Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.
See definition of “accelerated filer,” “large accelerated filer,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.:
Public health epidemics
or outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported
in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread to several other countries,
including in the United Kingdom and the United States, and infections have been reported globally. In particular, our clinical
trial sites are based in areas currently affected by coronavirus. Epidemics such as this can adversely impact our business as a
result of disruptions, such as travel bans, quarantines, and interruptions to access the trial sites and supply chain, which could
result in material delays and complications with respect to our research and development programs and clinical trials. Moreover,
as a result of coronavirus, there is a general unease of conducting unnecessary activities in medical centers. As a consequence,
our ongoing trials have been halted or disrupted. It is too early to assess the full impact of the coronavirus outbreak on trials
for nomacopan, but coronavirus is expected to affect our ability to complete recruitment in our original timeframe. The extent
to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus
or treat its impact. In particular, the continued spread of the coronavirus globally could adversely impact our operations and
workforce, including our research and clinical trials and our ability to raise capital, could affect the operations of key governmental
agencies, such as the FDA, which may delay the development of our product candidates, and could result in the inability of our
suppliers to deliver components or raw materials on a timely basis or at all, each of which in turn could have an adverse impact
on our business, financial condition and results of operation.
PART
I
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not
applicable.
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
A.
|
Selected Financial Data
|
The following selected
financial data should be read in conjunction with “Item 5 Operating and Financial Review and Prospects” and the Financial
Statements and Notes thereto included elsewhere in this Annual Report. The selected consolidated financial data in this section
is not intended to replace the consolidated financial statements and is qualified in its entirety thereby.
We have derived the
balance sheet data as of December 31, 2019 and 2018 and the consolidated statement of operations data for the years ended December
31, 2019, 2018 and 2017 from our audited financial statements included elsewhere in this Annual Report. We have derived the balance
sheet data as of December 31, 2017, 2016 and 2015 and the consolidated statement of operations data for the year ended December
31, 2016 and 2015 from our audited financial statements not included in this Annual Report. Our financial statements have been
prepared in accordance with US GAAP.
Certain factors that
affect the comparability of the information set forth in the following table are described in Item 5 “Operating and Financial
Review and Prospects” and the Consolidated Financial Statements and related notes thereto included elsewhere in this Annual
Report.
BALANCE SHEET DATA
|
|
As of December 31,
|
|
(In United States Dollars)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Total current assets
|
|
$
|
6,766,622
|
|
|
$
|
7,454,322
|
|
|
$
|
28,813,086
|
|
|
$
|
45,633,781
|
|
|
$
|
69,658,487
|
|
Total assets
|
|
|
6,801,798
|
|
|
|
8,029,554
|
|
|
|
29,050,343
|
|
|
|
45,873,678
|
|
|
|
69,893,562
|
|
Total current liabilities
|
|
|
8,574,256
|
|
|
|
4,918,267
|
|
|
|
11,848,369
|
|
|
|
11,714,768
|
|
|
|
21,124,968
|
|
Total liabilities
|
|
|
8,574,256
|
|
|
|
4,918,267
|
|
|
|
11,896,372
|
|
|
|
11,771,128
|
|
|
|
21,174,037
|
|
Capital stock
|
|
|
31,987,016
|
|
|
|
23,651,277
|
|
|
|
22,927,534
|
|
|
|
18,340,894
|
|
|
|
18,340,894
|
|
Shareholders’ (deficit) equity
|
|
|
(1,772,458
|
)
|
|
|
3,111,287
|
|
|
|
17,153,971
|
|
|
|
34,102,550
|
|
|
|
48,719,525
|
|
STATEMENT OF OPERATIONS DATA
|
|
For the Year
Ended December 31,
|
|
(In United States Dollars)
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2015
|
|
Research and development
|
|
$
|
8,739,420
|
|
|
$
|
11,795,376
|
|
|
$
|
23,285,279
|
|
|
$
|
17,306,001
|
|
|
$
|
5,799,076
|
|
General and administrative
|
|
|
8,223,700
|
|
|
|
10,896,158
|
|
|
|
11,798,910
|
|
|
|
9,940,557
|
|
|
|
5,502,214
|
|
Litigation settlement (gain) loss
|
|
|
-
|
|
|
|
(2,700,000
|
)
|
|
|
2,700,000
|
|
|
|
-
|
|
|
|
-
|
|
Excess consideration
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,293,280
|
|
Total operating expenses
|
|
|
16,963,120
|
|
|
|
19,991,534
|
|
|
|
37,784,189
|
|
|
|
27,246,558
|
|
|
|
30,584,570
|
|
Other (expense) income
|
|
|
(142,671
|
)
|
|
|
3,524,754
|
|
|
|
(2,384,932
|
)
|
|
|
(9,105,561
|
)
|
|
|
14,732,962
|
|
Net loss
|
|
|
(17,105,791
|
)
|
|
|
(16,466,780
|
)
|
|
|
(35,399,257
|
)
|
|
|
(18,140,997
|
)
|
|
|
(45,317,532
|
)
|
Net basic and diluted loss
per ordinary share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
Weighted average number
of ordinary shares (basic and diluted)
|
|
|
1,830,998,609
|
|
|
|
1,540,309,840
|
|
|
|
1,247,293,388
|
|
|
|
1,177,693,383
|
|
|
|
852,088,530
|
|
OTHER FINANCIAL DATA
|
|
For the Year
Ended December 31,
|
|
(In United States Dollars)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net cash used in operating activities
|
|
$
|
(12,918,313
|
)
|
|
$
|
(22,580,240
|
)
|
|
$
|
(31,598,708
|
)
|
|
$
|
(24,624,535
|
)
|
|
$
|
(4,965,583
|
)
|
Net cash provided by (used in) investing
activities
|
|
|
-
|
|
|
|
-
|
|
|
|
9,985,078
|
|
|
|
(10,066,632
|
)
|
|
|
1,391,798
|
|
Net cash provided by financial activities
|
|
|
12,647,953
|
|
|
|
306,232
|
|
|
|
15,671,881
|
|
|
|
-
|
|
|
|
69,044,419
|
|
B.
|
Capitalization and Indebtedness
|
Not applicable.
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
Except for the historical
information contained herein or incorporated by reference, this Annual Report on Form 20-F and the information incorporated by
reference contains forward-looking statements that involve risks and uncertainties. These statements include projections about
our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements
regarding future performance. These statements are not guarantees of future performance or events. Our actual results could differ
materially from those discussed in this Annual Report on Form 20-F. Factors that could cause or contribute to these differences
include, but are not limited to, those discussed in the following section, as well as those discussed in Item 5 entitled “Operating
and Financial Review and Prospects” and elsewhere throughout this Annual Report on Form 20-F and in any documents incorporated
in this Annual Report on Form 20-F by reference.
You should consider
carefully the following risk factors, together with all of the other information included or incorporated in this Annual Report
on Form 20-F. If any of the following risks, either alone or taken together, or other risks not presently known to us or that we
currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations
or prospects could be materially adversely affected. If that happens, the market price of our American Depositary Shares, or ADSs,
could decline, and shareholders may lose all or part of their investment.
Risks Relating to Our Financial Position
and Our Business
We have a history of operating losses
and cannot give assurance of future revenues or operating profits; investors may lose their entire investment.
We do not expect to
generate revenue or profitability that is necessary to finance our operations in the short term. We incurred net losses of $17,105,791
and $16,466,780 for the years ended December 31, 2019 and 2018, respectively. In addition, our accumulated deficit as of December
31, 2019 and 2018 was $143,909,438 and $126,803,647, respectively. Losses have principally resulted from costs incurred for manufacturing,
clinical trial and preclinical activities and general and administrative expenses. We have funded our operations primarily through
the private placement and public offering of equity securities. As of December 31, 2019, we had cash of $5,731,691.
To date, we have not commercialized any products or generated
any revenues from the sale of products, and absent the realization of sufficient revenues from product sales, we may never attain
profitability in the future. We expect to incur significant losses for the foreseeable future as we continue to conduct research
and development, clinical testing, regulatory compliance activities and, if nomacopan or other future product candidates receive
regulatory approval, sales and marketing activities.
Our failure to become
and remain profitable would depress the market price of the ADSs and could impair our ability to raise capital, expand our business,
diversify our product offerings or continue our operations. If we continue to suffer losses as we have in the past, investors may
not receive any return on their investment and may lose their entire investment.
Our auditor’s report on our
financial statements states that our recurring operating losses, negative cash flows and dependence on additional financial support
raises substantial doubt about our ability to continue as a going concern, which may have a detrimental effect on our ability to
obtain additional funding.
The report of our U.S.
independent registered public accounting firm on our financial statements for the period ended December 31, 2019, includes an explanatory
paragraph raising substantial doubt about our ability to continue as a going concern as a result of our recurring losses from operations
and net capital deficiency. Our future is dependent upon our ability to obtain financing in the future. This opinion could materially
limit our ability to raise funds. If we fail to raise sufficient capital when needed, we will not be able to complete our business
plan. As a result, we may have to liquidate our business and you may lose your investment in our ADSs.
We will require additional capital
to fund our operations, and if we are unable to obtain such capital, we will be unable to successfully develop and commercialize
any product candidates.
As of December 31,
2019, we had cash of $5,731,691. On September 26, 2018, we entered into a securities purchase agreement, or Purchase Agreement,
with Aspire Capital Fund, LLC, or Aspire Capital which provides that, upon the terms and subject to the conditions and limitations
set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of our ADSs (after giving effect
to the issuance of 5,483,333 of our ADSs through March 15, 2020 for gross proceeds of approximately $10.4 million). See “Item
5B. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Aspire Capital Financing Arrangement”.
We will require additional capital in order to develop and commercialize our current product candidates or any product candidates
that we acquire, if any. There can be no assurance that additional funds will be available when we need them on terms that are
acceptable to us, or at all. If adequate funds are not available on a timely basis, we may be required to terminate or delay development
for one or more of our product candidates.
The extent to which
we utilize the Purchase Agreement with Aspire Capital as a source of funding will depend on a number of factors, including the
prevailing market price of our ADSs, the volume of trading in our ADSs and the extent to which we are able to secure funds from
other sources. The number of ADSs that we may sell to Aspire Capital under the Purchase Agreement on any given day and during the
term of the agreement is limited. Additionally, we and Aspire Capital may not effect any sales of ADSs under the Purchase Agreement
during the continuance of an event of default or on any trading day that the closing sale price of our ADSs is less than $0.25
per share.
The amount and timing
of any expenditure needed will depend on numerous factors, some of which are outside our control, including:
|
·
|
the type, number, scope, progress, expansion costs, results
of and timing of our ongoing or future clinical trials or the need for additional clinical trials of nomacopan bullous pemphigoid,
or BP, atopic keratoconjunctivitis, or AKC, thrombotic microangiopathy, or TMA, paroxysmal nocturnal hemoglobinuria, or PNH, or
any other indications or product candidates which we are pursuing or may choose to pursue in the future;
|
|
·
|
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
|
|
·
|
the costs and timing of obtaining or maintaining manufacturing
for nomacopan for BP, AKC, TMA, PNH or any other indications or product candidates, including commercial manufacturing if any product
candidate is approved;
|
|
·
|
the costs and timing of establishing sales marketing, and reimbursement capabilities and enhanced internal controls over financial reporting;
|
|
·
|
the terms and timing of establishing and maintaining collaborations, license agreements and other partnerships;
|
|
·
|
costs associated with any new product candidates that we may develop, in-license or acquire;
|
|
·
|
the effect of competing technological and market developments; and
|
|
·
|
the costs associated with being a public company.
|
We have not sold any products, and we do not expect to sell
or derive revenue from any product sales for the foreseeable future. We may seek additional funding through future debt and equity
financing, as well as potential additional collaborations or strategic partnerships with other companies or through non-dilutive
financings. Additional funding may not be available to us on acceptable terms or at all. General market conditions may make it
very difficult for us to seek financing from the capital markets and our SEC investigation and the recent coronavirus outbreak
could impact the availability or cost of future financings. We may be required to relinquish rights to our technologies or product
candidates, or grant licenses on terms that are not favorable to us, in order to raise additional funds through alliance, joint
venture or licensing arrangements. In addition, the terms of any financing may adversely affect the holdings or the rights of our
shareholders and the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our
shares to decline.
If we are unable to obtain funding on a timely basis, we will
be unable to complete ongoing and planned clinical trials for nomacopan and we may be required to significantly curtail some or
all of our activities. We also could be required to seek funds through arrangements with collaborative partners or otherwise that
may require us to relinquish rights to our product candidates or some of our technologies or otherwise agree to terms unfavorable
to us.
Future sales and issuances of the
ADSs or rights to purchase ADSs and any equity financing that we pursue, could result in significant dilution of the percentage
ownership of our shareholders and could cause our ADS price to fall.
We may seek additional
capital through a combination of private and public equity offerings, debt financings or strategic partnerships licensing arrangements.
In any financing transaction, we may sell ordinary shares or ADSs, convertible securities or other equity securities. To the extent
that we raise additional funds by issuing equity securities (including up to an additional $9.6 million of ADSs to Aspire Capital
Fund, LLC, or Aspire Capital, as of March 15, 2020 pursuant to our financing arrangement with Aspire Capital), our shareholders
may experience significant dilution. See “Item 5B. Operating and Financial Review and Prospects — Liquidity and Capital
Resources — Aspire Capital Financing Arrangement”. To the extent
that we raise additional capital through sales of ADSs to Aspire Capital, or the sale of equity or convertible debt securities
by any other means, existing ownership interests will be diluted. The sale of a substantial number of ADSs by Aspire Capital,
or anticipation of such sales, could cause the trading price of our ADSs to decline or make it more difficult for us to sell equity
or equity-related securities in the future at a time and at a price that we might otherwise desire. However, we have the right
to control the timing and amount of sales of ADSs to Aspire Capital, and we may terminate the financing arrangement at any time,
at our discretion, without any penalty or cost to us.
Risks Related to the Clinical Development
and Regulatory Approval of Our Product Candidates
Our business depends on the success
of nomacopan, which is still under development. If we are unable to obtain regulatory approval for or successfully commercialize
nomacopan, our business will be materially harmed.
Nomacopan has been the sole focus of our product development.
Successful continued development and ultimate regulatory approval of nomacopan for at least one autoimmune disease is critical
to the future success of our business. We have invested, and will continue to invest, a significant portion of our time and financial
resources in the development of nomacopan. We will need to raise sufficient funds for, and successfully enroll and complete, our
ongoing clinical development program for nomacopan and for our planned clinical development program for nomacopan in other indications.
The future regulatory and commercial success of this product candidate is subject to a number of risks, including the following:
|
·
|
we may not have sufficient financial and other resources to complete the necessary clinical trials for nomacopan;
|
|
·
|
we may not be able to obtain adequate evidence of efficacy and safety for nomacopan;
|
|
·
|
we do not know the degree to which nomacopan will be accepted as a therapy, even if approved;
|
|
·
|
in our clinical programs, we may experience difficulty in enrollment, variability in patients, adjustments to clinical trial procedures and the need for additional clinical trial sites, which could delay our clinical trial progress;
|
|
·
|
our reliance on a sole manufacturer to supply the drug product formulation of nomacopan that is being used in our clinical trials;
|
|
·
|
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA, EMA or comparable foreign regulatory bodies for marketing approval;
|
|
·
|
patients in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to nomacopan, which could delay or prevent further clinical development;
|
|
·
|
the standards implemented by clinical or regulatory agencies may change at any time;
|
|
·
|
the FDA, EMA or foreign clinical or regulatory agencies may require efficacy endpoints for a clinical trial for the treatment of BP, AKC, TMA, or PNH that differ from the endpoints of our planned current or future trials, which may require us to conduct additional clinical trials;
|
|
·
|
the mechanism of action of nomacopan is complex and we do not
know the degree to which it will translate into a medical benefit in certain indications;
|
|
·
|
our intellectual property rights may not be patentable, valid or enforceable; and
|
|
·
|
we may not be able to obtain, maintain or enforce our patents and other intellectual property rights.
|
Of the large number of drugs in development in the pharmaceutical
industry, only a small percentage results in the submission of a new drug application, or NDA, to the FDA, or a marketing authorization
application, or MAA, to the EMA and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory
approval to market nomacopan, any such approval may be subject to limitations on the indicated uses or patient populations for
which we may market the product. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development
programs, we cannot assure you that nomacopan will be successfully developed or commercialized. If we or any of our future development
partners are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize nomacopan, we may
not be able to generate sufficient revenue to continue our business.
If we encounter difficulties enrolling
patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
We may not be able
to initiate or continue clinical trials required by the FDA, EMA or other foreign regulatory agencies for nomacopan if we are unable
to locate and enroll a sufficient number of eligible patients to participate in these clinical trials. We will be required to identify
and enroll a sufficient number of patients with BP, AKC, TMA, PNH and other rare and orphan autoimmune and inflammatory diseases
for each of our ongoing and planned clinical trials of nomacopan in these indications. To date, we have experienced delays in enrollment
of patients in our clinical trials due in particular to the fact that we are targeting a small patient population with a rare disease
or indication. In addition, as a result of the coronavirus outbreak, we halted recruitment in our Phase I/II clinical trial in
patients with AKC and we anticipate that recruitment in our Phase III clinical trial in pediatric patients with hematopoietic stem
cell transplant-associated thrombotic microangiopathy, or HSCT-TMA, will be delayed and our long-term safety program will be disrupted.
Patient enrollment
is affected by other factors, including:
|
·
|
severity of the disease under investigation;
|
|
·
|
design of the clinical trial protocol;
|
|
·
|
size and nature of the patient population;
|
|
·
|
eligibility criteria for the trial in question;
|
|
·
|
perceived risks and benefits of the product candidate under trial;
|
|
·
|
proximity and availability of clinical trial sites for prospective patients;
|
|
·
|
availability of competing therapies and clinical trials;
|
|
·
|
actual or threatened public health emergencies and outbreaks of disease (including, for example, the recent coronavirus outbreak);
|
|
·
|
clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating;
|
|
·
|
efforts to facilitate timely enrollment in clinical trials;
|
|
·
|
patient referral practices of physicians; and
|
|
·
|
our ability to monitor patients adequately during and after treatment.
|
Further, there are
only a limited number of specialist physicians that treat patients with these diseases. We also may encounter difficulties in identifying
and enrolling such patients with a stage of disease appropriate for our ongoing or future clinical trials. In addition, the process
of finding and diagnosing patients may prove costly. Our inability to enroll a sufficient number of patients for any of our clinical
trials would result in significant delays or may require us to abandon one or more clinical trials.
If clinical trials or regulatory
approval processes for nomacopan are prolonged, delayed or suspended, we may be unable to commercialize nomacopan on a timely basis.
We cannot predict whether
we will encounter problems with any of our completed, ongoing or planned clinical trials that will cause us, or any regulatory
authority, to delay or suspend those clinical trials or delay the completion of our ongoing and planned clinical trials and negatively
impact our ability to obtain regulatory approval for, and to market and sell, a particular product candidate, including:
|
·
|
conditions imposed on us by the FDA, EMA or another foreign regulatory authority regarding the scope or design of our clinical trials;
|
|
·
|
insufficient supply of our product candidates or other materials necessary to conduct and complete our clinical trials;
|
|
·
|
slow enrollment and retention rate of subjects in our clinical trials; and
|
|
·
|
serious and unexpected drug-related side effects related to the product candidate being tested.
|
Commercialization may
be delayed by the imposition of additional conditions on our clinical trials by the FDA, EMA or any other applicable foreign regulatory
authority or the requirement of additional supportive studies by the FDA, EMA or such foreign regulatory authority.
In late 2019, a novel
strain of COVID-19, also known as coronavirus, was reported in Wuhan, China and began spreading to various parts of the world.
While initially the outbreak was largely concentrated in China, it has now spread to several other countries, including in the
United Kingdom and the United States, and infections have been reported globally. In particular, our clinical trial sites for nomacopan
are based in areas currently affected by coronavirus. Epidemics such as this can adversely impact our business as a result of disruptions,
such as travel bans, quarantines, and interruptions to access the trial sites and supply chain, which could result in material
delays and complications with respect to our research and development programs and clinical trials. Moreover, as a result of coronavirus,
there is a general unease of conducting unnecessary activities in medical centers. As a consequence, our ongoing trials have been
halted or disrupted. It is too early to assess the full impact of the coronavirus outbreak on trials for nomacopan, but coronavirus
is expected to affect our ability to complete recruitment in our original timeframe. For example, we halted recruitment in our
Phase I/II clinical trial in patients with AKC study and we anticipate that recruitment in our Phase III clinical trial in pediatric
patients with HSCT-TMA will be delayed and our long-term safety study will be disrupted. The extent to which the coronavirus impacts
our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including
the duration and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact.
A health epidemic or other outbreak, including the current coronavirus outbreak, may materially and adversely affect our business,
financial condition and results of operations.
We do not know whether
our clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, if at all. However,
to date, we have encountered delays in enrollment in our clinical trials. Delays in our clinical trials will result in increased
development costs for our product candidates, and our financial resources may be insufficient to fund any incremental costs. In
addition, if our clinical trials are delayed, our competitors may be able to bring products to market before we do and the commercial
viability of our product candidates could be limited.
The efficacy of nomacopan may not
be known until advanced stages of testing, after we have incurred significant product development costs which may not be recoverable.
Nomacopan may fail to show the desired safety and efficacy at
any phase in the clinical development program. Good efficacy in animal models of the target indication are no guarantee of success
in human clinical trials. Often there is no adequate animal model of a human disease, such as PNH. As a result, the first definitive
proof of efficacy may not occur until clinical trials in humans. In our Phase II PNH trial, while we determined that overall the
trial met the primary endpoint, individually two of the seven patients who completed the trial did not meet the primary endpoint
(which was assessed at day 28) and an additional patient who withdrew from the trial on day 43 also did not meet the primary endpoint.
If nomacopan does not demonstrate adequate efficacy, its development may be delayed or terminated, which could have a material
adverse effect on our financial condition and results of operation.
Results of earlier preclinical studies
or clinical trials may not be predictive of advancement to the next phase of development.
Completion of preclinical
studies or clinical trials does not guarantee that we will initiate additional studies or trials for our product candidates. If
further studies or trials are initiated, earlier preclinical studies or clinical trials may not predict the scope and phase of
further trials, that these further studies or trials will be completed, or that if these further studies or trials are completed,
that the design or results will provide a sufficient basis to apply for or receive regulatory approvals or to commercialize products.
Results of clinical trials could be inconclusive, requiring additional or repeat trials. Data obtained from preclinical studies
and clinical trials is subject to varying interpretations that could delay, limit or prevent regulatory approval. If the design
or results achieved in our clinical trials are insufficient to proceed to further trials or to regulatory approval of our product
candidates, we could be materially adversely affected. Failure of a clinical trial to achieve its pre-specified primary endpoint
generally increases the likelihood that additional studies or trials will be required if we determine to continue development of
the product candidate, reduces the likelihood of timely development of and regulatory approval to market the product candidate,
and may decrease the chances for successfully achieving the primary endpoint in scientifically similar indications.
The route of administration or dose
for nomacopan may be inadequate.
Unsatisfactory drug
availability due to problems relating to the route of administration or the target tissue availability of the drug is another potential
cause of lack of efficacy of nomacopan, if and when it is commercialized. Complement component C5, the target of nomacopan, is
predominantly found in blood. For AKC, BP, TMA and PNH, nomacopan is being administered subcutaneously. For AKC, nomacopan is being
administered topically which may also prove to be unfeasible, which could delay commercialization of nomacopan and result in significant
additional costs to us.
Long-term animal toxicity and long-term
human safety studies of nomacopan could result in adverse results.
While we have conducted
toxicity studies in certain animals with no observed adverse effect at the highest dose tested, we intend to conduct further long-term
animal toxicity studies, including reproductive and carcinogenicity studies, and are currently conducting a long-term human safety
study of nomacopan. Such tests may show that nomacopan results in serious adverse events, is not as effective as we expected, or
other adverse results. If animal toxicity and human safety tests do not yield favorable results, we may be required to abandon
our development of nomacopan, which could have a material adverse effect on our financial condition and results of operation.
Chronic dosing of patients with nomacopan
could lead to an immune response that causes adverse reactions or impairs the activity of the drug.
There is a risk that
chronic dosing of patients with nomacopan may lead to an immune response that causes adverse reactions or impairs the activity
of the drug. Patients may develop an allergic reaction to the drug and/or develop antibodies directed at the drug. Impaired drug
activity could be caused by neutralization of the drug’s inhibitory activity or by an increased rate of clearance of the
drug from circulation.
One potential toxic
side effect of nomacopan that has occurred in patients receiving Soliris® (eculizumab), a humanized antibody against complement
component C5, may include the inhibition of the terminal complement system, which can result in an increased incidence of meningitis.
As a result, we expect that patients receiving nomacopan would also receive meningitis immunization and prophylactic antibiotics
as indicated.
Nomacopan has a secondary
binding site that sequesters LTB4. LTB4 synthesis from eicosanoid fatty acids can be induced by a variety of triggers including
complement. LTB4 is a pro-inflammatory mediator which attracts and activates white blood cells at the area of inflammation. LTB4
inhibition may lead to positive anti-inflammatory benefits, but another potential cause of undesired side effects is that the reduction
of these neutrophil attractant properties may include increased risk of infection, among others.
Any immune response
that causes adverse reactions or impairs the activity of the drug could cause a delay in or termination of our development of nomacopan, which would have a material adverse effect on our financial condition and results of operation.
If nomacopan is not convenient for
patients to use, then potential sales may decrease materially.
Nomacopan may require
refrigerated storage prior to use and will likely require self-injection. If the drug product is not stable at temperatures of
between four and eight degrees Celsius, then the drug product may need to be defrosted before use, which patients could view as
inconvenient, causing sales to decrease. In addition, if nomacopan shows a lack of long-term stability at low storage temperatures,
this may negatively impact our ability to manage the commercial supply chain, which could result in us having to refund customers
or replace products that are unstable, which could materially increase our costs and have a material adverse effect on our financial
condition and results of operation.
Because nomacopan has not yet received
regulatory approval, it is difficult to predict the time and cost of development and our ability to successfully complete clinical
development and obtain the necessary regulatory approvals for commercialization.
Nomacopan has not yet
received regulatory approval for the treatment of any indications, and unexpected problems may arise that could cause us to delay,
suspend or terminate our development efforts. To date, only a limited number of patients have been enrolled in our clinical
trials. Larger scale trials will be required to obtain regulatory approval and the efficacy or non-efficacy of nomacopan
will ultimately be determined by the applicable regulatory agencies. The long-term safety consequences of inhibition of C5 and/or
LTB4 with nomacopan is not known. Regulatory approval of product candidates such as nomacopan can be more expensive and take longer
than approval for candidates for the treatment of more well understood diseases with previously approved products.
We have obtained orphan drug status
for nomacopan in Guillain-Barré syndrome, or GBS, HSCT-TMA, PNH and BP, but we may be unable to maintain the benefits associated
with orphan drug status, including market exclusivity.
In the United States,
orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial
costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and
its potential orphan use are disclosed publicly by the FDA. Although we have received orphan drug designation for nomacopan in
GBS, HSCT-TMA, PNH and BP and intend to seek orphan product designation for nomacopan in further indications, we may never receive
such additional designations and we are not currently pursuing a clinical development program targeting GBS.
If a product that has
orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which
it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other
applications, including a biologics license application, or BLA, to market the same biologic for the same indication for seven
years, except in limited circumstances such as a showing of clinical superiority to the product with orphan product exclusivity
or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient
quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Even
if we were to obtain orphan drug designation for nomacopan for a particular indication, we may not be the first to obtain marketing
approval for any particular orphan indication due to the uncertainties associated with developing pharmaceutical products. If we
do obtain exclusive marketing rights in the United States, they may be limited if we seek approval for an indication broader than
the orphan designated indication, and may be lost if the FDA later determines that the request for designation was materially defective
or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of the relevant patients. Further,
exclusivity may not effectively protect the product from competition because different drugs with different active moieties can
be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve a drug with the same
active moiety for the same condition if the FDA concludes that the later drug is safer, more effective, or makes a major contribution
to patient care. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.
In the EU, where a
marketing authorization in respect of an orphan medicinal product is granted, the Agency and the Member States shall not, for a
period of 10 years, accept another application for a marketing authorization, or grant a marketing authorization or accept an application
to extend an existing marketing authorization, for the same therapeutic indication, in respect of a similar medicinal product.
A marketing authorization may be granted, for the same therapeutic indication, to a similar medicinal product if: (i) the holder
of the marketing authorization for the original orphan medicinal product has given his consent to the second applicant, or; (ii)
the holder of the marketing authorization for the original orphan medicinal product is unable to supply sufficient quantities of
the medicinal product, or; (iii) the second applicant can establish in the application that the second medicinal product, although
similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior.
The receipt of orphan
drug designation status does not change the regulatory requirements or process for obtaining marketing approval and designation
does not mean that marketing approval will be received.
We may seek a breakthrough therapy
designation from the FDA for nomacopan. Such designation or a similar designation from other national or international regulatory
agencies, may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood
that nomacopan or any other product candidates will receive marketing approval.
We may seek a breakthrough
therapy designation for nomacopan. A breakthrough therapy is defined as a product that is intended, alone or in combination with
one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates
that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.
Designation as a breakthrough therapy is within the discretion of the FDA. Receipt of a breakthrough therapy designation for nomacopan
may not result in a faster development process, review or approval compared to products considered for approval under conventional
FDA procedures and does not assure ultimate approval by the FDA. In addition, even if nomacopan qualifies as a breakthrough therapy,
the FDA may later decide that it no longer meets the conditions for qualification.
Even if we obtain FDA approval of
nomacopan, we or our partners may never obtain approval or commercialize our product candidates outside of the United States and,
conversely, even if we obtain regulatory approval of nomacopan in the EU, we or our partners may never obtain approval or commercialize
our product candidates outside the EU.
In order to market
any products in a country, we must establish and comply with numerous and varying regulatory requirements of other countries regarding
clinical trial design, 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 other countries 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 and could delay
or prevent introduction of nomacopan in those countries. We rely on contract research organizations for experience in obtaining
regulatory approval in international markets. If we or our partners fail to comply with regulatory requirements or to obtain and
maintain required approvals, our target market will be reduced and our ability to realize the full market potential of nomacopan
will be harmed.
If we or our partners market products
in a manner that violates fraud and abuse and other healthcare laws, or if we or they violate government price reporting laws,
we or our partners may be subject to administrative civil and/or criminal penalties.
In addition to FDA
restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws, including those
commonly referred to as “fraud and abuse” laws have been applied in recent years to restrict certain marketing practices
in the pharmaceutical industry. These laws include, among others, false claims and anti-kickback statutes. At such time, if ever,
as we or any of our partners market any of our future approved products, it is possible that some of the business activities of
us and/or our partners could be subject to challenge under one or more of these laws.
Federal false claims,
false statements and civil monetary penalties laws prohibit any person from knowingly presenting, or causing to be presented, a
false claim for payment to the federal government or to get a false claim paid. The federal healthcare program anti-kickback statute
prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in
return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable
under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements
between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although
there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, they
are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject
to scrutiny if they do not qualify for an exception or safe harbor.
In addition, we and/or our partners may
be subject to data privacy and security regulation, including the Health Insurance Portability and Accountability Act of 1996,
or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective
implementing regulations, which impose specified requirements relating to the privacy, security and transmission of individually
identifiable health information.
Most states also have
statutes or regulations similar to these federal laws, which may apply to items such as pharmaceutical products and services reimbursed
by private insurers. We and/or our partners may be subject to administrative, civil and criminal sanctions for violations of any
of these federal and state laws.
Our employees, principal investigators,
consultants, commercial partners or vendors may engage in misconduct or other improper activities, including non-compliance with
regulatory standards.
We are also exposed
to the risk of employees, independent contractors, principal investigators, consultants, commercial partners or vendors engaging
in fraud or other misconduct. Misconduct by employees, independent contractors, principal investigators, consultants, commercial
partners and vendors could include intentional failures to comply with European Union, or EU, regulations, to provide accurate
information to the EMA or EU Member States authorities or to comply with manufacturing or quality standards we have or will have
established. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws
and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices such as promotion of
products by medical practitioners. Of general application are the European Anti-Fraud Office Regulation 883/2013, and the UK Bribery
Act 2010. Under the latter, a commercial organization can be guilty of the offence if the bribery is carried out by an employee,
agent, subsidiary, or another third-party, and the location of the third-party is irrelevant to the prosecution. The advertising
of medicinal products in the EU is regulated by Title VIII of European Directive 2001/83/EC. The corresponding UK implementing
legislation is Part 14 of the Human Medicines Regulations 2012 (S.I. 2012/1916 as amended). Such laws and regulations may restrict
or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Misconduct could also involve the improper use of information obtained in the course of clinical studies,
which could result in regulatory sanctions and serious and irreparable harm to our reputation.
This could also apply
with respect to data privacy. In the EU, on May 25, 2018 the EU Directive 95/46/EEC and the UK Data Protection Act 1998 were replaced
by the General Data Protection Regulation (EU) 2016/679, or GDPR, on the protection of natural persons with regard to the processing
of personal data and on the free movement of such data and, in the UK, the Data Protection Act 2018. The GDPR applies directly
in all Member States (including the UK) from May 25, 2018 and applies to companies with an establishment in the EEA and to certain
other companies not in the EEA that offer or provide goods or services to individuals located in the EEA or monitor the behavior
of individuals located in the EEA. The GDPR implements more stringent operational requirements for controllers of personal data,
including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information,
increased requirements pertaining to health data and pseudonymized (i.e., key-coded) data, increased cyber security requirements,
mandatory data breach notification requirements and higher standards for controllers to demonstrate that they have obtained a valid
legal basis for certain data processing activities. The activities of data processors are being regulated for the first time, and
require companies undertaking processing activities to offer certain guarantees in relation to the security of such processing
and the handling of personal data. Contracts with data processors will also need to be updated to include certain terms prescribed
by the GDPR, and negotiating such updates may not be fully successful in all cases. The GDPR provides that EU Member States may
make their own further laws and regulations in relation to the processing of genetic, biometric or health data, which could result
in differences between Member States, limit our ability to use and share personal data or could cause our costs to increase, and
harm our business and financial condition. We are also subject to evolving and strict rules on the transfer of personal data out
of the European Union to the United States. Further prospective revision of the Directive on privacy and electronic communications
(Directive 2002/58/EC), or ePrivacy Directive, may affect our marketing communications. Failure to comply with EU laws, including
failure under the GDPR, Data Protection Act 2018, ePrivacy Directive and other laws relating to the security of personal data may
result in fines up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, if
greater, and other administrative penalties including criminal liability, which may be onerous and adversely affect our business,
financial condition, results of operations and prospects. Failure to comply with the GDPR and related laws may also give risk to
increase risk of private actions from data subjects and consumer not-for-profit organizations, including a new form of class action
that is available under the GDPR. Compliance with the GDPR requires a rigorous and time-intensive process that may increase our
cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be
subject to the aforementioned fines and penalties, litigation, and reputational harm in connection with any European activities.
If no transitional arrangements are agreed by the UK government, the GDPR will no longer form part of UK law after the withdrawal
of the UK from the European Union. On such event, the Data Protection Act 2018, will continue to apply and the extra-territorial
aspects of the GDPR will apply but there may be an adverse effect on the ease to which personal data can be transferred from and
to the remaining EU Member States. In particular, the two-way free flow of personal data currently in place between the UK and
EEA countries will cease to apply if the UK leaves the EU without a withdrawal agreement that specifically provides for the continued
flow of personal data.
