Risk
Factors
You
should carefully consider the risks and uncertainties described below and the other information in this prospectus supplement
before making an investment in our common shares. Our business, financial condition or results of operations could be materially
and adversely affected if any of these risks occurs, and as a result, the market price of our common shares could decline and
you could lose all or part of your investment. This prospectus supplement also contains forward-looking statements that involve
risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could
differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.
Risks
Related to Our Business and the Development and Commercialization of Our Product Candidates.
All
of our product candidates are in preclinical or clinical development. Drug development is expensive, time consuming and uncertain,
and we may ultimately not be able to obtain regulatory approvals for the commercialization of some or all of our product candidates.
The
research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive
regulation by the U.S. Food and Drug Administration, or FDA, the European Medicines Agency, or EMA, national competent authorities
in Europe, including the Paul-Ehrlich-Institut, or PEI, and other non-U.S. regulatory authorities, which establish regulations
that differ from country to country. We are not permitted to market our product candidates in the United States or in other countries
until we receive approval of a Biologics License Application, or BLA, from the FDA or marketing approval from applicable regulatory
authorities outside the United States. Our product candidates are in various stages of development and are subject to the risks
of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our
product candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals,
including approval by the FDA or the European Commission. Obtaining approval of a BLA or a Marketing Authorization Application
can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA, EMA and other non-U.S. regulatory
requirements may, either before or after product approval, if any, subject our company to administrative or judicially imposed
sanctions, including:
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restrictions
on our ability to conduct clinical trials, including full or partial clinical holds,
or other regulatory objections to, ongoing or planned trials;
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restrictions
on the products, manufacturers or manufacturing process;
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civil
and criminal penalties;
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suspension
or withdrawal of regulatory approvals;
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product
seizures, detentions or import bans;
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voluntary
or mandatory product recalls and publicity requirements;
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total
or partial suspension of production;
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imposition
of restrictions on operations, including costly new manufacturing requirements;
and
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refusal
to approve pending BLAs or supplements to approved BLAs in the United States and refusal
to approve marketing research approvals in other jurisdictions.
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The
FDA, the EMA and other non-U.S. regulatory authorities also have substantial discretion in the drug approval process. The number
of preclinical studies and clinical trials that will be required for regulatory approval varies depending on the product candidate,
the disease or condition that the product candidate is designed to address,
and
the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a product
candidate for many reasons, including:
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a
product candidate may not be deemed safe or effective;
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the
results may not confirm the positive results from earlier preclinical studies or clinical
trials;
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regulatory
agencies may not find the data from preclinical studies and clinical trials sufficient
or well-controlled;
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regulatory
agencies might not approve or might require changes to our manufacturing processes or
facilities; or
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regulatory
agencies may change their approval policies or adopt new regulations.
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Any
delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from
the particular product candidate, which likely would result in significant harm to our financial position and adversely impact
our share price. Furthermore, any regulatory approval to market a product may be subject to limitations on the indicated uses
for which we may market the product. These limitations may limit the size of the market for the product.
We
have no history of conducting large-scale or pivotal clinical trials or commercializing pharmaceutical products, which may make
it difficult to evaluate the prospects for our future viability.
Our
operations to date have been limited to financing and staffing our company, developing our technology and developing AFM13, AFM11
and our other product candidates. We have not yet demonstrated an ability successfully to complete a large-scale or pivotal clinical
trial, obtain marketing approval, manufacture a commercial scale product or conduct sales and marketing activities necessary for
successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as
they could be if we had a history of successfully developing and commercializing pharmaceutical products.
If
clinical trials for our product candidates are prolonged, delayed or stopped, we may be unable to obtain regulatory approval and
commercialize our product candidates on a timely basis, which would require us to incur additional costs and delay our receipt
of any product revenue.
A
phase 2a clinical trial of AFM13 in patients with Hodgkin Lymphoma, or HL, started recruitment in the second quarter of 2015.
We anticipate receiving final data for this trial in the second half of 2016. In addition we are planning to initiate an additional
phase 1b/2a clinical trial of AFM13 in patients with CD30+ lymphoma at the end of 2015 and a phase 1b trial investigating the
combination of AFM13 with a PD-1 checkpoint inhibitor in the first half of 2016. We have initiated a phase 1 clinical trial of
AFM11 in patients with non-Hodgkin Lymphoma, or NHL, and expect to report top line data by the end of 2016. A phase 1 clinical
trial of AFM11 in patients with acute lymphocytic leukemia, or ALL, is planned to be started in the first half of 2016. The commencement
of these planned clinical trials could be substantially delayed or prevented by several factors, including:
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further
discussions with the FDA, the EMA, the PEI or other regulatory agencies regarding the
scope or design of our clinical trials;
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the
limited number of, and competition for, suitable sites to conduct our clinical trials,
many of which may already be engaged in other clinical trial programs, including some
that may be for the same indication as our product candidates;
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any
delay or failure to obtain regulatory approval or agreement to commence a clinical trial
in any of the countries where enrollment is planned;
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inability
to obtain sufficient funds required for a clinical trial;
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clinical
holds on, or other regulatory objections to, a new or ongoing clinical trial;
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delay
or failure in the testing, validation, manufacture and delivery of sufficient supplies
of the product candidate for our clinical trials;
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delay
or failure to reach agreement on acceptable clinical trial agreement terms or clinical
trial protocols with prospective sites or clinical research organizations, or CROs, the
terms of which can be subject to extensive negotiation and may vary significantly among
different sites or CROs; and
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delay
or failure to obtain institutional review board, or IRB, or ethics committee approval
to conduct a clinical trial at a prospective site.
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The
completion of our clinical trials could also be substantially delayed or prevented by several factors, including:
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slower
than expected rates of patient recruitment and enrollment;
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failure
of patients to complete the clinical trial or return for post-treatment follow-up;
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unforeseen
safety issues, including severe or unexpected drug-related adverse effects experienced
by patients, including possible deaths;
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lack
of efficacy during clinical trials;
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termination
of our clinical trials by one or more clinical trial sites;
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inability
or unwillingness of patients or clinical investigators to follow our clinical trial protocols;
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inability
to monitor patients adequately during or after treatment by us and/or our CROs;
and
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the
need to repeat or terminate clinical trials as a result of inconclusive or negative results
or unforeseen complications in testing.
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Changes
in regulatory requirements and guidance as well as changes in the competitive environment may also occur and we may need to significantly
amend clinical trial protocols or submit new clinical trial protocols to reflect these changes with appropriate regulatory authorities.
Amendments may require us to renegotiate terms with CROs or resubmit clinical trial protocols to IRBs or ethics committees for
re-examination, which may impact the costs, timing or successful completion of a clinical trial. Our clinical trials may be suspended
or terminated at any time by the FDA, the PEI, other regulatory authorities, the IRB or ethics committee overseeing the clinical
trial at issue, any of our clinical trial sites with respect to that site, or us, due to a number of factors, including:
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failure
to conduct the clinical trial in accordance with regulatory requirements or our clinical
protocols;
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unforeseen
safety issues or any determination that a clinical trial presents unacceptable health
risks;
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lack
of adequate funding to continue the clinical trial due to unforeseen costs or other business
decisions; and
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upon
a breach or pursuant to the terms of any agreement with, or for any other reason by,
current or future collaborators that have responsibility for the clinical development
of any of our product candidates.
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Any
failure or significant delay in completing clinical trials for our product candidates would adversely affect our ability to obtain
regulatory approval and our commercial prospects and ability to generate product revenue will be diminished.
The
results of previous clinical trials may not be predictive of future results, our progress in trials for one product candidate
may not be indicative of progress in trials for other product candidates and the results of our current and planned clinical trials
may not satisfy the requirements of the FDA, the EMA or other non-U.S. regulatory authorities.
We
currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. Clinical failure
can occur at any stage of clinical development. Clinical trials may produce negative or inconclusive results, and we or any of
our current and future collaborators may decide, or regulators may require us, to conduct additional clinical or preclinical testing.
We will be required to demonstrate with substantial evidence through well-controlled clinical trials that our product candidates
are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success
in early clinical trials does not mean that future larger registration clinical trials will be successful because product candidates
in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and non-U.S.
regulatory authorities despite having progressed through initial clinical trials. Product candidates that have shown promising
results in early clinical trials may still suffer significant setbacks in subsequent registration clinical trials. Similarly,
the outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and
interim results of a clinical trial do not necessarily predict final results. Progress in trials of one product candidate does
not indicate that we will make similar progress in additional trials for that product candidate or in trials for our other product
candidates. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us,
have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials.
In
addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the
design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to design and execute
a clinical trial to support regulatory approval.
In
some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations,
adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not
know whether any phase 2, phase 3 or other clinical trials we or any of our collaborators may conduct will demonstrate consistent
or adequate efficacy and safety to obtain regulatory approval to market our product candidates.
Further,
our product candidates may not be approved even if they achieve their primary endpoints in phase 3 clinical trials or registration
trials. The FDA, the EMA or other non-U.S. regulatory authorities may disagree with our trial design and our interpretation of
data from preclinical studies and clinical trials. For example, the FDA has communicated to us that it may require us to conduct
an additional dose-response trial with respect to AFM13 prior to the entry into pivotal studies, depending on data we have generated
with AFM13 at that point in time. In addition, any of these regulatory authorities may change requirements for the approval of
a product candidate even after reviewing and providing comments or advice on a protocol for a clinical trial. In addition, any
of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or
may grant approval contingent on the performance of costly post-marketing clinical trials. The FDA, the EMA or other non-U.S.
regulatory authorities may not accept the labeling claims that we believe would be necessary or desirable for the successful commercialization
of our product candidates.
We
use new technologies in the development of our product candidates and the FDA and other regulatory authorities have not approved
products that utilize these technologies.
Our
product candidates in development are based on new technologies, such as NK-cell TandAbs, T-cell TandAbs and Trispecific Abs.
The approval of our product candidates is less certain than approval of drugs that do not employ such novel technologies or methods
of action. We intend to work closely with the FDA, the EMA and other regulatory authorities to perform the requisite scientific
analyses and evaluation of our methods to obtain regulatory approval for our product candidates. For example, final assays and
specifications of our product candidates, in particular regarding cytotoxicity, have yet to be developed, and the FDA, EMA or
other regulatory authorities may require additional analyses to evaluate this aspect of our product quality. It is possible that
the validation process may take time and resources, require independent third-party analyses or not be accepted by the FDA, the
EMA and other regulatory authorities. Delays or failure to obtain regulatory approval of any of the product candidates that we
are developing would adversely affect our business.
Even
if our product candidates obtain regulatory approval, they will be subject to continual regulatory review.
If
marketing authorization is obtained for any of our product candidates, the product will remain subject to continual review and
therefore authorization could be subsequently withdrawn or restricted. We will be subject to ongoing obligations and oversight
by regulatory authorities, including adverse event reporting requirements, marketing restrictions and, potentially, other post-marketing
obligations, all of which may result in significant expense and limit our ability to commercialize such products.
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 may be impaired, and we may incur
substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial
condition and results of operations.
We
may not be successful in our efforts to use and expand our technology platforms to build a pipeline of product candidates.
A
key element of our strategy is to use and expand our technology platforms to build a pipeline of product candidates and progress
these product candidates through clinical development for the treatment of a variety of different types of diseases. Although
our research and development efforts to date have resulted in a pipeline of product candidates directed at various cancers, we
may not be able to develop product candidates that are safe and effective. Even if we are successful in continuing to build our
pipeline, the potential product candidates that we identify 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 products that
will receive marketing approval and achieve market acceptance. If we do not continue to successfully develop and begin to commercialize
product candidates, we will face difficulty in obtaining product revenues in future periods, which could result in significant
harm to our financial position and adversely affect our share price.
For
our planned combination trial of AFM13 with a PD-1 CPI we must obtain a sufficient supply of the PD-1 CPI. The collaboration with
the manufacturer of the respective drug bears certain risks and could substantially increase costs and/or cause delays in the
conduct of the trial and potentially affect our ability to obtain regulatory approval.
For
our planned combination trial of AFM13 in combination with a PD-1 CPI we must obtain a sufficient supply of the CPI to conduct
the trial. We expect to do this through a collaboration with the manufacturer of the respective drug. We may not reach an agreement
with the manufacturer, in which case we would not be able to conduct such a trial. If we do reach an agreement with the manufacturer,
we may not be able to be the sponsor of the trial or may only have the role of co-sponsor. In both cases we may not have full
control over the trial, which could increase the duration and cost of the trial as well as affect our ability to obtain regulatory
approval of AFM13 in combination with a CPI.
Even
if we obtain marketing approval of any of our product candidates in a major pharmaceutical market such as the United States or
Europe, we may never obtain approval or commercialize our products in other major markets, which would limit our ability to realize
their full market potential.
In
order to market any products in a country or territory, we must establish and comply with numerous and varying regulatory requirements
of such countries or territories regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by
regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will
be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation
and additional administrative review periods. Seeking regulatory approvals in all major markets could result in significant delays,
difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time
consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our
products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain
and
subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative
effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in
any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international
markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals,
our target market will be reduced and our ability to realize the full market potential of our products will be harmed.
In
the United States, we may seek fast track or breakthrough designation of AFM13 and/or AFM11 and/or our other product candidates.
There is no assurance that the FDA will grant either such designation; and, even if it does grant either such designation
to AFM13 or AFM11 or one of our other product candidates, such designation may not actually lead to a faster development or regulatory
review or approval process and does not increase the likelihood that our product candidates will receive marketing approval in
the United States.
We
may seek fast track or breakthrough designation of AFM13 and/or AFM11 and/or our other product candidates. The fast track program,
a provision of the FDA Modernization Act of 1997, is designed to facilitate interactions between a sponsoring company and the
FDA before and during submission of a BLA for an investigational agent that, alone or in combination with one or more other drugs,
is intended to treat a serious or life-threatening disease or condition, and which demonstrates the potential to address an unmet
medical need for that disease or condition. Under the fast track program, the FDA may consider reviewing portions of a marketing
application before the sponsor submits the complete application if the FDA determines, after a preliminary evaluation of the clinical
data, that a fast track product may be effective. A fast track designation provides the opportunity for more frequent interactions
with the FDA, and a fast track product could be eligible for priority review if supported by clinical data at the time of submission
of the BLA.
The
FDA is authorized to designate a product candidate as a breakthrough therapy if it finds that the product is intended, alone or
in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical
evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically
significant endpoints, such as substantial treatment effects observed early in clinical development. For products designated as
breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most
efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Products
designated as breakthrough therapies by the FDA are also eligible for accelerated approval.
The
FDA has broad discretion whether or not to grant fast track or breakthrough designation. Accordingly, even if we believe one of
our product candidates meets the criteria for fast track or breakthrough designation, the FDA may disagree and instead determine
not to make such designation. In any event, the receipt of fast-track or breakthrough therapy designation for a product candidate
may not result in a faster development process, review or approval compared to product candidates considered for approval under
conventional FDA procedures and, in any event, does not assure ultimate approval by the FDA. In addition, even if one or more
of our product candidates qualify as fast track or breakthrough therapies, the FDA may later decide that the product candidates
no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
We
may be unable to obtain orphan product designation or exclusivity for some of our product candidates. If our competitors are able
to obtain orphan product exclusivity for their products in the same indications for which we are developing our product candidates,
we may not be able to have our products approved by the applicable regulatory authority for a significant period of time. Conversely,
if we obtain orphan drug exclusivity for some of our product candidates, we may not be able to benefit from the associated marketing
exclusivity.
Regulatory
authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations
as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is a drug intended
to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually
in the United States. In the European Union, or the EU, the European Commission may designate a product candidate as an orphan
medicinal product if it is a medicine for the diagnosis, prevention or treatment of life-threatening or very serious conditions
that affects not more than five in 10,000 persons in the European Union, or it is unlikely that marketing of the medicine would
generate sufficient returns to justify the investment needed for its development. We have received orphan drug designation for
AFM13 for the treatment of HL in the United States and Europe, but orphan drug status may not ensure that we
have
market exclusivity in a particular market and there is no assurance we will be able to receive orphan drug designation for AFM11
or any additional product candidates. Further, the granting of a request for orphan drug designation does not alter the standard
regulatory requirements and process for obtaining marketing approval.
Generally,
if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has
such designation, the product is entitled to a period of marketing exclusivity, which, subject to certain exceptions, precludes
the FDA from approving the marketing application of another drug for the same indication for that time period or precludes the
EMA, and other national drug regulators in the EU, from accepting the marketing application for another medicinal product for
the same indication. The applicable period is seven years in the United States and ten years in the European Union. The EU period
can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently
profitable so that market exclusivity is no longer justified. In the EU, orphan exclusivity may also be extended for an additional
two years (i.e., a maximum of 12 years’ orphan exclusivity) if the product is approved on the basis of a dossier that includes
pediatric clinical trial data generated in accordance with an approved paediatric investigation plan. Orphan drug exclusivity
may be lost in the United States if the FDA determines that the request for designation was materially defective or if the manufacturer
is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even
if we obtain orphan drug exclusivity for one or more of our products that exclusivity may not effectively protect the product
from competition because exclusivity can be suspended under certain circumstances. In the United States, even after an orphan
drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that the later drug
is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the European
Union, orphan exclusivity will not prevent a marketing authorization being granted for a similar medicinal product in the same
indication if the new product is safer, more effective or otherwise clinically superior to the first product or if the marketing
authorization holder of the first product is unable to supply sufficient quantities of the product.
Our
product candidates may have serious adverse, undesirable or unacceptable side effects which may delay or prevent marketing approval.
