved, to generate substantially all of our product revenue for the foreseeable future, the failure of our product candidates to find market acceptance would harm our business and could require us to seek additional financing.
In addition, the potential market opportunity for linzagolix, ebopiprant, nolasiban or any other product candidate we may develop is difficult to estimate precisely. Our estimates of the potential market opportunity are predicated on several key assumptions such as industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions may be inaccurate. If any of the assumptions proves to be inaccurate, then the actual market for linzagolix, ebopiprant, nolasiban or our future product candidates could be smaller than our estimates of the potential market opportunity. If the actual market for linzagolix, ebopiprant, nolasiban or our future product candidates is smaller than we expect, or if the products fail to achieve an adequate level of acceptance by physicians, health care payors and patients, our revenue or royalty payments from product sales may be limited and we may be unable to achieve or maintain profitability.
Risks Related to Our Dependence on Third Parties
If we fail to comply with our obligations under our existing and any future intellectual property licenses with third parties, we could lose license rights that are important to our business.
We are party to several license agreements under which we in-license patent rights and other intellectual property related to our business, including a license and supply agreement with Kissei, under which we were granted an exclusive license relating to linzagolix and license agreements with Merck Serono, pursuant to which we were granted exclusive worldwide licenses relating to ebopiprant and nolasiban. We may enter into additional license agreements in the future. Our license agreements impose, and we expect that future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. Any uncured, material breach under these license agreements could result in our loss of rights to practice the patent rights and other intellectual property licensed to us under these agreements, and could compromise our development and commercialization efforts for linzagolix, ebopiprant and nolasiban, or any future product candidates. See “Item 4.B—Business Overview” for a more detailed description of our current license agreements.
We may be required to make significant payments in connection with our license and supply agreement with Kissei.
We acquired exclusive rights to linzagolix pursuant to our license and supply agreement with Kissei in November 2015. Under the terms of the Kissei license and supply agreement and its amendments, we are obligated to share certain development costs with Kissei in addition to our own direct development costs. Additionally, we may make significant payments in connection with certain milestones and the sale of resulting products. If these obligations become due under the terms of the Kissei license and supply agreement, our development efforts may be delayed and/or we may have to seek additional funding earlier than currently planned.
Our intellectual property in-licensed from third parties may be subject to disagreements over contract interpretations, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.
The agreements under which we currently in-license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could harm our business, financial condition, results of operations and prospects. If any of our current or future licenses or material relationships or any in-licenses upon which our current or future licenses are based are terminated or breached, we may:
| • | lose our rights to develop and market linzagolix, ebopiprant, nolasiban or any future product candidates; |
| • | lose patent protection for linzagolix, ebopiprant, nolasiban or any future product candidates; |
| • | experience significant delays in the development or commercialization of linzagolix, ebopiprant, nolasiban or any future product candidates; |
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| • | not be able to obtain any other licenses on acceptable terms, if at all; or |
| • | incur liability for damages. |
If we experience any of the foregoing, it could harm our business, financial condition and results of operations.
We rely on third parties to conduct our preclinical studies and clinical trials and if these third parties perform in an unsatisfactory manner, our business could be substantially harmed.
We currently do not have the ability to independently conduct preclinical studies that comply with the regulatory requirements known as good laboratory practice, or GLP, requirements. We also do not currently have the ability to independently conduct any clinical trials. We have relied upon and plan to continue to rely upon medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct GLP-compliant preclinical studies and GCP-compliant clinical trials on our product candidates properly and on time, and may not currently have all of the necessary contractual relationships in place to do so. Once we have established contractual relationships with such third-party CROs, we will have only limited control over their actual performance of these activities.
We and our CROs and other vendors are required to comply with cGMP, GCP and GLP, which are regulations and guidelines enforced by the FDA, the EMA and any comparable foreign regulatory authorities for all of our product candidates in preclinical and clinical development. Regulatory authorities enforce these regulations through periodic inspections of trial sponsors, principal investigators, clinical trial sites and other contractors. Although we rely on CROs to conduct any current or planned GLP-compliant preclinical studies and GCP-compliant clinical trials and have limited influence over their actual performance, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or any of our CROs or vendors fail to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, EMA or any comparable foreign regulatory agency may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory agency, such regulatory agency will determine that all of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced under cGMP requirements. Our failure to comply with these requirements may require us to repeat clinical trials, which would delay the regulatory approval process.
While we will have agreements governing their activities, our CROs will not be our employees, and we will not be able to control whether or not they devote sufficient time and resources to our future preclinical and clinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our business. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that we develop. As a result, our financial results and the commercial prospects for any product candidate that we develop would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
If our relationship with these CROs terminates, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can negatively impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a negative impact on our business and financial condition.
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We rely on our third-party manufacturers to source the supply of the materials for our product candidates and, in the case of linzagolix, Kissei is the exclusive supplier of API. The inability to obtain supply of the materials for our product candidates or the failure of, or loss of, our exclusive supplier to supply us with the API for linzagolix would materially and adversely affect our business.
We currently rely on and expect to continue to rely on third parties for the manufacturing and supply of chemical compounds for the clinical trials of our product candidates and, if approved, our commercial supply. Further, Kissei has the exclusive right to supply us with the active pharmaceutical ingredient, or API, for linzagolix for our clinical trials and commercial supplies, if approved, subject to limited specified exceptions within the control of Kissei. Reliance on third-party suppliers may expose us to different risks than if we were to manufacture product candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other regulatory authorities pursuant to inspections that will be conducted after we submit our NDA or comparable marketing application to the FDA or other regulatory agency. Although we have auditing rights with all our manufacturing counterparties, we do not have control over a supplier’s or manufacturer’s compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to environmental health and safety matters.
To meet our projected needs for clinical supplies and support our activities through regulatory approval and commercial manufacturing, the contract development manufacturing organizations, or CDMOs, with whom we currently work will need to increase scale of production, or we will need to secure alternate suppliers. With respect to linzagolix, we have entered into an exclusive agreement for the supply of the linzagolix API with Kissei. A CDMO that Kissei is using to supply the linzagolix API received a warning letter from the FDA in November 2016 citing deviations from cGMP requirements with respect to its drug manufacturing facility. Kissei now obtains linzagolix cGMP supply from two additional suppliers, both of which are different from the supplier who received the warning letter from the FDA in November 2016. For nolasiban, we obtain supply on a purchase order basis from a different single source. However, we believe that there are multiple potential sources for our contract manufacturing for nolasiban. Additionally, any damage to or destruction of our or our third-party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture our product candidates on a timely basis.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials, and we expect to continue to depend on third-party suppliers for the foreseeable future. There are a limited number of suppliers for raw materials that we use to manufacture our drugs and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenue from the sale of our product candidates.
We rely on our manufacturers and other subcontractors to comply with and respect the proprietary rights of others in conducting their contractual obligations for us. If our manufacturers or other subcontractors fail to acquire the proper licenses or otherwise infringe third-party proprietary rights in the course of completing their contractual obligations to us, we may have to find alternative manufacturers or defend against claims of infringement, either of which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could be revoked, which would adversely affect our business and reputation. Furthermore, third-party providers may breach agreements they have with us because of factors beyond our control. They may also terminate or refuse to renew their agreements because of their own financial difficulties or business priorities,
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potentially at a time that is costly or otherwise inconvenient for us. If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.
In addition, the fact that we are dependent on third parties for the manufacture, storage and distribution of our product candidates means that we are subject to the risk that our product candidates and, if approved, commercial products may have manufacturing defects that we have limited ability to prevent or control. The sale of products containing such defects could result in recalls or regulatory enforcement action that could adversely affect our business, financial condition and results of operations.
We have, and may in the future, enter into collaborations with third parties to develop our product candidates. If these collaborations are not successful, our business could be harmed.
In July 2021, we entered into a global license, development and commercialization agreement with Organon for ebopiprant. In February 2022, we entered into a licensing agreement with Theramex for the commercialization and further development of linzagolix across global markets outside of the U.S., Canada and Asia. We may potentially enter into other collaborations with third parties in the future, and we will face, to the extent that we decide to enter into future collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time-consuming to negotiate, document, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements, including with our agreement with Organon for ebopiprant and our agreement with Theramex for linzagolix. In addition, the terms of any collaborations or other arrangements that we may establish may not be favorable to us.
Any current or future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, including:
| • | collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; |
| • | collaborators may not perform their obligations as expected; |
| • | the clinical trials conducted as part of these collaborations may not be successful; |
| • | collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding or external factors, such as an acquisition, that divert resources or create competing priorities; |
| • | collaborators may delay clinical trials, provide insufficient funding for clinical trials, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
| • | we may not have access to, or may be restricted from disclosing, certain information regarding product candidates being developed or commercialized under a collaboration and, consequently, may have limited ability to inform our shareholders about the status of such product candidates; |
| • | collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; |
| • | product candidates developed in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; |
| • | a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of any such product candidate; |
| • | disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development of any product candidates, may cause delays or termination of the research, development or commercialization of such product candidates, may lead to additional responsibilities for us with respect to such product candidates or may result in litigation or arbitration, any of which would be time-consuming and expensive; |
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| • | collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; |
| • | disputes may arise with respect to the ownership of intellectual property developed pursuant to our collaborations; |
| • | collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and |
| • | collaborations may be terminated for the convenience of the collaborator and, if terminated, we could be required to raise additional capital to pursue further development or commercialization of the applicable product candidates. |
If any such current or potential future collaborations do not result in the successful development and commercialization of product candidates including ebopiprant and linzagolix, or if a collaborator terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under such collaboration. If we do not receive the funding we expect under these agreements, the development of our product candidates could be delayed and we may need additional resources to develop our product candidates. In addition, if a collaborator terminates its agreement with us, we may find it more difficult to attract new collaborators and the perception of us in the business and financial communities could be adversely affected. All of the risks relating to product development, regulatory approval and commercialization apply to the activities of our potential future collaborators.
If we are not able to establish or maintain collaborations, we may have to alter some of our future development and commercialization plans.
Our product development programs and the potential commercialization of our product candidates will require substantial additional capital to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the future development and potential commercialization of those product candidates. For example, in January 2020, we entered into a sublicense agreement with Hangzhou Yuyuan BioScience Technology Co., Ltd., or Yuyuan, to develop and commercialize nolasiban for improving clinical pregnancy and live birth rates in women undergoing embryo transfer following IVF in the People’s Republic of China, or PRC. Under the terms of the sublicense agreement, Yuyuan has the exclusive rights to develop and commercialize nolasiban in the PRC. In addition, in July 2021, we entered into a global license, development and commercialization agreement with Organon for ebopiprant, and in February 2022, we entered into a licensing agreement with Theramex for the commercialization of linzagolix across global markets outside of the U.S., Canada and Asia. In October 2021, we announced a strategic relationship with Syneos Health® (Nasdaq: SYHN), the only fully integrated biopharmaceutical solutions organization, to commercialize linzagolix in the U.S. Furthermore, we may find that our programs require the use of proprietary rights held by third parties, and the growth of our business may depend in part on our ability to acquire, in-license or use these proprietary rights.
We face significant competition in seeking appropriate collaborators, and a number of more established companies may also be pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, financial resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborators’ resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborators’ evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA, EMA or similar foreign regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under existing license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
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We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. Even if we are able to obtain a license to intellectual property of interest, we may not be able to secure exclusive rights, in which case others could use the same rights and compete with us. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to curtail the development of such product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to develop and manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as trade secrets. Despite these contractual agreements with third parties, sharing trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may harm our business.
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
Risks Related to Regulatory Compliance
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices we may set.
In the United States, the European Union, and other foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA, was enacted, which substantially changed the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA, those of greatest importance to the pharmaceutical and biotechnology industries include:
| • | an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs; |
| • | a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; |
| • | new requirements to report certain financial arrangements, including reporting “transfers of value” made or distributed to physicians, as defined by such law, and teaching hospitals and reporting investment interests held by such healthcare providers and their immediate family members; |
| • | an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively; |
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| • | a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; |
| • | extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; |
| • | expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability; |
| • | expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; |
| • | a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and |
| • | establishment of a Center for Medicare and Medicaid Innovation at the Centers for Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. |
There have been executive, judicial and Congressional challenges to certain aspects of the ACA. For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, or Tax Act, included a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress. Thus, the ACA will remain in effect in its current form. Prior to the U.S. Supreme Court ruling, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period that remained open from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and other litigation, and the healthcare reform measures of the Biden administration will impact the ACA and our business.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2031, except for a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Congress is considering additional health reform measures. These new laws may result in additional reductions in Medicare and other health care funding, which could have an adverse effect on our customers and accordingly, our financial operations.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Medicare Access and CHIP Reauthorization Act of 2015 ended the use of the statutory formula, also referred to as the Sustainable Growth Rate, for clinician payment and established a quality payment incentive program, also referred to as the Quality Payment Program. This program provides clinicians with two ways to participate, including through the Advanced Alternative Payment Models, or APMs, and the Merit-based Incentive Payment System, or MIPS. In November 2019, CMS issued a final rule finalizing the changes to the Quality Payment Program. At this time, the full impact to overall physician reimbursement under the Medicare program as a result of the introduction of the Quality Payment Program remains unclear. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
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In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, including several recent Presidential executive orders, Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform government program reimbursement methodologies for products. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to drug pricing that seeks to implement several of the administration’s proposals. As a result, the FDA concurrently released a final rule and guidance in September 2020, providing pathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of which have also been delayed by the Biden administration until January 1, 2023. On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. As a result of litigation challenging the Most Favored Nation model, on December 27, 2021, CMS published a final rule that rescinds the Most Favored Nation model interim final rule. Further, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. In addition, Congress is considering additional health reform measures. Additionally, in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. No legislation or administrative actions have been finalized to implement these principles. However, we expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
At the state level, individual states in the United States have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for our products or put pressure on our product pricing, which could negatively affect our business, results of operations, financial condition and prospects.
In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize any of our product candidates, if approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs. The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU member states, and parallel trade, i.e., arbitrage between low-priced and high-priced member states, can further reduce prices. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any products, if approved in those countries. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
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We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we or our collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
Our business operations and current and future relationships with investigators, health care professionals, consultants, third-party payors and customers may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
Although we do not currently have any products on the market, our operations may be directly, or indirectly through health care professionals, consultants, customers and third-party payors, subject to various U.S. federal and state healthcare laws and regulations, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal civil and criminal false claims laws and Physician Payments Sunshine Act and regulations. Healthcare providers, including physicians, and others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. These laws may impact, among other things, our current business operations, including our clinical research activities, and proposed sales, marketing and education programs and constrain the business of financial arrangements and relationships with healthcare providers, including physicians, and other parties through which we market, sell and distribute our products for which we obtain marketing approval. In addition, we may be subject to patient data privacy and security regulation by both the U.S. federal government and the states in which we conduct our business. Finally, we may be subject to additional healthcare, statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:
| • | the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration (including any kickback, bribe, or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under U.S. federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| • | the U.S. federal false claims laws, including the federal civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalties laws, which, among other things, impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act; |
| • | the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the criminal health care fraud statute implemented under HIPAA or specific intent to violate it in order to have committed a violation; |
| • | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, which imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to HIPAA, i.e. health plans, healthcare clearinghouses and certain healthcare providers, and their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information as well as their covered subcontractors; |
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| • | the U.S. federal Food, Drug and Cosmetic Act, which prohibits, among other things, the adulteration or misbranding of drugs, biologics and medical devices; |
| • | the U.S. federal legislation commonly referred to as Physician Payments Sunshine Act, enacted as part of the ACA, and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members. |
| • | analogous state laws and regulations, including: state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; state and local laws that require the registration of sales representatives in the jurisdiction; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts; and |
| • | European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers. |
Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to us, we may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, diminished profits, and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies, and the curtailment or restructuring of our operations. Further, defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the physicians or other providers or entities with whom we expect to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations.
Risks Related to Our Intellectual Property
If we fail to comply with our obligations under our existing and any future intellectual property licenses with third parties or if such licenses are subject to a disagreement over contract interpretation, we could lose license rights that are important to our business or be subject to a narrowing of the scope of our rights to the relevant intellectual property or technology or an increase of our financial or other obligations to our licensors.
We are party to several license agreements under which we in-license patent rights and other intellectual property related to our business, and we may enter into additional license agreements in the future. See “Risk Factors—Risks Related to Our Dependence on Third Parties” for a more detailed description of risks related to current and future license agreements.
If we are unable to obtain and maintain patent protection for our technology and product candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our development programs and product candidates. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our current and future product candidates. We have sought to protect our proprietary position by filing and in-licensing patent applications in the United
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States and abroad related to our development programs and product candidates. The patent prosecution process is expensive and time-consuming, and we or our licensors may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions.
It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we have licensed from third parties. We prosecute and maintain certain patent rights for our product candidates and rely on our licensors, Kissei and Merck Serono, to prosecute and maintain other relevant patent rights for linzagolix, ebopiprant and nolasiban. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our current and future product candidates in the United States or in other foreign countries. Our patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, a patent issues from such applications, and then only to the extent the issued claims cover the technology.
If the patent applications we hold or have in-licensed with respect to our development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our current and future product candidates, it could dissuade companies from collaborating with us to develop product candidates, and threaten our ability to commercialize, products. Any such outcome could have a negative effect on our business.
The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, EU patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions remain confidential for a period of time after filing, and some remain so until issued. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, and such prior art could potentially invalidate one or more of our patents or prevent a patent from issuing from one or more of our pending patent applications. There is also no assurance that there is not prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim in our patents and patent applications, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. Even if patents do successfully issue and even if such patents cover our current and future product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated or held unenforceable, which could allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates, prevent others from designing around our claims or provide us with a competitive advantage. Any of these outcomes could impair our ability to prevent competition from third parties. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
We, independently or together with our licensors, have filed several patent applications covering various aspects of our product candidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent, or whether any issued patents will be found invalid and unenforceable or will be challenged by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced.
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We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our product candidates.
We cannot guarantee that any of our or our licensors’ patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our product candidates could have been filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our product candidates or the use of our product candidates. The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates. We may incorrectly determine that our product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates.
If we fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. We cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates that are held to be infringing. We might, if possible, also be forced to redesign product candidates that we no longer infringe the third-party intellectual property rights. Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
We are aware of issued patents and pending patent applications, in the United States and abroad, relating to methods of improving embryo implantation outcomes in patients undergoing an embryo transfer procedure. If any such patent, or a patent that issues from any such application, were to be asserted against us, we believe that we have defenses against any such action, including that these patents would not be infringed by our product candidates and/or that these patents are not valid. However, if these patents were asserted against us and our defenses to such an action were unsuccessful, unless we obtain a license to these patents, which may not be available on commercially reasonable terms, or at all, we could be liable for damages and precluded from commercializing any product candidates that were ultimately held to infringe these patents, which could have a material adverse effect on our business, financial condition, cash flows or results of operations.
Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering linzagolix, ebopiprant and nolasiban are obtained, once the patent life has expired for a product candidate, we may be open to competition from competitive medications, including biosimilar or generic medications. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours.
Depending upon the timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, and similar legislation in the European Union. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period
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during which we can enforce our patent rights for that product will be shortened and our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced. Further, if this occurs, our competitors may take advantage of our investment in development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.
Intellectual property rights do not necessarily address all potential threats to our business.
Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court of before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked, or may lose the allowed or granted claims altogether. In addition, the degree of future protection afforded by our intellectual property rights is uncertain because even granted intellectual property rights have limitations, and may not adequately protect our business. The following examples are illustrative:
| • | others may be able to make compounds, or linzagolix, ebopiprant and nolasiban formulations that are similar to our linzagolix, ebopiprant and nolasiban formulations but that are not covered by the claims of the patents that we own or control; |
| • | the patents of third parties may have an adverse effect on our business; |
| • | we or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed; |
| • | we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions; |
| • | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| • | it is possible that our pending patent applications will not lead to issued patents; |
| • | issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; |
| • | our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| • | third parties performing manufacturing or testing for us using our product candidates or technologies could use the intellectual property of others without obtaining a proper license; |
| • | we may not develop additional proprietary technologies that are patentable; and |
| • | the patents of others may have an adverse effect on our business. |
Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological complexity and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the America Invents Act, or the AIA, was signed into law on September 16, 2011, and many of the substantive changes became effective on March 16, 2013.
An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the U.S. Patent and Trademark Office, or USPTO, after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application, but circumstances could prevent us from promptly filing patent applications on our inventions.
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Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. The AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
The USPTO has developed, in the last few years, regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA, and, in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the AIA will have on the operation of our business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ or collaboration partners’ patent applications and the enforcement or defense of our or our licensors’ or collaboration partners’ issued patents, all of which could have an adverse effect on our business and financial condition.
Additionally, the U.S. Supreme Court has ruled on several patent cases in recent years, such as Association for Molecular Pathology v. Myriad Genetics, Inc. (Myriad I), Mayo Collaborative Services v. Prometheus Laboratories, Inc., and Alice Corporation Pty. Ltd. v. CLS Bank International, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly, the complexity and uncertainty of European patent laws has also increased in recent years. For example, the April 2010 amendment of the European Patent Convention, which limited the time permitted for filing divisional applications, was subsequently abrogated. This amendment and subsequent abrogation illustrates the uncertainty involved in the prosecution of European patent laws. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution. These changes could limit our ability to obtain new patents in the future that may be important for our business.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business.
Our commercial success depends, in part, upon our ability, and the ability of our current or future collaborators, to develop, manufacture, market and sell linzagolix, ebopiprant and nolasiban and any future product candidates, if approved, and use our proprietary technologies without alleged or actual infringement, misappropriation or other violation of the patents and proprietary rights of third parties. There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and re-examination proceedings before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates. Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the intellectual property rights of third parties.
We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to linzagolix, ebopiprant and nolasiban and any future product candidates and technology, including interference or derivation proceedings, post grant review and inter partes review before the USPTO or similar adversarial proceedings or litigation in other jurisdictions. Similarly, we or our licensors or collaborators may initiate such proceedings or litigation against third parties, including to challenge the validity or scope of intellectual property rights controlled by third parties. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, and the holders
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of any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our compositions, formulations, or methods of treatment, prevention or use, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In such an event, we would be unable to further practice our technologies or develop and commercialize any of our product candidates at issue, which could harm our business significantly.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates, if approved. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. Third parties making such claims may have the ability to dedicate substantially greater resources to these legal actions than we or our licensors or collaborators can. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
We may become involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe or otherwise violate our or our licensors’ patents or misappropriate or otherwise violate our or our licensor’s other intellectual property rights. To counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. Our agreements with Merck Serono give Merck Serono the first right to control such claims. Therefore, these patents and applications may not be enforced in a manner consistent with the best interests of our business. Our or our licensors’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors can. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable or claims challenging the scope of the intellectual property rights we own or control. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte re-examinations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. We cannot be certain that there is no invalidating prior art, of which we, our licensors and the patent examiner were unaware during prosecution. For the patents and patent applications that we have licensed, we may have limited or no right to participate in the defense of any licensed patents against challenge by a third party. Our agreements with Kissei and Merck Serono give our licensors the first right to defend such validity challenges. Therefore, these patents and applications may not be defended in a manner consistent with the best interests of our business. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on our current or future product candidates. Such a loss of patent protection could harm our business. In addition, if the breadth or strength of protection provided by our or our licensors’ patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
We may not be able to prevent, alone or with our licensors, infringement or misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license on commercially reasonable terms. Any
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litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common shares.
We may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.
Filing, prosecuting and defending patents covering linzagolix, ebopiprant, nolasiban and any future product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Further, licensing partners may not prosecute patents in certain jurisdictions in which we may obtain commercial rights, thereby precluding the possibility of later obtaining patent protection in these countries. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and may also export infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our product candidates. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate, which may have an adverse effect on our ability to successfully commercialize our product candidates in all of our expected significant foreign markets.
Additionally, the requirements for patentability may differ in certain countries, particularly developing countries. For example, unlike other countries, China has a heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug. In India, unlike the United States, there is no link between regulatory approval of a drug and its patent status. Furthermore, generic or biosimilar drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors’ patents, requiring us or our licensors to engage in complex, lengthy and costly litigation or other proceedings. Generic or biosimilar drug manufacturers may develop, seek approval for, and launch biosimilar versions of our products. In addition to India, certain countries in Europe and developing countries, including China, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
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We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties.
We may employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, and we are not currently subject to any claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties, we may in the future be subject to such claims. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
Although we are not currently experiencing any claims challenging the inventorship of our patents or ownership of our intellectual property, we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. While it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. For example, the assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, or we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time-consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon, misappropriating or successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have an adverse effect on our ability to compete in the marketplace.
Our inability to protect our confidential information and trade secrets would harm our business and competitive position.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our
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proprietary technologies will be effective. We cannot guarantee that our trade secrets and other proprietary and confidential information will not be disclosed or that competitors will not otherwise gain access to our trade secrets. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outside the United States may be less willing or unwilling to protect trade secrets. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position.
Trade secrets and know-how can be difficult to protect as trade secrets and know-how will over time be disseminated within the industry through independent development, the publication of journal articles, and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could adversely affect our business, results of operations and financial condition. Even if we are able to adequately protect our trade secrets and proprietary information, our trade secrets could otherwise become known or could be independently discovered by our competitors. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, in the absence of patent protection, we would have no right to prevent them, or those to whom they communicate, from using that technology or information to compete with us.
We may not be able to prevent misappropriation of our intellectual property, trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our products, our competitors might be able to enter the market, which would harm our business.
Risks Related to Our Business Operations
Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel.
We are highly dependent on the management, development, clinical, financial and business development experience of our principal executives and officers. Each of these officers may currently terminate their employment with us on short notice. We do not maintain “key person” insurance for any of our executives or employees.
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Laws and regulations on executive compensation, including legislation in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel. In Switzerland, legislation affecting public companies has been passed that, among other things, (1) imposes an annual binding shareholders’ “say on pay” vote with respect to the compensation of executive management, including executive officers and the board of directors, (2) generally prohibits severance, advances, transaction premiums and similar payments to members of our executive management and board of directors, (3) imposes other restrictive compensation practices and (4) requires companies to specify various compensation-related matters in their articles of association, thus requiring them to be approved by a shareholders’ vote. In addition, the competition for qualified personnel in the biopharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. Because the Swiss legislation affecting public companies will apply to operations in the United States and are more onerous and restrictive than comparable laws and regulations applying to U.S. domiciled companies, recruiting and retaining employees in the United States will be even more difficult as compared to companies in the United States. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future, it may be difficult for us to implement business strategy, which could harm our business.
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.
Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability will depend, in part, on our ability to commercialize our product candidates in markets outside of the United States and the European Union. If we commercialize our product candidates in foreign markets, we will be subject to additional risks and uncertainties, including:
| • | economic weakness, including inflation, or political instability in particular economies and markets; |
| • | the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements, many of which vary between countries; |
| • | different medical practices and customs in foreign countries affecting acceptance in the marketplace; |
| • | tariffs and trade barriers; |
| • | other trade protection measures, import or export licensing requirements or other restrictive actions by U.S. or foreign governments; |
| • | longer accounts receivable collection times; |
| • | longer lead times for shipping; |
| • | compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| • | workforce uncertainty in countries where labor unrest is common; |
| • | language barriers for technical training; |
| • | reduced protection of intellectual property rights in some foreign countries, and related prevalence of generic alternatives to therapeutics; |
| • | foreign currency exchange rate fluctuations and currency controls; |
| • | differing foreign reimbursement landscapes; |
| • | uncertain and potentially inadequate reimbursement of our products; and |
| • | the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute. |
Foreign sales of our products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.
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Our business could be materially adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 pandemic, which has significantly impacted the global economy, in regions where we or third parties on which we rely have significant manufacturing facilities, concentrations of clinical trial sites or other business operations, or materially affect our operations globally, including at our headquarters in Geneva, Switzerland, which might be subject to government restrictions in response to the COVID-19 pandemic, and at our clinical trial sites, as well as the business or operations of our manufacturers, clinical research organizations or other third parties with whom we conduct business.
Our business could be materially adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 global pandemic, which has resulted in travel and other restrictions to reduce the spread of the disease, including government restrictions in Europe, the United States and other countries, which, among other things, directed individuals to shelter at their places of residence, directed businesses and governmental agencies to cease non-essential operations at physical locations, prohibited certain non-essential gatherings, and ordered cessation of non-essential travel. Some of these government restrictions have been lifted, however many countries and regions in which we operate or where our employees are located are experiencing continued outbreaks, including due to emerging variant strains of the virus with varying degrees of vaccine resistance, and new restrictions may be implemented. The extent of and timing of government restrictions remains uncertain as the COVID-19 pandemic continues to evolve. We have implemented work-from-home policies for most of our employees and we have reopened our offices to allow certain employees to return on a voluntary basis, consistent with local government requirements, and with a focus on employee safety. There is no guarantee that we will not need to further adapt our operations to the continued spread of COVID-19. The effects of the government restrictions and our evolving work-from-home policies may negatively impact productivity, disrupt our business and continue to delay certain of our clinical programs and timelines, the magnitude of which will depend, in part, on the continued length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.
Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, be further extended or be reinstated, related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing facilities in Europe, the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain. Further, Kissei has the exclusive right to supply us with the active pharmaceutical ingredient for linzagolix for our clinical trials and commercial supplies, if approved, subject to limited specified exceptions within the control of Kissei. While many of these materials may be obtained by more than one supplier, restrictions resulting from the COVID-19 pandemic in the regions our third-party suppliers and Kissei operate may disrupt our supply chain or limit our ability to obtain sufficient materials for our product candidates, which might impact and delay certain of our clinical programs and timelines.
In addition, our clinical trials have been affected by the ongoing COVID-19 pandemic. Site initiation and patient enrollment has been and may be further delayed due to continued prioritization of hospital resources toward the COVID-19 pandemic, and some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, has been delayed or disrupted, which has adversely impacted our clinical trial operations. For example, in January 2021, we announced our decision to discontinue our EDELWEISS 2 clinical trial, due to challenging patient screening and enrollment, as well as persisting difficult environment of the ongoing COVID-19 pandemic.
The spread of COVID-19, which has resulted in significant impacts globally, may materially affect us economically. While the full extent of the economic impact brought by, and the duration and scope of, the COVID-19 pandemic, may be difficult to assess or predict, it has caused, and may continue to cause, significant disruption of global financial markets. This disruption, if sustained or recurrent, could make it more difficult for us to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction in various economies resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
The global pandemic of COVID-19 continues to rapidly evolve. The ultimate impact of the ongoing COVID-19 pandemic or a similar health pandemic or epidemic is highly uncertain and subject to change. While the COVID-19 pandemic has had significant impacts on global economies and has resulted in challenging operating environments, including due to emerging variant strains of the virus with varying degrees of vaccine resistance, we do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. These effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
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If our information technology systems or sensitive information, or those of third parties upon which we rely, are or were compromised, we could experience adverse consequences resulting from such compromise, including, but not limited to, regulatory investigations or actions, litigation, fines and penalties, disruptions of our business operations, reputational harm, loss of revenue or profits, and other adverse consequences.
In the ordinary course of our business, we may collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, and share (collectively, processing) proprietary, confidential, and sensitive data, including personal data (such as health-related data), intellectual property, and trade secrets (collectively, sensitive information).We may share or receive sensitive information with or from third-party service providers and rely upon third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts, including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication technology, employee email, and other functions. Our ability to monitor these third parties’ information security practices is limited, and these third parties may not have adequate information security measures in place.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to cyberattacks, malicious internet-based activity and online and offline fraud. These threats are prevalent, continue to increase, and are becoming increasingly difficult to detect. These threats include, but are not limited to, malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), natural disasters, terrorism, war, telecommunication and electrical failures, social engineering attacks (including through phishing attacks), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunction, software or hardware failures, loss of data or other information technology assets, adware, and other similar threats. Ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the third-party information technology systems that support us. Additionally, the COVID-19 pandemic and our remote workforce poses increased risks to our information technology systems and data, as more of our employees work from home, utilizing network connections outside our premises. Future or past business transactions (such as acquisitions or integrations) could also expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.
These threats come from a wide variety of sources, including threat actors, personnel (such as through theft or misuse), sophisticated nation-states, and nation-state-supported actors. These parties are expected to continue to engage in cyber-attacks, including, without limitation, nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products. For example, we may have operations and third parties upon which we rely to support our business located in unstable regions and regions experiencing (or expected to experience) geopolitical or other conflicts, including Ukraine, including through the use of cyber-attacks.
Any of the previously identified or similar threats could cause a security incident or other interruption. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.
We may expend significant resources or modify our business activities (including our clinical trial activities) to try to protect against security incidents. We may be unable in the future to detect vulnerabilities in our information technology systems because such threats and techniques change frequently, are often sophisticated in nature, and may not be detected until after a security incident has occurred. Despite our efforts to identify and remediate vulnerabilities, if any, in our information technology systems, our efforts may not be successful. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security
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incident, we may experience adverse consequences. These consequences may include: government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may negatively impact our ability to grow and operate our business, including delaying the further development of our product candidates.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.
If we fail or are perceived to have failed to comply with data protection laws and regulations, we could be subject to government enforcement actions (which could include civil or criminal penalties), private litigation, increased compliance costs and/or adverse publicity, which could negatively affect our operating results and business.
In the ordinary course of business, we process personal data and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, data we collect about trial participants in connection with clinical trials, and sensitive third-party data. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations that govern the processing of personal data by us and on our behalf.
In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of health-related and other personal data. For example, HIPAA, as amended by HITECH, imposes specific requirements relating to the privacy, security, and transmission of individually identifiable health information. We may obtain health information from third parties (e.g., healthcare providers who prescribe our products) that are subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA—other than potentially with respect to providing certain employee benefits—we could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Additionally, the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, imposes obligations on covered businesses. The CCPA gives California residents expanded rights to access and delete their personal data, opt out of certain personal data sharing, and receive detailed information about how their personal data is used. The CCPA provides for civil penalties for violations (up to $7,500 per violation), as well as a private right of action for certain data breaches that is expected to increase data breach litigation. Although the CCPA exempts some data processed in the context of clinical trials, the CCPA may increase our compliance costs and potential liability with respect to other personal data we maintain about California residents. It is anticipated that the California Privacy Rights Act of 2020, or CPRA, effective January 1, 2023, will expand the CCPA. Additionally, the CPRA establishes a new California Privacy Protection Agency to implement and enforce the CPRA, which could increase the risk of enforcement. Other states have enacted data privacy laws as well. For example, Virginia passed the Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which become effective in 2023. Several states and localities have also enacted statutes banning or restricting the collection of biometric information. Additionally, privacy advocates and industry groups have proposed, and may propose, standards with which we are legally or contractually bound to comply
Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s General Data Protection Regulation, or EU GDPR, the United Kingdom’s GDPR, or UK GDPR, Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais, or LGPD) (Law No. 13,709/2018), and China’s Personal Information Protection Law, or PIPL, impose strict requirements for processing personal data. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines of up to 20 million euros or 4% of annual global revenue, whichever is greater. Further, individuals may initiate litigation related to processing of their personal data. The GDPR also imposes heightened restrictions on processing of special categories of personal data, such as health and genetic personal data.
Certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws, which could make it more difficult to transfer information across jurisdictions (such as transferring or receiving personal data that originates in the EU or in other foreign jurisdictions). Existing mechanisms that facilitate cross-border personal data transfers may change or be invalidated. For example, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to countries outside of the EEA, such as the United States, which are not considered by the European
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Commission to provide an adequate level of data protection. The European Commission released a set of “Standard Contractual Clauses,” or SCCs, that are designed to be a valid mechanism to facilitate personal data transfers out of the EEA to these jurisdictions. Currently, these SCCs are a valid mechanism to transfer personal data outside of the EEA, but there exists some uncertainty regarding whether the SCCs will remain a valid mechanism. Additionally, the SCCs impose additional compliance burdens, such as conducting transfer impact assessments to determine whether additional security measures are necessary to protect the at-issue personal data. Switzerland and the UK similarly restrict personal data transfers outside of those jurisdictions to countries such as the United States that do not provide an adequate level of personal data protection, and certain countries outside Europe (e.g. Russia, China, Brazil) have also passed or are considering laws requiring local data residency or otherwise impeding the transfer of personal data across borders, any of which could increase the cost and complexity of doing business. If we cannot implement a valid compliance mechanism for cross-border data transfers, we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal data from Europe or other foreign jurisdictions. The inability to import personal data to the United States could significantly and negatively impact our business operations, including by limiting our ability to conduct clinical trial activities in Europe and elsewhere; limiting our ability to collaborate with parties that are subject to such cross-border data transfer or localization laws; or requiring us to increase our personal data processing capabilities and infrastructure in foreign jurisdictions at significant expense.
Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our business operations and compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations, or contractual obligations could result in adverse effects, including inability to or interruption in our ability to operate our business and proceedings against us by governmental entities or other.
If we fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences. These consequences may include, but are not limited to, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-related claims); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: interruptions or stoppages in our business operations (including, as relevant, clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.
We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
As of December 31, 2021, we had 51 employees. As our clinical development progresses, we may experience growth in the number of our employees and the scope of our operations, particularly in the areas of clinical operations, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
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Our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, consultants, commercial collaborators, principal investigators, CROs and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or unauthorized activities that violates (1) the laws and regulations of the FDA and other similar regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad and (4) laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct by these parties could also involve the improper use of individually identifiable information, including information obtained in the course of clinical trials, creating fraudulent data in our preclinical studies or clinical trials or illegal misappropriation of product candidates, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, including damages, fines, disgorgement, individual imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional integrity oversight and reporting obligations, contractual damages, reputational harm and the curtailment or restructuring of our operations.
Legal, political and economic uncertainty surrounding the exit of the United Kingdom from the European Union may be a source of instability and uncertainty and pose additional risks to our business operations and financial condition.
Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed between the U.K. and the E.U., the U.K. was subject to a transition period until December 31, 2020, during which E.U. rules continued to apply. A trade and cooperation agreement that outlines the future trading relationship between the United Kingdom and the European Union was agreed in December 2020 and finalized on May 1, 2021. Given the level of uncertainty caused by Brexit, and the perception as to its potential impact, business activity and economic conditions in the United Kingdom, Europe and globally may be adversely affected, and Brexit could continue to contribute to instability in global financial and foreign exchange markets, asset valuations and credit ratings. The United Kingdom’s withdrawal from the EU, the Single Market and the Customs Union will create barriers to trade and cross-border exchanges that did not exist prior to January 1, 2021. Brexit has ended the free movement of goods, services and people between the United Kingdom and the EU. As a result of these and other factors, Brexit may negatively affect our operations or access to capital, or may have a limited detrimental effect on the timing of our research and development activities, which may, in turn, adversely affect our development and commercialization of certain product candidates.
Risks Related to Our Common Shares
The price of our common shares may be volatile and may fluctuate due to factors beyond our control.
The share price of our common shares has fluctuated, and is likely to continue to fluctuate substantially. The market price of our securities depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance.
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The market price of our securities may fluctuate significantly in response to numerous factors, many of which are beyond our control, including
| • | positive or negative results of preclinical studies and clinical trials reported by us, strategic partners or competitors; |
| • | any delay in the commencement, enrollment and the ultimate completion of clinical trials; |
| • | technological innovations or commercial product introductions by us or competitors; |
| • | failure to successfully develop and commercialize any of our product candidates; |
| • | developments, announcements or changes in government regulations relating to drug products, including related to drug pricing, reimbursement and healthcare coverage; |
| • | delays in in-licensing or acquiring additional complementary product candidates; |
| • | developments concerning proprietary rights, including patents and litigation matters; |
| • | public concern relating to the commercial value or safety of any of our product candidates or reproductive therapy generally; |
| • | financing or other corporate transactions, or inability to obtain additional funding; |
| • | failure to meet or exceed expectations of the investment community; |
| • | announcements by therapeutic drug product providers related to pricing of therapeutics; |
| • | announcements of significant licenses, acquisitions, strategic partnerships or joint ventures by us or our competitors; |
| • | publication of research reports or comments by securities or industry analysts; |
| • | changes in the structure of healthcare payment systems; |
| • | general market or regulatory conditions in the pharmaceutical industry or in the economy as a whole; or |
| • | other events and factors, many of which are beyond our control. |
These and other market and industry factors may cause the market price and demand for our securities to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their common shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common shares. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Some companies that have experienced volatility in the trading price of their shares have been the subject of securities class action litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Defending against litigation is costly and time-consuming, and could divert our management’s attention and resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our common shares.
Concentration of ownership of our common shares among our existing executive officers, directors and principal shareholders may prevent new investors from influencing significant corporate decisions.
Based upon our common shares outstanding as of December 31, 2021, our executive officers, directors and shareholders who owned more than 5% of our outstanding common shares beneficially own, in the aggregate, approximately 26% of our outstanding common shares. These shareholders, acting together, will be able to significantly influence all matters requiring shareholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
Some of these persons or entities may have interests different than our other shareholders. For example, because many of these shareholders purchased their shares at prices substantially below the price at which shares were sold in our initial public
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offering and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors, or they may want us to pursue strategies that deviate from the interests of other shareholders.
Future sales, or the possibility of future sales, of a substantial number of our common shares could adversely affect the price of our common shares.
As of December 31, 2021, 79,955,268 common shares were issued and outstanding. If a substantial number of these shares were sold in the public market, or the market perceives that such sales may occur, the market price of our common shares could be adversely affected. We have entered into a registration rights agreement pursuant to which we have agreed under certain circumstances to file a registration statement to register the resale of the common shares held by certain of our existing shareholders, as well as to cooperate in certain public offerings of such common shares.
In addition, we have adopted an omnibus equity incentive plan, under which we have the discretion to grant a broad range of equity-based awards to eligible participants. We have filed registration statements with the SEC to register the common shares that may be issued under our equity incentive plan. The common shares subject to outstanding options under our equity incentive plan, common shares reserved for future issuance under our equity incentive plan and common shares subject to outstanding warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Sales of a large number of the shares issued under these plans in the public market could have an adverse effect on the market price of our securities.
We do not expect to pay dividends in the foreseeable future.
We have not paid any dividends since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. The proposal to pay future dividends to shareholders will in addition effectively be at the discretion of our board of directors and shareholders after taking into account various factors including our business prospects, cash requirements, financial performance and new product development. In addition, payment of future dividends is subject to certain limitations pursuant to Swiss law or by our articles of association. See “Item 10.B—Memorandum and Articles of Association.” Accordingly, investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely depend entirely upon any future appreciation in the price of our common shares.
We are a Swiss stock corporation. The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
We are a Swiss stock corporation. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and directors of companies governed by the U.S. laws. In the performance of its duties, our board of directors is required by Swiss law to consider the interests of our company, our shareholders, our employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors in court. Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of directors but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder claims against a member of our board of directors for breach of fiduciary duty would have to be brought in Geneva, Switzerland, or where the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by our shareholders against us must be brought exclusively in Geneva, Switzerland. Class actions and derivative actions as such are not available under Swiss law. In addition, Swiss corporation law restricts our ability to implement rights plans or U.S.-style “poison pills.” Also, there can be no assurance that Swiss law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.
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Our common shares are traded on more than one market and this may result in price variations and adversely affect the liquidity and value of our common shares.
Our common shares are listed on the Nasdaq Global Select Market and the SIX Swiss Exchange. Trading in our common shares on these markets takes place in different currencies (U.S. dollars on the Nasdaq Global Select Market and Swiss Francs on the SIX Swiss Exchange), and at different times (resulting from different time zones, different trading days and different public holidays in the United States and Switzerland). The trading prices of our common shares on these two markets may differ due to these and other factors. Any decrease in the price of our common shares on the SIX Swiss Exchange could cause a decrease in the trading price of our common shares on the Nasdaq Global Select Market. Investors could seek to sell or buy our common shares to take advantage of any price differences between the markets through a practice referred to as arbitrage. Any arbitrage activity could create unexpected volatility in both our share prices on one exchange and the common shares available for trading on the other exchange.
U.S. shareholders may not be able to obtain judgments or enforce civil liabilities against us or our executive officers or members of our board of directors.
We are a Swiss stock corporation, and our jurisdiction of incorporation is Geneva, Switzerland. Moreover, a number of our directors and executive officers are not residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon us or upon such persons or to enforce against them judgments obtained in U.S. courts, including judgments in actions predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by our Swiss counsel that there is doubt as to the enforceability in Switzerland of original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal and state securities laws of the United States. Original actions against persons in Switzerland based solely upon the U.S. federal or state securities laws are governed, among other things, by the principles set forth in the Swiss Federal Act on International Private Law. This statute provides that the application of provisions of non-Swiss law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Also, mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.
Switzerland and the United States do not have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition and enforcement of a judgment of the courts of the United States in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland only if:
| • | the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law; |
| • | the judgment of such non-Swiss court has become final and non-appealable; |
| • | the judgment does not contravene Swiss public policy; |
| • | the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and |
| • | no proceeding involving the same position and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland, or was earlier adjudicated in a third state and this decision is recognizable in Switzerland. |
Our status as a Swiss stock corporation means that our shareholders enjoy certain rights and we are subject to certain corporate limitations that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing capital needs.
Swiss law reserves for approval by shareholders certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders themselves resolve to, or authorize our board of directors to, increase our share capital. While our shareholders may authorize share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization to 50% of the issued share capital at the time of the authorization. The authorization, furthermore, has a limited duration of up to two years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital. Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss law grants pre-emptive rights to existing shareholders to subscribe for new issuances of shares. Swiss law also does not provide as much flexibility in the various rights and regulations that can attach to different classes of shares as do the laws of some other jurisdictions. Further,
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the constraints relating to our capital increase process deriving from Swiss corporate law may limit our flexibility to raise capital. These Swiss law requirements relating to our capital management may limit our flexibility, including with respect to our ability to raise funds under our “at the market”, or ATM, program, and situations may arise where greater flexibility would have provided benefits to our shareholders. See “Item 10.B—Memorandum and Articles of Association.”
We are a foreign private issuer and, as a result, are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act and although we are subject to Swiss laws and regulations with regard to such matters and intend to furnish quarterly financial information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including: (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (2) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each financial year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we have the option to follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.
We are a foreign private issuer. As a result, in accordance with Nasdaq Listing Rule 5615(a)(3), we may choose to comply with home country governance requirements and certain exemptions thereunder rather than complying with certain of the corporate governance requirements of Nasdaq.
Swiss law does not require that a majority of our board of directors consist of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings at which only independent directors are present.
Although Swiss law also requires that we set up a compensation committee, we may follow home country requirements with respect to such committee.
Our articles of association provide for an independent proxy elected by our shareholders, who may represent our shareholders at a general meeting of shareholders, and we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime for the solicitation of proxies and company solicitation of proxies is prohibited for public companies in Switzerland, thus our practice may vary from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. Furthermore, in accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
For an overview of our corporate governance principles, see “Item 10.B—Memorandum and Articles of Association.” As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer status, which would then require us to comply with the domestic reporting requirements of the Exchange Act and cause us to incur significant legal, accounting and other expenses.