It is not always possible
to identify and deter misconduct by employees or other parties. The precautions we take to detect and prevent this activity may
not protect us from legal or regulatory action resulting from a failure to comply with applicable laws or regulations. Misconduct
by our employees, principal investigators, consultants, commercial partners or vendors could result in significant financial penalties,
criminal sanctions and thus have a material adverse effect on our business, including through the imposition of significant fines
or other sanctions, and our reputation.
Risks Related to our Intellectual Property
Our success depends on our ability
to protect our intellectual property and our proprietary technologies.
Our commercial success
depends in part on our ability to obtain and maintain patent protection and trade secret protection for our product candidates,
proprietary technologies, and their uses as well as our ability to operate without infringing upon the proprietary rights of others.
We can provide no assurance that our patent applications or those of our licensors will result in additional patents being issued
or that issued patents will afford sufficient protection against competitors with similar technologies, nor can there be any assurance
that the patents issued will not be infringed, designed around or invalidated by third parties. Even issued patent may later be
found unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in
courts. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may
not adequately protect our rights or permit us to gain or keep any competitive advantage. Composition-of-matter patents on the
biological or chemical active pharmaceutical ingredients are generally considered to offer the strongest protection of intellectual
property and provide the broadest scope of patent protection for pharmaceutical products, as such patents provide protection without
regard to any method of use or any method of manufacturing. While we have issued composition-of-matter patents in the United States
and other countries for nomacopan, we cannot be certain that the claims in our issued composition-of-matter patents will not be
found invalid or unenforceable if challenged. We cannot be certain that the claims in any patent applications covering composition-of-matter
or formulations of our product candidates that are pending, or that we may file, will be considered patentable by the United States
Patent and Trademark Office, or USPTO, and courts in the United States or by the patent offices and courts in foreign countries,
nor can we be certain that the claims in our issued composition-of-matter patents will not be found invalid or unenforceable if
challenged. Even if any patent applications that we may file relating to specific formulations of our product candidates issue
as patents, formulation patents protect a specific formulation of a product and may not be enforced against competitors making
and marketing a product that has the same active pharmaceutical ingredient in a different formulation. Method-of-use patents protect
the use of a product for the specified method or for treatment of a particular indication. This type of patent may not be enforced
against competitors making and marketing a product that has the same active pharmaceutical ingredient but is used for a method
not included in the patent. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians
may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement
of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.
Our issued patents
for nomacopan and its uses are expected to expire between 2024 and 2031 (excluding any patent term adjustment or potential patent
term extension). Our pending patent applications for nomacopan and its uses, if issued, are expected to expire at various times
that range from 2024 to 2039 (excluding any potential patent term adjustment or extension).
The patent application
process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development
partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties
include the following:
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the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case;
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patent applications may not result in any patents being issued;
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patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;
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our competitors, many of whom have substantially greater resources and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use, and sell our potential product candidates;
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there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and
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countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates.
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In addition, we rely
on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and
unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions
agreements with employees, consultants and advisors, we cannot provide any assurances that all such agreements have been duly executed,
and third parties may still obtain this information or may come upon this or similar information independently. Additionally, if
the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for
misappropriating its trade secrets. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary
know-how, our business may be harmed.
Others may claim an ownership interest
in our intellectual property, which could expose it to litigation and have a significant adverse effect on its prospects.
A third party may claim
an ownership interest in one or more of our patents or other intellectual property. A third party could bring legal actions against
us and seek monetary damages and/or enjoin clinical testing, manufacturing and marketing of the affected product or products. We
cannot guarantee that a third-party will not assert a claim or an interest in any of such patents or intellectual property. If
we become involved in any litigation, it could consume a substantial portion of our resources, and cause a significant diversion
of effort by our technical and management personnel. If any of these actions are successful, in addition to any potential liability
for damages, we could be required to obtain a license to continue to manufacture or market the affected product, in which case
we may be required to pay substantial royalties or grant cross-licenses to our patents. We cannot, however, assure you that any
such license will be available on acceptable terms, if at all. Ultimately, we could be prevented from commercializing a product,
or be forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other
IP rights, Further, the outcome of IP litigation is subject to uncertainties that cannot be adequately quantified in advance, including
the demeanor and credibility of witnesses and the identity of the adverse party. This is especially true in IP cases that may turn
on the testimony of experts as to technical facts upon which experts may reasonably disagree.
Risks Related to our Business Operations
Our business may be adversely affected
by the impact of coronavirus.
Public health epidemics
or outbreaks could adversely impact our business. In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported
in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread to several other countries,
including in the United Kingdom and the United States, and infections have been reported globally. Epidemics such as this can adversely
impact our business as a result of disruptions, such as travel bans, quarantines, and interruptions to access the trial sites and
supply chain, which could result in material delays and complications with respect to our research and development programs and
clinical trials. Moreover, as a result of coronavirus, there is a general unease of conducting unnecessary activities in medical
centers. As a consequence, our ongoing trials have been halted or disrupted. It is too early to assess the full impact of the coronavirus
outbreak on trials for nomacopan, but coronavirus may affect our ability to complete recruitment in our original timeframe. For
example, we have halted our Phase I/II clinical trial in patients with AKC study and we anticipate that recruitment in our Phase
III clinical trial in pediatric patients with HSCT-TMA will be delayed and our long-term safety program will be disrupted. The
extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot
be predicted with confidence, including the duration and severity of the outbreak, and the actions that may be required to contain
the coronavirus or treat its impact. In particular, the continued spread of the coronavirus globally could adversely impact our
operations and workforce, including our research and clinical trials and our ability to raise capital, could affect the operations
of key governmental agencies, such as the FDA, which may delay the development of our product candidates, and could result in the
inability of our suppliers to deliver components or raw materials on a timely basis or at all, each of which in turn could have
an adverse impact on our business, financial condition and results of operation.
We are under an investigation by
the SEC, which could divert management’s focus, result in substantial investigation expenses, monetary fines and other possible
remedies and have an adverse impact on our reputation and financial condition and results of operations.
We voluntarily reported
to the SEC the circumstances leading to the withdrawal of the Edison Report and the outcome of our special committee’s investigation.
In response, the SEC requested certain documents from us with respect to the matters we reported. We have been cooperating with
the SEC’s requests for information. On June 5, 2018, we received a
subpoena from the SEC, which requested further documents and information primarily related to our Phase II PNH clinical trial of
nomacopan. We responded to the subpoena and will continue to cooperate with the SEC. We
cannot predict what, if any, actions the SEC may take or the timing or duration of the investigation. If
the SEC were to conclude that enforcement action is appropriate, we could be required to pay civil penalties and fines, and the
SEC could impose other sanctions against us or against our current and former officers and directors. In addition, our board of
directors, management and employees may expend a substantial amount of time on the SEC investigation, diverting resources and attention
that would otherwise be directed toward our operations and implementation of our business strategy, all of which could materially
adversely affect our business, financial condition, results of operations or cash flows. Furthermore, while the SEC
has informed us that the investigation should not be construed as an indication by the SEC or its staff that any violation of law
has occurred, nor as a reflection upon any person, entity or security, publicity surrounding the foregoing, or any SEC enforcement
action or settlement as a result of the SEC’s investigation, even if ultimately resolved favorably for us, could have an
adverse impact on our reputation, business, financial condition, results of operations or cash flows.
We currently have no marketing, sales
or distribution infrastructure with respect to nomacopan. If we are unable to develop our sales, marketing and distribution capability
on our own or through collaborations with marketing partners, we will not be successful in commercializing our product candidates.
We currently have no
marketing, sales or distribution capabilities and have limited sales or marketing experience within our organization. If our product
candidate nomacopan is approved, we intend either to establish a sales and marketing organization with technical expertise and
supporting distribution capabilities to commercialize nomacopan, or to outsource this function to a third party. Either of these
options would be expensive and time consuming. Some or all of these costs may be incurred in advance of any approval of nomacopan. In addition, we may not be able to hire a sales force in the United States or other target market 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 or third
parties’ internal sales, marketing and distribution capabilities would adversely impact the commercialization of nomacopan
and other future product candidates.
With respect to our
existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces and established
distribution systems, either to augment or to serve as an alternative to our own sales force and distribution systems. Any future
product revenue may be lower than if it 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 parties, 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, our future product revenue will suffer
and we may incur significant additional losses.
We only have a limited number of
employees to manage and operate our business.
As of December 31,
2019, we had ten full-time employees. Our focus on the development of nomacopan requires us to optimize cash utilization and to
manage and operate our business in a highly efficient manner. We cannot assure you that we will be able to hire and/or retain adequate
staffing levels to develop nomacopan or run our operations and/or to accomplish all of the objectives that we otherwise would seek
to accomplish.
Our industry is highly competitive,
and our product candidates may become obsolete.
We are engaged in a
rapidly evolving field. Competition from other pharmaceutical companies, biotechnology companies and research and academic institutions
is intense and likely to increase. Many of those companies and institutions have substantially greater financial, technical and
human resources than us. Those companies and institutions also have substantially greater experience in developing products, conducting
clinical trials, obtaining regulatory approval and in manufacturing and marketing pharmaceutical products. Our competitors may
succeed in obtaining regulatory approval for their products more rapidly than we do. Competitors have developed or are in the process
of developing technologies that are, or in the future may be, the basis for competitive products, such as Alexion Pharmaceuticals’
Soliris® (eculizumab). Our competitors may succeed in developing products that are
more effective and/or cost competitive than those we are developing, or that would render our product candidates less competitive
or even obsolete. In addition, one or more of our competitors may achieve product commercialization or patent protection earlier
than us, which could materially adversely affect our business.
If the FDA or other applicable regulatory
authorities approve generic products that compete with any of our or any of our partners’ product candidates, the sales of
our product candidates would be adversely affected.
Once an NDA or marketing
authorization application outside the United States is approved, the product covered thereby becomes a “listed drug”
that can, in turn, be cited by potential competitors in support of approval of an abbreviated new drug application in the United
States. Agency regulations and other applicable regulations and policies provide incentives to manufacturers to create modified,
non-infringing versions of a drug to facilitate the approval of an abbreviated new drug application or other application for generic
substitutes in the United States and in nearly every pharmaceutical market around the world. These generic equivalents, which must
meet the same quality standards as branded pharmaceuticals, would be significantly less costly to bring to market than our product
candidates, and companies that produce generic equivalents are generally able to offer their products at lower prices. Thus, after
the introduction of a generic competitor, a significant percentage of the sales of any branded product is typically lost to the
generic product. Accordingly, competition from generic equivalents to our or any of our partners’ future products, if any,
could materially adversely impact our future revenue, profitability and financial condition.
If physicians and patients do not
accept our future products or if the market for indications for which any product candidate is approved is smaller than expected,
we may be unable to generate significant revenue, if any.
Even if any of our
product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-party
payers. Physicians may decide not to recommend its treatments for a variety of reasons including:
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timing of market introduction of competitive products;
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demonstration of clinical safety and efficacy compared to other products;
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limited or no coverage by third-party payers;
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convenience and ease of administration;
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prevalence and severity of adverse side effects;
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restrictions in the label of the drug;
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other potential advantages of alternative treatment methods; and
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ineffective marketing and distribution support of any future products.
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If any of our product
candidates are approved, but fail to achieve market acceptance or such market is smaller than anticipated, we may not be able to
generate significant revenue and our business would suffer.
The uncertainty associated with pharmaceutical
reimbursement and related matters may adversely affect our business.
Market acceptance and sales of any one or more of our product
candidates will depend on reimbursement policies and may be affected by future healthcare reform measures in the United States
and in foreign jurisdictions. Government authorities and third-party payers, such as private health insurers and health maintenance
organizations, decide which drugs they will cover and establish payment levels. We cannot be certain that reimbursement will be
available for any of our product candidates. Also, we cannot be certain that reimbursement policies will not reduce the demand
for, or the price paid for, any future products. The insurance coverage and reimbursement status of newly-approved products for
orphan diseases is particularly uncertain, and failure to obtain or maintain adequate coverage and reimbursement for nomacopan
or any other product candidates could limit our ability to generate revenue.
The United States and
several foreign jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change
the healthcare system in ways that could affect our ability to sell any future products profitably. 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 pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale
of any products that we develop due to the trend toward managed healthcare, increasing influence of health maintenance organizations
and additional legislative proposals.
In March 2010, the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, PPACA,
became law in the United States. Since its enactment, there have been judicial and Congressional challenges to certain aspects
of the PPACA. Congress and President Trump have expressed their intentions to repeal or repeal and replace the PPACA. President
Trump issued an Executive Order and both chambers of Congress passed bills, all with the goal of fulfilling their intensions. However,
to date, the Executive Order has had limited effect and the Congressional activities have not resulted in the passage of a law.
If a law is enacted, many if not all of the provisions of the PPACA may no longer apply to prescription drugs. While we are unable
to predict what changes may ultimately be enacted, to the extent that future changes affect how any future products are paid for
and reimbursed by government and private payers our business could be adversely impacted. On December 14, 2018, a federal district
court in Texas ruled that the PPACA is unconstitutional as a result of the Tax Cuts and Jobs Act, the federal income tax reform
legislation previously passed by Congress and signed by President Trump on December 22, 2017, that eliminated the individual mandate
portion of the PPACA. The case, Texas, et al, v. United States of America, et al., (N.D. Texas), is an outlier, but in 2019, the
Fifth Circuit Court of Appeals subsequently upheld the lower court decision, which was then appealed to the United States Supreme
Court. The U.S. Supreme Court declined to hear the appeal on an expedited basis and so no decision will be forthcoming until the
next Supreme Court term in late 2020 or early 2021. We are not able to state with any certainty what the impact of this court decision
will be on our business pending further court action and possible appeals.
In the fourth quarter
of 2018, the Trump Administration announced initiatives that it asserted are intended to result in purportedly lower drug prices.
The first initiative, announced on October 15, 2018, involved the plan to a new federal regulation that would require pharmaceutical
manufacturers to disclose the list prices of their respective prescription drugs in their television advertisements for their products
if the list price is greater than $35 USD. With respect to the second initiative, on October 25, 2018, the Centers for Medicaid
and Medicare Services gave Advance Notice of Proposed Rulemaking to propose the implementation of an “International Pricing
Index” model for Medicare Part B drugs and biologicals (single source drugs, biologicals, and biosimilars). Public comments
were due on December 31, 2018 with a proposed rule theoretically being offered as early as Spring 2019 with target implementation
of a 5 year pilot program beginning in Spring 2020. While these initiatives have not been put into effect, we are not in a position
to know at this time whether they will ever become law or what impact the enactment either of these proposals would have on our
business.
In February 2019, the
Department of Health and Human Services has proposed a regulation that would significantly restrict the availability of certain
regulatory safe harbors under the federal Anti-Kickback Statute that are used to facilitate certain types of transactions between
manufacturers and pharmacy benefits managers that play a significant role in the pharmaceutical distribution chain. These changes
to the Discount Safe Harbors available under the Anti-Kickback Statute would reduce some of the protections currently available
to manufacturers that pay negotiated rebates to pharmacy benefits managers in exchange for these “PBMs” agreeing to
include drugs and biologics on the formularies of the PBM’s downstream customers, primarily the health plans that insure
patients for both private commercial plans and government-sponsored plans. While we do not know whether the Trump Administration
will be successful in implementing this proposed regulation, its successful implementation could have an impact on both our commercial
supply arrangements with health plans and our supply arrangements to health plans that serve beneficiaries of federal health care
programs such as Medicare Part D.
On January 5, 2017, the Health Resources and Services Administration
(HRSA) at the U.S. Department of Health and Human Services (HHS) issued a final rule implementing Civil Monetary Penalties for
manufacturers who knowingly and intentionally charge a covered entity more than the 340B ceiling price for a covered outpatient
drug, as well as providing clarity as to the calculation of the 340B ceiling price. The final rule became effective on January
1, 2019. Since the final rule became effective, the HRSA has audited a number of manufacturers and concluded that they violated
the 340B ceiling price requirement in some instances, suggesting that manufacturers are now at a higher risk of enforcement action
for ceiling price noncompliance.
If any product liability lawsuits are successfully brought
against us or any of our collaborative partners, 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 partners 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, which may result in:
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decreased demand for any of 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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significant litigation costs;
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substantial monetary awards to or costly settlements 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 associated with illness or other adverse
effects resulting from patients’ use or misuse of our products or any similar products distributed by other companies.
Although we currently
carry clinical trial insurance, the amount of such insurance coverage may not be adequate. In addition, we will need to obtain
more comprehensive insurance and 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.
We enter into various contracts in
the normal course of our business in which we indemnify the other party to the contract. In the event we have to perform under
these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course
of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting, investor relations
and other agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically
indemnify the institution and related parties from losses arising from claims relating to the products, processes or services made,
used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our
sublicensees’ exercise of rights under the agreement. With respect to our commercial agreements, we indemnify our vendors
from any third-party product liability claims that could result from the production, use or consumption of the product, as well
as for alleged infringements of any patent or other intellectual property right by a third party. With respect to investor relations
agreements, we may indemnify the counterparty for losses resulting from our negligence or our supply of inaccurate information.
Should our obligation
under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business,
financial condition and results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify
us and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage
and does not have other assets available to indemnify us, our business, financial condition and results of operations could be
adversely affected.
Our business and operations would
suffer in the event of computer system failures or security breaches.
Despite the implementation
of security measures, our internal computer systems, and those of our contract research organizations, or CROs and other third
parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters,
fire, terrorism, war, and telecommunication and electrical failures. If such an event were to occur and interrupt our
operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical
trial data from ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in
a loss of or damage to our data or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary
information, including protected health information or personal data of employees or former employees, access to our clinical data,
or disruption of the manufacturing process, we could incur liability and the further development of our drug candidates could be
delayed. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This type of breach
of our cybersecurity may compromise our confidential information and/or our financial information and adversely affect our business
or result in legal proceedings. Further, these cybersecurity breaches may inflict reputational harm upon us that may
result in decreased market value and erode public trust.
We or the third parties upon whom
we depend may be adversely affected by natural disasters and/or health epidemics, and our business continuity and disaster recovery
plans may not adequately protect us from a serious disaster
Natural disasters could
severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition
and prospects. If a natural disaster, power outage, health epidemics or other event occurred that prevented us from using all or
a significant portion of our office, manufacturing and/or lab spaces, that damaged critical infrastructure, such as the manufacturing
facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain
cases, impossible for us to continue our business for a substantial period of time.
In late 2019, a novel
strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely concentrated
in China, it has now spread to several other countries, including in the United Kingdom and the United States, and infections have
been reported globally. Epidemics such as this can adversely impact our business as a result of disruptions, such as travel bans,
quarantines, and interruptions to access the trial sites and supply chain, which could result in material delays and complications
with respect to our research and development programs and clinical trials. Moreover, as a result of coronavirus, there is a general
unease of conducting unnecessary activities in medical centers. As a consequence, our ongoing trials have been halted or disrupted.
It is too early to assess the full impact of the coronavirus outbreak on trials for nomacopan, but coronavirus may affect our ability
to complete recruitment in our original timeframe. For example, we have halted our Phase I/II clinical trial in patients with AKC
study and we anticipate that recruitment in our Phase III clinical trial in pediatric patients with HSCT-TMA will be delayed and
our long-term safety program will be disrupted. The extent to which the coronavirus impacts our operations will depend on future
developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak,
and the actions that may be required to contain the coronavirus or treat its impact. In particular, the continued spread of the
coronavirus globally could adversely impact our operations and workforce, including our research and clinical trials and our ability
to raise capital, could affect the operations of key governmental agencies, such as the FDA, which may delay the development of
our product candidates, and could result in the inability of our suppliers to deliver components or raw materials on a timely basis
or at all, each of which in turn could have an adverse impact on our business, financial condition and results of operation.
If we fail to develop and commercialize
other product candidates, we may be unable to grow our business.
Although the development and commercialization of nomacopan
is our primary focus, as part of our longer-term growth strategy, we plan to evaluate the development and commercialization of
other therapies related to immune-mediated, inflammatory, orphan and other diseases. We may from time to time evaluate internal
opportunities from our current product candidates, and also may choose to in-license or acquire other product candidates as well
as commercial products to treat patients suffering from immune-mediated, orphan or other disorders with high unmet medical needs
and limited treatment options. These other product candidates will require additional, time-consuming development efforts prior
to commercial sale, including preclinical studies, clinical trials and approval by the FDA, EMA and/or applicable foreign regulatory
authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development,
including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory
authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically,
successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives.
The departure of former executive
officers creates uncertainties and could have a material adverse impact on our business.
Our success depends,
and will likely continue to depend, upon our ability to hire and retain the services of our current executive officers, directors,
principal consultants and others. In addition, we have established relationships with universities and research institutions which
have historically provided, and continue to provide, us with access to research laboratories, clinical trials, facilities and patients.
The loss of the services of any of these individuals or institutions has had and could have a material adverse effect on our business.
Dov
Elefant resigned as our Chief Financial Officer in September 2019. In May 2018, David Horn Solomon resigned as Chief Executive
Officer and member of our board. Dr. Solomon’s resignation followed the
results of an investigation conducted, with the assistance of an independent law firm, which revealed that Dr. Solomon incurred
personal charges on the Company’s corporate credit cards in violation of Company policy. Clive Richardson,
who was then serving as our Chief Operating Officer, was appointed to serve as our Interim Chief Executive Officer and in the second
quarter of 2019 as permanent Chief Executive Officer. Previously, in December 2017 our former Chief Legal & Compliance
Officer was terminated without cause and in May 2017 our former Chief Executive Officer who preceded David Horn Solomon also resigned. We
face significant competition for executives with the qualifications and experience we are seeking. There can be no assurances concerning
the timing or outcome of our search for any new executive officer.
Changes in our organization
as a result of recent departures have been harmful to our reputation and had a disruptive impact on our ability to implement our
strategy and have had an adverse effect on our business, internal controls, financial condition and
results of operations. As a result of the recent changes in our management team, our existing management team has taken on
substantially more responsibility, which has resulted in greater workload demands and could divert their attention away from certain
key areas of our business. Management transition inherently causes some loss of institutional knowledge, which can negatively affect
strategy and execution. We may be unable to successfully manage and grow our business, and our results of operations, internal
controls and financial condition could suffer as a result. We carry "key person" life insurance policies on
our Chief Executive Officer. Our future success also depends on our continuing ability to identify, hire, train and retain other
highly qualified technical and managerial personnel. Competition for these personnel is intense, especially in the life science
industry.
Class action lawsuits against us
could lead to adverse outcomes.
We have in the past
been, and may in the future become subject to class action litigation. In May 2017, putative class actions asserting violations
of Sections 10(b) and 20(a) of the Exchange Act, based primarily on our press releases or statements concerning the Phase II PNH
trial of nomacopan and a report issued on April 26, 2017 titled “Akari’s Coversin matches Soliris® in
Phase II”, or the Edison Report, by Edison Investment Research Ltd, or Edison, about us and actions taken by us after the
report was issued were commenced in the U.S. District Court for the Southern District of New York against us, a former Chief Executive
Officer and our Chief Financial Officer. These actions were consolidated, and plaintiffs amended their pleadings to include our
Executive Chairman and Edison as defendants. On June 8, 2018, the parties entered into a memorandum of understanding to settle
plaintiffs’ claims for a total payment of $2.7 million in cash. On July 26, 2018, plaintiffs filed a notice with the Court
voluntarily dismissing Edison from the action. On August 3, 2018, the remaining parties executed and filed a stipulation and agreement
of settlement (the terms of which were consistent with the memorandum of understanding). On August 7, 2018, the Court granted plaintiffs’
motion for preliminary approval of the settlement, and on November 28, 2018, following a hearing with the parties, the court ordered
final approval of the settlement. Plaintiffs subsequently moved to distribute the settlement funds to the class, and the Court
granted plaintiffs’ motion on February 4, 2019. Separately, Edison Investment Research Ltd. sought indemnification from us
including reimbursement of all legal expenses that Edison incurs in connection with the securities class action (to which, as discussed
above, Edison was added as a defendant) and lost profits from customer relationships that Edison claims it lost as a result of
the retraction of the Edison Report. The parties have finalized and consummated a settlement and the settlement payment has been
made. If we become subject to any future class action litigation, we could incur substantial costs not covered by our liability
insurance, suffer a significant adverse impact on our reputation and this could divert management’s attention and resources
from other priorities, any of which could have a material adverse effect on our business. In addition, any of these matters could
require payments that are not covered by, or exceed the limits of, our available liability insurance, which could have a material
adverse effect on our business, financial condition and results of operation.
Risks Related to Our Reliance on Third
Parties
We seek to partner
with third-party collaborators with respect to the development and commercialization of our product candidates and we may not succeed
in establishing and maintaining collaborative relationships, which may significantly limit our ability to develop and commercialize
our product candidates successfully, if at all.
Our business strategy
relies in part on partnering with pharmaceutical companies to complement our internal development efforts. If we are not able to
enter into collaboration arrangements, we may be required to undertake and fund further development, clinical trials, manufacturing
and commercialization activities solely at our own expense and risk. If we are unable to finance and/or successfully execute those
expensive activities, or we delay such activities due to capital availability, our business could be materially and adversely affected,
and potential future product launch could be materially delayed, be less successful, or we may be forced to discontinue clinical
development of these product candidates.
The process of establishing
and maintaining collaborative relationships is difficult, time-consuming and involves significant uncertainty, including:
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a collaboration partner may shift its priorities and resources away from our product candidates
due to a change in business strategies, or a merger, acquisition, sale or downsizing;
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a collaboration partner may seek to renegotiate or terminate their relationships with us due to
unsatisfactory clinical results, manufacturing issues, a change in business strategy, a change of control or other reasons;
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a collaboration partner may cease development in therapeutic areas which are the subject of our
strategic collaboration;
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a collaboration partner may not devote sufficient capital
or resources towards our product candidates;
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a collaboration partner may change the success criteria for a drug candidate thereby delaying or
ceasing development of such candidate;
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a significant delay in initiation of certain development activities by a collaboration partner
will also delay payment of milestones tied to such activities, thereby impacting our ability to fund our own activities;
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a collaboration partner could develop a product that
competes, either directly or indirectly, with our drug candidate;
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a collaboration partner with commercialization obligations may not commit sufficient financial
or human resources to the marketing, distribution or sale of a product;
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a collaboration partner with manufacturing responsibilities may encounter regulatory, resource
or quality issues and be unable to meet demand requirements;
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a partner may exercise a contractual right to terminate
a strategic alliance;
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a dispute may arise between us and a partner concerning the research, development or commercialization
of a drug candidate resulting in a delay in milestones, royalty payments or termination of an alliance and possibly resulting in
costly litigation or arbitration which may divert management attention and resources; and
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a partner may use our products or technology in such
a way as to invite litigation from a third party.
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Any collaborative partners
we enter into agreements with in the future may shift their priorities and resources away from our product candidates or seek to
renegotiate or terminate their relationships with us. If any collaborator fails to fulfill its responsibilities in a timely manner,
or at all, our research, clinical development, manufacturing or commercialization efforts related to that collaboration could be
delayed or terminated, or it may be necessary for us to assume responsibility for expenses or activities that would otherwise have
been the responsibility of our collaborator. If we are unable to establish and maintain collaborative relationships on acceptable
terms or to successfully transition terminated collaborative agreements, we may have to delay or discontinue further development
of one or more of our product candidates, undertake development and commercialization activities at our own expense or find alternative
sources of capital.
If the third parties on which we
rely for our clinical trials and results do not perform our clinical trial activities in accordance with good clinical practices
and related regulatory requirements, we may be unable to obtain regulatory approval for or commercialize our product candidates.
We use and heavily
rely on third-party service providers to conduct and/or oversee the clinical trials of our product candidates and expect to continue
to do so for the foreseeable future. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted
in accordance with the FDAs and/or EMA’s requirements and its general investigational plan and protocol.
The FDA and EMA require
us and our third-party service providers to comply with regulations and standards, commonly referred to as good clinical practices,
for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and
accurate and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not
relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or conduct our clinical
trials in accordance with regulatory requirements or the respective trial plans and protocols. In addition, third parties may not
be able to repeat their past successes in clinical trials. The third parties’ failure to carry out their obligations could
delay or prevent the development, approval and commercialization of our product candidates or result in enforcement action against
us.
Use of third parties to manufacture
our product candidates may increase the risk that we will not have sufficient quantities of our product candidates, products, or
necessary quantities at an acceptable cost.
We do not own or operate
manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we lack the resources
and the capabilities to do so. As a result, we currently rely on third parties for supply of the active pharmaceutical ingredients,
or API, in our product candidates. Our strategy is to outsource all manufacturing of our product candidates and products to third
parties.
We currently engage a third-party manufacturer to provide clinical
material of the API, lyophilization, release testing and fill and finish services for the final drug product formulation of nomacopan
that is being used in our clinical trials. Although we believe that there are several potential alternative manufacturers who could
manufacture nomacopan, we may incur added costs and delays in identifying and qualifying any such replacement. In addition, we
have not yet concluded a commercial supply contract with any commercial manufacturer. There is no assurance that we will be able
to timely secure needed supply arrangements on satisfactory terms, or at all. Our failure to secure these arrangements as needed
could have a material adverse effect on our ability to complete the development of our product candidates or, to commercialize
them. We may be unable to conclude agreements for commercial supply with third-party manufacturers, or may be unable to do so on
acceptable terms. There may be difficulties in scaling up to commercial quantities and formulation of nomacopan and the costs of
manufacturing could be prohibitive.
Even if we are able
to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional
risks, including:
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reliance on third-parties for manufacturing process development, regulatory compliance and quality assurance;
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limitations on supply availability resulting from capacity and scheduling constraints of third-parties;
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the possible breach of manufacturing agreements by third-parties because of factors beyond our control; and
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the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to us.
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If we do not maintain
our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities,
which could delay or impair our ability to obtain regulatory approval for our products. If we do find replacement manufacturers,
we may not be able to enter into agreements with them on terms and conditions favorable to us and there could be a substantial
delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.
The FDA, EMA and other
foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators
also inspect these facilities to confirm compliance with current good manufacturing practices, or cGMPs. Contract manufacturers
may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the
contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements
or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our
ability to develop our product candidates and market our products following approval.
If our third-party manufacturer of
nomacopan is unable to increase the scale of its production of nomacopan, and/or increase the product yield of its manufacturing,
then our costs to manufacture the product may increase and commercialization may be delayed.
In order to produce
sufficient quantities of nomacopan to meet the demand for clinical trials and subsequent commercialization, our third party manufacturer
of nomacopan will be required to increase its production and optimize its manufacturing processes while maintaining the quality
of the product. The transition to larger scale production could prove difficult. In addition, if our third party manufacturer is
not able to optimize its manufacturing process to increase the product yield for nomacopan, or if it is unable to produce increased
amounts of nomacopan while maintaining the quality of the product, then we may not be able to meet the demands of clinical trials
or market demands, which could decrease our ability to generate profits and have a material adverse impact on our business and
results of operation.
Risks Related to our Ordinary Shares
and ADSs
Ownership of our ADSs and/or ordinary
shares involves a high degree of risk.
Investing in and owning
our ADSs and ordinary shares involve a high degree of risk. Shareholders should read carefully the risk factors provided within
this section, as well as our public documents filed with the SEC, including the financial statements therein.
If we are deemed or become a passive
foreign investment company, or PFIC, for U.S. federal income tax purposes in 2020 or in any prior or subsequent years, there
may be negative tax consequences for U.S. taxpayers that are holders of our ADSs.
We will be treated
as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes in any taxable year in which either
(i) at least 75% of our gross income is “passive income” or (ii) on average at least 50% of our assets by value produce
passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other
things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale
or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary
investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC,
a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest
(by value) is taken into account.
We believe we were
not a PFIC for 2019. Because the PFIC determination is highly fact sensitive, there can be no assurance that we will not be a PFIC
for 2020 or for any other taxable year. If we were to be characterized as a PFIC for U.S. federal income tax purposes in any taxable
year during which a U.S. shareholder owns our ADSs, and such U.S. shareholder does not make an election to treat us as a “qualified
electing fund,” or QEF, or make a “mark-to-market” election, then “excess distributions” to such
U.S. shareholder, and any gain realized on the sale or other disposition of our ADSs will be subject to special rules. Under these
rules: (i) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for ADSs;
(ii) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which
we were a PFIC would be taxed as ordinary income; and (iii) the amount allocated to each of the other taxable years would be subject
to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the
deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition,
if the U.S. Internal Revenue Service, or IRS determines that we are a PFIC for a year with respect to which we have determined
that we were not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders
who hold our ADSs during a period when we are a PFIC will be generally subject to the foregoing rules, even if we cease to be a
PFIC in subsequent years, subject to certain exceptions, including for U.S. shareholders who made a timely QEF or mark-to-market
election. A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance
with the instructions thereto. A QEF election generally may not be revoked without the consent of the IRS. If an investor provides
reasonable notice to us that it has determined to make a QEF election, we intend to provide annual financial information to such
investor as may be reasonably required for purposes of filing United States federal income tax returns in connection with such
QEF election.
U.S. investors are
urged to consult their own tax advisors regarding the possible application of the PFIC rules.
Our ADSs may be involuntarily delisted
from trading on the Nasdaq Capital Market if we fail to comply with the continued listing requirements. A delisting of our ADSs
is likely to reduce the liquidity of our ADSs and may inhibit or preclude our ability to raise additional financing.
Nasdaq requires us
to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing
of our ADSs. Generally, we must maintain a minimum amount of stockholders equity (generally $2.5 million) and a minimum closing
bid price (generally $1.00). As of December 31, 2019, we had a shareholders’ deficit of approximately $1.8 million and therefore
are not in compliance with the Nasdaq shareholders’ equity rule. If we continue to not be in compliance or we
fail to meet any of the other continuing listing requirements, our ADSs may be subject to delisting and we may become subject to
delisting proceedings. If our ADSs are delisted and we are not able to list our ADSs on another national securities exchange, we
expect our securities would be quoted on an over-the-counter market. If this were to occur, our stockholders could face significant
material adverse consequences, including limited availability of market quotations for our ADSs and reduced liquidity for the trading
of our securities. In addition, we could experience a decreased ability to issue additional securities and obtain additional financing
in the future. There can be no assurance that an active trading market for our ADSs will develop or be sustained. We may choose
to raise additional capital in order to increase our stockholders’ equity in order to meet the Nasdaq continued listing standards.
Any additional equity financings may be financially dilutive to, and will be dilutive from an ownership perspective to our stockholders,
and such dilution may be significant based upon the size of such financing. Additionally, we cannot assure that such funding will
be available on a timely basis, in needed quantities, or on terms favorable to us, if at all.
A limited public market exists for
our securities and we cannot assure you that our securities will continue to be listed on the Nasdaq Capital Market or any other
securities exchange or that an active trading market will ever develop for any of our securities.
Our ADSs were approved
for listing and began trading on the Nasdaq Capital Market under the symbol “CLTX” on January 31, 2014 and commenced
trading under the symbol “AKTX” commencing on September 21, 2015. An active trading market for our shares has not fully
developed and, even if it does, it may not be sustained. In addition, we cannot assure you that we will be successful in meeting
the continuing listing standards of the Nasdaq Capital Market and cannot assure you that our ADSs will be listed on a national
securities exchange. If an active market for our ADS does not develop or is not sustained, it may be difficult for investors to
sell their shares without depressing the market price for the shares or at all. Further, an inactive market may also impair our
ability to raise capital and may impair our ability to enter into strategic partnerships or acquire companies or products by using
our ADSs or ordinary shares as consideration.