If such side effects are identified during the development of our product candidates or following approval, if any, we may need
to abandon our development of such product candidates, the commercial profile of any approved label may be limited, or we may
be subject to other significant negative consequences following marketing approval, if any.
Although
all of our product candidates have undergone or will undergo safety testing to the extent possible and agreed with health authorities,
not all adverse effects of drugs can be predicted or anticipated. Immunotherapy and its method of action of harnessing the body’s
immune system, especially with respect to T-cell TandAbs, is powerful and could lead to serious side effects that we only discover
in clinical trials. Unforeseen side effects from any of our product candidates could arise either during clinical development
or, if such side effects are more rare, after our product candidates have been approved by regulatory authorities and the approved
product has been marketed, resulting in the exposure of additional patients. All of our product candidates are still in clinical
or preclinical development. While our phase 1 clinical trials for AFM13 demonstrated a favorable safety profile, the results from
future trials of AFM13 may not confirm these results. We have recently commenced our phase 1 clinical trial of AFM11, the primary
objective of which is to assess safety. The harnessing of T-cells to kill tumors is risky and may have unintended consequences.
So far we have not previously demonstrated that AFM11 is safe in humans, and we cannot predict if the ongoing phase 1 clinical
trial will do so.
Furthermore,
we are initially developing our product candidates for patients with HL, TCL and NHL for whom no other therapies have succeeded
and survival times are frequently short. Therefore, we expect that certain patients may die during the clinical trials of our
product candidates, and it may be difficult to ascertain whether such deaths are attributable to the underlying disease, complications
from the disease, our product candidates or a combination thereof.
The
results of future clinical trials may show that our product candidates cause undesirable or unacceptable side effects, which could
interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA, the European
Commission and other regulatory authorities, or result in marketing approval from the FDA, the European Commission and other regulatory
authorities with restrictive label warnings or potential product liability claims.
If
any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects
caused by such products:
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regulatory
authorities may require us to take our approved product off the market;
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication
or field alerts to physicians and pharmacies;
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we
may be required to change the way the product is administered, conduct additional clinical
trials or change the labeling of the product;
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we
may be subject to limitations on how we may promote the product;
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sales
of the product may decrease significantly;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could prevent us, our collaborators or our potential future partners from achieving or maintaining market acceptance
of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent
us from generating significant revenue from the sale of our products.
Adverse
events in the field of immuno-oncology could damage public perception of our product candidates and negatively affect our business.
The
commercial success of our products will depend in part on public acceptance of the use of cancer immunotherapies. Adverse events
in clinical trials of our product candidates or in clinical trials of others developing similar products and the resulting publicity,
as well as any other adverse events in the field of immuno-oncology that may occur in the future, could result in a decrease in
demand for any products that we may develop. For example, Memorial Sloan Kettering’s recent suspension of enrollment of
a trial of Juno Therapeutic’s therapy using T-cells reengineered with chimeric antigen receptors (CARs) against CD19-positive
B-cells for aggressive NHL attracted significant negative attention (although the hold was subsequently lifted). Although the
mode of action of our T-cell TandAbs differs from that of CARs, the public may not always differentiate between our therapies
and others in the field. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, our products
may not be accepted by the general public or the medical community.
Future
adverse events in immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter
labeling requirements and potential regulatory delays in the testing or approvals of our products. Any increased scrutiny could
delay or increase the costs of obtaining regulatory approval for our product candidates.
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 materially adversely affected.
Successful
and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates. Trials may be
subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal. Patient enrollment depends
on many factors, including the size and nature of the patient population, eligibility criteria for the trial, the proximity of
patients to clinical sites, the design of the clinical protocol, the availability of competing clinical trials, the availability
of new drugs approved for the indication the clinical trial is investigating, and clinicians’ and patients’ perceptions
as to the potential advantages of the drug being studied in relation to other available therapies. For example, our product candidate
AFM13 has orphan drug designation for the treatment of HL, which means that the potential patient population is limited. Further,
in our phase 2a clinical trial of AFM13 we plan to enroll patients with relapsed/refractory HL who have been treated with Adcetris
(brentuximab vedotin), which is an even more limited population of patients. As we are developing AFM13 and AFM11 for patients
for whom all other therapies have failed and who may not have long to live, patients may elect not to participate in our, or any,
clinical trial. In addition, there are several other drugs potentially in development for the indications for which we may develop
AFM13 and AFM11, and we may compete for patients with the sponsors of trials for those drugs. These factors may make it difficult
for us to enroll enough patients to complete our clinical
trials
in a timely and cost-effective manner. 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, some 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.
Even
if approved, if any of our product candidates do not achieve broad market acceptance among physicians, patients, the medical community
and third-party payors, our revenue generated from their sales will be limited.
The
commercial success of our product candidates will depend upon their acceptance among physicians, patients and the medical community.
The degree of market acceptance of our product candidates will depend on a number of factors, including:
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limitations
or warnings contained in the approved labeling for a product candidate;
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changes
in the standard of care for the targeted indications for any of our product candidates;
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limitations
in the approved clinical indications for our product candidates;
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demonstrated
clinical safety and efficacy compared to other products;
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lack
of significant adverse side effects;
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sales,
marketing and distribution support;
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availability
and extent of reimbursement from managed care plans and other third-party payors;
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timing
of market introduction and perceived effectiveness of competitive products;
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the
degree of cost-effectiveness of our product candidates;
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availability
of alternative therapies at similar or lower cost, including generic and over-the-counter
products;
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the
extent to which the product candidate is approved for inclusion on formularies of hospitals
and managed care organizations;
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whether
the product is designated under physician treatment guidelines as a first-line therapy
or as a second- or third-line therapy for particular diseases;
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adverse
publicity about our product candidates or favorable publicity about competitive products;
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convenience
and ease of administration of our products; and
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potential
product liability claims.
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If
any of our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients and the
medical community, we may not generate sufficient revenue from these products, and we may not become or remain profitable. In
addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require
significant resources and may never be successful.
We
are subject to manufacturing risks that could substantially increase our costs and limit supply of our products.
The
process of manufacturing our products is complex, highly regulated and subject to several risks, including:
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We
do not have experience in manufacturing our product candidates at commercial scale. We
plan to contract with external manufacturers to develop a larger scale process for manufacturing
AFM13 in parallel with our clinical trials of AFM13, in order to have material from such
commercial scale process available
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for a potential pivotal phase 2b trial for patients
with HL. We may not succeed in the scaling up of our process. We may need a larger scale
manufacturing process for AFM11 than what we have planned, depending on the dose and
regimen that will be determined in our phase 1 study. Any changes in our manufacturing
processes as a result of scaling up may result in the need to obtain additional regulatory
approvals. Difficulties in achieving commercial-scale production or the need for additional
regulatory approvals as a result of scaling up could delay the development and regulatory
approval of our product candidates and ultimately affect our success.
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The
process of manufacturing biologics, such as AFM13, AFM11 and our other product candidates,
is extremely susceptible to product loss due to contamination, equipment failure or improper
installation or operation of equipment, vendor or operator error, inconsistency in yields,
variability in product characteristics and difficulties in scaling the production process.
Even minor deviations from normal manufacturing processes could result in reduced production
yields, product defects and other supply disruptions. If microbial, viral or other contaminations
are discovered in our product candidates or in the manufacturing facilities in which
our product candidates are made, such manufacturing facilities may need to be closed
for an extended period of time to investigate and remedy the contamination.
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The
manufacturing facilities in which our product candidates are made could be adversely
affected by equipment failures, labor shortages, natural disasters, power failures and
numerous other factors.
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We
must comply with applicable current Good Manufacturing Practice, or cGMP, regulations
and guidelines. We may encounter difficulties in achieving quality control and quality
assurance and may experience shortages in qualified personnel. We are subject to inspections
by the FDA and comparable agencies in other jurisdictions to confirm compliance with
applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements
or delay, interruption or other issues that arise in the manufacture, fill-finish, packaging,
or storage of our product candidates as a result of a failure of our facilities or the
facilities or operations of third parties to comply with regulatory requirements or pass
any regulatory authority inspection could significantly impair our ability to develop
and commercialize our product candidates, including leading to significant delays in
the availability of drug product for our clinical trials or the termination or hold on
a clinical trial, or the delay or prevention of a filing or approval of marketing applications
for our product candidates. Significant noncompliance could also result in the imposition
of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities
to grant marketing approvals for our product candidates, delays, suspension or withdrawal
of approvals, license revocation, seizures or recalls of products, operating restrictions
and criminal prosecutions, any of which could damage our reputation. If we are not able
to maintain regulatory compliance, we may not be permitted to market our product candidates
and/or may be subject to product recalls, seizures, injunctions, or criminal prosecution.
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Any
adverse developments affecting manufacturing operations for our product candidates, if
any are approved, may result in shipment delays, inventory shortages, lot failures, product
withdrawals or recalls, or other interruptions in the supply of our products. We may
also have to take inventory write-offs and incur other charges and expenses for products
that fail to meet specifications, undertake costly remediation efforts or seek more costly
manufacturing alternatives.
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Our
product candidates that have been produced and are stored for later use may degrade,
become contaminated or suffer other quality defects, which may cause the affected product
candidates to no longer be suitable for their intended use in clinical trials or other
development activities. If the defective product candidates cannot be replaced in a timely
fashion, we may incur significant delays in our development programs that could adversely
affect the value of such product candidates.
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We
currently have no marketing, sales or distribution infrastructure. 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 and/or reimbursement we will not
be successful in commercializing our product candidates.
We
currently have no marketing, sales and distribution capabilities because our lead product candidates are still in clinical development.
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 this function to a
third party. Either of these options would be expensive and
time
consuming. 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 the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization
of our products.
To
the extent that we enter into collaboration agreements with respect to marketing, sales or distribution, our product revenue may
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 these arrangements on acceptable terms or at all, 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
may not be able to achieve the prices for our products that we may need for sustained profitability. If we successfully develop
combinations of our product candidates with other potentially expensive agents, the market may not allow for premium pricing of
our products and hence may impair our ability to achieve profitability.
We
face significant competition and if our competitors develop and market products that are more effective, safer or less expensive
than our product candidates, our commercial opportunities will be negatively impacted.
The
life sciences industry is highly competitive and subject to rapid and significant technological change. We are currently developing
therapeutics that will compete with other drugs and therapies that currently exist or are being developed. Products we may develop
in the future are also likely to face competition from other drugs and therapies, some of which we may not currently be aware.
We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, established
biotechnology companies, specialty pharmaceutical companies, universities and other research institutions. Many of our competitors
have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large
pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting
patients and in manufacturing pharmaceutical products. These companies also have significantly greater research and marketing
capabilities than we do and may also have products that have been approved or are in late stages of development, and collaborative
arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may
also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make
the product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining
patent protection and/or marketing approval or discovering, developing and commercializing products in our field before we do.
There
is a large number of companies developing or marketing treatments for cancer disorders, including many major pharmaceutical and
biotechnology companies. These treatments consist both of small molecule drug products, as well as biologic therapeutics that
work, among others, either by using next-generation antibody technology platforms or new immunological approaches to address specific
cancer targets. These treatments are often combined with one another in an attempt to maximize the response rate. In addition,
several companies are developing therapeutics that work by targeting multiple specificities using a single recombinant molecule,
as we are.
In
the HL salvage setting, Adcetris is an antibody-drug conjugate approved by the FDA in 2011 that targets CD30, the same target
as AFM13. If and when AFM13 were to be approved for patients refractory to Adcetris, we would not compete directly with Adcetris.
However, as we develop AFM13 for earlier-line therapies, for example in combination with other therapies as a second- or even
first-line treatment, we would compete with Adcetris, which is in development for such indications. Recently, clinical phase 1
data with the anti PD-1 CPIs nivolumab and pembrolizumab was published in the New England Journal of Medicine and at several congresses.
This early data indicates the potential of anti PD-1 antibodies to cause high response rates in the salvage setting of HL. The
FDA has granted breakthrough designation for nivolumab in relapsed/refractory HL. Phase 2 studies are reported to be ongoing with
nivolumab and in preparation for pembrolizumab. Further, we would be in competition with other therapies or combination regimens
that currently comprise the standard of care that AFM13 could potentially displace. Other agents that have reached phase 2 clinical
trials in HL include 4SC201 (4SC AG), Afinitor
®
(Novartis AG), idelalisib (Gilead Sciences), ferritarg (MABLife),
iratumumab (Bristol-Myers Squibb) and PLX 3397 (Daiichi Sankyo).
With
respect to competitors for AFM11, rituximab has been approved to treat certain types of NHL in both the United States and Europe
and is generally combined with a chemotherapy regimen (typically CHOP or bendamustine). Imbruvica, a small molecule drug targeting
malignant B-cells, was recently approved by the FDA to treat the mantle cell variant of NHL (MCL). Amgen develops cancer product
candidates that work by targeting receptors both on immune cells and cancer cells, like our TandAbs. Amgen’s blinatumomab,
a product based on the BiTE (bispecific T-cell engager) technology, is an antibody construct similar to AFM11 and was recently
approved by the FDA to treat patients with Philadelphia chromosome-negative precursor B-cell acute lymphoblastic leukemia (B-cell
ALL). Similar to Amgen’s blinatumomab is MacroGenics’ MGD011, a CD19xCD3 DART which is still in preclinical development.
In December 2014, Macrogenics entered a global partnership with Janssen Biotech on this development candidate. Juno Therapeutic,
Novartis, Bellicum and Kite Pharma are developing therapies using T-cells reengineered with chimeric antigen receptors (CARs)
against CD19-positive B-cells. This therapeutic approach, which utilizes a patient’s own T-cells after ex-vivo genetic modification,
is currently being investigated in early stage clinical trials. Although only early stage data are available, CAR treatments seem
to result in high response rates.
We
expect that our TandAb and trispecific antibody platforms will serve as the basis for future product candidates and collaborations
with pharmaceutical companies. Other companies also have developed platform technologies that compete with us. For example, Macrogenics
is developing its DART platform, which enables the targeting of multiple receptors or cells by using a single molecule with an
antibody-like structure. Ablynx is also developing such a platform aimed at multi-receptor targeting, which to date has not reached
clinical testing.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more
effective, have fewer or less severe effects, are more convenient, have a broader label, are marketed more effectively, are reimbursed
or are less expensive than any products that we may develop. Our competitors also may obtain FDA, European Commission or other
regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter the market. Even if our product candidates achieve marketing
approval, they may be priced at a significant premium over competitive products if any have been approved by then, resulting in
reduced competitiveness.
In
addition, our ability to compete in the future may be affected in many cases by insurers or other third-party payors seeking to
encourage the use of biosimilar products. In March 2010, President Obama signed into law the Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Health Care Reform Law, a sweeping
law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against
fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees
on the health industry and impose additional health policy reforms. The Health Care Reform Law also created a new regulatory scheme
authorizing the FDA to approve biosimilars. Under the Health Care Reform Law, a manufacturer may submit an application for licensure
of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological
product or “reference product,” without the need to submit a full package of preclinical and clinical data. Under
this new statutory scheme, an application for a biosimilar product may not be submitted to the FDA until four years following
approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference
product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could
market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own
preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their
product. Furthermore, recent legislation has proposed that the 12 year exclusivity period for each a reference product may be
reduced to seven years.
Smaller
and other 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. In addition, the biopharmaceutical industry is characterized by
rapid technological change. If we fail to stay at the forefront of technological change, we may be unable to compete effectively.
Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less
competitive or not economical.
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. The successful commercialization of our product candidates will depend in part
on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing
policies.
In
the United States, the European Union, its member states and some other foreign jurisdictions, there have been a number of legislative
and regulatory changes and proposed changes regarding the healthcare system. These changes could prevent or delay marketing approval
of our product candidates, restrict or regulate post-approval activities and affect our ability to sell profitably any products
for which we obtain marketing approval. Among policy makers and payors in the United States and elsewhere, there is significant
interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or
expanding access to healthcare.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act,
changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases
by the elderly and introduced a new reimbursement methodology based on average sale prices for physician-administered drugs. In
addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class.
Cost-reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for
any approved products. If we successfully develop combinations of our product candidates with other potentially expensive agents,
we may not achieve premium pricing for our products, which may impair our ability to achieve profitability. While the Medicare
Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from
the Medicare Modernization Act may result in a similar reduction in payments from private payors.
In
addition, the Health Care Reform Law, among other things, increased rebates a manufacturer must pay to the Medicaid program, addressed
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, established a new Medicare Part D coverage gap discount program, in which
manufacturers must provide 50% point-of-sale discounts on products covered under Part D and implemented payment system reforms
including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination,
quality and efficiency of certain healthcare services through bundled payment models. Further, the new law imposed a significant
annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance
were enacted, which may affect our business practices with health care practitioners. The goal of the Health Care Reform Law is
to reduce the cost of health care and substantially change the way health care is financed by both governmental and private insurers.
While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business
specifically, the Health Care Reform Law may result in downward pressure on pharmaceutical reimbursement, which could negatively
affect market acceptance of, and the price we may charge for, any products we develop that receive regulatory approval. We also
cannot predict the impact of the Health Care Reform Law on our business or financial condition as many of the Health Care Reform
Law reforms require the promulgation of detailed regulations implementing the statutory provisions, which has not yet occurred.
Moreover,
other legislative changes have also been proposed and adopted in the United States since the Health Care Reform Law 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 to Medicare payments to providers of 2% per fiscal year, which
went into effect on April 1, 2013. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012,
or the ATRA, which, among other things, further reduced Medicare payments to several 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. These new laws may result in additional reductions in Medicare and other health care funding, which
could have a material adverse effect on our customers and accordingly, our financial operations.