We are currently a foreign private issuer and therefore, are not be required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current
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status as a foreign private issuer, either (1) a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States or (2)(a) a majority of our executive officers or directors may not be United States citizens or residents, (b) more than 50% of our assets cannot be located in the United States and (c) our business must be administered principally outside the United States. If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers, amongst other things would include the filing of financial statements in accordance with United States Generally Accepted Accounting Principles. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. If we lose our foreign private issuer status and are unable to devote adequate funding and the resources needed to maintain compliance with U.S. securities laws, while continuing our operations, we could be forced to deregister with the SEC. A deregistration would substantially reduce or effectively terminate the trading of our securities in the United States. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
If we are a “passive foreign investment company,” or PFIC, there could be adverse U.S. federal income tax consequences to U.S. Holders.
Based on our analysis of our income, assets, activities and market capitalization for our taxable year ending December 31, 2021, we do not believe that we were a PFIC for our taxable year ending December 31, 2021. However, our operations generate very limited amounts of non-passive income. Until we generate sufficient revenue from active licensing and other non-passive sources, there is a risk that we will be a PFIC under the PFIC income test. Moreover, we hold a substantial amount of cash and cash equivalents. Because the calculation of the value of our assets may be based in part on the value of our common shares, the value of which may fluctuate considerably, our PFIC status may change from year to year and it is difficult to predict whether we will be a PFIC under the PFIC asset test for the current year or any future year. Therefore, we have not yet made any determination as to our expected PFIC status for the current year. Even if we determine that we are not a PFIC after the close of a taxable year, there can be no assurance that the Internal Revenue Service, or IRS, will agree with our conclusion. Because PFIC status is a fact specific determination, and generally cannot be made until the close of the taxable year in question, no assurance can be given that we will not be a PFIC for our current taxable year and that we will not be a PFIC in future taxable years. Furthermore, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in us being treated as a PFIC for our taxable year ending December 31, 2021 or us becoming a PFIC for the current taxable year or any future taxable years. Our United States counsel expresses no opinion with respect to our PFIC status for prior years, the current taxable year or any future years.
Under the Internal Revenue Code of 1986, as amended, we will be a PFIC for any taxable year in which (1) 75% or more of our gross income consists of passive income or (2) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income. For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. Passive income generally includes dividends, interest, certain rents and royalties, and capital gains.
If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Item 10.E—Taxation”) holds our shares, the U.S. Holder may be subject to adverse tax consequences, including (1) the treatment of all or a portion of any gain on the disposition of our common shares as ordinary income, (2) the addition of an interest charge to the tax on such gain and (3) the obligation to comply with certain reporting requirements.
Each U.S. Holder is strongly urged to consult its tax advisor regarding these issues. For further discussion of the adverse U.S. federal income tax consequences in the event we are classified as a PFIC, see “Item 10.E—Taxation.”
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If a United States person is treated as owning at least 10% of our common shares, such holder may be subject to adverse U.S. federal income tax consequences.
If a U.S. Holder is treated as owning (directly, indirectly or constructively) at least 10% of the value or voting power of our common shares, such U.S. Holder may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group (if any). Because our group includes at least one U.S. subsidiary (ObsEva USA Inc.), our Irish subsidiary (ObsEva Ireland Limited) and any other non-U.S. subsidiaries we form or acquire in the future, may be treated as controlled foreign corporations (regardless of whether ObsEva SA is treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject you to significant monetary penalties and may prevent the statute of limitations from starting with respect to your U.S. federal income tax return for the year for which reporting was due. We cannot provide any assurances that we will assist investors in determining whether any of our non-U.S. subsidiaries are treated as a controlled foreign corporation or whether such investor is treated as a United States shareholder with respect to any of such controlled foreign corporations. Further, we cannot provide any assurances that we will furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax payment obligations. U.S. Holders should consult their tax advisors regarding the potential application of these rules to their investment in our common shares.
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of Switzerland or any other country in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective income tax rates may increase in the future, which could adversely affect our net income and cash flows.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our effective income tax rate may be affected by changes in or interpretations of tax laws, treaties, rulings, regulations or agreements in any given jurisdiction, utilization of net operating loss and tax credit carryforwards, changes in geographical allocation of income and expense, and changes in management’s assessment of matters such as the realizability of deferred tax assets. In the past, we have experienced fluctuations in our effective income tax rate. Our effective income tax rate in a given fiscal year reflects a variety of factors that may not be present in the succeeding fiscal year or years. There is no assurance that our effective income tax rate will not change in future periods.
We file Swiss and non-Swiss tax returns. We are frequently subject to tax audits, examinations and assessments in various jurisdictions. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our key subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective income tax rate could increase. A material assessment by a governing tax authority could adversely affect our profitability. If our effective income tax rate increases in future periods, our net income and cash flows could be adversely affected.
Future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. For example, (the “Tax Act”) enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to the Tax Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.
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Our ability to use our net operating loss carryforwards, or NOL, to offset future taxable income may be subject to certain limitations.
Our Swiss NOL carryforwards are only permitted to be carried forward for seven years under applicable Swiss tax law. As a result, such NOL carryforwards may expire prior to being used and we may be unable to use all or a material portion of our NOLs, which could adversely affect our future cash flows.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We will be an “emerging growth company” until December 31, 2022. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.
General Risks
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common shares.
We are required to disclose changes made in our internal controls and procedures, and our management is required to assess the effectiveness of these controls, annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We will be an “emerging growth company” until December 31, 2022. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business or our market, our share price and trading volume could decline.
The trading market for our common shares is influenced by the research and reports that equity research analysts publish about us or our business, our market and our competitors. We have limited research coverage by equity research analysts. Equity research analysts may elect not to initiate or continue to provide research coverage of our common shares, and such lack of research coverage may adversely affect the market price of our common shares. Even if we have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our shares could decline if one or more equity research analysts downgrade our shares or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our shares could decrease, which in turn could cause our share price or trading volume to decline.
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Item 4. Information on the Company.
A. History and Development of the Company
Our legal and commercial name is ObsEva SA. We are a Swiss stock corporation (société anonyme) organized under the laws of Switzerland. We were formed in 2012 with an indefinite duration. We are currently registered in Plan-les-Ouates, Geneva, Switzerland. Our principal executive offices are located at Chemin des Aulx, 12, 1228 Plan-les-Ouates, Geneva, Switzerland. Our telephone number is +41 22 552 38 40. Investors should contact us for any inquiries through the address and telephone number of our principal executive office. We maintain a website at www.obseva.com. The reference to our website is an inactive textual reference only and the information contained in, or that can be accessed through, our web site is not a part of this Annual Report on Form 20-F. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our actual capital expenditures for the years ended December 31, 2021, 2020 and 2019 amounted to $29 thousand, $5 thousand and $5.0 million, respectively. These capital expenditures primarily consisted of purchase of furniture and office equipment, and payment of $5.0 million to Kissei in 2019 upon execution of the linzagolix licensing agreement. We expect our capital expenditures to increase in absolute terms in the near term in line with our previous expenditures, as we continue to advance our drug development programs and grow our operations. We anticipate our capital expenditures in 2022 to be financed from our existing cash and cash equivalents, funds received from the JGB debt arrangement or through our “at the market” (ATM) program.
B. Business Overview
We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to improve women’s reproductive health and pregnancy. Through strategic in-licensing and disciplined drug development, we have established a late-stage clinical pipeline with development programs focused on new therapies for the treatment of uterine fibroids, endometriosis, and preterm labor. We have assembled a strong management team with extensive experience in successfully developing and commercializing therapeutics in our target market. Our goal is to build the leading women’s reproductive health and pregnancy company focused on conditions where current treatment options are limited and significant unmet needs exist.
Our portfolio currently consists of three in-licensed new chemical entities in clinical development for four indications intended to address areas that we believe present significant unmet medical needs:
| • | Linzagolix for the treatment of uterine fibroids and pain associated with endometriosis. We are developing linzagolix as a novel, oral gonadotropin releasing hormone, or GnRH, receptor antagonist, for the treatment of uterine fibroids and endometriosis in pre-menopausal women. In 2015, ObsEva in-licensed Linzagolix from Kissei Pharmaceutical Co. for exclusive world wide rights ex-Asia. Linzagolix is a novel, orally administered GnRH receptor antagonist that potentially provides effective management of heavy menstrual bleeding, or HMB, associated with uterine fibroids, or UF, and treatment of endometriosis-associated pain while mitigating bone mineral density loss and other adverse effects typically associated with currently approved treatments. Unlike marketed GnRH agonists, linzagolix has the potential to be administered orally once a day, with symptoms relieved within days, while potentially mitigating the initial worsening of symptoms often associated with GnRH agonist treatments. Linzagolix has the potential to dose-dependently lower estradiol levels hence maintaining such levels within an optimal range to mitigate patient bone mineral density loss. Linzagolix has the potential to allow patients to receive the relief needed to live normal lives again and enhance their quality of life with fewer side effects and complications requiring doctor’s visits or surgery. |
| • | Ebopiprant for the treatment of preterm labor (GA 24-34 weeks).
In July 2021, we and Organon, entered into an agreement whereby Organon licensed the global rights to develop, manufacture and commercialize ebopiprant (formerly OBE022), an investigational, once daily, oral and selective PGF2α, receptor antagonist for the treatment of preterm labor in weeks 24 to 34 of pregnancy. |
Under the terms of the agreement, Organon gained exclusive worldwide rights to develop, manufacture and commercialize ebopiprant. We are entitled to receive tiered double-digit royalties on commercial sales as well as up to $500 million in upfront and milestone payments, including $25 million that was paid at signing, up to $90 million in development and regulatory milestones and up to $385 million sales-based milestones.
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| • | Nolasiban to improve embryo transfer outcomes after IVF.
In January 2020, we and Yuyuan, entered into a sublicense agreement to develop and commercialize Nolasiban, an oral oxytocin receptor antagonist, to improve clinical pregnancy and live birth rates in women undergoing in-vitro fertilization, or IVF, in the People's Republic of China. Under the terms of the agreement, Yuyuan has the exclusive rights to develop and commercialize nolasiban in China and will fund all development and registration activities in China, starting with the commitment to conduct Phase 1 trials and a Phase 2 proof-of-concept trial in China. We retain all rights to the product outside of China and have agreed to collaborate with Yuyuan on its global development. Our development and commercialization partnership with Yuyuan continues with steering committee meetings to define the development plan for nolasiban in China for women undergoing embryo transfer following IVF. |
The following table summarizes key information regarding our current development programs:
We are also evaluating additional indications for our current product candidates as well as opportunities to in-license or acquire additional product candidates in our therapeutic field.
Our Strengths
We believe our clinical and product development experience in the field of women’s reproductive health and pregnancy provides us with the following strengths:
| • | Strategic focus on diseases in women’s reproductive health and pregnancy that affect growing female populations with high unmet medical needs and significant commercial potential; |
| • | Product candidates with clear mechanisms of action and evidence of efficacy that have, or have the potential to progress into and through late-stage clinical trials and potentially commercial stage; |
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| • | Management with substantial experience developing and commercializing pharmaceutical products in the field of women’s reproductive health and pregnancy; |
| • | Strong industry and key opinion leader relationships in the field of women’s reproductive health and pregnancy that provide access to potential product in-licensing opportunities and product development experience; and |
| • | Support from leading healthcare-focused investors and board members with experience in building and operating life science companies. |
Our Strategy
Our goal is to build the leading women’s reproductive health and pregnancy company focused on conditions where current treatment options are limited and significant unmet needs exist. The key elements of our strategy include the following:
| • | Continue to advance each of our current product candidates in their respective indications. |
| • | Develop a targeted commercialization strategy for any approved product candidates. As we move our product candidates through development toward regulatory approval, we continue to evaluate several options for each product candidate’s commercialization strategy. These options include building our own internal sales force, entering into strategic marketing partnerships with third party collaborators, including potentially other pharmaceutical or biotechnology companies, or out-licensing our products to other pharmaceutical or biotechnology companies. |
| • | Pursue additional indications for our current product candidates. We believe each of our current product candidates have potential for application outside the indications we are currently developing, and we plan to pursue additional indications for our existing product candidates in the near future. |
| • | Leverage our international product development experience and extensive network of clinical experts and pharmaceutical industry executives within women’s reproductive health and pregnancy to in-license or acquire novel product candidates. We are focused on identifying, and in-licensing or acquiring, additional clinical-stage product candidates that we believe have the potential to become best-in-class or first-in-class products for the treatment of serious conditions in women’s reproductive health and pregnancy, if approved. We intend to focus on product candidates that we believe will be efficient from a capital-management standpoint. |
Linzagolix: Investigational GnRH Receptor Antagonist for Symptoms Associated with Uterine Fibroids and Endometriosis
We are developing linzagolix as an oral GnRH receptor antagonist, which we have observed in our clinical trials to induce a dose-dependent reduction of estradiol levels. Through that mechanism, we expect linzagolix to be indicated for the treatment for symptoms associated with uterine fibroids and endometriosis-associated pain. We believe linzagolix, if approved, has the potential to be a best-in-class oral GnRH receptor antagonist based on its favorable PK and PD profiles, and its potential to provide targeted estradiol suppression to reduce HMB associated with uterine fibroids and pain symptoms associated with endometriosis , while mitigating bone mineral density loss and other adverse effects that are typically associated with full estradiol suppression. A drug’s PK profile is its linear pharmacokinetic profile, a predictable dose-dependent suppression of estradiol, which is a form of the hormone estrogen, and a dose range that was well-tolerated and provided symptom relief. A drug’s PK profile refers to the specific way in which a given drug is handled by the body over time, including the particular patterns of the specified drug’s absorption, distribution and elimination from the body. A drug’s PD profile is its pharmacodynamic profile which refers to the biochemical and physiological effects of a drug on the body. We believe that linzagolix has the potential to offer flexible dosing alternatives with or without hormonal add back therapy, or ABT, to address symptoms in broad patient populations, supported by key differentiating product characteristics, including absence of food effect, high bioavailability, low volume of distribution, no induction of a liver enzyme known as cytochrome P450 3A4 (CYP3A40) or organic anion-transporting polypeptide (OATP) 1B1/B3 interaction, and low PK and PD variability. We believe these characteristics are key product differentiators compared to other GnRH receptor antagonists in development.
Background on Uterine Fibroids and Endometriosis
Uterine fibroids are common non-cancerous tumors that develop in the muscular wall of the uterus. Uterine fibroids can vary in size from a few millimeters to more than 20 centimeters, and in number from a single fibroid to several dozen fibroids. The main symptoms of uterine fibroids are heavy menstrual bleeding, anemia, abdominal pain and pressure, bloating, and increased urinary frequency. Heavy menstrual bleeding is a frequent disabling symptom of uterine fibroids which often leads
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to anemia, which can be severe and potentially life threatening. Uterine fibroids also carry an increased risk of pregnancy complications such as miscarriage, placental abruption and premature onset of labor.
According to a study published in the American Journal of Obstetrics & Gynecology in 2003, uterine fibroids affect an estimated 20 to 40% of women over the age of 30 in the United States based on clinical cases and women who undergo treatment. We believe that approximately four million women in the United States are diagnosed and being treated for uterine fibroids.
Endometriosis is a painful disorder in which endometrial tissue grows outside of the uterus, typically on the lining of the pelvis, on the ovaries, in the rectovaginal septum, on the bladder, and on the bowels. Endometriosis causes pain with monthly bleeding and chronic inflammatory reactions in the abdomen that may result in ovarian cyst formation, scar tissue and adhesions. The symptoms of endometriosis include significant pain during menstrual periods, chronic non-menstrual pelvic pain, pain during intercourse, excessive menstrual bleeding and infertility, which in turn can impact general physical, mental and social well-being. Often the pain associated with endometriosis is cyclical in nature and reflects the response to circulation of reproductive hormones, particularly estrogen. Endometriosis is also one of the leading causes of infertility and is often diagnosed when women seek treatment for such infertility.
According to the World Endometriosis Research Foundation, as of 2014, endometriosis affects an estimated one in ten women during their reproductive years, totaling approximately 176 million women globally between the ages of 15 and 49. We believe that approximately 5 million women in the United States are diagnosed and treated annually for endometriosis, and the majority of those women experience significant pain during menstrual periods.
The Role of GnRH
The exact causes of uterine fibroids and endometriosis are not currently understood. However, several factors can contribute to their development and progression, including the rise and fall of hormones, particularly estrogen, mainly in the form of estradiol. The production of estrogen in the body is regulated by GnRH. GnRH is responsible for stimulating the synthesis and release of luteinizing hormone, or LH, and follicle stimulating hormone, or FSH, by the pituitary gland. LH and FSH in turn drive estrogen production through stimulation of the ovaries. Estradiol is the hormone that, among other effects, causes the endometrium inside the uterus to thicken during the menstrual cycle. Similarly, estradiol has been determined to promote the growth of endometriosis lesions and uterine fibroids. Various pharmacological treatments directed at addressing uterine fibroids and endometriosis attempt to regulate the production of estrogen, particularly estradiol, by controlling the activity of GnRH.
Limitations of Current Therapies for Uterine Fibroids and Endometriosis
Current treatment options for uterine fibroids and endometriosis are either pharmacological or surgical.
Uterine Fibroids
Historically, medical treatment options for heavy menstrual bleeding associated with uterine fibroids have been limited and generally consist of oral contraceptives and short-term pre-surgical use of GnRH agonist injections. Oral contraceptives are generally used as first-line therapy, but are often not effective in reducing heavy bleeding. Upon failure of a first-line therapy or contraindication to oral contraceptives, surgical intervention is generally the next treatment option. Hysterectomy is the most commonly performed surgical treatment. Other procedures include (1) myomectomy, which is selective removal of fibroids, often performed by laparoscopy; this usually preserves fertility, (2) uterine artery embolization, which is a procedure to obstruct the arteries feeding the fibroid, performed by arterial catheterization, and (3) MRI-guided focused ultrasound ablation. In May 2021, Myovant received regulatory approval in the United States for Myfembree® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for the management of heavy menstrual bleeding associated with uterine fibroids. In July 2021, Myovant received regulatory approval in the EU for Ryeqo® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for treatment of moderate to severe symptoms of uterine fibroids in adult women of reproductive age.
According to a study published in the American Journal of Obstetrics & Gynecology in 2012, approximately 300,000 hysterectomies and 30,000 myomectomies are performed annually for the treatment of uterine fibroids in the United States as of 2003. According to the National Uterine Fibroids Foundation, approximately 660 women die each year in the United States from complications following hysterectomy. Hysterectomies can be both physically and psychologically damaging, not only resulting in loss of fertility, but they also can be perceived by some women as a loss of femininity. Surgery also
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carries a risk of scar tissue and adhesions, which can lead to infertility, worsening of pain, damage to other pelvic structures, and may require additional surgical management.
Treating uterine fibroids is expensive, as surgery constitutes a significant cost burden. Patients who do not undergo surgery often require medical management, hospitalization and additional outpatient physician visits, which further increase the annual costs of the disease. According to a systematic review of literature published in the American Journal of Obstetrics &Gynecology in 2012, direct and indirect costs associated with uterine fibroids were estimated in 2010 to be up to $34.4 billion annually in the United States.
Endometriosis
For endometriosis, the treatment selected as standard of care is based on the severity of pain and the extent of the disease. Endometriosis treatments aim first to alleviate pain, then to remove or decrease the size and number of endometrial lesions, and possibly improve fertility. Oral contraceptives, progestins and NSAIDs are generally first-line treatments for women experiencing pain. Following the failure of first-line therapies, which is common, current treatment options are limited to intra-muscular or subcutaneous GnRH agonist injections and GnRH agonist nasal sprays. In July 2018, AbbVie Inc. announced that their GnRH antagonist elagolix (Orilissa) received regulatory approval in the U.S. for the treatment of moderate-to-severe endometriosis-associated pain.
Surgery may be performed for the most symptomatic cases. However, in most cases conservative surgery can provide short-term relief by excising and/or ablating endometrial lesions, but does not prevent the endometrial lesions and associated symptoms from recurring. Surgery requires general anesthesia and has a risk of scar tissue and adhesion formation in the pelvis, which can lead to infertility, worsened pain, requirement for additional surgeries, and damage to other pelvic structures. Surgical treatments for endometriosis range from laparoscopy to more complex open abdominal surgery. If a woman has not responded to other medical or surgical treatments, a hysterectomy, which is the removal of all or part of the uterus, may be performed. Depending on the woman, removal of the ovaries may also be required, resulting in definitive infertility and immediate menopause.
The World Endometriosis Research Foundation through its EndoCost study estimated the aggregate annual cost of endometriosis to be approximately $80 billion in the United States and approximately $60 billion in Germany, the UK, France and Italy in 2012 based on then current exchange rates.
Mechanism of Action and Limitations of GnRH Agonists
GnRH agonists are a standard pharmaceutical therapy for estrogen dependent conditions such as uterine fibroids and endometriosis as they have been demonstrated to reduce estradiol levels. GnRH agonists act by first overstimulating the GnRH receptors which initially may worsen the symptoms for several weeks (the flare effect) and subsequently desensitizing the receptors, resulting in reduced secretion of LH and FSH, and severely reduced production of estrogen. This leads to a state referred to as pseudo-menopause, in which patients experience menopausal symptoms before ultimately experiencing symptom relief. While GnRH agonists may be effective at treating the symptoms of uterine fibroids and endometriosis, they can be accompanied with serious drawbacks and limitations including:
| • | Full suppression of estradiol and related unfavorable side effect profile. Because GnRH agonists cannot be titrated, they act by fully suppressing estradiol to a post-menopausal level of less than 20 picogram/milliliter, or pg/ml. Excessive suppression of estrogen can result in multiple side effects before the patient experiences any relief, including hot flashes, vaginal dryness, and bone mineral density loss. Clinical trials of an approved GnRH agonist demonstrated that patients lose an average of up to 6% of their bone mineral density after 12 months of GnRH agonist treatment. |
| • | Delayed therapeutic effect and initial worsening of symptoms. Since GnRH agonists act by initially overstimulating the GnRH receptors (the flare effect), they can cause an initial worsening of symptoms that can last for several weeks. |
| • | Administration by injection. Many GnRH agonists such as Lupron (leuprolide acetate) must be injected on a monthly basis or a tri-monthly basis, which generally requires the assistance of a doctor or nurse. |
| • | Required add-back therapy. To counteract the side effects of the full estrogen suppression, additional administration of estrogen, referred to as “add-back therapy,” may be recommended after three months of treatment and is required after six months of treatment. Hormonal ABT is standard hormone replacement therapy, or HRT and is most commonly used in post-menopausal women. For some women, hormonal ABT is |
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| | contraindicated due to related and potentially serious adverse effects, including venous and arterial thromboembolism. |
| • | Variable and unpredictable reversibility of treatment. After stopping treatment with injectable GnRH agonists, ovarian function can take weeks or months to return to normal. This is particularly relevant and problematic if a woman wishes to conceive after treatment or if treatment is interrupted for lack of tolerability. |
Linzagolix Mechanism of Action and Solution to GnRH Agonist Drawbacks and Limitations
Linzagolix is an orally administered GnRH receptor antagonist with low PK/PD variability. Linzagolix binds to and blocks the GnRH receptor in the pituitary gland, which results in dose-dependent reduction of luteinizing hormone, or LH, and FSH follicle stimulating hormone, or FSH, production. This reduction in LH and FSH production in turn leads to dose-dependent reduction of estrogen levels.
At selected doses, linzagolix has been observed to maintain estradiol levels in the target range of 20 to 60 pg/ml, which we believe is the optimal range to relieve symptoms associated with uterine fibroids and endometriosis while mitigating bone mineral density loss or other adverse effects that can be associated with full estradiol suppression. Higher doses of linzagolix drive estradiol below 20 pg/ml, considered full suppression.
We believe linzagolix has the potential to overcome certain drawbacks and limitations of GnRH agonists. The potential advantages of linzagolix compared to GnRH agonists include:
| • | Rapid onset of therapeutic effect. By blocking, as opposed to initially stimulating the GnRH receptor, linzagolix has the potential to suppress LH and FSH within hours, lowering estradiol levels and reducing pain within days while potentially avoiding the initial flare effect which is often associated with GnRH agonist treatments. |
| • | Ease of administration. Linzagolix has the potential to be administered orally once daily, and regardless of food intake timing. This potential dosing regime is a more convenient and less invasive treatment option than GnRH agonist intramuscular or subcutaneous injections. |
| • | Optionality for uterine fibroids and endometriosis treatment: stand alone or in combination with hormonal ABT. In contrast to GnRH agonists, for which hormonal ABT is required when treatment exceeds six months, we believe that the 75mg once daily dose tested in our EDELWEISS 1 Phase 2b trial and the 100mg once daily dose tested in our PRIMROSE trials, have the potential to be utilized as a stand-alone treatment for a substantial proportion of patients with endometriosis-associated pain and heavy menstrual bleeding associated with uterine fibroids by maintaining estradiol levels between 20 and 60 pg/ml. |
The once daily 200 mg dose of linzagolix will require the addition of hormonal ABT if used long-term to counteract the side effects associated with full suppression of estradiol, i.e. below 20 pg/ml.
These doses of 75 mg or 100mg with or without hormonal ABT, 200 mg with hormonal ABT, and 200 mg without hormonal ABT (for short-term use in uterine fibroids) have been or are being tested in the confirmatory Phase 3 trials.
| • | Rapid reversibility of effect. As a result of the observed linzagolix half-life of approximately 15 hours, we believe there is the potential for ovarian function to resume within days following the end of treatment. In contrast, a patient’s ovarian function can take weeks or months to return to normal after stopping treatment with injectable GnRH agonists. |
Potential Clinical Profile of linzagolix
In July 2018, AbbVie Inc. announced that their oral GnRH antagonist elagolix (Orilissa®) received regulatory approval in the U.S. for the treatment of women with moderate to severe endometriosis-associated pain (150mg QD up to 2-year and 400mg (200mg BID) up to 6 months). Abbvie also obtained approval for Oriahnn® in May 2020 for the indication of heavy menstrual bleeding associated with uterine fibroids. Oriahnn® is given as a high dose of elagolix 600mg (300mg BID) with hormonal ABT (E2 1mg/NETA 0.5 mg). AbbVie Inc is now conducting Phase 3b trials with elagolix 600mg daily dose (300mg BID) in combination with hormonal ABT to assess long-term impact (48 months) of hormonal ABT treatment on BMD.
In addition, Myovant Sciences, Inc. conducted Phase 3 trials with the oral GnRH receptor antagonist relugolix 40mg daily in combination with hormonal ABT for the treatment of symptoms associated with endometriosis and uterine fibroids. This is the only dose level being studied for both indications. In May 2021, Myovant received regulatory approval in the United
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States for Myfembree® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for the management of heavy menstrual bleeding associated with uterine fibroids. In July 2021, Myovant received regulatory approval in the EU for Ryeqo® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for treatment of moderate to severe symptoms of uterine fibroids in adult women of reproductive age. Ryeqo® will be commercialized by Gedeon Richter for the management of heavy menstrual bleeding associated with uterine fibroids. In September 2021, Myovant announced that the FDA accepted for review a supplemental New Drug Application for Myfembree® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for the management of moderate to severe pain associated with endometriosis The FDA set a target action date of May 6, 2022.
We believe that linzagolix has a best-in-class clinical profile as assessed by:
| • | Optimal characteristics for consistent PK. Linzagolix has been observed to have a consistent PK profile and low variability, due to high bioavailability and low volume of distribution. In addition, its half-life allows for once daily dosing across indications. We believe these characteristics are important for optimizing patient compliance and drug exposure. |
| • | Flexible dosing options. Based on its consistent PK and PD profile observed in preclinical studies and clinical trials, we are currently pursuing the development of linzagolix doses both with and without hormonal ABT, which is related to partial or full suppression of estrogen. We believe that various levels of estrogen suppression may be required to successfully treat symptoms in different patients in different indications to account for patient characteristics, individual response or patient preference, but that the option of partial suppression, with no need for hormonal ABT has the potential to be a first line therapy for many patients. |
| • | Potential to avoid hormonal ABT. For symptoms associated with both uterine fibroids and endometriosis, we are developing linzagolix as a stand-alone treatment (without need for hormonal ABT) and in association with hormonal ABT to fulfill the needs of a broad patient population with uterine fibroids and endometriosis. We do not believe that all patients will have the desire or need for hormonal ABT, or are able to have, some of whom may have a contraindication, be at risk of, or have tolerability issue (as per boxed warning on hormonal ABT), or simply prefer the management of endogenous estrogen levels in the clinical setting where bone mineral density loss is not reduced to the degree that would require hormone replacement. |
| • | Compliance benefit. Linzagolix may have an advantage in patient compliance due to the lack of observed interactions with food, CYP3A4 or OATP1B1/B3 enzyme pathways, and the ability to be taken once anytime throughout the day, without the risk of reduced and/or variable exposure to active drug. |
Linzagolix Clinical Development for Uterine Fibroids
We are developing linzagolix for the treatment of bleeding associated with uterine fibroids. We believe linzagolix has the potential to provide an effective oral treatment for uterine fibroids.
Completed Phase 2a Trial in Japanese Patients
In a Phase 2a double-blind clinical trial in Japanese patients with endometriosis (Study KLH1202), 50, 100, or 200 mg linzagolix or placebo was orally administered once daily after breakfast for 12 weeks. 57 patients presented with uterine fibroids in addition to endometriosis, which allowed assessment of endpoints relevant to fibroids. In subjects with endometriosis and concomitant uterine fibroids, the 50 mg dose suppressed menstrual bleeding in only 8.3%, the 100 mg dose led to absence of menstrual bleeding in 66.7% of subjects, and in the 200 mg group all subjects reported suppressed menstrual bleeding. Amenorrhea was quickly achieved with patients being most frequently amenorrhoeic in the 200 mg arm and less frequently in the 50 mg arm. However, presence of uterine fibroids impacted the bleeding control and the rapidity of onset; for example, at the 50 mg dose, only roughly 25% of patients were in amenorrhea after approximately 1 month of treatment when concomitant fibroids were present. The 50 mg dose suppressed bleeding in approximately 55% of patients, whereas the 200 mg daily dose of linzagolix suppressed bleeding in approximately 95% of patients. In addition, most patients in the 100 mg and 200 mg groups stopped bleeding within a few weeks of treatment initiation. A dose-dependent reduction in uterine volume was observed in the active treatment arms.
Phase 3 Clinical Trials PRIMROSE 1 and PRIMROSE 2 for Heavy Menstrual Bleeding Associated with Uterine Fibroids
We commenced the two PRIMROSE Phase 3 clinical trials in patients with heavy menstrual bleeding associated with uterine fibroids in the first half of 2017. As part of these trials, we have been assessing the efficacy of both a 100 mg once daily dose and a 200 mg once daily dose of linzagolix both with and without hormonal ABT. We believe that the 200 mg dose may be
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used alone for short-term treatment and will require hormonal ABT for longer term treatment to prevent excessive bone mineral density loss, while the 100mg dose may not necessitate the use of hormonal ABT.
Figure 1 below depicts the trial design of the Phase 3 PRIMROSE clinical trials:
Figure 1: Design of Phase 3 PRIMROSE Clinical Trials
The primary endpoint of heavy menstrual bleeding was measured via two approaches. Patients collected and delivered their used sanitary protection to a central laboratory analysis using a validated alkaline hematin method; this provided an objective measure of bleeding. In addition, patients report their bleeding status on a daily basis with an electronic diary.
The PRIMROSE 1 clinical trial was conducted in the United States, and enrolled 526 women with uterine fibroids, while the PRIMROSE 2 clinical trial was conducted both in Europe and in the United States and enrolled 535 women with uterine fibroids. In both trials, patients were administered linzagolix doses of 100 mg or 200mg, both with and without hormonal ABT, or placebo. The primary endpoint of the PRIMROSE 1 and PRIMROSE 2 clinical trials was the reduction in HMB at 24 weeks; responders were defined as patients with menstrual blood loss volume of ≤ 80 mL and a 50 percent or greater reduction from baseline in menstrual blood loss, or MBL, volume, measured using the alkaline hematin method. Secondary endpoints included amenorrhea, time to reduced MBL, hemoglobin, pain, and quality of life. Safety endpoints included BMD, and adverse events. BMD was measured centrally via Dual Energy X-ray Absorptiometry scan at baseline, 24 weeks, 52 weeks and 76 weeks (6-month post treatment assessment). Calcium/vitamin D were not provided.
In December 2019, we announced positive Phase 3 trial results from the PRIMROSE 2 trial of linzagolix for the treatment of HMB due to uterine fibroids. The responder rate was 93.9% (p < 0.001) for patients receiving 200 mg with hormonal ABT and 56.7% for patients receiving 100 mg without hormonal ABT (p < 0.001), compared to 29.4% in the placebo group. Both doses achieved significant rates of amenorrhea (p< 0.001), reduction in pain (p < 0.001), and improvement in quality of life (p < 0.001). Additionally, significant improvement (p< 0.001) in Hb levels, a reduction in number of days of bleeding and reduction in uterine volume were observed. A significant reduction in fibroid volume was also observed for the 200 mg dose without hormonal ABT (p = 0.008). The overall safety profile was in line with expectations. The most frequently observed adverse events (occurring in > 5% of patients) were headache, hot flushes, and anemia. Mean percentage change from baseline in BMD was consistent with previous clinical data.
In July 2020, we announced positive Phase 3 trial results from the PRIMROSE 1 trial of linzagolix. The responder rate was 75.5% (p < 0.001) for patients receiving 200 mg with hormonal ABT and 56.4% for patients receiving 100 mg without hormonal ABT (p =0.003), compared to 35.0% in the placebo group. Both doses achieved significant rates of amenorrhea (p< 0.001 for 200 mg+ hormonal ABT and p=0.009 for 100 mg), reduction in pain (p < 0.001), and improvement in quality of life (p < 0.001 for 200 mg + hormonal ABT and p=0.002 for 100 mg). Additionally, significant improvement was observed in Hb level (p<0.001 for 200mg + hormonal ABT and p=0.019 for 100mg), a reduction in number of days of bleeding (p<0.001). The overall safety profile was in line with expectations. The most frequently observed adverse events (occurring in > 5% of
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patients) were headache and hot flushes. Mean percentage change from baseline in BMD was as expected for treatment with a GnRH antagonist in the studied population.
In July 2020, we also announced positive 52-week treatment results from the PRIMROSE 2 trial. These new data from PRIMROSE 2 demonstrated that continued treatment with linzagolix for 52 weeks provided sustained efficacy. Responder rates of 91.6% and 53.2% were observed in women receiving 200 mg with hormonal ABT and 100 mg without hormonal ABT, respectively, both of which are similar to the responder rates observed at week 24 of the trial. In addition, a small incremental change in BMD was observed at week 52 compared to week 24. In December 2020, we announced positive 52-week treatment results from the PRIMROSE 1 trial, showing that continued treatment with linzagolix led to sustained efficacy for the primary endpoint of reduced heavy menstrual bleeding (defined as menstrual blood loss of at least 50% less than baseline and at or below 80 mL). This was seen across all doses of linzagolix and was in line with the earlier findings in PRIMROSE 2.
We believe that based on pooled week 52 clinical data from these two Phase 3 trials linzagolix has the potential for a best-in-class profile, with a pooled responder rate of 89.3% in women receiving linzagolix 200 mg with hormonal ABT, and 56.4% in women receiving linzagolix 100 mg without hormonal ABT.
In December 2020 and May 2021, we reported additional results for the Phase 3 trials of PRIMROSE 2 and 1, respectively at week 76. These results showed continued pain reduction and demonstrate evidence of BMD recovery after treatment end at 52 weeks.
In November 2020, we submitted a MAA, to the EMA for the treatment of uterine fibroids in adult women of reproductive age. Our application was validated by the EMA in January 2021, and in December 2021, we received a positive opinion from the CHMP recommending approval of linzagolix for the management of moderate to severe symptoms of uterine fibroids in adult women of reproductive age. In February 2022, we announced that based on ongoing communications with the EMA, further questions on the MAA for linzagolix may be forthcoming, thereby extending the application timeline. We are in dialogue with the EMA to understand areas that may require further clarification and are committed to promptly addressing any questions that could arise. If approved by the European Commission, linzagolix would be the first and only GnRH antagonist with a non-hormonal option to address the needs of women who cannot or do not want to take hormones. In September 2021, we submitted an NDA, to the FDA, for linzagolix for the treatment of uterine fibroids. The NDA submission includes the positive PRIMROSE 1 and PRIMROSE 2 full data package including week 52 data and post treatment follow-up data up to week 76 for both trials. This NDA was accepted for review by the FDA and assigned a PDUFA target action date of September 13, 2022.
Linzagolix Preclinical and Clinical Development for Pain Associated with Endometriosis
Prior to in-licensing linzagolix, Kissei completed a preclinical program, a Phase 1 clinical trial in healthy female volunteers of Japanese and European descent and three Phase 2a clinical trials in patients of Japanese descent with endometriosis, including one trial that included a subgroup of patients with both endometriosis and uterine fibroids. In these trials, linzagolix was observed to have a linear PK profile, a predictable dose-dependent suppression of estradiol and a dose range that was well-tolerated and provided symptom relief. Following our in-license of linzagolix from Kissei, we submitted an IND for linzagolix in May 2016, which was accepted by the FDA. In 2019, we completed the EDELWEISS 1 Phase 2b clinical trial and initiated our two pivotal Phase 3 clinical trials (EDELWEISS 2 and EDELWEISS 3).
Preclinical Studies and Phase 1 Clinical Trial
In preclinical studies, linzagolix was observed to be a highly potent and selective antagonist of the GnRH receptor. The preclinical toxicology and safety pharmacology studies did not raise tolerance or safety concerns or potential for DDIs. In the Phase 1 clinical trial, linzagolix was observed to have a favorable safety profile and to be well-tolerated up to 400 mg once daily for seven days. Additionally, linzagolix had a linear PK profile, a half-life of approximately 15 hours and no significant differences between women of Japanese and European descent. Moreover, linzagolix was observed to have a low volume of distribution, meaning the drug remained in the blood and did not accumulate in fatty tissue (Figure 2). Furthermore, in the Phase 1 clinical trial, there was no food effect observed.
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Linzagolix was observed to induce a dose-dependent decrease in LH and FSH over time (Figure 3), which we believe correlates with its ability to control estradiol levels in a dose-dependent manner. Based on the low PK variability and lack of dose overlap observed in the Phase 1 clinical trial, we believe we will be able to more tightly control biological response with personalized doses of linzagolix. In addition, in 2016 we completed a Phase 1 trial to assess the impact of linzagolix on the potential induction of CYP3A4, which is responsible for most of the metabolism of hormonal ABT. In this trial, we observed no relevant CYP3A4 induction, which we believe indicates that linzagolix will not interfere with hormonal ABT and has low risk of drug-drug interactions.
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Figure 2: Mean linzagolix Concentration Over Time | | Figure 3: LH Reduction from Baseline Over Time |
In 2017, we conducted a Phase 1 PK and PD clinical trial to assess two different doses of add-back therapy in patients receiving 100 mg and 200 mg doses of linzagolix over six weeks. The results of this clinical trial, which we announced in June 2017, supported our add-back therapy dose (1mg E2 / 0.5mg NETA) and linzagolix doses being utilized in our clinical trials.
In 2018, we completed a drug-drug interaction study for the OATP 1B1 and OATP1B3, which demonstrated that clinically relevant drug interactions between linzagolix and OATP1B1 / OATP1B3 inhibitors are not to be expected.
Completed Phase 2a Clinical Trials
Kissei completed three Phase 2a clinical trials of linzagolix in patients of Japanese descent with endometriosis in 2013 and 2014. In these studies (KLH1201, KLH1202, and KLH1202), which evaluated doses of 50, 75, 100, or 200 mg of linzagolix or placebo, linzagolix demonstrated improvement in endometriosis-associated pain and showed dose-dependent E2 suppression. These studies supported the design and dose selection for the EDELWEISS 1 Phase 2b trial.
Completed Phase 2b Clinical trial EDELWEISS 1 —Endometriosis-Associated Pain
In 2019, we completed our Phase 2b EDELWEISS 1 clinical trial in patients with endometriosis. In this trial, women with moderate-to-severe endometriosis-associated pain were recruited from 64 gynecological clinics across the U.S. and Europe. The trial included a screening period, two consecutive 12-week treatment periods (Part A and Part B) followed by an optional 28 week treatment extension phase or, for those who did not enter the optional treatment extension phase, a 24-week post trial follow up, or PTFU. In total, 328 subjects were randomized to 1 of 6 treatment groups: placebo, fixed dose groups at 50 mg, 75 mg, 100 mg and 200 mg daily and a 75 mg titrated dose group. In the placebo group, the placebo was provided for 12 weeks (Part A) after which all placebo subjects were crossed over on to active treatment (100 mg daily) for a further 12 weeks (Part B). In the titrated dose arm, all subjects started on 75 mg daily for 12 weeks (Part A) after which the dose was titrated up to 100 mg or down to 50 mg or remained the same (75 mg) for the next 12 weeks (Part B), based on the mean of serum E2 results collected at Weeks 4 and 8. The majority (71%) of subjects who completed the 24-week treatment entered the optional treatment extension, where they received linzagolix for an additional 28 weeks. Subjects randomized to the 200 mg group, received 100 mg daily dose of linzagolix during the extension treatment, while subjects in all other groups continued the treatment they were receiving at the end of Part B. The trial design is provided in Figure 4 below.
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Figure 4: Design of Phase 2b EDELWEISS Clinical Trial
Menstrual dysmenorrhea, or DYS, and non-menstrual pelvic pain, or NMPP, were assessed with a 4-point Verbal Rating Scale, or VRS, and an 11-point Numeric Rating Scale, or NRS. The primary endpoint of the EDELWEISS clinical trial was a responder analysis, with responses defined as a reduction of at least 30% in combined menstrual and non-menstrual pelvic pain, recorded daily and assessed via electronic diary over the last 28 days of treatment on a VRS of 0 (no pain) through 3 (severe pain). The key secondary safety endpoint was the bone mineral density after 24 weeks of treatment assessed with a dual-energy x-ray absorptiometry scan, or DXA.
In June 2018, we announced that the EDELWEISS clinical trial successfully met its primary endpoint, a statistically significant difference in patient response rate vs. placebo following 12 weeks of treatment. Observed response rates were 34.5% for placebo, 61.5% for 75mg linzagolix and 56.3% for 200mg linzagolix.
With respect to the DYS, VRS scale, patients receiving a 200 mg dose reported the highest responder rate at 78.9%, compared to a placebo responder rate of 28.5%. Response to doses from 75 mg and above were highly statistically significant. Responder rates for the NMPP VRS scale endpoint were statistically significant for the 75 mg dose and the 100 mg dose, and both doses showed comparable responder rates at 58.5% and 61.5% respectively.
In addition, the 75, 100 and 200 mg doses of linzagolix were observed to improve dyschezia and patient well-being as assessed by Endometriosis Health Profile-30 score (EHP- 30), Patient Global Impression of Change (PGIC) scale, Patient Global Impression of Severity (PGIS), the activity impairment score and the modified Biberoglu & Behrman score. Dyspareunia was also improved for all doses and reached statistical significance at the 200 mg dose.
In general, treatment effects observed at Week 12 at all linzagolix doses were maintained or further improved at Week 24, and generally maintained until Week 52. Treatment with linzagolix demonstrated clinical benefit over a 52-week continuous daily administration in alleviating endometriosis-associated pain symptoms. The greatest benefits were derived by subjects treated at doses of 75 mg and above. Significant reductions in pelvic pain were observed at Week 12 and maintained or increased at Weeks 24 and 52. This long-term treatment with linzagolix showed sustained reductions in dysmenorrhea, non-menstrual pelvic pain, dyspareunia and dyschezia, as well as improvements in quality of life and subject assessment of endometriosis severity.
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The key safety endpoint for linzagolix is BMD loss due to suppression of estradiol. In the 75 mg treatment group, the mean BMD loss for lumbar spine at 6 months was -0.798% with the lower boundary of the 95% confidence interval of BMD reduction from baseline to week 24 at -1.57%; therefore, we believe that this dose could be given chronically with an appropriate benefit/risk ratio without the need for hormonal ABT. By contrast, in the linzagolix 200 mg group, the mean BMD at lumbar spine decreased by more than -2.5% after 6 months of treatment, which indicates the need for combining the high dose of linzagolix with hormonal ABT.
Linzagolix was well-tolerated during long-term administration of up to a year. In line with the therapeutic class and mechanism of action, the most frequently reported related treatment-emergent adverse event, or TEAE, was hot flush, which was more frequently reported at the higher doses. Changes in BMD between baseline and Week 52, measured by DXA scan, were consistent with the values observed after 24 weeks of treatment. BMD loss for the linzagolix 75 mg dose was within an acceptable range, whereas the decrease with linzagolix 200/100 mg dose was clinically relevant. Consequently, for confirmatory testing, we are combining the 200 mg dose with estrogen/progestin add-back therapy (E2 1 mg/NETA 0.5 mg) to avoid significant BMD loss during chronic administration.
We believe the BMD results support our plan to pursue further development of two doses of linzagolix for the treatment of endometriosis, including a 75 mg once daily dose without hormonal ABT, and a 200 mg once daily dose in combination with hormonal ABT. With regards to the titration scheme, although there were some numerical differences between treatment groups, we did not conclude there was sufficient benefit to continue further development, and are instead focused upon fixed dosing of linzagolix.
Ongoing Phase 3 Clinical trial EDELWEISS 3 —Endometriosis-Associated Pain
In May 2019, we initiated our Phase 3 program, which initially consisted of two clinical trials: EDELWEISS 2, designed to enroll approximately 450 patients (150 per arm) in the United States and Puerto Rico, and EDELWEISS 3 designed to enroll approximately 450 patients (150 per arm) across sites in the U.S., as well as Canada, Europe and CIS countries. In these two double-blind, placebo-controlled trials, we evaluated two once daily doses of linzagolix, the 75 mg without hormonal ABT and 200 mg with hormonal ABT. Patients reported their pain on a daily basis with an electronic diary.
After the initial 24-week evaluation period, patients have the ability to enroll in an optional extension. In this extension study, patients receiving placebo will be randomly allocated to either 75 mg without hormonal ABT or 200 mg with hormonal ABT, whereas patients on active doses of linzagolix will continue on their respective dose. The co-primary endpoint will be a responder analysis of DYS and NMPP performed after 12-weeks of treatment. After treatment, all patients will be followed for at least an additional 24-week treatment-free period.
In January 2021, we announced our decision to discontinue our EDELWEISS 2 and its extension clinical trial, due to challenging patient screening and enrollment, as well as persisting difficult environment of the ongoing pandemic. We are planning to conduct, as soon as is feasible, a new Phase 3 clinical trial for endometriosis with a number of design and operational changes to facilitate faster enrollment, with a goal to maintain the original MAA and NDA filing timelines for this indication.