The market price of our ADSs may
be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Our stock price may
experience substantial volatility as a result of a number of factors. The market prices for securities of biotechnology companies
in general have been highly volatile and may continue to be so in the future. The following factors, in addition to other risk
factors described in this section, may have a significant impact on the market price of our ADSs:
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sales or potential sales of substantial amounts of our ordinary shares or ADSs;
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delay or failure in initiating, enrolling, or completing preclinical or clinical trials or unsatisfactory results of these trials or events reported in any of our current or future clinical trials;
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announcements about us or about our competitors, including clinical trial results, regulatory approvals or new product introductions;
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developments concerning our licensors or product manufacturers;
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litigation and other developments relating to our patents or other proprietary rights or those of our competitors;
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developments relating to the SEC investigation;
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conditions in the pharmaceutical or biotechnology industries;
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variations in our anticipated or actual operating results;
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governmental regulation and legislation;
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variations in our anticipated or actual operating results;
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change in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations;
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whether, to what extent and under what conditions the FDA or EMA will permit us to continue developing our product candidates, if at all, and if development is continued, any reports of safety issues or other adverse events observed in any potential future studies of these product candidates;
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our ability to enter into new collaborative arrangements with respect to our product candidates;
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the terms and timing of any future collaborative, licensing or other arrangements that we may establish;
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our ability to raise additional capital to carry through with our clinical development plans and current and future operations and the terms of any related financing arrangements;
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the timing of achievement of, or failure to achieve, our and any potential future collaborators’ clinical, regulatory and other milestones, such as the commencement of clinical development, the completion of a clinical trial or the receipt of regulatory approval;
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announcement of FDA or EMA approval or non-approval of our product candidates or delays in or adverse events during the FDA or EMA review process;
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actions taken by regulatory agencies with respect to our product candidates or products, our clinical trials or our sales and marketing activities, including regulatory actions requiring or leading to restrictions, limitations and/or warnings in the label of an approved product candidate;
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uncontemplated problems in the supply of the raw materials used to produce our product candidates;
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the commercial success of any product approved by the FDA, EMA or any other foreign counterpart;
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introductions or announcements of technological innovations or new products by us, our potential future collaborators, or our competitors, and the timing of these introductions or announcements;
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market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular;
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we may have limited or very low trading volume that may increase the volatility of the market price of our ADSs;
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regulatory developments in the United States and foreign countries;
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changes in the structure or reimbursement policies of health care payment systems;
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any intellectual property infringement lawsuit involving us;
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actual or anticipated fluctuations in our results of operations;
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changes in financial estimates or recommendations by securities analysts;
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hedging activity that may develop regarding our ADSs;
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regional or worldwide recession;
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sales of large blocks of our ordinary shares or ADSs;
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sales of our ordinary shares or ADSs by our executive officers, directors and significant shareholders;
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managerial costs and expenses;
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changes in accounting principles;
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the loss of any of our key scientific or management personnel; and
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natural disasters and political and economic instability, including wars, terrorism, political unrest, results of certain elections and votes, emergence of a pandemic, or other widespread health emergencies (or concerns over the possibility of such an emergency, including for example, the recent coronavirus outbreak), boycotts, adoption or expansion of government trade restrictions, and other business restrictions.
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The stock markets in
general, and the markets for biotechnology stocks in particular, have experienced significant volatility that has often been unrelated
to the operating performance of particular companies. The financial markets continue to face significant uncertainty, resulting
in a decline in investor confidence and concerns about the proper functioning of the securities markets, which decline in general
investor confidence has resulted in depressed stock prices for many companies notwithstanding the lack of a fundamental change
in their underlying business models or prospects. These broad market fluctuations may adversely affect the trading price of our
ADSs.
In the past, class
action litigation has often been instituted against companies whose securities have experienced periods of volatility in market
price. Any such litigation brought against us, could result in substantial costs, which could hurt our financial condition and
results of operations and divert management’s attention and resources, which could result in delays of our clinical trials
or commercialization efforts.
Insiders have control over us which
could delay or prevent a change in corporate control or result in the entrenchment of management and/or the board of directors.
As of March 15, 2020,
our directors and executive officers, together with their affiliates and related persons, beneficially own, in the aggregate, approximately
30.0% of our outstanding ordinary shares. RPC Pharma Limited, or RPC, which is controlled by our chairman Dr. Ray Prudo, beneficially
owns approximately 28.8% of our outstanding ordinary shares . Accordingly, these shareholders, if acting together, or Dr.
Prudo, individually, may have the ability to impact the outcome of matters submitted to our shareholders for approval, including
the election and removal of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition,
these persons may have the ability to influence the management and affairs of our company. Accordingly, this concentration of ownership
may harm the market price of our ADSs by:
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delaying, deferring, or preventing a change in control;
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entrenching our management and/or the board of directors;
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impeding a merger, consolidation, takeover, or other business combination involving us; or
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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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Future sales and issuances of our
ordinary shares or ADSs or rights to purchase ordinary shares or ADSs pursuant to our equity incentive plans could result in additional
dilution of the percentage ownership of our shareholders and could cause our share price to fall.
We expect that significant
additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by
issuing equity securities, our shareholders may experience substantial dilution. We may sell ordinary shares (which may be represented
by ADSs), convertible securities or other equity securities in one or more transactions at prices and in a manner we determine
from time to time. If we sell ordinary shares, convertible securities or other equity securities in more than one transaction,
investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing shareholders,
and new investors could gain rights superior to our existing shareholders.
Sales of a substantial number of
our ADSs by our existing shareholders in the public market could cause our stock price to fall.
Sales of a substantial
number of our ADSs in the public market or the perception that these sales might occur, could significantly reduce the market price
of our ADSs and impair our ability to raise adequate capital through the sale of additional equity securities.
The decision by the United Kingdom
to leave the European Union could adversely affect our business, financial condition, results of operations and prospects.
The UK left the European
Union on January 31, 2020, or Brexit Day. That departure is governed by the “Withdrawal Agreement” agreed between the
EU and the UK. The Withdrawal Agreement addresses certain EU-related matters that will immediately be affected by the withdrawal
itself, and specifies a transition period. The transition period will run from Brexit Day until December 31st 2020, unless –
which seems politically unlikely - the UK and EU agree by July 1, 2020 to extend the transition period by 1 or 2 years, or the
Brexit Long Stop Date.
While the UK ceased
to be a Member State on Brexit Day, it has passed domestic legislation, or Withdrawal Act, which ensures that: (i) all EU laws;
and, (ii) international agreements between the EU and non-Member States will apply in the UK throughout the transition period.
In effect, the UK will continue to be treated as if it were a Member State until the Brexit Long Stop Date, which includes remaining
a member of the Customs Union and the Single Market. However, from the Brexit Long Stop Date onwards, EU Member States will have
to treat the UK as a “third country” for EU law purposes.
During the transition
period, the UK will seek to negotiate with the EU a further long term trade deal. It appears ambitious and there remains a significant
risk that it will not be possible to agree a comprehensive trading agreement during the 11-month transition period (assuming that
no extension has been agreed). Should this risk materialize and no agreement be reached, the UK will default to trading under World
Trade Organization, or WTO, rules – a so-called “no deal” Brexit.
As such there remains
the possibility that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines
which EU laws to replace or replicate. Brexit could adversely affect economic or market conditions in the UK, Europe or globally
and could contribute to instability in global financial markets, in particular until there is more certainty as to the outcome
of the aforementioned negotiations with respect to the comprehensive trading agreement. Exports from the United Kingdom may incur
increased duties and tariffs following Brexit. For instance, in May 2018, a House of Commons committee held a hearing on the likely
impact of a “no deal” scenario on the UK pharmaceutical industry. The report concluded that the UK would be able to
trade in certain pharmaceutical products with the EU on a zero-tariff basis under the WTO’s Pharmaceutical Tariff Elimination
Agreement, which covers a limited range of finished products and ingredients - it is estimated that roughly 1,000 products and
700 ingredients remain uncovered and will face tariffs. Brexit could result in the regulatory compliance and patent costs associated
with our business increasing significantly so as to adversely affect our financial condition, results of operations and prospects.
Following the Brexit Long Stop Date, we may be required to register any current EU-wide patents separately with the UK Intellectual
Property Office, which could require significant additional expense. Further, our regulatory compliance costs may increase, as
from the Brexit Long Stop Date, the UK may cease compliance with the EU and the EMA’s legislative regime for medicines, their
research, development and commercialization. Any changes to such regulatory regimes could require us to comply with separate regimes
in the UK and the EU, or to develop new policies and procedures or reorganize our operations, any of which could increase our compliance
costs. Brexit has also led to a decrease in the value of pounds sterling against the U.S. dollar, as well as general volatility
in currency exchange markets. The challenges faced by the UK following Brexit could result in an overall decline in trade and economic
growth and/or an increase in economic volatility and therefore may affect the attractiveness of the UK as a leading center for
business and commerce. Any of the aforementioned possible effects of Brexit, and others that the we cannot anticipate, may materially
adversely affect our business, financial condition, results of operations and prospects.
Provisions in our Articles of Association
and under English law could make an acquisition of our company more difficult and may prevent attempts by our shareholders to replace
or remove our organization management.
Provisions in our Articles
of Association may delay or prevent an acquisition or a change in management. These provisions include a staggered board and prohibition
on actions by written consent of our shareholders. Although we believe these provisions collectively will provide for an opportunity
to receive higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if the
offer may be considered beneficial by some shareholders. In addition, these provisions may frustrate or prevent any attempts by
our shareholders to replace or remove then current management by making it more difficult for shareholders to replace members of
the board of directors, which is responsible for appointing the members of management.
We do not anticipate paying cash
dividends, and accordingly, shareholders must rely on the appreciation in our ADSs for any return on their investment.
We currently anticipate
that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring
or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ADSs will depend upon any
future appreciation in their value. There is no guarantee that our ADSs will appreciate in value or even maintain the price at
which our shareholders have purchased their shares.
We identified material
weaknesses in our internal controls over financial reporting in fiscal year 2017 which were subsequently remediated.
If additional material weaknesses or significant deficiencies in our internal control over financial reporting are identified in
the future, or if we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately
report our financial results or prevent fraud, which could adversely affect our stock price and negatively impact our results of
operations.
The Sarbanes-Oxley Act
of 2002 requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls
and procedures. In particular, we are required, under Section 404 of the Sarbanes-Oxley Act of 2002, to perform
system and process evaluations and testing of our internal control over financial reporting to allow management to report on the
effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in
our internal control over financial reporting identified by our management. A material weakness is a control deficiency, or combination
of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a
material misstatement of annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
We previously identified material
weaknesses in our internal control over financial reporting in fiscal year 2017, as discussed in “Item 15. Controls
and Procedures” of this Annual Report on Form 20-F and our Annual Report on Form 20-F for fiscal year 2017. These material
weaknesses were remediated, and management concluded that its internal control over financial reporting was effective as of December
31, 2018. However, any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately
report our financial condition, results of operations or cash flows. If we are unable to remedy any future material weaknesses and
conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm
determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose
investor confidence in the accuracy and completeness of our financial reports, the market price of our ordinary shares could decline,
and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the SEC or other regulatory authorities. Failure
to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control
systems required of public companies, could also restrict our future access to the capital markets.
Failure to maintain our disclosure
controls and procedures could impair our ability to accurately report our financial condition, results of operations or cash flows,
which may adversely affect investor confidence in us.
Our management previously
concluded that our disclosure controls and procedures for the fiscal year ended December 31, 2017 were not effective due to the
material weaknesses noted above. See “Item 15. Controls and Procedures.” Although these material weaknesses were remediated,
if we fail to maintain our effective disclosure controls and procedures, we may not be able to accurately report our financial
condition, results of operations or cash flows on a timely basis, which may adversely affect investor confidence in us.
Our disclosure controls
and internal controls and procedures may not prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further,
the design of a control system reflects that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all our control issues and instances of fraud, if any, have been or will be detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that breakdowns can occur simply because of error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people
or by circumvention of the internal control procedures. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions,
or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and may not be detected.
We incur significant costs and demands
upon management as a result of complying with the laws and regulations affecting public companies, which could harm our operating
results.
As a public company,
we incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements.
We also incur costs associated with current corporate governance requirements, including requirements under Section 404 and other
provisions of the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and the Nasdaq Stock Market. The expenses
incurred by public companies for reporting and corporate governance purposes have increased dramatically in recent years.
We are a “foreign private issuer”
and as a result of this and other reduced disclosure requirements applicable to foreign private issuers, our ADSs may be less attractive
to investors.
As a foreign private
issuer, we are not subject to the same requirements that are imposed upon U.S. domestic issuers by the SEC. Under the Exchange
Act, we are subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S.
domestic reporting companies. For example, we will not be required to issue proxy statements that comply with the requirements
applicable to U.S. domestic reporting companies. We will also have four months after the end of each fiscal year to file our annual
reports with the SEC and will not be required to file current reports as frequently or promptly as U.S. domestic reporting companies.
Furthermore, our officers, directors, and principal shareholders will be exempt from the requirements to report transactions in
our equity securities and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. These
exemptions and leniencies, along with other corporate governance exemptions resulting from our ability to rely on home country
rules, will reduce the frequency and scope of information and protections to which you may otherwise have been eligible in relation
to a U.S. domestic reporting companies. If we were to lose our foreign private issuer status, the regulatory and compliance costs
to us under U.S. securities laws as a U.S. domestic issuer will be significantly more than costs we incur as a foreign private
issuer.
U.S. investors may not be able to
enforce their civil liabilities against our company or certain of our directors, controlling persons and officers.
It may be difficult
for U.S. investors to bring and/or effectively enforce suits against our company outside of the United States. We are a public
limited company incorporated in England and Wales under the Companies Act 2006, as amended, or the Company Act. A majority of our
directors are not residents of the United States, and all or substantial portions of their assets are located outside of the United
States. As a result, it may be difficult for U.S. holders of our ordinary shares or ADSs to effect service of process on these
persons within the United States or to make effective recovery in the United States by enforcing any judgments rendered against
them. In addition, if a judgment is obtained in the U.S. courts based on civil liability provisions of the U.S. federal securities
laws against us or our directors or officers, it may, depending on the jurisdiction, be difficult to enforce the judgment in the
non-U.S. courts against us and any of our non-U.S. resident executive officers or directors. Accordingly, U.S. shareholders may
be forced to bring legal proceedings against us and our respective directors and officers under English law and in the English
courts in order to enforce any claims that they may have against us or our directors and officers. The enforceability of a U.S.
judgment in the United Kingdom will depend on the particular facts of the case as well as the laws and treaties in effect at the
time. The United States and the United Kingdom do not currently have a treaty providing for reciprocal recognition and enforcement
of judgments (other than arbitration awards) in civil and commercial matters. Nevertheless, it may be difficult for U.S. shareholders
to bring an original action in the English courts to enforce liabilities based on the U.S. federal securities laws against us and
any of our non-U.S. resident executive officers or directors.
The rights of our shareholders may
differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated
under English law. The rights of holders of ordinary shares and, therefore, certain of the rights of holders of ADSs, are governed
by English law, including the provisions of the Companies Act, and by our Articles of Association. These rights differ in certain
respects from the rights of shareholders in typical U.S. corporations.
Provisions in the UK City Code on Takeovers and
Mergers may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial
to our shareholders.
The UK City Code on
Takeovers and Mergers, or the Takeover Code, applies, among other things, to an offer for a public company whose registered office
is in the United Kingdom and whose securities are not admitted to trading on a regulated market in the United Kingdom if the company
is considered by the Panel on Takeovers and Mergers, or the Takeover Panel, to have its place of central management and control
in the United Kingdom. This is known as the “residency test.” The test for central management and control under the
Takeover Code is different from that used by the UK tax authorities. Under the Takeover Code, the Takeover Panel will determine
whether we have our place of central management and control in the United Kingdom by looking at various factors, including the
structure of our board of directors, the functions of the directors and where they are resident.
If at the time of a
takeover offer the Takeover Panel determines that we have our place of central management and control in the United Kingdom, we
would be subject to a number of rules and restrictions, including but not limited to the following: (1) our ability to enter into
deal protection arrangements with a bidder would be extremely limited; (2) we may not, without the approval of our shareholders,
be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions
or disposals; and (3) we would be obliged to provide equality of information to all bona fide competing bidders. Whilst the Takeover
Panel has not informed us of any such determination, on account of the current constitution of our board, we believe that we are
currently subject to the Takeover Code.
Further, the Takeover Code contains certain
rules in respect of mandatory offers. Under Rule 9 of the Takeover Code, if a person: (a) acquires an interest in our shares which,
when taken together with shares in which he or persons acting in concert with him are interested, carry 30% or more of the voting
rights of our shares; or (b) who, together with persons acting in concert with him, is interested in shares that in the aggregate
carry not less than 30% of the voting rights in us and does not hold shares carrying more than 50% of the voting rights in us,
acquires additional interests in shares that increase the percentage of shares carrying voting rights in which that person is interested,
the acquirer and, depending on the circumstances, its concert parties, would be required (except with the consent of the Takeover
Panel) to make a cash offer for our outstanding shares at a price not less than the highest price paid for any interests in the
shares by the acquirer or its concert parties during the previous 12 months.
Holders of ADSs must act through the depositary
to exercise their rights as shareholders of our company.
Holders of our ADSs
do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary
shares in accordance with the provisions of the deposit agreement for the ADSs. Under our Articles of Association, the minimum
notice period required to convene an Annual General Meeting is no less than 21 clear days’ notice and 14 clear days’
notice for a general meeting (unless, in the case of an annual general meeting all members entitled to attend and vote at the meeting,
or in the case of a general meeting, a majority of the members entitled to attend and vote who hold not less than 95% of the voting
shares (excluding treasury shares), agree to shorter notice). When a general meeting is convened, holders of our ADSs may not receive
sufficient notice of a shareholders’ meeting to permit them to withdraw their ordinary shares to allow them to cast their
vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions
to holders of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause
the depositary to extend voting rights to holders of our ADSs in a timely manner, but we cannot assure them that they will receive
the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, the depositary and
its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast
or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may
lack recourse if their ADSs are not voted as they requested. In addition, in the capacity as an ADS holder, they will not be able
to call a shareholders’ meeting.
Holders of our ADSs may be subject
to limitations on transfers of ADSs.
ADSs are transferable
on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems
expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems
it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the
deposit agreement, or for any other reason.
The rights of holders of our ADSs
to participate in any future rights offerings may be limited, which may cause dilution to their holdings and they may not receive
cash dividends if it is impractical to make them available to them.
We may from time
to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights
available to holders of our ADSs in the United States unless we register the rights and the securities to which the rights
relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit
agreement, the depositary will not make rights available to holders of our ADSs unless either both the rights and any related
securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration
under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or
securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to
establish an exemption from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to
participate in our rights offerings and may experience dilution in their holdings.
In addition, the depositary
has agreed to pay to holders of our ADSs the cash dividends or other distributions it or the custodian receives on our ordinary
shares or other deposited securities after deducting its fees and expenses. Holders of our ADSs will receive these distributions
in proportion to the number of ordinary shares their ADSs represent. However, the depositary may, at its discretion, decide that
it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine
that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less
than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and holders of our ADSs
will not receive any such distribution.
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ITEM 4.
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INFORMATION ON THE COMPANY
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A.
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History and Development of the Company
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Our Corporate
History
Our legal and commercial
name is Akari Therapeutics, PLC. We were originally established as a private limited company under the laws of England and Wales
on October 7, 2004 under the name Freshname No. 333 Limited. On January 19, 2005, we changed our name to Morria Biopharmaceuticals
Limited and on February 3, 2005, we completed a reverse merger with Morria Biopharmaceuticals Inc., or Morria, a Delaware corporation,
in which Morria became our wholly-owned subsidiary and we re-registered as a non-traded public limited company under the laws of
England and Wales. Morria was dedicated to the discovery and development of novel, first-in-class, non-steroidal, synthetic anti-inflammatory
drugs. On March 22, 2011, we incorporated an Israeli subsidiary, Morria Biopharma Ltd. On June 25, 2013, we changed our name to
Celsus Therapeutics PLC and on October 13, 2013 Morria was renamed Celsus Therapeutics Inc. As of the date of this report, Celsus
Therapeutics Inc. and Morria Biopharma Ltd. do not conduct any operations.
On September
18, 2015, we completed an acquisition of all of the capital stock of Volution Immuno Pharmaceuticals SA, or Volution, a private
Swiss company, from RPC Pharma Limited, or RPC, Volution’s sole shareholder, in exchange for our ordinary shares, in accordance
with the terms of a Share Exchange Agreement, dated as of July 10, 2015. In connection with the acquisition, our name was
changed to Akari Therapeutics, PLC and the combined company focused on the development and commercialization of life-transforming
treatments for a range of rare and orphan autoimmune and inflammatory diseases caused by dysregulation of complement C5.
Our ADSs have been
listed on the Nasdaq Capital Market under the symbol “AKTX” since September 21, 2015 and under the symbol “CLTX”
from January 31, 2014 until September 18, 2015. Prior to that, our ADSs were quoted on the OTCQB under the symbol “CLSXD”
from January 3, 2014 to January 30, 2014 and were quoted on the OTCQB under the symbol “CLSXY” from September 16, 2013
until January 2, 2014 and under the symbol “MRRBY” from February 19, 2013 to September 15, 2013. Effective January
3, 2014, our ratio of ADSs to ordinary shares changed from one ADS per each two ordinary shares to one ADS per each ten ordinary
shares and, effective as of September 17, 2015, our ratio of ADSs to ordinary shares changed from one ADS per each ten ordinary
shares to one ADS per each one hundred ordinary shares. Currently, each ADS represents by one hundred ordinary shares.
Our principal office
is located at 75/76 Wimpole Street, London W1G 9RT, United Kingdom, and our telephone number is +44 20 8004 0270. Our website address
is www.akaritx.com. The information contained on, or that can be accessed through, our website is neither a part of nor incorporated
into this Annual Report. We have included our website address in this annual report solely as an inactive textual reference. Puglisi
& Associates, or Puglisi, serves as our agent for service of process in the United States. Puglisi’s address is 850 Library
Avenue, Suite 204, Newark, Delaware 19711.
We use our website
(www.akaritx.com) as a channel of distribution of Company information. The information we post through this channel may
be deemed material. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings
and public conference calls and webcasts. The contents of our website are not, however, a part of this Annual Report.
Capital Expenditures
Our capital expenditures
for the years ended December 31, 2019, 2018 and 2017 were $0, $0 and $36,885, respectively. Our current capital expenditures primarily
consist of computer equipment.
We are a
clinical-stage biopharmaceutical company focused on developing inhibitors of acute and chronic inflammation, specifically the
complement system, the eicosanoid or leukotriene system and the bioamine system for the treatment of rare and orphan
diseases. Each of these systems has scientifically well-supported causative roles in the diseases being targeted by us. We
believe that blocking early mediators of inflammation will prevent initiation and continual amplification of the processes
that cause certain diseases.
Ticks have undergone
300 million years of natural selection to produce inhibitors that bind tightly to key highly-conserved inflammatory mediators,
are generally well tolerated in humans, and remain fully functional when a host is repeatedly exposed to the molecule. Our molecules
are derived from these inhibitors.
Our lead product candidate,
nomacopan inhibits both terminal complement activation and leukotriene B4, or LTB4. It inhibits terminal complement activation
by tightly binding to C5 and preventing its cleavage and activation by complement. It inhibits LTB4 by capturing the fatty acid
within the body of the nomacopan protein. By preventing C5 activation of complement nomacopan can stop formation of the anaphylatoxin
C5a which activates cells, including granulocytes and T and B cells, via two G protein coupled receptors, or GPCRs, and also prevents
formation of the membrane attack complex, or MAC which activates cells including endothelial cells. C5a and the MAC cause and maintain
a proinflammatory and prothrombotic state. LTB4 also activates cells via two separate GPCRs and can independently cause and maintain
a proinflammatory state. The importance of nomacopan (Coversin’s) dual inhibitory action is therefore twofold. First, it
can prevent inflammatory and prothrombotic activities of two key pathways, and second, the pathways can be independently activated,
for example terminal complement activation can be induced by IgG, IgM, carbohydrates and damage associated molecular patterns and
LTB4 synthesis can be induced by engagement of Fc gamma receptors, cytokines, toll-like receptors, C5a and MAC.
Nomacopan is a recombinant
small protein (16,740 Da) derived from a protein originally discovered in the saliva of the Ornithodoros moubata tick, where it
modulates the host immune system to allow the parasite to feed without alerting the host to its presence or provoking an immune
response.
Nomacopan has received
orphan drug status from the U.S. Food and Drug Administration, or the FDA, and the European Medicines Agency, or the EMA, for paroxysmal
nocturnal hemoglobinuria, or PNH, Guillain Barré Syndrome, or GBS, high-risk hematopoietic stem cell transplant-associated
thrombotic microangiopathy, or HSCT-TMA, and bullous pemphigoid, or BP. Orphan drug designation provides us with certain
benefits and incentives, including a period of marketing exclusivity if regulatory approval of the drug is ultimately received
for the designated indication. The receipt of orphan drug designation status does not change the regulatory requirements or process
for obtaining marketing approval and the designation does not mean that marketing approval will be received. We intend to apply
in the future for orphan drug designation in additional indications we deem appropriate.
On August 14, 2019,
we received notice from the FDA of Fast Track designation for the investigation of nomacopan for the treatment of pediatric HSCT-TMA.
On March 29, 2017, we received notice from the FDA of Fast Track designation for the investigation of nomacopan for the treatment
of PNH in patients who have polymorphisms conferring Soliris® (eculizumab) resistance. The Fast Track program was created by
the FDA to facilitate the development and expedite the review of new drugs which show promise in treating a serious or life-threatening
disease and address an unmet medical need. Drugs that receive this designation benefit from more frequent communications and meetings
with the FDA to review the drug’s development plan including the design of the proposed clinical trials, use of biomarkers
and the extent of data needed for approval. Drugs with Fast Track designation may also qualify for priority review to expedite
the FDA review process, if relevant criteria are met.
Our clinical targets
for nomacopan are orphan inflammatory diseases where the inhibition of both C5 and LTB4 are implicated, including bullous pemphigoid,
or BP, atopic keratoconjunctivitis, or AKC and thrombotic microangiopathy bone marrow transplant or TMA-HSCT.
Clinical Development Program — Past
and Future
Phase Ia Single Ascending Dose Trial
Nomacopan entered clinical
development in 2013 when a Phase Ia clinical trial was initiated under a Clinical Trials Authorization (CTA) issued by the Medicines
and Healthcare products Regulatory Agency (MHRA), an executive agency of the Department of Health in the United Kingdom. The primary
objective of this single ascending dose, first-in-man study was to explore the safety profile of nomacopan in 24 subjects. The
drug was well tolerated, and no serious or dose-related serious adverse events were reported. The secondary objective of this Phase
Ia clinical trial was to examine the effect of nomacopan on complement activity at the highest, therapeutic dose. This showed that
the peak onset of action was about nine hours after injection, and that the effect of a single dose was detectable for more than
96 hours. The effects were consistent between all subjects and showed 100% inhibition of the complement system within 12 hours.
Phase Ib Dose Range Finding Trial
A Phase Ib repeat dose
study was initiated in the first quarter of 2016. In this double-blind, randomized Phase Ib trial, each cohort of six normal healthy
volunteers was given either a loading dose of subcutaneous placebo twice a day for two days followed by five days of a single daily
placebo dose (n=2) or a loading dose of 30 mg of subcutaneous nomacopan twice a day for two days followed by five days of a single
daily subcutaneous maintenance dose (n=4) of either 15 mg, 22.5 mg or 30 mg.
Data from the 22.5
mg once daily maintenance cohort and 30 mg once daily maintenance cohort demonstrated that subcutaneous nomacopan achieved complete
complement inhibition (Elisa CH50 < 8 Eq/ml, lower limit of quantification) within the first day, and demonstrated complete
complement inhibition at the end of dosing on day seven whether measured using the ELISA or lytic CH50 assays.
The data from the 15
mg once daily maintenance cohort demonstrated that subcutaneous nomacopan achieved complete complement inhibition (Elisa CH50 <
8 Eq/ml, lower limit of quantification) within the first day following an ablating dose but by day three was unable to maintain
complete complement inhibition at the 24-hour trough measurement. A final cohort of 4 healthy volunteers was given 22.5 mg of nomacopan
as a maintenance dose for 21 days. Complete complement inhibition was demonstrated at the end of the 21 day period of once daily
dosing and there we no neutralizing antibodies detected. One volunteer receiving the nomacopan in the 30 mg 7 day cohort stopped
dosing on day three due to a non-serious adverse event possibly related to antibiotics administered for meningitis prophylaxis.
The trial was conducted at Hammersmith Medicines Research Ltd, in London.
BP Clinical Program
We continue to develop nomacopan in indications that take advantage
of the dual-acting properties of the drug to inhibit both C5 and LTB4. In patients with BP there is evidence that both C5 and LTB4
have a central role in driving the disease. Ex vivo data, from a recent study at Lubeck University, in BP patients showed a pronounced
accumulation of LTB4 and C5 and its activation products in the inflamed skin of bullous pemphigoid disease patients.
In 2018, we opened
our first site for a six-week Phase IIa open label, single-arm trial to evaluate the safety and efficacy of nomacopan in patients
with mild to moderate BP. Patients entering the trial were typically on the topical steroid mometasone which was stopped by day
21. The primary endpoints of the trial were proportion of patients reporting grade 3, 4 and 5 adverse events which are related/possibly
related to nomacopan during the treatment period and secondary and other endpoints include, among others, Bullous Pemphigoid Disease
Area Index (BPDAI) score. An interim data announcement was provided on the first six out of nine patients in October 2019. Results
showed that nomacopan, dosed daily subcutaneously, was well tolerated in six elderly patients (>55 years), and that there were
no reported drug-related serious adverse events.
Four of the six patients
were classified as at the upper limit of moderate BP. Moderate to severe patients represent about two-thirds of BP patients and
are likely to benefit most from the potential to reduce or avoid steroids. These patients, who showed only a minor improvement
on mometasone prior to initiation on nomacopan, saw a mean 41% and 63% decline in BPDAI score at day 21 and 42, respectively, and
a 59% and 68% decline in blister score at day 21 and 42. One of the moderate patients had a flare up post day-28, which is not
an uncommon on treatment as BP is a recurrent autoimmune disease.
Of the two mild
patients, one patient showed a 100% decline in blisters by Day 21, sustained to day 42, and a decline in BPDAI score of 55% and
45% by day 21 and day 42, respectively. The other patient showed no response either on nomacopan or when switched to rescue steroids
at day 28. This patient entered the trial after disease relapse while on steroid treatment.
The data showed nomacopan’s
potential as a possible treatment for BP with the additional and important benefit of reducing steroid use which has multiple adverse
effects including a threefold increased risk of mortality. The Phase II trial has completed recruitment, with full data expected
in the second quarter of 2020.
AKC Clinical Program
Results in a rodent
model of Experimental Immune Conjunctivitis (EIC), undertaken at Moorfields Hospital Institute of Ophthalmology, showed that nomacopan
demonstrated significant anti-inflammatory activity. In this preclinical model of severe eye surface inflammation, nomacopan, applied
topically, resulted in a statistically significant reduction (64%, p<0.001) in late phase inflammation versus placebo.
During the third quarter
of 2018, we commenced a Phase I/II randomized, double blinded, placebo-controlled trial with an initial three patients (Part A)
prior to the blinding (Part B) to evaluate the safety and efficacy of nomacopan in patients with the inflammatory mediated eye
disorder AKC. In Part A of the Phase I/II study, three patients were treated with twice daily nomacopan eye drops in addition to
standard of care for up to 56 days in order to establish the safety and tolerability of the drops in preparation for Part B, a
randomized, double-masked placebo-controlled comparison in 16 patients. Of the three patients enrolled in the study, two completed
56 days of treatment and one completed 14 days and then withdrew for reasons unrelated to the study treatment. All patients, who
were on the moderate/severe end of the AKC spectrum, had been on maximal topical cyclosporin, the standard of care, for at least
three months prior to entry and continued on it during the trial. In the event of further disease progression, the next incremental
step would normally have been systemic immunosuppression. The drops were found to be comfortable and well-tolerated throughout
the trial for all three patients. There were no serious adverse events reported. On that basis, the independent safety committee
gave permission for the trial to proceed to Part B. Enrollment in the Part B placebo-controlled efficacy arm of the study has now
halted due to the coronavirus outbreak, but we expect that recruited patients will continue to be treated. We anticipate that when
the trial closes, we will have data on around two thirds of the target 19 patient study.
The secondary objective
of the study was to determine efficacy, assessed by a standard composite scoring system [Akpek E.K. et al. Ophthalmology 2004 (III,3)]
consisting of five symptoms which were patient reported, and six signs of ocular damage which were graded by the clinician on a
direct slit-lamp examination of the eye. Each sign or symptom was graded 0 to 3, where 0 is normal or absent and 3 is the most
severe, such that with 11 measures the overall maximum severity score was 33. There was an overall improvement in clinical score
of 55% composed of an improvement in symptoms of 62% and signs of 52% by Day 56. Symptoms consist of subjective occurrences such
as discomfort and itching. Signs are objective manifestations of disease, such as conjunctival redness, growth of new blood vessels
into the cornea and microscopic damage to the corneal surface (punctate keratitis). In addition, post-instillation comfort was
reported by patients as excellent with high levels of acceptance of eye drops, which were described as comfortable and refreshing.
Furthermore, immunofluorescence
imaging of conjunctival tissue taken from AKC patients by Professor Virginia Calder and her team at the UCL Institute of Ophthalmology
London demonstrated expression of complement C5a receptor 1 (C5aR1) and the LTB4 receptor BLT1 within conjunctiva. The conjunctiva
covers part of the surface of the eye and lines the eyelids, among other roles it lubricates the eye and acts as a barrier to infection.
Whereas the role of leukotriene LTB4 in allergic eye surface inflammation and contact lens intolerance is well-established with
a 20-fold increase shown in a study by Professor Mark Wilcox, School of Optometry and Vision Science, University of New South Wales,
the role of complement in allergic eye disease has been less well understood. This new work shows that leukotriene BLT1 receptors
are closely associated with mucus secreting goblet cells within the conjunctival epithelium whereas the complement C5a receptors
are expressed in the deeper stromal layers of the conjunctiva. The different cellular distribution suggests potential independent
roles for both the complement and leukotriene cascades in severe eye surface inflammation, hence nomacopan may be able to reduce
inflammation in multiple layers and provide a unique treatment benefit.
During
the first quarter of 2020, the Company announced new preclinical data comparing the therapeutic
efficacy of nomacopan, PAS-nomacopan, and a monoclonal anti-VEGF antibody all administered intravitreally. The work utilized an
established 26-day model of severe experimental autoimmune uveitis (EAU) in mice which results in elevated VEGF and retinal inflammation
mediated by influx of lymphocytes which thereby mimics the pathology seen in several back-of the eye diseases. Drug treatments
were administered on day 15 once disease was established and ongoing. PAS-nomacopan was found to reduce intraocular VEGF levels
by as much as the anti-VEGF antibody with 74% (p=0.04) and 68% (p=0.05) reductions respectively, compared to saline control. Furthermore,
while clinically assessed inflammation increased in both the control and anti-VEGF groups by 49% and 33%, respectively, PAS-nomacopan
treatment showed a 9% reduction in inflammation assessed by retinal fundoscopy (p=0.02).This therapeutic activity across multiple
pathogenic pathways (VEGF, inflammation and complement) supports the potential for nomacopan as a new mode of action for the treatment
of back of the eye diseases.