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 EU, 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
EU 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.
If
any product liability lawsuits are successfully brought against us or any of our collaborators, we may incur substantial liabilities
and may be required to limit commercialization of our product candidates.
We
face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients,
and will face an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product
liability claims may be brought against us or our collaborators by participants enrolled in our clinical trials, patients, health
care providers or others using, administering or selling any of our future approved products. If we cannot successfully defend
ourselves against any such claims, we may incur substantial liabilities. Regardless of their merit or eventual outcome, liability
claims may result in:
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decreased
demand for our future approved products;
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injury
to our reputation;
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withdrawal
of clinical trial participants;
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termination
of clinical trial sites or entire trial programs;
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increased
regulatory scrutiny;
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significant
litigation costs;
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substantial
monetary awards to or costly settlement with patients or other claimants;
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product
recalls or a change in the indications for which they may be used;
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diversion
of management and scientific resources from our business operations; and
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the
inability to commercialize our product candidates.
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If
any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and
the safety and quality of our products. We could be adversely affected if we are subject to negative publicity. We could also
be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted
to be, harmful to patients. Because of our dependence upon consumer perceptions, any adverse publicity associated with illness
or other adverse effects resulting from patients’ use or misuse of our products or any similar products distributed by other
companies could have a material adverse impact on our financial condition or results of operations.
We
currently hold €10 million in product liability insurance coverage per year in the aggregate, with a per incident limit of
€5 million except for environmental liability risks, for which the per incident limit is €3 million. We also hold €5
million in clinical trial insurance for the AFM11 phase 1 clinical trial with a per incident limit of €0.5 million. Our current
insurance coverage may not be adequate to cover all liabilities that we may incur. We may need to increase our insurance coverage
when we begin the commercialization of our product candidates. Insurance coverage is becoming increasingly expensive. As a result,
we may be unable to maintain or obtain sufficient insurance at a reasonable cost to protect us against losses that could have
a material adverse effect on our business. A successful product liability claim or series of claims brought against us, particularly
if judgments exceed any
insurance
coverage we may have, could decrease our cash resources and adversely affect our business, financial condition and results of
operation.
Our
business may become subject to economic, political, regulatory and other risks associated with international operations.
Our
business is subject to risks associated with conducting business internationally. A number of our suppliers and collaborative
and clinical trial relationships are located outside the United States. Accordingly, our future results could be harmed by a variety
of factors, including:
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economic
weakness, including inflation, or political instability in particular non-U.S. economies
and markets;
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differing
regulatory requirements for drug approvals in non-U.S. countries;
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potentially
reduced protection for intellectual property rights;
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difficulties
in compliance with non-U.S. laws and regulations;
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changes
in non-U.S. regulations and customs, tariffs and trade barriers;
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changes
in non-U.S. currency exchange rates and currency controls;
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changes
in a specific country’s or region’s political or economic environment;
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trade
protection measures, import or export licensing requirements or other restrictive actions
by U.S. or non-U.S. governments;
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negative
consequences from changes in tax laws;
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compliance
with tax, employment, immigration and labor laws for employees living or traveling abroad;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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difficulties
associated with staffing and managing international operations, including differing labor
relations;
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production
shortages resulting from any events affecting raw material supply or manufacturing capabilities
abroad; and
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business
interruptions resulting from geo-political actions, including war and terrorism, or natural
disasters including earthquakes, typhoons, floods and fires.
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Exchange
rate fluctuations or abandonment of the euro currency may materially affect our results of operations and financial condition.
Potential
future revenue may be derived from abroad, particularly from the United States. As a result, our business and share price may
be affected by fluctuations in foreign exchange rates between the euro and these other currencies, which may also have a significant
impact on our reported results of operations and cash flows from period to period. We have converted into euros only the portion
of the IPO proceeds and the proceeds from our follow-on offering in May 2015 that will be spent in euros according to our budget.
If the euro/US$ ratio changes, we may be subject to foreign exchange-rate risk. Currently, we do not have any other exchange rate
hedging measures in place. In addition, the possible abandonment of the euro by one or more members of the European Union could
materially affect our business in the future. Despite measures taken by the European Union to provide funding to certain EU member
states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens,
it is possible that the euro could be abandoned in the future as a currency by countries that have adopted its use. This could
lead to the re-introduction of individual currencies in one or more EU member states, or in more extreme circumstances, the dissolution
of the European Union. The effects on our business of a potential dissolution of the European Union, the exit of one or more EU
member states from the
European
Union or the abandonment of the euro as a currency, are impossible to predict with certainty, and any such events could have a
material adverse effect on our business, financial condition and results of operations.
Risks
Related to Our Financial Position and Need for Additional Capital
We
have incurred significant losses since inception and anticipate that we will continue to incur losses for the foreseeable future.
We have no products approved for commercial sale, and to date we have not generated any revenue or profit from product sales.
We may never achieve or sustain profitability.
We
are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred significant losses since our
inception. As of June 30, 2015, our accumulated deficit was €106.7 million. Our losses have resulted principally from expenses
incurred in research and development of our product candidates and from general and administrative expenses that we have incurred
while building our business infrastructure. We expect to continue to incur losses for the foreseeable future, and we expect these
losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates,
prepare for and begin to commercialize any approved products, and add infrastructure and personnel to support our product development
efforts and operations as a public company. The net losses and negative cash flows incurred to date, together with expected future
losses, have had, and likely will continue to have, an adverse effect on our shareholders’ equity and working capital. The
amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue.
Because
of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. For example, our expenses
could increase if we are required by the FDA or the EMA to perform trials in addition to those that we currently expect to perform,
or if there are any delays in completing our currently planned clinical trials or in the development of any of our product candidates.
To
become and remain profitable, we must succeed in developing and commercializing products with significant market potential. This
will require us to be successful in a range of challenging activities for which we are only in the preliminary stages, including
developing product candidates, obtaining regulatory approval for them, and manufacturing, marketing and selling those products
for which we may obtain regulatory approval. We may never succeed in these activities and may never generate revenue from product
sales that is significant enough to achieve profitability. Our ability to generate future revenue from product sales depends heavily
on our success in many areas, including but not limited to:
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completing
research and clinical development of our product candidates, including successfully completing
registration clinical trials of AFM13 or AFM11;
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obtaining
marketing approvals for our product candidates, including AFM13 or AFM11, for which we
complete clinical trials;
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developing
a sustainable and scalable manufacturing process for any approved product candidates
and maintaining supply and manufacturing relationships with third parties that can conduct
the process and provide adequate (in amount and quality) products to support clinical
development and the market demand for our product candidates, if approved;
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launching
and commercializing product candidates for which we obtain marketing approval, either
directly or with a collaborator or distributor;
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establishing
sales, marketing, and distribution capabilities in the United States;
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obtaining
market acceptance of our product candidates as viable treatment options;
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addressing
any competing technological and market developments;
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identifying,
assessing, acquiring and/or developing new product candidates;
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negotiating
favorable terms in any collaboration, licensing, or other arrangements into which we
may enter;
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maintaining,
protecting, and expanding our portfolio of intellectual property rights, including patents,
trade secrets, and know-how; and
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attracting,
hiring and retaining qualified personnel.
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Even
if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant
costs associated with commercializing any approved product candidate. Because of the numerous risks and uncertainties with pharmaceutical
product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be
able to achieve profitability. Even if we achieve profitability in the future, we may not be able to sustain profitability in
subsequent periods. Our failure to become or remain profitable would depress our market value and could impair our ability to
raise capital, expand our business, develop other product candidates, or continue our operations. A decline in the value of our
company could also cause you to lose all or part of your investment.
We
will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available,
may require us to delay, scale back, or cease our product development programs or operations.
We
are advancing our product candidates through clinical development. Developing pharmaceutical products, including conducting preclinical
studies and clinical trials, is expensive. In order to obtain such regulatory approval, we will be required to conduct clinical
trials for each indication for each of our product candidates. We will require additional funding to complete the development
and commercialization of our product candidates and to continue to advance the development of our other product candidates, and
such funding may not be available on acceptable terms or at all. Although it is difficult to predict our liquidity requirements,
based upon our current operating plan, we anticipate that our existing cash and cash equivalents and additional budgeted revenues
will enable us to fund the clinical development of AFM13, AFM11 and AFM21 for at least until the third quarter of 2017, assuming
all of our programs advance as currently contemplated. Any net proceeds from this offering would extend our financial reach, assuming
that the plans for our clinical and preclinical activities remain unchanged. Because successful development of our product candidates
is uncertain, we are unable to estimate the actual funds we will require to complete research and development and to commercialize
our product candidates.
Our
future funding requirements will depend on many factors, including but not limited to:
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the
number and characteristics of other product candidates that we pursue;
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the
scope, progress, timing, cost and results of research, preclinical development, and clinical
trials;
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the
costs, timing and outcome of seeking and obtaining FDA and non-U.S. regulatory approvals;
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the
costs associated with manufacturing our product candidates and establishing sales, marketing,
and distribution capabilities;
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our
ability to maintain, expand, and defend the scope of our intellectual property portfolio,
including the amount and timing of any payments we may be required to make in connection
with the licensing, filing, defense and enforcement of any patents or other intellectual
property rights;
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the
extent to which we acquire or in-license other products or technologies;
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our
need and ability to hire additional management, scientific, and medical personnel;
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the
effect of competing products that may limit market penetration of our product candidates;
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the
amount and timing of revenues, if any, we receive from commercial sales of any product
candidates for which we receive marketing approval in the future;
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our
need to implement additional internal systems and infrastructure, including financial
and reporting systems; and
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the
economic and other terms, timing of and success of our existing collaborations, and any
collaboration, licensing, or other arrangements into which we may enter in the future,
including the timing of achievement of milestones and receipt of any milestone or royalty
payments under these agreements.
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Until
we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance
future cash needs primarily through a combination of public or private equity offerings, debt financings, strategic collaborations,
and grant funding. If sufficient funds on acceptable terms are not available when needed, or at all, we could be forced to significantly
reduce operating expenses and delay, scale back or eliminate one or more of our development programs or our business operations
or even go bankrupt.
Raising
additional capital may cause dilution to our shareholders, including purchasers of common shares in this offering, restrict our
operations or require us to relinquish substantial rights.
Until
such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination
of equity offerings, debt financings, grants and license and development agreements in connection with any collaborations. We
do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity
or convertible debt securities, your ownership interest will be diluted, and the terms of these new securities may include liquidation
or other preferences that adversely affect your rights as a holder of our common shares. Debt financing, if available at all,
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 additional funds through collaborations, strategic alliances,
or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates,
or future revenue streams, or grant licenses on terms that are not favorable to us. We cannot assure you that we will be able
to obtain additional funding if and when necessary. If we are unable to obtain adequate financing on a timely basis, we could
be required to delay, scale back or eliminate one or more of our development programs or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.
We
have broad discretion in the use of the net proceeds from this offering and our cash on hand and may not use them effectively.
As
of June 30, 2015, we had €66.3 million in cash and cash equivalents. Our management will have broad discretion in the use
of such cash and cash equivalents and the proceeds from this offering and could spend them in ways that do not improve our results
of operations or enhance the value of our common shares. The failure by our management to apply these funds effectively could
result in financial losses that could have a material adverse effect on our business, cause the price of our common shares to
decline and delay the development of our product candidates. Pending their use, we may invest our cash and cash equivalents in
a manner that does not produce income or that loses value.
Our
ability to use our net operating loss carry forwards and other tax attributes may be limited.
Our
ability to utilize our net operating losses, or NOLs, is currently limited, and may be limited further, under Section 8c of the
Körperschaftsteuergesetz (the German Corporation Income Tax Act) and Section 10c of the Gewerbesteuergesetz (the German Trade
Tax Act). These limitations apply if a qualified ownership change, as defined by Section 8c of the Körperschaftsteuergesetz,
occurs and no exemption is applicable. Generally, a qualified ownership change occurs if more than 25% of the share capital or
the voting rights are directly or indirectly transferred to a shareholder or a group of shareholders within a period of 5 years.
A qualified ownership change may also occur in case of an increase in capital leading to a respective change in the shareholding.
In the case of such a qualified ownership change tax loss carry forwards, consisting of the NOLs in the same percentage as the
ownership change, cannot be utilized. If the percentage of the ownership change exceeds 50%, tax loss carry forwards expire in
full. To the extent that the tax loss carry forwards do not exceed hidden reserves taxable in Germany, they may be further utilized
despite a qualified ownership change.
As
of December 31, 2014, we had NOL carry forwards for German tax purposes of €72.6 million available. Future changes in share
ownership may also trigger an ownership change and, consequently, a Section 8c Körperschaftsteuergesetz or a Section 10c
Gewerbesteuergesetz limitation. Any limitation may result in the expiration of a portion or the complete tax operating loss carry
forwards before they can be utilized. As a result, if
we
earn net taxable income, our ability to use our pre-change net operating loss carry forwards to reduce German income tax may be
subject to limitations, which could potentially result in increased future cash tax liability to us.
Risks
Related to Our Dependence on Third Parties
Our
existing collaborations on research and development candidates are important to our business, and future collaborations may also
be important to us. If we are unable to maintain any of these collaborations, if these collaborations are not successful or if
we fail to enter into new strategic relationships, our business could be adversely affected.
We
have entered into collaborations with other companies that we believe have provided us with valuable funding, including our collaboration
through Amphivena and our collaboration with The Leukemia & Lymphoma Society. In the future, we may enter into additional
collaborations to leverage our technology platforms, fund our research and development programs or to gain access to sales, marketing
or distribution capabilities. Our existing collaborations, and any future collaborations we enter into, may pose a number of risks,
including the following:
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collaborators
may have significant discretion in determining the efforts and resources that they will
apply to these collaborations;
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collaborators
may not perform their obligations as expected;
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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;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial program,
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;
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collaborators
could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or 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;
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product
candidates discovered 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;
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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 such product or products;
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disagreements
with collaborators, including disagreements over proprietary rights, contract interpretation
or the preferred course of development, might cause delays or termination of the research,
development or commercialization of product candidates, might lead to additional responsibilities
for us with respect to product candidates, or might result in litigation or arbitration,
any of which would be timeconsuming 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;
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collaborators
may infringe the intellectual property rights of third parties, which may expose us to
litigation and potential liability; and
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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.
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If
our collaborations on research and development candidates do not result in the successful development and commercialization of
products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone
or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development
of our technology platforms and product candidates could be delayed and we may need additional resources to develop product candidates
and our technology platforms. All of the risks relating to product development, regulatory approval and commercialization described
in this prospectus supplement also apply to the activities of our program collaborators. Furthermore, Amphivena has entered into
a warrant agreement with Janssen Biotech Inc. that gives Janssen the option to acquire Amphivena following IND acceptance by the
FDA, upon predetermined terms, in exchange for payments under the warrant. If Janssen does not exercise its option to purchase
Amphivena or terminates the warrant early, such action could be viewed as having negative implications for our business and prospects.
Additionally, if Amphivena does not have enough funding to pay the license and development fees due to us under the license and
development agreement, there is a risk that funding will not be available to continue the development of the program. If such
lack of funding exists, we may never reach IND acceptance.
Additionally,
subject to its contractual obligations to us, if one of our collaborators is involved in a business combination, the collaborator
might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our
collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators.
For
some of our product candidates, we may in the future determine to collaborate with additional pharmaceutical and biotechnology
companies for development and potential commercialization of therapeutic products. We face significant competition in seeking
appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon
our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and
the proposed collaborator’s evaluation of a number of factors. These factors may include the design or results of clinical
trials, the likelihood of approval by the FDA, the European Commission or similar regulatory authorities outside the United States,
the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product
candidate to patients, the potential of 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.
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. If
we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to
curtail the development of a product candidate, reduce or delay 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 fund and undertake development or commercialization activities
on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable
terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary
development and commercialization activities, we may not be able to further develop our product candidates or bring them to market
or continue to develop our technology platforms and our business may be materially and adversely affected.
We
may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential
collaborators. Subject to certain specified exceptions, our collaboration with Amphivena contains restrictions on our engaging
in activities that are the subject of the collaboration with third parties for specified periods of time.
Independent
clinical investigators and CROs that we engage to conduct our clinical trials may not devote sufficient time or attention to our
clinical trials or be able to repeat their past success.
We
expect to continue to depend on independent clinical investigators and CROs to conduct our clinical trials. CROs may also assist
us in the collection and analysis of data. There is a limited number of third-party service providers that specialize or have
the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service
providers can be difficult, time consuming and cause delays in our development programs. These investigators and CROs will not
be our employees and we will not be able to control, other than by contract, the amount of resources, including time, which they
devote to our product candidates and clinical trials. In addition, certain of our clinical trials are sponsored by academic sites
known as Investigator Sponsored Trials, or ISTs. By definition, the financing, design and conduct of the study is under the responsibility
of the respective sponsor. Therefore, we have limited control over these studies and we do not have control over the timing and
reporting of the data from these trials. The following studies are ISTs: AFM13 phase 2a in HL and AFM13 phase 1b/2a in CD30+ lymphoma
as well as our planned academic phase 1b/2a clinical trial of AFM13 with Columbia University. If independent investigators or
CROs fail to devote sufficient resources to the development of our product candidates, or if their performance is substandard,
it may delay or compromise the prospects for approval and commercialization of any product candidates that we develop. In addition,
the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase
the risk that this information will be misappropriated. Further, the FDA and other regulatory authorities require that we comply
with standards, commonly referred to as current Good Clinical Practice, or cGCP, for conducting, recording and reporting clinical
trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of
trial subjects are protected. Failure of clinical investigators or CROs to meet their obligations to us or comply with cGCP procedures
could adversely affect the clinical development of our product candidates and harm our business.