In January 2022, we announced positive topline results for Linzagolix 200 mg with hormonal ABT in the Phase 3 EDELWEISS 3 Trial in patients with moderate-to-severe endometriosis-associated pain. Two doses were tested, a 200 mg once-daily dose of linzagolix in combination with hormonal ABT and a 75 mg dose of linzagolix without hormonal ABT. The 200 mg dose met the co-primary efficacy objectives, demonstrating reductions in DYS and NMPP at 3 months. There were statistically significant and clinically meaningful improvements in the first five ranked secondary endpoints at 6 months: dysmenorrhea, non-menstrual pelvic pain, dyschezia, overall pelvic pain, and ability to do daily activities. The 75mg dose without hormonal ABT demonstrated a statistically significant reduction versus placebo in DYS at 3 months. Although the 75mg dose showed improvement in NMPP at 3 months, it did not reach statistical significance versus placebo, and thus did not meet the co-primary efficacy objective. The co-primary efficacy endpoints of DYS and NMPP were based on subject-reported symptoms recorded daily via an electronic diary using a VRS of 0 (no pain) through 3 (severe pain).The responder thresholds for monthly pain scores were defined as a reduction of at least 1.1 for DYS and 0.8 for NMPP. P <0.05 denotes a significant difference from placebo. The responder rates for DYS were 73% for linzagolix 200 mg with hormonal ABT (p<0.001), 44% for linzagolix 75 mg (p<0.001), and 24% for placebo. The responder rates for NMPP were 47% for linzagolix 200 mg with hormonal ABT (p=0.007), 39% for linzagolix 75 mg (p=0.279), and 31% for placebo.
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Secondary Endpoints at 6 Months
For linzagolix 200 mg with hormonal ABT, the first five ranked secondary endpoints achieved statistical significance compared to placebo. These were improvements at 6 months in dysmenorrhea, non-menstrual pelvic pain, dyschezia, overall pelvic pain (OPP), and difficulty in doing daily activities. The 75 mg also showed improvements in these endpoints. The complete results for the ranked secondary endpoints are shown in the table below. P<0.05 denotes a significant difference from placebo for each endpoint when p<0.05 for all higher ranked endpoints (including both co-primary endpoints).
Safety Results at 6 Months
Linzagolix was generally well-tolerated with minimal bone mineral density decrease; mean BMD decrease at the lumbar spine was 0.79% for linzagolix 200 mg with hormonal ABT and 0.89% for linzagolix 75 mg. Few adverse events were observed in over 5% of patients in any active treatment arm; these included headache (10.5%, 8.1%, and 8.0%), hot flush (6.8%, 7.5%, and 2.5%), and fatigue (6.8%, 3.8%, and 2.5%) for the 200 mg with hormonal ABT, 75 mg, and placebo groups, respectively.
Both linzagolix doses were generally well-tolerated with minimal BMD decrease and few adverse events occurring in more than 5% of patients up to 6 months.
Figure 5 below depicts the trial design of the Phase 3 EDELWEISS 3 clinical trial:
Figure 5: Design of Phase 3 EDELWEISS 3 Clinical Trial
Safety Results of Phase 1, Phase 2a and Ongoing Phase 2b and Phase 3 Clinical Trials
As of February 2022, 2,591 subjects have been exposed to linzagolix in completed studies and 118 subjects in ongoing clinical studies with linzagolix being generally well tolerated.
In the three completed Phase 1 clinical trials (n=177), adverse events were reported with similar frequency in all groups, including the placebo group. No serious adverse events were reported.
In the three completed Phase 2a clinical trials (n=128), almost all of the adverse events were mild. The most common adverse events were abnormal bleeding from the uterus, upper respiratory tract infection, headaches and hot flushes. Most hot flushes were mild, three were moderate in severity and none were severe. No serious adverse events were reported in the KLH1203 trial. A single serious adverse event was observed in each of the KLH1201 and KLH1202 trials and both were determined by the principal investigators to be unrelated to linzagolix.
In the PRIMROSE trials in European and US subjects (n=1037), a BMD decrease in line with previous studies was observed. The most frequently observed adverse events (occurring in > 5% of patients in any active treatment group) were headache,
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hot flushes, anemia and nausea. Headache was reported with a higher incidence in the 200 mg group (11.9%) compared to placebo (5.7%) and other linzagolix groups (≤7.2%). The incidence of hot flushes during the first 24 weeks of treatment was dose-dependent. The highest incidence of hot flushes was observed in the linzagolix 200 mg group (33.3%), which is consistent with the mechanism of action of linzagolix. Rates of hot flushes were similar in the 100 mg (10.1%) and 200 mg+ hormonal ABT groups (9.6%), compared with 5.3% in the placebo arm, which demonstrates that the use of hormonal ABT combined with linzagolix 200 mg dose alleviates hormone-related TEAEs such as hot flushes. On-treatment anaemia was generally reported with a similar frequency between the placebo (6.7%) and linzagolix arms (≤10.1%). The rate of nausea was highest in the 200 mg group (5.2%); rates in all other arms were similar to placebo. As expected, a dose dependent BMD changes were observed in all active treatment arms and changes in BMD were mitigated by the concomitant use of hormonal ABT. Elevations in lipids and liver transaminases were observed with incidences generally consistent with those seen in other GnRH receptor antagonists, and appear to be a class effect.
In the EDELWEISS 1 Phase 2b clinical trial in European and U.S. subjects (n=327), headaches were the most frequently reported TEAE followed by hot flushes. The occurrence of headaches did not show any dose-dependent increase and ranged from 20.2% to 29.8%. The occurrence of hot flushes increased with increasing dose, but their intensity was most often mild to moderate. A dose-dependent decrease in BMD was observed.
In the EDELWEISS 3 Phase 3 clinical trial, linzagolix was generally well-tolerated with minimal bone mineral density decrease; mean BMD decrease at the lumbar spine was 0.79% for linzagolix 200 mg with hormonal ABT and 0.89% for linzagolix 75 mg. Few adverse events were observed in over 5% of patients in any active treatment arm; these included headache (10.5%, 8.1%, and 8.0%), hot flush (6.8%, 7.5%, and 2.5%), and fatigue (6.8%, 3.8%, and 2.5%) for the 200 mg with hormonal ABT, 75 mg, and placebo groups, respectively.
Both linzagolix doses were generally well-tolerated with minimal BMD decrease and few adverse events occurring in more than 5% of patients up to 6 months.
Ebopiprant (formerly OBE022): PGF2α Receptor Antagonist for the Treatment of Preterm Labor (GA 24-34 weeks) licensed to Organon
Ebopiprant is an investigational, once daily, oral and selective PGF2α, receptor antagonist for the treatment of preterm labor in weeks 24 to 34 of pregnancy. PGF2α is a naturally occurring prostaglandin that acts to induce labor in pregnant women. Through specific antagonism of the PGF2α receptor, ebopiprant is designed to control preterm labor by reducing inflammation, decreasing uterine contractions and preventing cervical changes and membrane ruptures.
In July 2021, we entered into an agreement with Organon whereby Organon gained exclusive worldwide rights to develop, manufacture and commercialize ebopiprant.
Based on its PK profile and efficacy observed in animal models, we believe ebopiprant has the potential to become a first-in-class therapy to suppress premature labor and delay or avoid preterm birth while also being safe for the fetus. In February 2017, we completed a Phase 1 clinical trial assessing the safety, tolerability and PK profile of ebopiprant in healthy post-menopausal female volunteers after single doses of 10 mg to 1,300 mg and multiple doses between 100 mg per day and 1,000 mg per day over 7 consecutive days. Ebopiprant was observed to have a favorable pharmacokinetic profile, no clinically significant food effect, a favorable safety profile and to be well-tolerated at doses up to 1,300 mg after single dose administration and up to 1,000 mg per day after multiple dose administration over 7 days, each of which are above the estimated clinical effective dose. In March 2017, we completed a set of drug-drug interaction, or DDI, Phase 1 clinical pharmacology studies investigating the safety, tolerability and PK profile of ebopiprant when combined with magnesium sulfate, atosiban, nifedipine or betamethasone (medications typically used in patients with preterm labor) in pre-menopausal female volunteers. Ebopiprant in combination with those drugs was observed to have a favorable safety profile and to be well-tolerated up to 1,100 mg per day, which was the highest tested dose. In December 2017, we announced the initiation of our Phase 2a proof-of-concept clinical trial of ebopiprant known as PROLONG, which was conducted in two parts: Part A and Part B. In this trial, ebopiprant was orally administered daily for 7 days to pregnant women, who were already receiving standard of care therapy for preterm labor, atosiban infusion for 48 hours. Part A was an open-label trial assessing the safety and pharmacokinetics of ebopiprant. Part B, was a randomized, double-blind, placebo-controlled, parallel-group trial to assess the efficacy, safety and pharmacokinetics of ebopiprant. In November 2020, we announced positive results for the PROLONG Proof-of-Concept Trial. The efficacy endpoints were delivery within 48 hours of starting treatment, delivery within 7 days of starting treatment, delivery before 37 weeks of gestation, and time to delivery. Safety assessments included maternal, fetal and neonatal safety. Infants are being followed-up at 6, 12 and 24 months.
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In this study, 113 women with spontaneous preterm labor (gestational age between 24 and 34 weeks) were randomized and treated with atosiban (ex-U.S. standard of care) plus ebopiprant or atosiban plus placebo for 7 days. There were 83 (73%) women with singleton pregnancies and 30 (27%) with twin pregnancies. One hundred and forty-one neonates were born. Overall, 7/56 (12.5%) of women receiving ebopiprant delivered within 48 hours of starting treatment compared to 12/55 (21.8%) receiving placebo (OR 90% CI: 0.52 (0.22, 1.23)). In singleton pregnancies, 5/40 (12.5%) of women receiving ebopiprant delivered within 48 hours compared to 11/41 (26.8%) receiving placebo (OR 90% CI: 0.39 (0.15, 1.04)) which is a reduction of delivery in singleton pregnancies at 48 hours 55% compared to atosiban alone. A modest effect on delivery at 7 days was seen in the singletons.
The incidence of maternal, fetal and neonatal adverse events were comparable between subjects in the ebopiprant group and the placebo group. Follow-up of infants at 6 and 12 months after birth became available in 2021 and follow-up of infants at 24 months after birth is continuing and results may be available in 2022. Based on the available ASQ-3TM data at 6 and 12 months, infant development was similar between infants born to mothers in the OBE022 group and infants born to mothers in the placebo group in most ASQ3TM domains. There is no evidence that administration of ebopiprant in pregnant women with spontaneous preterm labor has a negative impact on infant development compared to placebo.
Nolasiban in IVF
Nolasiban is an oral oxytocin receptor antagonist that is being developed to improve clinical pregnancy and live birth rates in women undergoing embryo transfer following IVF, including intracytoplasmic sperm injection, or ICSI. The mechanism of action of nolasiban supports its potential to improve uterine receptivity by decreasing uterine contractions, improve uterine blood flow and enhance the receptivity of the endometrium to embryo implantation. We in-licensed nolasiban from Merck Serono, which had previously completed preclinical studies and Phase 1 clinical trials in 103 healthy female volunteers that evaluated the safety and PK profile of nolasiban.
Background on Assisted Reproductive Technology (IVF/ICSI)
Infertility is a condition of the reproductive system that impairs the body’s ability to reproduce. From 2006 to 2010, the inability to have a child affected approximately 6.7 million women in the United States, which represented approximately 11% of the reproductive-age population. An increasing number of women in developed countries are delaying having children until their mid-thirties, which has resulted in decreased fertility rates and increased demand for reproductive therapies.
Assisted Reproductive Technology, or ART is used primarily for infertility treatments. According to the Centers for Disease Control and the European Society of Human Reproduction and Embryology, IVF represents the vast majority of ART treatments or procedures. IVF helps women achieve pregnancy by the collection of mature eggs in the ovaries, followed by fertilization and early embryo development in the laboratory before transfer of the embryos into the womb. According to the European Society of Human Reproduction and Embryology, more than 2.0 million ART cycles are performed worldwide. In Europe, ART treatments doubled from 2000 to 2010, and nearly 800,000 IVF cycles were performed in 2014. In the United States, IVF treatments increased by 41.7% from 2010 to 2014. Approximately 230,000 IVF treatments were performed in the United States in 2015. In Japan, approximately 400,000 IVF treatments were performed in 2015. In China, more than 700,000 ART cycles were performed in 2017, and year over year growth is double digit supported by government policies related to childbirth.
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The first step in IVF is stimulation of egg production. Approximately ten days later, the eggs are harvested from the ovaries, otherwise known as ovum pick-up, or OPU, and co-incubated with sperm cells, with this day being referred to as Day 0. The resulting embryos are either used for fresh transfer to the uterus over the next three to five days or frozen for future use. In Europe in 2012, we estimate that approximately 39% of all embryo transfers occur three days after Day 0 and an additional 36% occur five days after Day 0, with the remaining 25% frozen for future transfer. In the United States in 2015, we estimate that the respective percentages were 19% (Day 3, or D3), 38% (Day 5, or D5) and 43% (frozen-thawed embryo transfers). The figure below depicts the IVF procedure:
The cost of one IVF cycle varies between $8,000 to $15,000 in the United States, EUR 2,000 to EUR 10,000 in Europe and $3,000 to $6,000 in Japan. As of 2006, fertility drugs account for more than $2,000 of the cost of a treatment cycle. Most patients require multiple fertility treatment cycles. Data from IQVIA estimates that global sales of fertility drugs approximated $2.7 billion in 2017.
The success of IVF depends on the quality of the embryo, the transfer procedure and ultimately the receptivity of the uterus. In order for the embryo transfer to be successful, it is important for the uterus to be receptive to embryo implantation, which includes a proper hormonal environment, appropriate blood flow within the uterus, and minimal uterine contractions at the time of embryo transfer. The endometrium is the inner layer of the uterus that is in direct contact with the implanting embryo.
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Role of Oxytocin in Embryo Implantation
Oxytocin is a hormone that is secreted by the pituitary gland. Oxytocin receptors are present in uterine smooth muscle cells, the endometrium and the uterine arteries. The release of oxytocin by the pituitary gland activates oxytocin receptors, which results in uterine contractions. As shown in the graphic below, blocking the activation of uterine oxytocin receptors at the time of embryo transfer may enhance uterine receptivity by decreasing uterine contractions, improving uterine blood flow and enhancing the receptivity of the endometrium to embryo implantation, which can lead to increased clinical pregnancy and live birth rates.
A systematic review and meta-analysis of investigator-sponsored trials conducted in 2014 and published in Fertility & Sterility concluded that pregnancy rates doubled with the infusion of an oxytocin receptor antagonist at the time of embryo transfer. As part of this analysis, it was observed that improvement in pregnancy rates was not restricted to women with a high rate of uterine contractions. According to this analysis, additional mechanisms, such as endometrium receptivity and uterine blood flow, may also contribute to improving pregnancy rates. A systematic review and meta-analysis of investigator-sponsored trials conducted in 2017 and published in PLOS/one by Qian-Yi Huang also concluded that clinical pregnancy rate was significantly increased with the infusion of an oxytocin receptor antagonist at the time of embryo transfer (OR = 1.84, 95% CI: 1.31±2.57; P < 0.001), but not the live birth rate (P=0.083). Moreover, in a trial published in 2016 involving patients with endometriosis undergoing frozen-thawed embryo transfer, clinical pregnancy rates were approximately 20% higher after treatment with an oxytocin receptor antagonist, representing a 51% increase relative to the placebo. In addition, according to studies published in Archives of Gynecology and Obstetrics in 2011, women who received an oxytocin receptor antagonist after embryo transfer or ET, were observed, based on three-dimensional power Doppler ultrasound, to have improved characteristics for uterine receptivity, including enhanced endometrial blood flow.
Nolasiban clinical development program
We previously conducted a Phase 3 clinical development program for nolasiban to evaluate its potential to improve clinical pregnancy and live birth rates for women undergoing IVF. In 2018, we completed a Phase 3 clinical trial in Europe, which we refer to as IMPLANT 2. This was a Phase 3 trial in women undergoing Day 3 (D3, n=388) and Day 5 (D5, n=390) fresh single embryo transfer (SET) following IVF. 778 subjects were randomized from 41 fertility clinics in Europe. 900 mg of nolasiban or placebo was administered as a single dose 4 hours before embryo transfer. The primary endpoint was ongoing pregnancy rate (confirmed by ultrasound observation of one gestational sac and at least one positive fetal heartbeat) at 10 weeks after ET. Results from this trial demonstrated the efficacy of 900 mg dose on ongoing pregnancy and live birth rate as well as its similar safety profile to placebo.
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There was a statistically significant 25% relative increase in ongoing pregnancy rate in the nolasiban 900 mg group compared to placebo (nolasiban 900 mg 35.6%, placebo 28.5%; p=0.031) in the pooled D3/D5 group. There was also a statistically significant 32% relative increase in the ongoing pregnancy rate in the D5 sub-group (placebo 34.7%, nolasiban 900 mg 45.9%; p=0.034). There was no significant increase in the D3 sub-group (placebo 22.2%, nolasiban 900 mg 25.3%; p=0.477). However, the interaction term between the factors treatment and day of ET was not significant (p=0.518), and therefore, there is no conclusive evidence that the nolasiban treatment effect was different following D3 or D5 SET. Relative increases in live birth rates with nolasiban were 26% in the pooled D3/D5 group. The live birth rate in women undergoing Day 5 ET was 44.8% for those receiving nolasiban vs. 33.2% for those receiving placebo (p value = 0.025), a 35% relative increase. Serum pregnancy and clinical pregnancy rates at 6 weeks post-ET followed a similar pattern to the ongoing pregnancy rates. Miscarriage rates (any pregnancy loss up to Week 10 post-ET after a positive serum pregnancy test at Week 2) were numerically higher in the placebo group compared to the nolasiban group (no significance testing was performed for this endpoint). In the pooled D3/D5 population, there were 37 (21%) pregnancy losses in the nolasiban group compared to 44 (28%) in the placebo group.
Furthermore, the safety profile was similar to placebo, and the multiple pregnancy rate was less than 5%. At the 6-month infant follow-up, developmental outcomes showed no notable differences between the nolasiban and placebo groups in terms of ASQ-3 domain scores.
In November 2018, we initiated an additional Phase 3 trial primarily in Europe, with some additional sites in Canada and Russia, also known as the IMPLANT 4 trial. In addition, we announced the clearance of our investigational new drug (IND) in October 2019 for the U.S. Phase 3 clinical trial of nolasiban, known as IMPLANT 3.
In November 2019, we announced that the IMPLANT 4 trial did not meet the primary endpoint of an increase in ongoing pregnancy rate at 10 weeks, (39.1 % placebo vs 40.5 % nolasiban) (p = 0.745). As these results did not confirm the prior positive Phase 3 IMPLANT 2 trial findings, we have discontinued our previously ongoing development of nolasiban for IVF, and are exploring potential repositioning of the compound, such as through higher dose levels and earlier and longer exposure of nolasiban, as well as focusing on subjects with a high uterus contraction rate at the time of ET. In addition, we performed an individual patient level meta-analysis of the IMPLANT 1, 2, and 4 studies and showed an overall 5% absolute increase in ongoing pregnancy rate which was statistically significant (p=0.029). Furthermore, population PK analyses indicated that higher exposures of nolasiban were associated with a higher probability of pregnancy. These results have been accepted for publication in the peer-reviewed journal, Human Reproduction. A mechanism of study in health volunteers showed evidence that treatment with nolasiban reduces uterine contractions, increases uterine blood flow, and induces changes in genes reported to be associated with endometrial receptivity. The results also suggested the potential for larger effects with higher doses of nolasiban. This study was published in the peer-reviewed journal RBM online. In connection with this potential repositioning, in January 2020, we and Yuyuan entered into a sublicense agreement to develop and commercialize nolasiban for improving clinical pregnancy and live birth rates in women undergoing embryo transfer as part of an IVF cycle in the People's Republic of China, or PRC. Under the terms of the agreement, Yuyuan has the exclusive rights to develop and commercialize nolasiban in the PRC. They will fund all development and registration activities in the PRC, starting with the obligation to fund and conduct a Phase 1 trial and a Phase 2 proof-of-concept trial in China. We retain all rights to the product outside of PRC, and have agreed to collaborate with Yuyuan on its global development. Our development and commercialization partnership with Yuyuan proceeded during 2021 with steering committee meetings to define the development plan for nolasiban in China for women undergoing ET following IVF.
Commercialization
In order to commercialize any of our product candidates if approved for commercial sale, we must either establish a sales and marketing organization with technical expertise and supporting distribution capabilities or collaborate with third-parties that have sales and marketing experience. As we move our product candidates through development toward regulatory approval we continue to evaluate several options for each product candidate’s commercialization strategy. These options include building our own internal sales force, entering into a strategic marketing partnership with third parties, including other pharmaceutical or biotechnology companies, or out-licensing the product to other pharmaceutical or biotechnology companies. For example, in October 2021 we announced a strategic relationship with Syneos Health, the only fully integrated biopharmaceutical solutions organization, to commercialize linzagolix in the U.S. and Canada. We have also entered into, and may in the future enter into, license agreements to out-license our product candidates, including our sublicense agreement with Yuyuan for Yuyuan to develop and commercialize nolasiban for improving clinical pregnancy and live birth rates in women undergoing embryo transfer following IVF in China, our global license, development and commercialization agreement with Organon for ebopiprant, and our licensing agreement with Theramex for the commercialization of linzagolix across global markets outside of the U.S., Canada and Asia.
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Manufacturing
We rely on CMOs to produce our product candidates in accordance with the FDA’s cGMP regulations for use in our clinical trials. The manufacture of pharmaceuticals is subject to extensive cGMP regulations, which impose various procedural and documentation requirements and govern all areas of record keeping, production processes and controls, personnel and quality control. Replacement of any of our CMOs would require us to qualify new manufacturers and negotiate and execute contractual agreements with them. If any of our supply or service agreements with our CMOs are terminated, we will experience delays and additional expenses in the completion of the development of and obtaining regulatory approval for linzagolix and nolasiban or our out-licensed product, ebopiprant.
To meet our projected needs for clinical supplies to support our activities through regulatory approval and commercial manufacturing, the CMOs with whom we currently work will need to increase scale of production or we will need to secure alternate suppliers. Pursuant to the Kissei license and supply agreement, we have agreed to exclusively purchase the active pharmaceutical ingredient for linzagolix from Kissei who is now obtaining linzagolix cGMP supply from two suppliers. If we are unable to obtain sufficient quantities of our products candidates or receive raw materials in a timely manner, we could be required to delay our ongoing clinical trials and seek alternative manufacturers, which would be costly and time-consuming.
The CMOs with whom we currently work will also need to ensure and maintain quality (cGMP compliance, specifications, shelf-life, expiry, in-process-control) throughout the production process of our clinical and commercial supplies. If we are unable to ensure and maintain quality of our products candidates, we could be required to delay our ongoing clinical trials which would be costly and time-consuming.
To mitigate the risks above, our relationships with CMOs are managed by internal personnel with extensive experience in NCE pharmaceutical development and chemistry, manufacturing and controls, or CMC.
Competition
Biopharmaceutical product development is highly competitive and subject to rapid and significant technological advancements. Our success is highly dependent upon our ability to in-license, acquire, develop and obtain regulatory approval for new and innovative products on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated, well-established pharmaceutical companies who already possess a large share of the market, specialty pharmaceutical and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in the European Union, United States and other jurisdictions.
With respect to linzagolix, in July 2018, the first compound from the oral gonadotropin-releasing hormone, or GnRH, receptor antagonist class, Orilissa ® (elagolix 150 mg QD and 200mg BID), received regulatory approval in the United States for the treatment of pain associated with endometriosis. AbbVie Inc. has been commercializing Orilissa in the United States since August 2018. In May 2020, AbbVie received regulatory approval in the United States for Orihnn ® (elagolix 300mg BID, estradiol 1mg and norethindrone acetate 0.5 mg QD) for the management of heavy menstrual bleeding associated with uterine fibroids. In May 2021, Myovant received regulatory approval in the United States for Myfembree ® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for the management of heavy menstrual bleeding associated with uterine fibroids. In July 2021, Myovant received regulatory approval in the EU for Ryeqo® (relugolix 40 mg, estradiol 1 mg, and norethindrone acetate 0.5 mg) for treatment of moderate to severe symptoms of uterine fibroids in adult women of reproductive age. Ryeqo® will be commercialized by Gedeon Richter. In September 2021, Myovant announced that the FDA accepted for review a supplemental New Drug Application for Myfrembree ® (relugolix 40 mg, estradiol 1mg, and norethindrone acetate 0.5 mg) for the management of moderate to severe paid associated with endometriosis, with a target action date of May 6, 2022. We also anticipate competing with GnRH receptor agonists, including Lupron (leuprolide acetate), marketed by AbbVie Inc. and Takeda Pharmaceuticals, the progestin Visanne (dienogest), which is approved for the treatment of endometriosis outside the United States and marketed by Bayer, and ulipristal acetate, a Selective Progesterone Receptor Modulator, or SPRM, which is approved for intermittent treatment of moderate to severe symptoms of uterine fibroids in adult women who have not reached menopause when uterine fibroid embolization and/or surgical treatment options are not suitable or have failed outside the United States and marketed by Gedeon Richter in Europe and other regions, and by Allergan in Canada. Ulipristal acetate, experienced severe label restrictions of usage in 2018 which were further restricted early in 2021, due to post marketing liver safety issues. Allergan had submitted an NDA for ulipristal acetate but disclosed receipt of a complete response letter from the FDA in August 2018 that the NDA is not approvable in its current form and requesting additional information. Enrollment in Phase 3 clinical trials of vilaprisan, another SPRM developed by Bayer Schering for the treatment of uterine fibroids and endometriosis, was halted by Bayer Schering after long-term toxicology studies in rodents indicated a potential problem. In addition, oral contraceptives and nonsteroidal anti-
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inflammatory drugs, or NSAIDs, are routinely used as a first-line therapy for the treatment of symptoms associated with endometriosis and uterine fibroids and have a meaningful success rate at mitigating the symptoms associated with these conditions.
With respect to ebopiprant, Tractotile (atosiban) is approved to delay preterm birth outside of the United States, and we anticipate potential competition as a single agent, if not used in combination with ebopiprant, given their different mechanisms of action. In terms of clinical development, it is our understanding that GlaxoSmithKline terminated the in-house development of retosiban, an oxytocin receptor antagonist, designed to delay preterm birth. Currently available prostaglandin synthesis inhibitors, such as NSAIDs may also represent competitive therapies, some of which may be used off-label as standard of care, despite risk of serious side effects for the neonates.
With respect to nolasiban, there are no other oxytocin receptor antagonists approved either for oral administration or for use in connection with IVF. However, it is our understanding that Ferring Pharmaceuticals Inc. has barusiban in its development pipeline, an oxytocin receptor antagonist, to be administered subcutaneously, that may be developed for use in connection with IVF. Nevertheless, to our knowledge, no new clinical trial activity has been publicly announced since completion of a Phase 2 in 2015. Ferring Pharmaceuticals’ atosiban, an oxytocin receptor antagonist, to be administered by continuous infusion, has been used off-label in investigator-initiated trials in connection with IVF outside the United States.
We may also compete with other companies acquiring and developing or marketing drug therapies or products for women’s reproductive health diseases.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved drugs than we do. Mergers and acquisitions in the biopharmaceutical industry could result in even more resources being concentrated among a small number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our commercial opportunity and/or our ability to collect royalties or milestone payments could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than linzagolix, ebopiprant, nolasiban or any other product candidate that we may develop. Our competitors also may obtain FDA or other regulatory approval for their product candidates more rapidly than we may obtain approval for our product candidates, which could result in our competitors establishing a strong market position before we are able to enter the market. Any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful.
In addition, established biopharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make linzagolix, ebopiprant, nolasiban or any of our future product candidates less competitive.
Intellectual Property
We have filed numerous patent applications and have licensed numerous issued patents and patent applications pertaining to our product candidates and methods of manufacture and clinical use. We strive to protect and enhance the proprietary technology, inventions, and improvements that are commercially important to the development of our business by seeking, maintaining and defending our intellectual property, whether developed internally or licensed from third parties. For additional information regarding the license agreements to which we are a party, see the sections entitled “2013 License Agreement with Merck Serono,” “2015 License Agreement with Merck Serono” and “License and Supply Agreement with Kissei.” We also rely on trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of reproductive healthcare. Additionally, we intend to rely on regulatory protection afforded through data exclusivity and market exclusivity, as well as patent term extensions, where available.
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As of December 31, 2021, our patent portfolio as it pertains to certain of our product candidates included:
| • | seven United States (U.S.) patents, projected to expire between 2034 and 2035, three U.S. patent applications, which, if granted, project to expire between 2034 and 2037, as well as corresponding patents and patent applications internationally, directed to nolasiban as a composition of matter and uses of nolasiban in assisted reproductive technology; |
| • | two PCT applications, which, if granted in the U.S., project to expire between 2040 and 2041, directed to compositions of matter containing nolasiban and uses of nolasiban in assisted reproductive technology; |
| • | one U.S. patent, projected to expire in 2037, two U.S. patent applications, which, if granted, project to expire between 2037 and 2039, as well as corresponding patent applications internationally, directed to compositions of matter containing ebopiprant and uses of ebopiprant for the treatment of preterm labor; |
| • | one PCT application, which, if granted in the U.S., projects to expire in 2041, directed to compositions of matter containing ebopiprant and uses of ebopiprant for the treatment of preterm labor; |
| • | four U.S. patent applications, which, if granted, project to expire between 2038 and 2039, as well as corresponding patent applications internationally, directed to uses of linzagolix for the treatment of sex hormone-dependent diseases; and |
| • | two PCT applications, which, if granted in the U.S., project to expire in 2040, directed to uses of linzagolix for the treatment of sex hormone-dependent diseases. |
As of December 31, 2021, our in-licensed patent portfolio as it pertains to certain of our product candidates included:
| • | one U.S. patent, projected to expire in 2023, as well as corresponding patents and patent applications internationally, directed to nolasiban as a composition of matter; |
| • | four U.S. patents, projected to expire between 2024 and 2036, one U.S. patent application, which, if granted, projects to expire in 2036, as well as corresponding patents and patent applications internationally, directed to ebopiprant as a composition of matter and uses of ebopiprant for the treatment of preterm labor; and |
| • | five U.S. patents, projected to expire between 2030 and 2037, two U.S. patent applications, which, if granted, project to expire between 2031 and 2037, as well as corresponding patents and patent applications internationally outside of specified Asian countries, directed to linzagolix as a composition of matter and uses of linzagolix for the treatment of sex hormone-dependent diseases. |
The terms of individual patents may vary based on the countries in which they are obtained. Generally, patents issued for applications filed in the United States are effective for 20 years from the earliest effective non-provisional filing date in the absence, for example, of a terminal disclaimer shortening the term of the patent or patent term adjustment increasing the term of the patent. In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of FDA regulatory review periods. The restoration period cannot be longer than five years and the total patent term, including the restoration period, must not exceed 14 years following FDA approval. The duration of patents outside of the United States varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non-provisional filing date.
In addition to the U.S. patents and U.S. patent applications described above, our patent portfolio and our in-licensed patent portfolio include issued patents and pending patent applications in various other jurisdictions. For example, we have obtained, or we license from third parties, issued patents in Europe that pertain to certain aspects of our product candidates described above.
In addition to patents and patent applications that we own and license, we rely on trade secrets and know-how to develop and maintain our competitive position. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, and obtain and maintain ownership of certain technologies, in part, through confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors, and commercial partners.
Our future commercial success depends, in part, on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate without infringing valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell, or importing our products
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may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. With respect to our owned and licensed intellectual property, we cannot be sure that patents will issue from any of the pending patent applications to which we own or license rights or from any patent applications that we or our licensors may file in the future, nor can we be sure that any of our licensed patents or any patents that may be issued in the future to us or to our licensors will be commercially useful in protecting our product candidates and methods of using or manufacturing the same. Moreover, we may be unable to obtain patent protection for certain aspects of our product candidates generally, as well as with respect to certain indications. See the section entitled “Risk Factors—Risks Related to Our Intellectual Property” for a more comprehensive description of risks related to our intellectual property.
2013 License Agreement with Merck Serono
In August 2013, we entered into a license agreement, or the 2013 License Agreement, with Merck Serono, pursuant to which we received a worldwide exclusive license to develop, manufacture and commercialize compounds covered by the licensed patent rights, including nolasiban, which we are developing for the treatment of conditions associated with ART. In consideration for the license, we issued 914,069 Series A preferred shares to Merck Serono at the time of our Series A financing, which had a fair-value of $4.9 million. With respect to any products we commercialize under the 2013 License Agreement, we have agreed to pay Merck Serono quarterly royalties based on our annual net sales of each product at a high-single-digit percentage of annual net sales, subject to specified reductions, until the later of the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis, or ten years from the first commercial sale of such product on a country-by-country and product-by-product basis.
We are solely responsible for the development and commercialization of the product candidates licensed under the 2013 license agreement. Merck Serono has the first right to maintain, prosecute, and even enforce the licensed patent rights. The 2013 license agreement expires on the date of expiration of all royalty obligations, at which time our license becomes fully paid-up, irrevocable, and perpetual. Either party may terminate the 2013 license agreement earlier for an uncured material breach, subject to notice requirements and specified exceptions. Merck may terminate the 2013 license agreement if we or any of our affiliates or sublicensees challenge the licensed patent rights or in the event of our bankruptcy if we do not obtain a sublicensee within two years thereafter. We may also terminate the 2013 license agreement without cause at any time upon advance written notice to Merck Serono. Upon any termination, all license granted to us under the 2013 license agreement terminate.
2015 License Agreement with Merck Serono
In June 2015, we entered into a second license agreement with Merck Serono, or the 2015 License Agreement, which we amended in July 2016, pursuant to which we received a worldwide exclusive license to develop, manufacture and commercialize compounds covered by the licensed patent rights, including ebopiprant, which we are developing for the treatment of preterm labor in weeks 24 to 34 of pregnancy. In consideration for the license, we agreed to issue 325,000 Series A preferred shares to Merck Serono upon the initiation of a Phase 1 clinical trial for a licensed product. With respect to any products we commercialize under the 2015 License Agreement, we have agreed to pay Merck Serono quarterly royalties based on our annual net sales of each product at a mid-single-digit percentage of annual net sales, subject to specified reductions, until the later of the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or ten years from the first commercial sale of such product on a country-by-country and product-by-product basis.
We are solely responsible for the development and commercialization of the product candidates licensed under the 2015 License Agreement. Merck Serono has the first right to maintain, prosecute, and even enforce the licensed patent rights. The 2015 License Agreement expires on the date of expiration of all royalty obligations, at which time our license becomes fully paid-up, irrevocable and perpetual. Either party may terminate the 2015 License Agreement earlier for an uncured material breach, subject to notice requirements and specified exceptions. Merck may terminate the 2015 License Agreement if we or any of our affiliates or sublicensees challenge the licensed patent rights or in the event of our bankruptcy if we do not obtain a sublicensee within two years thereafter. We may also terminate the agreement without cause at any time upon advance written notice to Merck Serono. Upon any termination, all license granted to us under the 2015 License Agreement terminate.
License and Supply Agreement with Kissei
In November 2015, we entered into a license and supply agreement, or the Kissei License and Supply Agreement, with Kissei. Pursuant to the Kissei License and Supply Agreement we received an exclusive license to develop, manufacture and commercialize products, or the Product, containing the compounds which is a specified GnRH antagonist and covered by
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certain licensed patent rights, or the Compound, throughout the world except for specified Asian countries and we arranged to exclusively acquire from Kissei the material necessary to produce linzagolix. Under the Kissei License and Supply Agreement, we are developing linzagolix for the treatment associated with uterine fibroids and pain associated with endometriosis. The agreement also establishes a joint development committee, and upon the filing of regulatory approval, a joint marketing committee, each of which shall be composed of an equal number of representatives for each party, which will exchange information and monitor progress in the development and marketing of the Product, respectively. We must use commercially reasonable efforts to develop, manufacture and commercialize the Compound and the Product. We and Kissei will share development data and regulatory filings from our respective territories with one another. Further, we granted Kissei an exclusive license under any of our know-how and patents related to inventions or improvements resulting from our activities under the Kissei License and Supply Agreement, for Kissei to use in exploiting the Compound and the Product in their retained territory.
In consideration for the license, we made an initial $10.0 million upfront payment. We also made two payments of $5.0 million each to Kissei in 2017 and 2019 related to our commencement of the PRIMROSE and EDELWEISS Phase 3 clinical trials in the uterine fibroid and endometriosis indications, respectively. In addition, we have agreed to make additional aggregate milestone payments of up to $53.0 million upon the achievement of specified developmental milestones, such as the initiation of clinical trials and receipt of regulatory approvals. With respect to any product we commercialize under the Kissei License and Supply Agreement, we have agreed to make additional aggregate milestone payments of up to $125.0 million to Kissei upon the achievement of specified commercial milestones.
Pursuant to the Kissei License and Supply Agreement, we have agreed to exclusively purchase the active pharmaceutical ingredient for linzagolix from Kissei. During the development stage, we are obligated to pay Kissei a specified supply price. Following the first commercial sale of licensed product, we are obligated to pay Kissei a royalty payment in the low twenty percent range as a percentage of net sales for product sold outside of North America, which includes payment for Kissei’s supply of the active pharmaceutical ingredient, and a tiered single digit royalty of nets sales plus a specified supply price for product sold in North America, in each case until the latest of the date that the valid claim of a patent for the Product has expired, the expiration of our regulatory exclusivity period or 15 years from the first commercial sale of such product on a country-by-country and product-by-product basis. During the term, we are restricted from developing, marketing and selling GnRH agonists and GnRH antagonists other than the Compound to the extent allowed by applicable laws.
In October 2021, we amended the Kissei license and supply agreement such that first commercial sales milestones for the EU and the United States will now be extended over a 5-year period. In addition, North American royalty payments were lowered to tiered single digit royalties on net sales plus a supply price for the API.
We are solely responsible, at our expense, for the development and commercialization of the Product candidates licensed under the Kissei License and Supply Agreement in the licensed territory. Kissei has the responsibility to maintain and prosecute the licensed patent rights in the licensed territory and we have the right to enforce any of them in the event that Kissei abandons it. The Kissei License and Supply Agreement terminates on the date of expiration of all royalty obligations, unless we elect to continue to purchase the Compound from Kissei after the expiration of all royalty obligations. Either party may terminate the Kissei License and Supply Agreement earlier for an uncured breach, subject to notice requirements and specified exceptions, including that Kissei has the option to convert the exclusive licenses granted to us to non-exclusive if we breach the agreement and fail to cure within a specified time period. We may also terminate the agreement for scientific, commercial, strategic or intellectual property reasons at any time upon advance written notice to Kissei. Kissei may also terminate the agreement if we do not fulfill certain development-related obligations for a specified period of time, or if, in connection with a change of control by us, we do not fulfill certain diligence obligations for a specified period of time. Further, under the terms of the Kissei License and Supply Agreement, Kissei is obligated to have a backup supplier based on the pharmaceutical industry standard. We may only gain the right to obtain an alternative source of the supply of linzagolix upon Kissei failing to deliver a substantial percentage of the requested supply, delivering the supply late or delivering the supply of linzagolix in nonconforming manner; provided that Kissei has a specified period of time to cure any of these defects. In the event that Kissei failed to deliver a substantial percentage of requested supply of linzagolix, we may gain the right to obtain an alternative source of supply. Further, we and Kissei are each obligated to maintain a specified percentage of supply in excess of the estimate for yearly requirements that we submit to Kissei.
Sublicense Agreement with Yuyuan
In January 2020, we entered into a sublicense agreement, or the 2020 Sublicense Agreement, with Hangzhou Yuyuan BioScience Technology Co., Ltd., or Yuyuan, pursuant to which we granted to Yuyuan an exclusive sublicense under certain
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of our patents, trademarks and know-how to use, register, import, develop, market, promote, distribute, offer for sale and commercialize nolasiban for use in humans in the People’s Republic of China, including Hong Kong and Macau. Yuyuan will be responsible for the continued development of nolasiban in China at its sole cost, and is required to use commercially reasonable efforts to develop the product in accordance with certain development milestones. Yuyuan will be responsible for commercialization of nolasiban in China at its sole cost. We are obligated to supply Yuyuan with its clinical and commercial requirements of the product at cost. Yuyuan has agreed to not develop, market or sell any oxytocin receptor antagonist other than nolasiban during the term of the 2020 Sublicense Agreement. The development and commercialization activities for nolasiban will be governed by a joint development committee and joint commercialization committee, respectively, with each party having final decision-making authority for its territory. In consideration for entering into the 2020 Sublicense Agreement, Yuyuan has agreed to make aggregate milestone payments of up to $17.0 million upon the achievement of specified development, regulatory and first sales milestones and aggregate milestone payments of up to $115.0 million upon the achievement of additional, tiered sales milestones. In addition, Yuyuan has agreed to pay tiered royalties on net sales at percentages ranging from high-single digit to low-second digits, subject to specified reductions, until the later of the expiration of the last valid claim covering the product in China and ten years from the first commercial sale of the product in China.
We have the first right to file, prosecute and maintain the licensed patents in China. In the event that we do not elect to file, prosecute or maintain a licensed patent in China, Yuyuan will have the right to request an assignment of such patent, in which event, Yuyuan would be responsible for further filing, prosecution and maintenance. We have the first right to enforce licensed patents in China. Subject to the consent of our licensor of the licensed patents, Yuyuan will have a back-up right to enforce licensed patents in China. The 2020 Sublicense Agreement expires on the date of expiration of all royalty obligations. The 2020 sublicense agreement is subject to earlier termination by either party upon an uncured material breach of the 2020 Sublicense Agreement by the other party or an unresolved force majeure event. Yuyuan may terminate the agreement upon specified written notice in the event that certain clinical results are negative. Additionally, we may terminate the agreement if Yuyuan fails to make certain payments in a timely manner, if Yuyuan is acquired by a party with a competing product, if Yuyuan fails to achieve first commercial sale within a specified timeframe after approval, and in the event that Yuyuan challenges the validity, enforceability or patentability of the licensed patents.
License Agreement with Organon
In July 2021, we entered into an agreement with Organon whereby Organon gained exclusive worldwide rights to develop, manufacture and commercialize ebopiprant.
Under the terms of the agreement, Organon gained exclusive worldwide rights to develop, manufacture and commercialize ebopiprant. We are entitled to receive tiered double-digit royalties on commercial sales as well as up to $500 million in upfront and milestone payments, including $25 million that was paid at signing, up to $90 million in development and regulatory milestones and up to $385 million sales-based milestones. Unless terminated earlier, the agreement will continue until expiration of all of Organon’s royalty obligations to ObsEva. ObsEva and Organon may each terminate the agreement for the other party’s uncured material breach and for certain other “for cause” reasons, and Organon may terminate the agreement for convenience following a certain notice period.
License Agreement with Theramex
In February 2022, we entered into a licensing agreement with Theramex for the commercialization and further development of linzagolix across global markets outside of the U.S., Canada and Asia. Under the terms of the agreement, Theramex has the exclusive right to commercialize linzagolix in women's health indications (with the express exclusion of any oncology indications). Under the terms of the agreement, we are entitled to receive royalties of a mid-thirties percentage on commercial sales, which includes the cost of goods sold to Theramex. Furthermore, the agreement contains up to EUR72.75 million in upfront and milestone payments, including EUR5 million to be paid at signing, up to EUR13.75 million in development and commercial milestones and up to EUR54 million in sales-based milestones. Unless terminated earlier, the agreement will continue until the expiration of all off Theramex's royalty obligations to us. We and Theramex may each terminate the agreement for the other party's uncured material breach and for certain other "for cause" reasons, and Theramex may terminate the agreement should we fail to meet certain regulatory milestones by specific dates.
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Government Regulation
FDA Drug Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or FDCA, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling and import and export of pharmaceutical products. To obtain regulatory approvals in the United States and in foreign countries, and subsequently comply with applicable statutes and regulations, we will need to spend substantial time and financial resources.
Approval Process
The FDA must approve any new drug or a drug with certain changes to a previously approved drug before a company can market it in the United States. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending applications, warning or untitled letters, clinical holds, withdrawal of an approval, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, civil penalties or criminal prosecution.
The steps required before a drug may be marketed in the United States generally include the following:
| • | completion of extensive preclinical laboratory tests, animal studies and CMC studies, all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, regulations; |
| • | submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials may begin. The sponsor must update the IND annually; |
| • | approval of the study by an IRB or ethics committee at each site before the study begins; |
| • | performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, requirements to establish the safety and efficacy of the drug for each proposed indication to the FDA’s satisfaction; |
| • | submission to the FDA of an NDA after completion of all clinical trials; |
| • | potential review of the drug application by an FDA advisory committee, if applicable; |
| • | satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP regulations and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity; and |
| • | FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States. |
Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLP. The company submits the results of the preclinical testing, together with manufacturing information, analytical data and any available clinical data or literature to the FDA as part of an IND along with other information, including information about product CMC and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after submitting the initial IND.
The FDA requires a 30-day waiting period after the submission of each IND before the company can begin clinical testing in humans. The FDA may, within the 30-day time period, raise concerns or questions relating to one or more proposed clinical trials and place the study on a clinical hold. In such a case, the company and the FDA must resolve any outstanding concerns before the company may begin the clinical trial. Accordingly, the submission of an IND may or may not be sufficient to permit the sponsor to start a clinical trial. If, following the 30-day period, the FDA does not raise any concerns regarding the IND submission, the company may begin clinical testing under the IND. The company must also make a separate submission to an existing IND for each successive clinical trial conducted during drug development.
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Clinical Trials
Clinical trials involve administering the investigational new drug to healthy volunteers or patient trials under the supervision of a qualified investigator. The company must conduct clinical trials:
| • | in compliance with federal regulations |
| • | in compliance with GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors |
| • | under protocols detailing the objectives of the trial, the safety monitoring parameters, and the effectiveness criteria to be evaluated. |
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the sponsor is not conducting the clinical trial in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The sponsor must also submit the study protocol, any amendments to protocols and informed consent information for patients in clinical trials to an IRB for approval at each site at which the clinical trial will be conducted. An IRB may halt the clinical trial, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. Information about certain clinical trials and their results must be also submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their www.clinicaltrials.gov website.