TMA Clinical Program
TMA-HSCT is an orphan
condition with an estimated fatality rate of more than 80% in pediatric patients with the disease. A framework for a pivotal trial
design for pediatric patients was agreed with the FDA in which the response to nomacopan of selected, clinically meaningful treatment
variables would be the primary endpoint. In September 2018, Akari announced that in the first two patients treated with nomacopan
as part of a UK named patient program it had observed a rapid reduction of the markers of complement activation as well as normalization
of markers that are elevated in TMA (platelet count, red blood cell fragments, thrombocytopenia, elevated LDH and hypertension).
In December 2019, we
opened a multi-center Phase III study for the treatment of pediatric HSCT-TMA with nomacopan. The primary endpoints are focused
on disease response defined primarily by renal improvement and reduced transfusion dependence. This two-part pivotal Phase III
study of nomacopan in pediatric patients with HSCT-TMA is based on guidance from our end-of-Phase II meeting with the FDA. Part
A of the trial is a dose confirmation study. Part B of the trial is a single arm responder-based efficacy study that will follow
an interim analysis of Part A and a meeting with the FDA. As a result of the coronavirus outbreak, although we are looking to continue
the process of site openings, we anticipate delays in openings and enrollment.
PNH Clinical Program
Phase II PNH Eculizumab-Resistant Trials
In February 2016, we
initiated an open-label Phase II single arm trial for PNH patients with eculizumab resistance due to C5 polymorphisms, pursuant
to a clinical trial protocol approved by the European Union national regulatory authority. Results from the patient with PNH who
was resistant to eculizumab due to a C5 polymorphism has demonstrated complete complement inhibition (Elisa CH50 < 8 Eq/ml,
lower limit of quantification) and marked LDH reduction to around 1.5 times the upper limit of normal, or ULN. This patient has
been transferred to the long-term safety and efficacy CONSERVE study and in aggregate has been treated for more than four years
of therapy as of March 30, 2020 and has been self-administering nomacopan.
In May 2018, we enrolled
a second PNH patient with eculizumab resistance due to C5 polymorphisms in an open-label six-month Phase II single arm trial. The
trial was conducted at a study site in New York and the patient has entered into our long-term safety and efficacy CONSERVE study.
Phase II COBALT PNH Trial
In the fourth quarter
of 2016, we commenced enrollment for a 90-day open-label Phase II, single-arm clinical trial in patients with PNH in five centers
in the European Union, known as the COBALT trial. The trial was concluded in December 2017. Of the eight patients enrolled, seven
completed the 90-day trial while one patient with a suspected co-morbidity unrelated to treatment was withdrawn on day 43 of the
trial.
Results from the COBALT
trial showed that patients were comfortable with self-administration of nomacopan. Those results showed that there were four serious
adverse events, but no serious adverse events related to nomacopan. The most commonly reported adverse events were mild self-limiting
injection site reactions. All patients that completed the trial saw declines in lactate dehydrogenase, LDH, levels (although in
some cases there were intermittent rises). The trial met its primary endpoint defined as an LDH of ≤1.8 X ULN at Day 28.
Long-Term Safety and Efficacy CONSERVE
Study
CONSERVE is a long-term safety and efficacy study for those
patients who wish to continue on nomacopan treatment following completion of a clinical trial.
All seven patients
that completed the COBALT trial opted to be enrolled into the CONSERVE study. Data from our ongoing long-term study shows that
all six patients from the Phase II study who were transfusion dependent at entry are now transfusion independent on nomacopan,
having had in all cases no transfusions for a minimum of six months. In one case a patient received one unit of PRBC in the last
12 months. To date, there are 30 cumulative years of patient safety data with no reported drug-related serious adverse events and
patients are self-administering. The CONSERVE study which has been running for over three years is scheduled to close during 2020
and, as a result of the coronavirus outbreak, will shift to being managed on a country by country basis and some disruption is
expected.
Phase III CAPSTONE PNH Trial
In March 2018, we opened
our first site for CAPSTONE, a three-part, two-arm, randomized, open label, Phase III clinical trial of nomacopan in transfusion
dependent PNH patients in specific countries in Europe and other countries, where Soliris® (eculizumab) is not the standard
of care. The objective of the trial is to demonstrate efficacy of nomacopan plus standard of care compared to standard of care
alone in patients with uncontrolled hemolysis due to PNH and to assess safety and tolerability. In the CAPSTONE trial, PNH patients,
naïve to anti-complement treatment, are randomized to receive daily subcutaneous nomacopan or standard of care (blood transfusion
with or without anticoagulation) for six months. After six months, patients on standard of care receive nomacopan for three months
and patients on nomacopan continue the drug for a further three months. The primary endpoint of this study is hemoglobin (Hb) stabilization
defined as Hb greater than the set point for each patient set during the pre-study randomization period, and the avoidance of packed
red blood cell transfusions during the treatment period of 180 days. All patients receive a transfusion if they fall below the
Hb set point.
In January 2020, we
announced interim data from the CAPSTONE trial on the first eight patients. The interim data showed that the four patients on nomacopan
met the primary endpoint and received no transfusions for the first six months of treatment while all four patients on placebo
were transfused during the first six months of treatment. Both groups had similar historic transfusion levels and mean Hb set points.
The difference is statistically significant at the p=0.034 level.
We are currently
developing a new higher concentration formulation of nomacopan allowing a small volume 0.3mL, low viscosity injection, with an
insulin pen-like injector holding one week’s daily dosing stable at room temperature, improving both patient comfort and
convenience. Recruitment into the CAPSTONE study has been discontinued, although a PNH program may be re-initiated to potentially
take advantage of the new high concentration formulation.
Immunogenicity
We successfully completed
a chronic (28 day) dosing experiment in mice to investigate whether daily subcutaneous administration of the expected therapeutic
dose of nomacopan induces an antibody response, and whether the antibodies neutralize complement inhibition by nomacopan. The data
from this chronic dosing experiment showed nomacopan was well-tolerated with no injection site allergic reactions or behavioral
changes. Nomacopan can induce formation of low titre anti-drug IgG antibodies in mice after four weeks of daily inoculation, which
is not uncommon, but these antibodies were not neutralizing and had no effect on nomacopan’s ability to inhibit complement.
No neutralizing antibodies have been detected, including in
the healthy volunteers in the Phase Ia and Ib trials, the ongoing PNH patient treated for over three years in the eculizumab resistance
trial and in the Phase II COBALT study and long-term safety and efficacy CONSERVE study.
Nomacopan LA: Once Weekly Formulation
Using PASylation®,
a proprietary process of XL-protein GmbH, XL-protein has modified nomacopan by adding a 600 amino acid proline/alanine/ serine
(PAS) N-terminal fusion tag to generate PAS-nomacopan (68kDa). The unstructured and uncharged PAS polypeptide increases the apparent
molecular size to approximately 700kDa, slowing kidney clearance and extending the half-life.
Data from mouse, rat
and dog studies of PAS-nomacopan demonstrated that the expected terminal half-life in humans should be approximately 4 days. Based
on these data, PK modeling supports that a once weekly dosing regimen is feasible. We intend to conduct a Phase I clinical study
of PAS nomacopan in the future based on our availability of resources.
In addition, new data in a pig model has shown a similar PK
profile for the higher concentrated formulation to be used across our subcutaneous programs. This new highly concentrated formulation
with small (0.3mL) volume and water-like viscosity is intended to allow ease of administration and increased patient comfort for
use alongside a new auto-injector pen holding a week’s dosing stable at room temperature. We plan to initiate a Phase I clinical
trial with a new auto-injector pen formulation in the second half of 2020.
Target Indications
Bullous Pemphigoid
Bullous pemphigoid, or BP, is an autoimmune blistering skin
disease. BP is a serious condition with significant associated morbidity and mortality. Widespread tense and hemorrhagic blisters,
skin erosions and severe itching cause patients a great deal of distress and pain.
Untreated, BP may be
a self-limiting disease in a proportion of patients with periods of spontaneous remissions and exacerbations. In most patients
who are treated, BP remits within 1.5-5 years but may recur once medication is stopped. Patients are often admitted to hospital
for initial treatment. The estimates of admission rates for patients with BP vary, but they are generally high, thus representing
a significant burden and cost to the healthcare systems, as well to the patients’ and their families/carers. The severity
of symptoms and lesions in BP make treatment mandatory. Corticosteroids are often administered and frequent hospital visits are
needed for dose adjustments.
Older age at onset
and frail general condition are poor prognostic factors. Many available treatments are associated with toxicity and may be poorly
tolerated in patients with BP. It is thought that, in the elderly population, corticosteroid treatment contributes to the high
mortality rate. This is due, at least in part, to the significant adverse events associated with the use of steroids, such as hypertension,
diabetes, infections and osteoporosis. Management of these conditions can be difficult and their treatment represents a significant
burden. Therefore, the avoidance of systemic corticosteroids in this vulnerable group of patients is highly desirable and a safer,
effective, evidence-based alternative is needed.
Treatment should aim
to control symptoms with minimum adverse effects where possible. Options are broadly divided into anti-inflammatory drugs, immunosuppressive
or immunomodulating drugs, and procedures that aim to remove circulating pathogenic antibodies and inflammatory mediators. Corticosteroids
are the most commonly used anti-inflammatory drugs given for treatment of BP. They are administered systemically, for example prednisolone,
or topically for very potent steroids such as clobetasol. Anti-inflammatory antibiotics such as tetracyclines are used as well.
Long-term use of potent steroids is associated with several adverse effects such as severe skin atrophy, osteoporosis, diabetes,
glaucoma, cataract formation, weight gain, and psychologic disturbances. Intravenous immunoglobulins have been used as immunomodulatory
agents in BP as well as other auto immune blistering skin diseases.
The choice of treatment
depends on the individual patient’s circumstances especially the severity of the BP and presence of comorbidities. All of
these treatment options have limited applicability due to reasons associated with efficacy, safety or both. And thus, there exists
a need for a safe and effective therapy for BP patients.
Atopic Keratoconjunctivitis
Atopic keratoconjunctivitis, or AKC, is a severe allergic conjunctivitis
which usually persists all year and for which the allergen(s) are usually unidentified. AKC, which is an orphan disease, mainly
affects adults and is triggered by mast cell activation secondary to inflammatory stimuli including eosinophils, neutrophils and
Th2-generated cytokines. Treatment is initially with topical lubricants, antihistamines, immunomodulators (e.g. ciclosporin A)
and intermittent steroids but systemic immunotherapy may become necessary in patients unresponsive to topical therapy. AKC sufferers
usually exhibit symptoms such as itching, burning, tearing, erythematosus and swollen eye lids. The disease may lead to corneal
scarring and may also lead to vascularization of the cornea. Both eyes are usually affected equally. There is substantial unmet
need for topical agents that will prevent the progression of corneal involvement and the requirement for systemic immunomodulators.
Thrombotic Microangiopathy (TMAs)
TMAs are a group of diseases in which thrombosis occurs in small
blood vessels as a result of damage to the endothelium (lining) of the vessels. This leads to hemolytic anaemia, low platelet count
(thrombocytopenia), end organ damage which may result in complications including renal failure, stroke and pulmonary hypertension.
The major varieties of TMA are hemolytic uremic syndrome (HUS), atypical hemolytic uremic syndrome (aHUS), thrombotic thrombocytopenic
purpura (TTP), antiphospholipid syndrome (APS), disseminated intravascular coagulation (DIC), malignant hypertension, scleroderma
renal failure and TMA associated with hemopoietic stem cell transplant (HSCT). The latter is often linked to toxicity of calcineurin
inhibitors which are used to protect against graft versus host disease (GvHD). There are no currently approved drugs for the treatment
of HSCT-TMA and, untreated, the condition in its more severe forms has a high risk of death.
Paroxysmal nocturnal
haemoglobinuria (PNH)
PNH is an ultra-rare,
life-threatening and debilitating disease of the blood with an estimated 8,000 – 10,000 patients globally. Due to an acquired
genetic deficiency, uncontrolled complement activation in PNH patients allows their own complement system to attack and destroy
blood cells, leading to life-threatening complications.
Patients with PNH suffer
from chronic complement activation and destruction of some of their blood cells, known as hemolysis, caused by the C5 cleavage
product C5b-9 (the membrane attack complex). This hemolysis is associated with further clinical symptoms and negative outcomes,
including kidney disease, thrombosis (blood clots), liver dysfunction, fatigue, impaired quality of life, recurring pain, shortness
of breath, pulmonary hypertension, intermittent episodes of dark-colored urine (hemoglobinuria), and anemia. When the destruction
of red blood cells is sufficiently large, recurrent blood transfusions may be necessary.
Soliris®, (eculizumab)
is the only FDA approved drug for the treatment of PNH. Before the introduction of eculizumab, PNH patients, many of whom were
in young adulthood, faced a life of repeated blood transfusions, thromboembolic complications and typical life expectancies of
only 8 – 10 years from diagnosis.
It has recently been
discovered that a small but identifiable subgroup of eculizumab-treated patients have a C5 polymorphism affecting the eculizumab
binding site which prevents high affinity binding and makes these patients resistant to treatment, but does not appear to affect
binding by nomacopan in those patients tested to date.
Other Indications
We are also conducting discovery and preclinical research into
the use of nomacopan for the treatment of other diseases in the lung, kidneys and back of the eye.
Market Opportunity in Complement Mediated
Diseases
The NIH estimates that
approximately 23.5 million Americans may suffer from an autoimmune disorder, although this number may underestimate actual prevalence
as it includes only 24 diseases for which good epidemiology studies were available. Researchers have identified 80 – 100
different autoimmune diseases and suspect at least 40 additional diseases of having an autoimmune basis. These diseases are chronic
and can be life-threatening. Autoimmune disease is one of the top 10 leading causes of death in female children and women in all
age groups up to 64 years of age. The NIH estimates annual direct health care costs for autoimmune diseases to be in the range
of $100 billion.
Both the complement and leukotriene pathways work as part of
the immune system to disable and clear out foreign invaders and unwanted cells, and as such, plays an important role in the pathology
of many autoimmune diseases. The term “Complement Mediated Diseases” applies to diseases and conditions where a patient’s
immune system attacks and destroys healthy body tissue by mistake, causing damage through its complement component and through
mediators induced by complement activation. These diseases and conditions are often very rare, and include such diseases as PNH,
aHUS, GBS, Myasthenia Gravis, transplant mediated organ rejection, glomerulopathies (kidney diseases), as well as numerous other
disorders. While not all complement mediated diseases will respond to a direct C5 inhibitor, like nomacopan, there is a large
market opportunity as demonstrated by eculizumab with approximately $4 billion in net sales in 2019.
In addition to those
conditions listed, where complement activity is believed to be the primary driver of disease, there are many other poorly treated
diseases where in addition to complement activation other inflammatory pathways are implicated. Examples of such diseases where
both the complement and leukotriene pathways are both believed to play an active role include BP, AKC, vasculitis, trauma and several
severe inflammatory lung conditions. An example of an approved leukotriene inhibitor is Zileuton, which is a treatment for severe
asthma.
Competition in Complement and Leukotriene
Mediated Diseases
The development and
commercialization of new drugs is highly competitive. We will face competition with respect to all product candidates that we may
develop or commercialize in the future from pharmaceutical and biotechnology companies worldwide. The key factors affecting the
success of any approved product will be its efficacy, safety profile, drug interactions, method of administration, pricing, reimbursement
and level of promotional activity relative to those of competing drugs.
Our potential competitors
may have substantially greater financial, technical, and personnel resources than we do. In addition, many of these competitors
have significantly greater commercial infrastructures. Our ability to compete successfully will depend largely on our ability to
leverage our collective experience in drug discovery, development and commercialization to:
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discover and develop drugs that are differentiated from other products in the market, including eculizumab;
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obtain patent and/or proprietary protection for our product candidates and technologies;
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obtain required regulatory approvals;
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obtain a commercial partner;
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commercialize our product candidates, if approved; and
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attract and retain high-quality research, development and commercial personnel.
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There has been a broad research effort in complement-based therapy
to date, with eculizumab being the first and only therapy approved that directly inhibits C5. Although there is currently less
research and development effort in the leukotriene field there are approved leukotriene inhibitors such as Zileuton, which is a
treatment for severe asthma. However, we are aware of certain other companies and academic institutions that are continuing their
efforts to discover and develop alternate complement and/or C5 inhibitors, including Alexion, Appelis, Achillion, Omeros, Chemocentryx,
and RA Pharmaceuticals.
Sales and Marketing
Because we are focused on discovery and development of drugs,
we currently have no sales, marketing or distribution capabilities in order to commercialize nomacopan or any approved product
candidates. If our lead product candidate nomacopan is approved, we intend either to establish a sales and marketing organization
with technical expertise and supporting distribution capabilities to commercialize nomacopan, or to outsource this function to
a third party. We will adopt a similar strategy for the other compounds in our pipeline.
Manufacturing
We currently rely on
a third-party contract manufacturer, or CMO, which complies with FDA’s current good manufacturing practice requirements,
for all of our clinical supplies, including active pharmaceutical ingredients, or APIs, drug substances and finished drug products
for our preclinical research and clinical trials, including the Phase I/II trials for nomacopan. Analytical methods that define
activity, identity, purity, sterility, endotoxin, and host cell related impurities have been established and qualified for release
testing of drug substance. We successfully completed a commercial scale process batch in 2016 and manufactured multiple lots of
nomacopan in 2018 and 2019. We expect that during 2020, we will need to manufacture additional lots of nomacopan.
We do not own or operate,
and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to continue to rely, on CMOs
for the manufacture of nomacopan and any other product candidates that we may develop for larger scale preclinical and clinical
testing, as well as for commercial quantities of any product candidates that are approved.
We currently expect
initial commercial supplies of nomacopan to be supplied as a dry powder reconstituted into a pen injector which will hold one week’s
supply of nomacopan stable at room temperature.
We plan to expand our
relationship with the current CMO for commercial supplies of nomacopan, if and when it nears potential approval, and plan to examine
alternate CMOs for secondary commercial supplies of nomacopan and other pipeline molecules.
Intellectual Property
We will be able to
protect our technology and products from unauthorized use by third parties only to the extent it is covered by valid and enforceable
patents or is effectively maintained as trade secrets. Patents and other proprietary rights are thus an essential element of our
business.
Our success will depend
in part on our ability to obtain and maintain proprietary protection for our product candidates, technology, and know-how, to operate
without infringing on the proprietary rights of others, and to prevent others from infringing its proprietary rights. Our policy
is to seek to protect its proprietary position by, among other methods, filing U.S. and foreign patent applications related to
its proprietary technology, inventions, and improvements that are important to the development of its business. We also rely on
trade secrets, know-how, continuing technological innovation, and in-licensing opportunities to develop and maintain our proprietary
position.
We own or have exclusive
rights to six United States patents, 74 national patents in Europe derived from five patents granted by the European Patent Office
and 22 foreign issued patents in other jurisdictions, and eight United States and 21 foreign or international pending patent applications,
relating to the complement C5 inhibitor protein nomacopan and to its use in the treatment of key disease indications, as well as
to nomacopan variants. Our current patent portfolio includes granted patents in the jurisdictions of United States, Canada, major
European countries, Japan, China, Australia and New Zealand and pending applications in the jurisdictions of United States, Canada,
Europe, Japan, China, Brazil, Israel, India, Republic of Korea, Mexico, Russia, Australia and New Zealand.
Issued patents in the
US and other countries which cover our product candidate nomacopan and its uses will expire between 2024 and 2031, excluding any
patent term extensions that might be available following the grant of marketing authorizations. We have pending patent applications
for our product candidate nomacopan and its uses that, if issued, would expire in the United States and in countries outside of
the United States between 2024 and 2039, excluding any patent term adjustment that might be available following the grant of the
patent and any patent term extensions that might be available following the grant of marketing authorizations. These patent and
patent applications relate to subject matters including: complement inhibitor molecule; methods for treating myasthenia gravis;
methods for treating peripheral nerve disorders; methods for treating respiratory disorders; methods for treating viral infections
of the respiratory tract; methods of treating complement-mediated diseases in patients with C5 polymorphisms, methods of treating
acute graft versus host disease; nomacopan for the treatment of cicatrizing eye inflammatory disorders; nomacopan for the treatment
of autoimmune blistering diseases; and nomacopan variants lacking C5 binding.
Government Regulation
Government Regulation and Product
Approval
Government authorities
in the U.S., at the federal, state and local level, and other countries extensively regulate, among other things, the research,
development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising,
distribution, marketing and export and import of products such as those that we are developing. A new drug must be approved by
the FDA, generally through the new drug application, or NDA, process and a new biologic must be approved by the FDA through the
biologics license application, or BLA, process before it may be legally marketed in the U.S. The animal and other non-clinical
data and the results of human clinical trials performed under an Investigational New Drug application, or IND, and under similar
foreign applications will become part of the NDA or BLA.
U.S. Drug Development Process
In the U.S., the FDA
regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and in the case of biologics, also under the Public Health
Service Act, or PHSA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance
with applicable federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial
resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval
process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include the
FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, requesting product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government
contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material
adverse effect on us. The process required by the FDA before a drug or biologic may be marketed in the U.S. generally involves
the following:
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completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicable regulations;
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submission to the FDA of an IND which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials according to Good Clinical Practices to establish the safety and efficacy of the proposed drug for its intended use;
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submission to the FDA of an NDA or BLA;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current good manufacturing practice, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
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FDA review and approval of the NDA or BLA.
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Once a pharmaceutical
candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations
of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical
tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include
a protocol detailing, among other things, the objectives of the first phase of the clinical trials, the parameters to be used in
monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Some
preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt
by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND
sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed
by the FDA at any time before or during studies due to safety concerns or non-compliance.
All clinical trials
must be conducted under the supervision of one or more qualified investigators in accordance with good clinical practice regulations.
They must be conducted under protocols detailing the objectives of the trial, dosing procedures, subject selection and exclusion
criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND,
and progress reports detailing the results of the clinical trials must be submitted at least annually. In addition, timely safety
reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. An institutional review board,
or IRB, responsible for the research conducted at each institution participating in the clinical trial must review and approve
each protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and
the consent form that must be provided to each trial subject or his or her legal representative, monitor the study until completed
and otherwise comply with IRB regulations.
Human clinical trials
are typically conducted in three sequential phases that may overlap or be combined:
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Phase I: The product candidate is initially
introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product
may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in
patients.
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Phase II: This phase involves studies in a
limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of
the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
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Phase III: Clinical trials are undertaken to
further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical
study sites. These studies are intended to establish the overall risk-benefit ratio of the product candidate and provide, if
appropriate, an adequate basis for product labeling.
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The FDA or the sponsor
may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being
exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution
if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated
with unexpected serious harm to patients. Phase I, Phase II, and Phase III testing may not be completed successfully within any
specified period, if at all.
During the development
of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission
of an IND, at the end of Phase II, and before an NDA or BLA is submitted. Meetings at other times may be requested. These meetings
can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice,
and for the sponsor and FDA to reach agreement on the next phase of development. Sponsors typically use the end of Phase II meeting
to discuss their Phase II clinical results and present their plans for the pivotal Phase III clinical trial that they believe will
support approval of the new drug.
Concurrent with clinical
trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and
physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance
with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate
and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final
drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that
the product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
The results of product
development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted
on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA or BLA
requesting approval to market the product. The submission of an NDA or BLA is subject to the payment of user fees; a waiver of
such fees may be obtained under certain limited circumstances. The FDA initially reviews all NDAs and BLAs submitted to ensure
that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional information
rather than accept a NDA or BLA for filing. In this event, the NDA or BLA must be resubmitted with the additional information.
The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for
filing, the FDA begins an in-depth substantive review. FDA may refer the NDA or BLA to an advisory committee for review, evaluation
and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation
of an advisory committee, but it generally follows such recommendations. The approval process is lengthy and often difficult, and
the FDA may refuse to approve an NDA or BLA if the applicable regulatory criteria are not satisfied or may require additional clinical
or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA or BLA
does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret
data differently than we interpret the same data. The FDA reviews an NDA to determine, among other things, whether a product is
safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s
identity, strength, quality and purity. The FDA reviews a BLA to determine, among other things whether the product is safe, pure
and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s
continued safety, purity and potency. Before approving an NDA or BLA, the FDA will inspect the facility or facilities where the
product is manufactured. The FDA may issue a complete response letter, which may require additional clinical or other data or impose
other conditions that must be met in order to secure final approval of the NDA or BLA, or an approval letter following satisfactory
completion of all aspects of the review process.
NDAs or BLAs may receive
either standard or priority review. Under current FDA review goals, standard review of an NDA for a new molecular entity (NME)
or original BLA will be ten months from the date that the NDA or BLA is filed. A drug representing a significant improvement in
treatment, prevention or diagnosis of disease may receive a priority review of six months. Priority review does not change the
standards for approval, but may expedite the approval process.
If a product receives
regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require a sponsor to conduct
Phase IV testing which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA or
BLA approval, and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.
The Food and Drug Administration
Safety and Innovation Act, or FDASIA, which was enacted in 2012, made permanent the Pediatric Research Equity Act, or PREA, which
requires a sponsor to conduct pediatric studies for most drugs and biologics with a new active ingredient, new indication, new
dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, BLAs and supplements thereto, must contain
a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must assess the safety and
effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric
studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that
the drug or biologic is ready for approval for use in adults before pediatric studies are complete or that additional safety or
effectiveness data needs to be collected before pediatric studies can begin. After April 2013, the FDA must send a non-compliance
letter to any sponsor that fails to submit a required pediatric assessment within specified deadlines or fails to submit a timely
request for approval of a pediatric formulation, if required.
Patent Term Restoration and
Marketing Exclusivity
Depending upon the
timing, duration and specifics of FDA approval of our drugs, some 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. The Hatch-Waxman
Amendments permit a patent restoration term of up to five years as partial compensation for effective patent term lost due to time
spent during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining
term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally
one-half the time between the effective date of an IND, and the submission date of an NDA or BLA, plus the time between the submission
date of an NDA or BLA and the approval of that application, except that the period is reduced by any time during which the applicant
failed to exercise due diligence. Only one patent applicable to an approved drug may be extended, and the extension must be applied
for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and
approves the application for any patent term extension or restoration.
Pediatric exclusivity
is another type of marketing exclusivity available in the U.S. The FDASIA made permanent the Best Pharmaceuticals for Children
Act, or BPCA, which provides, under certain circumstances, for an additional six months of marketing exclusivity if a sponsor conducts
clinical trials in children in response to a written request from the FDA, or a Written Request. If the Written Request does not
include studies in neonates, the FDA is required to include its rationale for not requesting those studies. The FDA may request
studies on approved or unapproved indications in separate Written Requests. The issuance of a Written Request does not require
the sponsor to undertake the described studies.
Biologics Price Competition
and Innovation Act of 2009
The Biologics Price
Competition and Innovation Act of 2009, or BPCIA, amended the PHSA to create an abbreviated approval pathway for two types of “generic”
biologics — biosimilars and interchangeable biologic products — and provides for a twelve-year
exclusivity period for the first approved biological product, or reference product, against which a biosimilar or interchangeable
application is evaluated; however if pediatric studies are performed and accepted by the FDA, the twelve-year exclusivity period
will be extended for an additional six months. A biosimilar product is defined as one that is highly similar to a reference product
notwithstanding minor differences in clinically inactive components and for which there are no clinically meaningful differences
between the biological product and the reference product in terms of the safety, purity and potency of the product. An interchangeable
product is a biosimilar product that may be substituted for the reference product without the intervention of the health care provider
who prescribed the reference product.
The biosimilar applicant
must demonstrate that the product is biosimilar based on data from: (1) analytical studies showing that the biosimilar product
is highly similar to the reference product; (2) animal studies (including toxicity); and (3) one or more clinical studies to demonstrate
safety, purity and potency in one or more appropriate conditions of use for which the reference product is approved. In addition,
the applicant must show that the biosimilar and reference products have the same mechanism of action for the conditions of use
on the label, route of administration, dosage and strength, and the production facility must meet standards designed to assure
product safety, purity and potency.
An application for
a biosimilar product may not be submitted until four years after the date on which the reference product was first approved. The
first approved interchangeable biologic product will be granted an exclusivity period of up to one year after it is first commercially
marketed, but the exclusivity period may be shortened under certain circumstances.
Orphan Drug Designation
Under the Orphan Drug
Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease
or condition that affects fewer than 200,000 individuals in the U.S., or more than 200,000 individuals in the U.S. and for which
there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for this type of disease
or condition will be recovered from sales in the U.S. for that drug. Orphan drug designation must be requested before submitting
an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use
are disclosed publicly by the FDA. Orphan drug designation does not itself convey any advantage in or shorten the duration of the
regulatory review and approval process. If a product that has orphan drug designation subsequently receives the first FDA approval
for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the
FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances,
for seven years. Orphan drug exclusivity, however, also could block the approval of one of our product candidates for seven years
if a competitor obtains approval of the same drug, for the same designated orphan indication or if our product candidate is determined
to be contained within the competitor’s product for the same indication or disease.
The FDA also administers
a clinical research grants program, whereby researchers may compete for funding to conduct clinical trials to support the approval
of drugs, biologics, medical devices, and medical foods for rare diseases and conditions. A product does not have to be designated
as an orphan drug to be eligible for the grant program. An application for an orphan grant should propose one discrete clinical
study to facilitate FDA approval of the product for a rare disease or condition. The study may address an unapproved new product
or an unapproved new use for a product already on the market.
Fast Track Designation and
Accelerated Approval
The FDA is required
to facilitate the development, and expedite the review of, drugs that it finds are intended for the treatment of a serious or life-threatening
disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs
for the condition. Under the fast track program, the sponsor of a new product candidate may request that the FDA designate the
product candidate for a specific indication as a fast track drug concurrent with, or after, the filing of the IND for the product
candidate. The FDA must determine if the product candidate qualifies for fast track designation within 60 days of receipt of the
sponsor’s request.
Under the fast track
program, the FDA may designate a drug for fast-track status if it is intended to treat a serious or life-threatening illness and
nonclinical or clinical data demonstrate the potential to address an unmet medical need. Similarly, the agency may designate a
drug for accelerated approval if it treats a serious condition and generally provides meaningful therapeutic benefit to patients
over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical
endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect
on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the
condition and the availability or lack of alternative treatments.
In clinical trials,
a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement
of how a patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than other
clinical endpoints. A product candidate approved on this basis is generally subject to rigorous post-marketing compliance requirements,
including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to
conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw
the drug from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations
are subject to prior review by the FDA.
In addition to other
benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with the FDA, the FDA may initiate
review of sections of a fast track drug’s NDA or BLA before the application is complete. This rolling review is available
if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays
applicable user fees. However, the FDA’s time period goal for reviewing an application does not begin until the last section
of the application is submitted. Additionally, the fast track designation may be withdrawn by the FDA if the FDA believes that
the designation is no longer supported by data emerging in the clinical trial process.
Post-Approval Requirements
Once an approval is
granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems are identified
after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions
on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review
and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required
to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by
the FDA and certain state agencies for compliance with cGMP and other laws and regulations. We rely, and expect to continue to
rely, on third parties for the production of clinical and commercial quantities of our products. Future inspections by the FDA
and other regulatory agencies may identify compliance issues at the facilities of our contract manufacturers that may disrupt production
or distribution, or require substantial resources to correct.
Any drug products manufactured
or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things,
record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety and efficacy
information, drug sampling and distribution requirements, complying with certain electronic records and signature requirements,
and complying with FDA promotion and advertising requirements. The FDA strictly regulates labeling, advertising, promotion and
other types of information that may be disseminated about products that are placed on the market. Drugs may be promoted only for
the approved indications and in accordance with the provisions of the approved label.
From time to time,
legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the
development, approval, manufacturing and marketing of products regulated by the FDA. It is impossible to predict whether further
legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes,
if any, may be.
Regulation and Marketing Authorization
in the European Union
The process governing
approval of medicinal products in the European Union follows essentially the same lines as in the United States and, likewise,
generally involves satisfactorily completing each of the following:
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preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good Laboratory Practice regulations;
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submission to the relevant national authorities of a clinical trial application, or CTA, which must be approved before human clinical trials may begin;
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performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication
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submission to the relevant competent authorities of a MAA, which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;
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satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current cGMP;
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potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and
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review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.
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Preclinical Studies
Preclinical tests include
laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies,
in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the
compounds for testing must comply with the relevant EU regulations and requirements. The results of the preclinical tests, together
with relevant manufacturing information and analytical data, are submitted as part of the CTA and MAA.
Clinical Trial Approval
Requirements for the
conduct of clinical trials in the European Union including Good Clinical Practice, or GCP, are implemented in the Clinical Trials
Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a
system for the approval of clinical trials in the European Union has been implemented through national legislation of the member
states. Under this system, approval must be obtained from the competent national authority of an EU member state in which a study
is planned to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states.
To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further
supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore,
a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application
in that country.
In April 2014, a new
Clinical Trials Regulation, (EU) No 536/2014, or the New CT Regulation, was adopted which will replace the current Clinical Trials
Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the European Union, the new EU clinical
trials legislation was passed as a “regulation” that is directly applicable in all EU member states. All clinical trials
performed in the European Union are required to be conducted in accordance with the Clinical Trials Directive 2001/20/EC until
the new Clinical Trials Regulation (EU) No 536/2014 becomes applicable. Although the New CT Regulation entered into force on June
16, 2014 the timing of its application depends on the development of a fully functional EU clinical trials portal and database,
which will be confirmed by an independent audit. The New CT Regulation becomes applicable six months after the European Commission
publishes a notice of this confirmation. It is unlikely for the notice to be published in 2020. It is currently estimated that
an audit of the system will commence in December 2020. Despite not yet being in force, the New CT Regulation is being treated as
the template with respect to the emphasis it places on the need for transparency, accuracy and fairness in reporting clinical data.
The New CT Regulation
aims to harmonize, simplify and streamline the approval of clinical trials in the European Union. The main characteristics of the
New CT Regulation include:
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A streamlined application procedure via a single-entry point, the EU portal.
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A single set of documents to be prepared and submitted for the application as well as simplified reporting procedures that will spare sponsors from submitting broadly identical information separately to various bodies and different member states.
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A harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed jointly by all member states concerned. Part II is assessed separately by each member state concerned.
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Strictly defined deadlines for the assessment of clinical trial application.
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The involvement of the ethics committees in the assessment procedure in accordance with the national law of the member state concerned but within the overall timelines defined by the New CT Regulation.
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Marketing Authorization
Authorization to market
a product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure,
a mutual recognition procedure, a decentralized procedure or a national procedure.
Centralized Authorization
Procedure
The centralized procedure
enables applicants to obtain a marketing authorization that is valid in all EU member states based on a single application. Certain
medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization
procedure for marketing authorization, which, if granted by the European Commission, is automatically valid in all 28 EU member
states. The EMA and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No
726/2004.