We
contract with third parties for the manufacture of our product candidates for clinical testing and expect to continue to do so
for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product
candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization
efforts.
We
anticipate continuing our engagement of contract manufacturing organizations to provide our clinical supply and internal capacity
as we advance our product candidates into and through clinical development. We expect to use third parties for the manufacture
of our product candidates for clinical testing, as well as for commercial manufacture. We plan eventually to enter into long-term
supply agreements with several manufacturers for commercial supplies. We may be unable to reach agreement on satisfactory terms
with contract manufacturers to manufacture our product candidates.
Additionally,
the facilities to manufacture our product candidates must be the subject of a satisfactory inspection before the FDA, the EMA
or other regulatory authorities approve a BLA or grant a marketing authorization for the product candidate manufactured at that
facility. We will depend on these third-party manufacturing partners for compliance with the FDA’s and the EMA’s requirements
for the manufacture of our finished products. If our manufacturers cannot successfully manufacture material that conforms to our
specifications and the FDA, European Commission and other regulatory authorities’ cGMP requirements, our product candidates
will not be approved or, if already approved, may be subject to recalls.
Reliance
on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves,
including:
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the
possibility of a breach of the manufacturing agreements by the third parties because
of factors beyond our control;
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the
possibility of termination or nonrenewal of the agreements by the third parties before
we are able to arrange for a qualified replacement third-party manufacturer; and
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the
possibility that we may not be able to secure a manufacturer or manufacturing capacity
in a timely manner and on satisfactory terms in order to meet our manufacturing needs.
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Any
of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur higher costs
or prevent us from commercializing our product candidates successfully. Furthermore, if any of our product candidates are approved
and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially
reasonable prices, and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent
cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our
products and could lose potential revenue. It may take several years to establish an alternative source of supply for our product
candidates and to have any such new source approved by the FDA, the EMA or any other relevant regulatory authorities.
Risks
Related to Our Intellectual Property
If
we are unable to obtain and enforce patent protection for our product candidates and related technology, our business could be
materially harmed.
Issued
patents may be challenged, narrowed, invalidated or circumvented. In addition, court decisions may introduce uncertainty in the
enforceability or scope of patents owned by biotechnology companies. The legal systems of certain countries do not favor the aggressive
enforcement of patents, and the laws of non-U.S. countries may not allow us to protect our inventions with patents to the same
extent as the laws of the United States and Europe. Because patent applications in the United States, Europe and many other non-U.S.
jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications
of discoveries in scientific literature lag behind actual discoveries, we cannot be certain that we were the first to make the
inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the
inventions set forth in our patents or patent applications. As a result, we may not be able to obtain or maintain protection for
certain inventions. Therefore, the enforceability and scope of our patents in the United States, Europe and in other non-U.S.
countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection
against competitors. We may not be able to obtain or maintain patent protection from our pending patent applications, from those
we may file in the future, or from those we may license from third parties. Moreover, even if we are able to obtain patent protection,
such patent protection may be of insufficient scope to achieve our business objectives.
We
own and/or control our AFM13 patent portfolio, which includes three patent families. Our first patent family is issued and relates
to the engineered antibody format, which is called TandAb, and the methods of making or using such bispecific, tetravalent domain
antibodies. This patent family will expire in 2019. The second patent family on AFM13 consists of European patents relating to
the use of the specific target combination for the treatment of cancer using a bispecific molecule and will expire in 2020. Our
third patent family relates to the mode of action of AFM13, the recruitment of immune effector cells via a specific receptor.
This patent will expire in 2026. We also own and/or control our AFM11 patent portfolio, which includes issued patents and pending
patent applications. As in the case of AFM13, our issued patent relates to the engineered antibody format and will expire in 2019.
The pending patent application family claims a new TandAb structure which was specifically used in AFM11. If issued, this patent
will expire in 2030.
Our
strategy depends on our ability to identify and seek patent protection for our discoveries. This process is expensive and time
consuming, and we 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 where protection may be commercially advantageous, or we may financially not be able
to protect our proprietary rights at all. Despite our efforts to protect our proprietary rights, unauthorized parties may be able
to obtain and use information that we regard as proprietary. The issuance of a patent does not ensure that it is valid or enforceable,
so even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent
does not give us the right to practice the patented invention. Third parties may have blocking patents that could prevent us from
marketing our own patented product and practicing our own patented technology. Third parties may also seek to market biosimilar
versions of any approved products. Alternatively, third parties may seek approval to market their own products similar to or otherwise
competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits
alleging patent infringement. In any of these types of proceedings, a court or agency with jurisdiction may find our patents invalid
and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing
products or processes sufficient to achieve our business objectives.
The
patent position of pharmaceutical or biotechnology companies, including ours, is generally uncertain and involves complex legal
and factual considerations for which legal principles remain unsolved. The standards which the United States Patent and Trademark
Office, or USPTO, and its non-U.S. counterparts use to grant patents are not always applied predictably or uniformly and can change.
There is also no uniform, worldwide policy regarding the subject matter and scope of claims granted or allowable in pharmaceutical
or biotechnology patents. The laws of some non-U.S. countries do not protect proprietary information to the same extent as the
laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary
information in these non-U.S. countries. Outside the United States, patent protection must be sought in individual jurisdictions,
further adding to the cost and uncertainty of obtaining adequate patent protection outside of the United States. Accordingly,
we cannot predict whether additional patents protecting our technology will issue in the United States or in non-U.S. jurisdictions,
or whether any patents that do issue will have claims of adequate scope to provide competitive advantage. Moreover, we cannot
predict whether third parties will be able to successfully obtain claims or the breadth of such claims. The allowance of broader
claims may increase the incidence and cost of patent interference proceedings, opposition proceedings, and/or reexamination proceedings,
the risk of infringement litigation, and the vulnerability of the claims to challenge. On the other hand, the allowance of narrower
claims does not eliminate the potential for adversarial proceedings, and may fail to provide a competitive advantage. Our issued
patents may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or
provide us with any competitive advantage.
We
may become involved in lawsuits to protect or enforce our patents, which could be expensive, time consuming and unsuccessful.
Even
after they have issued, our patents and any patents which we license may be challenged, narrowed, invalidated or circumvented.
If our patents are invalidated or otherwise limited or will expire prior to the commercialization of our product candidates, other
companies may be better able to develop products that compete with ours, which could adversely affect our competitive business
position, business prospects and financial condition.
The
following are examples of litigation and other adversarial proceedings or disputes that we could become a party to involving our
patents or patents licensed to us:
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we
or our collaborators may initiate litigation or other proceedings against third parties
to enforce our patent rights;
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third
parties may initiate litigation or other proceedings seeking to invalidate patents owned
by or licensed to us or to obtain a declaratory judgment that their product or technology
does not infringe our patents or patents licensed to us;
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third
parties may initiate opposition or reexamination proceedings challenging the validity
or scope of our patent rights, requiring us or our collaborators and/or licensors to
participate in such proceedings to defend the validity and scope of our patents;
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there
may be a challenge or dispute regarding inventorship or ownership of patents currently
identified as being owned by or licensed to us;
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the
U.S. Patent and Trademark Office may initiate an interference between patents or patent
applications owned by or licensed to us and those of our competitors, requiring us or
our collaborators and/or licensors to participate in an interference proceeding to determine
the priority of invention, which could jeopardize our patent rights; or
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third
parties may seek approval to market biosimilar versions of our future approved products
prior to expiration of relevant patents owned by or licensed to us, requiring us to defend
our patents, including by filing lawsuits alleging patent infringement.
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These
lawsuits and proceedings would be costly and could affect our results of operations and divert the attention of our managerial
and scientific personnel. There is a risk that a court or administrative body would decide that our patents are invalid or not
infringed by a third party’s activities, or that the scope of certain issued claims must be further limited. An adverse
outcome in a litigation or proceeding involving our own patents could limit our
ability
to assert our patents against these or other competitors, affect our ability to receive royalties or other licensing consideration
from our licensees, and may curtail or preclude our ability to exclude third parties from making, using and selling similar or
competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and
financial condition.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others
may be able to develop a platform that is similar to, or better than, ours in a way that
is not covered by the claims of our patents;
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others
may be able to make compounds that are similar to our product candidates but that are
not covered by the claims of our patents;
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we
might not have been the first to make the inventions covered by patents or pending patent
applications;
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we
might not have been the first to file patent applications for these inventions;
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any
patents that we obtain may not provide us with any competitive advantages or may ultimately
be found invalid or unenforceable; or
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we
may not develop additional proprietary technologies that are patentable.
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Our
commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights
of third parties.
Our
success will depend in part on our ability to operate without infringing the proprietary rights of third parties. Other entities
may have or obtain patents or proprietary rights that could limit our ability to make, use, sell, offer for sale or import our
future approved products or impair our competitive position.
Patents
could be issued to third parties that we may ultimately be found to infringe. Third parties may have or obtain valid and enforceable
patents or proprietary rights that could block us from developing product candidates using our technology. Our failure to obtain
a license to any technology that we require may materially harm our business, financial condition and results of operations. Moreover,
our failure to maintain a license to any technology that we require may also materially harm our business, financial condition,
and results of operations. Furthermore, we would be exposed to a threat of litigation.
In
the pharmaceutical industry, significant litigation and other proceedings regarding patents, patent applications, trademarks and
other intellectual property rights have become commonplace. The types of situations in which we may become a party to such litigation
or proceedings include:
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we
or our collaborators may initiate litigation or other proceedings against third parties
seeking to invalidate the patents held by those third parties or to obtain a judgment
that our products or processes do not infringe those third parties’ patents;
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if
our competitors file patent applications that claim technology also claimed by us or
our licensors, we or our licensors may be required to participate in interference or
opposition proceedings to determine the priority of invention, which could jeopardize
our patent rights and potentially provide a third party with a dominant patent position;
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if
third parties initiate litigation claiming that our processes or products infringe their
patent or other intellectual property rights, we and our collaborators will need to defend
against such proceedings; and
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if
a license to necessary technology is terminated, the licensor may initiate litigation
claiming that our processes or products infringe or misappropriate their patent or other
intellectual property rights and/or that we breached our obligations under the license
agreement, and we and our collaborators would need to defend against such proceedings.
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These
lawsuits would be costly and could affect our results of operations and divert the attention of our management and scientific
personnel. There is a risk that a court would decide that we or our collaborators are infringing the third party’s patents
and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our collaborators
may not have a viable alternative to the technology protected by the patent and may need to halt work on the affected product
candidate or cease commercialization of an approved product. In addition, there is a risk that a court will order us or our collaborators
to pay the other party damages. An adverse outcome in any litigation or other proceeding could subject us to significant liabilities
to third parties and require us to cease using the technology that is at issue or to license the technology from third parties.
We may not be able to obtain any required licenses on commercially acceptable terms or at all. Any of these outcomes could have
a material adverse effect on our business.
The
pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry
participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject
to interpretation by the courts, and the interpretation is not always uniform or predictable. If we are sued for patent infringement,
we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that
the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United
States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s
time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid
infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity
of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions
to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend
an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter
significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
The
cost of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors
may be able to sustain the cost of such litigation and proceedings more effectively than we can because of their substantially
greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also
absorb significant management time.
If
our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets
of interest and our business may be adversely affected.
Our
registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined
to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to
build name recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to
establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business
may be adversely affected.
The
patent protection and patent prosecution for some of our product candidates is dependent on third parties.
While
we normally seek to obtain the right to control prosecution, maintenance and enforcement of the patents relating to our product
candidates, there may be times when the filing and prosecution activities for patents relating to our product candidates are controlled
by our licensors. This is the case under the terms of our license agreements with DKFZ and Xoma, where DKFZ and Xoma are entirely
responsible for the prosecution, protection and maintenance of the licensed patents and patent applications. Neither DKFZ nor
Xoma has any obligation to provide us any information with respect to such prosecution and we will not have access to any patent
prosecution or maintenance information that is not publicly available. Although we monitor DKFZ’s and Xoma’s ongoing
prosecution and maintenance of the licensed patents, if DKFZ, Xoma or any of our future licensing partners fail to prosecute,
maintain and enforce such patents and patent applications in a manner consistent with the best interests of our business, including
by payment of all applicable fees for patents covering AFM13, AFM11 or any of our product candidates, we could lose our rights
to the intellectual property or our exclusivity with respect to those rights, our ability to develop and commercialize those product
candidates may be adversely affected and we may not be able to prevent competitors from making, using, and selling competing products.
Our
business may be adversely affected if we are unable to gain access to relevant intellectual property rights of third parties,
or if our licensing partners terminate our rights in certain technologies that are licensed or sublicensed to us.
We
currently rely, and may in the future rely, on certain intellectual property rights licensed from third parties in order to be
able to use various proprietary technologies that are material to our business. For example, our TandAb technology was developed
under certain patents licensed exclusively to us by DKFZ under a 2001 license agreement which was subsequently amended in 2006.
Additionally, an antibody generated in the development of our TandAb candidates was developed using antibody phage display technologies
licensed to us by Xoma. In each of these cases, the licensor retains their full ownership interest with respect to the licensed
patent rights, and our rights to use the technologies associated with those patents and to employ the inventions claimed in the
licensed patent rights are subject to the continuation of and our compliance with the terms of those licenses.
In
some cases, we do not control the prosecution, maintenance or filing of the patents to which we hold licenses, and the enforcement
of our licensed patents or defense of any claims asserting the invalidity of these patents is subject to the control or cooperation
of our licensors. For example, DKFZ retains responsibility for the prosecution and maintenance of its patent rights licensed under
the terms of its agreement with us, and Xoma retains the right, at its sole discretion, to enforce, maintain and otherwise protect
its patent rights licensed to us pursuant to our 2006 license agreement with Xoma. We cannot be certain that our licensors will
prosecute, maintain, enforce and defend the licensed patent rights in a manner consistent with the best interests of our business.
We also cannot be certain that drafting or prosecution of the licensed patents by our licensors have been conducted in compliance
with applicable laws and regulations and will result in valid and enforceable patents and other intellectual property rights.
We
are a party to a number of agreements, including license agreements, through which we have gained rights to certain intellectual
property that relate to our business and we expect to enter into additional such agreements in the future. Our existing agreements
impose, and we expect that future agreements will impose, various diligence, commercialization, milestone payment, royalty, and
other obligations on us. Certain of our licenses, including each of our licenses with DKFZ and Xoma, contain provisions that allow
the licensor to terminate the license upon the occurrence of specific events or conditions. For example, our rights under each
of the licenses described above are subject to our continued compliance with the terms of the licenses, certain diligence and
development obligations, the payment of royalties, milestone payments and other fees, and certain disclosure and confidentiality
obligations. If we are found to be in breach of any of our license agreements, in certain circumstances our licensors may take
action against us, including by terminating the applicable license. Because of the complexity of our product candidates and the
patents we have licensed, determining the scope of the licenses and related obligations may be difficult and could lead to disputes
between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant
to the license or a termination of the license. If any of our licensors were to terminate our license agreement with them, we
may be prevented from the continued use of certain technologies, including our rights to the TandAb, Flexibody and antibody phage
display technologies, in clinical trials or, if our products are approved for marketing, from using such technologies in the manufacturing
of products that could be sold commercially. This could delay or prevent us from offering our product candidates. We might not
have the necessary rights or the financial resources to develop, manufacture or market our current or future product candidates
without the rights granted under these licenses, and the loss of sales or potential sales in such product candidates could have
a material adverse effect on our business, financial condition, results of operations and prospects.
Under
certain of our agreements, our licensors have the right to convert an exclusive license to a non-exclusive license upon the expiration
of the initial exclusivity period or upon the occurrence of certain events. Such a conversion would potentially allow third parties
to practice the technologies licensed under the agreement, and could materially adversely affect the value of the product candidate
we are developing under the agreement. In addition to the above risks, certain of our intellectual property rights are sublicenses
under intellectual property owned by third parties. The actions of our licensors may therefore affect our rights to use our sublicensed
intellectual property, even if we are in compliance with all of the obligations under our license agreements.
We
may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We
currently have rights to the intellectual property, through licenses from third parties and under patents that we own, to develop
our product candidates. Because our programs may require the use of proprietary rights held by
third
parties, the growth of our business will likely depend in part on our ability to acquire, in-license, maintain or use these proprietary
rights. In addition, our product candidates may require specific formulations to work effectively and efficiently and the rights
to these formulations may be held by others. We may be unable to acquire or inlicense any compositions, methods of use, processes,
or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates.
The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established
companies are also 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, cash resources, and greater clinical development
and commercialization capabilities.
For
example, we sometimes collaborate with U.S. and non-U.S. academic institutions to accelerate our preclinical research or development
under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license
to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be
unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do
so, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our
applicable product candidate or program.
In
addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable
to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our
investment. If we are unable to successfully obtain a license to third-party intellectual property rights necessary for the development
of a product candidate or program, we may have to abandon development of that product candidate or program and our business and
financial condition could suffer.
If
we are unable to protect the confidentiality of our proprietary information, the value of our technology and products could be
adversely affected.