Companies generally divide the clinical investigation of a drug into three or four phases. While companies usually conduct these phases sequentially, they are sometimes overlapped or combined.
| • | Phase 1. These trials typically evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational new drug in humans, the side effects associated with increasing doses, and if possible, gain early evidence on effectiveness. Other Phase 1 or clinical pharmacology studies generally evaluate the drug for potential DDI, cardiovascular safety and special population interactions. These studies, if needed, are to be conducted prior to NDA submission but may be conducted in parallel to Phase 2 and Phase 3. |
| • | Phase 2. The drug is administered to a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse side effects and safety risks, and preliminarily evaluate efficacy. Phase 2 trials may be denoted as Phase 2a, wherein initial dose-response relationship is explored, and Phase 2b, wherein dose-ranging and proof-of-concept is targeted. |
| • | Phase 3. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug, and to provide an adequate basis for labeling and product approval. |
| • | Phase 4. In some cases, the FDA may condition approval of an NDA for a drug on the company’s agreement to conduct additional clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more information about the drug. Companies typically refer to such post-approval trials as Phase 4 clinical trials. |
The FDA, the IRB, or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee, may oversee some clinical trials. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial. We may also suspend or terminate a clinical trial based on evolving business objectives and the competitive climate.
Submission of an NDA
After we complete the required preclinical, CMC and clinical testing, we can prepare and submit an NDA to the FDA, which must approve the NDA before we can start marketing the drug in the United States. An NDA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the drug’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data can come from company-sponsored clinical trials on a drug, or from a number of alternative
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sources, including studies initiated by investigators. To support marketing authorization, the data we submit must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug to the FDA’s satisfaction.
The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the sponsor under an approved NDA is also subject to annual program user fees. The FDA typically increases these fees annually.
The FDA has 60 days from its receipt of an NDA to determine whether it will accept the application for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity. Once the FDA accepts the filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Under the Prescription Drug User Fee Act, the FDA has a goal of responding to standard review NDAs within ten months after the 60-day filing review period and priority review drugs within six months after the filing review period. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists.
In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee. This is typically a panel that includes clinicians and other experts that will review, evaluate, and recommend whether the FDA should approve the application. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP, and will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that provide evidence that the drug is safe and effective in the indication studied.
The FDA’s Decision on an NDA
After the FDA evaluates the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, it issues either an approval letter or a complete response letter. A complete response letter indicates that the FDA has completed its review of the application, and the agency has determined that it will not approve the application in its present form. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional clinical data or other significant, expensive, and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. The FDA has committed to reviewing resubmissions of the NDA addressing such deficiencies in two or six months, depending on the type of information included. Even with the submission of this additional information, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The government may establish additional requirements, including those resulting from new legislation, or the FDA’s policies may change, which could delay or prevent regulatory approval of our drugs under development.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require an REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for REMS can materially affect the potential market and profitability of the drug. Moreover, the FDA may condition approval on substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy.
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Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before we can implement the change. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing new NDAs. As with new NDAs, the FDA often significantly extends the review process with requests for additional information or clarification.
Post-approval Requirements
The FDA regulates products that are manufactured or distributed pursuant to FDA approvals and has specific requirements pertaining to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, the FDA must provide review and approval for most changes to the approved product, such as adding new indications or other labeling claims. There also are continuing, annual user fee requirements for any marketed products and the establishments who manufacture our products, as well as new application fees for supplemental applications with clinical data.
In some cases, the FDA may condition approval of an NDA for a product on the sponsor’s agreement to conduct additional clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more information about the product. Such post-approval trials are typically referred to as Phase 4 clinical trials.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP requirements. There are strict regulations regarding changes to the manufacturing process, and, depending on the significance of the change, it may require prior FDA approval before we can implement it. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if a company does not comply with regulatory requirements and maintain standards or if problems occur after the product reaches the market. If a company or the FDA discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, issues with manufacturing processes, or the company’s failure to comply with regulatory requirements, the FDA may revise the approved labeling to add new safety information; impose post-marketing trials or other clinical trials to assess new safety risks; or impose distribution or other restrictions under a REMS program. Other potential consequences may include:
| • | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls; |
| • | fines, warning letters or holds on post-approval clinical trials; |
| • | the FDA refusing to approve pending NDAs or supplements to approved NDAs, or suspending or revoking of product license approvals; |
| • | product seizure or detention, or refusal to permit the import or export of products; or |
| • | injunctions or the imposition of civil or criminal penalties. |
The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. We could be subject to significant liability if we violated these laws and regulations.
Healthcare Reform
In the United States, the European Union and foreign jurisdictions, the legislative landscape continues to evolve. There have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United States federal and state levels that seek to reduce healthcare costs. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the ACA, was enacted, which includes measures that have significantly
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changed health care financing by both governmental and private insurers. The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following:
| • | an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs agents and biologic agents, which is apportioned among these entities according to their market share in certain government healthcare programs; |
| • | an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively; |
| • | a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer 70% point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; |
| • | extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, unless the drug is subject to discounts under the 340B drug discount program; |
| • | a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; |
| • | expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; |
| • | expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; |
| • | new requirements under the federal Physician Payments Sunshine Act for drug manufacturers to report information related to payments and other transfers of value made to physicians, as defined by such law, and teaching hospitals as well as ownership or investment interests held by physicians and their immediate family members; |
| • | a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and |
| • | establishment of a Center for Medicare and Medicaid Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. |
There have been executive, judicial and Congressional challenges to certain aspects of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into law. Legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, or Tax Act, includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress. Thus, the ACA will remain in effect in its current form. Prior to the Supreme Court ruling, on January 28, 2021, President Biden issued an executive order to initiate a special enrollment period that remained open from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is also unclear how any such challenges and the healthcare reform efforts of the Biden administration will impact the ACA.
In addition, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted. For example, as a result of the Budget Control Act of 2011, providers are subject to Medicare payment reductions of 2% per fiscal year, which, due to subsequent legislation, including the BBA, will remain in effect through 2031, except for a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester.
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Further, the American Taxpayer Relief Act of 2012 reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments from providers from three to five years. More recently, there has been heightened governmental scrutiny recently over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare and reform government program reimbursement methodologies for products. Moreover, Congress is considering additional health reform measures.
At the federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration announced several executive orders related to drug pricing that seeks to implement several of the administration’s proposals. As a result, the FDA concurrently released a final rule and guidance in September 2020, providing pathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January 1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers the implementation of which have also been delayed by the Biden administration until January 1, 2023. On November 20, 2020, CMS issued an interim final rule implementing President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1, 2021. As a result of litigation challenging the Most Favored Nation model, on December 27, 2021, CMS published a final rule that rescinds the Most Favored Nation model interim final rule. Further, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. , in July 2021, the Biden administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. No legislation or administrative actions have been finalized to implement these principles. At the state level, individual states in the United States have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
Coverage, Reimbursement and Pricing
Significant uncertainty exists as to the coverage and reimbursement status of any products for which we may obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the availability of coverage and the adequacy of reimbursement from third-party payors. Third-party payors include government authorities, managed care organizations, private health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Moreover, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. For example, the payor’s reimbursement payment rate may not be adequate or may require co-payments that patients find unacceptably high. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. However, one third-party payor’s decision to cover a particular product does not ensure that other payors will also provide coverage for the product, or will provide coverage at an adequate reimbursement rate. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Further, some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they provide reimbursement for use of such therapies.
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Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of products and services, in addition to their safety and efficacy. To obtain coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies to demonstrate the medical necessity and cost-effectiveness of our product. These studies will be in addition to the studies required to obtain regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. Thus, obtaining and maintaining reimbursement status is time-consuming and costly.
The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription products. By way of example, the ACA contains provisions that may reduce the profitability of products, including, for example, increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, the Medicare Access and CHIP Reauthorization Act of 2015 ended the use of the statutory formula, also referred to as the Sustainable Growth Rate, for clinician payment and established a quality payment incentive program, also referred to as the Quality Payment Program. This program provides clinicians with two ways to participate, including through the Advanced Alternative Payment Models, or APMs, and the Merit-based Incentive Payment System, or MIPS. In November 2019, CMS issued a final rule finalizing the changes to the Quality Payment Program. At this time, the full impact to overall physician reimbursement under the Medicare program as a result of the introduction of the Quality Payment Program remains unclear. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
In the European Community, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide coverage and adequate reimbursement. In addition, the focus on cost containment measures in the United States and other countries has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if we attain favorable coverage and reimbursement status for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Sales and Marketing
Numerous regulatory authorities in addition to the FDA, including, in the United States, CMS, other divisions of HHS, the U.S. Department of Justice, and similar foreign, state, and local government authorities, regulate sales, promotion and other activities of prescription drug manufacturers. As described above, the FDA regulates all advertising and promotion activities for products under its jurisdiction both prior to and after approval. Only those claims relating to safety and efficacy that the FDA has approved may be used in labeling. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those we tested and the FDA approved. Such off-label uses are common across medical specialties, and often reflect a physician’s belief that the off-label use is the best treatment for the patients. The FDA does not regulate the behavior of physicians in their choice of treatments, but FDA regulations do impose stringent restrictions on manufacturers’ communications regarding off-label uses. If we do not comply with applicable FDA requirements we may face adverse publicity, enforcement action by the FDA, corrective advertising, consent decrees and the full range of civil and criminal penalties available to the FDA. Promotion of off-label uses of products can also implicate the false claims laws described below.
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In the United States, clinical research, sales, marketing and scientific/educational programs must also comply with various federal and state laws pertaining to healthcare “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws including, without limitation, the federal Anti-Kickback Statute that applies to items and services reimbursable under governmental healthcare programs such as Medicare and Medicaid, makes it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular product. Due to the breadth of the statutory provisions and the narrowness of statutory exceptions and regulatory safe harbors available, it is possible that our practices might be challenged under the federal Anti-Kickback Statute or similar laws. Moreover, recent healthcare reform legislation has strengthened these laws. For example, the ACA, among other things, amended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the ACA clarifies that the government may assert that a claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. In addition, the U.S. federal government and private individuals, on behalf of the U.S. federal government, can bring similar actions under the federal civil False Claims Act. False claims laws, including, without limitation, the federal civil False Claims Act, prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment, to third-party payors (including Medicare and Medicaid) claims for reimbursed products or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws, as well as civil monetary penalties laws and the criminal healthcare fraud provisions enacted as part of the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA. Violations of fraud and abuse laws may be punishable by criminal, civil and administrative sanctions, including significant fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement, imprisonment, and corporate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees, including criminal sanctions against executive officers under the so-called “responsible corporate officer” doctrine, even in situations where the executive officer did not intend to violate the law and was unaware of any wrongdoing.
Given the significant penalties and fines that can be imposed on companies and individuals if convicted, allegations of such violations often result in settlements even if the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions, including fines and civil monetary penalties, and corporate integrity agreements. If the government were to allege or convict us or our executive officers of violating these laws, our business could be harmed. Our activities could be subject to challenge for the reasons discussed above and due to the broad scope of these laws and the increasing attention being given to them by law enforcement authorities. Other healthcare laws that may affect our ability to operate include HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and the federal Physician Payments Sunshine Act, which requires certain manufacturers of products, devices, biologics, and medical supplies to report annually to CMS information related to payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members.
Further, there are an increasing number of state laws that affect our business operations. Some state and local laws require manufacturers to make reports to on pricing and marketing information and impose registration requirements on salespersons within the jurisdiction. Other state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources. Some states maintain anti-kickback and false claims laws that apply to claims involving healthcare items or services reimbursed by any third-party payor, including private insurers. We may also be subject to state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Many of these state laws contain ambiguities as to what is required to comply with the laws. Given the lack of clarity in laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state authorities. Ensuring that our internal operations and future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs.
Similar rigid restrictions are imposed on the promotion and marketing of products in the European Union and other countries. Even in those countries where we may not be directly responsible for the promotion and marketing of our products, if our potential international distribution partners engage in inappropriate activity it can have adverse implications for us.
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Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from government contracts.
European Union—EMA process
In the European Union, products follow a similar demanding process as that we described above for the United States and the ICH Common Technical Document is the basis for applications.
Centralized Procedure
Under the centralized procedure, after the Committee for Medicinal Products for Human Use, or CHMP, of the EMA issues an opinion, the European Commission issues a single marketing authorization valid across the European Union, as well as Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human products that are: derived from biotechnology processes, such as genetic engineering; contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders or autoimmune diseases and other immune dysfunctions; and officially designated orphan drugs. For products that do not fall within these categories, an applicant has the option of submitting an application for a centralized marketing authorization to the EMA as long as the product concerned is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health.
National Authorization Procedures
There are also two other possible routes to authorize medicinal products in several countries, which are available for products that fall outside the scope of the centralized procedure:
| • | Decentralized procedure. Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one European Union country of a medicinal product that has not yet been authorized in any European Union country and that does not fall within the mandatory scope of the centralized procedure. |
| • | Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in one European Union Member State, in accordance with the national procedures of that country. Thereafter, further marketing authorizations can be sought from other European Union countries in a procedure whereby the countries concerned agree to recognize the validity of the original, national marketing authorization. |
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Good Manufacturing Practices
Like the FDA, the EMA, the competent authorities of the European Union Member States and other regulatory agencies regulate and inspect equipment, facilities and processes used in the manufacturing of products prior to approving a product. If, after receiving clearance from regulatory agencies, a company makes a material change in manufacturing equipment, location, or process, additional regulatory review and approval may be required. Once we or our partners commercialize products, we will be required to comply with cGMP, and product-specific regulations enforced by, the European Commission, the EMA and the competent authorities of European Union Member States following product approval. Also like the FDA, the EMA, the competent authorities of the European Union Member States and other regulatory agencies also conduct regular, periodic visits to re-inspect equipment, facilities, and processes following the initial approval of a product. If, as a result of these inspections, the regulatory agencies determine that our or our partners’ equipment, facilities, or processes do not comply with applicable regulations and conditions of product approval, they may seek civil, criminal or administrative sanctions or remedies against us, including the suspension of our manufacturing operations or the withdrawal of our product from the market.
Data and Market Exclusivity
Similar to the United States, there is a process to authorize generic versions of innovative products in the European Union. Generic competitors can submit abridged applications to authorize generic versions of products authorized by the European Commission through a centralized procedure referencing the innovator’s data and demonstrating bioequivalence to the reference product, among other things. New products in the European Union can receive eight years of data exclusivity coupled with two years of market exclusivity, and a potential one-year extension, if the marketing authorizations holder obtains an authorization for one or more new therapeutic indications that demonstrates “significant clinical benefit” in comparison with existing therapies. This system is usually referred to as “8+2”. Abridged applications cannot rely on an innovator’s data until after expiration of the eight year data exclusivity term, meaning that a competitor can file an application for a generic product but the product cannot be marketed until the end of the market exclusivity term.
C. Organizational Structure.
The following diagram illustrates our corporate structure:
D. Property, Plants and Equipment.
Our principal executive offices are located at Chemin des Aulx, 12, 1228 Plan-les-Ouates, Geneva, Switzerland, where we lease an approximately 1,000 square meter facility. We believe that our current facilities are suitable and adequate to meet our current needs. If we need to add new facilities or expand existing facilities as we add employees, we believe that suitable additional space will be available to accommodate any such expansion of our operations.
Not applicable.
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Item 5. Operating and Financial Review and Prospects.
Overview
We are a biopharmaceutical company focused on the development and commercialization of novel therapeutics to improve women’s reproductive health and pregnancy. Through strategic in-licensing and disciplined drug development, we have established a late-stage clinical pipeline with development programs focused on treating endometriosis, uterine fibroids, preterm labor, and improving embryo transfer outcomes following in vitro fertilization. Our goal is to build the leading women’s reproductive health and pregnancy company focused on conditions where current treatment options are limited and significant unmet needs exist.
We are developing linzagolix as a novel, oral gonadotropin releasing hormone, or GnRH, receptor antagonist, for the treatment associated with uterine fibroids and pain associated with endometriosis in pre-menopausal women. Aimed at addressing the need of the largest possible population in each indication, our clinical trials for both of these indications are designed to assess and potentially support the registration of two regimens of administrations for linzagolix i.e. (i) a low dose of linzagolix with or without hormonal ABT and (ii) a high dose of linzagolix with hormonal ABT.
In November 2020, we submitted a MAA to the EMA, for the treatment of uterine fibroids in adult women of reproductive age. Our application was validated by the EMA in January 2021, and in December 2021, we received a positive opinion from the CHMP recommending approval of linzagolix for the management of moderate to severe symptoms of uterine fibroids in adult women of reproductive age. In February 2022, we announced that based on ongoing communications with the EMA, further questions on the MAA for linzagolix may be forthcoming, thereby extending the application timeline. We are in dialogue with the EMA to understand areas that may require further clarification and are committed to promptly addressing any questions that could arise. If approved by the European Commission, linzagolix would be the first and only approved GnRH antagonist with a non-hormonal option to address the needs of women who cannot or do not want to take hormones. In September 2021, we submitted an NDA to the FDA for linzagolix for the treatment of uterine fibroids. This NDA was accepted for review by the FDA and assigned a PDUFA target action date of September 13, 2022.
We are currently conducting an observational study (PRIMROSE 3) of bone mineral density, or BMD, in women who completed at least 20 weeks of treatment in either of the PRIMROSE 1 or 2 studies. Women who enroll in the study will undergo DXA scanning every six months for a total of 24 months following treatment completion in a PRIMROSE study. The objectives of the study are to describe BMD changes up to 24 months following previous treatment with placebo or linzagolix 100 mg or 200 mg with or without hormonal ABT in the context of the PRIMROSE 1 and 2 studies and to evaluate BMD recovery in these women.
In addition to linzagolix for uterine fibroids, we are presently conducting a Phase 3 clinical trial for the treatment of endometriosis associated pain, EDELWEISS 3 (conducted in Europe and in the United States), which was initiated in May 2019. This Phase 3 trial enrolled approximately 450 patients with endometriosis associated pain, with a co-primary endpoint of patients’ response on both DYS and NMPP. This trial includes a 75 mg once daily dose without hormonal ABT (1mg E2 / 0.5mg NETA) and a 200 mg once daily dose with concomitant hormonal ABT. In January 2022, we announced positive topline results for linzagolix 200 mg with hormonal ABT. The 200 mg dose met the co-primary efficacy objectives, demonstrating reductions in DYS and NMPP at 3 months. There were statistically significant and clinically meaningful improvements in the first five ranked secondary endpoints at 6 months: dysmenorrhea, non-menstrual pelvic pain, dyschezia, overall pelvic pain, and ability to do daily activities. The 75mg dose without hormonal ABT demonstrated a statistically significant reduction versus placebo in DYS at 3 months. Although it showed improvement in NMPP at 3 months, the 75mg does did not reach statistical significance versus placebo, and thus did not meet the co-primary efficacy objective. Improvements were also observed at 6 months in the first five ranked secondary endpoints, as for the 200 mg plus hormonal ABT dose. Both linzagolix doses were generally well-tolerated with minimal BMD decrease and few adverse events occurring in more than 5% of patients up to 6 months.
In October 2021, we announced a strategic relationship with Syneos Health®, the only fully integrated biopharmaceutical solutions organization, to commercialize linzagolix in the U.S. and Canada, if approved.
In February 2022, we entered into a licensing agreement with Theramex for the commercialization and further development of linzagolix across global markets outside of the U.S., Canada and Asia. Under the terms of the agreement, Theramex has the exclusive right to commercialize linzagolix in women's health indications (with the express exclusion of any oncology indications). Under the terms of the agreement, we are entitled to receive royalties of a mid-thirties percentage on commercial sales, which includes the cost of goods sold to Theramex. Furthermore, the agreement contains up to EUR72.75 million in upfront and milestone payments, including EUR5 million to be paid at signing, up to EUR13.75 million in development and commercial milestones and up to EUR54 million in sales-based milestones.
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In July 2021, we entered into an agreement with Organon whereby Organon licensed the exclusive worldwide rights to develop, manufacture and commercialize ebopiprant. Under the terms of the agreement, we are entitled to receive tiered double-digit royalties on commercial sales as well as up to $500 million in upfront and milestone payments, including $25 million that was paid at signing, up to $90 million in development and regulatory milestones and up to $385 million in sales-based milestones.
Our pipeline also includes nolasiban, an oral oxytocin receptor antagonist, to improve clinical pregnancy and live birth rates in women undergoing in-vitro fertilization, or IVF.
In November 2019, we announced that the IMPLANT 4 trial did not meet the primary endpoint of an increase in ongoing pregnancy rate at 10 weeks, (39.1 % placebo vs 40.5 % nolasiban) (p = 0.745). As these results did not confirm the prior positive Phase 3 IMPLANT 2 trial findings, we have discontinued our previously ongoing development of nolasiban for IVF, and are exploring potential repositioning of the compound, such as through higher dose levels and earlier and longer exposure of nolasiban, as well as focusing on subjects with a high uterus contraction rate at the time of embryo transfer, or ET. In connection with this potential repositioning, in January 2020, we and Yuyuan entered into a sublicense agreement to develop and commercialize nolasiban for improving clinical pregnancy and live birth rates in women undergoing embryo transfer as part of an IVF cycle in the People's Republic of China (PRC). Under the terms of the agreement, Yuyuan has the exclusive rights to develop and commercialize nolasiban in the PRC. We retain all rights to the product outside of PRC and have agreed to collaborate with Yuyuan on its global development. Our development and commercialization partnership with Yuyuan proceeded during 2021 with steering committee meetings to define the development plan for nolasiban in China for women undergoing ET following IVF.
We were founded in November 2012 and our operations to date have included organizing and staffing our company, raising capital, in-licensing rights to linzagolix, ebopiprant and nolasiban and conducting nonclinical studies and clinical trials and preparing for commercialization for linzagolix, if approved. To date, we have not generated any revenue from product sales as none of our product candidates have been approved for commercialization. We have historically financed our operations mostly through the sale of equity. From inception through the date of this Annual Report on Form 20-F, we have raised an aggregate of $496.7 million of net proceeds, including $88.5 million of net proceeds from our initial public offering in January 2017, $56.3 million of net proceeds from our private placement with institutional investors in October 2017, $72.4 million in net proceeds from our underwritten public offering in June 2018 and $20.0 million in net proceeds from our underwritten public offering and concurrent private placement in September 2020. During 2021, we received proceeds of $22.1 million from the exercise of warrants associated with the private placement in 2020. In August 2019, we borrowed $25.0 million under our prior credit facility with Oxford Finance LLC. In October 2021, we borrowed $30.0 million under the convertible notes issued to JGB and used these proceeds to pay off the Oxford facility. In addition, between 2018 and 2021, we sold treasury shares from our “at the market” (ATM) program, generating net proceeds of $91.5 million.
We have never been profitable, have incurred significant net losses in each period since our inception and we have substantial doubt regarding our ability to continue as a going concern. Our net losses were $58.4 million, $83.0 million and $108.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had accumulated losses of $467.8 million, out of which $30.6 million were offset with share premium. This reclassification transaction had no impact on total equity. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We used $70.3 million and $70.8 million of cash in operations in 2021 and 2020, respectively, and we anticipate that our expenses will remain significant in connection with our ongoing activities as we:
| • | continue to invest in the clinical development of our product candidates and our ongoing clinical trials, and any additional clinical trials, nonclinical studies and pre-commercial activities that we may conduct for product candidates; |
| • | hire additional research and development, and general and administrative personnel; |
| • | maintain, expand and protect our intellectual property portfolio; |
| • | identify and in-license or acquire additional product candidates; |
| • | prepare for the commercialization of linzagolix, if approved, or any of our other certain product candidates; and |
| • | continue to incur additional costs associated with operating as a public company. |
We will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and invest in future commercialization of these candidates, if approved. Adequate funding may not be available to us on acceptable terms, or at all.
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We have no manufacturing facilities, and all of our manufacturing activities are contracted out to third parties. We currently utilize third-party contract research organizations, or CROs, to carry out our clinical development and trials. Additionally, we do not yet have a commercialization organization. As we move our product candidates through development toward regulatory approval, we will evaluate several options for each product candidate’s commercialization strategy. These options include building our own internal sales force, contracting with a third-party contract sales organization, or CSO, entering into a joint marketing partnership with another pharmaceutical or biotechnology company, or out-licensing the product to another pharmaceutical or biotechnology company.
COVID-19 Business Update
With the global spread of the ongoing COVID-19 pandemic which continues to date, we have implemented a number of plans and policies designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business. We continue to closely monitor the COVID-19 situation and will evolve our plans and policies as needed going forward. In March 2020, some of our workforce transitioned to working remotely. If the COVID-19 pandemic continues to persist for an extended period and begins to impact essential distribution systems, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing of clinical trial supply.
We may continue to experience a disruption or delay in our ability to initiate trial sites and enroll and assess patients. In January 2021, we announced our decision to discontinue our EDELWEISS 2 and its extension clinical trial, due to challenges with patient enrollment, as well as the persisting difficult environment of the ongoing pandemic. Enrollment delays may further occur for ongoing trials, and we are working closely with our vendors to manage our supply chain activities and mitigate any potential disruptions to our clinical trial supplies as a result of the COVID-19 pandemic. In addition, we rely on CROs or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business and operations, or the business and operations of our strategic partners, will depend on future developments that are highly uncertain, including the duration and spread of the pandemic, and the actions taken to contain it, such as the impact and effectiveness of current and any future governmental measures implemented in response thereto, or new information that may emerge concerning COVID-19.
Strategic Licensing Agreements
Linzagolix
Kissei
In November 2015, we entered into the Kissei license and supply agreement with Kissei Pharmaceutical Co., Ltd., or Kissei. Pursuant to the Kissei license and supply agreement we received an exclusive license to develop, manufacture and commercialize products, or the Product, containing the compounds which is a specified GnRH antagonist and covered by certain licensed patent rights, or the Compound, throughout the world except for specified Asian countries. We arranged to exclusively acquire from Kissei the material necessary to produce linzagolix.
In consideration for the license, we made an initial $10.0 million upfront payment. In addition, we agreed to make aggregate milestone payments of up to $63.0 million upon the achievement of specified developmental milestones, such as the initiation of clinical trials and receipt of regulatory approvals. In connection with the initiations of the Phase 3 clinical programs for linzagolix in (i) uterine fibroids in the second quarter of 2017 and (ii) endometriosis in the third quarter of 2019, two milestone payments of $5.0 million each were made. With respect to any products we commercialize under the Kissei license and supply agreement, we agreed to make further payments of up to an additional $125.0 million to Kissei upon the achievement of specified commercial milestones.
Pursuant to the Kissei license and supply agreement, and related amendments, we have agreed to exclusively purchase the active pharmaceutical ingredient for linzagolix from Kissei. During the development stage, we are obligated to pay Kissei a specified supply price. For territories excluding North America, following the first commercial sale of licensed product, we are obligated to pay Kissei a royalty in the low twenty percent range as a percentage of net sales. This payment includes Kissei’s supply of the active pharmaceutical ingredient until the latest of (i) the date that the valid claim of a patent for the Product has expired, (ii) the expiration of our regulatory exclusivity period, or (iii) 15 years from the first commercial sale of such product on a country-by-country and product-by-product basis. For North America, following the first commercial sale of licensed product, we are obligated to pay Kissei a royalty in the tiered single digit royalties on net sales plus a supply price
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for the API. During the term, we are restricted from developing, marketing and selling GnRH agonists and GnRH antagonists other than the Compound to the extent allowed by applicable laws.
In October 2021, we amended the license and supply agreement with Kissei such that first commercial sales milestones for the EU and the US will now be extended over a 5-year period. In addition, North American royalty payments were lowered to tiered single digit royalties on net sales plus a supply price for the active pharmaceutical ingredient (API).
Theramex
In February 2022, we entered into a licensing agreement with Theramex for the commercialization and further development of linzagolix across global markets outside of the U.S., Canada and Asia. Under the terms of the agreement, Theramex has the exclusive right to commercialize linzagolix in women's health indications (with the express exclusion of any oncology indications). Under the terms of the agreement, we are entitled to receive royalties of a mid-thirties percentage on commercial sales, which includes the cost of goods sold to Theramex. Furthermore, the agreement contains up to EUR72.75 million in upfront and milestone payments, including EUR5 million to be paid at signing, up to EUR13.75 million in development and commercial milestones and up to EUR54 million in sales-based milestones.
Ebopiprant
Merck Serono
In June 2015, we entered into the 2015 license agreement with Merck Serono, which we amended in July 2016, pursuant to which we received a worldwide exclusive license to develop, manufacture and commercialize compounds covered by the licensed patent rights, including ebopiprant. In consideration for the license, we issued 325,000 Series A preferred shares to Merck Serono in September 2016 upon the initiation of a Phase 1 clinical trial for a licensed product. With respect to any products we commercialize under the 2015 license agreement, we agreed to pay Merck Serono royalties based on a mid-single-digit percentage of annual net sales of each product, subject to specified reductions, until the later of (i) the date that all of the patent rights for that product have expired, as determined on a country-by-country and product-by-product basis or (ii) ten years from the first commercial sale of such product on a country-by-country and product-by-product basis.
Organon
In July 2021, we entered into an agreement with Organon, pursuant to which we granted to Organon exclusive rights to develop, use, register, import, export, manufacture, market, promote, distribute, offer for sale and commercialize ebopiprant worldwide. In consideration for entering into the agreement, Organon has agreed to make up to $500 million in upfront and milestone payments, including $25 million that was paid at signing, up to $90 million in development and regulatory milestones and up to $385 million in sales-based milestones. In addition, Organon has agreed to pay us tiered double-digit royalties on annual net sales of all products, subject to specified reductions, until, on a country-by-country and product-by-product basis, the latest of (i) the expiration of the last valid claim covering such product in such country, (ii) expiration of regulatory exclusivity for such product in such country, and (iii) ten years from the first commercial sale of such product in such country.
Nolasiban
Ares Trading
In August 2013, we entered into the 2013 license agreement with Ares Trading S.A., an affiliate of Merck Serono, pursuant to which we received a worldwide exclusive license to develop, manufacture and commercialize compounds covered by the licensed patent rights, including nolasiban. In consideration for the license, we issued 914,069 Series A preferred shares to Merck Serono at the time of our Series A financing, which had a fair-value of $4.9 million based on an exchange rate of $1.00 for CHF 0.9244 as of the date of the transaction. With respect to any products we commercialize under the 2013 license agreement, we agreed to pay Merck Serono royalties based on a high-single-digit percentage of annual net sales of each product, subject to specified reductions, until the later of (i) the date that all of the patent rights for that product have
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expired, as determined on a country-by-country and product-by-product basis, or (ii) ten years from the first commercial sale of such product on a country-by-country and product-by-product basis.
Yuyuan
In January 2020, we entered into a sublicense agreement, or the 2020 sublicense agreement, with Yuyuan, pursuant to which we granted to Yuyuan an exclusive sublicense under certain of our patents, trademarks and know-how to use, register, import, develop, market, promote, distribute, offer for sale and commercialize nolasiban for use in humans in the People’s Republic of China, including Hong Kong and Macau. In consideration for entering into the 2020 sublicense agreement, Yuyuan has agreed to make aggregate milestone payments of up to $17.0 million upon the achievement of specified development, regulatory and first sales milestones and aggregate milestone payments of up to $115.0 million upon the achievement of additional, tiered sales milestones. In addition, Yuyuan has agreed to pay tiered royalties on net sales at percentages ranging from high-single digit to low-second digits, subject to specified reductions, until the later of the expiration of the last valid claim covering the product in China and ten years from the first commercial sale of the product in China.
Components of Results of Operations
Revenue
To date, we have not generated any revenue from product sales and we do not expect to generate revenue unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates.
Other operating income consists primarily of gains on disposal of intangible assets that we recognize when entering into certain agreements with partners for the development and/or commercialization of the product candidates we have been developing.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with our research and development activities and consist mainly of direct research and development costs, which include: costs associated with the use of CROs and consultants hired to assist on our research and development activities; personnel expenses, which include salaries, benefits and share-based compensation expenses for our employees; expenses related to regulatory affairs and intellectual property; manufacturing costs in connection with conducting nonclinical studies and clinical trials; and depreciation expense for assets used in research and development activities. Research and development costs are generally expensed as incurred. However, costs for certain activities, such as manufacturing and nonclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.
Our employee, consultant and infrastructure resources are typically utilized across our multiple research and development programs. We track outsourced research and development costs by product candidate or nonclinical program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates.
We expect our research and development expenses will remain significant for the foreseeable future as we seek to advance the development of our product candidates through clinical trials and potentially toward regulatory submissions. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales of our product candidates. This is due to the numerous risks and uncertainties associated with developing such product candidates, including:
| • | the number of clinical sites included in the trials; |
| • | the length of time required to enroll suitable patients; |
| • | the number of patients that ultimately participate in the trials; |
| • | the number of doses patients receive; |
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| • | the duration of patient follow-up; |
| • | the results of our clinical trials; and |
| • | regulatory requirements in support of potential approvals. |
In addition, the probability of success for any of our product candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and share-based compensation expense, related to executive, finance, accounting, business development, legal and human resource functions. General and administrative expense also includes commercialization readiness costs, facility costs not otherwise included in research and development expenses, legal fees related to corporate matters, fees for accounting and consulting services, and costs of director and officer insurance.
We anticipate that our general and administrative expenses will remain significant and increase in the future to support potential commercialization of linzagolix and to support continued research and development activities. We also anticipate that we will keep spending material accounting, audit, legal, regulatory and compliance costs, as well as investor and public relations expenses, associated with operating as a public company.
Finance Result, Net
Finance result, net, consists mainly of foreign exchange loss and gain, as well as interest expense associated with our lease liabilities and debt instruments.
We anticipate that our finance result, net will increase in the future primarily due to increased interest expense associated with the Securities Purchase Agreement with JGB.
Taxation
We are subject to corporate taxation in Switzerland, Ireland and the United States.
In 2015, the Canton of Geneva granted us a ten-year tax holiday for all income and capital taxes on a communal and cantonal level commencing in fiscal year 2013 and valid through to 2022, subject to our Swiss domiciliation and compliance with certain reporting provisions. We remain subject to Swiss federal income tax on our profits after tax but have only incurred net losses since our inception. We are entitled under Swiss laws to carry forward any losses incurred for a period of seven years and can offset such losses carried forward against future taxes. As of December 31, 2021, we had tax loss carryforwards totaling $418.4 million. We do not believe it is probable that we will generate sufficient profits to avail ourselves of these tax loss carryforwards.
Our Irish subsidiary had no activity in 2020 and 2021 Our U.S. subsidiary, as a service organization to the group under cost plus arrangement, was the only entity to generate income tax expenses for the year ended December 31, 2021.
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A. Operating Results
Analysis of Results of Operations
The following table sets forth our selected consolidated statements of operations data for the periods indicated:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | (in thousands) | |
Consolidated Statements of Operations Data: | | | | | | | | | | | | |
Operating income other than revenue | | $ | 20,113 | | | $ | 17 | | | $ | 16 | |
Operating expenses: | | | | | | | | | | | | |
Research and development expenses | | | (53,136 | ) | | | (67,536 | ) | | | (88,053 | ) |
General and administrative expenses | | | (21,491 | ) | | | (12,182 | ) | | | (19,058 | ) |
Total operating expenses | | | (74,627 | ) | | | (79,718 | ) | | | (107,111 | ) |
Finance result, net | | | (3,651 | ) | | | (3,231 | ) | | | (1,628 | ) |
Income tax (expense) / benefit | | | (212 | ) | | | (34 | ) | | | (67 | ) |
Net loss | | $ | (58,377 | ) | | $ | (82,966 | ) | | $ | (108,790 | ) |
The following discussion includes the changes in the results of our operations for the years ended December 31, 2021 and 2020. A discussion of the changes in our results of operations for the years ended December 31, 2020 and 2019 has been omitted from this Annual Report on Form 20-F but may be found in “Item 5.A. Operating Results—Years Ended December 31, 2020 and 2019” in our Annual Report on Form 20-F for the year ended December 31, 2020, filed with the U.S. Securities and Exchange Commission, or SEC, on March 5, 2021.
Years Ended December 31, 2021 and 2020
Operating Income Other Than Revenue
Operating income other than revenue increased by $20.1 million in 2021 compared to 2020 due to the gain on disposal of the intangible asset for ebopiprant. This gain was associated with the agreement we entered into with Organon in July 2021, pursuant to which Organon licensed the exclusive worldwide rights to develop, manufacture and commercialize ebopiprant. Under the agreement, we received a $25.0 million upfront fee that was paid at signing. We recorded the gain on the disposal of the intangible asset for ebopiprant net of fees and net of derecognition of intangible asset.
Operating Expenses
Research and Development Expenses
| | Year Ended December 31, | | | | | |
| | 2021 | | | 2020 | | | Change | |
(in thousands) | | | |
Research and development expenses by product candidate | | | | | | | | | | | | |
Linzagolix | | $ | (35,873 | ) | | $ | (49,431 | ) | | $ | 13,558 | |
Nolasiban | | | (609 | ) | | | (1,070 | ) | | | 461 | |
Ebopiprant | | | (2,211 | ) | | | (1,662 | ) | | | (549 | ) |
Unallocated expenses | | | | | | | | | | | | |
Staff costs | | | (11,386 | ) | | | (12,930 | ) | | | 1,544 | |
Other research and development costs | | | (3,056 | ) | | | (2,443 | ) | | | (613 | ) |
Total research and development expenses | | $ | (53,135 | ) | | $ | (67,536 | ) | | $ | 14,401 | |
Research and development expenses decreased by $14.4 million in 2021 compared to 2020. This was primarily due to a reduction of $13.6 million in costs associated with linzagolix for the partial completion of the EDELWEISS clinical trial and
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the total completion of the PRIMROSE clinical trial. Staff costs also decreased by $1.5 million primarily due to lower research and development headcount.
General and Administrative Expenses
| | Year Ended December 31, | | | | | |
| | 2021 | | | 2020 | | | Change | |
(in thousands) | | | | | | | | | | | | |
Staff costs | | $ | (7,401 | ) | | $ | (6,714 | ) | | $ | (687 | ) |
Professional fees | | | (10,531 | ) | | | (2,911 | ) | | | (7,620 | ) |
Other general and administrative costs | | | (3,559 | ) | | | (2,557 | ) | | | (1,002 | ) |
Total general and administrative expenses | | $ | (21,491 | ) | | $ | (12,182 | ) | | $ | (9,309 | ) |
General and administrative expenses increased by $9.3 million in 2021 compared to 2020 primarily due to increases in professional fees of $7.6 million associated with commercial preparation activities related to linzagolix and legal fees. Other general and administration expenses increased by $1.0 million due to increases in insurance costs and staff costs increased by $0.7 million due to increased headcount and pension costs.
Finance Result, Net
| | Year Ended December 31, | | | | | |
| | 2021 | | | 2020 | | | Change | |
(in thousands) | | | | | | | |
Foreign exchange loss, net | | $ | 78 | | | $ | (527 | ) | | $ | 606 | |
Interest expense | | | (3,156 | ) | | | (2,704 | ) | | | (453 | ) |
Change in fair value of derivative liability | | | 790 | | | | - | | | | 790 | |
Loss on Oxford debt extinguishment | | | (1,363 | ) | | | - | | | | (1,363 | ) |
Finance result, net | | $ | (3,651 | ) | | $ | (3,231 | ) | | $ | (420 | ) |
Finance result, net, in 2021 and 2020 primarily consisted of interest expense associated with our lease liabilities and debt instruments, as well as foreign exchange losses. Interest expense increased due to increased borrowings under our Securities Purchase Agreement with JGB as compared to interest expense in 2020 under our prior credit facility with Oxford. In 2021, we recorded a loss on debt extinguishment in relation to the payoff of the Oxford credit facility.
Years ended December 31, 2020 and 2019
See our Annual Report on Form 20-F for the year ended December 31, 2020, filed with the SEC on March 5, 2021, “Item 5.A. Operating Results—Years Ended December 31, 2020 and 2019” for the comparison discussion between the years ended December 31, 2020 and 2019.
B. Liquidity and Capital Resources
Sources of Funds
Since our inception, we have not generated any revenue and have incurred net losses and negative cash flows from our operations. We have funded our operations primarily through the sale of equity and license of our product candidates. From inception through December 31, 2021, we have raised an aggregate of $441.7 million of net proceeds from the sale of equity securities, through public and private offerings and our at-the-market programs. In July 2021, we received $25.0 million from Organon in connection with the licensing agreement for ebopiprant. As of December 31, 2021, we had borrowed $25.0 million under our prior credit facility with Oxford (repaid in full in October 2021) and $31.5 million under our Securities Purchase Agreement with JGB.
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Oxford Credit Facility
On August 7, 2019, we entered into the Credit Facility Agreement with Oxford for a term loan of up to $75.0 million, subject to funding in three tranches. We received gross proceeds of $25.0 million from the first tranche of the credit facility upon entering into the agreement and used the funds as part of our various clinical trials programs. We could not draw the second tranche of $25.0 million due to the failure to meet the primary endpoint of the Phase 3 IMPLANT 4 clinical trial of nolasiban. In April 2020, we amended the Credit Facility Agreement pursuant to which the third tranche of $25.0 million was available to be drawn at any time between April 7, 2020 and August 1, 2024 upon our request and at Oxford’s discretion. The credit facility was secured by substantially all of our assets, including our intellectual property. The loan bore a floating interest rate (partially based on thirty-day U.S. LIBOR rate) at 8.68% per year in total and was set mature on August 1, 2024.
Securities Purchase Agreement with JGB
On October 12, 2021, we entered into the Securities Purchase Agreement with certain funds and accounts managed by JGB which is structured to provide up to $135 million in borrowing capacity, available in nine tranches. We received gross proceeds of $30 million from the first tranche at closing and used the proceeds to repay all amounts outstanding under our existing Credit Facility Agreement with Oxford. Upon payoff, the Credit Facility Agreement was terminated and the security interests in our assets that secured the Credit Facility Agreement were released. We are able to potentially receive gross proceeds of $16.725 million from the third tranche and $13.125 million from each remaining tranche thereafter.
On January 28, 2022, we entered into an amendment agreement and an amended and restated securities purchase agreement, or the Amendment Agreements, with JGB to amend the Securities Purchase Agreement. The Amendment Agreements adjusted the principal balance payable at maturity for the notes to be issued in the second tranche to $10.5 million ($975,000 of original issue discount) and the conversion price for the notes to be issued in the second tranche to a price of $1.66 per common share, and accelerated the issuance of the second tranche to January 28, 2022. In addition, as adjusted pursuant to the Amendment Agreements, we issued a warrant to purchase 1,018,716 of our common shares at an exercise price of $1.87 per share. Additionally, JGB waived certain conditions required to be met to fund the second tranche, including that our volume-weighted average price could not be below $3.00 per share for five or more trading days during the 30 days prior to the funding date for the second tranche, in exchange for a payment of $1.25 million and the amended terms for the notes and warrants to be issued in the second tranche In connection with the Amendment Agreements, we received net proceeds of $8.25 million from the second tranche, after accounting for expenses and the $1.25 million waiver payment to JGB.
We are able to potentially receive gross proceeds of $16.725 million from the third tranche and $13.125 million from each remaining tranche thereafter under the Securities Purchase Agreement with JGB. The third tranche will be funded in May 2022 and each subsequent tranche will be funded 90 days after the preceding tranche. The subsequent tranches under the Securities Purchase Agreement will be available subject to us meeting certain conditions, including, among others, that our volume-weighted average price is not below $3.00 per share for five or more trading days during the 30 days prior to a tranche funding date.
The Securities Purchase Agreement is secured by an account control agreement in favor of JGB, and we are obligated to maintain a minimum cash amount of $25.0 million in such deposit account, subject to additional incremental increases totaling $27.0 million in aggregate depending on the amount of debt outstanding under the Securities Purchase Agreement. Each tranche under the Securities Purchase Agreement will bear interest at a rate of 9.5% per year, payable monthly, and will be issued with an original issue discount of 4.75%. Each tranche under the Securities Purchase Agreement will mature three years from the date of issuance, unless earlier converted or prepaid in accordance with their terms. At each tranche, we will also issue to JGB warrants to purchase our common shares in an amount equal to 20% of the funded amount for such tranche. The warrants will be exercisable at a price of $3.67 per share and will have a four year term from the date of issuance. The Securities Purchase Agreement includes affirmative and negative covenants applicable to us and our subsidiaries. The affirmative covenants include, among other things, requirements to file certain financial reports with the SEC, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. Further, subject to certain exceptions, the Securities Purchase Agreement contains customary negative covenants limiting our ability to, among other things, transfer or sell certain assets, consummate mergers or acquisitions, allow changes in business, incur additional indebtedness, create liens, pay dividends or make other distributions and make investments. As of December 31, 2021, we were in compliance with our covenants.
ATM Program and other sources
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During the year ended December 31, 2021, we sold a total of 15,933,420 treasury shares at an average price of $3.28 per share, as part of our ATM program. These multiple daily transactions generated total gross proceeds of $53.7 million. Directly related share issuance costs of $2.3 million were recorded as a deduction in equity. During the year ended December 31, 2021, 6,448,240 warrants were exercised at an average price of $3.43 per share, resulting in proceeds of $22.1 million.
As of December 31, 2021, we had $54.7 million in cash and cash equivalents. Subsequent to December 31, 2021 and through February 28, 2022, we raised additional gross proceeds of $4.6 million from the sale of additional treasury shares as part of our ATM program. In February 2022, we signed a licensing agreement with Theramex to support the commercialization and market introduction of linzagolix across global markets outside of the U.S., Canada and Asia. and received an upfront payment of EUR5 million upon signing.
Material Cash Requirements
Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Other than our Securities Purchase Agreement with JGB, we have no other ongoing material financing commitments, such as lines of credits or guarantees.