Pursuant to Regulation
(EC) No 726/2004, this procedure is mandatory for:
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medicinal products developed by means of one of the following biotechnological processes:
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recombinant DNA technology;
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controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells; and
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hybridoma and monoclonal antibody methods;
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advanced therapy medicinal products as defined in Article 2 of Regulation (EC) No. 1394/2007 on advanced therapy medicinal products;
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medicinal products for human use containing a new active substance that, on the date of effectiveness of this regulation, was not authorized in the European Union, and for which the therapeutic indication is the treatment of any of the following diseases:
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acquired immune deficiency syndrome;
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neurodegenerative disorder;
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auto-immune diseases and other immune dysfunctions; and
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medicinal products that are designated as orphan medicinal products pursuant to Regulation (EC) No 141/2000.
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The centralized authorization
procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal
product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization
is in the interest of patients in the European Union.
Administrative Procedure
Under the centralized
authorization procedure, the EMA’s Committee for Human Medicinal Products, or CHMP, serves as the scientific committee that
renders opinions about the safety, efficacy and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed
of experts nominated by each member state’s national authority for medicinal products, with expert appointed to act as Rapporteur
for the co-ordination of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur.
After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt
an opinion as to whether a marketing authorization should be granted. The process usually takes longer in case additional information
is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation
with the regulatory authorities of member states and a number of experts. When an application is submitted for a marketing authorization
in respect of a drug that is of major interest from the point of view of public health and in particular from the viewpoint of
therapeutic innovation, the applicant may pursuant to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment
procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced to 150 days but it is possible that the
CHMP can revert to the standard time limit for the centralized procedure if it considers that it is no longer appropriate to conduct
an accelerated assessment. Once the procedure is completed, a European Public Assessment Report, or EPAR, is produced. If the opinion
is negative, information is given as to the grounds on which this conclusion was reached. After the adoption of the CHMP opinion,
a decision on the MAA must be adopted by the European Commission, after consulting the EU member states, which in total can take
more than 60 days.
Conditional Approval
In specific circumstances, EU legislation (Article 14(7) Regulation
(EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use)
enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required
for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates (including
medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2) it
is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product
fulfills unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal
product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization
may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the
completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations
are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the
need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above
also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.
Marketing Authorization under
Exceptional Circumstances
Under Article 14(8)
Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements
laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation)
might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually
to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization
under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will
normally not lead to the completion of a full dossier/approval.
Market Authorizations Granted
by Authorities of EU Member States
In general, if the
centralized procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:
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The decentralized procedure allows applicants to file identical applications to several EU member states and receive simultaneous national approvals based on the recognition by E.U. member states of an assessment by a reference member state.
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The national procedure is only available for products intended to be authorized in a single EU member state.
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A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization has already been obtained in at least one EU member state.
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A marketing authorization
may be granted only to an applicant established in the European Union.
Pediatric Studies
Prior to obtaining a marketing authorization in the European
Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or
PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or
a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures
are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies
when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized.
The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of
the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may
also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only
affect the elderly population.
Before a marketing
authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies
actually comply with the agreed studies and measures listed in each relevant PIP.
Periods of Authorization and
Renewals
A marketing authorization
is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation
of the risk-benefit balance by the competent authority of the authorizing member state. To this end, the marketing authorization
holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and
efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing
authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European
Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional
five-year renewal. Any authorization which is not followed by the actual placing of the drug on the EU market (in case of centralized
procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called
sunset clause).
Orphan Drug Designation and
Exclusivity
Pursuant to Regulation
(EC) No 141/2000 and Regulation (EC) No. 847/2000, the European Commission can grant such orphan medicinal product designation
to products for which the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening
or chronically debilitating condition affecting not more than five in 10,000 people in the European Union, or a life threatening,
seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that sales
of the drug in the European Union would generate a sufficient return to justify the necessary investment. In addition, the sponsor
must establish that there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating
the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients.
Orphan drug designation
is not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory
assistance, and the possibility to apply for a centralized EU marketing authorization, as well as ten years of market exclusivity
following a marketing authorization. During this market exclusivity period, neither the EMA, the European Commission nor the member
states can accept an application or grant a marketing authorization for a “similar medicinal product.” A “similar
medicinal product” is defined as a medicinal product containing a similar active substance or substances as those contained
in an authorized orphan medicinal product and that is intended for the same therapeutic indication. The market exclusivity period
for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that
the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not
to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may, in limited circumstances,
be authorized prior to the expiration of the market exclusivity period, including if it is shown to be safer, more effective or
otherwise clinically superior to the already approved orphan drug. Furthermore, a product can lose orphan designation, and the
related benefits, prior to obtaining a marketing authorization if it is demonstrated that the orphan designation criteria are no
longer met.
Regulatory Data Protection
EU legislation also
provides for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as
amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved
on the basis of complete independent data package benefit from eight years of data exclusivity and an additional two years of market
exclusivity. Data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data
to assess a generic (abbreviated) application. During the additional two-year period of market exclusivity, a generic marketing
authorization can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be marketed
until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of eleven years if, during
the first eight years of those ten years, the marketing authorization holder, or MAH, obtains an authorization for one or more
new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant
clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the innovator
is able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such
company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical
tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing authorization,
a period of ten years of orphan market exclusivity—see also Orphan Drug Designation and Exclusivity. Depending
upon the timing and duration of the EU marketing authorization process, products may be eligible for up to five years’ supplementary
protection certificates, or SPCs, pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for
the drug.
Regulatory Requirements After
a Marketing Authorization has been Obtained
If we obtain authorization
for a medicinal product in the European Union, we will be required to comply with a range of requirements applicable to the manufacturing,
marketing, promotion and sale of medicinal products:
Pharmacovigilance and other
requirements
We will, for example,
have to comply with the EU’s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization
studies and additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products
and APIs in accordance with good manufacturing practice standards. EU regulators may conduct inspections to verify our compliance
with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance
with EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products
for the pediatric population, can also result in significant financial penalties in the European Union. Similarly, failure to comply
with the EU’s requirements regarding the protection of individual personal data can also lead to significant penalties and
sanctions. Individual EU member states may also impose various sanctions and penalties in case we do not comply with locally applicable
requirements.
Manufacturing
The manufacturing of
authorized drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with the
EMA’s Good Manufacturing Practices, or GMP, requirements and comparable requirements of other regulatory bodies in the European
Union, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their
safety and identity. The EMA enforces its current GMP requirements through mandatory registration of facilities and inspections
of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out
rests with the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these
requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant
to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of
product, injunctive action or possible civil and criminal penalties.
Marketing and Promotion
The marketing and promotion
of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers
of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations
aim to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and
accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member
state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential
civil and criminal penalties.
Patent Term Extension
In order to compensate
the patentee for delays in obtaining a marketing authorization for a patented product, a supplementary protection certificate,
or SPC, may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must
be made to the relevant patent office in each EU member state and the granted certificates are valid only in the member state of
grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in
the European Union (assuming the patent in question has not expired, lapsed or been revoked) or within six months of the grant
of the patent (if the marketing authorization is granted first). In the context of SPCs, the term “product” means the
active ingredient or combination of active ingredients for a medicinal product and the term “patent” means a patent
protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference
between the patent’s filing date and the date of the first marketing authorization, minus five years, subject to a maximum
term of five years.
A six-month pediatric extension of an SPC may be obtained where
the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on
the results of the studies and the product is authorized in all member states of the EU. The six-month pediatric extension of SPCs
is not available for orphan medicinal products, as such products benefit from a separate two year pediatric extension of orphan
status and exclusivity. The six month pediatric extension of SPCs is, however, available for medicinal products which were originally
designated as orphan medicinal products but were subsequently (voluntarily) removed from the EU’s Community Register of Orphan
Medicinal Products.
On 1 July 2019, EU
Regulation 2019/933 entered into force. The Regulation introduced manufacturing waivers for exporting and stockpiling active pharmaceutical
ingredients and medicinal products. If certain requirements are met, those actions are now exempted from SPC protection.
Foreign Regulation
In addition to regulations
in the United States and European Union, we will be subject to a variety of foreign regulations governing clinical trials and commercial
sales and distribution of our products. Whether or not we obtain FDA or EMA approval for a product, we must obtain approval by
the comparable regulatory authorities of foreign countries before we may commence clinical trials or market products in those countries
or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary greatly from place to place, and the time may be longer or shorter than that required for FDA or EMA approval.
Pharmaceutical Pricing and Reimbursement
Sales of pharmaceutical
products depend in significant part on the extent of coverage and reimbursement from government programs, including Medicare and
Medicaid in the U.S., and other third party payers. Third party payers are sensitive to the cost of drugs and are increasingly
seeking to implement cost containment measures to control, restrict access to, or influence the purchase of drugs, biologicals,
and other health care products and services. Governments may regulate reimbursement, pricing, and coverage of products in order
to control costs or to affect levels of use of certain products. Payers may restrict coverage of some products due to cost concerns,
by various means such as using payer formularies under which only selected drugs are covered, variable co-payments that make drugs
that are not preferred by the payer more expensive in terms of higher out-of-pocket expenses for patients, and by employing utilization
management controls, such as discouraging patients’ use of copay coupons and discount cards and imposing requirements for
prior authorization before a prescription can be billed or prior clinical failure on another type of treatment before a new product
can be prescribed. Payers may especially impose these obstacles to coverage for higher-priced drugs in order to limit the payer’s
cost for treatment of the disease. Consequently, any future products may be subject to payer-driven restrictions, rendering patients
responsible for a higher percentage of the total cost of drugs in the outpatient setting. This could lower the demand for any future
products if the increased patient out-of-pocket cost-sharing obligations are more than they can afford.
Medicare is a U.S.
federal government insurance program that covers individuals aged 65 years or older, as well as individuals of any age with certain
disabilities, and individuals with End-Stage Renal Disease. The primary Medicare programs that may affect reimbursement for Akari
are Medicare Part B, which covers physician services and outpatient care, and Medicare Part D, which provides a voluntary outpatient
prescription drug benefit. Medicare Part B provides limited coverage of certain outpatient drugs and biologicals that are reasonable
and necessary for diagnosis or treatment of an illness or injury. Under Medicare Part B, reimbursement for most drugs is based
on a fixed percentage above the applicable product’s average sales price, or ASP. Manufacturers calculate ASP based on a
statutory formula and must report ASP information on a quarterly basis to the Centers for Medicare and Medicaid Services (CMS),
the federal agency that administers Medicare and the Medicaid Drug Rebate Program. The current reimbursement rate for drugs and
biologicals in both the hospital outpatient department setting and the physician office setting is ASP + 6%. The rate for the physician
clinic setting is set by statute, but CMS has the authority to adjust the rate for the hospital outpatient setting on an annual
basis. This reimbursement rate may decrease in the future. In both settings, the amount of reimbursement for a product’s
usage is updated quarterly based on the manufacturer’s submission of new ASP information about its product or based on the
submission of ASP information of each manufacturer that sells a product for which there are multiple competitors in that product
market. On October 30, 2018, CMS issued an advance notice of proposed rulemaking (ANPRM) proposing a rule to set prices for certain
drugs based on prices paid in other nations. Under the proposal, beginning in 2020 and extending until 2025, CMS would use a model
called the IPI to allow Medicare to more closely align its Medicare payment amount for selected Part B drugs with prices paid in
other nations and would allow for private-sector vendors to negotiate drug prices, take title to drugs, and compete for physician
and hospital business. The current pricing model is based on average sales prices plus a 4.3 percent add-on payment. The IPI model
would include mandatory participation from physician practices and hospital outpatient clinics that supply the included drugs.
It is uncertain whether CMS’ proposed rule will be issued.
Medicare Part D is
a prescription drug benefit available to all Medicare beneficiaries. It is a voluntary benefit that is implemented through private
plans under contractual arrangements with the federal government. Similar to pharmaceutical coverage through private health insurance,
Part D plans negotiate discounts from drug manufacturers. Medicare Part D coverage is available through private plans, and the
list of prescription drugs covered by Part D plans varies by plan. However, individual plans are required by statute to cover certain
therapeutic categories and classes of drugs or biologicals and to have at least two drugs in each unique therapeutic category or
class, with certain exceptions.
Medicare Part A covers
inpatient hospital benefits. Hospitals typically receive a single payment for an inpatient stay depending on the Medicare Severity
Diagnosis Related Group (MS-DRG) to which the inpatient stay is assigned. The MS-DRG for a hospital inpatient stay varies based
on the patient’s condition. Hospitals generally do not receive separate payment for drugs and biologicals administered to
patients during an inpatient hospital stay. As a result, hospitals may not have a financial incentive to utilize any future products
for inpatients.
Beginning April 1,
2013, the Budget Control Act of 2011, Pub. L. No. 112-25, as amended by the American Taxpayer Relief Act of 2012, Pub. L. 112-240,
required Medicare payments for all items and services, including drugs and biologicals, to be reduced by 2% under sequestration
(i.e., automatic spending reductions). Subsequent legislation extended the 2% reduction, on average, to 2025. This 2% reduction
in Medicare payments affects all parts of the Medicare program and could impact any future sales of any future products.
On January 20, 2017,
President Trump took office as the President of the United States. President Trump has stated that he intends to “repeal
and replace” the Affordable Care Act, and Congress has taken initial steps to repeal the law. In December 2017, Congress
passed and the President signed into law tax reform legislation that made significant changes to the Affordable Care Act including
the repeal of the “individual mandate” that was in place to strongly encourage broad participation in the health insurance
markets. Given these changes and other statements of political leaders, we cannot predict the ultimate impact on the Affordable
Care Act and the subsequent effect on the pharmaceutical industry at this time. In the fourth quarter of 2018, the Trump Administration
announced initiatives that it asserted are intended to result in purportedly lower drug prices. The first initiative, announced
on October 15, 2018, involved the plan to a new federal regulation that would require pharmaceutical manufacturers to disclose
the list prices of their respective prescription drugs in their television advertisements for their products if the list price
is greater than $35 USD. With respect to the second initiative, on October 25, 2018, the Centers for Medicaid and Medicare Services
gave Advance Notice of Proposed Rulemaking to propose the implementation of an “International Pricing Index” model
for Medicare Part B drugs and biologicals (single source drugs, biologicals, and biosimilars). Public comments were due on December
31, 2018 with a proposed rule theoretically being offered as early as Spring 2019 with target implementation of a five year pilot
program beginning in Spring 2020. While these initiatives have not been put into effect, we are not in a position to know at this
time whether they will ever become law or what impact the enactment either of these proposals would have on our business.
In the fourth quarter
of 2018, the Trump Administration announced initiatives that it asserted are intended to result in purportedly lower drug prices.
The first initiative, announced on October 15, 2018, involved the plan to a new federal regulation that would require pharmaceutical
manufacturers to disclose the list prices of their respective prescription drugs in their television advertisements for their products
if the list price is greater than $35 USD. With respect to the second initiative, on October 25, 2018, the Centers for Medicaid
and Medicare Services gave Advance Notice of Proposed Rulemaking to propose the implementation of an “International Pricing
Index” model for Medicare Part B drugs and biologicals (single source drugs, biologicals, and biosimilars). Public comments
were due on December 31, 2018 with a proposed rule theoretically being offered as early as Spring 2019 with target implementation
of a five year pilot program beginning in Spring 2020 and ending in Spring 2025. During the theoretical pilot program, which it
is expected will focus on very expensive drugs reimbursed by the Medicare Part B program, CMS would monitor and evaluate the impact
of the model on beneficiary access to drugs, program costs, and the quality of care for beneficiaries. Despite extensive media
coverage of the roll out of this announcement as well as the announcement by the Democratic majority in the U.S. House of Representatives
of alternative legislative proposals, no specific rule has been forthcoming during the intervening time since the original announcement
in 2018. While these initiatives have not been put into effect, we are not in a position to know at this time whether they will
ever become law or what impact the enactment either of these proposals would have on our business.
As part of its reform
of the 340B discount drug program, on October 31, 2018, the HRSA at HHS issued a notice of proposed rulemaking to move up the effective
date of a final rule that would give HHS authority to impose Civil Monetary Penalties on pharmaceutical manufacturers who knowingly
and intentionally charged a covered entity more than the statutorily allowed ceiling price for a covered outpatient drug. The final
rule is intended to encourage compliance by manufacturers in offering the mandatory 340B ceiling purchase price to eligible purchasers,
such as certain qualified health systems or individual hospitals.
Various states, such
as California, have also taken steps to consider and enact laws or regulations that are intended to increase the visibility of
the pricing of pharmaceutical products with the goal of reducing the prices at which we are able to sell our products. Because
these various actual and proposed legislative changes are intended to operate on a state-by-state level rather than a national
one, we cannot predict what the full effect of these legislative activities may be on our business in the future. Medicaid is a
government health insurance program for low-income children, families, pregnant women, and people with disabilities. It is jointly
funded by the federal and state governments, and it is administered by individual states within parameters established by the federal
government. Coverage and reimbursement for drugs and biologics thus varies by state. Drugs and biologics may be covered under the
medical or pharmacy benefit. State Medicaid programs may impose utilization management controls, such as prior authorization, step
therapy, or quantity limits on drugs and biologics. Medicaid also includes the Medicaid Drug Rebate Program, under which, as a
condition of coverage for our future products by the individual state Medicaid programs, we will be required to pay a retrospective
rebate to each state Medicaid program for the quarterly utilization of our products by those respective state Medicaid programs
we would be required to pay a rebate to each state Medicaid program for quantities of any future products that are dispensed to
Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to
the states for any future products under Medicaid and Medicare Part B. Those rebates are based on pricing data that would be reported
by us on a monthly and quarterly basis to CMS. These data include the average manufacturer price and the best price for each product
we sell. As further described below under “U.S. Healthcare Reform and Other U.S. Healthcare Laws,” the Patient Protection
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the PPACA, made
significant changes to the Medicaid Drug Rebate Program that could negatively impact our results of operations.
Federal law requires
that any company that participates in the Medicaid Drug Rebate Program also participate in the Public Health Service’s 340B
drug discounted pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and
Medicare Part B. The 340B pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities
no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities
include a variety of community health clinics and other entities that receive health services grants from the Public Health Service
as well as hospitals that serve a disproportionate share of low-income patients. The 340B ceiling price is calculated using a statutory
formula, which is based on the average manufacturer price and rebate amount for the covered outpatient drug as calculated under
the Medicaid Drug Rebate Program. Changes to the definition of average manufacturer price and the Medicaid rebate amount under
PPACA and CMS’s issuance of final regulations implementing those changes also could affect the 340B ceiling price calculation
for any future products and could negatively impact our results of operations. As described below under “U.S. Healthcare
Reform and Other U.S. Healthcare Laws,” PPACA expanded the 340B program to include additional types of covered entities but
exempts “orphan drugs” designated under section 526 of the FDCA from the ceiling price requirements for these newly-eligible
entities. CMS has also implemented new regulations that further define and further expand which health care provider entities are
eligible to purchase approved drugs at the discounted 340B prices. As part of its reform of the 340B program, on October 31, 2018,
the HRSA at HHS issued a notice of proposed rulemaking to move up the effective date of a final rule that would give HHS authority
to impose Civil Monetary Penalties on pharmaceutical manufacturers who knowingly and intentionally charged a covered entity more
than the statutorily allowed ceiling price for a covered outpatient drug.
In order to be eligible
to have products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies
and grantees, manufacturers must participate in the Department of Veterans Affairs Federal Supply Schedule, or FSS, pricing program,
established by Section 603 of the Veterans Health Care Act of 1992, or VHCA. Under this program, we would be obligated to make
our innovator “covered drugs” available for procurement on an FSS contract and charge a price to four federal agencies,
Department of Veterans Affairs, Department of Defense, Public Health Service and Coast Guard, the so-called “Big Four”
government purchasers, that is no higher than the statutory Federal Ceiling Price, or FCP. The FCP is based on the non-federal
average manufacturer price, or Non-FAMP, which we would calculate and report to the Department of Veterans Affairs on a quarterly
and annual basis. Under the Tricare Retail Pharmacy program, established by Section 703 of the National Defense Authorization Act
for FY 2008 and related regulations, participating manufacturers pay quarterly rebates on utilization of innovator products that
are dispensed through the Tricare Retail Pharmacy network to Tricare beneficiaries. The rebates are calculated as the difference
between Annual Non-FAMP and FCP. The FCP is based on a weighted average non-federal average manufacturer price (Non-FAMP) which
manufacturers are required to report on a quarterly and annual basis to the VA. If a company misstates Non-FAMPs or FCPs it must
restate these figures and potentially refund to the government purchasers any overcharges that occurred.
Pursuant to the VHCA,
knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to penalties of one hundred
seventy-eight thousand dollars for each item of false information.
Payers also are increasingly
considering new metrics as the basis for reimbursement rates, such as ASP, average manufacturer price, and actual acquisition cost.
The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey
acquisition cost data for the purpose of setting Medicaid reimbursement rates. CMS surveys and publishes retail community pharmacy
acquisition cost information in the form of National Average Drug Acquisition Cost files to provide state Medicaid agencies with
a basis of comparison for their own reimbursement and pricing methodologies and rates. It may be difficult to project the impact
of these evolving reimbursement mechanics on the willingness of payers to cover any future products.
FSS contracts are federal
procurement contracts that include standard government terms and conditions, separate pricing for each product, and extensive disclosure
and certification requirements. All items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract
price reductions under certain circumstances where pricing is reduced to an agreed “tracking customer.” Further, in
addition to the “Big Four” agencies, all other federal agencies and some non-federal entities are authorized to access
FSS contracts. FSS contractors are permitted to charge FSS purchasers other than the Big Four agencies “negotiated pricing”
for covered drugs that is not capped by the FCP; instead, such pricing is negotiated based on a mandatory disclosure of the contractor’s
commercial “most favored customer” pricing.
In addition, pursuant
to regulations issued by the DoD TRICARE Management Activity, now the Defense Health Agency, to implement Section 703 of the National
Defense Authorization Act for Fiscal Year 2008, participating manufacturers have each of their covered drugs listed on a Section
703 Agreement under which they have agreed to pay rebates on covered drug prescriptions dispensed to TRICARE beneficiaries by TRICARE
network retail pharmacies. Companies are required to list their innovator products on Section 703 Agreements in order for those
products to be eligible for DoD formulary inclusion. The formula for determining the rebate is established in the regulations and
our Section 703 Agreement and is based on the difference between the annual Non-FAMP and the FCP (as described above, these price
points are required to be calculated by us under the VHCA).
In addition, in some
foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. Moreover, the requirements
governing drug pricing and reimbursement vary widely from country to country. For example, in the EU the sole legal instrument
at the EU level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC, or the Price Transparency
Directive. The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in EU
member states are transparent and objective, do not hinder the free movement and trade of medicinal products in the EU and do not
hinder, prevent or distort competition on the market. The Price Transparency Directive does not, however, provide any guidance
concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in individual EU member
states. Neither does it have any direct consequence for pricing or levels of reimbursement in individual EU member states. The
national authorities of the individual EU member states are free to restrict the range of medicinal products for which their national
health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use.
Some individual EU member states adopt policies according to which a specific price or level of reimbursement is approved for the
medicinal product. Other EU member states adopt a system of reference pricing, basing the price or reimbursement level in their
territory either, on the pricing and reimbursement levels in other countries, or on the pricing and reimbursement levels of medicinal
products intended for the same therapeutic indication. Furthermore, some EU member states impose direct or indirect controls on
the profitability of the company placing the medicinal product on the market.
Health Technology Assessment,
or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some EU member
states. These countries include the United Kingdom, France, Germany and Sweden. The HTA process in the EU member states is governed
by the national laws of these countries. HTA is the procedure according to which the assessment of the public health impact, therapeutic
impact and the economic and societal impact of the use of a given medicinal product in the national healthcare systems of the individual
country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of
individual medicinal products as well as their potential implications for the national healthcare system. Those elements of medicinal
products are compared with other treatment options available on the market.
The outcome of HTA
may influence the pricing and reimbursement status for specific medicinal products within individual EU member states. The extent
to which pricing and reimbursement decisions are influenced by the HTA of a specific medicinal product varies between the EU member
states.
In 2011, Directive
2011/24/EU was adopted at the EU level. This Directive concerns the application of patients’ rights in cross-border healthcare.
The Directive is intended to establish rules for facilitating access to safe and high-quality cross-border healthcare in the EU.
Pursuant to Directive 2011/24/EU, a voluntary network of national authorities or bodies responsible for HTA in the individual EU
Member States was established. The purpose of the network is to facilitate and support the exchange of scientific information concerning
HTAs. In October 2016, the European Commission initiated a public consultation on strengthening EU cooperation on HTA. The consultation
was closed in January 2017 and the report was published on May 15, 2017.
Following on from the
consultation, on January 31, 2018, the European Commission put forward a proposed HTA Regulation. The proposed regulation covers
new medicines and certain new medical devices, “providing the basis for permanent and sustainable cooperation at the EU level
for joint clinical assessments in these areas.” Member states will be able to use common HTA tools, methodologies and procedures
across the EU, working together in four main areas: 1) joint clinical assessments focusing on the most innovative health technologies
with the most potential impact for patients; 2) joint scientific consultations whereby developers can seek advice from HTA authorities;
3) identification of emerging health technologies to identify promising technologies early; and 4) continuing voluntary cooperation
in other areas.
Individual member states
will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and
making decisions on pricing and reimbursement.
The proposed regulation was redrafted under
the Romanian presidency in the council and continues to be subject to discussion. It is expected that if it is adopted and enters
into force, it will become applicable three years later. Following the date of application, a further three-year period is envisaged
to allow for a phase-in approach for member states to adapt to the new system.
U.S. Healthcare Reform and Other
U.S. Healthcare Laws
In addition to FDA
restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws, including those
commonly referred to as “fraud and abuse” laws have been applied in recent years to restrict certain marketing practices
in the pharmaceutical industry. These laws may impact, among other things, our proposed sales, marketing and education programs.
In addition, we may be subject to patient privacy regulation by both the U.S. federal government and the states in which we conduct
our business. The laws that may affect our ability to operate include the following:
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The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully soliciting, offering, receiving, or paying any remuneration, directly or indirectly, in cash or in kind, to induce or reward purchasing, ordering or arranging for or recommending the purchase or order of any item or service for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. Liability may be established without a person or entity having actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it. This statute has been interpreted to apply broadly to arrangements between pharmaceutical manufacturers on the one hand and prescribers, patients, purchasers and formulary managers on the other. In addition, PPACA amended the Social Security Act to provide that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. A conviction for violation of the Anti-Kickback Statute requires mandatory exclusion from participation in federal health care programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and those activities may be subject to scrutiny or penalty if they do not qualify for an exemption or safe harbor.
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The federal civil False Claims Act, or FCA, prohibits, among other things, knowingly presenting, or causing to be presented claims for payment of government funds that are false or fraudulent, or knowingly making, using or causing to be made or used a false record or statement material to such a false or fraudulent claim, or knowingly concealing or knowingly and improperly avoiding, decreasing, or concealing an obligation to pay money to the federal government. This statute also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery. The FCA prohibits anyone from knowingly presenting, conspiring to present, making a false statement in order to present, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. This law also prohibits anyone from knowingly underpaying an obligation owed to a federal program. Increasingly, U.S. federal agencies are requiring nonmonetary remedial measures, such as corporate integrity agreements in FCA settlements. The U.S. Department of Justice announced in 2016 its intent to follow the “Yates Memo,” taking a far more aggressive approach in pursuing individuals as FCA defendants in addition to the corporations. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of $5,500 to $11,000 per false claim or statement ($10,781 to $21,563 per false claim or statement for penalties assessed after August 1, 2016 for violations occurring after November 2, 2015, and $10,957 to $21,916 per false claim or statement for penalties assessed after February 3, 2017 for violations occurring after November 2, 2015). Government enforcement agencies and private whistleblowers have investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees and other benefits to physicians to induce them to prescribe products; engaging in promotion for “off-label” uses; and submitting inflated best price information to the Medicaid Rebate Program.
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The federal False Statements Statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry, in connection with the delivery of or payment for healthcare benefits, items, or services.
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The federal Civil Monetary Penalties Law authorizes the imposition of substantial civil monetary penalties against an entity, such as a pharmaceutical manufacturer, that engages in activities including, among others (1) knowingly presenting, or causing to be presented, a claim for services not provided as claimed or that is otherwise false or fraudulent in any way; (2) arranging for or contracting with an individual or entity that is excluded from participation in federal healthcare programs to provide items or services reimbursable by a federal healthcare program; (3) violations of the federal Anti-Kickback Statute; or (4) failing to report and return a known overpayment.
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The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of, or payment for, healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
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The majority of states also have statutes similar to the federal anti-kickback law and false claims laws that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, that apply regardless of whether the payer is a government entity or a private commercial entity.
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The federal Open Payments (Physician Payments Sunshine Act) program requires manufacturers of products for which payment is available under Medicare, Medicaid or the State Children’s Health Insurance Program, to track and report annually to the federal government (for disclosure to the public) certain payments and other transfers of value made to physicians and teaching hospitals as well as disclosure of payments and other transfers of value provided to physicians and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations. In addition, several U.S. states and localities have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, and/or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. Other state laws prohibit certain marketing-related activities including the provision of gifts, meals or other items to certain healthcare providers. Many of these laws and regulations contain ambiguous requirements that government officials have not yet clarified. Given the lack of clarity in the laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations.
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Sanctions under these
federal and state healthcare laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement
under government programs, monetary damages, criminal fines, disgorgement, additional reporting obligations and oversight if the
manufacture becomes subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with
these laws, and individual imprisonment.
Federal and state authorities
are continuing to devote significant attention and resources to enforcement of fraud and abuse laws within the pharmaceutical industry,
and private individuals have been active in alleging violations of the law and bringing suits on behalf of the government under
the FCA. For example, federal enforcement agencies recently have investigated certain pharmaceutical companies’ product and
patient assistance programs, including manufacturer reimbursement support services, relationships with specialty pharmacies, and
grants to independent charitable foundations.
The PPACA, was adopted
in the U.S. in March 2010. This law substantially changes the way healthcare is financed by both governmental and private insurers
in the U.S., and significantly impacts the pharmaceutical industry. PPACA contains a number of provisions that are expected to
impact our business and operations. Changes that may affect our business include those governing enrollment in federal healthcare
programs, reimbursement changes, rules regarding prescription drug benefits under the health insurance exchanges, expansion of
the 340B program, expansion of state Medicaid programs, and fraud and abuse and enforcement. These changes will impact existing
government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives
and improvements to the physician quality reporting system and feedback program.
PPACA contains several
provisions that have or could potentially impact our business. PPACA made significant changes to the Medicaid Drug Rebate Program.
Effective March 23, 2010, rebate liability expanded from fee-for-service Medicaid utilization to include the utilization of Medicaid
managed care organizations as well. With regard to the amount of the rebates owed, PPACA increased the minimum Medicaid rebate
from 15.1% to 23.1% of the average manufacturer price for most innovator products; changed the calculation of the rebate for certain
innovator products that qualify as line extensions of existing drugs; and capped the total rebate amount for innovator drugs at
100% of the average manufacturer price. In addition, PPACA and subsequent legislation changed the definition of average manufacturer
price. In early 2016, CMS issued final regulations to implement the changes to the Medicaid Drug Rebate Program under PPACA, which
became effective on April 1, 2016. Finally, PPACA requires pharmaceutical manufacturers of branded prescription drugs to pay a
branded prescription drug fee to the federal government. Each individual pharmaceutical manufacturer pays a prorated share of the
branded prescription drug fee of $4,000 in 2017 (and set to increase in ensuing years), based on the dollar value of its branded
prescription drug sales to certain federal programs identified in the law. Sales of “orphan drugs” are excluded from
this fee. “Orphan drugs” are specifically defined for purposes of the fee. For each indication approved by the FDA
for the drug, such indication must have been designated as orphan by the FDA under section 526 of the FDCA, an orphan drug tax
credit under section 45C of the Internal Revenue Code must have been claimed with respect to such indication, and such tax credit
must not have been disallowed by the IRS. Finally, the FDA must not have approved the drug for any indication other than an orphan
indication for which a section 45C orphan drug tax credit was claimed (and not disallowed).
Additional provisions
of PPACA may negatively affect manufacturer’s revenues in the future. For example, as part of PPACA’s provisions closing
a coverage gap that currently exists in the Medicare Part D prescription drug program (commonly known as the “donut hole”),
manufacturers of branded prescription drugs are required to provide a 50% discount on branded prescription drugs dispensed to beneficiaries
within this donut hole.
PPACA also expanded
the Public Health Service’s 340B drug pricing discount program. The 340B pricing program requires participating manufacturers
to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s
covered outpatient drugs. PPACA expanded the 340B program to include additional types of covered entities: certain free-standing
cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by PPACA. PPACA
exempts “orphan drugs” designated under section 526 of the FDCA, from the ceiling price requirements for these newly-eligible
entities.
Finally, numerous federal
and state laws, including state security breach notification laws, state health information privacy laws, and federal and state
consumer protection laws govern the collection, use, and disclosure of personal information. In addition, most healthcare providers
and research institutions with whom we collaborate are subject to privacy and security requirements under HIPAA, as amended by
HITECH, and its implementing regulations. Although we are currently neither a “covered entity” nor a “business
associate” under HIPAA, and these privacy and security requirements do not apply to us, the regulations may affect our interactions
with healthcare providers, health plans, and research institutions from whom we obtain patient health information. Further, we
could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a HIPAA covered
entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA.
There is significant
interest in the United States in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access, including increasing legislative and enforcement interest in the United States with
respect to specialty drug pricing practices, particularly with respect to drugs that have been subject to relatively large price
increases over relatively short time periods. There have been several recent U.S. Congressional inquiries and proposed bills designed
to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. Legislative changes to PPACA also remain possible
and appear likely in the 115th U.S. Congress and under the Trump Administration. Although multiple bills to repeal or repeal and
replace portions of the PPACA have been introduced in 2017, none of these measures have successfully passed both houses of Congress.
Congress may consider other legislation to repeal and replace elements of the PPACA or other health reform measures in the future.
Other Regulations
We are also subject
to the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, or Bribery Act, and other anticorruption laws and regulations
pertaining to our financial relationships with foreign government officials. The FCPA prohibits U.S. companies and their representatives
from paying, offering to pay, promising, or authorizing the payment of anything of value to any foreign government official, government
staff member, political party, or political candidate to obtain or retain business or to otherwise seek favorable treatment. In
many countries in which we operate, the healthcare professionals with whom we interact may be deemed to be foreign government officials
for purposes of the FCPA. The Bribery Act, which applies to any company incorporated or doing business in the UK, prohibits giving,
offering, or promising bribes in the public and private sectors, bribing a foreign public official or private person, and failing
to have adequate procedures to prevent bribery amongst employees and other agents. Penalties under the Bribery Act include potentially
unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances. Liability in relation
to breaches of the Bribery Act is strict. This means that it is not necessary to demonstrate elements of a corrupt state of mind.
However, a defense of having in place adequate procedures designed to prevent bribery is available.
Recent years have seen
a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more frequent and aggressive investigations
and enforcement proceedings by both the DOJ and the SEC, increased enforcement activity by non-U.S. regulators, and increases in
criminal and civil proceedings brought against companies and individuals. Increasing regulatory scrutiny of the promotional activities
of pharmaceutical companies also has been observed in a number of EU member states. In Germany, a specific anti-corruption provision
with regard to healthcare professionals was introduced in the Criminal Code in 2017.
Similar strict restrictions
are imposed on the promotion and marketing of drug products in the EU, where a large portion of our non-U.S. business is conducted,
and other territories. Laws in the EU, including in the individual EU member states, require promotional materials and advertising
for drug products to comply with the product’s Summary of Product Characteristics, or SmPC, which is approved by the competent
authorities. Promotion of a medicinal product which does not comply with the SmPC is considered to constitute off-label promotion.