In
addition to patent protection, we also rely on other proprietary rights, including protection of trade secrets, and other proprietary
information. To maintain the confidentiality of trade secrets and proprietary information, we enter into confidentiality agreements
with our employees, consultants, collaborators and others upon the commencement of their relationships with us. These agreements
require that all confidential information developed by the individual or made known to the individual by us during the course
of the individual’s relationship with us be kept confidential and not disclosed to third parties. Our agreements with employees
and our personnel policies also provide that any inventions conceived by the individual in the course of rendering services to
us shall be our exclusive property. However, we may not obtain these agreements in all circumstances, and individuals with whom
we have these agreements may not comply with their terms. Thus, despite such agreement, such inventions may become assigned to
third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements,
even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information.
To the extent that our employees, consultants or contractors use technology or know-how owned by third parties in their work for
us, disputes may arise between us and those third parties as to the rights in related inventions. To the extent that an individual
who is not obligated to assign rights in intellectual property to us is rightfully an inventor of intellectual property, we may
need to obtain an assignment or a license to that intellectual property from that individual, or a third party or from that individual’s
assignee. Such assignment or license may not be available on commercially reasonable terms or at all.
Adequate
remedies may not exist in the event of unauthorized use or disclosure of our proprietary information. The disclosure of our trade
secrets would impair our competitive position and may materially harm our business, financial condition and results of operations.
Costly and time consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure
to maintain trade secret protection could adversely affect our competitive business position. In addition, others may independently
discover or develop our trade secrets and proprietary information, and the existence of our own trade secrets affords no protection
against such independent discovery.
As
is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously or concurrently employed
at research institutions and/or other biotechnology or pharmaceutical companies, including our competitors or potential competitors.
We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other
proprietary information of their former employers, or that patents and applications we have filed to protect inventions of these
employees, even those related to one or more of our product candidates, are rightfully owned by their former or concurrent employer.
Litigation may be
necessary
to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial
costs and be a distraction to management.
Obtaining
and maintaining our patent protection depends on compliance with various procedural, documentary, 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 fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to
the USPTO and various non-U.S. patent offices at various points over the lifetime of our patents and/or applications. We have
systems in place to remind us to pay these fees, and we rely on our outside counsel to pay these fees when due. Additionally,
the USPTO and various non-U.S. patent offices require compliance with a number of procedural, documentary, fee payment and other
similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply,
and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable
to the particular jurisdiction. However, 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. If such an
event were to occur, it could have a material adverse effect on our business. In addition, we are responsible for the payment
of patent fees for patent rights that we have licensed from other parties. If any licensor of these patents does not itself elect
to make these payments, and we fail to do so, we may be liable to the licensor for any costs and consequences of any resulting
loss of patent rights.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting, and defending patents on 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 and Europe. In addition, the laws of some countries outside the United States and Europe, such as China, do not protect
intellectual property rights to the same extent as federal and state laws in the United States and laws in Europe. Consequently,
we may not be able to prevent third parties from practicing our inventions in all countries outside the United States and Europe,
or from selling or importing products made using our inventions in and into the United States, Europe or other jurisdictions.
As part of ordinary course prosecution and maintenance activities, we determine whether and in which countries to seek patent
protection outside the United States and Europe. This also applies to patents we have acquired or in-licensed from third parties.
In some cases this means that we, or our predecessors in interest or licensors of patents within our portfolio, have sought patent
protection in a limited number of countries for patents covering our product candidates. Competitors may use our technologies
in jurisdictions where we have not obtained or are unable to adequately enforce patent protection to develop their own products
and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as
strong as that in the United States and Europe. These products may compete with our products and our patents or other intellectual
property rights may not be effective or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in jurisdictions outside
the United States and Europe. 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, the reproduction of our manufacturing
or other know-how or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce
our patent rights in jurisdictions outside the United States and Europe, 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.
Certain
of our employees and patents are subject to German law.
Approximately
40 of our personnel, including our managing directors, work in Germany and are subject to German employment law. Ideas, developments,
discoveries and inventions made by such employees are subject to
the
provisions of the German Act on Employees’ Inventions (
Gesetz über Arbeitnehmererfindungen
), which regulates
the ownership of, and compensation for, inventions made by employees. We face the risk that disputes may occur between us and
our employees or ex-employees pertaining to the sufficiency of compensation paid by us, allocation of rights to inventions under
this act or alleged non-adherence to the provisions of this act, any of which may be costly to resolve and take up our management’s
time and efforts whether we prevail or fail in such dispute. In addition, under the German Act on Employees’ Inventions,
certain employees retain rights to patents they invented or co-invented prior to 2009. While we believe that all of our German
employee inventors have subsequently assigned to us their interest in patents they invented or co-invented, there is a risk that
the compensation we provided to them may be deemed to be insufficient, and we may be required under German law to increase the
compensation due to such employees for the use of the patents. If we are required to pay additional compensation or face other
disputes under the German Act on Employees’ Inventions, our results of operations could be adversely affected.
If
we do not obtain protection under the Hatch-Waxman Amendments and similar non-U.S. legislation for extending the term of patents
covering each of our product candidates, our business may be materially harmed.
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 EU. The Hatch-Waxman Amendments permit a patent term extension
of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development
and the FDA regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines,
fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length
of the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension
is less than we request, the period during which we can enforce our patent rights for that product will be shortened and our competitors
may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly
materially.
Our
information technology systems could face serious disruptions that could adversely affect our business.
Our
information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection
to the Internet, face the risk of systemic failure that could disrupt our operations. A significant disruption in the availability
of our information technology and other internal infrastructure systems could cause interruptions in our collaborations with our
partners and delays in our research and development work.
Risks
Related to Legal Compliance Matters
Because
we and our suppliers are subject to environmental, health and safety laws and regulations, we may become exposed to liability
and substantial expenses in connection with environmental compliance or remediation activities which may adversely affect our
business and financial condition.
Our
operations, including our research, development, testing and manufacturing activities, are subject to numerous environmental,
health and safety laws and regulations. These laws and regulations govern, among other things, the controlled use, handling, release
and disposal of, and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents,
human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures
and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or other
sanctions.
As
with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current
and historical activities, including liability relating to releases of or exposure to hazardous or biological materials. Environmental,
health and safety laws and regulations are becoming more stringent. We may be required to incur substantial expenses in connection
with future environmental compliance or remediation activities, in which case, our production and development efforts may be interrupted
or delayed and our financial condition and results of operations may be materially adversely affected.
The
third parties with whom we contract to manufacture our product candidates are also subject to these and other environmental, health
and safety laws and regulations. Liabilities they incur pursuant to these laws and
regulations
could result in significant costs or in certain circumstances, an interruption in operations, any of which could adversely impact
our business and financial condition if we are unable to find an alternate supplier in a timely manner.
Our
employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements
and insider trading.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with FDA or EMA regulations, to provide accurate information to the FDA or the EMA or intentional failures to report financial
information or data accurately or to disclose unauthorized activities to us. Employee misconduct could also involve the improper
use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our
reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, 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 comply with these
laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting
our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other
sanctions.
Risks
Relating to Employee Matters and Managing Growth
Our
future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We
are highly dependent on the research and development, clinical and business development expertise of our managing directors and
other key employees. We have entered into multi-year executive agreements with our managing directors. If any of our managing
directors or other key employees becomes unavailable to perform services for us, we may not be able to find a qualified replacement
in a timely fashion, which could impede the achievement of our research, development and commercialization objectives and seriously
harm our ability to successfully implement our business strategy. The contracts with the three managing directors run until the
end of the general meeting in 2017. We do not maintain any key man insurance for our managing directors at this time.
Recruiting
and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success.
In addition, we will need to expand and effectively manage our managerial, operational, financial, development and other resources
in order to successfully pursue our research, development and commercialization efforts for our existing and future product candidates.
Furthermore, replacing managing directors and key employees may be difficult and may take an extended period of time because of
the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop,
gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable
to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical
and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel
from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical
advisors, to assist us in formulating our research and 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.
We
will need to grow our organization, specifically to expand our development, and regulatory capabilities, and we may experience
difficulties in managing this growth, which could disrupt our operations.
We
have 63 personnel (57 full time equivalents), including those of our subsidiaries. As our development and commercialization plans
and strategies develop, we expect to expand our employee base for development, regulatory, managerial, operational, sales, marketing,
financial and other resources. Future growth would impose significant added responsibilities on members of management, including
the need to identify, recruit, maintain, motivate and integrate additional employees. Also, our management may need to divert
a disproportionate amount of their attention away from our day-to-day activities and devote a substantial amount of time to managing
these growth activities. We may not be able to effectively manage the expansion of our operations which may result in
weaknesses
in our infrastructure, give rise to operational errors, loss of business opportunities, loss of employees and reduced productivity
among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources
from other projects, such as the development of existing and additional product candidates. If our management is unable to effectively
manage our expected growth, our expenses may increase more than expected, our ability to generate and/or grow revenue could be
reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize
our product candidates and compete effectively with others in our industry will depend, in part, on our ability to effectively
manage any future growth.
Risks
Related to Our Common Shares and this Offering
Our
share price has been and may in the future be volatile, which could cause holders of our common shares to incur substantial losses.
You
should consider an investment in our common shares as risky and invest only if you can withstand a significant loss and wide fluctuations
in the market value of your investment. You may be unable to sell your common shares at or above the public offering price due
to fluctuations in the market price of our common shares arising from changes in our operating performance or prospects. Our share
price has been and in the future may be subject to substantial price volatility. In addition, the stock market has recently experienced
significant volatility, particularly with respect to pharmaceutical, biotechnology, and other life sciences company stocks. The
volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance
of the companies represented by the stock. Some of the factors that may cause the market price of our common shares to fluctuate
or decrease below the price paid in this offering include:
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results
and timing of our clinical trials and clinical trials of our competitors’ products;
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failure
or discontinuation of any of our development programs;
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issues
in manufacturing our product candidates or future approved products;
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regulatory
developments or enforcement in the United States and non-U.S. countries with respect
to our product candidates or our competitors’ products;
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failure
to achieve pricing and/or reimbursement;
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competition
from existing products or new products that may emerge;
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developments
or disputes concerning patents or other proprietary rights;
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introduction
of technological innovations or new commercial products by us or our competitors;
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announcements
by us, our collaborators or our competitors of significant acquisitions, strategic partnerships,
joint ventures, collaborations or capital commitments;
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changes
in estimates or recommendations by securities analysts, if any cover our common shares;
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fluctuations
in the valuation of companies perceived by investors to be comparable to us;
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public
concern over our product candidates or any future approved products;
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future
sales of our common shares;
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share
price and volume fluctuations attributable to inconsistent trading volume levels of our
shares;
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additions
or departures of key personnel;
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changes
in the structure of health care payment systems in the United States or overseas;
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failure
of any of our product candidates, if approved, to achieve commercial success;
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economic
and other external factors or other disasters or crises;
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period-to-period
fluctuations in our financial condition and results of operations, including the timing
of receipt of any milestone or other payments under commercialization or licensing agreements;
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general
market conditions and market conditions for biopharmaceutical stocks; and
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overall
fluctuations in U.S. equity markets.
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In
addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class
action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could
incur substantial costs defending the lawsuit and divert the time and attention of our management, which could seriously harm
our business.
Certain
of our shareholders own a majority of our common shares and as a result will be able to exercise significant control over us,
and your interests may conflict with the interests of our existing shareholders.
After
this offering, a small number of shareholders, together with our supervisory directors and managing directors, may continue to
own more than a majority of our outstanding common shares. Depending on the level of attendance at our general meetings of shareholders,
these shareholders as a group may be in a position to determine the outcome of decisions taken at any such general meeting. Any
shareholder or group of shareholders controlling more than 50% of the capital present or represented by independent proxy and
voting at our general meetings of shareholders may control any shareholder resolution requiring a simple majority, including the
election of our managing directors and supervisory directors, certain decisions relating to our capital structure, the approval
of certain significant corporate transactions and amendments to our Articles of Association. To the extent that the interests
of these shareholders may differ from the interests of our other shareholders, the latter may be disadvantaged by any action that
these shareholders may seek to pursue. Among other consequences, this concentration of ownership may have the effect of delaying
or preventing a change in control and might therefore negatively affect the market price of our common shares.
Future
sales, or the possibility of future sales, of a substantial number of our common shares could adversely affect the price of the
shares and dilute shareholders.
Future
sales of a substantial number of our common shares, or the perception that such sales will occur, could cause a decline in the
market price of our common shares. As of the date of this prospectus supplement, we have outstanding 29,934,168 common shares.
This does not include the shares that we are selling in this offering, which may be resold in the public market immediately without
restriction, unless purchased by our affiliates. If our existing shareholders sell substantial amounts of common shares in the
public market, or the market perceives that such sales may occur, the market price of our common shares and our ability to raise
capital through an issue of equity securities in the future could be adversely affected. 9,660,066 common shares held by certain
shareholders have been included within the registration statement of which this prospectus supplement forms a part.
In
addition, we have registered on a Form S-8 registration statement all common shares that we may issue under our equity compensation
plans. As a result, these shares can be freely sold in the public market upon issuance, subject to volume limitations applicable
to affiliates.
If
you purchase common shares in this offering, you will suffer immediate dilution of your investment.
The
offering price per common share in this offering may exceed the net tangible book value per common share outstanding prior to
this offering. Therefore, if you purchase common shares in this offering, you may pay a price per common share that exceeds our
as adjusted net tangible book value per common share after this offering. To the extent outstanding options or warrants are exercised,
you will incur further dilution. Assuming that an aggregate of 8,278,145 of our common shares are sold at a price of $6.04 per
share pursuant to this prospectus supplement, which was the last reported sale price of our common shares on the Nasdaq Global
Market on September 29, 2015, for aggregate gross proceeds of $50,000,000, after deducting commissions and estimated aggregate
offering expenses payable by us, you would experience immediate dilution of $3.01 per common share, representing the difference
between our as adjusted net tangible book value per share as of June 30, 2015, after giving effect to this offering and
the
assumed offering price. In addition, purchasers of common shares in this offering will have contributed approximately 23% of the
aggregate price paid by all purchasers of our common shares but will own only approximately 22% of our common shares outstanding
after this offering, assuming that an aggregate of 8,278,145 of our common shares are sold at a price of $6.04 per share pursuant
to this prospectus supplement, which was the last reported sale price of our common shares on the Nasdaq Global Market on September
29, 2015, for aggregate gross proceeds of $50,000,000. See “Dilution.”
We
are a foreign private issuer and, as a result, we 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 Dutch 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 (i) the sections of the
Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the
Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading
activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange
Act requiring the filing with the Securities and Exchange Commission (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 fiscal 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 follow certain home country governance practices
rather than the corporate governance requirements of the Nasdaq.
We
are a foreign private issuer. As a result, in accordance with the listing requirements of The Nasdaq Global Market, or Nasdaq,
we follow home country governance requirements and certain exemptions thereunder rather than comply with the corporate governance
requirements of Nasdaq. In accordance with Dutch law and generally accepted business practices, our Articles of Association do
not provide quorum requirements generally applicable to general meetings of shareholders in the United States. 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. Although we
must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Dutch law does
not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business
practice in the Netherlands, thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b). As permitted by
the listing requirements of Nasdaq, we have also opted out of the requirements of Nasdaq Listing Rule 5605(d), which requires,
inter alia, an issuer to have a compensation committee that consists entirely of independent directors, and Nasdaq Listing Rule
5605(e), which requires independent director oversight of director nominations. As permitted by the listing requirements of Nasdaq,
we have an audit committee that consists of two, rather than three, independent members. In addition, we have opted out of shareholder
approval requirements, as included in the Nasdaq Listing Rules, for the issuance of securities in connection with certain events
such as the acquisition of stock or assets of another company, the establishment of or amendments to equity-based compensation
plans for employees, a change of control of us and certain private placements. To this extent, our practice varies from the requirements
of Nasdaq Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection
with such events. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to
these Nasdaq requirements.
We
may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting
regime and cause us to incur significant legal, accounting and other expenses.
We
are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting
requirements of the Exchange Act applicable to U.S. domestic issuers. If in the future we are
not
a foreign private issuer as of the second fiscal quarter in any fiscal year, we would 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 status as a foreign private issuer, either (a) a majority of our common shares must be either directly or indirectly owned
of record by non-residents of the United States or (b)(i) a majority of our managing directors or supervisory directors may not
be United States citizens or residents, (ii) more than 50 percent of our assets cannot be located in the United States and (iii)
our business must be administered principally outside the United States. If we were to lose 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. 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. 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 supervisory directors.
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 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 of 2002, exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be
an “emerging growth company” for a period of five years following the completion of our initial public offering (2019),
although circumstances could cause us to lose that status earlier, including if the market value of our common shares held by
non-affiliates exceeds $700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we
would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). 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.
We
do not anticipate paying cash dividends, and accordingly, shareholders must rely on stock appreciation for any return on their
investment.
We
currently intend to retain our future earnings, if any, to fund the development and growth of our businesses. As a result, capital
appreciation, if any, of our common shares will be your sole source of gain on your investment for the foreseeable future. Investors
seeking cash dividends should not invest in our common shares.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
share price and trading volume could decline.
The
trading market for our common shares depends on the research and reports that securities or industry analysts publish about us
or our business. We do not have any control over these analysts. We cannot assure you that analysts will cover us or provide favorable
coverage. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price
would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us,
we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
We
are a Dutch public company with limited liability. The rights of our shareholders may be different from the rights of shareholders
in companies governed by the laws of U.S. jurisdictions and may not protect investors in a similar fashion afforded by incorporation
in a U.S. jurisdiction.
We
are a Dutch public company with limited liability (
naamloze vennootschap
) organized under the laws of the Netherlands.
Our corporate affairs are governed by our Articles of Association and by the laws governing companies incorporated in the Netherlands.