We expect our expenses to remain significant in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to program sales, marketing, manufacturing and distribution to the extent that such sales, marketing and distribution are not the responsibility of potential collaborators. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We have incurred recurring losses since inception, including net losses of $58.4 million for the year ended December 31, 2021. As of December 31, 2021, we had accumulated losses of $467.8 million, of which $30.6 million were offset with share premium. We expect to continue to generate operating losses for the foreseeable future. As of December 31, 2021, we had cash and cash equivalents of $54.7 million. We have prepared our consolidated financial statements assuming that we will continue as a going concern which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. In October 2021, we entered into the Securities Purchase Agreement with certain funds and accounts managed by JGB Management, Inc. The Securities Purchase Agreement is structured to provide $135 million in borrowing capacity, available in nine tranches, with the first tranche funded at the initial closing in October 2021 and the second tranche funded in January 2022 in connection with certain amendments to the Securities Purchase Agreement. The subsequent tranches under the Securities Purchase Agreement will be available subject to us meeting certain conditions, including, among others, that our volume-weighted average price is not below $3.00 per share for five or more trading days during the 30 days prior to a tranche funding date (the “Minimum Stock Price”). The availability of future funding under the Securities Purchase Agreement is dependent on whether the Minimum Stock Price condition will be met at future tranche dates. To date, we have funded our operations through equity and debt offerings and through payments from licensors. We believe that our current cash and cash equivalents are only sufficient to fund our operating expenses into the third quarter of 2022 and this raises substantial doubt about our ability to continue as a going concern. These factors individually and collectively indicate that a material uncertainty exists that may cast significant doubt about our ability to continue as a going concern within one year from the date of the issuance of the consolidated financial statements. Our future viability is dependent on our ability to raise additional capital to finance our future operations. We have an active ATM program and can potentially raise funds through equity or debt offerings. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to shareholders. We may receive future milestone payments from licensors but that is dependent on achieving certain regulatory or commercial milestones that may never happen. We may seek additional funding through public or private financings, debt financing or collaboration agreements. The inability to obtain funding, as and when needed, would have a negative impact on our financial condition and ability to pursue our business strategies. If we are unable to obtain the required funding to run our operations and to develop and commercialize our product candidates, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Management continues to explore options to obtain additional funding, including through collaborations with third parties related to the future potential development and/or
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commercialization of our product candidates. However, there is no assurance that we will be successful in raising funds, closing a collaboration agreement, obtaining sufficient funding on terms acceptable to us, or if at all, which could have a material adverse effect on the our business, results of operations and financial conditions. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. Our future material cash requirements will depend on many factors, including:
| • | the scope, progress, results and costs of our ongoing and planned nonclinical studies and clinical trials for our product candidates; |
| • | the cost and timing of ongoing and planned manufacturing activities including active pharmaceutical ingredient and drug product pharmaceutical development and clinical trial supplies production for linzagolix and nolasiban; |
| • | the timing and amount of milestone and royalty payments we are required to make under our license agreements; |
| • | the extent to which we in-license or acquire other product candidates and technologies; |
| • | the number and development requirements of other product candidates that we may pursue; |
| • | the costs, timing and outcome of regulatory review of our product candidates; |
| • | the costs and timing of future commercialization activities, including drug manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; |
| • | the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; |
| • | our ability to establish strategic collaborations; and |
| • | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims. |
Identifying potential product candidates and conducting nonclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our revenue, if any, will be derived from sales of products. We may be unable to commercialize our product candidates and derive revenue from sales of products, on a timely basis or at all.
Until such time that we can generate substantial product revenue, if ever, we may finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, shareholder ownership interest may be diluted, and the terms of any additional securities may include liquidation or other preferences that adversely affect the rights of shareholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, such as our licensing agreements with Organon for ebopiprant and Theramex for linzagolix, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us.
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If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
The following table shows a summary of our cash flows for the periods indicated:
| | Year Ended December 31, | |
(in thousands) | | 2021 | | | 2020 | | | 2019 | |
Cash and cash equivalents at beginning of period | | $ | 31,183 | | | $ | 69,370 | | | $ | 138,640 | |
Net cash used in operating activities | | | (70,304 | ) | | | (70,766 | ) | | | (90,611 | ) |
Net cash from (used in) investing activities | | | 22,186 | | | | (5 | ) | | | (5,046 | ) |
Net cash from financing activities | | | 71,104 | | | | 32,249 | | | | 26,627 | |
Effect of exchange rates | | | 565 | | | | 335 | | | | (240 | ) |
Cash and cash equivalents at end of period | | $ | 54,734 | | | $ | 31,183 | | | $ | 69,370 | |
Operating Activities
Net cash used in operating activities consists of net loss before tax adjusted for changes in net working capital, or current assets less current liabilities, and for non-cash items such as depreciation and amortization, as well as the value of share-based services.
During the year ended December 31, 2021, $70.8 million of cash was used for operating activities, primarily as the result of our net loss before tax of $58.2 million, plus our non-cash items and changes in net working capital. Non-cash items amounted to $10.2 million and mainly consisted of our other operating income of $20.1 million partially offset by share-based compensations of $5.8 million and finance expense, net of $3.7 million. Changes in net working capital included primarily a $3.6 million increase in other receivables, decrease of $2.2 million in payables and a decrease of $3.5 million in accrued expenses and other long-term liabilities.
During the year ended December 31, 2020, $70.8 million of cash was used for operating activities, primarily as the result of our net loss before tax of $83.0 million, as adjusted for non-cash items and changes in net working capital. Non-cash items amounted to $10.9 million and mainly consisted of share-based payments. Changes in net working capital included primarily a $2.1 million increase in payables and a $1.0 million increase in prepaid expenses, mainly due to the progress made in our various ongoing Phase 3 clinical trials and the invoicing schedules of our main vendors.
See our Annual Report on Form 20-F for the year ended December 31, 2020, filed with the SEC on March 5, 2021, “Item 5.B. Liquidity and Capital Resources—Operating Activities” for a discussion of the operating activities for the year ended December 31, 2019.
Investing Activities
Net cash used in investing activities consists primarily of investments in leasehold improvements and furniture and fixtures, as well as investments in intangible assets through the execution of in-licensing agreements or the payment of development-based milestones to our licensors.
During 2021, net cash provided by investing activities consisted of $22.2 million and were from the proceeds from the disposal of our intangible assets for ebopiprant.
During 2020, net cash used in investing activities consisted primarily of investments in information technology equipment.
See our Annual Report on Form 20-F for the year ended December 31, 2020, filed with the SEC on March 5, 2021, “Item 5.B. Liquidity and Capital Resources—Investing Activities” for a discussion of the investing activities for the year ended December 31, 2019.
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Financing Activities
Net cash from financing activities consists primarily of proceeds from the sale of equity securities, warrant exercises, and borrowings under our credit facilities.
Cash flows from financing activities in 2021 mainly consisted primarily of the net proceeds from our credit facility with JGB, the sales of treasury shares under our ATM program and exercise of warrants, which were partially offset by the principal elements of lease payments as well as interest expense associated with our leases and debt instruments.
Cash flows from financing activities in 2020 mainly consisted primarily of the net proceeds from our underwritten public offering and concurrent private placement completed in September 2020 and the sales of treasury shares under our ATM program, which were partially offset by the principal elements of lease payments as well as interest expense associated with our leases and debt instruments.
See our Annual Report on Form 20-F for the year ended December 31, 2020, filed with the SEC on March 5, 2021, “Item 5.B. Liquidity and Capital Resources—Financing Activities” for a discussion of the financing activities for the year ended December 31, 2019.
Material Cash Requirements from Contractual Obligations
The following table summarizes the contractual maturity profile of our on-balance sheet liabilities, including interest payments, as of December 31, 2021:
| | Less than 1 Year | | | 1 to 3 Years | | | 3 to 5 Years | | | More than 5 Years | | | Total | |
| | (in thousands) | |
Trade and other payables | | | (7,716 | ) | | | - | | | | - | | | | - | | | | (7,716 | ) |
Borrowings | | | (2,992 | ) | | | (36,832 | ) | | | - | | | | - | | | | (39,824 | ) |
Lease liabilities | | | (712 | ) | | | (243 | ) | | | - | | | | - | | | | (955 | ) |
Total as of December 31, 2021 | | | (11,420 | ) | | | (37,075 | ) | | | - | | | | - | | | | (48,495 | ) |
Under our license agreements with Kissei and Merck Serono, we may be required to pay royalties in the future. In addition, pursuant to the Kissei license and supply agreement, we have agreed to make aggregate milestone payments of up to $63.0 million upon the achievement of specified developmental milestones, such as the initiation of clinical trials and receipt of regulatory approvals, of which we had paid $10.0 million as of December 31, 2021. With respect to any product we commercialize under the Kissei license and supply agreement, we have agreed to make additional aggregate milestone payments of up to $125.0 million to Kissei upon the achievement of specified commercial milestones.
We have not included any contingent payment obligation, such as milestone payments and royalties, in the table above as the amount, timing and likelihood of such payments are not known.
We enter into contracts in the normal course of business with CSOs for commercialization activities and CROs for clinical trials, nonclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
C. Research and Development
For a discussion of our research and development activities, see “Item 4.B—Business Overview” and “Item 5.A—Operating Results.”
D. Trend Information
For a discussion of trends, see “Item 5.A—Operating Results” and “Item 5.B—Liquidity and Capital Resources.”
E. Critical Accounting Estimates
For a discussion of our critical accounting estimates, see note 2 “Accounting principles applied in the preparation of the consolidated financial statements - Critical accounting estimates and judgments” to our consolidated financial statements.
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Item 6. Directors, Senior Management and Employees.
A. Directors and Senior Management.
The following table sets forth information regarding our executive officers and directors, including their ages, as of February 28, 2022. Our directors are appointed for one-year terms, which expire on the occasion of each annual general meeting. Accordingly, the terms of the directors set forth below will expire on the date of our 2022 annual general meeting of shareholders.
| | | | |
Name | | Age | | Position(s) |
Executive Officers: | | | | |
| | | | |
Brian O’Callaghan | | 52 | | Chief Executive Officer and Director |
Will Brown | | 40 | | Chief Financial Officer |
Elizabeth Garner | | 54 | | Chief Medical Officer |
Jean-Pierre Gotteland | | 57 | | Chief Scientific Officer and Head of R&D |
Clive Bertram | | 54 | | Chief Commercial Officer |
Fabien de Ladonchamps | | 43 | | Chief Administrative Officer |
Luigi Marro | | 56 | | Chief Transformation Officer |
Katja Buhrer | | 40 | | Chief Strategy Officer |
| | | | |
Non-Employee Directors: | | | | |
Frank Verwiel | | 59 | | Chairperson of the Board of Directors |
Ernest Loumaye | | 69 | | Director |
Annette Clancy | | 67 | | Director |
Ed Mathers | | 61 | | Director |
Anne VanLent | | 73 | | Director |
Catarina Edfjäll | | 56 | | Director |
Stephanie Brown has been nominated by our board of directors for election to the board of directors at our 2022 annual general meeting. Effective December 1, 2021, Ms. Brown joined the board of directors as an observer.
Unless otherwise indicated, the current business addresses for our executive officers and directors is: Chemin des Aulx, 12, 1228 Plan-les-Ouates, Geneva, Switzerland.
Executive Officers
Brian O’Callaghan has served as our Chief Executive Officer since December 2020 to lead the Company through its future development, regulatory filings and product launches. He is a life science executive with extensive experience within biotech, large pharmaceutical companies and the CRO sector, as well as extensive global experience, having lived and worked in 5 different countries and both coasts of the US. Prior to joining ObsEva, Mr. O’Callaghan has held CEO positions at Petra Pharma (from 2017 to 2020), Acucela (from 2013 to 2015), Sangart (from 2008 to 2014) and BioPartners (from 2000 to 2004), as well as senior management positions at Pfizer (from 1992 to 1994), Merck Serono (from 1996 to 2000), Novartis (from 2004 to 2006), Covance (from 2006 to 2007) and NPS Pharmaceuticals (from 2007 to 2008). Mr. O’Callaghan has experience running both public and private companies, M&A’s, IPO’s, fundraising, divestments, spin-outs and strategic alliances. He also has extensive Board experience, having served on numerous biotech and 501c3 Boards. In particular, he is currently a member of the Board of Directors of Indaptus Therapeutics, Bolt Biotherapeutics and The Biocom Purchasing Group, all of which are based in California.
Will Brown joined ObsEva in January 2022 as Chief Financial Officer with extensive experience in capital markets, finance and accounting. From May 2018 to December 2021, Mr. Brown served as Chief Financial Officer of Altimmune, Inc. (NASDAQ: ALT) where he was critical in the company’s transformation and growth through more than $300 million of new equity issuances and a strategic acquisition. Mr. Brown has been a consultant to several private and public companies in a variety of accounting and tax matters both independently and as the managing partner of Redmont CPAs. Prior to his consulting role, he was an audit manager at PricewaterhouseCoopers and a Division Controller at Rheem, a multinational manufacturing company. Mr. Brown is a Certified Public Accountant and earned both his MBA and B.S. from Auburn University at Montgomery.
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Elizabeth Garner has served as our Chief Medical Officer since July 2019. From January 2014 to July 2019, Dr. Garner was Chief Medical Officer and SVP of Research and Development at Agile Therapeutics Inc., and prior to that was Senior Vice President, Medical Affairs, Women’s Health and Preventive Care at Myriad Genetics Laboratories. From 2011 to 2012 she was Senior Medical Director, Women’s Health at Abbott Laboratories, where she was the Clinical Lead of the endometriosis program for elagolix (Orilissa®), which is now FDA-approved. Before joining Abbott Laboratories, she served as Associate Director and then Director, Vaccines Clinical Research at Merck Research Laboratories from 2007 to 2011. Dr. Garner is a current member of the Boards of Directors of Kezar Life Sciences, Inc. (KZR; Audit and Clinical Strategy Committees), Sermonix Pharmaceuticals, and PharmOlam International. She is also on the Executive Committee of the American Medical Women’s Association (AMWA) and a member of the board of the Drug Information Association (DIA). Dr. Garner received joint M.D. and M.P.H degrees from Harvard Medical School and Harvard School of Public Health. She was trained in obstetrics and gynecology at Brigham and Women’s/Massachusetts General Hospitals and completed a fellowship in gynecologic oncology at Brigham and Women’s Hospital and the Dana Farber Cancer Institute. Dr. Garner was a 2019 awardee of the PharmaVoice 100 most inspiring individuals in the life-sciences industry.
Jean-Pierre Gotteland has served as our Chief Scientific Officer and Head of Research and Development since April 2018 and served as Chief Scientific Officer from September 2015 to March 2018. From May 2007 to August 2015, Mr. Gotteland worked at PregLem SA, initially as the Vice President of Non-Clinical Development and CMC from 2007 to 2012 and as the Chief Development Officer from January 2012 to August 2015. From 1998 to 2007, Mr. Gotteland held several research and development positions at Serono (subsequently Merck Serono). From 1991 to 1998, Mr. Gotteland served as medicinal chemistry group leader at Pierre Fabre Medicament. Mr. Gotteland holds a Ph.D. in Organic Chemistry from the University Claude Bernard, Lyon, France, and an Engineering Diploma from Ecole Superieure de Chimie Industrielle of Lyon, France and did postdoctoral studies at the University of California, Berkeley (US).
Clive Bertram joined ObsEva with nearly 30 years of experience in commercialization, strategic, corporate and business development. in the pharmaceutical industry. Most recently, he served as CCO at Petra Pharma from 2019 to 2020 and Sangart from 2008 to 2013. Mr. Bertram also served as an independent consultant from 2014 to 2020 leading client thinking for strategic and marketing planning insight as well as launch excellence and implementation. Prior to his CCO roles, Mr. Bertram held senior management positions at Pharmion Limited from 2007 to 2008, Chiron Biopharmaceuticals from 2005 to 2006, Celltech from 2003 to 2004 and Eli Lilly from 1992 to 2003. He holds a BSc (Hons.) in Pharmacology and Chemistry from the University of Sheffield.
Fabien de Ladonchamps has served as our Chief Administrative Officer since January 2021, and previously served as interim Chief Financial Officer from April 2020 to December 2020, Vice President Corporate Affairs and Finance from January 2019 to April 2020, Vice President of Finance from January 2016 to December 2018 and Finance Director from October 2013 to December 2015. Prior to joining our company, Mr. de Ladonchamps worked at Addex Therapeutics, initially as Chief Accountant from 2008 to 2009 and then as Group Financial Controller from 2010 to September 2013. Mr. de Ladonchamps holds a French degree in Finance and Accounting from the Lyon III University in Lyon, France.
Luigi Marro is a pharmaceutical and biotech executive with over 20 years of experience. He has a background in finance, operations and has managed global businesses across multiple therapeutic areas from development stages through commercialization. He joined ObsEva in October 2021, as Chief Transformation Officer to lead the Company’s strategic Commercial Operational Readiness initiative. Prior to joining ObsEva, Mr. Marro founded in February 2019 his own consulting company, Martan Market GmbH, to support biotech and pharma startups. From May 2014 to February 2019, he served as Chief Financial Officer at Finox Biotech, which launched the first biosimilar recombinant follicle stimulating hormone (r-FSH) product to market. From November 2012 to July 2013, Luigi held leadership positions at Voisin Life Sciences Consulting SA as Chief Operating Officer. He also acted as Senior Director Strategy Development and Business Performance at Merck Serono from January 2010 to October 2012. Mr. Marro also held elevating strategic roles at Serono, prior to its acquisition by Merck. Mr. Marro holds a university degree in Demographic and Economical Statistic Sciences from La Sapienza in Rome as well as a Master of Business Administration from Luiss Management school in Rome.
Katja Buhrer is a corporate development executive whose background spans corporate strategy, investor relations advisory, financial journalism, and capital markets. She joined ObsEva in February 2022, as Chief Strategy Officer to oversee a range of operational areas including corporate strategy, investor relations and public relations, and contribute in other areas such as business development and alliance management. Ms. Buhrer was previously Vice President Corporate Development, Investor Relations, and Chief of Staff at Kindred Biosciences, a veterinary biopharmaceutical company, from July 2018 to August 2021. Ms. Buhrer led various business initiatives at KindredBio, including business development and the M&A process that resulted in KindredBio’s acquisition by Elanco Animal Health in August 2021. From August 2021 to December 2021, she became Chief Operating Officer of KindredBio, a subsidiary of Elanco, during the integration of KindredBio into Elanco.
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Prior to joining KindredBio, Ms. Buhrer was Managing Director at MBS Value Partners from December 2011 to November 2017 and Managing Director at Advisory Growth Advisors from November 2017 to June 2018, both investor relations consultancies. Her experience is further informed by roles in financial journalism and banking, including as an Editor, Reporter, and Columnist at The Australian Financial Review and in Capital Markets and Trading at Citigroup. Ms. Buhrer earned her Bachelor Commerce/Arts from the University of New South Wales, Australia.
Non-Employee Directors
Frank Verwiel has served as a member of our board of directors since March 2016 and has served as the chairperson of the board since December 2016. He currently serves as of the chairperson of the board of directors of Intellia Inc. (Nasdaq: NTLA) and is a member of the board of directors of Bavarian Nordic A/S, both public biotechnology companies. From 2005 to 2014, Dr. Verwiel was President, Chief Executive Officer and member of the board of directors of Aptalis Pharma Inc., a pharmaceutical company. Dr. Verwiel previously served on the board of directors of InterMune, Inc. from 2012 to 2014, on the board of Avexis, Inc., from 2016 to 2018, both biotechnology companies, and on the board of Achillion Pharmaceuticals, Inc., a pharmaceutical company, from 2015 to 2020. Dr. Verwiel received his M.D. from Erasmus University, Rotterdam, The Netherlands, and his M.B.A. from INSEAD in Fontainebleau, France.
Ernest Loumaye is a co-founder and member of our board of directors since its inception in November 2012. He served as our Chief Executive Officer since our inception until December 2020. From 2019 to January 2021, he was a member of the board of directors at AVA, a Zurich-based medtech company active in women's health. Previously, Dr. Loumaye co-founded PregLem, a Swiss specialty biopharmaceutical company sold to Gedeon Richter Plc., and served as its Chief Executive Officer and member of the board of directors from 2006 to October 2012. From 2011 to 2016, Dr. Loumaye served as chairperson and member of the board at Genkyotex, a public biopharmaceutical company developing treatments against various diseases based on enzyme inhibition. Dr. Loumaye holds an M.D. and a Ph.D. from University of Louvain, Belgium, with a specialization in Obstetrics and Gynecology. Dr Loumaye was research fellow at the National Institute of Health (NIH, Bethesda, MD, USA).
Annette Clancy has served as a member of our board of directors since November 2013 and served as our chairperson from November 2013 to December 2016. Ms. Clancy’s other current positions include member of the board of directors of Swedish Orphan Biovitrum AB since May 2014, a public biopharmaceutical company, as well as Chairperson of the Board of Directors of ENYO Pharma SA since June 2016. Since 2019, Ms. Clancy has acted as an Operational Investor at Jeito Capital, a French- based healthcare venture capital firm. In earlier years, Ms. Clancy has held a number of Board and Chairperson positions with a range of European based biotechnology companies and acted as a senior advisor at Frazier Healthcare Ventures, a U.S.-based healthcare venture capital firm from 2009 to 2017. Ms. Clancy also held various senior positions at GlaxoSmithKline, a global healthcare company up until 2008. Ms. Clancy holds a B.Sc. in Pharmacology from Bath University and a series of American Management Association diplomas in finance and marketing.
Ed Mathers has served as a member of our board of directors since February 2016. Mr. Mathers is a General Partner of NEA since August 2008 and is focused on biotechnology and specialty pharmaceuticals investments. He is a director of Rhythm Pharmaceuticals (Nasdaq: RYTM), Envisia Therapeutics, Synlogic (Nasdaq: SYBX), Senti Biosciences, Inozyme (Nasdaq: INZY), Reneo Pharma (Nasdaq: RPHM), Akouos (Nasdaq: AKUS), Trevi Therapeutics (Nasdaq:TRVI), Mirum Pharmaceuticals (Nasdaq: MIRM), Shape Therapeutics, MBX Biosciences, Code Biotherapeutics, and Affinia Therapeutics. Previously he was a board member of RA Pharmaceuticals (sold to UCB), Liquidia (Nasdaq: LQDA), Lumos Pharma (Nasdaq: LUMO), Curzion Pharmaceuticals (sold to Horizon), Amplyx Pharmaceuticals (sold to Pfizer) Lumena (sold to Shire), Ziarco (sold to Novartis), Motus Therapeutics (sold to Allergan), Plexxikon (sold to Daiichi Sankyo), Intarcia, Satori Pharmaceuticals, Southeast Bio, MedImmune, LLC, the Biotechnology Industry Organization (BIO), and a number of public biopharmaceutical boards. Prior to joining NEA, Mr. Mathers most recently served as Executive Vice President, Corporate Development and Venture, at MedImmune, Inc. Before joining MedImmune in 2002, he was Vice President, Marketing and Corporate Licensing and Acquisitions at Inhale Therapeutic Systems. Mr. Mathers spent 15 years at Glaxo Wellcome, Inc. (GlaxoSmithKline), where he held sales and marketing positions of increasing responsibility. He earned his bachelor's degree in chemistry from North Carolina State University, Raleigh.
Anne VanLent has served as a member of our board of directors and chair of the audit committee since May 2021. Since May 2018, Ms. VanLent has been President of AMV Advisors, providing corporate strategy and financial consulting services to emerging growth life sciences companies. Ms. VanLent had been Executive Vice President and Chief Financial Officer of Barrier Therapeutics, Inc., a publicly traded pharmaceutical company, from May 2002 through April 2008. Ms. VanLent also worked for eight years, from March 1985 to February 1993, as Senior Vice President and Chief Financial Officer of The Liposome Company, Inc., a publicly traded biopharmaceutical company. Ms. VanLent has served as a director, chair of the
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Audit Committee of Trevi Therapeutics, Inc since October 2018 and is currently also a member of the Nominating and Governance Committee. She has also served as a director and chair of the Audit Committee of Applied Genetics Technologies Corporation since August 2016. Until June 2020, she also served as a director, chair of the Audit Committee and member of the Compensation Committee of Vaxart, Inc. as a result of its merger in February 2018 with Aviragen Therapeutics, Inc., where she served as lead director, chair of the Audit Committee and member of the Nominating and Governance Committee. From April 2011 to December 2017, she served as a director, chair of the Audit Committee, and chair of the Nominating and Governance Committee of Ocera Therapeutics, Inc. From April 2013 through June 2017 she served as a director, member of the Audit Committee, and member of the Compliance Committee of Novelion Pharmaceuticals, Inc. From July 2013 to May 2016, Ms. VanLent served as a director, chair of the Audit Committee, and member of the Compensation Committee of Onconova Therapeutics, Inc. From 1997 to May 2013, she served as a director of Integra Life Sciences Holdings, Inc. and chaired its audit committee from 2006 until 2012. Ms. VanLent received a B.A. degree in Physics from Mount Holyoke College.
Catarina Edfjäll is a Global Regulatory Affairs Expert with more than 25 years of experience in the biotech and pharma sector, now working as an independent consultant and mentor. She has profound drug development experience across the entire product lifecycle, from development to launch, and across many therapeutic areas, including rare diseases. She was responsible for the successful regulatory approval of 20 innovative medicinal products and new indications in more than 50 countries. In her most recent senior management role, Ms. Edfjäll was the global head of regulatory affairs at CSL Behring (from 2013 to 2019). Prior to that, she held leadership positions in regulatory affairs at companies formerly known as Shire (from 2011 to 2013), Celgene (from 2006 to 2011) and Actelion (from 2001 to 2006). She started her career at F. Hoffmann-La Roche (from 1993 to 2000). Since 2020, Ms. Edfjäll has served as a Board Member at the Cancer Drug Development Forum (CDDF). She was also a board member at the International Collaboration on Rare Diseases & Orphan Drugs (ICORD) from 2008 to 2012 and from 2014 to 2021. She has been actively involved in several multi-stakeholder organizations, including the European Medicines Agency´s Committee for Orphan Medicinal Products´ Working Group with Interested Parties. Catarina holds a Master in biotechnology engineering from the Ecole Supérieure de Biotechnologie in Strasbourg, a Ph.D. in biochemistry from the University in Basel and a Corporate Governance Certification from the Swiss Board School and the University of St Gallen.
The table below provides certain highlights of the composition of our board members and nominees. Each of the categories listed in the below table has the meaning as it is used in Nasdaq Rule 5605(f).
| | | | |
Board Diversity Matrix |
Country of Principal Executive Offices: | Switzerland |
Foreign Private Issuer | Yes |
Disclosure Prohibited under Home Country Law | No |
Total Number of Directors | 7 |
| Female | Male | Non- Binary | Did Not Disclose Gender |
Part I: Gender Identity | |
Directors | 3 | 4 | 0 | 0 |
Part II: Demographic Background | |
Underrepresented Individual in Home Country Jurisdiction | 0 |
LGBTQ+ | 0 |
Did Not Disclose Demographic Background | 0 |
Family Relationships
There are no family relationships among any of our executive officers or directors.
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B. Compensation.
Compensation of Executive Officers and Directors
For the year ended December 31, 2021, the aggregate compensation paid to the members of our board of directors and our executive officers for services in all capacities was $9.5 million, including $5.5 million of share-based compensation.
During the year ended December 31, 2021, other than the 2017 equity incentive plan outlined below, we had no performance based compensation programs.
The amount set aside by us to provide pension, retirement or similar benefits to members of our board of directors or executive officers amounted to a total of $0.2 million in the year ended December 31, 2021.
Director Compensation
Each member of our board of directors who is not also serving as our employee and/or for an affiliate receives an annual fixed cash compensation, payable in quarterly installments, as determined under the review process of the compensation, nominating and corporate governance committee of our board of directors and approved by the board, as set forth below:
| • | Annual board service retainer |
| o | Chairman of the board: $70,000 |
| o | All other eligible members of the board: $40,000 |
| • | Annual committee member service retainer |
| o | Member of the audit committee: $7,500 |
| o | Member of the compensation, nominating and corporate governance committee: $7,500 |
| • | Annual committee chair service retainer (in addition to committee member service retainer) |
| o | Chair of the audit committee: $7,500 |
| o | Chair of the compensation, nominating and corporate governance committee: $7,500 |
Social contributions, to the extent required by Swiss law, are accrued on the annual cash compensation of the board and committee’s members.
In addition, we reimburse the members of our board of directors for out-of-pocket expenses incurred in relation to their services on an ongoing basis upon presentation of the corresponding receipts. Expenses reimbursements are not part of the compensation.
The members of our board of directors are eligible to participate in our 2017 Equity Incentive Plan, as amended, or our 2017 Plan. The following table summarizes the options that we granted to our non-employee directors pursuant to our 2017 Plan during the year ended December 31, 2021.
| | | | | |
Name | | Number of Shares Underlying Option Grant | Exercise Price | Grant Date | Expiration Date |
Frank Verwiel | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Ernest Loumaye | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Annette Clancy | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Ed Mathers | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Anne VanLent | | 49,140 | $2.92 | May 28, 2021 | May 27, 2031 |
Catarina Edfjäll | | 49,140 | $3.03 | June 30, 2021 | June 29, 2031 |
Barbara Duncan(1) | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Jim Healy(2) | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Rafaèle Tordjman(2) | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
Jacky Vonderscher(3) | | 24,570 | $3.76 | February 24, 2021 | February 23, 2031 |
(1) Ms. Duncan ceased serving on our board of directors as of May 28, 2021.
(2) Mr. Healy and Ms. Tordjman did not stand for reelection to our board of directors at our 2021 Annual General Meeting.
(3) Mr. Vonderscher ceased serving on our board of directors as of November 19, 2021.
The aggregate compensation paid to the members of our board of directors from one annual general meeting of shareholders to the next annual general meeting of shareholders has to be within the maximum compensation approved for the board of directors by our shareholders at our general meeting of shareholders for each relevant period.
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Pursuant to the organizational regulations of our board of directors, directors who are also serving as our employee and/or for an affiliate only receive compensation in their capacity as employees and do not receive additional compensation for their activities as members of our board of directors.
The following table sets forth the compensation received by our non-employee directors for the year ended December 31, 2021.Brian O’Callaghan, member of our board of directors and who served as our Chief Executive Officer, did not receive additional compensation for his services as a director. The compensation received by the board of directors for the year ending December 31, 2021 is in US dollars, and was converted from Swiss francs (when applicable) according to an USD/CHF exchange rate of 0.913846 corresponding to the average USD/CHF exchange rate for the year ended December 31, 2021, was as follows:
| | | | | | | |
Name | | Fees Earned | Social Charges | Equity Awards (4) | All Other Compensation | Total | |
Frank Verwiel | | $ 78,000 | $ 14,000 | $ 72,000 | _ | $ 164,000 | |
Ernest Loumaye | | $ 55,000 | $ 7,000 | $ 72,000 | _ | $ 134,000 | |
Annette Clancy | | $ 55,000 | $ 7,000 | $ 72,000 | _ | $ 134,000 | |
Anne VanLent | | $ 33,000 | $ 7,000 | $ 112,000 | _ | $ 152,000 | |
Barbara Duncan (1) | | $ 22,000 | $ 9,000 | $ 72,000 | _ | $ 103,000 | |
Catarina Edfjäll | | $ 22,000 | $ 13,000 | $ 116,000 | _ | $ 151,000 | |
Ed Mathers | | $55,000 | $ 12,000 | $ 72,000 | _ | $ 139,000 | |
Jim Healy (2) | | $ 19,000 | $ 8,000 | $ 72,000 | _ | $ 99,000 | |
Rafaèle Tordjman (2) | | $ 19,000 | $ 8,000 | $ 72,000 | _ | $ 99,000 | |
Jacky Vonderscher (3) | | $ 35,000 | $ 4,000 | $ 72,000 | _ | $ 111,000 | |
(1) Ms. Duncan ceased serving on our board of directors as of May 28, 2021.
(2) Mr. Healy and Ms. Tordjman did not stand for reelection to our board of directors at our 2021 Annual General Meeting.
(3) Mr. Vonderscher ceased serving on our board of directors as of November 19, 2021.
(4) Fair value of equity instruments granted during the period, as determined under IFRS2.
Executive Officer Compensation
The annual cash compensation of our executive officers consists of fixed and variable compensation elements.
Fixed compensation comprises the base salary and other compensation elements, as determined under the review process of the compensation, nominating and corporate governance committee of our board of directors and approved by the board, and is based on the position and level of responsibility of the recipient.
Variable compensation comprises performance-related cash bonuses that are based on target bonuses which could be of 40% or 50% of the base salary depending on the executive officer’s position and level of responsibility. The actual amount of cash bonus awarded for a specific year to an executive officer ranges from 50% to 150% of the target bonus for such executive officer. The adjustment rate applied to the target bonus of an executive officer is determined at the end of every year based on our general performance and the executive officer’s individual performance for such fiscal year, which performance is assessed based on annual corporate and individual objectives. We do not use specific metrics to calculate the adjustment rates, which are determined at the sole and full discretion of the compensation, nominating and corporate governance committee of our board of directors and subject to approval by our board of directors. The average adjustment rate to target bonuses of executive officers was capped at 120% for the year ended December 31, 2021, as a result of our general performance. For 2021, on average, variable cash compensation represented approximately 29% of the total cash compensation of our executive officers, or 35% of their fixed cash compensation.
Social contributions, to the extent required by Swiss law, are accrued on the annual cash compensation of our executive officers.
Our executive officers are eligible to participate in our 2017 Plan.
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The aggregate compensation paid to our executive officers with respect to each business year has to be within the maximum compensation approved for our executive officers by our shareholders at our general meeting of shareholders for each relevant period.
In addition, we reimburse our executive officers for out-of-pocket expenses incurred in relation to their services on an ongoing basis upon presentation of the corresponding receipts. Expenses reimbursements are not part of the compensation.
The following table sets forth the compensation received by our executive officers for the year ended December 31, 2021.
| | | | | | |
Name | | Cash-based compensation | Social charges(1) | Equity Awards(2) | All Other Compensation(3) | Total |
Brian O’Callaghan | | $ 992,000 | $ 123,000 | $ 730,000 | $ 9,000 | $ 1,854,000 |
Other executive officers(4) | | $ 3,010,000 | $ 538,000 | $ 3,939,000 | $ 164,000 | $ 7,651,000 |
(1) Includes social charges on cash-based compensation and fair value of equity instruments granted.
(2) Fair value of equity instruments granted during the period, as determined under IFRS.
(3) Represents pension contributions.
(4) | Include compensation received by Wim Souverijns up to his departure from the Executive Committee, and David Renas, Clive Bertram and Luigi Marro, as from their appointments to the Executive Committee in 2021. |
Non-Voting Share Incentive Plan
On November 26, 2013, we adopted an incentive plan, or the 2013 Plan, under which, subject to the approval of our board of directors, we may grant awards of restricted non-voting shares to eligible participants. As of the date of our initial public offering, all non-voting shares issued under the 2013 Plan were immediately converted into common shares, with a par value of CHF 1/13 each. All converted common shares are still subject to all provisions provided under the 2013 Plan, or as otherwise set out in the participant’s issuance agreement. The material terms of the 2013 Plan are set forth below.
All of our employees, advisors, including scientific consultants, agents and members of our board of directors are eligible to participate in the 2013 Plan. As of December 31, 2021, there were 1,854,502 issued and outstanding common shares awarded under the 2013 Plan. Under the 2013 Plan, common shares held by participants are subject to a four-year vesting period, or as otherwise set out in the participant’s issuance agreement. Under the 2013 Plan, one-fourth of the common shares would vest upon the first anniversary of the issuance date, and one-36th of the remaining common shares would vest, starting from the first anniversary of the issuance date, over a total period of three years. Upon a termination of employment, certain forfeiture provisions may apply to a participant’s vested or unvested common shares. As of December 31, 2021, all common shares awarded under the 2013 Plan are fully vested.
2017 Equity Incentive Plan
Following the completion of our initial public offering, we ceased issuing any new grants under the 2013 Plan, and began issuing new awards under our 2017 Plan. Our 2017 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code, or the Code, to our employees and our parent and subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. Our 2017 Plan also provides for the grant of performance cash awards to our employees, consultants and directors.
Authorized Shares
The maximum number of our common shares that may be issued under our 2017 Plan is 13,880,413 shares. The maximum number of common shares that may be issued pursuant to the exercise of incentive stock options under our 2017 Plan is 8,300,000 shares.
The maximum number of our common shares subject to stock awards granted under our 2017 Plan or otherwise during any one fiscal year to any non-employee director, taken together with any cash fees paid to the director during the fiscal year, will not exceed $645,000 in total value.
Shares issued under our 2017 Plan may be authorized but unissued or reacquired shares. Shares subject to stock awards granted under our 2017 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in
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shares, will not reduce the number of shares available for issuance under our 2017 Plan. Additionally, shares issued pursuant to stock awards under our 2017 Plan that we repurchase or that are forfeited, as well as shares reacquired by us as consideration for the exercise or purchase price of a stock award or to satisfy tax withholding obligations related to a stock award, will become available for future grant under our 2017 Plan.
Administration
Our board of directors, or a duly authorized committee thereof, has the authority to administer our 2017 Plan. Our board of directors has delegated its authority to administer our 2017 Plan to our compensation, nominating and corporate governance committee under the terms of the compensation, nominating and corporate governance committee’s charter. Subject to the terms of our 2017 Plan, our board of directors may also delegate to one or more of our officers the authority to (1) designate employees other than officers to receive specified stock awards and (2) determine the number of common shares to be subject to such stock awards. Our board of directors has also delegated joint authority to our Chief Executive Officer and Chief Financial Officer to make certain stock option grants up to a maximum of 250,000 common shares to newly hired employees who are not officers within the meaning of Section 16 of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, among other limitations. Subject to the terms of our 2017 Plan, the administrator has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of one common share, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for use under our 2017 Plan.
The administrator has the power to modify outstanding awards under our 2017 Plan. Subject to the terms of our 2017 Plan, the administrator has the authority to reprice any outstanding option or stock appreciation right, cancel and re-grant any outstanding option or stock appreciation right in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Section 162(m) Limits
No participant may be granted stock awards covering more than 1,500,000 of our common shares under our 2017 Plan during any calendar year pursuant to stock options, stock appreciation rights and other stock awards whose value is determined by reference to an increase over an exercise price or strike price of at least 100% of the fair market value of our common shares on the date of grant. Additionally, no participant may be granted in a calendar year a performance stock award covering more than 1,500,000 of our common shares or a performance cash award having a maximum value in excess of $10,000,000 under our 2017 Plan. These limitations enable us to grant awards that will be exempt from the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code.
Performance Awards
Our 2017 Plan permits the grant of performance-based stock and cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code. To enable us to grant performance-based awards that will qualify, our compensation, nominating and corporate governance committee can structure such awards so that the stock or cash will be issued or paid pursuant to such award only following the achievement of specified pre-established performance goals during a designated performance period.
Corporate Transactions
Our 2017 Plan provides that in the event of a specified corporate transaction, including without limitation a consolidation, merger, or similar transaction involving our company, the sale or other disposition of all or substantially all of the consolidated assets of our company and our subsidiaries, or a sale or disposition of more than 50% of the outstanding capital stock of our company, each stock award will terminate and be cancelled to the extent not vested or exercised prior to the effective time of the specified corporate transaction, unless the administrator elects to take one or more of the following actions with respect to such stock award:
| • | arrange for the assumption, continuation or substitution of a stock award by a successor corporation; |
| • | arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation; |
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| • | accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction; |
| • | cancel the stock award to the extent not vested or not exercised prior to the effective time of the corporate transaction, in exchange for such cash consideration or no consideration as the administrator, in its sole discretion, may consider appropriate; |
| • | arrange for the lapse, in whole or in part, of any reacquisition or repurchase right held by us; or |
| • | cancel the stock award prior to the transaction in exchange for a cash payment, which may be reduced by the exercise price payable in connection with the stock award. |
The administrator is not obligated to treat all stock awards or portions of stock awards, even those that are of the same type, in the same manner. The administrator may take different actions with respect to the vested and unvested portions of a stock award.
Change in Control
The administrator may provide, in an individual award agreement or in any other written agreement between us and the participant, that the stock award will be subject to additional acceleration of vesting and exercisability in the event of a termination of the participant’s continuous service after a change in control. In the absence of such a provision, no such acceleration of the stock award will occur.
Plan Amendment or Termination
Our board of directors has the authority to amend, suspend, or terminate our 2017 Plan, provided that such action does not materially impair the existing rights of any participant without such participant’s written consent. No incentive stock options may be granted after the tenth anniversary of the date our 2017 Plan was adopted by our board of directors.
C. Board Practices.
Our board of directors is composed of seven members. Each director is elected for a one-year term. The current members of our board of directors were appointed at our annual general meeting of shareholders held on May 28, 2021 to serve until our 2022 annual general meeting of shareholders.
We are a foreign private issuer. As a result, in accordance with the Nasdaq listing requirements, we may rely on home country governance requirements and certain exemptions thereunder rather than relying on the stock exchange corporate governance requirements. However, our board of directors has undertaken a review of the independence of the directors and determined that, under current Nasdaq listing requirements, Frank Verwiel, Annette Clancy, Anne VanLent, Ed Mathers and Catarina Edfjäll, representing five of our seven directors, are “independent directors.” In making such determination, our board of directors considered whether any director has a material relationship with us that could compromise their ability to exercise independent judgment in carrying out their responsibilities. For an overview of our corporate governance principles, see “Item 10.B—Memorandum and Articles of Association.”
Board Committees
Our board of directors has established an audit committee and a compensation, nominating and corporate governance committee.
Audit Committee
The audit committee, which consists of Anne VanLent, Ed Mathers and Frank Verwiel, assists our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the compensation, retention and oversight of the work of our independent registered public accounting firm and statutory auditors who are appointed by the shareholders pursuant to Swiss corporation law. Ms. VanLent serves as chairman of the committee. The audit committee consists exclusively of members of our board of directors who are financially literate, and Ms. VanLent is considered an “audit committee financial expert” as defined by the U.S. Securities and Exchange Commission, or SEC. Our board of directors has determined that Ms. VanLent, Mr. Mathers
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and Dr. Verwiel satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act and under the NASDAQ listing standards.
The audit committee is governed by a charter that complies with Nasdaq listing rules. The audit committee is responsible for, among other things:
| • | recommending an auditor for submission to the shareholders; |
| • | the compensation, retention and oversight of any auditor or accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services; |
| • | pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services; |
| • | reviewing and discussing with the independent auditor its responsibilities under generally accepted auditing standards, the planned scope and timing of the independent auditor’s annual audit plan(s) and significant findings from the audit; |
| • | obtaining and reviewing a report from the independent auditor describing all relationships between the independent auditor and us consistent with the applicable Public Company Accounting Oversight Board requirements regarding the independent auditor’s communications with the audit committee concerning independence; |
| • | confirming and evaluating the rotation of the audit partners on the audit engagement team as required by law; |
| • | reviewing with management and the independent auditor, in separate meetings whenever the audit committee deems appropriate, any analyses or other written communications prepared by the management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative IFRS methods on the financial statements, and our other critical accounting policies and practices; |
| • | reviewing, in conjunction with our chief executive officer and chief financial officer, our disclosure controls and procedures; |
| • | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and |
| • | approving or ratifying any related party transaction (as defined in our related party transaction policy) in accordance with our related party transaction policy. |
The audit committee meets as often as it determines is appropriate to carry out its responsibilities, but in any event will meet at least four times per year.
Compensation, Nominating and Corporate Governance Committee
Our compensation, nominating and corporate governance committee consists of three members, Annette Clancy, Ed Mathers and Catarina Edfjall. Our board of directors has determined that each of Ms. Clancy, Mr. Mathers and Dr. Edfjall are independent under the Nasdaq listing standards, are “non-employee directors” as defined in Rule 16b-3 promulgated under the Exchange Act. The chair of our compensation, nominating and corporate governance committee is Ms. Clancy. The primary purpose of our compensation, nominating and corporate governance committee is to discharge our board of directors’ responsibilities to oversee our compensation policies, plans and programs and to review and determine the compensation to be paid to our executive officers, directors and other senior management, as appropriate. We are subject to the Swiss Ordinance against excessive compensation in listed stock corporations, known as the “Minder” rules. As a result of the Minder rules, the members of the compensation, nominating and corporate governance committee must be elected by our shareholders and the aggregate compensation of our board of directors and executive officers must also be approved by our shareholders.
In addition, this committee is also responsible for director nominations as well as reviewing and making recommendations to the board, if required, on our corporate governance framework and guidelines.
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The compensation, nominating and corporate governance committee has the responsibility to, among other things:
| • | review and approve, or recommend that our board of directors approve, the compensation of our executive officers based on the aggregate compensation approved by our shareholders; |
| • | review and recommend to our board of directors the compensation of our directors based on the aggregate compensation approved by our shareholders; |
| • | review and approve, or recommend that our board of directors approve, the terms of compensatory arrangements with our executive officers; |
| • | administer our share and equity incentive plans; |
| • | select independent compensation consultants and assess whether there are any conflicts of interest with any of the committees’ compensation advisers; |
| • | review and approve, or recommend that our board of directors approve, incentive compensation and equity plans, and any other compensatory arrangements for our executive officers and other senior management, as appropriate; |
| • | review and establish general policies relating to compensation and benefits of our employees and reviewing our overall compensation philosophy; |
| • | identify, evaluate and select, or recommend that our board of directors approve, nominees for election to our board of directors; |
| • | evaluate the performance of our board of directors and of individual directors; |
| • | consider and make recommendations to our board of directors regarding the composition of the committees of the board of directors; |
| • | review developments in corporate governance practices; |
| • | evaluate the adequacy of our corporate governance practices and reporting; |
| • | review management succession plans; |
| • | approve any loans by the company to executive officers (to the extent permitted by applicable law and our articles of association) and loans by the company to employees that are not executive officers, where the amount of any such loan exceeds $10,000; |
| • | develop and make recommendations to our board of directors regarding corporate governance guidelines and matters; and |
| • | oversee periodic evaluations of the board of directors’ performance. |
Other Corporate Governance Matters
The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires foreign private issuers, including our company, to comply with various corporate governance practices. In addition, Nasdaq rules provide that foreign private issuers may follow home country practice in lieu of the Nasdaq corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws.
Because we are a foreign private issuer, our members of our board of directors, executive board members and senior management are not subject to short-swing profit and insider trading reporting obligations under Section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules.
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D. Employees.
As of December 31, 2021, we had 51 employees. None of our employees are represented by any collective bargaining agreements. We believe that we maintain good relations with our employees. At each date shown, we had the following number of employees, broken out by department and geography.
| | As of December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Function | | | | | | | | | | | | |
Research and preclinical development | | | 10 | | | | 9 | | | | 9 | |
Clinical, medical and regulatory affairs | | | 28 | | | | 23 | | | | 25 | |
Management and administrative | | | 13 | | | | 13 | | | | 19 | |
Total | | | 51 | | | | 45 | | | | 53 | |
Geography | | | | | | | | | | | | |
Switzerland | | | 45 | | | | 41 | | | | 47 | |
United States | | | 6 | | | | 4 | | | | 6 | |
E. Share Ownership.
For information regarding the share ownership of our directors and executive officers, see “Item 6.B—Compensation” and “Item 7.A—Major Shareholders.”
Item 7. Major Shareholders and Related Party Transactions
A. Major shareholders.
The following table sets forth information with respect to the beneficial ownership of our common shares as of December 31, 2021 for:
| • | each beneficial owner of 5% or more of our outstanding common shares; |
| • | each of our directors and executive officers; and |
| • | all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include common shares issuable upon the exercise of options that are immediately exercisable or exercisable within 60 days of December 31, 2021. Percentage ownership calculations are based on 79,955,268 common shares (excluding 5,265,203 treasury shares) outstanding as of December 31, 2021.
Except as otherwise indicated, all of the shares reflected in the table are common shares and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
In computing the number of common shares beneficially owned by a person and the percentage ownership of that person, we deemed outstanding common shares subject to options held by that person that are immediately exercisable or exercisable within 60 days of December 31, 2021. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*).
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Except as otherwise indicated in the table below, addresses of the directors, executive officers and named beneficial owners are in care of ObsEva SA, Chemin des Aulx, 12, 1228 Plan-les-Ouates, Geneva, Switzerland.