The off-label promotion of medicinal products is prohibited in the EU and in other territories. The promotion of medicinal products
that are not subject to a marketing authorization is also prohibited in the EU. Laws in the EU, including in the individual EU
member states, also prohibit the direct-to-consumer advertising of prescription-only medicinal products. Violations of the rules
governing the promotion of medicinal products in the EU and in other territories could be penalized by administrative measures,
fines and imprisonment. Furthermore, illegal advertising can be challenged by competitors, and as a result, can be prohibited by
court and the responsible company can be obligated to pay damages to the competitor.
Interactions between pharmaceutical
companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’
codes of professional conduct in the individual EU member states. The provision of any inducements to physicians to prescribe,
recommend, endorse, order, purchase, supply, use or administer a medicinal product is prohibited. A number of EU member states
have introduced additional rules requiring pharmaceutical companies to publicly disclose their interactions with physicians and
to obtain approval from employers, professional organizations and/or competent authorities before entering into agreements with
physicians. These rules have been supplemented by provisions of related industry codes, including the EFPIA Disclosure Code on
Disclosure of Transfers of Value from Pharmaceutical Companies to Healthcare Professionals and Healthcare Organizations and related
codes developed at national level in individual EU member states. Additional countries may consider or implement similar laws and
regulations. Violations of these rules could lead to reputational risk, public reprimands, and/or the imposition of fines or imprisonment.
Our present and future business has been and will continue to be subject to various other laws and regulations. Laws, regulations
and recommendations relating to safe working conditions, laboratory practices, the experimental use of animals, and the purchase,
storage, movement, import and export and use and disposal of hazardous or potentially hazardous substances, including radioactive
compounds, used in connection with our research work are or may be applicable to our activities. We cannot predict the impact of
government regulation, which may result from future legislation or administrative action, on our business.
Legal Proceedings
On April 27, 2017, we issued a press release stating that Edison
Investment Research Ltd., or Edison, has withdrawn its report issued April 26, 2017 titled “Akari’s nomacopan matches
Soliris® (eculizumab) in Phase II”, or the “Edison Report”, because it contains material inaccuracies, including
without limitation, with respect to our interim analysis of our ongoing Phase II PNH trial of nomacopan. Investors were cautioned
not to rely upon any information contained in the Edison Report and instead were directed to our press release issued on April
24, 2017 that discusses the interim analysis of our then ongoing Phase II PNH trial and other matters. This resulted in a putative
securities class action that has since settled and a separate settlement with Edison. We voluntarily reported to the SEC the circumstances
leading to the withdrawal of the Edison Report and the outcome of our special committee’s investigation. In response, the
SEC requested certain documents from us with respect to the matters we reported. We have been cooperating with the SEC’s
requests for information. On June 5, 2018, we received a subpoena from the SEC, which requested further documents and information
primarily related to our Phase II clinical trial of nomacopan in connection with an investigation of us that the SEC is conducting.
We responded to the subpoena and will continue to cooperate with the SEC. We cannot predict what, if any, actions the SEC may take
or the timing or duration of the investigation.
Employees
As of December 31,
2019, we had ten full-time employees.
C.
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Organizational Structure
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Our corporate structure
consists of Akari Therapeutics PLC and four subsidiaries, one of which is an indirect subsidiary. The following is a list of our
subsidiaries:
Name of Subsidiary
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Jurisdiction
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Activity
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%
Holding
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Volution Immuno Pharmaceuticals SA
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Switzerland
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Research & Development
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100
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%
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Celsus Therapeutics Inc.
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Delaware, USA
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Inactive
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100
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%
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Morria Biopharma Ltd
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Israel
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Inactive
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100
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%
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Akari Malta Limited
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Malta
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Research & Development
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100
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%
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D.
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Property, Plant and Equipment
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We do not currently
own any property.
We currently lease
office space in New York, New York on a month to month basis for approximately $3,400 per month.
We also lease office
space in London, England, for approximately $12,000 per month. The lease for this property expired in March 2019 and is continuing
on a short-term basis.
Item 4A.
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UNRESOLVED STAFF COMMENTS
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None.
Item 5.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form 20-F. In addition to historical information,
this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual
results may differ materially from those anticipated in the forward-looking statements as a result of certain factors. We discuss
factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set
forth under Item 3D ”Risk Factors” in this Annual Report on Form 20-F.
Overview
We are a clinical-stage
biopharmaceutical company focused on developing inhibitors of acute and chronic inflammation, specifically the complement system,
the eicosanoid system and the bioamine system for the treatment of rare and orphan diseases. Each of these systems has scientifically
well-supported causative roles in the diseases we are targeting. We believe that blocking early mediators of inflammation will
prevent initiation and continual amplification of the processes that cause certain diseases.
On October 20, 2017,
we completed a public offering of an aggregate of 3,480,000 ADSs representing 348,000,000 ordinary shares for gross proceeds
of $17.4 million at a price of $5.00 per ADS. In connection with the offering we incurred $1.7 million of share issuance costs
for net proceeds of $15.7 million.
On September 26, 2018,
we entered into a Purchase Agreement with Aspire Capital which provides that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of our ADSs beginning
on the effective date of a registration statement related to the transaction. In consideration for entering into the Purchase Agreement,
concurrently with the execution of the Purchase Agreement, we issued 30,000,000 ordinary shares to Aspire Capital, or the Commitment
Shares, and sold to Aspire Capital 25,000,000 ordinary shares, or Initial Shares, for $0.02 per share (equivalent to $2.00 per
ADS) for gross proceeds of $500,000. In addition to the issuance of the Commitment Shares and Initial Shares, during the year ended
December 31, 2019, the Company sold to Aspire Capital 428,333,300 ordinary shares of the Company for gross proceeds of $8,768,125.
As of December 31, 2019, $10,731,875 of the original purchase commitment remains available under the facility. Subsequent
to December 31, 2019, the Company sold additional shares to Aspire Capital. See “Item 5B. Operating and Financial Review
and Prospects - Liquidity and Capital Resources - Aspire Capital Financing Arrangement”.
On July 3, 2019, the
Company sold to certain institutional investors, accredited investors and an existing shareholder, RPC Pharma Ltd., an affiliated
entity of Dr. Ray Prudo, the Company’s Chairman, an aggregate of 2,368,392 ADSs in a registered direct offering at $1.90
per ADS, resulting in gross proceeds of approximately $4.5 million, or the Registered Direct Offering. The Company also entered
into a letter agreement with Paulson Investment Company, LLC, or the Placement Agent, to serve as the placement agent for the Company
in connection with this offering. In connection with the sale of the ADSs in this Registered Direct Offering, the Company issued
unregistered warrants to investors and the Placement Agent to purchase an aggregate of 1,361,842 ADSs in a private placement at
$3.00 per ADS and $2.85 per ADS respectively. See “Item 5B. Operating and Financial Review and Prospects - Liquidity and
Capital Resources – July 2019 Registered Direct Offering”.
On February 13,
2020, February 18, 2020, February 19, 2020 and February 28, 2020, we entered into securities purchase agreements
with certain accredited and institutional investors, led by existing investors of the Company, including Dr. Ray Prudo, the
Company’s Chairman, providing for the issuance of an aggregate of 5,620,296 ADSs in a private placement at $1.70 per ADS
for aggregate gross proceeds of approximately $9.5 million. The Company also entered into a letter agreement with Paulson Investment
Company, LLC, or the Placement Agent, to serve as the placement agent for the Company in connection with this offering. In connection
with the offering, we issued to the investors and the Placement Agent unregistered warrants to purchase 2,810,136 ADSs at $2.20
per ADS and 449,623 ADSs at $2.55 per ADS, respectively. See “Item 5B. Operating and Financial Review and Prospects - Liquidity
and Capital Resources – February 2020 Private Placements”
Critical Accounting Policies and Use
of Estimates
The preparation
of the consolidated financial statements in conformity with United States generally accepted accounting principles, or U.S.
GAAP, requires management to make estimates, judgments and assumptions. Our management believes that the estimates, judgments
and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments
and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the dates of the financial statements, and the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Share-Based Compensation and Fair Value
of Ordinary Shares
We account for awards
of equity instruments issued to employees and directors under the fair value method of accounting and recognize such amounts in
our Consolidated Statements of Comprehensive Loss. We measure compensation cost for all stock-based awards at fair value on the
date of grant and recognize compensation expense in general administrative and research and development expenses in our Consolidated
Statements of Comprehensive Loss using the straight-line method over the service period over which we expect the awards to vest.
We estimate the fair
value of all time-vested options as of the date of grant using the Black-Scholes option valuation model, which was developed for
use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation
models require the input of highly subjective assumptions, including the expected share price volatility, which we calculate based
on the historical volatility of peer companies. We use a risk-free interest rate, based on U.S. Treasury instruments in effect
at the time of the grant, for the period comparable to the expected term of the option. Given our limited history with share option
grants and exercises, we use the “simplified” method in estimating the expected term, the period of time that options
granted are expected to be outstanding, for our grants.
We classify our stock-based
payments as either liability-classified awards or as equity-classified awards. We remeasure liability-classified awards to fair
value at each balance sheet date until the award is settled. We measure equity-classified awards at their grant date fair value
and do not subsequently remeasure them. We have classified our share-based payments which are settled in our ordinary shares as
equity-classified awards and our share-based payments that are settled in cash as liability-classified awards. Compensation costs
related to equity-classified awards generally are equal to the grant-date fair value of the award amortized over the vesting period
of the award. The liability for liability-classified awards generally is equal to the fair value of the award as of the balance
sheet date multiplied by the percentage vested at the time. We charge (or credit) the change in the liability amount from one balance
sheet date to another to changes in fair value of options and warrants liabilities.
RPC Options
In connection with
a short-term working capital loan from shareholders of approximately $3 million, the shareholders were granted options in RPC,
equivalent to 15% of the current outstanding equity issued by RPC. The RPC options were accounted for in accordance with ASC 718,
“Compensation-Stock Compensation ”. The fair value of the RPC options is estimated using the fair value of Akari
ordinary shares times RPC’s ownership in Akari ordinary shares times 15% and was initially valued at approximately $26 million.
These options do not relate to the share capital of Akari. At December 2018, the fair value of the options was $1,842,424. At December
2019, the fair value of the options was $2,102,012. The change in fair value of the options in the year ended December 31, 2019,
was an increase of $259,588 and was recognized as a change in fair value of option liabilities in the Consolidated Statement of
Comprehensive Loss.
Paulson Warrants
In connection with
the sale of the ADSs in the Registered Direct Offering, the Company issued to investors unregistered warrants to purchase an aggregate
of 1,184,213 ADSs in a private placement, or Investor Warrants. The Investor Warrants are immediately exercisable at an exercise
price of $3.00 per ADS, subject to adjustment as set forth therein and will expire five years from issuance. The Company also
issued unregistered warrants to the Placement Agent to purchase an aggregate of 177,629 ADS, or Placement Agent Warrants, on the
same terms as the Investor Warrants, except that the Placement Agent Warrants are exercisable at $2.85 per ADS. The total amount
of warrants issued in connection with this registered direct offering amounted to 1,361,842, all of which were outstanding as
of December 31, 2019. The Investor Warrants and the Placement Agent Warrants, or, together, the July 2019 Warrants were recorded
as liability-classified awards and accounted for in accordance with ASC 815-40-25, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock and ASC 815-40-15, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock. In accordance with ASC 820, the Company measured the July
2019 Warrants at grant date fair value. The total grant date fair value of the July 2019 Warrants was $1,213,816. The change in
fair value of liability related to July 2019 Warrants from period to period, which represents a gain of $198,948 for the year
ended December 31, 2019, was recognized as change in fair value of option and warrant liabilities gains (losses) in the Condensed
Consolidated Statements of Comprehensive Loss. At December 31, 2019, the fair value of the July 2019 Warrants was $1,014,868.
Functional Currency
The functional currency
of Akari is U.S. dollars as that is the primary economic environment in which the Company operates as well as the currency in which
it has been financed.
The reporting currency
of the Company is U.S. Dollars. The Company translated its non-U.S. operations’ assets and liabilities denominated in foreign
currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average
exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded as foreign
currency translation adjustments, a component of accumulated other comprehensive (loss) income. Gains or losses from foreign currency
transactions and the remeasurement of intercompany balances are included in foreign currency exchange gains/(losses).
Results of Operations
For the Years Ended December 31, 2019
and December 31, 2018
Research and development
expenses
Research and development
expenses for the year ended December 31, 2019 were approximately $8,739,000 compared to approximately $11,795,000 for the year
ended December 31, 2018. This 26% or $3,056,000 decrease was primarily due to larger research and development tax credits received
in 2019 of approximately $4,100,000, which offset overall research and development expenses.
We expect our clinical expenses to increase in the future as
we conduct additional trials to support the development of nomacopan (formerly known as Coversin), and advance other product candidates
into pre-clinical and clinical development.
General and administrative
expenses
General and administrative
expenses for the year ended December 31, 2019 were approximately $8,224,000 compared to approximately $10,896,000 for the year
ended December 31, 2018. This 25% or $2,672,000 decrease was primarily due to lower expenses of approximately $1,236,000 for legal
expenses, $622,000 for stock-based non-cash compensation expense, $416,000 for rent expense and $482,000 for professional fees.
We expect our general
and administrative expenses to increase due to increased legal, accounting and professional fees associated with being a publicly
reporting company in the United States and rental expense associated with offices in the United States and London to support the
Company’s operations and anticipated growth.
Litigation settlement
gain
Litigation settlement
gain for the year ended December 31, 2018 was $2,700,000. This relates to the receipt of funds from our insurance carrier in 2018
used to settle our securities class action lawsuit which was accrued for in 2017. There was no such gain for the year ended December
31, 2019.
Other Income (expenses)
Other expenses for
the year ended December 31, 2019 were approximately $143,000 compared to other income of $3,525,000 for the year ended December
31, 2018. This change was primarily attributed to approximately $3,300,000 of higher expense related to the change in the fair
value of the stock option liabilities in 2019 as compared to 2018.
For the Years Ended December 31, 2018
and December 31, 2017
Research and development
expenses
Research and development
expenses for the year ended December 31, 2018 were approximately $11,795,000 compared to approximately $23,285,000 for the year
ended December 31, 2017. This 49% or $11,490,000 decrease was primarily due to lower expenses of approximately $7,400,000 for manufacturing
as we had previously manufactured clinical trial material for supply through 2019, and a research and development tax credit of
$3,800,000 which offset overall research and development expenses.
General and administrative
expenses
General and administrative
expenses for the year ended December 31, 2018 were approximately $10,896,000 compared to approximately $11,799,000 for the year
ended December 31, 2017. This 8% or $903,000 decrease was primarily due to lower expenses of approximately $1,084,000 for personnel
expenses, $1,015,000 for stock-based non-cash compensation expense and $256,000 for recruiting offset by higher expenses of approximately
$501,000 for professional fees, $409,000 for rent expense, $397,000 for insurance, and $143,000 for other miscellaneous expenses.
Litigation settlement gain
Litigation settlement
gain for the year ended December 31, 2018 was $2,700,000. This relates to the receipt of funds from our insurance carrier in 2018
used to settle our securities class action lawsuit which was accrued for in 2017.
Other Income (expenses)
Other income for the
year ended December 31, 2018 was approximately $3,525,000 compared to $2,385,000 for the year ended December 31, 2017. This change
was primarily attributed to approximately $658,000 of higher income related to the change in the fair value of the stock option
liabilities in 2018 than in 2017, and foreign exchange gains in 2018 of approximately $82,000 as compared to foreign exchange losses
of $359,000 in 2017.
B.
|
Liquidity and Capital Resources
|
At December 31, 2019,
we had $5,731,691 in cash. In addition, as of December 31, 2019, we had an accumulated deficit in the amount of $143,909,438. Since
inception, we have funded our operations primarily through the sale of equity securities and debt financing.
On September 26, 2018,
we entered into a Purchase Agreement with Aspire Capital which provides that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of our ADSs beginning
on the effective date of a registration statement related to the transaction. In consideration for entering into the Purchase Agreement,
concurrently with the execution of the Purchase Agreement, we issued 30,000,000 ordinary shares to Aspire Capital, the Commitment
Shares, and sold to Aspire Capital 25,000,000 ordinary shares, the Initial Shares, for $0.02 per share (equivalent to $2.00 per
ADS) for gross proceeds of $500,000. In addition to the issuance of the Commitment Shares and Initial Shares, during the year ended
December 31, 2019, we sold to Aspire Capital 428,333,300 ordinary shares for gross proceeds of $8,768,125. As of December 31, 2019,
$10,731,875 of the original purchase commitment remains available under the facility. Subsequent to December 31, 2019,
we sold 65,000,000 additional shares to Aspire Capital for gross proceeds of $1,108,350 . To date, we have sold to Aspire
Capital a total of $10,376,475 of ordinary shares and $9,623,525 million remains available for draw down under the Purchase Agreement.
See “- Aspire Capital Financing Arrangement” below. In addition, in March 2019, we received a research and development
tax credit of approximately $4,900,000 for the year ended December 31, 2017 from the HM Revenues and Customs, or HMRC. In
October 2019, we received research and development tax credits from HMRC of approximately $2,900,000 for the year ended December
31, 2018 and $127,000 due to amendments filed for the year ended December 31, 2017.
We have not yet generated
any revenues and we expect to continue to incur net losses and negative cash flows for the foreseeable future. These net losses
and negative cash flows have had, and will continue to have, an adverse effect on our shareholders’ equity and working capital.
We believe our current cash is sufficient to fund future operations through the end of the second quarter of 2020 and we plan to
raise additional funds from external sources or from Aspire Capital. This forecast of cash resources is forward-looking information
that involves risks and uncertainties, and the actual amount of our expenses over the next months could vary materially and adversely
as a result of a number of factors, including the risks and uncertainties set forth in Item 3D under the heading “Risk Factors”
of our Annual Report on Form 20-F for the year ended December 31, 2019.
For the year ended
December 31, 2019, we reported a net loss of $17,105,791 and we expect to continue to incur substantial losses over the next several
years during our development phase. Our independent registered public accounting firm, in its report on our audited financial statements
for the year ended December 31, 2019 expressed substantial doubt about our ability to continue as a going concern. To fully execute
our business plan, we will need, among other things, to complete our research and development efforts and clinical and regulatory
activities. These activities may take several years and will require significant operating and capital expenditures in the foreseeable
future. There can be no assurance that these activities will be successful. If we are not successful in these activities or there
is not a favorable resolution of the SEC investigation, it could delay, limit, reduce or terminate preclinical studies, clinical
trials or other research and development activities. To fund our capital needs, we plan to raise funds through equity or debt financings
or other sources, such as strategic partnerships and alliance and licensing arrangements, and in the long term, from the proceeds
from sales. Additional funds may not be available when we need them, on terms that are acceptable to it, or at all. To the extent
that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. There can be
no assurance that we will be successful in obtaining an adequate level of financing needed for our long-term research and development
activities. If we are unable to raise sufficient capital resources, we will not be able to continue the development of all of our
products or may be required to delay part of our development programs and significantly reduce our activities in order to maintain
our operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
Aspire Capital Financing Arrangement
On September 26, 2018,
we entered into the Purchase Agreement with Aspire Capital which provides that, upon the terms and subject to the conditions and
limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of our ADSs, during
a 30-month period beginning March 4, 2019, the effective date of a registration statement related to the transaction. Concurrently
with entering into the Purchase Agreement, we also entered into a registration rights agreement with Aspire Capital, or the Registration
Rights Agreement, in which we agreed to file one or more registration statements, as permissible and necessary to register under
the Securities Act, the sale of our securities that have been and may be issued to Aspire Capital under the Purchase Agreement.
Subsequently on October 9, 2018, we filed the registration statement on Form F-1 to register the resale of such securities and
such registration statement was declared effective on March 4, 2019.
Under the Purchase
agreement, after the SEC has declared effective the registration statement referred to above, on any trading day selected by us,
we have the right, in our sole discretion, to present Aspire Capital with a purchase notice, each, a Purchase Notice, directing
Aspire Capital (as principal) to purchase up to 150,000 ADSs per business day and up to $20.0 million of our ADSs in the aggregate
at a per share price, or the Purchase Price, equal to the lesser of:
|
•
|
the lowest sale price of our ADSs on the purchase date; or
|
|
•
|
the arithmetic average of the three (3) lowest closing sale prices for the ADSs during the ten (10) consecutive business days ending on the business day immediately preceding such Purchase Date (to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction).
|
In addition, on any
date on which we submit a Purchase Notice to Aspire Capital in an amount of 150,000 ADSs, the Company also has the right, in its
sole discretion, to present Aspire Capital with a volume-weighted average price purchase notice, each, a VWAP Purchase Notice,
directing Aspire Capital to purchase an amount of ADSs equal to up to 30% of the aggregate shares of our ADSs traded on our principal
market on the next trading day, or the VWAP Purchase Date, subject to a maximum number of 250,000 ADSs. The purchase price per
share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for our ADSs traded on our principal
market on the VWAP Purchase Date.
The Purchase Price
will be adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring
during the period(s) used to compute the Purchase Price. We may deliver multiple Purchase Notices and VWAP Purchase Notices to
Aspire Capital from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
The Purchase Agreement
provides that we and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing
sale price of our ADSs is less than $0.25. There are no trading volume requirements or restrictions under the Purchase Agreement,
and we will control the timing and amount of sales of our ADSs to Aspire Capital. Aspire Capital has no right to require any sales
by us, but is obligated to make purchases from us as directed by us in accordance with the Purchase Agreement. There are no limitations
on use of proceeds, financial or business covenants, restrictions on future fundings, rights of first refusal, participation rights,
penalties or liquidated damages in the Purchase Agreement. In consideration for entering into the Purchase Agreement, concurrently
with the execution of the Purchase Agreement, we issued to Aspire Capital 30,000,000 ordinary shares of us, the Commitment Shares,
and sold to Aspire Capital 25,000,000 ordinary shares, or the Initial Shares, for $0.02 per share (equivalent to $2.00 per ADS).
The Purchase Agreement may be terminated by us at any time, at our discretion, without any cost to us. Aspire Capital has agreed
that neither it nor any of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging
of our securities during any time prior to the termination of the Purchase Agreement. Any proceeds we receive under the Purchase
Agreement are expected to be used for working capital and general corporate purposes.
In addition to the
30,000,000 Commitment Shares and the 25,000,000 Initial Shares sold to Aspire Capital in September 2018 for gross proceeds of $500,000,
we sold 428,333,300 ordinary shares to Aspire Capital in 2019 in accordance with the terms of the Purchase Agreement for gross
proceeds of $8,768,125. To date, we have sold to Aspire Capital a total of $10,376,475 of ordinary shares and $9,623,525
million remains available for draw down under the Purchase Agreement.
July 2019 Registered Direct Offering
On July 3, 2019, the
Company sold to certain institutional investors, accredited investors and an existing shareholder, RPC Pharma Ltd., an affiliated
entity of Dr. Ray Prudo, the Company’s Chairman, an aggregate of 2,368,392 ADSs in the Registered Direct Offering. The Company
also entered into a letter agreement with the Placement Agent to serve as the placement agent for the Company in connection with
this offering. In connection with the sale of the ADSs in this Registered Direct Offering, the Company issued unregistered warrants
to investors and the Placement Agent to purchase an aggregate of 1,361,842 ADSs in a private placement at $3.00 per ADS and $2.85
per ADS respectively.
February 2020 Private Placements
On February 13,
2020, February 18, 2020, February 19, 2020 and February 28, 2020, we entered into securities purchase agreements
with certain accredited and institutional investors, led by existing investors of the Company, including Dr. Ray Prudo, the
Company’s Chairman, providing for the issuance of an aggregate of 5,620,296 ADSs in a private placement at $1.70 per ADS
for aggregate gross proceeds of approximately $9.5 million. The Company also entered into a letter agreement with the Placement
Agent to serve as the placement agent for the Company in connection with this offering. In connection with the offering, we issued
to the investors and the Placement Agent unregistered warrants to purchase 2,810,136 ADSs at $2.20 per ADS and 449,623 ADSs at
$2.55 per ADS, respectively.
Cash Flows
Net cash used in operating
activities was $12,918,000 during the year ended December 31, 2019 compared to $22,580,000 during the year ended December 31, 2018.
Net cash flow used in operating activities was primarily attributed to our ongoing research activities to support nomacopan, including
manufacturing, clinical trial and preclinical activities.
Net cash used in operating
activities was $22,580,000 during the year ended December 31, 2018 compared to $31,599,000 during the year ended December 31, 2017.
Net cash flow used in operating activities was primarily attributed to our ongoing research activities to support nomacopan, including
manufacturing, clinical trial and preclinical activities.
There was no net cash
provided by investing activities during the years ended December 31, 2019 and 2018.
There was no net cash
provided by or used in investing activities during the year ended December 31, 2018 compared to cash provided by investing activities
of $9,985,000 during the year ended December 31, 2017, which was cash used to purchase office equipment and short-term investments
offset by maturities of short-term securities.
Net cash provided by financing activities
was $12,648,000 during the year ended December 31, 2019 related to draw downs under the Aspire Capital Financing Arrangement and
proceeds from the July 2019 Registered Direct Offering, compared to $306,000 during the year ended December 31, 2018 related
to draw downs under the Aspire Capital Financing Arrangement.
Net cash provided by
financing activities was $306,000 during the year ended December 31, 2018 related to draw downs under the Aspire Capital Financing
Arrangement, compared to $15,672,000 during the year ended December 31, 2017 related to the public offering completed in
October 2017.
C.
|
Research and Development, Patents and Licenses
|
Our research and development
expenditures were approximately $8,739,000, $11,795,000 and $23,285,000 for the years ended December 31, 2019, 2018 and 2017 respectively.
Most of such research and development expenditures were in the form of payments to third parties to carry out our manufacturing,
pre-clinical and clinical research activities.
We incurred the following
research and development expenses for the years ended December 31, 2019, 2018 and 2017:
|
|
Years ended
December 31,
|
|
|
|
(in $000’s)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Direct Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nomacopan
|
|
$
|
6,699
|
|
|
$
|
6,961
|
|
|
$
|
14,063
|
|
Clinical trials
|
|
|
5,142
|
|
|
|
4,030
|
|
|
|
3,915
|
|
Other
|
|
|
1,108
|
|
|
|
1,000
|
|
|
|
1,572
|
|
Total direct expenses
|
|
$
|
12,949
|
|
|
$
|
11,991
|
|
|
$
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indirect Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Staffing
|
|
|
2,441
|
|
|
|
2,407
|
|
|
|
2,001
|
|
Other indirect
|
|
|
1,257
|
|
|
|
1,191
|
|
|
|
1,734
|
|
Total indirect expenses
|
|
$
|
3,698
|
|
|
$
|
3,598
|
|
|
$
|
3,735
|
|
Tax credits
|
|
|
(7,907
|
)
|
|
|
(3,794
|
)
|
|
|
-
|
|
Total Research and Development
|
|
$
|
8,739
|
|
|
$
|
11,795
|
|
|
$
|
23,285
|
|
We are a development
stage company and it is not possible for us to predict with any degree of accuracy the outcome of our research, development or
commercialization efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties,
demands, commitments or events that are reasonably likely to have a material effect on our net sales or revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause financial information to not necessarily be indicative
of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments
and events are identified in the preceding subsections of this Item 5.
E.
|
Off-balance Sheet Arrangements
|
We currently do not
have any off-balance sheet arrangements.
F.
|
Contractual Obligations
|
We do not have any significant contractual
obligations as of December 31, 2019.
We lease office space in London, UK and
New York, NY on a short-term basis.
|
Item 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
|
A.
|
Directors and Senior Management
|
The following table
presents the names of the current members of our board of directors and executive officers.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
James Hill, M.D.
|
|
74
|
|
Class A Director
|
|
|
|
|
|
Stuart Ungar, M.D.
|
|
76
|
|
Class A Director
|
|
|
|
|
|
David Byrne
|
|
60
|
|
Class A Director
|
|
|
|
|
|
Donald Williams
|
|
61
|
|
Class A Director
|
|
|
|
|
|
Michael Grissinger
|
|
66
|
|
Class A Director
|
|
|
|
|
|
Dr. Peter Feldschreiber
|
|
76
|
|
Class A Director
|
|
|
|
|
|
Clive Richardson
|
|
55
|
|
Class B Director —Chief Executive Officer and Chief Operating Officer
|
|
|
|
|
|
Ray Prudo
|
|
75
|
|
Class C Director — Executive Chairman of the Board
|
Biographical information
of the members of our board of directors and executive officers is set forth below.
James Hill, M.D., age
74, has served as a member of our board of directors since September 2015. Prior to joining our board of directors, Dr. Hill was
a non-executive director and Chairman of Genetix Group Plc from 2001 to 2009, an AIM listed company providing scientists with intelligent
solutions for cell imaging and analysis. Previously Dr. Hill was a director and Senior Vice President of Corporate Affairs with
SmithKline Beecham, from 1994 to 2001, with global responsibility for Investor Relations, Government Affairs, Communication and
was a member of the corporate management team which oversaw corporate strategy. Dr. Hill’s prior experience was in the field
of strategic product development working closely with research and development and the global markets. Dr. Hill qualified in medicine
at Guys Hospital and became a fellow to The Royal Colleges of Physicians in both London and Edinburgh and was earlier awarded a
Hunterian Professorship by The Royal College of Surgeons in England.
Stuart Ungar,
M.D., age 76, has served as a member of our board of directors since September 2015. Dr. Ungar is currently a member
of our board of directors. After pursuing post-graduate studies in Internal Medicine and research in neuro-pharmacology at The
Royal Post-Graduate Medical School, UK, Dr. Ungar was in practice as an Internist at The Princess Grace Hospital, London. Following
fifteen years of practice he, jointly with Dr. Raymond Prudo, founded The Doctors Laboratory PLC (TDL), a general pathology laboratory,
which provided analytical services to clinicians and pharmaceutical organizations throughout the United Kingdom and abroad. During
his tenure as Chairman and Board Director, The Doctors Laboratory PLC grew from a start-up to become one of the largest pathology
laboratories in the United Kingdom. It was sold to Sonic Healthcare, a quoted Australian PLC in 2002. Dr. Ungar studied medicine
and biochemistry in the University of London at the Royal Free Hospital School of Medicine. As a post-graduate he was admitted
to The Royal College of Physicians of the United Kingdom. Dr. Ungar is a Life Fellow of The Royal Society of Medicine and a founder
and former Vice-President of The Independent Doctors Federation.
David Byrne, age
60, has served as a member of our board of directors since June 2016. Mr. Byrne is currently Group Chief Executive Officer of Sonic
Healthcare UK Group, the United Kingdom’s largest NGO clinical diagnostics organization, a position that he has held since
1997. Mr. Byrne is also the CEO of The Doctors Laboratory which is a subsidiary of Sonic. Mr. Byrne also currently serves as a
Main Board Director for CIS Healthcare Limited and served as a Main Board Finance Director for Clinisys Solutions Ltd from 2000
to 2007. He is a UK Chartered Certified Accountant with over 25 years’ experience in corporate finance and developing early
stage biotechnology and medical services companies.
Donald Williams, age
61, has served as a member of our board of directors since June 2016. Mr. Williams is a 35-year veteran of the public accounting
industry who retired in 2014. Mr. Williams spent 18 years as a partner at Ernst & Young and the last seven years as a partner
at Grant Thornton. Mr. Williams’ career focused on private and public companies in the technology and life sciences sectors.
During the last seven years at Grant Thornton, he served as the National Leader of Grant Thornton’s Life Sciences Practice
and the Managing Partner of the San Diego Office. He was the lead partner for both Ernst & Young and Grant Thornton on multiple
initial public offerings; secondary offerings; private and public debt financings; as well as numerous mergers and acquisitions.
Mr. Williams serves as a director of Alphatec Holdings, Inc., Impedimed Limited and Leading Biosciences, Inc. Mr. Williams served
on the board of directors and is past President and Chairman of the San Diego Venture Group and has served on the board of directors
of various charitable organizations in the communities in which he has lived. Mr. Williams is a graduate of Southern Illinois University
with a B.S. degree.
Michael Grissinger,
age 66, has served as a member of our board of directors since January 2018. Mr. Grissinger spent 22 years at Johnson & Johnson,
retiring in 2018. During his Johnson and Johnson tenure, Mr. Grissinger served in a variety of senior-level management roles including
Vice President- Corporate Development, Vice President- Worldwide Business Development & Licensing, as well as Vice President
and Head- Mergers & Acquisitions for the pharmaceuticals group. Prior to Johnson & Johnson, Mr. Grissinger spent 12 years
at Ciba-Geigy in finance, marketing, and business development roles. In addition to Akari, Mr. Grissinger also serves as a member
of the board of directors of resTORbio and Atrin Pharmaceuticals. Mr. Grissinger holds a B. Sc. in Chemistry from Juniata College
and an MBA from Temple University- Fox School of Business.
Dr. Peter Feldschreiber, age
76, has served as a member of our board of directors since January 2018. Dr. Feldschreiber is dual qualified as a physician and
barrister with extensive experience both in the pharmaceutical industry and healthcare law. Since 2004, Dr. Feldschreiber has been
a member of 4 New Square chambers in Lincoln’s Inn. He has over 20 years’ experience in the pharmaceutical industry
including 10 years’ as European Medical Director at Proctor and Gamble Limited and he has held appointments as Senior Medical
Assessor and Special Litigation Coordinator to the Commission on Human Medicines, a U.K. government advisory body, as well as the
Committee on Safety of Devices, Medicines, and Healthcare Products Regulatory Agency, part of the U.K. government’s Department
of Health. Dr. Feldschreiber is General Editor of the Law and Regulation of Medicines (Oxford University Press) and Consultant
Editor for the section on Medicinal Products and Drugs in the Fifth Edition of Halsbury’s Laws of England. Dr. Feldschreiber
holds a B.Sc. MB.BS from Kings College Hospital Medical School, University of London, is a Fellow of the Faculty of Pharmaceutical
Medicine Royal College of Physicians and holds an LLB Hons. from Thames Valley University.
Clive Richardson, age
55, has served as our Chief Operating Officer and member of our board of directors since September 2015, as our Interim Chief Executive
Officer from May 2018 until July 2019, and as our Chief Executive Officer since July 2019. Prior to that, Mr. Richardson was Head
of Operations for Volution, a position he has held from January 2014 until September 2015 and before that he was a consultant to
Volution’s predecessor company, Varleigh Immuno Pharmaceuticals, since inception in 2007. Prior to working for Volution and
Varleigh, Mr. Richardson served as a member of the board of directors for a range of international healthcare companies, including
CIS Healthcare Ltd. and Clinisys Ltd. Mr. Richardson was formerly Head of Equities Research for Investec Bank, and worked as a
strategy consultant for L.E.K. Consulting. Mr. Richardson holds an M.A. in Zoology from Trinity College, Oxford University.
Ray Prudo, M.D. age
75, has served as our Executive Chairman since September 2015. Dr. Prudo has been an active investor and developer of healthcare
companies for 25 years. Dr. Prudo is the Founder, Chairman, and Chief Executive Officer of Volution and its predecessor company,
Varleigh Immuno Pharmaceuticals, since inception in 2007. He is currently a board member of several UK healthcare companies. Dr.
Prudo holds an MBBS from the University of London, and an FRCP(C) from the Royal College of Physicians and Surgeons of Canada.