A further summary of applicable Dutch company law is contained in this prospectus supplement under “Description of Share
Capital and Articles of Association.” However, there can be no assurance that Dutch law will not change in the future or
that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which
could adversely affect the rights of investors.
The
rights of shareholders and the responsibilities of managing directors and supervisory directors may be different from the rights
and obligations of shareholders and board members in companies governed by the laws of U.S. jurisdictions. In the performance
of its duties, our management board and supervisory board are required by Dutch law to consider the interests of our company,
its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness
and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests
as a shareholder. See “Description of Share Capital and Articles of Association—Comparison of Dutch Corporate Law
and our Articles of Association and U.S. Corporate Law—Corporate Governance” in the registration statement of which
this prospectus supplement forms a part.
For
more information, we have provided summaries of relevant Dutch corporation law and of our Articles of Association under “Description
of Share Capital and Articles of Association.”
Provisions
of our Articles of Association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and
prevent or frustrate any attempt to replace or remove the then management board and supervisory board.
Certain
provisions of our Articles of Association may make it more difficult for a third party to acquire control of us or effect a change
in our management board or supervisory board. These provisions include: the authorization of a class of shares that may be issued
to a friendly party; staggered four-year terms of our supervisory directors; a provision that our managing directors
and supervisory directors may only be removed by the general meeting of shareholders by a two-thirds majority of votes cast representing
more than 50% of our outstanding share capital (unless the removal was proposed by the supervisory board); and a requirement
that certain matters, including an amendment of our Articles of Association, may only be brought to our shareholders for a vote
upon a proposal by our management board that has been approved by our supervisory board.
Our
anti-takeover provision may prevent a beneficial change of control.
We
have adopted an anti-takeover measure pursuant to which our management board may, subject to supervisory board approval but without
shareholder approval, issue (or grant the right to acquire) cumulative preferred shares. We may issue an amount of cumulative
preferred shares up to 100% of our issued capital immediately prior to the issuance of such cumulative preferred shares. In such
event, the cumulative preferred shares (or right to acquire cumulative preferred shares) will be issued to a separate, newly established
foundation which will be structured to operate independently of us. Such a measure has the effect of making a takeover of us more
difficult or less attractive and as a result, our shareholders may be unable to benefit from a change of control and realize any
potential change of control premium which may materially and adversely affect the market price of our common shares.
The
cumulative preferred shares will be issued to the foundation for their nominal value, of which only 25% will be due upon issuance.
The voting rights of our shares are based on nominal value and as we expect our shares to trade substantially in excess of nominal
value, cumulative preferred shares issued at nominal value can obtain significant voting power for a substantially reduced price
and thus be used as a defensive measure. These cumulative preferred shares will have both a liquidation and dividend preference
over our common shares and will accrue cash dividends at a fixed rate. The management board may issue these cumulative preferred
shares to protect us from influences that do not serve our best interests and threaten to undermine our continuity, independence
and identity. These influences may include a third party acquiring a significant percentage of our common shares, the announcement
of a public offer for our common shares, other concentration of control over our common shares or
any
other form of pressure on us to alter our strategic policies. If the management board determines to issue the cumulative preferred
shares to such a foundation, the foundation’s articles of association will provide that it will act to serve the best interests
of us, our associated business and all parties connected to us, by opposing any influences that conflict with these interests
and threaten to undermine our continuity, independence and identity.
We
are not obligated to and do not comply with all the best practice provisions of the Dutch Corporate Governance Code. This may
affect your rights as a shareholder.
As
a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains both principles and best practice
provisions that regulate relations between the management board, the supervisory board and the shareholders (i.e., the general
meeting of shareholders). The DCGC is based on a “comply or explain” principle. Accordingly, companies are required
to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the DCGC. If they do
not comply with those provisions (e.g., because of a conflicting Nasdaq requirement), the company is required to give the reasons
for such non-compliance.
The
DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere,
including Nasdaq. We do not comply with all the best practice provisions of the DCGC. For example, the DCGC states that all supervisory
board members need to be independent (a term that is defined in the DCGC), with the exception of one. We have more than one supervisory
director that is deemed not independent under the rule of the DCGC. For a complete list of these DCGC best practices that we do
not comply with, see “Description of Share Capital and Articles of Association.” This may affect your rights as a
shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the
DCGC.
Claims
of U.S. civil liabilities may not be enforceable against us.
We
are incorporated under the laws of the Netherlands, and our headquarters are located in Germany. Substantially all of our assets
are located outside the United States. The majority of our managing directors and supervisory directors reside outside the United
States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons
or to enforce against them or us in U.S. courts, including judgments predicated upon the civil liability provisions of the federal
securities laws of the United States.
The
United States and the Netherlands currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments,
other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in
the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable
in the Netherlands. In order to obtain a judgment which is enforceable in the Netherlands, the party in whose favor a final and
conclusive judgment of the U.S. court has been rendered will be required to file its claim with a court of competent jurisdiction
in the Netherlands. Such party may submit to the Dutch court the final judgment rendered by the U.S. court. If and to the extent
that the Dutch court finds that the jurisdiction of the U.S. court has been based on grounds which are internationally acceptable,
that the proceedings before the U.S. court complied with principles of proper procedures, that recognition and/or enforcement
of such judgment would not contravene the public policy of the Netherlands, and that recognition and/or enforcement of the judgment
is not irreconcilable with a decision of a Dutch court rendered between the same parties or with an earlier decision of a foreign
court rendered between the same parties in a dispute that is about the same subject matter and that is based on the same cause,
provided that earlier judgment can be recognized in the Netherlands, the court of the Netherlands will, in principle, give binding
effect to the judgment of the U.S. court. Dutch courts may deny the recognition and enforcement of punitive damages or other awards
on the basis that recognition and enforcement would contravene public policy of the Netherlands. Moreover, a Dutch court may reduce
the amount of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual
losses or damages. In addition, there is doubt as to whether a Dutch court would impose civil liability on us, our managing directors
or supervisory directors or certain experts named herein in an original action predicated solely upon the U.S. federal securities
laws brought in a court of competent jurisdiction in the Netherlands against us or such directors or experts, respectively. Enforcement
and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Civil Procedure
Code.
The
United States and Germany currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments,
other than arbitration awards, in civil and commercial matters. Consequently, a final judgment for payment given by a court in
the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable
in Germany. German courts may deny the recognition
and
enforcement of a judgment rendered by a U.S. court if they consider the U.S. court not to be competent or the decision not in
line with German public policy principles. For example, recognition of court decisions based on class actions brought in the United
States typically raises public policy concerns and judgments awarding punitive damages are generally not enforceable in Germany.
In
addition, actions brought in a German court against us, our managing directors or supervisory directors, our senior management
and the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions.
In particular, German courts generally do not award punitive damages. Litigation in Germany is also subject to rules of procedure
that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings
and the allocation of costs. Proceedings in Germany would have to be conducted in the German language and all documents submitted
to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor
to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws
against us, our managing directors or supervisory directors, our senior management and the experts named in this prospectus supplement.
Based
on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or managing directors or supervisory
directors, officers or certain experts named herein who are residents of the Netherlands, Germany, or other countries other than
the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal
securities laws.
In
the past, we had identified material weaknesses in our internal control over financial reporting. If the since-implemented internal
controls fail to be effective, such failure could result in material misstatements in our financial statements, cause investors
to lose confidence in our reported financial and other public information and have a negative effect on 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. Section 404 of the
Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting
and evaluate the effectiveness thereof. A material weakness is a deficiency or a combination of deficiencies in internal control
over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements
will not be prevented or detected on a timely basis. In connection with the preparation of our financial statements for the year
ended December 31, 2013, we identified material weaknesses in our internal controls related to deficiencies in our design and
operating effectiveness of internal controls, in our financial reporting processes and in our controls related to management’s
review of our financial results. Since the identification of the material weaknesses in internal controls over financial reporting
we have been implementing additional internal controls over financial reporting, and no material weaknesses were identified in
connection with the preparation of our financial statements for the year ended December 31, 2014. If the since-implemented internal
controls fail to be effective in the future, it could result in material misstatements in our financial statements, impair our
ability to raise revenue, result in the loss of investor confidence in the reliability of our financial statements and subject
us to regulatory scrutiny and sanctions, which in turn could harm the market value of our common shares.
We
will be required to disclose changes made in our internal controls and procedures and our management will be 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 could be an “emerging growth company” for a period of
five years following the completion of our initial public offering (2019). 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.
We
may be classified as a “passive foreign investment company” (a “PFIC”) in 2015 or any future years. U.S.
investors may suffer adverse U.S. federal income tax consequences if we are a PFIC for any taxable year.
Under
the Internal Revenue Code of 1986, as amended, we will be a PFIC for any taxable year in which, after the application of certain
“look-through” rules with respect to subsidiaries, either (i) 75% or more of our gross
income
consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consist of assets that
produce, or are held for the production of, “passive income.” Passive income generally includes interest, dividends,
rents, certain non-active royalties and capital gains. Based on certain estimates, including as to the relative values of our
assets, we do not believe that we were a PFIC for our 2014 taxable year. However, there can be no assurance that the IRS will
agree with this conclusion. In addition, whether we will be a PFIC in 2015 or any future years is uncertain because, among other
things, (i) we currently own, and will own after the completion of this offering, a substantial amount of passive assets, including
cash, and (ii) the valuation of our assets that generate non-passive income for PFIC purposes, including our intangible assets,
is uncertain and may vary substantially over time. Accordingly, there can be no assurance that we will not be a PFIC for any taxable
year.
If
we are a PFIC for any taxable year during which a U.S. investor holds common shares, we generally would continue to be treated
as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds common shares, even
if we ceased to meet the threshold requirements for PFIC status. Such a U.S. investor may be subject to adverse tax consequences,
including (i) the treatment of all or a portion of any gain on disposition as common income, (ii) the application of a deferred
interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements. We
do not intend to provide the information that would enable investors to take a qualified electing fund (“QEF”) election
that could mitigate the adverse U.S. federal income tax consequences should we be classified as a PFIC.
Description
of Share Capital and Articles of Association
General
We
were incorporated pursuant to the laws of the Netherlands as Affimed Therapeutics B.V. in May 2014 to become a holding company
for Affimed Therapeutics AG prior to consummation of our initial public offering. Affimed Therapeutics AG was founded in 2000
as a spin-off from Deutsches Krebsforschungszentrum, the German Cancer Research Centre, or the DKFZ, by Professor Melvyn Little
in Heidelberg, Germany. Pursuant to the terms of a corporate reorganization that was completed prior to the consummation of our
initial public offering, all of the interests in Affimed Therapeutics AG were exchanged for newly issued common shares of Affimed
Therapeutics B.V. and, as a result, Affimed Therapeutics AG became a wholly owned subsidiary of Affimed Therapeutics B.V. Prior
to consummation of our initial public offering, we converted into a public company with limited liability (
naamloze vennootschap
)
pursuant to a Deed of Amendment and Conversion, and our legal name is now Affimed N.V.
We
are registered with the Trade Register of the Chamber of Commerce (
handelsregister van de Kamer van Koophandel
) under number
60673389 0000. Our corporate seat is in Amsterdam, the Netherlands, and our registered office is in Heidelberg, Germany.
Our
authorized share capital is €1,100,000, divided into 55,000,000 common shares, each with a nominal value of €0.01 and
55,000,000 cumulative preferred shares, each with a nominal value of €0.01, and our issued share capital is €332,594
as of October 14, 2015.
We
have adopted an anti-takeover measure pursuant to which our management board may, subject to supervisory board approval but without
shareholder approval, issue (or grant the right to acquire) cumulative preferred shares. We may issue an amount of cumulative
preferred shares up to 100% of our issued capital immediately prior to the issuance of such preferred shares. In such event, the
cumulative preferred shares will be issued to a separate, newly established foundation, which will be structured to operate independently
of us. If the management board determines to issue the cumulative preferred shares to such a foundation, the foundation’s
articles of association will provide that it will act to serve the best interests of us, our associated business and all
parties
connected to us, by opposing any influences that conflict with these interests and threaten to undermine our continuity, independence
and identity.
The
cumulative preferred shares will be issued to the foundation for their nominal value, of which only 25% will be due upon issuance.
In accordance with Dutch law, the voting rights of our shares are based on their nominal value and as we expect our common shares
to trade substantially in excess of nominal value, cumulative preferred shares issued at nominal value can obtain significant
voting power for a substantially reduced price and thus be used as a defensive measure. These cumulative preferred shares will
have both a liquidation and dividend preference over our common shares and will accrue cash dividends at a fixed rate.
The
management board may issue these cumulative preferred shares to protect us from influences that do not serve our best interests
and threaten to undermine our continuity, independence and identity. These influences may include a third-party acquiring a significant
percentage of our common shares, the announcement of a public offer for our common shares, other concentration of control over
our common shares or any other form of pressure on us to alter our strategic policies.
Under
Dutch law, our authorized share capital is the maximum capital that we may issue without amending our Articles of Association.
An amendment of our Articles of Association would require a resolution of the general meeting of shareholders upon proposal by
the management board with the prior approval of the supervisory board.
Initial
settlement of any common shares to be issued pursuant to this prospectus will take place through The Depository Trust Company,
or DTC, in accordance with its customary settlement procedures for equity securities. Each person owning common shares held through
DTC must rely on the procedures thereof and on institutions that have accounts therewith to exercise any rights of a holder of
the common shares.
Stock
Exchange Listing
Our
common shares are listed on the Nasdaq Global Market under the symbol “AFMD.”
Articles
of Association and Dutch Law
We
amended our Articles of Association in connection with our initial public offering and converted our company from a Dutch private
company with limited liability (
besloten vennootschap met beperkte aansprakelijkheid
) into a Dutch public company with
limited liability (
naamloze vennootschap
) as part of our corporate reorganization.
Set
forth below is a summary of relevant information concerning our share capital and material provisions of our Articles of Association
and applicable Dutch law. This summary does not constitute legal advice regarding those matters and should not be regarded as
such.
Company’s
Shareholders’ Register
Subject
to Dutch law and the Articles of Association, we must keep our shareholders’ register accurate and up-to-date. The management
board keeps our shareholders’ register and records names and addresses of all holders of shares, showing the date on which
the shares were acquired, the date of the acknowledgement by or notification of us as well as the amount paid on each share. The
register also includes the names and addresses of those with a right of use and enjoyment (
vruchtgebruik
) in shares belonging
to another or a pledge in respect of such shares. There is no restriction on the ownership of our shares. Any common shares to
be issued pursuant to this prospectus will be held through DTC, therefore DTC or its nominee will be recorded in the shareholders’
register as the holder of the common shares.
Corporate
Objectives
Pursuant
to the Articles of Association, our corporate objectives are:
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·
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the
research, development, manufacture and commercialization of products for the detection,
prevention and treatment of human and non-human diseases and conditions and to provide
services therewith;
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·
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to
incorporate, participate in, conduct the management of and take any other financial interest
in other companies and enterprises;
|
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·
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to
render administrative, technical, financial, economic or managerial services to other
companies, persons or enterprises;
|
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·
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to
acquire, dispose of manage and exploit real and personal property, including patents,
marks, licenses, permits and other intellectual property rights;
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·
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to
borrow and/or lend moneys, act as surety or guarantor in any other manner, and bind itself
jointly and severally or otherwise in addition to or on behalf of others; and
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·
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the
foregoing, whether or not in collaboration with third parties, and inclusive of the performance
and promotion of all activities which directly and indirectly relate to those objects,
all this in the broadest sense.
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Limitation
on Liability and Indemnification Matters
Under
Dutch law, managing directors and supervisory directors and certain other officers may be held liable for damages in the event
of improper or negligent performance of their duties. They may be held jointly and severally liable for damages to the Company
and to third parties for infringement of the Articles of Association or of certain provisions of the Dutch Civil Code. In certain
circumstances, they may also incur additional specific civil and criminal liabilities. Our Articles of Association provide for
indemnification of our current and former managing directors and supervisory directors. Managing directors and supervisory directors
and certain other officers are also insured under an insurance policy taken out by us against damages resulting from their conduct
when acting in the capacities as such directors or officers.
Shareholders’
Meetings and Consents
General
Meeting
General
meetings of shareholders may be held in Amsterdam, Rotterdam, The Hague, Arnhem, Utrecht or the municipality of Haarlemmermeer
(Schiphol Airport), the Netherlands. The annual general meeting of shareholders must be held within six months of the end of each
financial year. Additional extraordinary general meetings of shareholders may also be held, whenever considered appropriate by
the management board or the supervisory board. Pursuant to Dutch law, one or more shareholders, who jointly represent at least
one-tenth of the issued capital may, on their application, be authorized by a Dutch district court to convene a general meeting
of shareholders. The district court shall disallow the application if it does not appear that the applicants have previously requested
the management board and the supervisory board to convene a general meeting of shareholders and neither the management nor the
supervisory board has taken the necessary steps so that the general meeting of shareholders could be held within six weeks after
the request.
General
meetings of shareholders can be convened by a notice, which shall include an agenda stating the items to be discussed, including
for the annual general meeting of shareholders, among other things, the adoption of the annual accounts, appropriation of our
profits and proposals relating to the composition of the management board or supervisory board, including the filling of any vacancies
in the management board or supervisory board. In addition, the agenda shall include such items as have been included therein by
the management board or supervisory board. The agenda shall also include such items requested by one or more shareholders, and
others entitled to attend general meetings of shareholders, representing at least 3% of the issued share capital. Requests must
be made in writing and received by the management board at least 60 days before the day of the convocation of the meeting. No
resolutions shall be adopted on items other than those which have been included in the agenda. In accordance with the Dutch Corporate
Governance Code, or DCGC, a shareholder shall exercise the right of putting an item on the agenda only after consulting the management
board in that respect. If one or more shareholders intend to request that an item be put on the agenda that may result in a change
in the company’s strategy, the management board may invoke a response time of a maximum of 180 days until the day of the
general meeting of shareholders.