Name of Beneficial Owner | | Number | | | Percentage | |
Principal Shareholders: | | | | | | | | |
Sofinnova Venture Partners VIII, L.P.(1) | | | 4,749,623 | | | 5.9% | |
New Enterprise Associates 15, L.P.(2) | | | 4,586,563 | | | 5.6% | |
Executive Officers and Directors: | | | | | | | | |
Brian O'Callaghan | | (*) | | | | | |
Will Brown | | (*) | | | | | |
Jean-Pierre Gotteland | | (*) | | | | | |
Elizabeth Garner | | (*) | | | | | |
Clive Bertram | | (*) | | | | | |
Katja Bührer | | (*) | | | | | |
Luigi Marro | | (*) | | | | | |
Fabien de Ladonchamps | | (*) | | | | | |
Ernest Loumaye(3) | | | 4,740,756 | | | 5.9% | |
Annette Clancy | | (*) | | | | | |
Anne VanLent | | (*) | | | | | |
Catarina Edfjäll | | (*) | | | | | |
Ed Mathers(2)(4) | | | 4,713,343 | | | 5.9% | |
Frank Verwiel | | (*) | | | | | |
All current directors and executive officers as a group (14 persons)(5) | | | 11,483,764 | | | 14.4% | |
*Represents beneficial ownership of less than 1%.
(1) | The information is based on the number of our common shares reported by Sofinnova Venture Partners VIII, L.P., or Sofinnova VIII, Sofinnova Management VIII, L.L.C., and Dr. James I. Healy, in an Amendment No. 4 to Schedule 13D filed with the SEC on February 28, 2022. Consists of 4,749,623 common shares directly held by Sofinnova VIII. Sofinnova Management VIII, L.L.C. is the general partner of Sofinnova VIII and Dr. James I. Healy, the managing members of Sofinnova Management VIII, L.L.C., may be deemed to have shared voting and dispositive power with respect to such shares. The address of Sofinnova VIII is c/o Sofinnova Investments, Inc., 3000 Sand Hill Road, Bldg. 4, Suite 250, Menlo Park, California 94025. |
(2) | The information is based on the number of our common shares reported by New Enterprise Associates 15, L.P in notifications filed with the SIX Swiss Exchange. Consists of 4,586,563 common shares directly held by NEA 15. The shares directly held by NEA 15 are indirectly held by NEA Partners 15, L.P., or NEA Partners 15, the sole general partner of NEA 15, NEA 15 LLC, the sole general partner of NEA Partner 15 and each of the individual Managers , NEA 15 GP, LLC, or of NEA 15 LLC. The individual Managers of NEA 15 LLC, or collectively, the NEA 15 Managers, are Forest Baskett, Anthony A. Florence, Jr., Scott D. Sandell, and Peter W. Sonsini. NEA 15, NEA Partners 15, NEA 15 LLC and the NEA 15 Managers share voting and dispositive power with regard to our securities directly held by NEA 15. Ed Mathers, a partner of New Enterprise Associates, Inc., is a member of our board of directors. The address of New Enterprise Associates 15, L.P. is c/o New Enterprise Associates, Inc., 1954 Greenspring Drive, Suite 600, Timonium, Maryland 21093. |
(3) | Includes 525,712 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(4) | Includes 308,268 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(5) | Includes 336,273 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(6) | Includes 192,147 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(7) | Includes 825,306 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(8) | Includes 105,780 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(9) | Includes 12,285 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
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(10) | Includes 10,920 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(11) | Includes 126,780 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(12) | Includes 112,280 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
(13) | Includes 2,555,751 common shares issuable upon the exercise of options that are exercisable within 60 days of December 31, 2021. |
As of December 31, 2021, we estimate that approximately 12% of our outstanding common shares were held in the United States by two holders of record. The actual number of holders is greater than these numbers of record holders, and includes beneficial owners whose common shares are held in street name by brokers and other nominees. This number of holders of record also does not include holders whose shares may be held in trust by other entities.
B. Related Party Transactions.
Since January 1, 2021, we have engaged in the following transactions with our directors, executive officers and holders of more than five percent (5%) of our outstanding voting securities and their affiliates, which we refer to as our related-parties.
Director and Executive Officer Compensation
See “Item 6.B—Compensation of Directors and Executive Officers” for information regarding compensation of directors and executive officers.
Indemnification Agreements
We entered into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Registration Rights Agreement
We have entered into a registration rights agreement with certain of our existing shareholders pursuant to which we have granted them customary registration rights for the resale of the common shares held by certain of our existing shareholders.
Related-Party Transactions Policy
We have adopted a related-party transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related-party transactions. For purposes of our policy only, a related-party transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related parties are, were or will be participants, which are not (1) in the ordinary course of business, (2) at arms’ length and (3) in which the amount involved exceeds $120,000. Transactions involving compensation for services provided to us as an employee or director are not covered by this policy. For purposes of this policy, a related party is any executive officer, director (or nominee for director) or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.
Under the policy, if a transaction has been identified as a related-party transaction, including any transaction that was not a related-party transaction when originally consummated or any transaction that was not initially identified as a related-party transaction prior to consummation, our management must present information regarding the related-party transaction to our board of directors for review, consideration and approval. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related parties, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each
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director, executive officer and, to the extent feasible, significant shareholder to enable us to identify any existing or potential related-party transactions and to effectuate the terms of the policy. In addition, our board of directors has adopted a Code of Business Conduct and Ethics, under which our employees and directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related-party transactions, our audit committee, or other independent body of our board of directors, will take into account the relevant available facts and circumstances including:
| • | the risks, costs and benefits to us; |
| • | the impact on a director’s independence in the event that the related party is a director, immediate family member of a director or an entity with which a director is affiliated; |
| • | the availability of other sources for comparable services or products; and |
| • | the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. |
The policy requires that, in determining whether to approve, ratify or reject a related-party transaction, our audit committee, or other independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our shareholders, as our audit committee, or other independent body of our board of directors, determines in the good faith exercise of its discretion.
C. Interests of Experts and Counsel.
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information.
Consolidated Financial Statements
Our consolidated financial statements are appended at the end of this Annual Report, starting at page F-1, and incorporated herein by reference.
Dividend Distribution Policy
Since our incorporation, we have never paid a dividend, and we do not anticipate paying dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. As a result, investors in our common shares will benefit in the foreseeable future only if our common shares appreciate in value.
Under Swiss law, any dividend must be proposed by our board of directors and approved by a shareholders’ meeting. In addition, our auditors must confirm that the dividend proposal of our board of directors conforms to Swiss statutory law and our articles of association. A Swiss corporation may pay dividends only if it has sufficient distributable profits brought forward from the previous business years or if it has distributable reserves, each as evidenced by its audited stand-alone statutory balance sheet prepared pursuant to Swiss law and after allocations to reserves required by Swiss law and its articles of association have been deducted. Distributable reserves are generally booked either as “retained earnings” (réserves issues du bénéfice) or as “capital reserves” (réserves issues du capital). Distributions out of issued share capital, which is the aggregate par value of a corporation’s issued shares, may be made only by way of a share capital reduction. See “Item 10. B—Memorandum and Articles of Association” for further details on the limitations on our ability to declare and pay dividends.
Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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B. Significant Changes.
There have been no significant changes since the date of the financial statements appended to this Annual Report. See note 24 to our consolidated financial statements for details of events after the reporting period.
Item 9. The Offer and Listing.
A. Offer and Listing Details.
Our common shares have been listed on the Nasdaq Global Select Market, or Nasdaq, under the symbol “OBSV” since January 26, 2017, and on SIX Swiss Exchange, or SIX, under the symbol “OBSN” since July 13, 2018. Prior to January 26, 2017, there was no public trading market for our common shares.
B. Plan of Distribution.
Not applicable.
C. Markets.
Our common shares have been listed on Nasdaq under the symbol “OBSV” since January 26, 2017, and on SIX under the symbol “OBSN” since July 13, 2018.
D. Selling Shareholders.
Not applicable.
E. Dilution.
Not applicable.
F. Expenses of the Issue.
Not applicable.
Item 10. Additional Information.
A. Share Capital.
Not applicable.
B. Memorandum and Articles of Association.
Subject to the specifications mentioned below, the information set forth in our Registration Statement on Form F-3 (File No. 333-233069) as filed with the SEC on August 7, 2019 and declared effective by the SEC on August 14, 2019, under the headings “Description of Share Capital—The Company,” “Description of Share Capital—Articles of Association,” “Description of Share Capital—General Meeting of Shareholders,” “Description of Share Capital—Voting Rights,” “Description of Share Capital—Dividends and Other Distributions,” “Description of Share Capital—Transfer of Shares,” “Description of Share Capital—Inspection of Books and Records,” “Description of Share Capital—Compulsory Acquisitions; Appraisal Rights,” “Description of Share Capital—Board of Directors,” “Description of Share Capital—Conflict of Interest, Management Transactions” “Description of Share Capital—Principles of the Compensation of the Board of Directors and the Executive Management,” “Comparison of Swiss Law and Delaware Law” and “Enforcement of Judgments” is incorporated herein by reference.
Share Capital
As of December 31, 2021, our issued and fully paid-in share capital registered with the commercial registry of the Swiss canton of Geneva, Switzerland, consisted of 85,220,471 common shares, par value CHF 1/13 per share, or approximately CHF 0.0769 per share, and no preferred shares. As of March 9, 2022, our issued and fully paid-in share capital registered with the commercial registry of the Swiss canton of Geneva, Switzerland, consisted of 108,620,471 common shares, par
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value CHF 1/13 per share, and no preferred shares. As of March 9, 2022, all of our issued shares were registered with the commercial registry of the Swiss canton of Geneva, Switzerland.
Under our articles of association, as amended on February 11, 2022, our board of directors is authorized, at any time until May 28, 2023, to increase our share capital by a maximum aggregate par value of CHF 1,323,864 through the issuance of not more than 17,210,232 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 per share.
Under our articles of association, as amended on February 11, 2022, our share capital may be increased by a maximum aggregate amount of CHF 1,058,316 through the issuance of not more than 13,758,108 common shares, par value CHF 1/13 per share, in connection with our equity incentive plans.
Under our articles of association, as amended on February 11, 2022, our share capital may be increased by a maximum aggregate amount of CHF 1,757,855 and 9/13th of a Swiss franc through the issuance of not more than 22,852,124 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 each, by the exercise of option and conversion rights granted in connection with convertible bonds or similar instruments of the Company or one of our subsidiaries.
Our share capital activity was as follows:
| | | | |
Common shares registered in the commercial registry at January 1, 2018 | | | 37,131,262 | |
Common shares registered in the commercial registry in March 2018 | | | 3,499,990 | |
Common shares registered in the commercial registry in June 2018 | | | 4,750,000 | |
Common shares registered in the commercial registry at December 31, 2018 | | | 45,381,252 | |
Common shares registered in the commercial registry in March 2019 | | | 110,364 | |
Common shares registered in the commercial registry in July 2019 | | | 3,064,048 | |
Common shares registered in the commercial registry at December 31, 2019 | | | 48,555,664 | |
Common shares registered in the commercial registry in April 2020 | | | 3,320,337 | |
Common shares registered in the commercial registry on September 8, 2020 | | | 7,810,266 | |
Common shares registered in the commercial registry on September 29, 2020 | | | 516,352 | |
Common shares registered in the commercial registry at December 31, 2020 | | | 60,202,619 | |
Common shares registered in the commercial registry on February 1, 2021 | | | 6,020,248 | |
Common shares registered in the commercial registry on February 15, 2021 | | | 14,997,604 | |
Common shares registered in the commercial registry on July 13, 2021 | | | 4,000,000 | |
Common shares registered in the commercial registry at December 31, 2021 | | | 85,220,471 | |
Common shares registered in the commercial registry on February 14, 2022 | | | 23,400,000 | |
Common shares registered in the commercial registry at March 9, 2022 | | | 108,620,471 | |
| | | | |
| | | | |
From January 1, 2018 through March 9, 2022, the following events have changed the number of our issued common shares:
| • | During an extraordinary general meeting of shareholders, held on January 26, 2018, our shareholders voted to amend our articles of association in order to authorize our board of directors, at any time until January 26, 2020, to increase our share capital by a maximum aggregate par value of CHF 1,428,125 through the issuance of not more than 18,565,625 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 per share. In addition, our shareholders voted to amend our articles of association in order to enable the increase of our share capital from time to time by the issuance of up to 14,393,002 common shares, par value CHF 1/13 per share, upon exercise of option or conversion rights granted in connection with financial instruments issued by us or our subsidiaries. Our revised articles of association were recorded with the commercial registry of the Swiss canton of Geneva on January 31, 2018. |
| • | On March 12, 2018, our board of directors decided to issue 3,499,990 common shares at par value, by way of self-subscription for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on March 31, 2018. |
| • | During our 2018 annual general meeting of shareholders, held on May 9, 2018, our shareholders decided to amend the articles of association of the company in order to authorize our board of directors, at any time until May 9, 2020, to increase our share capital by a maximum aggregate par value of CHF 1,562,740 through the issuance of not more than 20,315,620 common shares, which would have to be fully paid-in, with a par value of CHF 1/13. In addition, our shareholders decided to amend the articles of association of the company in order to enable the increase of our share capital from time to time by the issuance of up to 5,922,618 common shares, par value CHF 1/13 per share, upon exercise of options or pre-emptive rights thereof, which have been issued or granted to employees, directors or consultants of our company or of one of our subsidiaries under the terms of |
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| | our equity plans. Our revised articles of association were recorded with the commercial registry of the Swiss canton of Geneva on May 11, 2018. |
| • | On June 20, 2018, our board of directors decided to increase our share capital through the issuance of 4,750,000 common shares at a price of $15.39 per share. |
| • | On June 22, 2018, we completed a public offering of 4,750,000 common shares at a price of $15.39 per share. We received net proceeds of $68.0 million from the public offering. The increase of our share capital, through the issuance of 4,750,000 common shares, par value CHF 1/13 per share, was recorded with the commercial registry of the Swiss canton of Geneva, on June 22, 2018. |
| • | On March 26, 2019, our articles of association were amended in order to reflect the increase of our share capital by 110,364 common shares, issued upon exercise of stock options under our equity plans. These changes were recorded with the commercial registry of the Swiss canton of Geneva, on March 27, 2019. |
| • | During our 2019 annual general meeting of shareholders, held on May 8, 2019, our shareholders decided to amend the articles of association of the company in order to authorize our board of directors, at any time until May 8, 2021, to increase our share capital by a maximum aggregate par value of CHF 1,749,677 through the issuance of not more than 22,745,801 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 per share. In addition, our shareholders decided to amend the articles of association of the company in order to enable the increase of our share capital from time to time by the issuance of up to 16,933,553 common shares, par value CHF 1/13 per share, upon exercise of option or conversion rights granted in connection with financial instruments issued by us or our subsidiaries. Our revised articles of association were recorded with the commercial registry of the Swiss canton of Geneva on May 9, 2019. |
| • | On July 17, 2019, our board decided to issue 3,064,048 common shares, at par value, which were subscribed for by our U.S. wholly-owned subsidiary, ObsEva USA Inc., for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on July 19, 2019. |
| • | On April 10, 2020, our board decided to issue 3,308,396 common shares, at par value, which were subscribed for by our U.S. wholly-owned subsidiary, ObsEva USA Inc., for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on April 28, 2020. |
| • | On April 14, 2020, our articles of association were amended in order to reflect the increase of our share capital by 11,941 common shares, issued upon exercise of stock options under our equity plans. These changes were recorded with the commercial registry of the Swiss canton of Geneva, on April 28, 2020. |
| • | During the 2020 Annual General Meeting, our shareholders decided to amend the articles of association of the company in order to authorize our board of directors, at any time until June 9, 2022, to increase our share capital by a maximum aggregate par value of CHF 1,995,230 through the issuance of not more than 25,937,990 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 per share. In addition, our shareholders decided to amend the articles of association of the company in order to enable the increase of our share capital from time to time by the issuance of up to 9,004,437 common shares, par value CHF 1/13 per share, upon exercise of options or pre-emptive rights thereof, which have been issued or granted to employees, directors or consultants of our company or of one of our subsidiaries under the terms of our equity plans. Our revised articles of association were recorded with the commercial registry of the Swiss canton of Geneva on June 11, 2020. |
| • | In September, 2020, we completed an underwritten offering of 6,448,240 units at an effective price of $2.869 per unit, with each unit comprised of one common share (or pre-funded warrant) and one 15-month purchase warrant to purchase one common share at an exercise price of $3.43 per share. In this context, our board decided, on September 3, 2020, to issue 5,490,000 common shares for the purpose of the underwritten offering and 2,320,266 common shares, at par value, which were subscribed for by our U.S. wholly-owned subsidiary, ObsEva USA Inc., for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on September 8, 2020. |
| • | In September 2020, we completed a private placement of 516,352 units at an effective price of $2.905 per unit, with each unit comprised of one common share and one 15-month purchase warrant to purchase one common share at an exercise price of $3.43 per share. In this context, our board of directors decided, on September 18, 2020, to issue 516,352 common shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on September 29, 2020. |
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| • | On January 27, 2021, our board decided to issue 6,020,248 common shares, at par value, which were subscribed for by our U.S. wholly-owned subsidiary, ObsEva USA Inc., for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on February 1, 2021. |
| • | On February 10, 2021, our board decided to issue 11,591,124 common shares, at par value, which were subscribed for by our U.S. wholly-owned subsidiary, ObsEva USA Inc., for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on February 15, 2021. |
| • | On February 12, 2021, our articles of association were amended in order to reflect the increase of our share capital by 3,406,480 common shares, issued upon exercise of options granted in connection with financial market instruments. These changes were recorded with the commercial registry of the Swiss canton of Geneva, on February 15, 2021. |
| • | Since February 12, 2021, 4,000,000 additional common shares have been issued out of our conditional capital for financing purposes, further to the exercise of outstanding warrants issued in the context of the underwritten offering of September 2020. The issuance of these shares has not yet been reflected in our articles of association or registered with the commercial registry of the Swiss canton of Geneva, Switzerland. |
| • | During the 2021 Annual General Meeting, our shareholders decided to amend the articles of association of the company in order to authorize our board of directors, at any time until May 28, 2023, to increase our share capital by a maximum aggregate par value of CHF 3,123,864 through the issuance of not more than 40,610,232 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 per share. In addition, our shareholders decided to amend the articles of association of the company in order to enable the increase of our share capital from time to time by the issuance of up to 13,758,108 common shares, par value CHF 1/13 per share, upon exercise of options or pre-emptive rights thereof, which have been issued or granted to employees, directors or consultants of our company or of one of our subsidiaries under the terms of our equity plans. Further, our shareholders decided to amend the articles of association of the company in order to enable the increase of our share capital from time to time by the issuance of up to 26,852,124 common shares, par value CHF 1/13 per share, by the exercise of option and conversion rights granted in connection with convertible bonds or similar instruments of the Company or one of our subsidiaries. Our revised articles of association were recorded with the commercial registry of the Swiss canton of Geneva, on July 13, 2021. |
| • | On June 30, 2021, our articles of association were amended in order to reflect the issuance of 4,000,000 additional common shares out of our conditional capital for financing purposes, further to the exercise of outstanding warrants issued in the context of the underwritten offering of September 2020. These changes were recorded with the commercial registry of the Swiss canton of Geneva, on July 13, 2021. |
| • | On January 28, 2022, our board decided to issue 23,400,000 common shares, at par value, which were subscribed for by our U.S. wholly-owned subsidiary, ObsEva USA Inc., for the purpose of rebuilding our pool of treasury shares. The increase of our share capital was recorded with the commercial registry of the Swiss canton of Geneva, on February 14, 2022. |
Articles of Association
When we refer to our articles of association in this Form 20-F, we refer to our amended and restated articles of association, as amended on February 11, 2022.
Under our articles of association, as amended on February 11, 2022, our board of directors is authorized, at any time until May 28, 2023, to increase our share capital by a maximum aggregate par value of CHF 1,323,865 through the issuance of not more than 40,610,232 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 per share.
Under our articles of association, as amended on February 11, 2022, our share capital may be increased by a maximum aggregate amount of CHF 1,757,855 and 9/13th of a Swiss franc through the issuance of not more than 22,852,124 common shares, which would have to be fully paid-in, with a par value of CHF 1/13 each, by the exercise of option and conversion rights granted in connection with convertible bonds or similar instruments of the Company or one of our subsidiaries.
Under our articles of association, as amended on February 11, 2022, our share capital may be increased by a maximum aggregate amount of CHF 1,058,316 through the issuance of not more than 13,758,108 common shares, par value CHF 1/13 per share, in connection with our equity incentive plans.
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C. Material Contracts.
At the Market (ATM) Program
On March 16, 2018, we entered into an agreement with Jefferies LLC to sell treasury shares from time to time at our discretion under an “at the market” (ATM) program, with aggregate gross sales proceeds of up to $50.0 million. On August 7, 2019, this agreement was amended to increase the aggregate gross sales proceeds that may be generated under the ATM program by $25.0 million, for aggregate gross sales proceeds of up to $75.0 million. Through the date the ATM program was terminated in March 2021, we generated gross proceeds of $75.0 million under the program.
In March 2021, we terminated our prior ATM program with Jefferies and entered into a new agreement, or the Sales Agreement, with SVB Leerink LLC, or the Agent, to sell treasury shares from time to time at our discretion under an ATM program, with aggregate gross sales proceeds of up to $50.0 million. The Sales Agreement provides that the commission payable to the Agent for sales of common shares with respect to which the Agent acts as sales agent shall be 3.0% of the gross sales price for such common shares sold pursuant to the Sales Agreement. The Sales Agreement contains customary representations and warranties of the parties and indemnification and contribution provisions under which the Company and the Agent have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. We and the Agent have the right, by giving written notice as specified in the Sales Agreement, to terminate the Sales Agreement. Through December 31, 2021, we generated gross proceeds of $19.1 million under the Sales Agreement.
Securities Purchase Agreement
On October 12, 2021, we entered into the Securities Purchase Agreement with certain funds and accounts managed by JGB which is structured to provide up to $135 million in borrowing capacity, available in nine tranches. We received gross proceeds of $30 million from the first tranche at closing and used the proceeds to repay all amounts outstanding under our existing Credit Facility Agreement with Oxford. Upon payoff, the Credit Facility Agreement was terminated and the security interests in our assets that secured the Credit Facility Agreement were released.
On January 28, 2022, we entered into an amendment agreement and an amended and restated securities purchase agreement, or the Amendment Agreements, with JGB to amend the Securities Purchase Agreement. The Amendment Agreements adjusted the principal balance payable at maturity for the notes to be issued in the second tranche to $10.5 million ($975,000 of original issue discount) and the conversion price for the notes to be issued in the second tranche to a price of $1.66 per common share, and accelerated the issuance of the second tranche to January 28, 2022. In addition, as adjusted pursuant to the Amendment Agreements, we issued a warrant to purchase 1,018,716 of our common shares at an exercise price of $1.87 per share. Additionally, JGB waived certain conditions required to be met to fund the second tranche, including that our volume-weighted average price was not below $3.00 per share for five or more trading days during the 30 days prior to the funding date for the second tranche, in exchange for a payment of $1.25 million and the amended terms for the notes and warrants to be issued in the second tranche In connection with the Amendment Agreements, we received net proceeds of $8.25 million from the second tranche, after accounting for expenses and the $1.25 million waiver payment to JGB. We are able to potentially receive gross proceeds of $16.725 million from the third tranche and $13.125 million from each remaining tranche thereafter. The third tranche will be funded in May 2022 and each subsequent tranche will be funded 90 days after the preceding tranche.
For additional information on our material contracts, please see “Item 4. Information on the Company,” Item 6. Directors, Senior Management and Employees,” and “Item 7.B. Related Party Transactions” of this Annual Report on 20-F.
D. Exchange Controls.
There are no Swiss governmental laws, decrees or regulations that restrict, in a manner material to us, the export or import of capital, including any foreign exchange controls, or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland who hold our common shares.
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E. Taxation.
Swiss Tax Considerations
In the opinion of Lenz & Staehelin, the following are the material Swiss income tax consequences of owning and disposing of our common shares.
This summary of material Swiss tax consequences is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not purport to take into account the specific circumstances of any particular shareholder or potential investor and does not relate to persons in the business of buying and selling common shares or other securities. The summary is not intended to be, and should not be interpreted as, legal or tax advice to any particular potential shareholder, and no representation with respect to the tax consequences to any particular shareholder is made.
Current and prospective shareholders are advised to consult their own tax advisors in light of their particular circumstances as to the Swiss tax laws, regulations and regulatory practices that could be relevant for them in connection with the offering, the acquiring, owning and selling or otherwise disposing of common shares and receiving dividends and similar cash or in-kind distributions on common shares (including dividends on liquidation proceeds and stock dividends) or distributions on common shares based upon a capital reduction (remboursements liés à la réduction de la valeur nominale des actions) or distributions paid out of capital contributions reserves (réserves issues d’apports de capital) and the consequences thereof under the tax laws, regulations and regulatory practices of Switzerland.
Taxation of Common Shares
Swiss Federal Withholding Tax on Dividends and Distributions
Dividend payments and similar cash or in-kind distributions on the common shares (including dividends on liquidation proceeds and stock dividends) that the Company makes to shareholders are subject to Swiss federal withholding tax (impôt anticipé) at a rate of 35% on the gross amount of the dividend. We are required to withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss Federal Tax Administration. Distributions based upon a capital reduction (remboursements liés à la réduction de la valeur nominale des actions) and distributions paid out of capital contributions reserves (réserves issues d’apports de capital) recognized by the Swiss Federal Tax Administration are not subject to Swiss federal withholding tax.
The Swiss federal withholding tax may also apply to gains realized upon a repurchase of shares by the company, on the difference between the repurchase price and the par value of the shares; a different basis of taxation may apply under the capital contribution principle.
The Swiss federal withholding tax is refundable or creditable in full to a Swiss tax resident corporate and individual shareholder as well as to a non-Swiss tax resident corporate or individual shareholder who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, if such person is the beneficial owner of the distribution and, in the case of a Swiss tax resident individual who holds the common shares as part of his private assets, duly reports the gross distribution received in his individual income tax return or, in the case of a person who holds the common shares as part of a trade or business carried on in Switzerland through a permanent establishment or fixed place of business situated for tax purposes in Switzerland, recognizes the gross dividend distribution for tax purposes as earnings in the income statements and reports the annual profit in the income tax return.
If a shareholder who is not a Swiss resident for tax purposes and does not hold the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes in Switzerland, receives a distribution from us, the shareholder may be entitled to a full or partial refund or credit of Swiss federal withholding tax incurred on a taxable distribution if the country in which such shareholder is resident for tax purposes has entered into a treaty for the avoidance of double taxation with Switzerland and the further prerequisites of the treaty for a refund have been met. Shareholders not resident in Switzerland should be aware that the procedures for claiming treaty benefits (and the time required for obtaining a refund or credit) may differ from country to country.
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Besides the bilateral treaties Switzerland has entered into an agreement with the European Community providing for an automatic exchange of information based on the OECD’s global standard for the automatic exchange of information. This agreement contains in its Article 9 provisions on taxation of dividends which apply with respect to EU member states and provides for an exemption of Withholding Tax for companies under certain circumstances.
Individual and Corporate Income Tax on Dividends
Swiss resident individuals holding the common shares as part of their private assets who receive dividends and similar distributions (including stock dividends and liquidation proceeds), which are not repayments of the par value of the common shares or distributions paid out of capital contributions reserves (réserves issues d’apports de capital) recognized by the Swiss Federal Tax Administration are required to report such payments in their individual income tax returns and are liable to Swiss federal, cantonal and communal income taxes on any net taxable income for the relevant tax period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 70% of their value, if the investment amounts to at least 10% of our nominal capital. All cantons have introduced similar partial taxation measures at cantonal and communal levels.
Swiss resident individuals as well as non-Swiss resident individual taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (remboursements liés à la réduction de la valeur nominale des actions) and distributions paid out of capital contributions reserves (réserves issues d’apports de capital) recognized by the Swiss Federal Tax Administration in their income statements for the relevant tax period and are liable to Swiss federal, cantonal and communal individual or corporate income taxes, as the case may be, on any net taxable earnings accumulated (including the payment of dividends) for such period. Furthermore, for the purpose of the Direct Federal Tax, dividends, shares in profits, liquidation proceeds and pecuniary benefits from shares (including bonus shares) are included in the tax base for only 70%, if the investment is held in connection with the conduct of a trade or business or qualifies as an opted business asset according to Swiss tax law and amounts to at least 10% of our nominal capital. All cantons have introduced similar partial taxation measures at cantonal and communal levels.
Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (remboursements liés à la réduction de la valeur nominale des actions) and distributions paid out of capital contributions reserves (réserves issues d’apports de capital) recognized by the Swiss Federal Tax Administration in their income statements for the relevant tax period and are liable to Swiss federal, cantonal and communal corporate income taxes on any net taxable earnings accumulated for such period. Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland may be eligible for dividend relief (réduction pour participation) in respect of dividends and distributions based upon a capital reduction (remboursements liés à la réduction de la valeur nominale des actions) and distributions paid out of capital contributions reserves (réserves issues d’apports de capital) recognized by the Swiss Federal Tax Administration if the common shares held by them as part of a Swiss business have an aggregate market value of at least CHF 1 million of represent at least 10% of our share capital or give entitlement to at least 10% of our profits and reserves, respectively.
Recipients of dividends and similar distributions on the common shares (including stock dividends and liquidation proceeds) who are neither residents of Switzerland nor during the current taxation year have engaged in a trade or business in Switzerland and who are not subject to taxation in Switzerland for any other reason are not subject to Swiss federal, cantonal or communal individual or corporate income taxes in respect of dividend payments and similar distributions because of the mere holding of the common shares.
Wealth and Annual Capital Tax on Holding of Common Shares
Swiss resident individuals and non-Swiss resident individuals holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to report their common shares as part of their wealth and will be subject to cantonal and communal wealth tax to the extent the aggregate taxable net wealth is allocable to Switzerland.
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Swiss resident corporate taxpayers and non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to cantonal and communal annual capital tax on the taxable capital to the extent the aggregate taxable capital is allocable to Switzerland.
Individuals and corporate taxpayers not resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to wealth or annual capital tax in Switzerland because of the mere holding of the common shares.
Capital Gains on Disposal of Common Shares
Swiss resident individuals who sell or otherwise dispose of the common shares realize a tax-free capital gain, or a non-deductible capital loss, as the case may be, provided that they hold the common shares as part of their private assets.
Capital gains realized on the sale of the common shares held by Swiss resident individuals, Swiss resident corporate taxpayers as well as non-Swiss resident individuals and corporate taxpayers holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, will be subject to Swiss federal, cantonal and communal individual or corporate income tax, as the case may be. This also applies to Swiss resident individuals who, for individual income tax purposes, are deemed to be professional securities dealers for reasons of, inter alia, frequent dealing and debt-financed purchases. Capital gains realized by resident individuals who hold the common shares as business assets might be entitled to reductions or partial taxations similar to those mentioned above for dividends if certain conditions are met (e.g. holding period of at least one year and participation of at least 10% of nominal capital).
Swiss resident corporate taxpayers as well as non-Swiss resident corporate taxpayers holding the common shares in connection with the conduct of a trade or business, through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are required to recognize such capital gain in their income statements for the relevant tax period. Corporate taxpayers may qualify for participation relief on capital gains (réduction pour participations), if the common shares sold during the tax period reflect an interest of at least 10% in our capital or if the common shares sold allow for at least 10% of our profit and reserve and were held for at least one year. The tax relief applies to the difference between the sale proceeds of common shares by us and the investment cost of the participation.
Individuals and corporations not resident in Switzerland for tax purposes and not holding the common shares in connection with the conduct of a trade or business in Switzerland through a permanent establishment or fixed place of business situated, for tax purposes, in Switzerland, are not subject to Swiss federal, cantonal and communal individual income or corporate income tax, as the case may be, on capital gains realized on the sale of the common shares.
Gift and Inheritance Tax
Transfers of common shares may be subject to cantonal or communal inheritance or gift taxes if the deceased or the donor or the recipient were resident in a Canton levying such taxes and, in international circumstances where residency requirements are satisfied, if the applicable tax treaty were to allocate the right to tax to Switzerland.
Swiss Issuance Stamp Duty
We will be subject to and pay to the Swiss Federal Tax Administration a 1% Swiss federal issuance stamp duty (droit de timbre d’émissions) on the consideration received by it for the issuance of the Shares less certain costs incurred in connection with the issuance.
Swiss Securities Transfer Stamp Duty
The purchase or sale of the common shares, whether by Swiss residents or non-Swiss residents, may be subject to Swiss securities transfer stamp duty of up to 0.15%, calculated on the purchase price or the proceeds if the purchase or sale occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Duty Act as an intermediary or party to the transaction unless an exemption applies. The issuance of the common shares to the initial shareholders at the offering price is not subject to Swiss securities transfer stamp duty.
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Material U.S. Federal Income Tax Consequences for U.S. Holders
The following is a description of the material U.S. federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning and disposing of common shares, but it does not purport to be a comprehensive description of all the tax consequences relating thereto. This discussion applies only to a U.S. Holder that will hold common shares as “capital assets” for tax purposes (generally, property held for investment). In addition, it does not describe all of the tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential impact of the Medicare contribution tax on net investment income (except to the extent specifically set forth below) or tax consequences applicable to U.S. Holders subject to special rules, such as:
| • | certain financial institutions; |
| • | dealers or traders in securities who use a mark-to-market method of tax accounting; |
| • | persons holding common shares as part of a hedging transaction, straddle, wash sale, conversion transaction or integrated transaction or persons entering into a constructive sale with respect to the common shares; |
| • | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
| • | S corporations, partnerships, or entities or arrangements classified as partnerships for U.S. federal income tax purposes; |
| • | persons that own or are deemed to own ten percent or more of the voting power or value of our stock; |
| • | persons who acquired our voting stock pursuant to the exercise of a stock option or otherwise as compensation; or |
| • | persons holding our shares in connection with a trade or business conducted outside of the United States. |
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships considering the acquisition of common shares and partners in such partnerships should consult their tax advisors as to their particular U.S. federal income tax consequences of owning and disposing of the common shares.
This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between Switzerland and the United States, or the Treaty, all as of the date hereof, any of which is subject to change, possibly with retroactive effect.
A “U.S. Holder” is a holder who, for U.S. federal income tax purposes, is a beneficial owner of common shares who is eligible for the benefits of the Treaty and is:
| • | an individual who is a citizen or resident of the United States; |
| • | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; |
| • | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source; or |
| • | a trust (a) that is subject to the primary supervision of a court within the United States and the control of one or more United States persons as described in Section 7701(a)(30) of the Code, or (b) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person. |
U.S. Holders should consult their tax advisors concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of common shares in their particular circumstances.
Passive Foreign Investment Company Rules
In general, a non-U.S. corporation will be a “passive foreign investment corporation” or “PFIC” for any taxable year in which (1) 75% or more of its gross income consists of passive income (the “PFIC income test”) or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income (the “PFIC asset test”). For purposes of the above calculations, a non-U.S. corporation that directly or indirectly owns at least 25% (by value)
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of the shares of another corporation is treated as if it held its proportionate share of the assets and received directly its proportionate share of the income of such other corporation. Passive income generally includes dividends, interest, certain rents and royalties, and capital gains. Assets that produce, or are held for the production of, passive income include cash, cash equivalents and marketable securities.
Based on our analysis of our income, assets, activities and market capitalization for our taxable year ending December 31, 2021, we do not believe that we were a PFIC for our taxable year ending December 31, 2021. However, our operations generate very limited amounts of non-passive income. Until we generate sufficient revenue from active licensing and other non-passive sources, there is a risk that we will be a PFIC under the PFIC income test. Moreover, we hold a substantial amount of cash and cash equivalents. Because the calculation of the value of our assets may be based in part on the value of our common shares, the value of which may fluctuate considerably, our PFIC status may change from year to year and it is difficult to predict whether we will be a PFIC under the PFIC asset test for the current year or any future year. Therefore, we have not yet made any determination as to our expected PFIC status for the current year. Even if we determine that we are not a PFIC after the close of a taxable year, there can be no assurance that the IRS will agree with our conclusion. Because PFIC status is a fact specific determination, and generally cannot be made until the close of the taxable year in question, no assurance can be given that we will not be a PFIC for our current taxable year and that we will not be a PFIC in future taxable years. Furthermore, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive or our valuation of our tangible and intangible assets, each of which may result in us being treated as a PFIC for our taxable year ending December 31, 2020 or us becoming a PFIC for the current taxable year or any future taxable years. Our United States counsel expresses no opinion with respect to our PFIC status for prior years, the current taxable year or any future years.
Under attribution rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate shares of the stock of foreign corporations that we own and which are PFICs, or lower-tier PFICs and will be subject to U.S. federal income tax according to the rules described in the following paragraphs on (1) certain distributions by a lower-tier PFIC and (2) a disposition of shares of a lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though such holders have not received the proceeds of those distributions or dispositions directly.
If we are a PFIC for any taxable year during which a U.S. Holder holds our common shares, the U.S. Holder may be subject to certain adverse tax consequences. Unless a holder makes a timely “mark-to-market” election or “qualified electing fund” election, each as discussed below, gain recognized on a disposition (including, under certain circumstances, a pledge) of common shares by the U.S. Holder, or on an indirect disposition of shares of a lower-tier PFIC, will be allocated ratably over the U.S. Holder’s holding period for the shares. The amounts allocated to the taxable year of disposition and to years before we became a PFIC will be taxed as ordinary income arising in the taxable year of disposition. The amounts allocated to each other taxable year will be subject to tax at the highest rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge will be imposed on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by a U.S. Holder on our common shares (or a distribution by a lower-tier PFIC that is deemed to be received by a U.S. Holder) exceeds 125% of the average of the annual distributions with respect to such shares received during the preceding three taxable years or the U.S. Holder’s holding period, whichever is shorter, the distribution will be subject to taxation in the same manner as gain on disposition of common shares, described immediately above.
If we are a PFIC for any year during which a U.S. Holder holds common shares, we generally will continue to be treated as a PFIC with respect to such holder for all succeeding years during which such U.S. Holder holds common shares, even if we cease to meet the threshold requirements for PFIC status. U.S. Holders should consult their tax advisors regarding the potential availability of a “deemed sale” election that would allow them to eliminate this continuing PFIC status under certain circumstances.
If the common shares are “regularly traded” on a “qualified exchange,” a U.S. Holder may make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. The common shares will be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the common shares is traded on a qualified exchange on at least 15 days during each calendar quarter. The Nasdaq Global Market, on which we currently list our common shares, is a qualified exchange for this purpose. Once made, the election cannot be revoked without the consent of the IRS unless the common shares cease to meet these requirements. U.S. Holders should consult their tax advisors regarding the availability and advisability of making a mark-to-market election in their particular circumstances. In particular, U.S. Holders should carefully consider the impact of a mark-to-market election with respect to their common shares given that we may have lower-tier PFICs for which a mark-to-market election would not be available. Consequently, a
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U.S. Holder could be subject to the PFIC rules with respect to income of the lower-tier PFICs the value of which already had been taken into account indirectly via mark-to-market adjustments.
If a U.S. Holder makes the mark-to-market election, such holder generally will recognize as ordinary income any excess of the fair market value of their common shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of their common shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, such holder’s tax basis in their common shares will be adjusted to reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition of common shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). Distributions paid on common shares will be treated as discussed below under “Taxation of Distributions.”
Alternatively, a U.S. Holder can make a “qualified electing fund election,” or a QEF Election, if we provide the information required to treat us and each lower-tier PFIC as a qualified electing fund in the first taxable year that we are a PFIC with respect to such holder. A U.S. Holder makes a QEF Election for us (and each lower-tier PFIC) by attaching a separate properly completed IRS Form 8621 for us (and each lower-tier PFIC) to the holder’s timely filed U.S. federal income tax return. If we are a PFIC for our taxable year ending December 31, 2021, or any subsequent taxable years, we currently intend to provide U.S. Holders, upon request, the information necessary for a U.S. Holder to make a QEF Election with respect to us and we currently intend to cause each lower-tier PFIC that we control to provide such information and take any additional steps that may be necessary to allow a U.S. Holder to make a QEF Election for us and each such lower-tier PFIC. Notwithstanding the foregoing, we cannot provide any assurance that we will in fact provide the information necessary to permit QEF elections to be made.
If a U.S. Holder makes a QEF Election with respect to us, the electing U.S. Holder will be currently taxable on its pro rata share of our ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable year that we are a PFIC with respect to such U.S. Holder. Distributions paid by us out of our earnings and profits that were included in the holder’s income as a result of the holder having made a QEF Election will not be included in the gross income of the holder. A U.S. Holder will increase its adjusted tax basis in our common shares by an amount equal to its pro rata share of our ordinary earnings and net capital gain included in gross income and decrease its adjusted tax basis in our common shares by an amount distributed on those common shares to the extent the distribution is not included in the holder’s gross income. In addition, a U.S. Holder will recognize capital gain or loss on the disposition of our common shares in an amount equal to the difference between the amount realized and the holder’s adjusted tax basis in our common shares. U.S. Holders should note that if they make QEF Elections with respect to us and lower-tier PFICs, they may be required to pay U.S. federal income tax with respect to their common shares for any taxable year significantly in excess of any cash distributions received on the shares for such taxable year. U.S. Holders should consult their tax advisors regarding making QEF Elections in their particular circumstances.
If we are a PFIC for any taxable year during which a U.S. Holder holds common shares, such U.S. Holder may be required to file an annual information report with such U.S. Holder’s U.S. federal income tax return on IRS Form 8621.
U.S. Holders should consult their tax advisors concerning our PFIC status and the tax considerations and reporting requirements relevant to an investment in a PFIC.
Taxation of Distributions
As described in the section entitled “Dividend Policy,” we do not anticipate paying dividends in the foreseeable future. However, if we do make distributions of cash or property on our common shares, subject to the PFIC rules described above, such distributions, other than certain pro rata distributions of common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. The amount of a dividend will include any amounts withheld by us in respect of Swiss taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend. The amount of any dividend income paid in Swiss Francs will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or
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loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
Dividends paid by us will generally be taxable to a non-corporate U.S. Holder at the preferential reduced rate normally applicable to long-term capital gains, provided our common shares remain readily tradable on an established securities market in the United States, we are not a PFIC in the taxable year in which the dividends are received or in the preceding taxable year, and certain holding period requirements are met. However, as discussed above under “Passive Foreign Investment Company Rules,” if we are considered a PFIC, the preferential reduced rate will not be available with respect to dividends paid by us.
Subject to applicable limitations, some of which vary depending upon the U.S. Holder’s circumstances, Swiss income taxes withheld from dividends on common shares at a rate not exceeding the rate provided by the Treaty will be creditable against the U.S. Holder’s U.S. federal income tax liability. Swiss taxes withheld in excess of the rate applicable under the Treaty will not be eligible for credit against a U.S. Holder’s federal income tax liability. The rules governing foreign tax credits are complex, and U.S. Holders should consult their tax advisors regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct foreign taxes, including the Swiss tax, in computing their taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules described above, for U.S. federal income tax purposes, gain or loss realized on the sale or other taxable disposition of common shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the common shares for more than one year at the time of sale or other taxable disposition. The amount of the gain or loss will equal the difference between the amount realized on the disposition of the common shares and such U.S. Holder’s adjusted tax basis in the common shares, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. Subject to the PFIC rules described above, long-term capital gains recognized by certain non-corporate U.S. Holders (including individuals) will generally be subject to reduced rates of U.S. federal income tax. A U.S. Holder’s ability to deduct capital losses is subject to limitations.
If the consideration received by a U.S. Holder is not paid in U.S. dollars, the amount realized will be the U.S. dollar value of the payment received determined by reference to the spot rate of exchange on the date of the sale or other disposition. However, if the common shares are treated as traded on an “established securities market” and a U.S. Holder is either a cash basis taxpayer or an accrual basis taxpayer that has made a special election (which must be applied consistently from year to year and cannot be changed without the consent of the IRS), such U.S. Holder will determine the U.S. dollar value of the amount realized in a non-U.S. dollar currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. If a U.S. Holder is an accrual basis taxpayer that is not eligible to or does not elect to determine the amount realized using the spot rate on the settlement date, such U.S. Holder will recognize foreign currency gain or loss to the extent of any difference between the U.S. dollar amount realized on the date of sale or disposition and the U.S. dollar value of the currency received at the spot rate on the settlement date.
Medicare Tax on Net Investment Income
Certain U.S. Holders who are individuals, estates or trusts are subject to an additional 3.8% U.S. federal income tax on all or a portion of their “net investment income,” which generally includes dividends on the common shares and net gains from the disposition of the common shares. U.S. Holders that are individuals, estates or trusts should consult their tax advisors regarding the applicability of the Medicare tax to them.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (1) the U.S. Holder is a corporation or other exempt recipient or (2) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding, or otherwise establishes an exemption.
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The amount of any backup withholding from a payment to a U.S. Holder may be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Information With Respect to Foreign Financial Assets
Certain U.S. Holders who are individuals or that are certain entities are required to report information relating to an interest in our common shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the common shares.
F. Dividends and Paying Agents.
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display.
We are subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers and under those requirements will file reports with the SEC. Those reports may be inspected without charge at the locations described below. As a foreign private issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. Nevertheless, we will file with the SEC an Annual Report on Form 20-F containing financial statements that have been examined and reported on, with and opinion expressed by an independent registered public accounting firm.
We maintain a corporate website at www.obseva.com. We intend to post our Annual Report on Form 20-F on our website promptly following it being filed with the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report on Form 20-F. We have included our website address in this Annual Report on Form 20-F solely as an inactive textual reference.
The Securities and Exchange Commission maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as ObsEva, that file electronically with the SEC.
With respect to references made in this Annual Report on Form 20-F to any contract or other document of our company, such references are not necessarily complete and you should refer to the exhibits attached or incorporated by reference to this Annual Report on Form 20-F for copies of the actual contract or document.
I. Subsidiary Information.
Not required.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
We operate primarily in Switzerland, Europe and in the United States and are therefore exposed to market risk, which represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.
As of December 31, 2021, we had $54.7 million of cash and cash equivalents and we had a debt instrument outstanding with a principal carrying amount of $31.5 million.
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Foreign Currency Exchange Risk
We operate primarily in Switzerland, Europe and in the United States and our functional currency is the U.S. Dollar, and as a result, we are exposed to transactional foreign exchange risk when we or a subsidiary enter into a transaction in a currency other than our or its functional currency.
Transactional Risk
Our expenses are generally denominated in the currencies of the countries where the relevant transaction takes place, which is primarily in Switzerland, the United States, Euro-zone countries and to a lesser extent in the United Kingdom. Transactions in foreign currencies of our Swiss company are recorded in Swiss francs at the applicable exchange rate on the date of the relevant transaction. Our results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates.
Translational Risk
Because our reporting currency is the U.S. dollar, we may be exposed to translation risk when the income statements of us and our subsidiaries located in countries outside the United States are converted into U.S. dollars using the average exchange rate for the period, and whilst revenues and costs are unchanged in local currency, changes in exchange rates may lead to effects on the converted balances of revenue, costs and the result in U.S. dollars.