Director or Officer Involvement in Certain
Legal Proceedings
Our directors and executive
officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years, other
than the fact that Mr. Williams had served as a member of the Board of Directors of Proove Biosciences, Inc., a private company,
from January 2015 until May 2017, which entity went into receivership in approximately September 2017.
Summary Compensation Table
The following table shows the compensation paid or accrued during
the last two fiscal years ended December 31, 2019 and 2018.
Name and
Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($) (1)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Ray
Prudo,
|
|
|
2019
|
|
|
|
400,000
|
|
|
|
200,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
600,000
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman
|
|
|
2018
|
|
|
|
212,180
|
|
|
|
106,090
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
318,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clive
|
|
|
2019
|
|
|
|
432,408
|
|
|
|
177,028
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,241
|
(2)
|
|
|
652,677
|
|
Richardson,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer and Chief Operating Officer
|
|
|
2018
|
|
|
|
354,405
|
|
|
|
131,755
|
|
|
|
—
|
|
|
|
253,123
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,683
|
(2)
|
|
|
773,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dov
Elefant,
|
|
|
2019
|
|
|
|
201,007
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,000
|
(2)
|
|
|
215,007
|
|
Former
Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer (3)
|
|
|
2018
|
|
|
|
264,000
|
|
|
|
66,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,691
|
(2)
|
|
|
343,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Horn
|
|
|
2019
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Solomon
Ph.D.,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
Chief Executive Officer (4)
|
|
|
2018
|
|
|
|
183,371
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,261
|
(5)
|
|
|
187,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
These amounts represent the aggregate grant date fair value for
option awards for fiscal years 2019 and 2018, respectively, computed in accordance with FASB ASC Topic 718. A discussion of
the assumptions used in determining grant date fair value may be found in our Financial Statements, included in our Annual
Report on Form 20-F for the years ended December 31, 2019 and 2018.
|
|
(2)
|
Consists of company contributions to a 401K plan or pension scheme.
|
|
(3)
|
Mr. Elefant resigned as Chief Financial Officer in September
2019.
|
|
(4)
|
Dr. Solomon was appointed as our Chief Executive Officer on August
28, 2017 and resigned as Chief Executive Officer on May 8, 2018.
|
|
(5)
|
Consists of $1,000 per month allowance. See “Item 6 B.
Directors, Senior Management and Employees—Compensation”.
|
Narrative Disclosure to Summary Compensation
Table
Ray Prudo. On
September 21, 2015, in connection with the Acquisition, we entered into an agreement with our Executive Chairman and director,
Ray Prudo. The agreement was effective as of September 18, 2015. Under the agreement, Dr. Prudo will hold office as Chairman and
Class C Director for a three-year term and thereafter will seek reappointment in accordance with our Articles of Association. Dr.
Prudo’s appointment is subject to early termination in accordance with the Articles of Association or if he ceases to be
a director.
Dr. Prudo’s current
annual salary is $400,000 beginning January 1, 2019. Upon termination of Dr. Prudo’s appointment, he shall be entitled to
any accrued but unpaid base salary and expense reimbursement. Under the agreement, Dr. Prudo is required to maintain the confidentiality
of our confidential information.
In a separately entered
into agreement with Dr. Prudo on September 2015, Dr. Prudo is entitled to an additional cash payment each calendar year in the
discretion of our board of directors based on Dr. Prudo’s performance. Dr. Prudo’s annual cash bonus is currently set
at 50% of base salary.
Clive Richardson. On
September 21, 2015, in connection with the Acquisition, we entered into an executive employment agreement with our Chief Operating
Officer and director, Clive Richardson. The employment agreement was effective as of September 16, 2015 and shall continue in effect
until terminated by either party upon at least six months’ prior written notice. On May 8, 2018, Mr. Richardson was appointed
Interim Chief Executive Officer and on July 18, 2019 as Chief Executive Officer.
Mr. Richardson’s
current annual base salary is £337,428 (approximately $432,000), beginning January 1, 2019. Mr. Richardson is also entitled
to an annual cash bonus with a target of 40% of base salary, provided that the actual amount of such bonus may be greater or less
that the target amount. The employment agreement also provides that Mr. Richardson is entitled to a stock option grant to purchase
16,271,850 ordinary shares (equivalent to 162,718 ADSs). This option was granted under our 2014 Plan on September 21, 2015, has
a ten-year term, is exercisable at a price equal to $0.3221 per share (or $32.21 per ADS) and vests ratably on a semi-annual basis
over four years, with a minimum 25% vesting, subject to acceleration in the case of change of control or non-renewal of the employment
agreement.
Upon termination of
Mr. Richardson’s employment by us for cause, then he shall be entitled to any accrued amounts due at the date of termination.
In other instances of termination of Mr. Richardson’s employment, he shall be entitled to receive an amount equal to 18 months
of base salary in effect before the employment terminates, plus one and a half times the target annual performance bonus to which
Mr. Richardson may have been entitled to for the year in which the employment terminates; provided our valuation in a change of
control transaction is greater than our valuation at the time of the Acquisition.
The employment agreement
also contains restrictive covenants for our benefit and Mr. Richardson is required to maintain the confidentiality of our confidential
information.
In October 2018, we
entered into an Option and Bonus Letter with Mr. Richardson which granted Mr. Richardson options to purchase 20,000,000 ordinary
shares (equivalent to 200,000 ADSs) subject to the terms and conditions of our 2014 Plan in consideration for his new appointment
as interim Chief Executive Officer. The option has a ten-year term, is exercisable at a price equal to $0.0187 per share (or $1.87
per ADS) and vests ratably on an annual basis over four years. The Option and Bonus Letter also entitles Mr. Richardson to a cash
bonus of three times (3x) his annual salary and benefits in the event of a sale transaction.
Dov Elefant. On
September 21, 2015, in connection with the Acquisition, we entered into an executive employment agreement with our former Chief
Financial Officer, Dov Elefant. Mr. Elefant resigned as Chief Financial Officer in September 2019.
Mr. Elefant’s
most recent base salary was $282,480. Mr. Elefant was also entitled to an annual cash bonus with a target of 25% of base salary,
provided that the actual amount of such bonus may be greater or less that the target amount. The employment agreement also provided
that Mr. Elefant was entitled to a stock option grant to purchase 4,067,963 ordinary shares (equivalent to 40,679 ADSs). This option
was granted under our 2014 Plan on September 21, 2015, had a ten-year term, exercisable at a price equal to $0.3221 per share (or
$32.21 per ADS) and vested ratably on a semi-annual basis over four years, subject to acceleration in the case of change of control
or non-renewal of the employment agreement.
Dr. David Horn Solomon. On
August 18, 2017, Dr. Solomon was appointed to the Board, effective as of August 28, 2017, as a Class A director until the 2018
annual meeting of the Company’s shareholders. Dr. Solomon was also hired, pursuant to the Executive Employment Agreement,
dated August 18, 2017 to be the Chief Executive Officer of the Company, effective August 28, 2017. On May 8, 2018, Dr. Solomon
resigned as Chief Executive Officer and director.
Dr. Solomon’s
annual base salary was $515,000, reflecting a 3% increase beginning January 1, 2018, and subject to review on an annual basis.
Dr. Solomon was entitled to a one-time cash bonus of $50,000 in 2017 plus relocation expenses of up to $80,000 with a gross up
for taxes, and a monthly perquisite payment of $1,000. Under the employment agreement, Dr. Solomon was required to relocate his
primary residence to and be resident in the New York metropolitan area by August 1, 2018. Dr. Solomon was also eligible to receive
an annual cash bonus with a target of 40% of base salary, provided that the actual amount of such bonus shall be determined by
the Board or an appropriate committee thereof in its sole discretion. Any bonus for a year in which Dr. Solomon was employed for
less than the full year will be prorated. The employment agreement also provided that Dr. Solomon is entitled to a stock option
to purchase 26,000,000 Ordinary Shares (equivalent to 260,000 ADSs) under the Company’s Amended and Restated 2014 Equity
Incentive Plan. The option had a term of ten years with an exercise price equal to the closing price of the grant date vesting
ratably on an annual basis over four years, beginning on the grant date, provided that Dr. Solomon remains employed with the Company,
and subject to acceleration in the case of change of control. These options were granted on September 1, 2017. The employment agreement
also contained restrictive covenants for our benefit and Dr. Solomon is required to maintain the confidentiality of our confidential
information.
On September 14, 2017,
we and Dr. Solomon entered into an amendment to the employment agreement amending provisions relating to Dr. Solomon’s relocation
to New York. Under the amendment, it was agreed, among other things, that Dr. Solomon would relocate his primary residence and
be resident in New York on September 15, 2017 and in lieu of certain relocation expenses originally agreed to in the employment
agreement, we would pay up to $193,750 in interim housing and related expenses (including deposits) subject to repayment in certain
circumstances. Under the amendment, Dr. Solomon is required to repay $39,500 in deposits at the end of the rental term which expires
September 14, 2018, and as a result of Dr. Solomon’s resignation is required to repay to us $18,750 in interim housing and
related expenses.
In connection with Dr. Solomon’s
resignation, on May 8, 2018, we and Dr. Solomon entered into an Employment Separation and General Release Agreement dated July
18, 2018, or the Solomon Separation Agreement. Pursuant to the terms of the Solomon Separation Agreement, the parties agreed that
Dr. Solomon’s employment was terminated by reason of Dr. Solomon’s resignation on May 8, 2018, or the Solomon Separation
Date. Dr. Solomon is entitled to receive, to the extent entitled, any unpaid base salary, vested benefits, accrued but unused
vacation time and expense reimbursement through the Solomon Separation Date and, under certain circumstances, reimbursement of
up to $5,000 for legal fees incurred in connection with the Solomon Separation Agreement. The Solomon Separation Agreement provided
that the 26,000,000 stock options that were granted to Dr. Solomon, all of which were unvested, were forfeited as of the Solomon
Separation Date, with no compensation or other payment due to Dr. Solomon. In addition, the Solomon Separation Agreement provided
that if Dr. Solomon executed the Solomon Separation Agreement within 21 days of the date of the agreement and did not exercise
his right to revoke, we agreed to enter into a promissory note, or the Separation Consideration, with a principal sum of $93,202.24,
due with all accrued but unpaid interest on November 8, 2019, which would fully satisfy any amounts owed by Dr. Solomon to us as
of the Solomon Separation Date arising out of (a) charges made by Dr. Solomon to the Company credit card, and (b) repayment of
interim housing and related expenses under the amendment described above. The Solomon Separation Agreement also contains continuing
confidentiality restrictions, a release and a covenant not to sue. Dr. Solomon signed the Solomon Separation Agreement effective
May 8, 2018.
Outstanding Equity Awards at Fiscal
Year-End
The following table
provides information regarding all outstanding equity awards for (1) our Executive Chairman, (2) our Chief Executive Officer and
Chief Operating Officer and (3) our former Chief Financial Officer as of December 31, 2019:
|
|
Option
Awards1
|
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
Ray Prudo
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Clive Richardson
|
|
|
16,271,850
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3221
|
|
|
|
9/21/2025
|
|
|
|
|
2,250,000
|
(3)
|
|
|
2,250,000
|
(3)
|
|
|
—
|
|
|
|
0.035992
|
|
|
|
9/1/2027
|
|
|
|
|
5,000,000
|
(4)
|
|
|
15,000,000
|
(4)
|
|
|
—
|
|
|
|
0.0187
|
|
|
|
8/15/2028
|
|
Dov Elefant
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
(1)
|
Amounts represent options to purchase ordinary shares.
|
|
(2)
|
These options were granted on September 21, 2015, in connection with the Acquisition, have a ten-year term and vest over a four-year period with one-sixteenth of the options granted vesting every three months beginning September 21, 2015, through 2019.
|
|
(3)
|
These options were granted on September 1, 2017, have a ten-year term and vest annually over a four-year period.
|
|
(4)
|
These options were granted on August 15, 2018, have a ten-year term and vest annually over a four-year period.
|
Director Compensation
Our director compensation
program is administered by our board of directors with the assistance of the compensation committee. The compensation committee
conducts an annual review of director compensation and makes recommendations to the board with respect thereto.
The shareholders approved
our Directors Remuneration Policy on July 14, 2017 to provide a framework for the Director’s compensation package. In addition,
the Company has a non-employee director compensation policy, which was amended and restated on November 19, 2015 and was subsequently
amended on June 29, 2016, January 26, 2017, January 23, 2018 and on January 8, 2019. On January 9, 2020, our board resolved that
the cash compensation and committee membership fees would remain the same as they were for 2019. As a result, our non-employee
directors will be compensated for service on our board of directors as follows in 2020:
|
·
|
an annual retainer for service on the board of directors of $39,338;
|
|
·
|
an annual retainer for service as a member of the compensation committee and nominating and governance committee of $5,305;
|
|
·
|
an annual retainer for service as a member of the audit committee of $7,500;
|
|
·
|
for the chairman of the compensation committee, and nominating and governance committee, an annual retainer of $10,609;
|
|
·
|
for the chairperson of the audit committee, an annual retainer of $17,500;
|
|
·
|
for service on the board, an annual grant of a stock option to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) or Annual Stock Option; the grant is made each year on the date of the Company’s Annual General Meeting of shareholders, or AGM, on the date of the first meeting of the board held following the AGM, or on any date following such AGM as may be recommended by the compensation committee and approved by the Board;
|
|
·
|
for each new non-employee director that is appointed to the board of directors, an initial grant of a stock option to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs), or Initial Stock Option Grant; if the non-employee director was not previously appointed to the board and is first elected at the Company’s AGM, the grant shall be made on the date of the Company’s AGM, on the date of the first meeting of the board held following the AGM, or on any date following such AGM as may be recommended by the compensation committee and approved by the board; if the non-employee director is appointed to the board in advance of the next AGM and will stand for election at that AGM, the grant shall be made at the meeting of the board at which he or she is appointed and, if not made at such meeting, shall be made promptly following such meeting by written unanimous consent of the board; and if the non-employee director is first appointed to the board in advance of the next AGM and will not stand for election at that AGM, the number of shares in the grant and the vesting schedule shall be determined by the compensation committee, taking into account the term of the appointment and the grant shall be made at the meeting of the board at which he or she is appointed and, if not made at such meeting, shall be made promptly following such meeting by written unanimous consent of the board;
|
|
·
|
unless otherwise specified by the board or the compensation committee at the time of grant, each Annual Stock Option granted under this policy shall (i) vest in full on the date of the next AGM following the date of grant, subject to the non-employee director’s continued service on the Board; (ii) have an exercise price equal to the fair market value of the Company’s ordinary shares as determined in the 2014 Plan on the grant date; (iii) terminate ten years after the grant date, (iv) become fully vested immediately prior to a change of control and (v) contain such other terms and conditions as set forth in the form of option agreement approved by the board or the compensation committee prior to the grant date; and
|
|
·
|
unless otherwise specified by the board or the compensation committee at the time of grant, each Initial Stock Option Grant for newly appointed or elected directors granted under the non-employee director compensation policy shall (i) vest ratably in three equal installments with the first installment vesting on the date of the first AGM following the date of the grant, and with the second and third installments vesting, respectively, on the dates of the second and third AGMs following the date of the grant, subject to the non-employee director’s continued service on the board; (ii) have an exercise price equal to the fair market value of the Company’s ordinary shares as determined in the 2014 Plan on the grant date; (iii) terminate ten years after the grant date, (iv) become fully vested immediately prior to a change of control and (v) contain such other terms and conditions as set forth in the form of option agreement approved by the board or the compensation committee prior to the grant date; and
|
|
·
|
each of these options shall be granted under our 2014 Plan, terminate ten years after the grant date and become fully vested immediately prior to a change of control.
|
All directors are eligible
to receive reimbursement for reasonable out-of-pocket expenses incurred in connection with attendance at meetings of our board
of directors, and our non-employee directors are also eligible to receive reimbursement, upon approval of the board of directors
or a committee thereof, for reasonable out-of-pocket expenses incurred in connection with attendance at various conferences or
meetings with our management.
The following table
sets forth information regarding the total compensation awarded to, earned by or paid to each of our non-employee directors during
the year ended December 31, 2019 for their service on our board of directors. Dr. Prudo, our Executive Chairman and Clive Richardson,
our Chief Executive Officer and Chief Operating Officer, did not receive any additional compensation for their service as a director
during 2019. The compensation that we pay to the foregoing persons is discussed in the “Summary Compensation Table”
above.
Name
|
|
Fees Earned
or
Paid in Cash
($)
|
|
|
Option
Awards
($) (1)
|
|
|
Total
($)
|
|
James Hill, M.D. (2)
|
|
$
|
62,752
|
|
|
$
|
17,259
|
|
|
$
|
80,011
|
|
Stuart Ungar (3)
|
|
|
49,947
|
|
|
|
17,259
|
|
|
|
67,206
|
|
David Byrne (4)
|
|
|
52,143
|
|
|
|
17,259
|
|
|
|
69,402
|
|
Donald Williams (5)
|
|
|
56,838
|
|
|
|
17,259
|
|
|
|
74,097
|
|
Peter Feldschreiber (6)
|
|
|
49,947
|
|
|
|
17,259
|
|
|
|
67,206
|
|
Michael Grissinger (7)
|
|
|
39,338
|
|
|
|
17,259
|
|
|
|
56,597
|
|
|
(1)
|
These amounts represent the aggregate grant date fair value of options granted to each director during the year ended December 31, 2019 computed in accordance with ASC Topic 718. A discussion of the assumptions used in determining grant date fair value may be found in our Audited Financial Statements, included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019.
|
|
(2)
|
As of December 31, 2019, options to purchase an aggregate of 6,500,000 ordinary shares (equivalent to 65,000 ADSs) were outstanding, of which 5,200,000 ordinary shares (equivalent to 52,000 ADSs) were exercisable.
|
|
(3)
|
As of December 31, 2019, options to purchase an aggregate of 6,500,000 ordinary shares (equivalent to 65,000 ADSs) were outstanding, of which 5,200,000 ordinary shares (equivalent to 52,000 ADSs) were exercisable.
|
|
(4)
|
As of December 31, 2019, options to purchase an aggregate of 6,500,000 ordinary shares (equivalent to 65,000 ADSs) were outstanding, of which 5,200,000 ordinary shares (equivalent to 52,000 ADSs) were exercisable.
|
|
(5)
|
As of December 31, 2019, options to purchase an aggregate of 7,250,000 ordinary shares (equivalent to 72,500 ADSs) were outstanding, of which 5,950,000 ordinary shares (equivalent to 59,500 ADSs) were exercisable.
|
|
(6)
|
As of December 31, 2019, options to purchase an aggregate of 3,900,000 ordinary shares (equivalent to 39,000 ADSs) were outstanding, 1,625,000 ordinary shares (equivalent to 16,250 ADSs) of which were exercisable.
|
|
(7)
|
As of December 31, 2019, options to purchase an aggregate of 3,900,000 ordinary shares (equivalent to 39,000 ADSs) were outstanding, 1,625,000 (equivalent to 16,250 ADSs) of which were exercisable.
|
Our Articles of Association,
as amended, provide that our business is to be managed by the board of directors (subject to any directions made by the members
of the Company by special shareholder resolution). Our board of directors is divided into three classes for purposes of election
(Class A Directors, who serve a one year term before being subject to re-election at the Company’s annual general meeting;
Class B Directors, who serve a two year term before being subject to re-election at the annual general meeting; and Class C Directors
who serve a three year term before being subject to re-election at the annual general meeting, provided also that in any two year
period, a majority of the board must stand for re-election). Our board of directors currently consists of eight members: James
Hill, M.D., Stuart Ungar, M.D., David Byrne, Donald Williams, Michael Grissinger and Peter Feldschreiber currently serve as Class
A directors; Clive Richardson currently serves as a Class B director and Ray Prudo currently serves as a Class C director. Ray
Prudo serves as Executive Chairman of our board of directors.
Subject to certain
exceptions, the rules of Nasdaq permit a foreign private issuer to follow its home country practice in lieu of listing requirements
of Nasdaq. The committees of our board of directors consist of an audit committee, a compensation committee and a nominating and
corporate governance committee.
Audit Committee
Our audit committee
currently consists of three members, appointed by the board of directors: Donald Williams, James Hill, M.D. and David Byrne, all
of whom are independent within the meaning of SEC corporate governance rules of independence for purposes of the audit committee.
Mr. Williams is the chairman of our audit committee. Our board of directors has determined that Mr. Williams is the audit committee
financial expert.
Compensation Committee
Our compensation committee
currently consists of three members, appointed by the board of directors: James Hill, M.D., Stuart Ungar, M.D. and David Byrne,
all of whom are independent within the meaning of SEC corporate governance rules of independence for purposes of the compensation
committee. Dr. Hill is the chairman of our compensation committee.
Nominating and Corporate Governance
Committee
Our nominating and
corporate governance committee currently consists of three members, appointed by our board of directors: Dr. Peter Feldschreiber,
James Hill, M.D., and Stuart Ungar, M.D., all of whom are independent within the meaning of SEC corporate governance rules of independence
for purposes of the nominating and corporate governance committee. Dr. Feldschreiber is chairman of our nominating and corporate
governance committee.
None of our non-employee
directors have any service contracts with Akari or any of our subsidiaries that provide for benefits upon termination of employment.
As of December 31,
2019, we had ten full-time employees. Five of our employees were engaged in research and development and five employees were engaged
in management, administration and finance. Eight are located in England and two are located in the United States.
None of our employees
are members of labor unions.
Information with respect
to share ownership of members of our board of directors and executive officers is included in “Item 7. Major Shareholders
and Related Party Transactions”
Option Plans
2014 Plan
Our board of directors
approved the 2014 Equity Incentive Plan, or the 2014 Plan. The 2014 Plan was most recently amended by our shareholders on September
19, 2018. The shareholders approved the 2014 Plan on June 19, 2014. The purpose of the 2014 Plan is to enable us to continue to
attract and retain professional personnel for the purposes of executing our clinical development plan. The material terms of the
2014 Plan are set forth below.
The option plan is
administered by our board of directors and grants are made pursuant thereto by the compensation committee. The aggregate number
of ordinary shares that may be issued upon exercise of options under the 2014 Plan shall be the sum of: (i) 183,083,207 ordinary
shares and (ii) any ordinary shares that are represented by awards granted under the Company’s 2007 Stock Option Plan that
are forfeited, expire or are cancelled without delivery of ordinary shares or which result in the forfeiture of ordinary shares
back to the Company on or after June 19, 2014, or the equivalent of such number of ordinary shares after the administrator, in
its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction
in accordance with the 2014 Plan; provided, however, that no more than 480,000 ordinary shares shall be added to the 2014 Plan
pursuant to subsection (ii). Options may be granted at any time. As of December 31, 2019, options to purchase 94,349,035 of our
ordinary shares were outstanding under the 2014 Plan. Unless sooner terminated, the Plan shall expire on April 30, 2024.
The per share exercise
price for the shares to be issued pursuant to the exercise of an option shall be such price as determined by the board of directors
and set forth in the individual option agreement, subject to any guidelines as may be determined by the board of directors from
time to time, provided, however, that the exercise price shall be not less than the par value of the shares underlying the option,
and subject to other conditions set forth in the 2014 Plan.
Options are exercisable
pursuant to the terms under which they were awarded and subject to the terms and conditions of the 2014 Plan. In general, an option,
or any part thereof, may not be exercised unless the optionee is then a service provider of our company or any parent or subsidiary
thereof (as each such term is defined in the 2014 Plan). Any tax consequences arising from the grant or exercise of any option
from the payment for shares covered thereby, the sale or disposition of such shares and any other expenses are the responsibility
of the optionee unless otherwise required by applicable law.
On January 23, 2017,
the compensation committee approved a UK Sub-Plan of the 2014 Plan which offers UK residents the opportunity to acquire interests
in us in a similar manner to that offered to US employees. The UK Sub-Plan requires that only employees may receive grants, and
that all options granted under the UK Sub-Plan must be designated as “non-tax-advantaged Options” under UK law. Options
granted under the UK Sub-Plan are exercisable pursuant to the terms of their award and are subject to the terms of the 2014 Plan
generally, except where otherwise stated. The UK Sub-Plan differs from the 2014 Plan only in UK-specific provisions regarding
a valid disposition to survivors and compliance with local UK laws regarding securities, treatment as compensation, tax matters,
data privacy, and third party rights.
Grants to non-employee
directors who are based in the UK or who are UK resident taxpayers are made pursuant to the 2014 Plan in accordance with the UK
Appendix to the Amended and Restated Non-Employee Director Compensation Policy which was approved by the compensation committee
on January 23, 2017. The UK Appendix, as with the Sub-Plan for employees, differs from the Non-Employee Director Compensation
Policy by providing specific UK-specific provisions. All options granted to UK non-employee directors or resident taxpayers
are, as with the Sub-Plan for employees, designated as “non-tax-advantaged options” under UK law, exercisable pursuant
to the terms of the award and the 2014 Plan, and provide for UK specific provisions regarding survivorship, securities, compensation,
tax, data privacy, and third party rights laws.
In addition, on January
26, 2017, our board of directors approved a CSOP Sub Plan as recommended to the board by the compensation committee. The CSOP
Sub-Plan modifies the 2014 Plan to qualify as a Schedule 4 CSOP Scheme as defined under the UK’s Income Tax (Earnings &
Pensions) Act 2003, or ITEPA. The purpose of the CSOP Sub-Plan is to allow options granted to UK resident employees and directors
to qualify as a Schedule 4 CSOP Scheme under governing law and to therefore qualify for certain tax advantages under ITEPA. CSOP
options are effectuated by the execution of a deed of grant by the Company evidencing shares, option exercise price, restrictions,
and other terms or conditions. Grants are limited under the CSOP Sub-Plan such that an employee cannot hold more than £30,000
in value, measured as of grant date. In the event of redundancy, retirement, a relevant transfer within the meaning of the
Protection of Employment regulations, or a cease of control (as defined in Section 719 ITEPA) under governing UK law, the recipient
may exercise any CSOP option that has become exercisable but has not yet been exercised for a period of six months. A Change
of Control under UK law will similarly permit option exercise.
2007 Stock Option Plan
On August 28, 2007,
our board of directors approved the 2007 Stock Option Plan, or the 2007 Stock Option Plan, as amended on April 26, 2012, June 20,
2012 and April 29, 2013. The shareholders approved the 2007 Stock Option Plan on June 20, 2013. The purpose of the 2007 Stock Option
Plan was to provide an additional incentive to employees, officers, directors, consultants and other service providers of the Company
and any parent or subsidiary of the Company (each as defined in the 2007 Stock Option Plan) to further the growth, development
and financial success of the company by providing them with opportunities to purchase shares pursuant to the 2007 Stock Option
Plan and to promote the success of the business. The material terms of the 2007 Stock Option Plan are set forth below.
The option plan was
administered by the board of directors and grants were made pursuant thereto by the compensation committee. The aggregate number
of ordinary shares that could be issued upon exercise of options under the 2007 Stock Option Plan could not exceed 5,865,000 ordinary
shares. The board of directors could have, at any time during the term of the 2007 Stock Option Plan, increased the number of shares
available for grant under the 2007 Stock Option Plan. As of August 28, 2017, options to purchase 480,000 of our ordinary shares
were outstanding under the 2007 Stock Option Plan when the Plan expired on the tenth anniversary of its effective date. As of December
31, 2019, there were no options outstanding under the 2007 Stock Option Plan.
The per share exercise
price for the shares issued pursuant to the exercise of an option was such price as determined by the board of directors and set
forth in the individual option agreement, subject to any guidelines as may have been determined by the board of directors from
time to time, provided, however, that the exercise price could not be less than the par value of the shares underlying the option,
and subject to other conditions set forth in the 2007 Stock Option Plan.
Options were exercisable
pursuant to the terms under which they were awarded and were subject to the terms and conditions of the 2007 Stock Option Plan.
In general, an option, or any part thereof, could not be exercised unless the optionee was then a service provider of our company
or any parent or subsidiary thereof (as each such term is defined in the 2007 Stock Option Plan). Any tax consequences arising
from the grant or exercise of any option from the payment for shares covered thereby, the sale or disposition of such shares and
any other expenses was the responsibility of the optionee unless otherwise required by applicable law.
Equity Award Grant Policy
Based on the recommendation
of the compensation committee, our board of directors adopted an Equity Award Grant Policy on January 26, 2017, which sets forth
policies for us to follow when we grant stock options, shares of restricted stock, restricted stock units or other equity-based
awards to employees of the Company or its subsidiaries.
The grants are divided
into annual grants, made on the last business day in March, new hire grants, to our new hires, and performance grants to existing
employees in recognition of performance. The policy standardizes employee grants and delegates authority to the Executive Chairman
and CEO to make grants other than (a) grants of more than 1,000,000 ordinary shares or share-equivalents to one individual on one
date; (b) new hire or performance grants to a person who is reasonably expected to be an executive officer or director upon hire
or promotion; (c) any grant which would exceed 1,000,000 ordinary shares or share equivalents to any one individual in a calendar
year; or (d) any grant with an exercise price less than fair market value on the date. These non-delegated grants remain
in the sole authority of the compensation committee.
Pricing will be based
on the closing market price on the Nasdaq Capital Market for all such grants. All new-hire grants must be made by a writing
sent to the recipient stating the terms and conditions and clarifying that the equity award is subject to approval, whether by
the delegated authority pursuant to the policy or by the compensation committee or the board itself.
|
Item 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
The following table
sets forth certain information with respect to the beneficial ownership of our ordinary shares as of March 15, 2020, the latest
practicable date for inclusion in this annual report (except where otherwise indicated), for:
|
·
|
each person, or group of affiliated persons, who are known by us to beneficially own more than 5% of our outstanding ordinary shares;
|
|
·
|
each member of our board of directors;
|
|
·
|
each of our other executive officers; and
|
|
·
|
all of our directors and executive officers as a group.
|
The number of shares
beneficially owned by each entity, person, director or executive officer is determined under the rules of the SEC and the information
is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any
shares as to which the individual has the sole or shared voting power or investment power and also any shares that the individual
has the right to acquire within 60 days of March 15, 2020, through the exercise of any option or other right. Unless otherwise
indicated, each person has sole investment and voting power, or shares such powers with his or her spouse, with respect to the
shares set forth in the following table.
Ordinary shares that
may be acquired by an individual or group within 60 days of March 15, 2020, pursuant to the exercise of options or warrants, are
deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed
to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. The percentage
of ownership is based on 2,872,895,513 shares of ordinary shares outstanding on March 15, 2020, adjusted as required by the rules
promulgated by the SEC to determine beneficial ownership. Akari does not know of any arrangements, including any pledge by any
person of securities of Akari, the operation of which may at a subsequent date result in a change of control of Akari. Unless otherwise
noted, the address of each director and executive officer of Akari is: c/o Akari Therapeutics, Plc, 75/76 Wimpole Street, London
W1G 9RT.
|
|
Number of
Ordinary
Shares
Beneficially
Owned (1)
|
|
|
Percentage of
Ordinary
Shares
Beneficially
Owned
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
Ray Prudo
|
|
|
832,477,100
|
(1)
|
|
|
28.8
|
%
|
Clive Richardson
|
|
|
23,521,860
|
(2)
|
|
|
*
|
|
James Hill, M.D.
|
|
|
5,200,000
|
(3)
|
|
|
*
|
|
Stuart Ungar, M.D.
|
|
|
5,200,010
|
(4)
|
|
|
*
|
|
Dov Elefant
|
|
|
-
|
|
|
|
*
|
|
David Byrne
|
|
|
5,200,000
|
(5)
|
|
|
*
|
|
Donald Williams
|
|
|
5,950,000
|
(6)
|
|
|
*
|
|
Michael Grissinger
|
|
|
1,950,000
|
(7)
|
|
|
*
|
|
Peter Feldschreiber
|
|
|
1,950,000
|
(7)
|
|
|
*
|
|
All directors and officers as a group (9 persons)
|
|
|
|
|
|
|
30.0
|
%
|
5% or More Shareholders
|
|
|
|
|
|
|
|
|
RPC Pharma Limited (8)
|
|
|
809,977,100
|
|
|
|
28.1
|
%
|
PranaBio Investments, LLC (9)
|
|
|
243,404,200
|
|
|
|
8.3
|
%
|
Aspire Capital Fund, LLC (10)
|
|
|
331,814,900
|
|
|
|
11.2
|
%
|
Yasumitsu Shigeta (11)
|
|
|
150,009,600
|
|
|
|
5.2
|
%
|
* Represents beneficial
ownership of less than 1% of our outstanding ordinary shares.
|
(1)
|
Represents the entire holdings
of RPC Pharma Limited and Dr. Ray Prudo and includes warrants to purchase 9,210,500 ordinary
shares (equivalent to 92,105 ADSs) at an exercise price of $0.03 per share (or $3.00 per ADS)
which expire on July 1, 2024 and warrants to purchase additional 7,500,000 ordinary shares
(equivalent to 75,000 ADSs) at an exercise price of $0.02 per share (or $2.20 per ADS) which
expire on February 21, 2025. Dr. Prudo has voting and dispositive control over the ordinary
shares held by RPC Pharma Limited and owns approximately 67.8% of RPC’s outstanding
shares (including option grants), including 10.6% of RPC’s outstanding shares held in
trust for Dr. Ungar. Dr. Prudo disclaims beneficial ownership except to the extent of his
actual pecuniary interest in such shares.
|
|
|
(2)
|
Consists of options to purchase 16,271,850 ordinary shares (equivalent to 162,719 ADSs) at an exercise price of $0.3221 per share (or $32.21 per ADS), which expire on September 21, 2025, options to purchase 2,250,000 ordinary shares (equivalent to 22,500 ADSs) at an exercise price of $0.035992 per share (or $3.5992 per ADS) and which expire on September 1, 2027, and options to purchase 5,000,000 ordinary shares (equivalent to 50,000 ADSs) at an exercise price of $0.0187 per share (or $1.87 per ADS) and which expire on August 15, 2028. Does not include (i) options to purchase 2,250,000 ordinary shares (equivalent to 22,500 ADSs) at an exercise price of $0.035992 per share (or $3.5992 per ADS) and which expire on September 1, 2027 that vest in more than 60 days from March 15, 2020, and (ii) options to purchase 15,000,000 ordinary shares (equivalent to 150,000 ADSs) at an exercise price of $0.0187 per share (or $1.87 per ADS) and which expire on August 15, 2028 that vest in more than 60 days from March 15, 2020.
|
|
(3)
|
Consists of (i) options to purchase 231,278 ordinary shares (equivalent to 2,312 ADSs) at an exercise price of $0.3221 per share (or $32.21 per ADS), which expire on September 21, 2025, (ii) options to purchase 1,068,722 ordinary shares (equivalent to 10,687 ADSs) at an exercise price of $0.1917 per share (or $19.17 per ADS), which expire on November 25, 2025, (iii) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.145 per share (or $14.50 per ADS), which expire on June 29, 2026, (iv) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0504 per share (or $5.04 per ADS) and which expire on June 28, 2027, and (v) options to purchase 1,300,00 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0208 per share (or $2.08 per ADS) and which expire on September 19, 2028. Does not include options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0207 per share (or $2.07 per ADS) and which expire on June 27, 2029 that vest in more than 60 days from March 15, 2020. Also, does not include shares held by RPC Pharma Limited of which he has a pecuniary interest. Dr. Hill disclaims beneficial ownership of the shares held by RPC Pharma Limited.