The
general meeting is presided over by the chairman of the supervisory board. However, the chairman may charge another person to
preside over the general meeting in his place even if he himself is present at the meeting. If the chairman of the supervisory
board is absent and he has not charged another person to preside over the meeting in
his place, the supervisory directors present
at the meeting shall appoint one of them to be chairman. If no supervisory directors are present at the general meeting, the general
meeting is to be presided over by one of the managing directors designated for that purpose by the management board. Managing
directors and supervisory directors may attend a general meeting of shareholders. In these meetings, they have an advisory vote.
The chairman of the meeting may decide at its discretion to admit other persons to the meeting.
All
shareholders and others entitled to attend general meetings of shareholders are authorized to attend the general meeting of shareholders,
to address the meeting and, in so far as they have such right, to vote.
Quorum
and Voting Requirements
Each
common share confers the right on the holder to cast one vote at the general meeting of shareholders. Shareholders may vote by
proxy. No votes may be cast at a general meeting of shareholders on shares held by us or our subsidiaries or on shares for which
we or our subsidiaries hold depositary receipts. Nonetheless, the holders of a right of use and enjoyment (
vruchtgebruik
)
and the holders of a right of pledge in respect of shares held by us or our subsidiaries in our share capital are not excluded
from the right to vote on such shares, if the right of use and enjoyment (
vruchtgebruik
) or the right of pledge was granted
prior to the time such shares were acquired by us or any of our subsidiaries. Neither we nor any of our subsidiaries may cast
votes in respect of a share on which we or such subsidiary holds a right of use and enjoyment (
vruchtgebruik
) or a right
of pledge. Shares which are not entitled to voting rights pursuant to the preceding sentences will not be taken into account for
the purpose of determining the number of shareholders that vote and that are present or represented, or the amount of the share
capital that is provided or that is represented at a general meeting of shareholders.
Decisions
of the general meeting of shareholders are taken by an absolute majority of votes cast, except where Dutch law or the Articles
of Association provide for a qualified majority or unanimity.
Directors
Election
of Directors
Under
our Articles of Association, our managing directors and supervisory directors are appointed by the general meeting of shareholders
upon a binding nomination by our supervisory board. The general meeting of shareholders may overrule the binding nomination by
a resolution adopted with a two-thirds majority of the votes cast representing at least half of the issued share capital. If the
general meeting of shareholders overrules the binding nomination, the supervisory board shall make a new binding nomination.
Duties
and Liabilities of Directors
Under
Dutch law, the management board is responsible for our management, strategy, policy and operations. The supervisory board is responsible
for supervising the conduct of and providing advice to the management board and for supervising our business generally. Furthermore,
each member of the management board and the supervisory board has a duty to act in the corporate interest of the company. Under
Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as shareholders, creditors, employees,
customers and suppliers. The duty to act in the corporate interest of the company also applies in the event of a proposed sale
or break-up of the company, whereby the circumstances generally dictate how such duty is to be applied. Any resolution of the
management board regarding a significant change in our identity or character requires shareholder approval.
Dividends
and Other Distributions
Amount
Available for Distribution
We
may only make distributions to our shareholders if our shareholders’ equity exceeds the sum of the paid-in and called-up
share capital plus the reserves as required to be maintained by Dutch law or by the Articles of Association. Under the Articles
of Association, if any of the cumulative preferred shares are outstanding, a dividend is first paid out of the profit, if available
for distribution, on the cumulative preferred shares. Any amount remaining out of the profit is carried to reserve as the management
board determines, subject to the approval of the supervisory board. After reservation by the management board of any profit, the
remaining profit will be at the disposal of the general meeting of shareholders.
We
only make a distribution of dividends to our shareholders after the adoption of our annual accounts demonstrating that such distribution
is legally permitted. The management board is permitted, subject to certain requirements and subject to approval of the supervisory
board, to declare interim dividends without the approval of the general meeting of shareholders.
Dividends
and other distributions shall be made payable not later than the date determined by the management board. Claims to dividends
and other distributions not made within five years from the date that such dividends or distributions became payable, will lapse
and any such amounts will be considered to have been forfeited to us (
verjaring
).
We
do not anticipate paying any cash dividends for the foreseeable future.
Exchange
Controls
Under
existing laws of the Netherlands, there are no exchange controls applicable to the transfer to persons outside of the Netherlands
of dividends or other distributions with respect to, or of the proceeds from the sale of, shares of a Dutch company.
Squeeze
out Procedures
Pursuant
to Section 92a, Book 2, Dutch Civil Code, a shareholder who for his own account holds at least 95% of our issued share capital
may initiate proceedings against the other shareholders jointly for the transfer of their shares to such shareholder. The proceedings
are held before the Enterprise Chamber of the Amsterdam Court of Appeal, or the Enterprise Chamber, and can be instituted by means
of a writ of summons served upon each of the other shareholders in accordance with the provisions of the Dutch Code of Civil Procedure
(
Wetboek van Burgerlijke Rechtsvordering
). The Enterprise Chamber may grant the claim for squeeze out in relation to the
other shareholders and will determine the price to be paid for the shares, if necessary after appointment of one or three experts
who will offer an opinion to the Enterprise Chamber on the value to be paid for the shares of the other shareholders. Once the
order to transfer becomes final before the Enterprise Chamber, the person acquiring the shares shall give written notice of the
date and place of payment and the price to the holders of the shares to be acquired whose addresses are known to him. Unless the
addresses of all of them are known to the acquiring person, such person is required to publish the same in a daily newspaper with
a national circulation.
Obligation
to Disclose Holdings and Transactions
Pursuant
to the Dutch Financial Markets Supervision Act (
Wet op het financieel toezicht
, or the FMSA), any member of our management
board and our supervisory board and any other person who has managerial or co-managerial responsibilities in respect of us or
who has the authority to make decisions affecting our future developments and business prospects and who may have regular access
to inside information relating, directly or indirectly, to us, must give written notice to the Netherlands Authority for the Financial
Markets (
Stichting Autoriteit Financiële Markten
, or AFM) by means of a standard form of any transactions conducted
for his own account relating to our shares or in financial instruments the value of which is also based on the value of our shares.
Furthermore,
in accordance with the FMSA and the regulations promulgated thereunder, certain persons who are closely associated with our managing
directors and supervisory directors or any of the other persons as described above, are required to notify the AFM of any transactions
conducted for their own account relating to our shares or in financial instruments the value of which is also based on the value
of our shares. The FMSA and the regulations promulgated thereunder cover the following categories of persons: (1) the spouse or
any partner considered by national law as equivalent to the spouse, (2) dependent children, (3) other relatives who have shared
the same household for at least one year at the relevant transaction date, and (4) any legal person, trust or partnership whose
managerial responsibilities, among other things, are discharged by a person referred to under (1), (2) or (3) above or by the
relevant member of our supervisory board or other person with any authority in respect of us as described above.
The
AFM must be notified no later than the fifth business day following the relevant transaction date. Under certain circumstances,
notification may be postponed until the date the value of the transactions performed for that person’s own account, together
with transactions carried out by the persons closely associated with that person, amounts to €5,000 or more in the calendar
year in question.
Non-compliance
with the notification obligations under the FMSA could lead to criminal fines, administrative fines, imprisonment or other sanctions.
In addition, non-compliance with some of the notification obligations under the FMSA may lead to civil sanctions, including suspension
of the voting rights relating to our shares held by the offender for a period of not more than three years and a prohibition to
own shares or voting rights on our shares for a period of not more than five years.
The
AFM does not issue separate public announcements of notifications received by it. It does, however, keep a public register of
all notifications under the FMSA on its website, http://www.afm.nl. Third parties can request to be notified automatically by
e-mail of changes to the public register in relation to a particular company’s shares or a particular notifying party.
The
FMSA contains rules intended to prevent market abuse, such as insider trading, tipping and market manipulation.
Pursuant
to the rules intended to prevent market abuse, we have adopted an internal code on inside information in respect of the holding
of and carrying out of transactions by our managing directors and supervisory directors and employees in our shares or in financial
instruments the value of which is determined by the value of our shares. Furthermore, we have drawn up a list of those persons
working for us who could have access to inside information on a regular or incidental basis and have informed such persons of
the rules on insider trading and market manipulation, including the sanctions which can be imposed in the event of a violation
of those rules.
Comparison
of Dutch Law and our Articles of Association and U.S. Corporate Law
The
following comparison between Dutch corporation law, which applies to us, and Delaware corporation law, the law under which many
publicly listed corporations in the United States are incorporated, discusses additional matters not otherwise described in this
prospectus. Although we believe this summary is materially accurate, the summary is subject to Dutch law, including Book 2 of
the Dutch Civil Code and the DCGC and Delaware corporation law, including the Delaware General Corporation Law.
Corporate
Governance
Duties
of directors
The
Netherlands.
We have a two-tier board structure consisting of our management board (
raad van bestuur
) and a separate
supervisory board (
raad van commissarissen
).
Under
Dutch law, the management board is collectively responsible for the management and the strategy, policy and operations of the
company. The supervisory board is responsible for supervising the conduct of and providing advice to the management board and
for supervising the business generally. Furthermore, each member of the management board and the supervisory board has a duty
to act in the corporate interest of the company and the business connected with it. Under Dutch law, the corporate interest extends
to the interests of all corporate stakeholders, such as shareholders, creditors, employees, customers and suppliers. The duty
to act in the corporate interest of the company also applies in the event of a proposed sale or break-up of the company, whereby
the circumstances generally dictate how such duty is to be applied.
Delaware
.
The board of directors bears the ultimate responsibility for managing the business and affairs of a corporation. In discharging
this function, directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and to its stockholders.
Delaware courts have decided that the directors of a Delaware corporation are required to exercise informed business judgment
in the performance of their duties. Informed business judgment means that the directors have informed themselves of all material
information reasonably available to them. Delaware courts have also imposed a heightened standard of conduct upon directors of
a Delaware corporation who take any action designed to defeat a threatened change in control of the corporation. In addition,
under Delaware law, when the board of directors of a Delaware corporation approves the sale or break-up of a corporation, the
board of directors may, in certain circumstances, have a duty to obtain the highest value reasonably available to the stockholders.
Director
terms
The
Netherlands
. Under Dutch law, managing directors and supervisory directors of a listed company are generally appointed for
an individual term of a maximum of four years. There is no limit to the number of consecutive terms managing directors may serve.
For supervisory directors, a limit of twelve years generally applies. Our managing directors are appointed by the general meeting
of shareholders for an indefinite period of time. Our supervisory directors are also appointed by the general meeting of shareholders
for a term of up to four years. A supervisory director may be reappointed for a term of up to four years at a time. A supervisory
director may be a supervisory director for a period not longer than twelve years, which period may or may not be interrupted,
unless the general meeting of shareholders resolves otherwise.
The
supervisory board has drawn up a resignation schedule for the supervisory directors.
The
general meeting of shareholders shall at all times be entitled to suspend or dismiss a member of the management board or supervisory
board. The general meeting of shareholders may only adopt a resolution to suspend or dismiss such a member with a two thirds majority
of the votes cast, if such majority represents more than half of the issued share capital, unless the proposal was made by the
supervisory board, in which case a simple majority is sufficient. The supervisory board may at all times suspend (but not dismiss)
a member of the management board.
Delaware
.
The Delaware General Corporation Law generally provides for a one-year term for directors, but permits directorships to be divided
into up to three classes with up to three-year terms, with the years for each class expiring in different years, if permitted
by the certificate of incorporation, an initial bylaw or a bylaw adopted by the stockholders. A director elected to serve a term
on a “classified” board may not be removed by stockholders without cause. There is no limit in the number of terms
a director may serve.
Director
vacancies
The
Netherlands
. Under Dutch law, new managing directors and supervisory directors are appointed by the general meeting of shareholders.
Under our Articles of Association, our managing directors and supervisory directors are appointed by the general meeting of shareholders
upon the binding nomination by our supervisory board. However, the general meeting of shareholders may at all times overrule the
binding nomination with a two thirds majority of the votes cast, if such majority represents more than half of the issued share
capital. If the general meeting of shareholders overrules the binding nomination, the supervisory board shall make a new binding
nomination.
Delaware
.
The Delaware General Corporation Law provides that vacancies and newly created directorships may be filled by a majority of the
directors then in office (even though less than a quorum) unless (i) otherwise provided in the certificate of incorporation or
bylaws of the corporation or (ii) the certificate of incorporation directs that a particular class of stock is to elect such director,
in which case any other directors elected by such class, or a sole remaining director elected by such class, will fill such vacancy.
Conflict-of-interest
transactions
The
Netherlands
. Managing directors and supervisory directors shall not take part in any discussion or decision-making that involves
a subject or transaction in relation to which he or she has a personal conflict of interest with the company or the business connected
with it. Our Articles of Association provide that if as a result thereof no resolution of the management board can be adopted,
the resolution is adopted by the supervisory board. If as a result of the conflict of interest of supervisory directors no resolution
of the supervisory board can be adopted, the resolution can nonetheless be adopted by the supervisory board. In that case, each
supervisory board member is entitled to participate in the discussion and decision making process of the supervisory board and
to cast a vote.
Delaware
.
The Delaware General Corporation Law generally permits transactions involving a Delaware corporation and an interested director
of that corporation if:
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the
material facts as to the director’s relationship or interest are disclosed and
a majority of disinterested directors consent;
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the
material facts are disclosed as to the director’s relationship or interest and
a majority of shares entitled to vote thereon consent; or
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the
transaction is fair to the corporation at the time it is authorized by the board of directors,
a committee of the board of directors or the stockholders.
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Proxy
voting by directors
The
Netherlands
. An absent member of the management board may issue a proxy for a specific management board meeting but only to
another management board member in writing. An absent member of the supervisory board may issue a proxy for a specific supervisory
board meeting but only to another supervisory board member in writing.
Delaware
.
A director of a Delaware corporation may not issue a proxy representing the director’s voting rights as a director.
Dutch
Corporate Governance Code
The
DCGC contains both principles and best practice provisions for management boards, supervisory boards, shareholders and general
meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. A copy of the DCGC
can be found on
www.corpgov.nl
. As a Dutch company, we are subject to the DCGC and are required to disclose in our annual
report, filed in the Netherlands, whether we comply with the provisions of the DCGC. If we do not comply with the provisions of
the DCGC (for example, because of a conflicting Nasdaq requirement or otherwise), we must list the reasons for any deviation from
the DCGC in our annual report. Our most substantial deviations from the DCGC are summarized below.
Remuneration
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We
have granted and intend to grant options and restricted stock units in the future to
members of our supervisory board, which qualifies as a deviation from best practice provision
III.7.1 of the DCGC.
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Re-pricing
of stock options
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We
are following home country rules relating to the re-pricing of stock options under the
2014 Plan. Under applicable Dutch law, re-pricing of stock options is permissible, but
constitutes a deviation from best practice provision II.2.7 of the DGCG where it concerns
the stock options granted to our managing directors and supervisory directors.
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Board
nominations and shareholder voting
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Pursuant
to our articles of association, the supervisory board will nominate one or more candidates
for each vacant seat on the management board or the supervisory board. A resolution of
our general meeting of shareholders to appoint a member of the management board or the
supervisory board other than pursuant to a nomination by our supervisory board requires
at least two-thirds of the votes cast representing more than half of our issued share
capital, which qualifies as a deviation from best practice provision IV.1.1 of the DCGC.
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Independence
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More
than one of our current members of the supervisory board are not deemed independent based
on the standards set out in the DCGC, which qualifies as a deviation from best practice
provisions III.2.1 and III.2.2 of the DCGC.
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Shareholder
rights
Voting
rights
The
Netherlands. In accordance with Dutch law and our Articles of Association, each issued common share and each issued cumulative
preferred share confers the right to cast one vote at the general meeting of shareholders.
Each holder of shares may cast as many
votes as it holds shares. Shares that are held by us or our direct or indirect subsidiaries do not confer the right to vote.
In
accordance with our Articles of Association, for each general meeting of shareholders, the management board may determine that
a record date will be applied in order to establish which shareholders are entitled to attend and vote at the general meeting
of shareholders. Such record date shall be the 28th day prior to the day of the general meeting. The record date and the manner
in which shareholders can register and exercise their rights will be set out in the notice of the meeting.
Delaware
.
Under the Delaware General Corporation Law, each stockholder is entitled to one vote per share of stock, unless the certificate
of incorporation provides otherwise. In addition, the certificate of incorporation may provide for cumulative voting at all elections
of directors of the corporation, or at elections held under specified circumstances. Either the certificate of incorporation or
the bylaws may specify the number of shares and/or the amount of other securities that must be represented at a meeting in order
to constitute a quorum, but in no event will a quorum consist of less than one third of the shares entitled to vote at a meeting.
Stockholders
as of the record date for the meeting are entitled to vote at the meeting, and the board of directors may fix a record date that
is no more than 60 nor less than 10 days before the date of the meeting, and if no record date is set then the record date is
the close of business on the day next preceding the day on which notice is given, or if notice is waived then the record date
is the close of business on the day next preceding the day on which the meeting is held. The determination of the stockholders
of record entitled to notice or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, but the board
of directors may fix a new record date for the adjourned meeting.