To date, our risk management policy is to economically hedge 100% of anticipated transactions in each major currency for the subsequent 12 months. As our operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency rates.
Capital Risk
We are not regulated and not subject to specific capital requirements, however, we aim to be compliant with the specific needs of the Swiss law. To ensure that statutory capital requirements are met, we monitor capital periodically on an interim basis as well as annually. From time to time, we may take appropriate measures or propose capital increases at the shareholders’ meeting to ensure the necessary capital remains intact.
Item 12. Description of Securities Other than Equity Securities.
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
C. Other Securities.
Not applicable.
D. American Depositary Shares.
Not applicable.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
A. Not applicable.
B. Not applicable.
C. Not applicable.
D. Not applicable.
E. Use of Proceeds
In January 2017, we completed our initial public offering of common shares. Under the registration statement, we sold an aggregate of 6,450,000 common shares. All of these common shares were sold at a price to the public of $15.00 per share, yielding net proceeds of $88.5 million after deducting $6.8 million of underwriting discounts and commissions, excluding estimated offering expenses. Credit Suisse Securities (USA) LLC, Jefferies LLC and Leerink Partners LLC were joint book-running managers for the initial public offering. We paid the offering expenses in connection with the initial public offering, which were $3.2 million, and which included SEC registration fees, FINRA filing fees, Nasdaq listing fees, legal fees and expenses, printing expenses, accounting fees and expenses as well as other miscellaneous costs, but excluded the underwriting discounts and commissions.
In October 2017, we completed a private placement of 5,140,626 common shares at a price of $8.00 per share and prepaid warrants to purchase an aggregate of 2,359,375 common shares with an exercise price of $8.00 per share. The warrants were exercised on October 13, 2017. We received net proceeds of $56.3 million from the private placement.
In May 2018, we sold 1,600,851 treasury shares at a price of $12.50 per share as part of our ATM program, receiving net proceeds of $19.4 million after deducting $0.6 million of directly related issuance costs.
In June 2018, we completed an underwritten public offering of common shares and issued 4,750,000 shares at a price of $15.39 per share, raising $68.0 million in net proceeds after deducting $5.1 million of underwriting discounts, commissions and other offering expenses. In July 2018, we raised additional funds for net proceeds of $4.4 million from the exercise of the option available to the underwriters in connection with the June 2018 offering.
In September 2020, we completed an underwritten offering of 6,448,240 units at an effective price of $2.869 per unit, with each unit comprised of one common share (or pre-funded warrant) and one 15-month purchase warrant to purchase one common share at an exercise price of $3.43 per share. In addition to the securities being sold in the underwritten offering, our former Chief Executive Officer, purchased 516,352 units at an effective price of $2.905 per unit, with each unit comprised of one common share and one 15-month purchase warrant to purchase one common share at an exercise price of $3.43 per share, in a concurrent private placement. The net proceeds from the offering (including exercise of pre-funded warrants) and the concurrent private placement were $20.0 million, after deducting underwriting discounts, commissions and other offering expenses.
During the year ended December 31, 2019, we sold a total of 691,133 treasury shares at an average price of $5.14 per share, as part of our ATM program, generating total net proceeds of $3.5 million after deducting $0.1 million of directly-related issuance costs.
During the year ended December 31, 2020, we sold a total of 5,995,897 treasury shares at an average price of $2.82 per share, as part of our ATM program, for a total gross amount of $16.9 million.
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During the year ended December 31, 2021, we sold a total of 15,933,420 treasury shares at an average price of $3.28 per share, as part of our ATM program, for a total gross amount of $53.7 million. During the year ended December 31, 2021, 6,448,240 warrants were exercised at an average price of $3.43 per share, resulting in proceeds of $22.1 million.
We anticipate that we will use the remaining net proceeds from our ATM program and our available tranches under the Securities Purchase Agreement with JGB to advance the development of linzagolix and nolasiban and to fund other research and development activities, as well as for working capital and other general corporate purposes. None of the net proceeds were used to make payments (other than compensation paid to our executive officers, directors and an affiliate of one of our directors, each as described in this Annual Report), directly or indirectly, to (i) any of our directors, officers or their associates, (ii) any persons owning 10% or more of our common shares or (iii) any of our affiliates. The intended use of the net proceeds has not materially changed from the information mentioned in (i) the prospectus relating to the Registration Statement on Form F-1, relating to our initial public offering, (ii) the prospectus supplement relating to the Registration Statement on Form F-3, relating to our ATM program, (iii) the prospectus supplement relating to the Registration Statement on Form F-3, relating to our June 2018 offering and (iv) the prospectus supplement relating to the Registration Statement on Form F-3, relating to our September 2020 offering.
Item 15. Controls and Procedures.
Disclosure Controls and Procedures
Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2021, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for the assessment of the effectiveness of our internal control over financial reporting. Under the supervision and with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), management assessed our internal control over financial reporting based upon the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2021.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, and can only provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for emerging growth companies.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
135
Item 16. Reserved.
Not applicable.
Item 16A. Audit Committees Financial Expert.
Our board of directors has determined that Anne VanLent is an “audit committee financial expert” as defined by SEC rules and has the requisite financial sophistication under the applicable rules and regulations of the Nasdaq Stock Market. Ms. VanLent is independent as such term is defined in Rule 10A-3 under the Exchange Act and under the listing standards of the Nasdaq Stock Market.
Item 16B. Code of Business Conduct and Ethics.
We have adopted a Code of Business Conduct and Ethics, or the Code of Conduct, that is applicable to all of our employees, executive officers and directors. A copy of the Code of Conduct is available on our website at www.obseva.com.
Item 16C. Principal Accountant Fees and Services.
PricewaterhouseCoopers SA, or PwC, has served as our independent registered public accounting firm for 2021 and 2020. Our accountants billed the following fees to us for professional services in each of those fiscal years:
| | December 31, | |
| | 2021 | | | 2020 | |
| | (in thousands) | |
Audit Fees | | $ | 735 | | | $ | 696 | |
Audit-Related Fees | | | - | | | | - | |
Tax Fees | | | 274 | | | | - | |
Other Fees | | | 511 | | | | - | |
Total | | $ | 1,520 | | | $ | 696 | |
“Audit Fees” consist of fees billed for the annual audit of our consolidated financial statements, and the statutory audit of our consolidated and stand-alone financial statements. Audit Fees also include services that only our independent external auditor can reasonably provide, such as the review of documents filed with the SEC.
“Audit-Related Fees” consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of its financial statements or that are traditionally performed by the external auditor, and mainly include services such as comfort letters issued in connection with securities offerings, due diligence and agreed-upon or expanded audit procedures.
“Tax Fees” consist of tax compliance and tax planning and advice, including advice related to changes in tax laws.
“Other Fees” consist of advisory services related to commercial readiness and subscriptions to knowledge tools.
Audit and Non-Audit Services Pre-Approval Policy
To ensure the independence and objectivity of our external auditors, the provision of all non-audit services by the external auditors are pre- approved by our audit committee.
Item 16D. Exemptions from the Listing Standards for Audit Committees.
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Not applicable.
136
Item 16F. Change in Registrant’s Certifying Accountant.
Not applicable.
Item 16G. Corporate Governance.
Summary of Significant Corporate Governance Differences From Nasdaq Listing Standards
Our common shares are listed on Nasdaq. We are therefore required to comply with certain of the Nasdaq’s corporate governance listing standards, or the Nasdaq Standards. As a foreign private issuer, we may follow our home country’s corporate governance practices in lieu of certain of the Nasdaq Standards. Our corporate governance practices differ in certain respects from those that U.S. companies must adopt in order to maintain a Nasdaq listing. A brief, general summary of those differences is provided as follows.
Independent Directors
Swiss law does not require that a majority of our board of directors consist of independent directors. Our board of directors therefore may include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we are not subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors must regularly have scheduled meetings at which only independent directors are present.
Quorum requirements
In accordance with Swiss law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting stock.
Solicitation of proxies
Our articles of association provide for an independent proxy holder elected by our shareholders, who may represent our shareholders at a general meeting of shareholders, and we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders. However, Swiss law does not have a regulatory regime for the solicitation of proxies and company solicitation of proxies is prohibited for public companies in Switzerland, thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies.
Item 16H. Mine Safety Disclosure.
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
137
PART III
Item 17. Financial Statements.
See pages F-1 through F-31 of this Annual Report on Form 20-F.
Item 18. Financial Statements.
Not applicable.
Item 19. Exhibits.
| | | | Incorporated by Reference | |
Exhibit | | Description | | Schedule/ Form | | File Number | | Exhibit | | File Date |
| | | | | | | | | | |
1.1 | | Articles of Association of the Registrant | | Form F-3 | | 333-262820 | | 4.1 | | 02/17/2022 |
| | | | | | | | | | |
2.1 | | Description of securities | | Form 20-F | | 001-37993 | | 2.1 | | 03/05/2020 |
| | | | | | | | | | |
4.1 | | Registration Rights Agreement by and among the Registrant and certain holders of its capital shares, dated as of January 17, 2017 | | Form F-1/A | | 333-215383 | | 4.1 | | 01/23/2017 |
| | | | | | | | | | |
4.2+ | | License Agreement, by and between the Registrant and Ares Trading S.A., dated as of August 28, 2013 | | Form F-1 | | 333-215383 | | 10.1 | | 12/30/2016 |
| | | | | | | | | | |
4.3+ | | License Agreement, by and between the Registrant and Ares Trading S.A., dated as of June 10, 2015, as amended | | Form F-1 | | 333-215383 | | 10.2 | | 12/30/2016 |
| | | | | | | | | | |
4.4*+ | | Exclusive License Agreement, by and between the Registrant and Kissei Pharmaceutical Co., Ltd., dated as of November 19, 2015, as amended pursuant to an amendment agreement dated May 29, 2017, October 16, 2017, October 12, 2021 and December 27, 2021 | | | | | | | | |
| | | | | | | | | | |
4.5+ | | Cost Splitting Agreement, by and between the Registrant and Kissei Pharmaceutical Co., Ltd., dated as of February 6, 2017 | | Form 20-F | | 001-37993 | | 4.6 | | 04/21/2017 |
| | | | | | | | | | |
4.6 | | English language translation of Lease Agreement between the Registrant and Eldista GmbH, dated as of July 1, 2013, as amended | | Form F-1 | | 333-215383 | | 10.4 | | 12/30/2016 |
| | | | | | | | | | |
4.7 | | Registration Rights Agreement, by and between the Registrant and the investors named therein, dated as of October 9, 2017 | | Form 6-K | | 001-37993 | | 99.2 | | 10/11/2017 |
| | | | | | | | | | |
4.8† | | Form of Indemnification Agreement between the Registrant and each of its executive officers and directors | | Form F-1/A | | 333-215383 | | 10.5 | | 01/17/2017 |
| | | | | | | | | | |
4.9† | | Incentive Plan (including form of Issuance Agreement) | | Form F-1/A | | 333-215383 | | 10.6 | | 01/06/2017 |
| | | | | | | | | | |
4.10† | | 2017 Equity Incentive Plan | | Form F-1/A | | 333-215383 | | 10.7 | | 01/17/2017 |
| | | | | | | | | | |
4.11† | | Form of Stock Option Grant Notice and Stock Option Agreement under 2017 Equity Incentive Plan | | Form F-1/A | | 333-215383 | | 10.8 | | 01/17/2017 |
| | | | | | | | | | |
4.12 | | Sublicense Agreement among the Registrant and Hangzhou Yuyuan BioScience Technology Co., Ltd., dated January 13, 2020 | | Form 20-F | | 001-37993 | | 4.17 | | 03/05/2020 |
| | | | | | | | | | |
4.13*+ | | License Agreement, dated as of July 26, 2021, by and between the Registrant and Organon International GmbH. | | | | | | | | |
| | | | | | | | | | |
138
| | | | Incorporated by Reference | |
Exhibit | | Description | | Schedule/ Form | | File Number | | Exhibit | | File Date |
| | | | | | | | | | |
4.14*+ | | License Agreement between the Registrant and Theramex HQ UK Limited, dated as of February 10, 2022. | | | | | | | | |
| | | | | | | | | | |
4.15 | | Amendment Agreement, dated as of January 28, 2022, by and among the Registrant, the Subsidiary Guarantors and the Holder. | | Form 6-K | | 001-37993 | | 99.2 | | 01/28/2022 |
| | | | | | | | | | |
4.16+ | | Amended and restated Securities Purchase Agreement, deemed dated as of October 12, 2021, by and among the Registrant and the Purchasers. | | Form 6-K | | 001-37993 | | 99.3 | | 01/28/2022 |
| | | | | | | | | | |
4.17 | | Registration Rights Agreement, dated as of October 12, 2021, by and between the Company and the Purchasers. | | Form 6-K/A | | 001-37993 | | 99.5 | | 10/13/2021 |
4.18 | | Sales Agreement, dated March 5, 2021, by and between the Company and SVB Leerink LLC | | Form 6-K | | 001-37993 | | 1.1 | | 03/05/2021 |
| | | | | | | | | | |
8.1* | | List of subsidiaries of the Registrant | | | | | | | | |
| | | | | | | | | | |
12.1* | | Certification by the Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
12.2* | | Certification by the Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
13.1** | | Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
13.2** | | Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | |
| | | | | | | | | | |
15.1* | | Consent of PricewaterhouseCoopers SA | | | | | | | | |
| | | | | | | | | | |
101.INS | | Inline XBRL Instance Document | | | | | | | | |
| | | | | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | |
| | | | | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | |
| | | | | | | | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | |
| | | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
| | | | | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | |
| | | | | | | | | | |
104 | | The cover page from the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2021, formatted in Inline XBRL (Included as Exhibit 101) | | | | | | | | |
† | Indicates a management contract or any compensatory plan, contract or arrangement. |
+ | Certain portions of this exhibit (indicated by asterisks) have been omitted because they are both not material and are the type that the Registrant treats as private or confidential. |
139
Index to Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of ObsEva SA
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ObsEva SA and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statement of comprehensive loss, consolidated statement of cash flows, and consolidated statement of changes in equity for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 23 to the consolidated financial statements, the Company has incurred recurring losses since inception, negative cash flows, and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 23. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers SA | | |
Geneva, Switzerland
March 10, 2022
We have served as the Company’s auditor since 2013.
F-2
Consolidated Balance Sheets
(in USD ’000) | | | | | | December 31, | |
| | Notes | | | 2021 | | | 2020 | |
ASSETS | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | |
Cash and cash equivalents | | | 4 | | | | 54,734 | | | | 31,183 | |
Other receivables | | | 5 | | | | 3,560 | | | | 397 | |
Prepaid expenses | | | 6 | | | | 5,223 | | | | 5,388 | |
Total current assets | | | | | | | 63,517 | | | | 36,968 | |
Non-current assets | | | | | | | | | | | | |
Right-of-use assets | | | 9 | | | | 625 | | | | 1,425 | |
Furniture, fixtures and equipment | | | 7 | | | | 58 | | | | 151 | |
Intangible assets | | | 8 | | | | 24,503 | | | | 26,608 | |
Other long-term assets | | | 10 | | | | 288 | | | | 295 | |
Total non-current assets | | | | | | | 25,474 | | | | 28,479 | |
Total assets | | | | | | | 88,991 | | | | 65,447 | |
LIABILITIES AND EQUITY | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | |
Other payables and current liabilities | | | 5 | | | | 9,038 | | | | 10,760 | |
Accrued expenses | | | 6 | | | | 13,783 | | | | 10,248 | |
Current lease liabilities | | | 9 | | | | 686 | | | | 696 | |
Total current liabilities | | | | | | | 23,507 | | | | 21,704 | |
Non-current liabilities | | | | | | | | | | | | |
Non-current lease liabilities | | | 9 | | | | 240 | | | | 952 | |
Non-current borrowings | | | 12 | | | | 25,733 | | | | 25,300 | |
Post-employment obligations | | | 11 | | | | 6,581 | | | | 8,218 | |
Other long-term liabilities | | | 10 | | | | 591 | | | | 919 | |
Total non-current liabilities | | | | | | | 33,145 | | | | 35,389 | |
Shareholders’ equity | | | | | | | | | | | | |
Share capital | | | 13 | | | | 6,489 | | | | 4,574 | |
Share premium | | | 13 | | | | 430,630 | | | | 356,822 | |
Reserves | | | 13 | | | | 32,195 | | | | 26,353 | |
Accumulated losses | | | 13 | �� | | | (436,975 | ) | | | (379,395 | ) |
Total shareholders’ equity | | | | | | | 32,339 | | | | 8,354 | |
Total liabilities and shareholders’ equity | | | | | | | 88,991 | | | | 65,447 | |
The accompanying notes form an integral part of these consolidated financial statements.
F-3
Consolidated Statements of Comprehensive Loss
(in USD ’000, except per share data) | | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, | |
| | Notes | | | 2021 | | | 2020 | | | 2019 | |
Operating income other than revenue | | | 14 | | | | 20,113 | | | | 17 | | | | 16 | |
OPERATING EXPENSES | | | | | | | | | | | | | | | | |
Research and development expenses | | | 15 | | | | (53,136 | ) | | | (67,536 | ) | | | (88,053 | ) |
General and administrative expenses | | | 15 | | | | (21,491 | ) | | | (12,182 | ) | | | (19,058 | ) |
Total operating expenses | | | | | | | (74,627 | ) | | | (79,718 | ) | | | (107,111 | ) |
OPERATING LOSS | | | | | | | (54,514 | ) | | | (79,701 | ) | | | (107,095 | ) |
Finance income | | | 17 | | | | 600 | | | | 648 | | | | 854 | |
Finance expense | | | 17 | | | | (4,251 | ) | | | (3,879 | ) | | | (2,482 | ) |
NET LOSS BEFORE TAX | | | | | | | (58,165 | ) | | | (82,932 | ) | | | (108,723 | ) |
Income tax expense | | | 18 | | | | (212 | ) | | | (34 | ) | | | (67 | ) |
NET LOSS FOR THE YEAR | | | | | | | (58,377 | ) | | | (82,966 | ) | | | (108,790 | ) |
Net loss per share | | | | | | | | | | | | | | | | |
Basic and diluted | | | 19 | | | | (0.78 | ) | | | (1.67 | ) | | | (2.49 | ) |
OTHER COMPREHENSIVE INCOME / (LOSS) | | | | | | | | | | | | | | | | |
Items that will not be reclassified to profit and loss | | | | | | | | | | | | | | | | |
Remeasurements on post-employment benefit plans, net of tax | | | | | | | 796 | | | | 982 | | | | (4,694 | ) |
TOTAL OTHER COMPREHENSIVE INCOME / (LOSS) | | | | | | | 796 | | | | 982 | | | | (4,694 | ) |
TOTAL COMPREHENSIVE LOSS FOR THE YEAR | | | | | | | (57,581 | ) | | | (81,984 | ) | | | (113,484 | ) |
The accompanying notes form an integral part of these consolidated financial statements.
F-4
Consolidated Statements of Cash Flows
(in USD ’000) | | | | Year ended December 31, | |
| | Notes | | 2021 | | | 2020 | | | 2019 | |
NET LOSS BEFORE TAX FOR THE YEAR | | | | | (58,165 | ) | | | (82,932 | ) | | | (108,723 | ) |
Adjustments for: | | | | | | | | | | | | | | |
Depreciation expense | | 7 & 9 | | | 736 | | | | 721 | | | | 737 | |
Post-employment (benefit) / cost | | | | | (553 | ) | | | 492 | | | | (477 | ) |
Share-based compensation expense | | 20 | | | 5,843 | | | | 6,506 | | | | 11,884 | |
Income tax paid | | | | | - | | | | (52 | ) | | | (80 | ) |
Other operating income | | 14 | | | (20,095 | ) | | | - | | | | - | |
Finance expense, net | | | | | 3,651 | | | | 3,231 | | | | 1,628 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | |
Other receivables | | 5 | | | (3,198 | ) | | | 326 | | | | 193 | |
Prepaid expenses, deferred costs and other long-term assets | | | | | 166 | | | | (1,029 | ) | | | 1,356 | |
Other payables and current liabilities | | | | | (2,223 | ) | | | 2,141 | | | | 5,499 | |
Accrued expenses and other long-term liabilities | | | | | 3,534 | | | | (170 | ) | | | (2,628 | ) |
NET CASH FLOWS USED IN OPERATING ACTIVITIES | | | | | (70,304 | ) | | | (70,766 | ) | | | (90,611 | ) |
Net proceeds from disposal of intangible assets | | 8 | | | 22,200 | | | | - | | | | - | |
Payments for plant and equipment | | 7 | | | (14 | ) | | | (5 | ) | | | (46 | ) |
Acquisition of a license | | 8 | | | - | | | | - | | | | (5,000 | ) |
NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | | | | | 22,186 | | | | (5 | ) | | | (5,046 | ) |
Proceeds from issuance of shares | | 13 | | | 53,226 | | | | 37,254 | | | | 3,206 | |
Proceeds from the exercise of warrants | | 13 | | | 22,117 | | | | - | | | | - | |
Oxford loan repayment | | 12 | | | (26,986 | ) | | | - | | | | - | |
Proceeds from issuance of convertible debt | | 12 | | | 27,354 | | | | - | | | | - | |
Proceeds from issuance of warrants | | 13 | | | 2,646 | | | | - | | | | - | |
Issuance costs related to convertible debt and warrant | | 13 | | | (2,128 | ) | | | - | | | | - | |
Proceeds from exercise of stock-options | | 13 | | | - | | | | - | | | | 193 | |
Share issuance costs | | 13 | | | (1,959 | ) | | | - | | | | - | |
Principal elements of lease payments | | 9 | | | (682 | ) | | | (630 | ) | | | (571 | ) |
Interest paid | | | | | (2,484 | ) | | | (2,321 | ) | | | (818 | ) |
NET CASH FLOWS FROM FINANCING ACTIVITIES | | | | | 71,104 | | | | 32,249 | | | | 26,627 | |
Net (decrease) / increase in cash and cash equivalents | | 3.2 | | | 22,986 | | | | (38,522 | ) | | | (69,030 | ) |
Cash and cash equivalents at January 1, | | | | | 31,183 | | | | 69,370 | | | | 138,640 | |
Effects of exchange rate changes on cash and cash equivalents | | | | | 565 | | | | 335 | | | | (240 | ) |
Cash and cash equivalents at December 31, | | 4 | | | 54,734 | | | | 31,183 | | | | 69,370 | |
The accompanying notes form an integral part of these consolidated financial statements.
F-5
Consolidated Statements of Changes in Equity
(in USD ’000) | | Notes | | | Share capital | | | Share premium | | | Share- based payments reserve | | | Foreign currency translation reserve | | | Total reserves | | | Accumulated losses | | | Total | |
December 31, 2018 | | | | | | | 3,420 | | | | 314,565 | | | | 13,347 | | | | (489 | ) | | | 12,858 | | | | (183,927 | ) | | | 146,916 | |
Loss for the year | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (108,790 | ) | | | (108,790 | ) |
Other comprehensive loss | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (4,694 | ) | | | (4,694 | ) |
Total comprehensive loss | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (113,484 | ) | | | (113,484 | ) |
Issuance of shares - EIP 2013 | | | 13 | | | | 21 | | | | 2,696 | | | | (2,696 | ) | | | 0 | | | | (2,696 | ) | | | 0 | | | | 21 | |
Issuance of shares - ATM program | | | 13 | | | | 56 | | | | 3,498 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 3,554 | |
Share issuance costs | | | | | | | 0 | | | | (130 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (130 | ) |
Exercise of stock-options - EIP 2017 | | | 20 | | | | 2 | | | | 326 | | | | (134 | ) | | | 0 | | | | (134 | ) | | | 0 | | | | 194 | |
Share-based remuneration | | | 20 | | | | 0 | | | | 0 | | | | 11,884 | | | | 0 | | | | 11,884 | | | | 0 | | | | 11,884 | |
December 31, 2019 | | | | | | | 3,499 | | | | 320,955 | | | | 22,401 | | | | (489 | ) | | | 21,912 | | | | (297,411 | ) | | | 48,955 | |
Loss for the year | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (82,966 | ) | | | (82,966 | ) |
Other comprehensive loss | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 982 | | | | 982 | |
Total comprehensive loss | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (81,984 | ) | | | (81,984 | ) |
Issuance of shares - EIP 2013 | | | 13 | | | | 15 | | | | 2,065 | | | | (2,065 | ) | | | 0 | | | | (2,065 | ) | | | 0 | | | | 15 | |
Issuance of shares - Underwritten offering | | | 13 | | | | 591 | | | | 19,408 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 19,999 | |
Issuance of shares - ATM program | | | 13 | | | | 469 | | | | 16,437 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 16,906 | |
Share issuance costs | | | | | | | 0 | | | | (2,043 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (2,043 | ) |
Share-based remuneration | | | 20 | | | | 0 | | | | 0 | | | | 6,506 | | | | 0 | | | | 6,506 | | | | 0 | | | | 6,506 | |
December 31, 2020 | | | | | | | 4,574 | | | | 356,822 | | | | 26,842 | | | | (489 | ) | | | 26,353 | | | | (379,395 | ) | | | 8,354 | |
Loss for the year | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (58,377 | ) | | | (58,377 | ) |
Other comprehensive income | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 796 | | | | 796 | |
Total comprehensive loss | | | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (57,581 | ) | | | (57,581 | ) |
Issuance of shares - ATM program | | | 13 | | | | 1,360 | | | | 52,327 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 53,687 | |
Share issuance costs - ATM program | | | | | | | 0 | | | | (1,959 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (1,959 | ) |
Value of the conversion rights - convertible notes | | | | | | | 0 | | | | 22 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 22 | |
Reclassification of Warrants | | | | | | | 0 | | | | 1,856 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,856 | |
Exercise of warrants | | | 13 | | | | 555 | | | | 21,562 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 22,117 | |
Share-based remuneration | | | 20 | | | | 0 | | | | 0 | | | | 5,843 | | | | 0 | | | | 5,843 | | | | 0 | | | | 5,843 | |
December 31, 2021 | | | | | | | 6,489 | | | | 430,630 | | | | 32,685 | | | | (489 | ) | | | 32,196 | | | | (436,976 | ) | | | 32,339 | |
The accompanying notes form an integral part of these consolidated financial statements.
F-6
Notes to the Consolidated Financial Statements
1. General information
ObsEva SA (the “Company”) was founded on November 14, 2012, and its address is 12 Chemin des Aulx, 1228 Plan-les-Ouates, Geneva, Switzerland. The terms “ObsEva” or “the Group” refer to ObsEva SA together with its subsidiaries included in the scope of consolidation (note 2.2).
The Group is focused on the development and commercialization of novel therapeutics to improve women’s reproductive health and pregnancy. The Group has a portfolio of two mid- to late-stage development in-licensed compounds (linzagolix, and nolasiban) and one out-licensed mid- to late-stage development product (ebopiprant). The Group has no currently marketed products.
These consolidated financial statements are presented in dollars of the United States (USD), rounded to the nearest thousand, except share and per share data, and have been prepared on the basis of the accounting principles described in note 2.
These consolidated financial statements were authorized for issue by the Company’s Board of Directors (the “Board of Directors”) on March 7, 2022.
2. Accounting principles applied in the preparation of the consolidated financial statements
2.1 Basis of preparation
These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements are based on a historical cost basis.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.5.
Due to rounding, numbers presented throughout these consolidated financial statements may not add up precisely to the totals provided. All ratios and variances are calculated using the underlying amount rather than the presented rounded amount.
2.2 Scope of consolidation
Subsidiaries are all 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 to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Company currently consolidates the financial operations of its three fully-owned subsidiaries, ObsEva Ireland Ltd, which is registered in Cork, Ireland and organized under the laws of Ireland, ObsEva USA Inc., which is registered and organized under the laws of Delaware, USA, and ObsEva Europe B.V., which is registered in Rotterdam, The Netherlands, and organized under the laws of The Netherlands. Both ObsEva Ireland Ltd and ObsEva Europe B.V. had no operations and no results of operations to report as of December 31, 2021 and 2020.
2.3 Standards and interpretations published by the IASB
The IASB and the International Financing Reporting Standards Interpretations Committee have recently issued new standards and interpretations to be applied to the Group’s consolidated financial statements. None of these new standards and amendments applied by the Group in 2021 had a material impact on its consolidated financial statements. On January 23, 2020, the IASB issued Classification of Liabilities as Current or Non-Currents (Amendments to IAS 1) providing a more general approach to the classification of liabilities under IAS 1 Presentation of Financial Statements. The amendment could have a material impact on the current vs. non-current classification of outstanding convertible notes and is effective for annual reporting periods beginning on or after 1 January 2023. Other than the aforementioned, there are no new standards and amendments published but not yet effective that are expected to have a material impact on the consolidated financial statements of the Group.
F-7
2.4 Significant accounting policies
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, an account control agreement in favor of JGB Management, Inc. (“JGB”) consisting of USD 25 million (Note 12), deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Current assets
Other receivables and prepaid expenses are carried at their nominal value.
Individual receivables that are known to be uncollectible are written off by reducing the carrying amount directly. The Group considers that there is evidence of impairment if any of the following indicators are present:
| • | significant financial difficulties of the debtor; |
| • | probability that the debtor will enter bankruptcy or financial reorganization; and |
| • | default or delinquency in payments (more than 30 days overdue). |
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all receivables.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are carried at cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated using the straight-line method, on the basis of the following useful lives:
• furniture | | 5 years |
• hardware | | 3 years |
• leasehold improvement | | duration of lease |
Furniture, fixtures and equipment are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable, on an individual basis. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Leases
On January 1, 2019, the Group adopted IFRS 16 Leases, which replaced IAS 17 Leases and Related Interpretations, applied by the Group until December 31, 2018. The Group leases various office buildings and equipment, which are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
| • | fixed payments (including in-substance fixed payments), less any lease incentives receivable, |
| • | variable lease payment that are based on an index or a rate, initially measured using the index or rate as of the commencement date, |
| • | amounts expected to be payable by the Group under residual value guarantees, |
| • | the exercise price of a purchase option if the Group is reasonably certain to exercise that option, |
| • | lease payments to be made under reasonably certain extension options, and |
| • | payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. |
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
F-8
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
| • | the amount of the initial measurement of lease liability, |
| • | any lease payments made at or before the commencement date less any lease incentives received, |
| • | any initial direct costs, and |
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise small items of office furniture and equipment.
Intangible assets
Separately acquired patents, licenses and other intangible assets are recorded at historical cost and subsequently measured at cost less accumulated amortization and any impairment losses.
The acquisition of certain intangible assets, mainly licenses, may involve additional payments contingent on the occurrence of specific events or milestones. Unless the Group already has a present obligation to make the payment at a future date, the initial measurement of the intangible asset does not include such contingent payments. Instead, such payments are subsequently capitalized as intangible assets when the contingency or milestone occurs.
Estimated useful life is the lower of legal duration and economic useful life, which does not exceed 20 years. The estimated useful life of the intangible assets is annually reviewed, and if necessary, the future amortization charge is accelerated.
For licenses, the amortization starts when the assets become available for use, generally once proper regulatory and marketing approval are obtained.
Intangible assets are subject to impairment testing annually, and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Post-employment benefits
Group companies operate two pension schemes.
All employees of ObsEva SA participate in a retirement defined benefit plan. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by an independent actuary, using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognized immediately in the consolidated statement of comprehensive loss.
During 2017, ObsEva USA, Inc. established a 401K, defined contribution plan, for the employees of the company. A defined contribution plan is a pension plan under which the amounts paid by the employer are fixed in advance. The plan assets are held by a third party custodian. ObsEva USA, Inc. contributions to the defined contribution plan are charged to the income statement as incurred. The Group has no further obligation once the contributions have been paid.
F-9
Borrowings
Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method. Borrowings that are due within 12 months after the end of the reporting period are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability until more than 12 months after the reporting period. The company recognizes debt extinguishment in finance income (expense) as the difference between the extinguishment payment and the carrying value of the loan.
Equity
Incremental costs directly attributable to the issuance of common shares and options are recognized as a deduction from equity, net of any tax effects.
Shares held by the Group are disclosed as treasury shares and deducted from equity.
Research and development
Research expenses are charged to the consolidated statement of comprehensive loss as incurred. Development expenses are capitalized as intangible assets when it is probable that future economic benefits will flow to the Group, and the following criteria are fulfilled:
| • | it is technologically 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; |
| • | there is an ability to use or sell the intangible asset; |
| • | the asset will generate probable future economic benefits and demonstrate the existence of a market; |
| • | 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. |
In the opinion of management, due to uncertainties inherent in the development of the Group’s product candidates, the criteria for development costs to be recognized as an asset as defined by IAS 38 Intangible Assets are not met.
Foreign currencies
Functional and presentation currency
Items included in the consolidated financial statements of the Group are measured using the currency of the primary economic environment in which each Group’s entity operates (the “functional currencies”).
The functional and presentation currencies of the Company is the US dollar (USD), which is also the functional currency of ObsEva USA, Inc.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognized in profit or loss.
Foreign exchange gains and losses that relate to borrowings are presented in the consolidated statement of comprehensive loss, within finance costs. All other foreign exchange gains and losses are presented in the consolidated statement of comprehensive loss on a net basis within other income or other expenses.
F-10
Share-based compensation
The Group operates two equity incentive plans.
A share-based, equity-settled, plan was formally set-up by the Group in 2013 (the “2013 EIP”). Participants eligible for awards under the 2013 EIP are executives, directors, employees, agents and consultants. The fair value of the shares granted under the 2013 EIP is determined at each grant date by using either an option pricing method that uses a Black-Scholes model or a hybrid method, as appropriate, both based on a combination of the discounted cash flow method, under the income approach, and the back solve method. The Group has stopped granting equity instruments under the 2013 EIP in 2016, resulting in the 2013 EIP being fully vested as of December 31, 2020.
A share-based, equity-settled, plan was formally set-up by the Group in 2017 (the “2017 EIP”). Participants eligible for awards under this plan are executives, directors, employees, agents and consultants. The fair value of the stock-options granted under the 2017 EIP is determined at each grant date by using a Black-Scholes model.
When the equity instruments granted do not vest until the counterparty completes a specified period of services, the Group accounts for those services as they are rendered by the counterparty, during the vesting period, with a corresponding increase in equity.
Warrants
Warrants are recognized following IFRS 9 Financial Instruments guidance. Those financial instruments can be recognized as a liability at initial measurement depending on contract terms. When it is determined that the terms requiring liability classification expire, then the classification of the warrants change from liabilities to equity. There is also a remeasurement of the fair value of the warrants, with the change being recorded through the consolidated statements of comprehensive loss.
Deferred income taxes
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss, it is not accounted for. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Segment information
The Group operates in one segment, which is the research and development of innovative women’s reproductive, health and pregnancy therapeutics. The marketing and commercialization of such therapeutics depend, in large part, on the success of the development phase. The Chief Executive Officer of the Company (Chief Operating Decision Maker) reviews the consolidated statement of operations of the Group on an aggregated basis and manages the operations of the Group as a single operating segment.
The Group currently generates no revenue from the sales of therapeutics products.
The Group’s activities are not affected by any significant seasonal effect.
The geographical analysis of non-current assets is as follows:
| | As of December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
Switzerland | | | 25,385 | | | | 27,936 | |
USA | | | 89 | | | | 543 | |
Total non-current assets | | | 25,474 | | | | 28,479 | |
F-11
The geographical analysis of operating expenses is as follows:
| | Year ended December 31, | |
in USD ‘000 | | 2021 | | | 2020 | | | 2019 | |
Switzerland | | | 68,977 | | | | 77,476 | | | | 102,492 | |
USA | | | 5,650 | | | | 2,242 | | | | 4,619 | |
Total operating expenses | | | 74,627 | | | | 79,718 | | | | 107,111 | |
2.5 Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates may not necessarily equal the related actual outcome. The following areas involve a higher degree of judgement or complexity or are areas where assumptions and estimates can have a significant impact on the consolidated financial statements:
| • | Post-employment obligations: the actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty (note 11); |
| • | Leases: the calculation of right of use assets and lease liabilities involves making assumptions about lessee’s incremental borrowing rate and renewal options, which are subject to judgment (note 9); |
| • | Share-based compensation: the determination of the fair value of the equity instruments granted involves the use of certain assumptions subject to judgement (note 20); |
| • | Warrants: the determination of the fair value of the equity instruments issued involves the use of certain assumptions subject to judgement (note 12); |
| • | Commencement of depreciation and amortization: the depreciation and amortization starts when the assets are available for use in the manner intended by management, which requires judgement (notes 7 and 8); |
| • | Research and development costs: the Group recognizes expenditure incurred in carrying out its research and development activities until it becomes probable that future economic benefits will flow to the Group, which results in recognizing such costs as intangible assets, involving a certain degree of judgement (note 15); |
| • | Deferred taxes: the recognition of deferred tax assets requires assessment of whether it is probable that sufficient future taxable profit will be available against which the deferred tax assets can be utilized (note 18); |
| • | Impairment of assets: as part of impairment tests, the recoverable amounts of tested assets have been determined based on fair value calculations requiring the use of certain assumptions, subject to judgement (note 8); |
| • | Going concern: significant judgement is involved when assessing whether financial statements are to be prepared on a going concern basis or whether there is substantial doubt about the Group’s ability to continue as a going concern (note 23). |
F-12
The Group bases the estimates on historical experience and on various other assumptions that the Group believes are reasonable, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity and the amount of expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Group’s business, results of operations and financial condition, including but not limited to expenses, progress of the Group’s clinical trials, research and development costs and employee related amounts, will depend on future developments that are highly uncertain, including the duration and spread of the pandemic, and the actions taken to contain it, such as the impact and effectiveness of current and any future governmental measures implemented in response thereto, or new information that may emerge concerning COVID-19, as well as the extent to which the COVID-19 pandemic has impacted and will continue to impact worldwide macroeconomic conditions, including interest rates, employment rates and health insurance coverage, the speed of the anticipated recovery, and governmental and business reactions to the pandemic. The Group has made estimates of the impact of COVID-19 within these consolidated financial statements. If in the future such estimates and assumptions, which are based on management’s best judgment at the date of the consolidated financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate during the period in which the circumstances change.
3. Financial risk management
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks such as foreign exchange risk, credit risk, interest rate risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Financial risk management is carried out by the Group`s finance department subject to and pursuing policies approved by the Board of Directors.
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Swiss franc (CHF), Euro (EUR) and British Pound (GBP). Foreign exchange risk arises from future commercial transactions (e.g. costs for clinical services) and recognized assets and liabilities. Management has set up a policy to manage the foreign exchange risk against their functional currency. To manage its foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Group’s finance department maintains foreign currency cash balances to cover anticipated future requirements.
The sensitivity of profit or loss to changes in the exchange rates arises mainly from CHF- and EUR-denominated financial instruments held at the end of the reported periods.
CHF positions | | Increase /decrease exchange rate vs USD | | | Effect on profit before tax (in USD ‘000) | | | Effect on shareholders’ equity (in USD ‘000) | |
2021 | | | +5 | % | | | (498 | ) | | | (498 | ) |
| | | -5 | % | | | 498 | | | | 498 | |
2020 | | | +5 | % | | | (688 | ) | | | (688 | ) |
| | | -5 | % | | | 688 | | | | 688 | |
EUR positions | | Increase /decrease exchange rate vs USD | | | Effect on profit before tax (in USD ‘000) | | | Effect on shareholders’ equity (in USD ‘000) | |
2021 | | | +5 | % | | | 83 | | | | 83 | |
| | | -5 | % | | | (83 | ) | | | (83 | ) |
2020 | | | +5 | % | | | 26 | | | | 26 | |
| | | -5 | % | | | (26 | ) | | | (26 | ) |
Credit risk
Cash and cash equivalents are deposited with top tier banks and institutions with a short-term rating of “A-1” or “P-1” with Standard & Poor’s and Moody’s, respectively.
The maximum credit risk exposure the Group faces in connection with its financial assets, being cash and cash equivalents and other receivables, is the carrying amounts of these balances as shown in the consolidated balance sheet.
F-13
Interest rate risk
Interest rate risks arise from changes in interest rates that may have a negative impact on the Group’s financial position and results. Fluctuations in interest rates lead to changes in interest expense on floating-rate liabilities and thus affect the financial result. The financial liabilities subject to interest rate risk are exclusively floating-rate debt instruments denominated in USD, carried at amortized cost. The Group does not hold hedging instruments to manage the interest rate risk As of December 31, 2021, there are 0 floating-rate debt instruments.
The below table shows sensitivity to changes in market interest rates for the Group’s debt instruments.
| | Impact on loss before taxes | |
in USD ‘000 | | 2021 | | | 2020 | |
Interest rates - increase by 100 basis points | | | 0 | | | | (14 | ) |
Interest rates - decrease by 100 basis points | | | 0 | | | | 0 | |
3.2 Capital and liquidity management
The Group’s principal source of liquidity is the cash reserves which are obtained through the issuance of new shares and debt instruments. The Group’s policy is to invest these funds in low risk investments including interest bearing deposits. The ability of the Group to maintain adequate cash reserves to sustain its activities is subject to risk as it is highly dependent on the Group’s ability to raise further funds from the sale of new shares.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern (see Note 23) in order to ensure the financing of successful research and development activities so that future profits can be generated and to maintain sufficient financial resources to mitigate against risks and unforeseen events.
The Group is also subject to capital maintenance requirements under Swiss law. To ensure that statutory capital requirements are met, the Group monitors capital periodically.
A reconciliation of the net debt position is shown in the table below.
(in USD ’000) | | Borrowings | | | Lease liabilities | | | Total liabilities from financing activities | | | Cash and cash equivalents | | | Total | |
Net debt as of December 31, 2019 | | | (25,104 | ) | | | (2,159 | ) | | | (27,263 | ) | | | 69,370 | | | | 42,107 | |
Cash flows | | | 2,206 | | | | 722 | | | | 2,928 | | | | (38,522 | ) | | | (35,594 | ) |
Interest expense | | | (2,589 | ) | | | (92 | ) | | | (2,681 | ) | | | 0 | | | | (2,681 | ) |
Foreign exchange adjustments | | | 0 | | | | (119 | ) | | | (119 | ) | | | 335 | | | | 216 | |
Net debt as of December 31, 2020 | | | (25,487 | ) | | | (1,648 | ) | | | (27,135 | ) | | | 31,183 | | | | 4,048 | |
Cash flows | | | 2,728 | | | | 744 | | | | 3,472 | | | | 22,986 | | | | 26,458 | |
Interest expense | | | (2,974 | ) | | | (61 | ) | | | (3,035 | ) | | | 0 | | | | (3,035 | ) |
Foreign exchange adjustments | | | 0 | | | | 39 | | | | 39 | | | | 565 | | | | 604 | |
Net debt as of December 31, 2021 | | | (25,733 | ) | | | (926 | ) | | | (26,659 | ) | | | 54,734 | | | | 28,075 | |
In addition, the maturity profile of the Group’s financial liabilities is presented in the table below.
(in USD ’000) | | Carrying amount | | | Total undiscounted cash flows | | | up to 1 year | | | 1 to 5 years | | | Maturities more than 5 years | |
Trade and other payables | | | (7,716 | ) | | | (7,716 | ) | | | (7,716 | ) | | | 0 | | | | 0 | |
Borrowings | | | (25,733 | ) | | | (39,824 | ) | | | (2,992 | ) | | | (36,832 | ) | | | 0 | |
Lease liabilities | | | (926 | ) | | | (955 | ) | | | (712 | ) | | | (243 | ) | | | 0 | |
Total as of December 31, 2021 | | | (34,375 | ) | | | (48,495 | ) | | | (11,420 | ) | | | (37,075 | ) | | | 0 | |
F-14
(in USD ’000) | | Carrying amount | | | Total undiscounted cash flows | | | up to 1 year | | | 1 to 5 years | | | Maturities more than 5 years | |
Trade and other payables | | | (9,450 | ) | | | (9,450 | ) | | | (9,450 | ) | | | 0 | | | | 0 | |
Borrowings | | | (25,487 | ) | | | (32,646 | ) | | | (2,200 | ) | | | (30,446 | ) | | | 0 | |
Lease liabilities | | | (1,648 | ) | | | (1,738 | ) | | | (758 | ) | | | (980 | ) | | | 0 | |
Total as of December 31, 2020 | | | (36,585 | ) | | | (43,834 | ) | | | (12,408 | ) | | | (31,426 | ) | | | 0 | |
3.3 Fair value estimation and financial instruments
The carrying value less impairment provision of receivables and payables approximate their fair values due to their short-term nature.
All financial assets and liabilities, respectively, are held at their amortized cost.
The Group’s financial assets consist of cash and cash equivalents (USD 54.7 million) and other receivables (USD 3.6 million) which are classified as financial assets at amortized cost according to IFRS 9. The Group’s financial liabilities consist of debt instruments, other payables and accruals which are classified as liabilities at amortized cost according to IFRS 9.
4. Cash and cash equivalents
| | As of December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
Bank deposits | | | 54,734 | | | 31,183 | |
Interest bearing deposits | | | 0 | | | | 0 | |
Total cash and cash equivalents | | | 54,734 | | | 31,183 | |
Split by currency:
| | 2021 | | | 2020 | |
CHF | | | 1 | % | | | 2 | % |
USD | | | 96 | % | | | 87 | % |
EUR | | | 1 | % | | | 11 | % |
GBP | | | 1 | % | | | 0 | % |
5. Receivables and payables
As of December 31, 2021 and 2020, other receivables consist mainly of reimbursements to be received from third parties, including VAT, insurance premiums and shared-costs of research and development studies, and other payables and other current liabilities include mainly costs of clinical services. All receivables and payables are due from and to third parties and carried at amortized cost. Subsequent to year end, the Group collected USD 2.9 million of other receivables representing a refund from the U.S. Federal Drug Administration.
All payables have a contract maturity within one year.
6. Prepaid and accrued expenses
As of December 31, 2021 and 2020, prepaid expenses mainly consist of advance or milestone payments made as part of our ongoing clinical trials.
F-15
As of December 31, 2021 and 2020, accrued expenses consisted of the following:
| | As of December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
Accrued research and development expenses | | | 10,123 | | | | 7,662 | |
Accrued compensation-related expenses | | | 3,125 | | | | 2,334 | |
Accrued other expenses | | | 535 | | | | 252 | |
Total accrued expenses | | | 13,783 | | | | 10,248 | |
7. Furniture, fixtures and equipment
in USD ‘000 | | 2021 | | | 2020 | |
Net book value as of January 1 | | | 151 | | | | 245 | |
Additions | | | 29 | | | | 10 | |
Depreciation charge | | | (13 | ) | | | (104 | ) |
Disposals | | | (109 | ) | | | - | |
Net book value as of December 31 | | | 58 | | | | 151 | |
Total cost | | | 430 | | | | 652 | |
Accumulated depreciation | | | (372 | ) | | | (501 | ) |
Furniture, fixtures and equipment assets mainly consist of office furniture and leasehold improvements.