Shareholder
proposals
The
Netherlands
. Pursuant to our Articles of Association, extraordinary general meetings of shareholders will be held whenever
our supervisory board or management board deems such to be necessary. Pursuant to Dutch law, one or more shareholders representing
at least one-tenth of the issued capital may, on their application, be authorized by a Dutch district court to convene a general
meeting of shareholders. The district court shall disallow the application if it does not appear that the applicants have previously
requested the management board and the supervisory board to convene a general meeting of shareholders and neither the management
nor the supervisory board has taken the necessary steps so that the general meeting of shareholders could be held within six weeks
after the request.
Also,
the agenda for a general meeting of shareholders shall include such items requested by one or more shareholders, and others entitled
to attend general meetings of shareholders, representing at least 3% of the issued share capital, except where the articles of
association state a lower percentage. Our Articles of Association do not state such lower percentage. Requests must be made in
writing and received by the management board at least 60 days before the day of the convocation of the meeting. In accordance
with the DCGC, a shareholder shall exercise the right of putting an item on the agenda only after consulting the management board
in that respect. If one or more shareholders intend to request that an item be put on the agenda that may result in a change in
the company’s strategy, the management board may invoke a response time of a maximum of 180 days until the day of the general
meeting of shareholders.
Delaware
.
Delaware law does not specifically grant stockholders the right to bring business before an annual or special meeting. However,
if a Delaware corporation is subject to the SEC’s proxy rules, a stockholder who owns at least $2,000 in market value, or
1% of the corporation’s securities entitled to vote, and has owned such securities for at least one year, may propose a
matter for a vote at an annual or special meeting in accordance with those rules.
Action
by written consent
The
Netherlands
. Under Dutch law, shareholders’ resolutions may be adopted in writing without holding a meeting of shareholders,
provided that (i) the articles of association allow such action by written consent, (ii) all shareholders agree on this practice
for decision making and (iii) the resolution is adopted unanimously by all shareholders that are entitled to vote. The requirement
of unanimity renders the adoption of shareholder resolutions without holding a meeting not feasible for publicly traded companies.
Therefore, our Articles of Association do not provide for shareholder action by written consent.
Delaware
.
Although permitted by Delaware law, publicly listed companies do not typically permit stockholders of a corporation to take action
by written consent.
Appraisal
rights
The
Netherlands
. The concept of appraisal rights is not known as such under Dutch law.
However,
in accordance with the directive 2005/56/EC of the European Parliament and the Council of 26 October 2005 on cross-border mergers
of limited liability companies, Dutch law provides that, to the extent that the acquiring company in a cross-border merger is
organized under the laws of another EU member state, a shareholder of a Dutch disappearing company who has voted against the cross-border
merger may file a claim with the Dutch company for compensation. Such compensation is to be determined by one or more independent
experts. The shares of such shareholder that are subject to such claim will cease to exist as of the moment of effectiveness of
the cross-border merger. Payment by the acquiring company is only possible if the resolution to approve the cross-border merger
by the corporate body of the other company or companies involved in the cross- border merger includes the acceptance of the rights
of the shareholders of the Dutch company to oppose the cross-border merger.
Delaware
.
The Delaware General Corporation Law provides for stockholder appraisal rights, or the right to demand payment in cash of the
judicially determined fair value of the stockholder’s shares, in connection with certain mergers and consolidations.
Shareholder
suits
The
Netherlands
. In the event a third party is liable to a Dutch company, only the company itself can bring a civil action against
that party. The individual shareholders do not have the right to bring an action on behalf of the company. Only in the event that
the cause for the liability of a third party to the company also constitutes a tortious act directly against a shareholder does
that shareholder have an individual right of action against such third party in its own name. The Dutch Civil Code provides for
the possibility to initiate such actions collectively. A foundation or an association whose objective is to protect the rights
of a group of persons having similar interests can institute a collective action. The collective action itself cannot result in
an order for payment of monetary damages but may only result in a declaratory judgment (
verklaring voor recht
). In order
to obtain compensation for damages, the foundation or association and the defendant may reach—often on the basis of such
declaratory judgment—a settlement. A Dutch court may declare the settlement agreement binding upon all the injured parties
with an opt-out choice for an individual injured party. An individual injured party may also itself—outside the collective
action—institute a civil claim for damages.
Delaware
.
Under the Delaware General Corporation Law, a stockholder may bring a derivative action on behalf of the corporation to enforce
the rights of the corporation. An individual also may commence a class action suit on behalf of himself and other similarly situated
stockholders where the requirements for maintaining a class action under Delaware law have been met. A person may institute and
maintain such a suit only if that person was a stockholder at the time of the transaction which is the subject of the suit. In
addition, under Delaware case law, the plaintiff normally must be a stockholder at the time of the transaction that is the subject
of the suit and throughout the duration of the derivative suit. Delaware law also requires that the derivative plaintiff make
a demand on the directors of the corporation to assert the corporate claim before the suit may be prosecuted by the derivative
plaintiff in court, unless such a demand would be futile.
Repurchase
of shares
The
Netherlands
. Under Dutch law, when issuing shares, a public company with limited liability such as ours may not subscribe
for newly issued shares in its own capital. Such company may, however, subject to certain restrictions of Dutch law and its articles
of association, acquire shares in its own capital. A listed public company with limited liability may acquire fully paid shares
in its own capital at any time for no valuable consideration. Furthermore, subject to certain provisions of Dutch law and its
articles of association, such company may repurchase fully paid shares in its own capital if (i) the company’s shareholders’
equity less the payment required to make the acquisition does not fall below the sum of paid-up and called-up capital and any
reserves required by Dutch law or its articles of association and (ii) the company and its subsidiaries would not thereafter hold
shares or hold a pledge over shares with an aggregate par value exceeding 50% of its then current issued share capital. Such
company
may only acquire its own shares if its general meeting of shareholders has granted the management board the authority to effect
such acquisitions.
An
acquisition of common shares for a consideration must be authorized by our general meeting of shareholders. Such authorization
may be granted for a maximum period of 18 months and must specify the number of common shares that may be acquired, the manner
in which common shares may be acquired and the price limits within which common shares may be acquired. Authorization is not required
for the acquisition ofcommon shares in order to transfer them to our employees. The actual acquisition may only be effected by
a resolution of our management board. At the general meeting held at June 9, 2015, the general meeting of shareholders authorized
our management board acting with the approval of our supervisory board, for a period of 18 months (until December 9, 2016) to
cause the repurchase of common shares by us of up to 10% of our issued share capital, for a price per share not exceeding 110%
of the most recent closing price of a common share on any stock exchange where the common shares are listed.
No
authorization of the general meeting of shareholders is required if common shares are acquired by us with the intention of transferring
such common shares to our employees under an applicable employee stock purchase plan.
If
we would decide to repurchase any of our shares, no votes could be cast at a general meeting of shareholders on the shares held
by us or our subsidiaries or on shares for which we or our subsidiaries hold depositary receipts. Nonetheless, the holders of
a right of use and enjoyment (
vruchtgebruik
) and the holders of a right of pledge in respect of shares held by us or our
subsidiaries in our share capital are not excluded from the right to vote on such shares, if the right of use and enjoyment (
vruchtgebruik
)
or the right of pledge was granted prior to the time such shares were acquired by us or any of our subsidiaries. Neither we nor
any of our subsidiaries may cast votes in respect of a share on which we or such subsidiary holds a right of use and enjoyment
(
vruchtgebruik
) or a right of pledge.
Delaware
.
Under the Delaware General Corporation Law, a corporation may purchase or redeem its own shares unless the capital of the corporation
is impaired or the purchase or redemption would cause an impairment of the capital of the corporation. A Delaware corporation
may, however, purchase or redeem out of capital any of its preferred shares or, if no preferred shares are outstanding, any of
its own shares if such shares will be retired upon acquisition and the capital of the corporation will be reduced in accordance
with specified limitations.
Anti-Takeover
Provisions
The
Netherlands
. Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch
law and Dutch case law. We have adopted several provisions that may have the effect of making a takeover of our company more difficult
or less attractive, including:
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the
authorization of a class of preferred shares that may be issued by our management board
to a friendly party, subject to the approval of our supervisory board, in such a manner
as to dilute the interest of any potential acquirer;
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the
staggered four-year terms of our supervisory directors, as a result of which only approximately
one-fourth of our managing directors and supervisory directors will be subject to election
in any one year;
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a
provision that our managing directors and supervisory directors may only be removed at
the general meeting of shareholders by a two-thirds majority of votes cast representing
at least 50% of our outstanding share capital if such removal is not proposed by our
supervisory board; and
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requirements
that certain matters, including an amendment of our Articles of Association, may only
be brought to our shareholders for a vote upon a proposal by our management board that
has been approved by our supervisory board.
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Delaware
.
In addition to other aspects of Delaware law governing fiduciary duties of directors during a potential takeover, the Delaware
General Corporation Law also contains a business combination statute that protects Delaware companies from hostile takeovers and
from actions following the takeover by prohibiting some transactions once an acquirer has gained a significant holding in the
corporation.
Section
203 of the Delaware General Corporation Law prohibits “business combinations,” including mergers, sales and leases
of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an interested stockholder that
beneficially owns 15% or more of a corporation’s voting stock, within three years after the person becomes an interested
stockholder, unless:
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the
transaction that will cause the person to become an interested stockholder is approved
by the board of directors of the target prior to the transactions;
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after
the completion of the transaction in which the person becomes an interested stockholder,
the interested stockholder holds at least 85% of the voting stock of the corporation
not including shares owned by persons who are directors and officers of interested stockholders
and shares owned by specified employee benefit plans; or
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after
the person becomes an interested stockholder, the business combination is approved by
the board of directors of the corporation and holders of at least 66.67% of the outstanding
voting stock, excluding shares held by the interested stockholder.
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A
Delaware corporation may elect not to be governed by Section 203 by a provision contained in the original certificate of incorporation
of the corporation or an amendment to the original certificate of incorporation or to the bylaws of the company, which amendment
must be approved by a majority of the shares entitled to vote and may not be further amended by the board of directors of the
corporation. In most cases, such an amendment is not effective until twelve months following its adoption.
Inspection
of Books and Records
The
Netherlands
. The management board and the supervisory board provide the general meeting of shareholders in good time with
all information that the shareholders require for the exercise of their powers, unless this would be contrary to an overriding
interest of us. If the management board or supervisory board invokes an overriding interest, it must give reasons.
Delaware
.
Under the Delaware General Corporation Law, any stockholder may inspect for any proper purpose certain of the corporation’s
books and records during the corporation’s usual hours of business.
Removal
of Directors
The
Netherlands
. Under our Articles of Association, the general meeting of shareholders shall at all times be entitled to suspend
or dismiss a member of the management board or supervisory board. The general meeting of shareholders may only adopt a resolution
to suspend or dismiss such a member by at least a two-thirds majority of the votes cast, if such majority represents more than
half of the issued share capital, unless the proposal was made by the supervisory board in which case a simple majority is sufficient.
Delaware
.
Under the Delaware General Corporation Law, any director or the entire board of directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to vote at an election of directors, except (i) unless the certificate
of incorporation provides otherwise, in the case of a corporation whose board is classified, stockholders may effect such removal
only for cause, or (ii) in the case of a corporation having cumulative voting, if less than the entire board is to be removed,
no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors, or, if there are classes of directors, at an election of the class of directors
of which he is a part.
Preemptive
Rights
The
Netherlands
. Under Dutch law, in the event of an issuance of common shares, each shareholder will have a pro rata preemptive
right in proportion to the aggregate nominal value of the common shares held by such holder (with the exception of common shares
to be issued to employees or common shares issued against a contribution other than in cash). Under our Articles of Association,
the preemptive rights in respect of newly issued common shares may be restricted or excluded by a resolution of the general meeting
of shareholders upon proposal of the management board, which proposal has been approved by the supervisory board.
The
management board, subject to approval of the supervisory board, may restrict or exclude the preemptive rights in respect of newly
issued common shares if it has been designated as the authorized body to do so by the general meeting of shareholders. Such designation
can be granted for a period not exceeding five years. A resolution of the general meeting of shareholders to restrict or exclude
the preemptive rights or to designate the management board as the authorized body to do so requires a majority of not less than
two-thirds of the votes cast, if less than one-half of our issued share capital is represented at the meeting.
At
a general meeting held at September 12, 2014, with effect from September 17, 2014, being the date of our conversion into a Dutch
public limited liability company prior to the consummation of our initial public offering, the general meeting of shareholders
authorized our management board acting with the approval of our supervisory board for a period of five years from the date of
the consummation of our initial public offering (until September 17, 2019) to limit or exclude preemptive rights accruing to shareholders
in connection with the issue of common shares or rights to subscribe for common shares.
No
preemptive rights apply in respect of newly issued preferred shares.
Delaware
.
Under the Delaware General Corporation Law, stockholders have no preemptive rights to subscribe for additional issues of stock
or to any security convertible into such stock unless, and to the extent that, such rights are expressly provided for in the certificate
of incorporation.
Dividends
The
Netherlands
. Dutch law provides that dividends may be distributed after adoption of the annual accounts by the general meeting
of shareholders from which it appears that such dividend distribution is allowed. Moreover, dividends may be distributed only
to the extent the shareholders’ equity exceeds the amount of the paid-up and called-up part of the issued share capital
and the reserves that must be maintained under the law or the Articles of Association. Interim dividends may be declared as provided
in the Articles of Association and may be distributed to the extent that the shareholders’ equity exceeds the amount of
the issued and paid-up and called-up part of the issued share capital and the required legal reserves as described above as apparent
from our financial statements. Under Dutch law, the Articles of Association may prescribe that the management board decide what
portion of the profits are to be held as reserves.
Under
the Articles of Association, first, a dividend is paid out of the profit, if available for distribution, on the cumulative preferred
shares. Any amount remaining out of the profit is carried to reserve as the management board determines, subject to the approval
of the supervisory board. After reservation by the management board of any profit, the remaining profit will be at the disposal
of the general meeting of shareholders. We only make a distribution of dividends to our shareholders after the adoption of our
annual accounts demonstrating that such distribution is legally permitted. The management board is permitted, subject to certain
requirements and subject to approval of the supervisory board, to declare interim dividends without the approval of the general
meeting of shareholders.
Dividends
and other distributions shall be made payable not later than the date determined by the management board. Claims to dividends
and other distribution not made within five years from the date that such dividends or distributions became payable, will lapse
and any such amounts will be considered to have been forfeited to us (
verjaring
).
Delaware
.
Under the Delaware General Corporation Law, a Delaware corporation may pay dividends out of its surplus (the excess of net assets
over capital), or in case there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year (provided that the amount of the capital of the corporation is not less than the aggregate amount of
the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets).
In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stock of subsidiaries
owned by the corporation, must be valued at their fair market value as determined by the board of directors, without regard to
their historical book value. Dividends may be paid in the form of common stock, property or cash.
Shareholder
Vote on Certain Reorganizations
The
Netherlands
. Under Dutch law, the general meeting of shareholders must approve resolutions of the management board relating
to a significant change in the identity or the character of the company or the business of the company, which includes:
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a
transfer of the business or virtually the entire business to a third party;
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the
entry into or termination of a long-term cooperation of the company or a subsidiary with
another legal entity or company or as a fully liable partner in a limited partnership
or general partnership, if such cooperation or termination is of a far-reaching significance
for the company; and
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the
acquisition or divestment by the company or a subsidiary of a participating interest
in the capital of a company having a value of at least one third of the amount of its
assets according to its balance sheet and explanatory notes or, if the company prepares
a consolidated balance sheet, according to its consolidated balance sheet and explanatory
notes in the last adopted annual accounts of the company.
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Delaware
.
Under the Delaware General Corporation Law, the vote of a majority of the outstanding shares of capital stock entitled to vote
thereon generally is necessary to approve a merger or consolidation or the sale of all or substantially all of the assets of a
corporation. The Delaware General Corporation Law permits a corporation to include in its certificate of incorporation a provision
requiring for any corporate action the vote of a larger portion of the stock or of any class or series of stock than would otherwise
be required.
Under
the Delaware General Corporation Law, no vote of the stockholders of a surviving corporation to a merger is needed, however, unless
required by the certificate of incorporation, if (i) the agreement of merger does not amend in any respect the certificate of
incorporation of thesurviving corporation, (ii) the shares of stock of the surviving corporation are not changed in the merger
and (iii) the number of shares of common stock of the surviving corporation into which any other shares, securities or obligations
to be issued in the merger may be converted does not exceed 20% of the surviving corporation’s common stock outstanding
immediately prior to the effective date of the merger. In addition, stockholders may not be entitled to vote in certain mergers
with other corporations that own 90% or more of the outstanding shares of each class of stock of such corporation, but the stockholders
will be entitled to appraisal rights.
Remuneration
of Directors
The
Netherlands
. Under Dutch law and our Articles of Association, we must adopt a remuneration policy for our managing directors.
Such remuneration policy shall be adopted by the general meeting of shareholders upon the proposal of the supervisory board. The
supervisory board determines the remuneration of the management board in accordance with the remuneration policy. A proposal with
respect to remuneration policies in the form of shares or rights to shares must be submitted to the general meeting of shareholders
for its approval.
The
general meeting may determine the remuneration of supervisory directors. The supervisory directors shall be reimbursed for their
expenses.
Delaware
.
Under the Delaware General Corporation Law, the stockholders do not generally have the right to approve the compensation policy
for directors or the senior management of the corporation, although certain aspects of executive compensation may be subject to
stockholder vote due to the provisions of U.S. federal securities and tax law, as well as exchange requirements.