8. Intangible assets
in USD ‘000 | | 2021 | | | 2020 | |
Net book value as of January 1 | | | 26,608 | | | | 26,608 | |
Additions | | | 0 | | | | 0 | |
Disposals | | | (2,105 | ) | | | 0 | |
Amortization charge | | | 0 | | | | 0 | |
Currency translation effects | | | 0 | | | | 0 | |
Net book value as of December 31 | | | 24,503 | | | | 26,608 | |
Total cost | | | 24,503 | | | | 26,608 | |
Accumulated amortization | | | 0 | | | | 0 | |
As of December 31, 2021, the Group holds a number of licenses to operate several biopharmaceutical product candidates, the value of which is recorded at USD 24.5 million.
In July 2021, the Company entered into an agreement with Organon & Co. (“Organon”) to develop and commercialize ebopiprant. Under the terms of the agreement, Organon gained exclusive worldwide rights to develop, manufacture and commercialize ebopiprant. In consideration for entering into this agreement, the Company is entitled to receive tiered double-digit royalties on commercial sales as well as up to USD 500 million in upfront and milestone payments including USD 25 million that was paid at signing, up to USD 90 million in development and regulatory milestones and up to USD 385 million sales-based milestones. This transaction resulted in the derecognition of the license to develop and commercialize ebopiprant, initially recognized for USD 2.1 million as an intangible asset.
Merck Serono licenses
On August 28, 2013, the Group in-licensed nolasiban for USD 4.9 million from Ares Trading S.A., an affiliate of Merck Serono (“Merck Serono”).
In June 2015, the Group acquired the in-license for ebopiprant from Merck Serono for an amount of USD 2.4 million.
F-16
Kissei license
On November 19, 2015, the Group entered into an exclusive in-license and supply agreement with Kissei Pharmaceutical Co., Ltd. (“Kissei”) to acquire the product candidate linzagolix (formerly OBE2109) for which Kissei successfully completed a Phase 2 trial in Japan. This in-license agreement grants the Group an exclusive license to use, develop and commercialize the product candidate worldwide excluding certain Asian countries. This in-license was acquired for an upfront cash consideration of USD 10 million, with additional contingent payments upon occurrence of certain milestones (note 21).
On April 25, 2017, the Group announced the initiation of its Phase 3 clinical program for linzagolix in uterine fibroids and related activation of sites and start of recruitment. This event triggered the recognition and payment of a USD 5.0 million milestone to Kissei during the second quarter of 2017, that was accounted for as an intangible asset.
Similarly, on May 9, 2019, the Group announced the initiation of its Phase 3 clinical program for linzagolix in endometriosis, which includes the EDELWEISS 2 and EDELWEISS 3 clinical trials. On July 19, 2019, the Group randomized the first patient as part of the EDELWEISS 2 trial, resulting in a milestone payment of USD 5 million to Kissei, accounted for as an intangible asset.
In October 2021, the Group amended the exclusive in-license and supply agreement with Kissei such that first commercial sales milestones for the EU and the US will now be extended over a 5-year period. In addition, North American royalty payments were lowered to tiered single digit royalties on net sales plus a supply price for the active pharmaceutical ingredient.
The Group has concluded that the Merck Serono licenses and the Kissei license acquisitions do not qualify as business combinations per IFRS 3, as the Group did not acquire processes that are capable of producing outputs given the in-licensed compounds are very early-stage.
Amortization and impairment
The Group's intangible assets are subject to a multi-phase clinical trials process and the licenses are currently not amortized as no regulatory and marketing approvals were obtained as of December 31, 2021.
In accordance with IAS 38, the licenses have been reviewed for impairment by assessing the fair value less costs of disposal (“FVLCOD”). The valuation is considered to be Level 3 in the fair value hierarchy due to unobservable inputs used in the valuation. NaN impairment was identified.
The key assumptions used in the valuation model (income approach) to determine the FVLCOD of the licenses are as follows:
| • | Expected research and development costs; |
| • | Probabilities of achieving development milestones based on industry standards; |
| • | Reported disease prevalence; |
| • | Commercialization expectations; |
| • | Drug reimbursement, costs of goods and marketing expenses; and |
The valuation model covers a 20-year period due to the length of the development cycle for assets of this nature. A discount factor of 15%, based on the assumed cost of capital for the Group, has been used over the forecast period.
Based on sensitivity analysis performed, including changes in discount rates and peak sales assumptions, no reasonably possible change in assumption would cause the carrying value of the licenses to exceed their recoverable amount.
F-17
The Group has also collectively reviewed its licenses for impairment on the basis of the market capitalization for the entire Group as of December 31, 2021 less the value of its tangible assets as well as cash and cash equivalents. This analysis resulted in a headroom exceeding USD 79 million. The valuation is considered to be Level 3 in the fair value hierarchy and further supported the Group’s conclusion that no impairment was identified as of December 31, 2021 and 2020.
9. Leases
The consolidated financial statements show the following amounts relating to leases:
Right-of-use assets
in USD ‘000 | | 2021 | | | 2020 | |
Net book value as of January 1 | | | 1,425 | | | | 2,042 | |
Depreciation charge | | | (500 | ) | | | (617 | ) |
Derecognition of RoU asset | | | (300 | ) | | | - | |
Net book value as of December 31 | | | 625 | | | | 1,425 | |
Total cost | | | 1,876 | | | | 2,658 | |
Accumulated depreciation | | | (1,251 | ) | | | (1,233 | ) |
Rights-of-use assets mainly relate to office buildings.
On June 1, 2021, ObsEva USA Inc. signed a sublease agreement to sublease office spaces located at One Financial Center in Boston, Massachusetts. This sublease covers a period from June 1, 2021 until September 30, 2022. This resulted in the derecognition of the right-of-use asset of USD 0.3 million. The initial net investment of this leasing amounted to USD 0.2 million of which USD 0.1 million was received in 2021.
The expense relating to other short-term or low-value leases is not material. For the years ended December 31, 2021 and 2020, the total cash outflows for leases amounted to USD 0.7 million and USD 0.7 million, respectively.
Lease liabilities
| | As of December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
Current | | | 686 | | | | 696 | |
Non-current | | | 240 | | | | 952 | |
Total lease liabilities | | | 926 | | | 1,648 | |
The lease liabilities have been measured based on the Group’s weighted average incremental borrowing rate of 4.9%. The maturity of the lease liabilities is provided in note 3.2.
10. Other long-term assets and liabilities
The Group’s other long-term assets mainly consist of security rental deposits for the Group’s offices.
The Group’s other long-term liabilities consist of a tax provision which amounts to USD 0.6 million (2020 : USD 0.9 million).
11. Post-employment benefits
In accordance with the mandatory Swiss pension fund law, all employees of the Company participate in a retirement defined benefit plan. Swiss based pension plans are governed by the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (the “LPP”), which stipulates that pension plans are to be managed by independent, legally autonomous units. Under the terms of the pension plan, participants are insured against the financial consequences of old age, disability and death. The various insurance benefits are governed by regulations, with the LPP specifying the minimum benefits that are to be provided. The employer and employees pay contributions to the pension plan. In the event the pension plan’s statutory funding falls below a certain level, various measures can be taken to increase funding above such level, such as increasing the current contribution, lowering the interest rate on the retirement account balances or reducing the additional prospective benefits. The employer can also make additional restructuring contributions. Since the risks of death and
F-18
disability are fully reinsured by an insurance group, the savings plan must be qualified as a defined benefit plan. As required by IAS 19 Employee Benefits, the projected unit credit method has been used in the calculation of present value of the benefit obligations and the related current service cost.
The investment risk is borne by the insurer and the reinsurer respectively, and the investment decision is taken by the board of trustees of the collective insurance. In 2021, the conversion rate for retirees changed to 6.2% (2020: 6.5%) which has been considered as a plan amendment.
in USD ‘000 | | 2021 | | | 2020 | |
Change in defined benefit obligation | | | | | | | | |
Defined benefit obligation at January 1, | | | (23,248 | ) | | | (24,705 | ) |
Current service cost | | | (1,701 | ) | | | (1,864 | ) |
Interest cost | | | (22 | ) | | | (46 | ) |
Net benefits paid | | | 914 | | | | 4,643 | |
Currency translation effects | | | 805 | | | | (2,208 | ) |
Remeasurements: | | | | | | | | |
Impact of plan amendment | | | 864 | | | | - | |
Effect of changes in demographic assumptions | | | 0 | | | | 510 | |
Effect of changes in financial assumptions | | | 991 | | | | (418 | ) |
Effect in experience assumptions | | | (246 | ) | | | 840 | |
Defined benefit obligation at December 31, | | | (21,643 | ) | | | (23,248 | ) |
in USD ‘000 | | | 2021 | | | | 2020 | |
Change in plan assets | | | | | | | | |
Fair value of plan assets at January 1, | | | 15,030 | | | | 16,759 | |
Interest income | | | 15 | | | | 31 | |
Employer contributions | | | 699 | | | | 703 | |
Employee contributions | | | 699 | | | | 703 | |
Net benefits paid | | | (914 | ) | | | (4,643 | ) |
Currency translation effects | | | (517 | ) | | | 1,427 | |
Remeasurements: return on plan assets (excluding interest income) | | | 51 | | | | 50 | |
Fair value of plan assets at December 31, | | | 15,063 | | | | 15,030 | |
| | Year ended December 31, | |
in USD ‘000 | | | 2021 | | | | 2020 | |
Components of defined benefit cost | | | | | | | | |
Current service cost | | | 1,701 | | | | 1,864 | |
Interest expense on defined benefit obligation | | | 22 | | | | 46 | |
Interest income on plan assets | | | (15 | ) | | | (31 | ) |
Employee contributions | | | (699 | ) | | | (703 | ) |
Impact of plan amendment | | | (864 | ) | | | 0 | |
Total included in staff costs (note 16) | | | 145 | | | | 1,176 | |
F-19
| | Year ended December 31, | |
in USD ‘000 | | | 2021 | | | | 2020 | |
Remeasurements recognized in other comprehensive loss | | | | | | | | |
Effect of changes in demographic assumptions | | | 0 | | | | 510 | |
Effect of changes in financial assumptions | | | 991 | | | | (418 | ) |
Effect in experience assumptions | | | (246 | ) | | | 840 | |
Return on plan assets (excluding interest income) | | | 51 | | | | 50 | |
Total remeasurements recognized as other comprehensive loss | | | 796 | | | | 982 | |
Cumulative amount of remeasurements immediately recognized in other comprehensive loss | | | (7,041 | ) | | | (7,837 | ) |
| | As of December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
Amounts recognized in the statement of financial position | | | | | | | | |
Defined benefit obligation | | | (21,643 | ) | | | (23,248 | ) |
Fair value of plan assets | | | 15,063 | | | | 15,030 | |
Net liability | | | (6,580 | ) | | | (8,218 | ) |
in USD ‘000 | | 2021 | | | 2020 | |
Change in defined benefit liability | | | | | | | | |
Net defined benefit liability at January 1, | | | (8,218 | ) | | | (7,946 | ) |
Defined benefit cost included in statement of comprehensive loss | | | (145 | ) | | | (1,176 | ) |
Total remeasurements included in other comprehensive loss | | | 796 | | | | 982 | |
Employer contributions | | | 699 | | | | 703 | |
Currency translation effects | | | 288 | | | | (781 | ) |
Net defined benefit liability at December 31, | | | (6,580 | ) | | | (8,218 | ) |
The assets are invested by the pension plan, to which many companies contribute, in a diversified portfolio that respects the requirements of the Swiss BVG. Therefore, disaggregation of the pension assets and presentation of plan assets in classes that distinguish the nature and risks of those assets is not possible.
The principal actuarial assumptions used were as follows:
| | 2021 | | | 2020 | |
Discount rate | | 0.35% | | | 0.10% | |
Salary increase (including inflation) | | 1.00% | | | 1.00% | |
Rate of pension increases | | 0.25% | | | 0.25% | |
Post-employment mortality table | | LPP 2020 G | | | LPP 2020 G | |
F-20
Sensitivity analysis illustrates the sensitivity of the Group defined benefit obligation at December 31, 2021 by varying the discount rate and the salary increase rate by plus / minus 50 basis points:
in USD ‘000 | | Discount rate | | | Discount rate | | | Salary increase | | | Salary increase | | | Rate of pension increase | | | Rate of pension increase | |
Sensitivity analysis | | plus 50bps | | | minus 50bps | | | plus 50bps | | | minus 50bps | | | plus 25bps | | | minus 25bps | |
Discount rate | | | 0.85 | % | | | (0.15 | )% | | | 0.35 | % | | | 0.35 | % | | | 0.35 | % | | | 0.35 | % |
Salary increase | | | 1.00 | % | | | 1.00 | % | | | 1.50 | % | | | 0.50 | % | | | 1.00 | % | | | 1.00 | % |
Rate of pension increases | | | 0.25 | % | | | 0.25 | % | | | 0.25 | % | | | 0.25 | % | | | 0.50 | % | | | 0.00 | % |
Defined benefit obligation | | | (19,850 | ) | | | (23,704 | ) | | | (21,696 | ) | | | (21,592 | ) | | | (22,173 | ) | | | (21,141 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Average duration of the defined benefit obligation | | | | | | | | | | | | | | | | | | 2021 | | | 2020 | |
Duration in years | | | | | | | | | | | | | | | | | | 17.8 | | | 18.7 | |
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the prior period.
Expected contributions by the employer to be paid to the post-employment benefit plans during the annual period beginning after the end of the reporting period amount to approximately USD 0.7 million.
12. Borrowings
In August 2019, the Company entered into a loan and security agreement, (“the Oxford Credit Facility”) with Oxford Finance LLC for a term loan of up to USD 75.0 million, subject to funding in 3 tranches. The Company received gross proceeds of USD 25.0 million, net of transaction costs of USD 0.3 million, from the first tranche of the Oxford Credit Facility upon entering into the agreement and intends to use the funds for its various clinical trials programs. The Company could not draw the second tranche of USD 25.0 million due to the failure to meet the primary endpoint of the Phase 3 IMPLANT 4 clinical trial of nolasiban. In April 2020, the Company entered into an amendment to the Oxford Credit Facility, pursuant to which the third tranche of USD 25.0 million may be drawn at any time between April 7, 2020 and August 1, 2024 upon request of the Company and at the lender’s discretion.
In October, 2021, the Company entered into a convertible note financing agreement (the “Securities Purchase Agreement”) with certain funds and accounts managed by JGB, which is structured to provide up to USD 135 million in borrowing capacity, available in 9 tranches. In connection with the first tranche which included a borrowing amount of USD 31.5 million (offer issue discount of USD 1.5 million), the Company received gross proceeds of USD 30.0 million at closing and used the proceeds to repay all amounts outstanding under the Company’s existing Oxford Credit Facility. Upon payoff, the Oxford Credit Facility was terminated and the security interests in the Company’s assets that secured the Oxford Credit Facility were released. At the time of the payoff, the carrying amount of the Oxford Credit Facility was USD 25.6 million and the actual payoff amount was USD27.0 million. The difference between the carrying amount and the payoff amount was USD 1.4 million and was recorded in finance expense on the Company’s consolidated statement of comprehensive loss for the year ended December 31, 2021. The Company will issue senior secured convertible promissory notes (each, a “Note”) for the debt funded at each tranche. Holders may convert all principal and interest under the Securities Purchase Agreement at any time into the Company’s common shares at an initial conversion price of $3.20 per share (the “Conversion Price”). The Conversion Price is subject to adjustment under certain circumstances in accordance with the terms of the Note Agreement. As of February 28, 2022, the Company is able to potentially receive gross proceeds of USD 16.725 million from the third tranche and USD 13.125 million from each remaining tranche thereafter.
F-21
The credit facility is presented in the balance sheet as follows:
in USD ‘000 | | 2021 | | | 2020 | |
Borrowings as of January 1, | | | 25,487 | | | | 25,104 | |
Issuance of JGB convertible note | | | 27,333 | | | | 0 | |
Transaction costs | | | (1,954 | ) | | | 0 | |
Oxford Loan payoff | | | (25,623 | ) | | | 0 | |
Interest expense | | | 2,974 | | | | 2,589 | |
Interest paid | | | (2,484 | ) | | | (2,206 | ) |
Borrowings as of December 31, | | | 25,733 | | | | 25,487 | |
Of which are: | | | | | | | | |
Current | | | 0 | | | | 187 | |
Non-current | | | 25,733 | | | | 25,300 | |
The Securities Purchase Agreement is secured by an account control agreement in favor of JGB, and the Company is obligated to maintain a minimum cash amount of USD 25 million in such deposit account, subject to additional incremental increases totaling USD 27.0 million in aggregate depending on the amount of debt outstanding under the Securities Purchase Agreement. Each tranche under the Securities Purchase Agreement will bear interest at a rate of 9.5% per year, payable monthly, and will be issued with an original issue discount of 4.75%. Each tranche under the Securities Purchase Agreement will mature three years from the date of issuance, unless earlier converted or prepaid in accordance with their terms. After payments and deductions for certain transaction costs and offer issue discounts, the effective rate of the Securities Purchase Agreement is 16.2%. At each tranche, the Company will also issue to JGB warrants to purchase common shares of the Company (each, a “Warrant”) in an amount equal to 20% of the funded amount for such tranche. The Warrants will be exercisable at a price of $3.67 per share and will have a four year term from the date of issuance. See Note 13 for valuation of the Warrants.
The fair value of the first tranche was determined to equal the USD 30 million in cash proceeds received and was allocated by using the fair value of the warrants (USD 2.6 million), the fair value of the liability portion of the convertible feature (USD 27.3 million) and the fair value of the conversion option (USD 22 thousand). The initial fair value of the liability portion of the Securities Purchase Agreement was determined using a market interest rate for a non-convertible note with attached warrants at the issue date. The liability is subsequently recognized on an amortized cost basis until extinguished on conversion or maturity of the first tranche. The total proceeds were first attributed to the liability portion of the Securities Purchase Agreement and the warrants. The remaining proceeds were allocated to the conversion option and recognized in shareholders' equity and not remeasured.
The Securities Purchase Agreement includes affirmative and negative covenants applicable to the Company and its subsidiaries. The affirmative covenants include, among other things, requirements to file certain financial reports with the Securities and Exchange Commission, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. Further, subject to certain exceptions, the Securities Purchase Agreement contains customary negative covenants limiting its ability to, among other things, transfer or sell certain assets, consummate mergers or acquisitions, allow changes in business, incur additional indebtedness, create liens, pay dividends or make other distributions and make investments. As of December 31, 2021, the Company was in compliance with its covenants.
F-22
13. Shareholders’ equity
| | | | | | in USD ‘000 | |
| | Number of common shares | | | Share capital | | | Share premium | | | Total | |
January 1, 2020 | | | 44,423,448 | | | | 3,499 | | | | 320,955 | | | | 324,454 | |
Issuance of shares - EIP 2013 | | | 168,641 | | | | 15 | | | | 2,065 | | | | 2,080 | |
Issuance of shares - Underwritten offering | | | 6,964,592 | | | | 591 | | | | 19,408 | | | | 19,999 | |
Issuance of shares - ATM program | | | 5,995,897 | | | | 469 | | | | 16,437 | | | | 16,906 | |
Share issuance costs | | | - | | | | - | | | | (2,043 | ) | | | (2,043 | ) |
December 31, 2020 | | | 57,552,578 | | | | 4,574 | | | | 356,822 | | | | 361,396 | |
| | | | | | in USD ‘000 | |
| | Number of common shares | | | Share capital | | | Share premium | | | Total | |
January 1, 2021 | | | 57,552,578 | | | | 4,574 | | | | 356,822 | | | | 361,396 | |
Issuance of shares - ATM program | | | 15,954,450 | | | | 1,360 | | | | 52,327 | | | | 53,687 | |
Share issuance costs | | | - | | | | - | | | | (81 | ) | | | (81 | ) |
Exercise of warrants | | | 6,448,240 | | | | 555 | | | | 21,562 | | | | 22,117 | |
December 31, 2021 | | | 79,955,268 | | | | 6,489 | | | | 430,630 | | | | 437,119 | |
Share capital and share premium
As of December 31, 2021, the total outstanding share capital of USD 6.5 million, fully paid, consists of 79,955,268 common shares, excluding 5,265,203 treasury shares. As of December 31, 2020, the total outstanding share capital of USD 4.6 million, fully paid, consisted of 57,552,578 common shares, excluding 3,608,291 treasury shares. All shares have a nominal value of 1/13 of a Swiss franc, translated into USD using historical rates at the issuance date.
During the year ended December 31, 2020, the Company sold a total of 5,995,897 treasury shares at an average price of USD 2.82 per share, as part of its ATM program. These multiple daily transactions generated total gross proceeds of USD 16.9 million. Directly related share issuance costs of USD 0.5 million were recorded as a deduction in equity.
In April 2020 and September 2020, the Company issued 3,308,396 and 2,320,266 common shares, respectively, at par value of 1/13 of a Swiss franc per share. The shares were fully subscribed for by a wholly-owned subsidiary of the Company and listed on the SIX Swiss Exchange accordingly. The shares were initially held as treasury shares, hence the operation did not impact the outstanding share capital.
In September 2020, the Company completed an underwritten offering of 6,448,240 units at an effective price of USD 2.869 per unit, with each unit comprised of one common share (or pre-funded warrant) and one 15-month purchase warrant to purchase one common share at an exercise price of USD 3.43 per share. In addition to the securities being sold in the underwritten offering, the Company’s former Chief Executive Officer purchased 516,352 units at an effective price of USD 2.905 per unit, with each unit comprised of one common share and one 15-month purchase warrant to purchase one common share at an exercise price of USD 3.43 per share, in a concurrent private placement. The net proceeds from the offering and the concurrent private placement, including exercise of pre-funded warrants, were USD 20.0 million, after deducting underwriting discounts, commissions and other offering expenses paid by the Company. As of December 31, 2020, NaN of the 15-month purchase warrants have been exercised.
During the year ended December 31, 2021, the Company sold a total of 15,933,420 treasury shares at an average price of USD 3.28 per share, as part of its ATM program. These multiple daily transactions generated total gross proceeds of USD 53.7 million. Directly related share issuance costs of USD 2.0 million were recorded as a deduction in equity. During the year ended December 31, 2021, 6,448,240 warrants were exercised at an average price of USD 3.43 per share, resulting in proceeds of USD 22.1 million.
F-23
Equity incentive plans
In 2021, the Company issued 0 common shares (2020: 168,641) under its 2013 EIP (see note 20). All shares issued under the 2013 EIP have a nominal value of 1/13 of a Swiss franc, translated into USD using historical rates at the issuance date.
Authorized share capital
The authorized share capital that is not outstanding is as follows:
| | As of December 31, | |
Number of shares | | 2021 | | | 2020 | |
Authorized share capital | | | 40,610,232 | | | | 17,611,372 | |
Warrants Issued with Securities Purchase Agreement with JGB
On October 12, 2021, in connection with the first tranche from the Securities Purchase Agreement with JGB, the Company issued 1,634,877 warrants to JGB. The warrants have an exercise price of $3.67 per share. The Company determined the fair value of the warrants on October 12, 2021 using the Black Scholes model by using a risk-free interest rate of 0.64%, an expected term of 3 years, and an implied volatility of 98.5%. The fair value was calculated to be approximately USD 2.6 million on October 12, 2021. This valuation is considered to be Level 2 in the fair value hierarchy. The Company allocated the transaction fees associated with the Securities Purchase Agreement based on the debt balance and the fair value of the warrant liability on October 12, 2021. The allocation of the transaction fees associated with the warrant liability was USD 0.2 million and was recorded as a period cost and included in finance expense on the statements of comprehensive loss.
Because the warrants were not exercisable until its affiliated registration statement was declared effective, the Company had to revalue the warrant liability on the date of the effective date of the registration statement which was November 22, 2021. The Company revalued the fair value of the warrants on November 22, 2021 using the Black Scholes model by using a risk-free interest rate of 0.95%, an expected term of 3 years, and an implied volatility of 98.2%. The fair value was calculated to be approximately USD 1.8 million on November 22, 2021. The resulting difference in fair values between October 12, 2021 and November 22, 2021 of USD 0.8 million is recorded as a period cost and is included in finance income on the statements of comprehensive loss.
14. Revenue and other operating income
The Group currently derives 0 revenue from sales of its biopharmaceutical product candidates.
In July 2021, the Company entered into an agreement with Organon to develop and commercialize ebopiprant. Under the terms of the agreement, Organon gained exclusive worldwide rights to develop, manufacture and commercialize ebopiprant. In consideration for entering into this agreement, the Company received an upfront payment of USD 25 million. The Company accounted for this upfront payment in accordance with IAS 38 par 113 and as such, the gain on the disposal of the asset net of fees and net of recognition of intangible asset of USD 20.1 million is recorded in operating income other than revenue on the Company’s consolidated statements of comprehensive loss.
F-24
15. Operating expenses by nature
| | Year ended December 31, | |
in USD ‘000 | | 2021 | | | 2020 | | | 2019 | |
External research and development costs | | | 38,287 | | | | 51,803 | | | | 70,531 | |
Staff costs (note 16) | | | 18,788 | | | | 19,643 | | | | 24,556 | |
Professional fees | | | 12,175 | | | | 3,994 | | | | 7,072 | |
Rents | | | 60 | | | | 22 | | | | 21 | |
Travel expenses | | | 229 | | | | 156 | | | | 1,398 | |
Patent registration costs | | | 887 | | | | 813 | | | | 882 | |
Depreciation | | | 736 | | | | 721 | | | | 737 | |
Other | | | 3,466 | | | | 2,566 | | | | 1,914 | |
Total operating expenses by nature | | | 74,627 | | | | 79,718 | | | | 107,111 | |
Due to the difficulty in assessing when research and development projects would generate revenue, the Group expenses all research and development costs on the consolidated statement of comprehensive loss. In 2021, research and development expenses amounted to USD 53.1 million (2020: USD 67.5 million, 2019: USD 88.1 million).
Depreciation expense has been allocated as follows:
| | Year ended December 31, | |
in USD ‘000 | | 2021 | | | 2020 | | | 2019 | |
Research and development expenses | | | 441 | | | | 447 | | | | 429 | |
General and administrative expenses | | | 295 | | | | 274 | | | | 308 | |
Total depreciation | | | 736 | | | | 721 | | | | 737 | |
16. Staff costs
| | Year ended December 31, | |
in USD ‘000 | | 2021 | | | 2020 | | | 2019 | |
Wages and salaries | | | 11,110 | | | | 10,262 | | | | 10,403 | |
Social charges | | | 1,690 | | | | 1,699 | | | | 2,124 | |
Post-employment benefits expense | | | 145 | | | | 1,176 | | | | 145 | |
Share-based payments | | | 5,843 | | | | 6,506 | | | | 11,884 | |
Total staff costs | | | 18,788 | | | | 19,643 | | | | 24,556 | |
The Group employed on average 45.8 full-time equivalents (“FTE”) in 2021, compared to 46.2 FTE in 2020 and 48.5 FTE in 2019, and 48.3 FTE as of December 31, 2021 compared to 42.7 FTE as of December 31, 2020 and 50.1 FTE as of December 31, 2019.
For the year ended December 31, 2019, the post-employment benefits line included a gain of USD 527 thousand relating to the plan amendments enacted during the year. NaN amendment occurred during the year ended December 31, 2020. For the year ended December 31, 2021, the post-employment benefit line included a gain of USD 864 thousand relating to the plan amendments enacted during the year.
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17. Finance income and expense
Our finance income and expense primarily consist of foreign exchange gain and loss as well as interest expense associated with our lease liabilities and debt instruments.
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | (in thousands) | |
Foreign exchange gain (loss), net | | | 78 | | | | (527 | ) | | | (442 | ) |
Interest expense | | | (3,156 | ) | | | (2,704 | ) | | | (1,186 | ) |
Change in fair value of derivative liability | | | 790 | | | | - | | | | - | |
Loss on Oxford debt extinguishment | | | (1,363 | ) | | | - | | | | - | |
Finance result, net | | | (3,651 | ) | | | (3,231 | ) | | | (1,628 | ) |
18. Income taxes and deferred taxes
The Group is subject to income taxes in Switzerland, Ireland and the United States.
The Company is subject in Switzerland to a municipal and cantonal income tax rate of 14% (2020 : 14%) and to a federal tax rate of 8.5% (2020: 8.5%) on its profits after tax. It is entitled to carry forward any loss incurred for a period of seven years and can offset such losses carried forward against future taxes. In 2015, the Company was granted by the State Council of the Canton of Geneva an exemption of income and capital tax at municipal and cantonal levels for the period from 2013 until 2022. Because of this exemption, and the fact that the Company has incurred net losses since its inception, 0 income tax expense at the municipal, cantonal or federal levels was recorded in the Company for the years ended December 31, 2021 and 2020. Additionally, due to the uncertainty as to whether it will be able to use its net loss carryforwards for tax purposes in the future, 0 deferred taxes have been recognized on the balance sheet of the Company as of December 31, 2021 and December 31, 2020.
The following table details the tax losses carry forwards of the Company and their respective expiring dates.
Expiring tax losses
| | As of December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
2021 | | | - | | | | 12,828 | |
2022 | | | 17,372 | | | | 17,993 | |
2023 | | | 30,603 | | | | 31,696 | |
2024 | | | 62,631 | | | | 64,869 | |
2025 | | | 72,763 | | | | 75,364 | |
2026 | | | 105,879 | | | | 109,663 | |
2027 | | | 77,340 | | | | 80,105 | |
2028 | | | 55,480 | | | | - | |
Total unrecorded tax losses carry forwards | | | 422,068 | | | | 392,518 | |
The Company’s Irish subsidiary has no activity, and, therefore, 0 income tax expense was recorded in such entity for the years ended December 31, 2021 and 2020.
F-26
The Company’s U.S. subsidiary, ObsEva USA Inc., is a service organization for the Group and is therefore subject to taxes on the revenues generated from its services to the Group that are charged based upon the U.S. subsidiary’s cost plus arrangement with the Group. The profits of the U.S. subsidiary for the year ended December 31, 2021 and 2020 were subject to a total U.S. income tax rate of 27.3% based on both the U.S. Federal and Massachusetts state tax rates. The income tax for the year ended December 31, 2021 and 2020 was USD 212 thousand and USD 34 thousand, respectively. Additionally, since ObsEva USA Inc. is totally dependent on ObsEva SA for revenue, there is uncertainty as to whether ObsEva USA Inc. will be able to use a deferred tax asset for tax purposes in the future, therefore, 0 deferred taxes have been recognized on the balance sheet of the Group as of December 31, 2021 and December 31, 2020.
The following elements explain the difference between the income tax expense at the applicable Group tax rate and the effective income tax expense:
| | Year ended December 31, 2021 | |
in USD ‘000 | | ObsEva SA | | | ObsEva USA | | | Total Group | |
Net loss before tax | | | (56,145 | ) | | | (2,020 | ) | | | (58,165 | ) |
Statutory tax rate (blended at Group level) | | | 7.8 | % | | | 27.3 | % | | | 8.5 | % |
Income tax credit at statutory tax rates | | | (4,398 | ) | | | (551 | ) | | | (4,949 | ) |
Tax impact of pension and share-based compensation | | | (38 | ) | | | 116 | | | | 78 | |
Temporary differences not recognized as deferred tax assets | | | 128 | | | | 647 | | | | 775 | |
Tax on losses not recognized as deferred tax assets | | | 4,308 | | | | - | | | | 4,308 | |
Effective income tax expense | | | - | | | | 212 | | | | 212 | |
Effective tax rate | | | 0.0 | % | | | -10.5 | % | | | -0.4 | % |
| | | | | | | | | | | | |
| | Year ended December 31, 2020 | |
in USD ‘000 | | ObsEva SA | | | ObsEva USA | | | Total Group | |
Net loss before tax | | | (82,804 | ) | | | (128 | ) | | | (82,932 | ) |
Statutory tax rate (blended at Group level) | | | 7.8 | % | | | 27.3 | % | | | 7.9 | % |
Income tax credit at statutory tax rates | | | (6,487 | ) | | | (35 | ) | | | (6,522 | ) |
Tax impact of permanent differences | | | 595 | | | | 17 | | | | 612 | |
Temporary differences not recognized as deferred tax assets | | | (1 | ) | | | 52 | | | | 51 | |
Tax on losses not recognized as deferred tax assets | | | 5,893 | | | | - | | | | 5,893 | |
Effective income tax expense | | | - | | | | 34 | | | | 34 | |
Effective tax rate | | | 0.0 | % | | | (26.7 | )% | | | 0.0 | % |
19. Loss per share
As of December 31, 2021, 2020 and 2019, the Company has one category of shares, which are common shares, since the Company’s non-voting shares and series A and series B preferred shares were converted into common shares upon the closing of the IPO on January 25, 2017.
The basic loss per share is calculated by dividing the loss of the period attributable to the ordinary shares by the weighted average number of ordinary shares outstanding during the period as follows:
| | Year ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
Net loss attributable to shareholders (in USD ‘000) | | | (58,377 | ) | | | (82,966 | ) | | | (108,790 | ) |
Weighted average number of shares outstanding | | | 75,281,838 | | | | 49,820,451 | | | | 43,674,746 | |
Basic and diluted loss per share (in USD) | | | (0.78 | ) | | | (1.67 | ) | | | (2.49 | ) |
For the year ended December 31, 2021, 8,937,473 shares issuable upon the exercise of stock-options and 11,477,396 warrants and convertible in relation with the JGB loan which would have an anti-dilutive impact on the calculation of the diluted earnings per share, were excluded from the calculation. For the year ended December 31, 2020, 7,035,388 and 6,964,592 shares issuable upon the exercise of stock-options and warrants, respectively, which would have an anti-dilutive impact on the calculation of the diluted earnings per share, were excluded from the calculation. For the year ended
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December 31, 2019, 168,641 non-vested shares and 4,626,385 shares issuable upon the exercise of stock-options, which would have an anti-dilutive impact on the calculation of the diluted earnings per share, were excluded from the calculation.
20. Share-based compensation
The total expenses arising from share-based payment transactions recognized during the period as part of staff costs were as follows:
| | Year ended December 31, | |
in USD ‘000 | | 2021 | | | 2020 | | | 2019 | |
Employee 2013 EIP | | | - | | | | 220 | | | | 1,006 | |
Employee 2017 EIP | | | 5,843 | | | | 6,286 | | | | 10,878 | |
Total share-based compensation | | | 5,843 | | | | 6,506 | | | | 11,884 | |
Employee equity incentive plan 2013
The Company established the 2013 EIP for employees, executives, directors and consultants (the “Beneficiaries”) of the Group.
Upon enrollment in the 2013 EIP, Beneficiaries were granted a certain number of shares which they were entitled to acquire at a pre-determined price of 1/13 of a Swiss franc. The pre-determined price was generally paid by the Beneficiaries at the grant date and recognized as a pre-payment until the vesting period elapses resulting in the shares issuance being accounted for.
The shares generally fully vest over a four-year vesting period, with 25% of the shares underlying the grant vesting after one year, and 1/48th of the shares underlying the grant vesting each month over a further period of three years.
The Group has 0 present obligation to repurchase or settle the shares in cash.
| | 2021 | | | 2020 | | | 2019 | |
Number of shares vested under the 2013 EIP | | | - | | | | 168,641 | | | | 261,984 | |
Expense arising from the 2013 EIP (in USD ’000) | | | - | | | | 220 | | | | 1,006 | |
The fair value of the shares was calculated using a combination of the discounted cash flow method, under the income approach, and the backsolve method. The income approach estimates value based on the expectation of future cash flows that the Company will generate, such as cash earnings, costs savings, tax deduction and the proceeds from disposition. These future cash flows were discounted to their present values using a discount rate derived based on an analysis of the cost of capital of comparable publicly traded companies in similar lines of business, as of each valuation date, and was adjusted to reflect the risks inherent in the Company’s cash flows. The backsolve method, a form of the market approach to valuation, derives the implied enterprise equity value and the fair value of the non-voting share from a recent and contemporaneous transaction involving the Company’s own securities, using the following assumptions: rights and preferences of the different categories of shares, probability of various liquidity event scenarios, expected timing of a liquidity event, volatility and expected value in a liquidity event.
The Group has stopped granting equity instruments under the 2013 EIP in 2016, resulting in the 2013 EIP being fully vested as of December 31, 2020.
F-28
Employee equity incentive plan 2017
The Company established in 2017 the 2017 EIP for Beneficiaries of the Group, under which 3,050,340 and 4,543,952 stock-options were granted during the year ended December 31, 2021 and 2020, respectively. The stock-options typically vest under a 3-year or 4-year vesting schedule, have a 10-year expiration term and have an exercise price equivalent to the share price at grant date. Certain grants also include non-market performance vesting conditions, common to all employees, regularly assessed to determine the numbers of awards expected to vest.
Movements in the number of stock-options outstanding under the 2017 EIP were as follows:
| 2021 | | | 2020 | |
| Average exercise price (USD) | | Number of options | | | Average exercise price (USD) | | Number of options | |
At January 1, | | 6.49 | | | 7,035,388 | | | | 10.51 | | | 4,626,385 | |
Granted | | 3.29 | | | 3,050,340 | | | | 2.93 | | | 4,543,952 | |
Forfeited/Expired | | 8.42 | | | (1,148,255 | ) | | | 7.62 | | | (2,134,949 | ) |
Exercised | | - | | | - | | | | - | | | - | |
At December 31, | | 5.15 | | | 8,937,473 | | | | 6.49 | | | 7,035,388 | |
No exercise of options occurred during the year ended December 31, 2021 and December 31, 2020.
The outstanding stock-options have the following range of exercise prices and remaining contractual life:
| | As of December 31, | |
Range of exercise prices | | 2021 | | | 2020 | |
USD 15.00 to USD 17.99 | | | 96,500 | | | | 361,500 | |
USD 12.00 to USD 14.99 | | | 925,418 | | | | 1,050,143 | |
USD 9.00 to USD 11.99 | | | 1,211,075 | | | | 1,331,981 | |
USD 6.00 to USD 8.99 | | | 109,583 | | | | 161,979 | |
USD 3.00 to USD 5.99 | | | 3,539,628 | | | | 1,977,823 | |
USD 1.50 to USD 2.99 | | | 3,055,269 | | | | 2,151,962 | |
Total outstanding options | | | 8,937,473 | | | | 7,035,388 | |
out of which are exercisable | | | 3,552,593 | | | | 2,083,159 | |
Weighted-average remaining contractual life (in years) | | | 8.2 | | | | 8.6 | |
The weighted average fair value of the stock-options granted during the years ended December 31, 2021 and 2020, determined using a Black-Scholes model was USD 2.57 and USD 2.31, respectively. The significant inputs to the model were:
| | 2021 | | 2020 | |
Weighted average share price at grant date | | USD 3.29 | | USD 2.93 | |
Weighted average exercise price | | USD 3.29 | | USD 2.93 | |
Weighted average 10-year volatility | | | 76 | % | | 77 | % |
Dividend yield | | | 0 | % | | 0 | % |
Weighted average 10-year risk free rate | | | 1.45 | % | | 1.28 | % |
Since the Company has a short track record as a public company, expected volatility has been determined based on the historical trend of an appropriate sample of public companies operating in the biotech and pharmaceutical industry.
F-29
21. Commitments and contingencies
Contingencies
As a result of the licenses granted to the Group, the following contingencies are to be noted:
Kissei license
Under the terms of the license and supply agreement, the Group would be obligated to make milestone payments upon the achievement of specified regulatory and commercial milestones with respect to linzagolix. The total of all potential undiscounted future payments that the Group could be required to make under this arrangement ranges between USD 0 and USD 178 million.
Pursuant to the Kissei license and supply agreement, the Group has agreed to exclusively purchase the active pharmaceutical ingredient (“API”) for linzagolix from Kissei. During the development stage, the Group is obligated to pay Kissei a specified supply price. Following the first commercial sale of licensed product, the Group is obligated to pay Kissei a royalty payment in the low 20 percent range as a percentage of net sales, for product sold outside of North America, which includes payment for Kissei’s supply of the active pharmaceutical ingredient, and a tiered single digit royalty of nets sales plus a specified supply price for product sold in North America, in each case until the latest of the date that the valid claim of a patent for the product has expired, the expiration of our regulatory exclusivity period or 15 years from the first commercial sale of such product on a country-by-country and product-by-product basis.
In October 2021, the Group amended the Kissei license and supply agreement such that first commercial sales milestones for the European Union and the United States will now be extended over a 5-year period. In addition, North American royalty payments were lowered to the current tiered single digit royalties on net sales plus a supply price for the API.
Merck Serono licenses
Under the terms of the two license agreements with Merck Serono for ebopiprant and nolasiban, the Group would be obligated to pay Merck Serono a high-single digit and a mid-single digit royalty, respectively, of net sales generated by the Group, its affiliates or sub-licensees of any product containing the in-licensed compounds.
22. Related parties transactions
As of December 31, 2021, the Group’s related parties include key management (Board of Directors and Executive Committee) and members of their immediate families. The following transactions were carried out with related parties:
| • | Key management remuneration |
The Board of Directors is composed of 7 members, whereas the Executive Committee is composed of 8 members. The following table sets forth the total remuneration recorded for members of the Board of Directors and Executive Committee:
| | Year ended December 31, | |
in USD ‘000 | | 2021 | | | 2020 | |
Short-term employee benefits (including base and variable cash remuneration) | | | 4,301 | | | | 3,388 | |
Post-employment benefits | | | 42 | | | | 272 | |
Share-based payments | | | 6,326 | | | | 4,038 | |
Total | | | 10,669 | | | | 7,698 | |
| • | Other transactions with related parties |
In September 2020, concurrent with the Company’s underwritten public offering indicated in note 13, the Company’s former Chief Executive Officer, Ernest Loumaye, purchased 516,352 units at an effective price of USD 2.905 per unit, with each unit comprised of one common share and one 15-month purchase warrant to purchase one common share at an exercise price of USD 3.43 per share, in a private placement. The Company received USD 1.5 million in net proceeds from the private placement.
F-30
There were no other significant transactions with related parties during the years presented.
23. Going concern
The Company has incurred recurring losses since inception, including net losses of USD 58.4 million for the year ended December 31, 2021. As of December 31, 2021, the Company had accumulated losses of USD 467.8 million, of which USD 30.6 million were offset with share premium. The Company expects to continue to generate operating losses for the foreseeable future. As of December 31, 2021, the Company had cash and cash equivalents of USD 54.7 million. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. In October 2021, the Company entered into the Securities Purchase Agreement with certain funds and accounts managed by JGB Management, Inc. The Securities Purchase Agreement is structured to provide USD 135 million in borrowing capacity, available in 9 tranches, with the first tranche funded at the initial closing in October 2021 and the second tranche funded in January 2022 in connection with certain amendments to the Securities Purchase Agreement as described in Note 24. The subsequent tranches under the Securities Purchase Agreement will be available subject to the Company meeting certain conditions, including, among others, that the Company’s volume-weighted average price is not below USD 3.00 per share for five or more trading days during the 30 days prior to a tranche funding date (the “Minimum Stock Price”). The availability of future funding under the Securities Purchase Agreement is dependent on whether the Minimum Stock Price condition will be met at future tranche dates. To date, the Company has funded its operations through equity and debt offerings and through payments from licensors. The Company believes that its current cash and cash equivalents are only sufficient to fund its operating expenses into the third quarter of 2022 and this raises substantial doubt about the Company’s ability to continue as a going concern. These factors individually and collectively indicate that a material uncertainty exists that may cast significant doubt about the Company’s ability to continue as a going concern within one year from the date of the issuance of these consolidated financial statements. The future viability of the Company is dependent on its ability to raise additional capital to finance its future operations. The Company has an active ATM program and can potentially raise funds through equity or debt offerings. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares. Issued debt securities may contain covenants and limit the Company’s ability to pay dividends or make other distributions to shareholders. The Company may receive future milestone payments from licensors but that is dependent on achieving certain regulatory or commercial milestones that may never happen. The Company may seek additional funding through public or private financings, debt financing or collaboration agreements. The inability to obtain funding, as and when needed, would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain the required funding to run its operations and to develop and commercialize its product candidates, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. Management continues to explore options to obtain additional funding, including through collaborations with third parties related to the future potential development and/or commercialization of its product candidates. However, there is no assurance that the Company will be successful in raising funds, closing a collaboration agreement, obtaining sufficient funding on terms acceptable to the Company, or if at all, which could have a material adverse effect on the Group’s business, results of operations and financial conditions.
24. Events after the reporting period
Capital increases
In January 2022, the Company announced the issuance of 23,400,000 common shares at par value of 1/13 of a Swiss franc per share. The shares were fully subscribed for by a fully-owned subsidiary of the Company, and listed on the SIX Swiss Exchange accordingly. The shares are held as treasury shares, hence the operation did not impact the Company’s outstanding common shares.
ATM proceeds
From January 1, 2022 until February 28, 2022, the Group sold an additional 2,859,253 treasury shares at an average price of USD 1.61 per share, as part of its ATM program. Total gross proceeds amounted to USD 4.6 million.
Amendment to JGB Note Agreement
F-31
On January 28, 2022, the Company entered into an amendment agreement (the “Amendment Agreement”) with JGB regarding the second tranche of the Note Agreement. The Amendment Agreement adjusted the principal balance payable at maturity for the notes to be issued in the second tranche to USD10.5 million (USD 975,000 of original issue discount) and the conversion price for the notes to be issued in the second tranche to a price of $1.66 per common share, and accelerated the issuance of the second tranche to January 28, 2022. In addition, as adjusted pursuant to the Amendment Agreement, the Company issued a warrant to purchase 1,018,716 common shares of the Company at an exercise price of $1.87 per share. Additionally, JGB waived certain conditions required to be met to fund the second tranche, including that the Company’s volume-weighted average price could not be below USD 3.00 per share for five or more trading days during the 30 days prior to the funding date for the second tranche, in exchange for a payment of USD 1.25 million and the amended terms for the notes and warrants issued in the second tranche. In connection with the Amendment Agreement, the Company received USD 8.275 million from the second tranche, after accounting for expenses and the USD 1.25 million waiver payment to JGB.
Theramex Licensing Agreement
On February 10, 2022, the Company entered into a strategic licensing agreement with Theramex to support the commercialization and market introduction of linzagolix across global markets outside of the U.S., Canada and Asia. Under the terms of the agreement, the Company is entitled to receive royalties of a mid-thirties percentage on commercial sales, which includes the cost of goods sold to Theramex. Furthermore, the agreement contains up to EUR72.75 million in upfront and milestone payments, including EUR5 million obtained upon signing, up to EUR13.75 million in development and commercial milestones and up to EUR54 million in sales-based milestones.
There were no other material events after the balance sheet date.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| |
OBSEVA SA |
|
/s/ Brian O’Callaghan |
By: | Brian O’Callaghan |
Title: | Chief Executive Officer (Principal Executive Officer) |
Date: March 10, 2022
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