|
|
(4)
|
Consists of (i) options to purchase 211,278 ordinary shares (equivalent to 2,112 ADSs) at an exercise price of $0.3221 per share (or $32.21 per ADS), which expire on September 21, 2025, (ii) options to purchase 1,088,722 ordinary shares (equivalent to 10,887 ADSs) at an exercise price of $0.1917 per share (or $19.17 per ADS), which expire on November 25, 2025, (iii) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.145 per share (or $14.50 per ADS), which expire on June 29, 2026, (iv) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0504 per share (or $5.04 per ADS) and which expire on June 28, 2027, and (v) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0208 per share (or $2.08 per ADS) and which expire on September 19, 2028. Does not include options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0207 per share (or $2.07 per ADS) and which expire on June 27, 2029 that vest in more than 60 days from March 15, 2020. Also, does not include shares held by RPC Pharma Limited of which he has a pecuniary interest. Dr. Ungar disclaims beneficial ownership of the shares held by RPC Pharma Limited.
|
|
(5)
|
Consists of (i) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.1796 per share (or $17.96 per ADS), which expire on April 22, 2026, (ii) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.145 per share (or $14.50 per ADS), which expire on June 29, 2026, (iii) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0504 per share (or $5.04 per ADS) and which expire on June 28, 2027, and (iv) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0208 per share (or $2.08 per ADS) and which expire on September 19, 2028. Does not include options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0207 per share (or $2.07 per ADS) and which expire on June 27, 2029 that vest in more than 60 days from March 15, 2020. Also, does not include shares held by RPC Pharma Limited of which he has a pecuniary interest. Mr. Byrne disclaims beneficial ownership of the shares held by RPC Pharma Limited.
|
|
(6)
|
Consists of (i) options to purchase 2,600,000 ordinary shares (equivalent to 26,000 ADSs) at an exercise price of $0.145 per share (or $14.50 per ADS), which expire on June 29, 2026, (ii) 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0504 per share (or $5.04 per ADS) and which expire on June 28, 2027, (iii) options to purchase 1,300,00 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0208 per share (or $2.08 per ADS) and which expire on September 19, 2028, and (iv) options to purchase 750,000 ordinary shares (equivalent to 7,500 ADSs) at an exercise price of $0.0175 per share (or $1.75 per ADS) and which expire on November 16, 2028. Does not include options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0207 per share (or $2.07 per ADS) and which expire on June 27, 2029 that vest in more than 60 days from March 15, 2020.
|
|
(7)
|
Consists of (i) options to purchase 650,000 ordinary shares (equivalent to 6,500 ADSs) at an exercise price of $0.0347 per share (or $3.47 per ADS) and which expire on January 23, 2028, and (ii) options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0208 per share (or $2.08 per ADS) and which expire on September 19, 2028. Does not include options to purchase 1,300,000 ordinary shares (equivalent to 13,000 ADSs) at an exercise price of $0.0207 per share (or $2.07 per ADS) and which expire on June 27, 2029 that vest in more than 60 days from March 15, 2020.
|
|
(8)
|
The principal business office of RPC Pharma Limited is c/o Landmark Fiduciare (Suisse) SA, 6 Place des Eaux-Vives, P.O. Box 3461, Geneva, V8 1211, Switzerland.
|
|
|
|
|
(9)
|
Represents the entire holdings of Pranabio Investments, LLC and includes warrants to purchase 32,500,000 ordinary shares (equivalent to 325,000 ADSs) at an exercise price of $0.03 per share (or $3.00 per ADS) which expire on July 1, 2024 and warrants to purchase additional 30,000,000 ordinary shares (equivalent to 300,000 ADSs) at an exercise price of $0.02 per share (or $2.20 per ADS) which expire on February 21, 2025. Pranabio Investments, LLC is a Texas limited liability company. Samir R. Patel is the managing member and has sole voting and investment power with respect to the shares.
|
|
|
|
|
(10)
|
Represents the holdings of Aspire Capital Fund, LLC and includes warrants to purchase 26,315,800 ordinary shares (equivalent to 263,158 ADSs) at an exercise price of $0.03 per share (or $3.00 per ADS) which expire on July 1, 2024 and warrants to purchase additional 58,823,500 ordinary shares (equivalent to 588,235 ADSs) at an exercise price of $0.02 per share (or $2.20 per ADS) which expire on March 3, 2025. Aspire Capital Partners LLC (“Aspire Partners”) is the Managing Member of Aspire Capital Fund, LLC (“Aspire Fund”). SGM Holdings Corp (“SGM”) is the Managing Member of Aspire Partners. Mr. Steven G. Martin (“Mr. Martin”) is the president and sole shareholder of SGM, as well as a principal of Aspire Partners. Mr. Erik J. Brown (“Mr. Brown”) is the president and sole shareholder of Red Cedar Capital Corp (“Red Cedar”), which is a principal of Aspire Partners. Mr. Christos Komissopoulos (“Mr. Komissopoulos”) is president and sole shareholder of Chrisko Investors Inc. (“Chrisko”), which is a principal of Aspire Partners. Mr. William F. Blank, III (“Mr. Blank”) is president and sole shareholder of WML Ventures Corp. (“WML Ventures”), which is a principal of Aspire Partners. Each of Aspire Partners, SGM, Red Cedar, Chrisko, WML Ventures, Mr. Martin, Mr. Brown, Mr. Komissopoulos and Mr. Blank may be deemed to be a beneficial owner of ADSs by Aspire Fund. The principal business office of Aspire Partners is 155 North Wacker Drive, Suite 1600, Chicago IL 60606. Each of Aspire Partners, SGM, Red Cedar, Chrisko, WML Ventures, Mr. Martin, Mr. Brown, Mr. Komissopoulos and Mr. Blank disclaims beneficial ownership of the ADSs held by Aspire Fund.
|
|
|
|
|
(11)
|
Based on a 13G filed on August 19, 2019, the principal business office of Yasumitsu Shigeta
is XYMAX Kamiyacho Building 8/F, 5-12-13 Toranomon, Minato-ku, Tokyo 105-0001, Japan.
|
Deutsche Bank Trust
Company Americas, or Deutsche Bank, is the holder of record for the company’s ADR program, pursuant to which each ADS represents
100 ordinary shares. As of March 15, 2020, Deutsche Bank held 2,868,158,800 ordinary shares representing 99.8% of the issued share
capital held at that date. Certain of these ordinary shares were held by brokers or other nominees. As a result, the number of
holders of record or registered holders in the United States is not representative of the number of beneficial holders or of the
residence of beneficial holders.
To our knowledge, the
only significant changes in the percentage ownership held by our more than 5% shareholders as reported in our annual reports during
the past three years are as follows: (i) the ownership percentage of RPC Pharma Limited decreased by 20.5% to 28.8% from 49.3%
as of March 15, 2019, (ii) in 2019, the ownership percentage of PranaBio Investments LLC increased to over 5%, (iii) in 2019, the
ownership percentage of Aspire Capital Fund LLC increased to over 10%, and (iv) in 2018, the ownership percentage of Yasumitsu
Shigeta increased to over 5%.
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B.
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Related Party Transactions
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The following discloses,
since January 1, 2017, certain related party transactions involving us. The descriptions provided below are summaries of the terms
of such agreements, do not purport to be complete and are qualified in their entirety by the complete agreements.
Employment and Consulting Agreements
We have or have had
employment, consulting or related agreements with each member of our senior management and employee-directors. See “Item
6. Directors, Senior Management and Employees—Compensation”.
Options
We have granted options
to purchase our ordinary shares to certain of our officers and directors. See “Item 6.B. Compensation” and “Item
7.A.Major Shareholders”. We describe our option plans under “Item 6.E. Share Ownership” and “Item 7.A.
Major Shareholders”.
Office Lease
We lease our UK office
space from The Doctors Laboratory, or TDL, and have incurred expenses of approximately $134,000, $139,000 and $141,000 plus VAT
during the years ended December 31, 2019, December 31, 2018 and December 31, 2017, respectively. David Byrne, a non-employee
director of ours is also the CEO of TDL.
Laboratory Testing Services
We received laboratory
testing services for our clinical trials provided by TDL and have incurred expenses of approximately $186,000, $8,000 and $8,000
plus VAT during the years ended December 31, 2019, 2018 and 2017, respectively.
Consulting
Since January 2018,
we have received business development consulting services from Michael Grissinger, a non-employee director of the Company. We have
incurred expenses of approximately $100,000 and $84,000 during the years ended December 31, 2019 and 2018, respectively, relating
to these consulting services.
Indemnification Agreements
To the extent permitted
by the U.K. Companies Act 2006, we are empowered to indemnify our directors against any liability they incur by reason of their
directorship. In addition to such indemnification, we provide our directors and executive officers with directors’ and officers’
liability insurance.
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C.
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Interests of Experts and Counsel.
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Not applicable.
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Item 8.
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FINANCIAL INFORMATION
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A.
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Consolidated Statements and Other Financial Information
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See “Item 18.
Financial Statements,” which contains our financial statements prepared in accordance with United States GAAP.
See “Item 4 B.
Business Overview—Legal Proceedings”.
We currently anticipate
that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring
or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in our ordinary shares or ADSs
will depend upon any future appreciation in their value. There is no guarantee that our ordinary shares or ADSs will appreciate
in value or even maintain the price at which our shareholders have purchased their shares.
A discussion of the
significant changes in our business can be found under “Item 4. Information on the Company—A. History and Development
of the Company.”
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Item 9.
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THE OFFER AND LISTING
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A.
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Offering and Listing Details
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Our ADSs have been
listed on the Nasdaq Capital Market under the symbol “AKTX” since September 21, 2015 and under the symbol “CLTX”
from January 31, 2014 until September 18, 2015. Prior to that, our ADSs were quoted on the OTCQB under the symbol “CLSXD”
from January 3, 2014 to January 30, 2014 and were quoted on the OTCQB under the symbol “CLSXY” from September 16, 2013
until January 2, 2014 and under the symbol “MRRBY” from February 19, 2013 to September 15, 2013. Effective January
3, 2014, our ratio of ADSs to ordinary shares changed from one ADS per each two ordinary shares to one ADS per each ten ordinary
shares and, effective as of September 17, 2015, our ratio of ADSs is to ordinary shares changed from one ADS per each ten ordinary
shares to one ADS per each one hundred ordinary shares. Currently, each ADS represents one hundred ordinary shares.
Not applicable.
See “Offering
and Listing Details” above.
Not applicable.
Not applicable.
Not applicable.
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Item 10.
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ADDITIONAL INFORMATION
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Our board of directors
is generally authorized to issue up to 10,000,000,000 ordinary shares of £0.01 each until June 28, 2022, without seeking
shareholder approval, subject to certain limitations. As of March 15, 2020, there were 2,872,895,513 ordinary shares outstanding,
outstanding warrants to purchase 462,160,100 ordinary shares, outstanding options to purchase 94,349,035 ordinary shares and 88,734,172
ordinary shares available for future issuance under our 2014 Equity Incentive Plan. All of our existing issued ordinary shares
are fully paid. Accordingly, no further capital may be required by us from the holders of such shares.
The rights and restrictions
to which the ordinary shares will be subject are prescribed in our Articles of Association. Our Articles of Association permit
our board of directors, with shareholder approval, to determine the terms of any preferred shares that we may issue. Our board
of directors is authorized, having obtained the consent of the shareholders, to provide from time to time for the issuance of other
classes or series of shares and to establish the characteristics of each class or series, including the number of shares, designations,
relative voting rights, dividend rights, liquidation and other rights, redemption, repurchase or exchange rights and any other
preferences and relative, participating, optional or other rights and limitations not inconsistent with applicable law.
English law does not
recognize fractional shares held of record. Accordingly, our Articles of Association do not provide for the issuance of fractional
ordinary shares, and our official English share register will not reflect any fractional shares.
We are not permitted
under English law to hold our own ordinary shares unless they are repurchased by us and held in treasury.
During the three years
ended March 15, 2020, we have issued an aggregate of 1,695,202,130 ordinary shares as well as options and warrants to purchase
an aggregate of 561,360,100 ordinary shares.
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B.
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Memorandum and Articles of Association
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The following summarizes
the material rights of holders of ordinary shares, as set out in our Articles of Association. The following summary is qualified
in its entirety by reference to the Companies Act and to our Articles of Association, which is filed as an exhibit to our Form
6-K filed with the SEC on July 18, 2017, which is incorporated by reference.
We were originally
established as a private limited company under the laws of England and Wales on October 7, 2004 under the name Freshname No. 333
Limited. On January 19, 2005, we changed our name to Morria Biopharmaceuticals Limited and on February 3, 2005, we completed a
reverse merger with Morria Biopharmaceuticals Inc., or Morria, a Delaware corporation, in which Morria became our wholly-owned
subsidiary and we re-registered as a non-traded public limited company under the laws of England and Wales. Morria was dedicated
to the discovery and development of novel, first-in-class, non-steroidal, synthetic anti-inflammatory drugs. On March 22, 2011,
we incorporated an Israeli subsidiary, Morria Biopharma Ltd. On June 25, 2013, we changed our name to Celsus Therapeutics PLC and
on October 13, 2013 Morria was renamed Celsus Therapeutics Inc. On September 25, 2015, we further changed our name to “Akari
Therapeutics, PLC”. As such our affairs are governed by our Articles of Association and the English law.
In the following summary,
a “shareholder” is the person registered in our register of members as the holder of the relevant securities. For those
ordinary shares that have been deposited in our ADS facility pursuant to our deposit agreement with Deutsche Bank Trust Company
Americas, Deutsche Bank Trust Company Americas or its nominee is deemed the shareholder.
Issuance of Options and Warrants
Our Articles of Association
provide that, subject to any shareholder approval requirement under any laws, regulations or the rules of any stock exchange to
which we are subject, our board of directors is authorized, from time to time, in its discretion, to grant such persons, for such
periods and upon such terms as it deems advisable, options to purchase such number of shares of any class or classes or of any
series of any class as our board of directors may deem advisable, and to cause warrants or other appropriate instruments evidencing
such options to be issued. The Companies Act provides that directors may issue options or warrants without shareholder approval
once authorized to do so by the Articles of Association or an ordinary resolution of shareholders. Our board of directors may issue
shares upon exercise of options or warrants without shareholder approval or authorization, up to the relevant authorized share
capital limit.
Dividends
Our Articles of Association
provide that our board of directors may, subject to the applicable provisions of the Companies Act, from time to time, declare
such dividend as may appear to the board of directors to be justified by the distributable profits of the company. Subject to the
rights of the holders of shares with preferential or other special rights that may be authorized in the future, holders of ordinary
shares are entitled to receive dividends according to their rights and interest in our distributable profits. Dividends, to the
extent declared, are distributed according to the proportion of the nominal value paid up on account of the shares held at the
date so appointed by the Company, without regard to the premium paid in excess of the nominal value, if any. A company may only
distribute a dividend out of the company’s distributable profits, as defined under the Companies Act.
Any dividend unclaimed
after a period of twelve years from the date of declaration of such dividend shall be forfeited and shall revert to us. In addition,
the payment by the board of directors of any unclaimed dividend, interest or other sum payable on or in respect of an ordinary
share into a separate account shall not constitute us as a trustee in respect thereof.
Rights in a Liquidation
In the event of our
liquidation, subject to applicable law, after satisfaction of liabilities to creditors, our assets will be distributed to the holders
of ordinary shares in proportion to their respective holdings. This liquidation right may be affected by the grant of preferential
dividends or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Voting Rights
Holders of ordinary
shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. These voting rights may be
affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized
in the future.
The ordinary shares
do not have cumulative voting rights in the election of directors. As a result, holders of ordinary shares that represent more
than 50% of the voting power at the general meeting of shareholders, in person or by proxy, have the power to elect all the directors
whose positions are being filled at that meeting to the exclusion of the remaining shareholders. At every annual general meeting,
one third of the directors who are subject to retirement by rotation, or as near to it as may be, will retire from office. In any
two-year period, a majority of the directors must stand for re-election or replacement. In the event that this majority has not
been met and the number of directors eligible for retirement by rotation under the provision of our Articles of Association are
not met, any further directors to retire are those who have been in office the longest since their last appointment or re-appointment,
but as between persons who became or were last re-appointed directors on the same day, those to retire are determined by the Board
of Directors at the recommendation of the Chairman. A retiring director is eligible for re-appointment, subject to the terms of
our Articles of Association.
The actions necessary
to change the rights of holders of the ordinary shares are as follows: the rights of the shareholders would need to be altered
by way of a special resolution requiring 75% vote of the shareholders who are present and voting in person or by proxy. In order
to change the rights of a separate class of shares, it will require such a vote by shareholders of that class of shares.
Preemptive Rights
There are no rights
of pre-emption under our Articles of Association in respect of transfers of issued ordinary shares. In certain circumstances, our
shareholders have preemptive rights with respect to new issuances of equity securities. However our board of directors is
generally authorized to allot equity securities for cash without triggering shareholder preemptive rights, provided that this power
shall (i) be limited to the allotment of equity securities up to an aggregate nominal amount of £100,000,000; and (ii) expire
(unless previously revoked or varied by us), on June 28, 2022.
Transfer of Shares
Fully paid ordinary
shares are issued in registered form and may be transferred pursuant to our Articles of Association, unless such transfer is restricted
or prohibited by another instrument and subject to applicable securities laws. The Articles of Association state that the directors
of the Company may refuse to authorize a transfer of shares if the shares in question have not been paid in full and are therefore
only partly paid.
Limitation on Owning Securities
Our Articles of Association
do not restrict in any way the ownership or voting of ordinary shares by non-residents. If the company serves a demand on a person
under section 793 to the Companies Act 2006, that person will be required to disclose any interest he has in the shares of the
company.
Fiduciary Duties of Office Holders
The Companies Act imposes
a duty of care and a duty of loyalty on all office holders of a company. The duty of care requires an office holder to act with
the standard of skills with which a reasonable office holder in the same position would have acted under the same circumstances.
The duty of care includes a duty to use reasonable means to obtain:
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information regarding the business advisability of a given action brought for his or her approval or performed by him or her by virtue of his or her position; and
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all other information of importance pertaining to the aforesaid actions.
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The duty of loyalty
requires an office holder to act in good faith and for the benefit of the company and includes a duty to:
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refrain from any act involving a conflict of interest between the fulfillment of his or her role in the company and the fulfillment of any other role or his or her personal affairs;
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refrain from any activity that is competitive with the business of the company;
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refrain from exploiting any business opportunity of the company with the aim of obtaining a personal gain for himself or herself or others; and
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disclose to the company all information and provide it with all documents relating to the company’s affairs which the office holder has obtained due to his position in the company.
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Under equity, directors
have owed fiduciary duties to their companies. Chapter 2 of Part 10 of the Companies Act 2006 (2006 Act) codifies certain of those
duties. The relevant statutory duties under the 2006 Act are:
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to promote the success of the company;
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to exercise independent judgment;
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to avoid conflicts of interest;
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not to accept benefits from third parties; and
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to declare an interest in a proposed transaction or arrangement.
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In addition, the general
principles of fiduciary duties as set out in common law continue in place in respect of Directors. The general four principles
of fiduciary duties are:
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No conflict: A must not place himself in a position where his own interests conflict with those of B or where there is a real possibility that this will happen. This is also known as conflict of duty or conflict of interest.
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No-profit: A must not profit from his position at the expense of B. This is also known as misuse of property held in a fiduciary capacity.
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Undivided loyalty: A fiduciary owes undivided loyalty to his beneficiary. Rather confusingly, this is sometimes called conflict of duty. A must not place himself in a position where his duty to another customer conflicts with his duty to B.
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Confidentiality: A must use or disclose information obtained in confidence from B for the benefit only of B.
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In the corporate realm,
these have been refined as follows:
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Duty to act in good faith in the best interests of the company: A director had to act at all times in good faith in what he considered was the best interests of the company.
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Duty to act within the powers conferred by the company’s memorandum and articles of association and to exercise powers for proper purposes: A director could not cause the company to undertake activities outside that permitted by the company’s constitutional documents, or exercise his powers for any “improper purpose”.
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Duty to avoid conflicting interests and duties: A director was obliged to avoid placing himself in a position where there was a conflict, or possible conflict, between the duties which he owed to the company and either his personal interests or other duties which he owed to a third party.
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Duty not to make unauthorized profits: A director was under a duty to account for any personal profit made by virtue of his directorship unless the prof it was authorized by shareholder resolution or was in accordance with the company’s articles. The duty to account was strict, and did not depend on fraud or lack of good faith, or on the company suffering any loss.
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Standard of Care
A director had to take
such actions as would be taken by “a reasonably diligent person,” having both:
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the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company; and
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the general knowledge, skill and experience that that director has.
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Disclosure of Personal Interests
of an Officer Holder
The Companies Act requires
that an office holder disclose to the Company any direct or indirect personal interest that he or she may have, and all related
material information and documents known to him or her, in connection with any existing or proposed transaction by the company.
The disclosure is required to be made promptly and in any event, no later than the board of directors meeting in which the transaction
is first discussed.
Section 177 of the
Companies Act requires any transaction in which a director has an interest to be declared, and not only those that are extraordinary
transactions.
Disclosure of Conflicts of
Interests
Except as provided
in our Articles of Association, a director may not vote at a meeting of the board or of a committee of the board on any resolution
concerning a matter:
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in which he has (either alone or together with any person connected with him, as provided in the Companies Act) a material interest, other than an interest in shares or debentures or other securities of or in the company; and
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subject to the Companies Act, which conflicts or may conflict with the interests of the Company.
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A director is not counted
in the quorum at a meeting in relation to any resolution on which he is debarred from voting.
Notwithstanding the
foregoing, a director is entitled to vote and be counted in the quorum in respect of any resolution concerning any of the following
matters:
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the giving of any security, guarantee or indemnity to a third party in respect of a debt or obligation of the Company or any of our subsidiaries for which he himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security;
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any proposal concerning an offer of shares or debentures or other securities of or by the Company or any of our subsidiaries for subscription or purchase in which offer he is or is to be interested as a participant as the holder of such shares, debentures or other securities or in its underwriting or sub-underwriting;
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any contract, arrangement, transaction or other proposal concerning any other company in which he holds an interest not representing one per cent. or more of any class of the equity share capital (calculated exclusive of any shares of that class held as treasury shares) of such company, or of any third company through which his interest is derived, or of the voting rights available to members of the relevant company, any such interest being deemed for the purpose of this regulation to be a material interest in all circumstances;
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any contract, arrangement, transaction or other proposal concerning the adoption, modification or operation of a superannuation fund or retirement, death or disability benefits scheme under which he may benefit and which has been approved by or is subject to and conditional upon approval by Her Majesty’s Revenue & Customs;
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any contract, arrangement, transaction or proposal concerning the adoption, modification or operation of any scheme for enabling employees, including full time executive directors of the Company or any of our subsidiaries to acquire shares of the Company or any arrangement for the benefit of employees of the Company or any of our subsidiaries, which does not award him any privilege or benefit not awarded to the employees to whom such scheme relates; or
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any contract, arrangement, transaction or proposal concerning insurance which the Company proposes to maintain or purchase for the benefit of directors or for the benefit of persons including directors.
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Article 26 of the Articles
of Association states, that the board may authorize any matter which may otherwise involve a director breaching his duties under
certain sections of the Companies Act 2006 to avoid conflicts of interest.
Any director (including
the director which has the conflict) may propose that such conflicted director be authorized in relation to any matter which is
the subject of such a conflict. The director with the conflict will not count towards the quorum at the meeting at which the conflict
is considered and may not vote on any resolution authorizing the conflict. Where the board gives authority in relation to such
a conflicts, the board may impose such terms on the relevant director as it deems appropriate.
Directors’ and Officers’
Compensation
The Companies Act requires
that a resolution approving provisions to appoint a director for a fixed period of more than two years must not be passed unless
a memorandum setting out the proposed contract incorporating the provision is made available to members: in the case of a resolution
at a meeting, by being made available for inspection by members of the company both (i) at the company’s registered office
for not less than 15 days ending with the date of the meeting, and (ii) at the meeting itself.
Directors’ Borrowing Powers
Our board of directors
may, from time to time, in its discretion, cause us to borrow or secure the payment of any sum or sums of money for the purposes
of our company.
Retirement of Directors
We do not have any
age limitations for our directors, nor do we have mandatory retirement as a result of reaching a certain age.
Share Qualification of Directors
No shareholding
qualification is required by a director.
Redemption Provisions
We may, subject to
applicable law and to our Articles of Association, issue redeemable preference shares and redeem the same.
Capital Calls
Under our Articles
of Association and the Companies Act, the liability of our shareholders is limited to the nominal value (i.e. par). The board of
directors has the authority to make calls upon the shareholders in respect of any money unpaid on their shares and each shareholder
shall pay to us as required by such notice the amount called on his shares. If a call remains unpaid after it has become due and
payable, and the fourteen days’ notice provided by the board of directors has not been complied with, any share in respect
of which such notice was given may be forfeited by a resolution of the board.
No Sinking Fund
Our ordinary shares
do not have sinking fund provisions.
Modification of Rights
Subject to the provisions
of the Companies Act, if at any time our capital is divided into different classes of shares, the rights attached to any class
may be varied or abrogated with the consent in writing of the holders of at least three-fourths in nominal value of that class
or with the sanction of a special resolution passed at a separate meeting of the holders of that class, but not otherwise. The
quorum at any such meeting is two or more persons holding, or representing by proxy, at least one-third in nominal value of the
issued shares in question.
Transfer Restrictions
Upon the listing of
our shares on a Regulated Market (as defined by the Financial Services and Markets Act 2000, the AIM market of the London Stock
Exchange, the New York Stock Exchange, the NYSE American, Nasdaq and similar securities exchanges), the Board may decide that up
to 100% of each shareholders’ free shares (i.e. unrestricted shares under the applicable rules and regulations) shall be
restricted to sale or transfer according to the following provisions, such shares as restricted by the Board being Restricted Shares:
(i) during the first six months commencing on the date of the listing, no transfer of Restricted Shares is permitted; (ii) as of
the seventh and eighth month following the date of the listing, such a shareholder may transfer shares that constitute up to 12.5%
of his Restricted Shares per month; and (iii) as of the ninth month following the date of the listing, the remaining Restricted
Shares are no longer considered restricted.
Shareholders’ Meetings and Resolutions
Pursuant to our Articles
of Association, the quorum required for an ordinary meeting of shareholders consists of at least two shareholders present in person
or by proxy, who hold shares conferring in the aggregate more than 15% of our voting power. If at any time the Company has only
one shareholder, such shareholder, in person, by proxy or, if a corporation, by its representative, shall constitute a quorum.
A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place
or any time and place as the chairman of the board may designate. Furthermore, the board of the company may call a general meeting
whenever they think fit. If the Board, in its absolute discretion, considers that it is impractical or unreasonable for any reason
to hold a general meeting on the date or at the time or place specified in the notice calling the general meeting, it may postpone
the general meeting to another date, time and/or place.
Under the Companies
Act, each shareholder of record must be provided at least 14 calendar days prior to the notice of any general shareholders’
meeting and 21 days prior to the notice of an annual general meeting. Subject to the provisions of the Companies Act, our annual
general meeting will be held at such time and place or places as our board may determine. Our board may call a general meeting
whenever it thinks fit, and must do so when required under the Companies Act. General meetings must also be convened on such requisition,
or in default may be convened by such requisitionists or by court order, as provided by the Companies Act.
Voting at any general
meeting of shareholders is by a show of hands, unless a poll is demanded. A poll may be demanded by:
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the chairman of the meeting;
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at least five shareholders entitled to vote at the meeting;
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any shareholder or shareholders representing in the aggregate not less than one-tenth of the total voting rights of all shareholders entitled to vote at the meeting; or
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any shareholder or shareholders holding shares conferring a right to vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
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In a vote by a show
of hands, every shareholder who is present in person or by proxy at a general meeting has one vote. In a vote on a poll, every
shareholder who is present in person or by proxy shall have one vote for every share of which they are registered as the holder
(provided that no shareholder shall have more than one vote on a show of hands notwithstanding that he may have appointed more
than one proxy to vote on his behalf). The quorum for a shareholders’ meeting is a minimum of two persons holding at least
15% of the share capital, present in person or by proxy. To the extent the Articles of Association provide for a vote by a show
of hands in which each shareholder has one vote, this differs from U.S. law, under which each shareholder typically is entitled
to one vote per share at all meetings.
Holders of ADSs are
also entitled to vote by supplying their voting instructions to Deutsche Bank Trust Company Americas who will vote the ordinary
shares represented by their ADSs in accordance with their instructions. The ability of Deutsche Bank Trust Company Americas to
carry out voting instructions may be limited by practical and legal limitations, the terms of our Articles of Association, and
the terms of the ordinary shares on deposit. We cannot assure the holders of our ADSs that they will receive voting materials in
time to enable them to return voting instructions to Deutsche Bank Trust Company Americas in a timely manner.
Unless otherwise required
by law or the Articles of Association, voting in a general meeting is by ordinary resolution. An ordinary resolution is approved
by a majority vote of the shareholders present at a meeting at which there is a quorum. Examples of matters that can be approved
by an ordinary resolution include:
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the election of directors;
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the approval of financial statements;
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the declaration of final dividends;
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the appointment of auditors;
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the increase of authorized share capital; or
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the grant of authority to issue shares.
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A special resolution
or an extraordinary resolution requires the affirmative vote of not less than three-fourths of the eligible votes. Examples of
matters that must be approved by a special resolution include modifications to the rights of any class of shares, certain changes
to the Articles of Association, or our winding-up.
Limitation on Owning Securities
Our Articles of Association
do not restrict in any way the ownership or voting of ordinary shares by non-residents. Furthermore, there is no longer an obligation
of a shareholder of a UK company which is a non-listed (in the UK or EU) company to voluntarily disclose his shareholding unless,
required to do so by the company. If the company serves a demand on a person under section 793 to the Companies Act 2006, that
person will be required to disclose any interest he has in the shares of the company.
Change in Control
We can issue additional
shares with any rights or restrictions attached to them as long as not restricted by any rights attached to existing shares. These
rights or restrictions can be decided by the directors so long as there is no conflict with any resolution passed by the shareholders.
The ability of the directors to issue shares with rights or restrictions that are different than those attached to the currently
outstanding ordinary shares could have the effect of delaying, deferring or preventing change of control of our company.
In addition, as discussed
above under “Directors and Senior Management”, our board of directors is divided into three classes for purposes of
election. One class is elected at each annual meeting of stockholders to serve for a three-year term. Because this would prevent
shareholders from replacing the entire board at a single meeting, this provision could also have the effect of delaying, deferring
or preventing a change in control of our company.
We may be subject to
the Takeover Code, if the Takeover Panel determines that we have our place of central management and control in the United Kingdom.
Whilst the Takeover Panel has not informed us of any such determination, on account of the current constitution of our board, we
believe that we are currently subject to the Takeover Code. If that is the case, now or in the future, then under Rule 9 of the
Takeover Code, if a person: (a) acquires an interest in our shares which, when taken together with shares in which he or persons
acting in concert with him are interested, carry 30% or more of the voting rights of our shares; or (b) who, together with persons
acting in concert with him, is interested in shares that in the aggregate carry not less than 30% of the voting rights in us and
does not hold shares carrying more than 50% of the voting rights in us, acquires additional interests in shares that increase the
percentage of shares carrying voting rights in which that person is interested, the acquirer and, depending on the circumstances,
its concert parties, would be required (except with the consent of the Takeover Panel) to make a cash offer for our outstanding
shares at a price not less than the highest price paid for any interests in the shares by the acquirer or its concert parties during
the previous 12 months.
Differences in Corporate Law Between
England and the State Of Delaware
As a public limited
company incorporated under the laws of England and Wales, the rights of our shareholders are governed by applicable English law,
including the Companies Act, and not by the law of any U.S. state. As a result, our directors and shareholders are subject to different
responsibilities, rights and privileges than are applicable to directors and shareholders of U.S. corporations. We have set below
a summary of the differences between the provisions of the Companies Act applicable to us and the Delaware General Corporation
Law relating to shareholders’ rights and protections. This summary is not intended to be a complete discussion of the respective
rights and it is qualified in its entirety by reference to English law, Delaware law and our Articles of Association. Before investing,
you should consult your legal advisor regarding the impact of English corporate law on your specific circumstances and reasons
for investing. The summary below does not include a description of rights or obligations under the U.S. federal securities laws
or Nasdaq listing requirements. You are also urged to carefully read the relevant provisions of the Delaware General Corporation
Law and the Companies Act for a more complete understanding of the differences between Delaware and English law.
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Delaware
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England
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Number of Directors
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Under Delaware law, a corporation must have at least one director and the number of directors shall be fixed by or in the manner provided in the bylaws, unless specified in the certificate of incorporation.
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Under the Companies Act, a public limited company must have at least two directors and the number of directors may be fixed by or in the manner provided in a company’s articles of association.
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Removal of Directors
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Under Delaware law, directors may be removed from office, with or without cause, by a majority shareholder vote, except (a) in the case of a corporation whose board is classified, shareholders may effect such removal only for cause, unless otherwise provided in the certificate of incorporation, and (b) 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 or her removal would be sufficient to elect him or her 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 or she is a part.
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Under the Companies Act, shareholders may remove a director without cause by an ordinary resolution (which is passed by a simple majority of those voting in person or by proxy at a general meeting) irrespective of any provisions of any service contract the director has with the company, provided that 28 clear days’ notice of the resolution is given to the company and certain other procedural requirements under the Companies Act are followed (such as allowing the director to make representations against his or her removal at the meeting and/or in writing).
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Vacancies on the Board of Directors
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Under Delaware law, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director unless otherwise provided in the certificate of incorporation or bylaws of the corporation.
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Under English law, the procedure by which directors (other than a company’s initial directors) are appointed is generally set out in a company’s articles of association, provided that where two or more persons are appointed as directors of a public limited company by resolution of the shareholders, resolutions appointing each director must be voted on individually unless a resolution of the shareholders that such resolutions do not have to be voted on individually is first agreed to by the meeting without any vote being given against it.
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Annual General Meeting
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Under Delaware law, the annual meeting of shareholders shall be held at such place, on such date and at such time as may be designated from time to time by the board of directors or as provided in the certificate of incorporation or by the bylaws.
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Under the Companies Act, a public limited company must hold an annual general meeting each year. This meeting must be held within six months beginning with the day following the company’s accounting reference date.
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General Meeting
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Under Delaware law, special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws.
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Under the Companies Act, a general meeting of the shareholders of a public limited company may be called by the directors. Shareholders holding at least 5% of the paid-up capital (excluding any paid-up capital held as treasury shares) of the company carrying voting rights at general meetings can also require the directors to call a general meeting.
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Delaware
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England
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Notice of General Meetings
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Under Delaware law, written notice of any meeting of the shareholders must be given to each shareholder entitled to vote at the meeting not less than ten nor more than 60 days before the date of the meeting and shall specify the place, date, hour and purpose or purposes of the meeting.
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The Companies Act provides that a general
meeting (other than an adjourned meeting) must be called by notice of:
• in
the case of an annual general meeting, at least 21 days; and
• in
any other case, at least 14 days.
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The company’s articles of association may provide for a longer period of notice and, in addition, certain matters (such as the removal of directors or auditors) require special notice, which is 28 clear days’ notice. The shareholders of a company may in all cases consent to a shorter notice period, the proportion of shareholders’ consent required being 100% of those entitled to attend and vote in the case of an annual general meeting and, in the case of any other general meeting, a majority in number of the members having a right to attend and vote at the meeting, being a majority who together hold not less than 95% in nominal value of the shares giving a right to attend and vote at the meeting.
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Quorum
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The certificate of incorporation or bylaws may specify the number of shares, the holders of which shall be present or represented by proxy at any meeting in order to constitute a quorum, but in no event shall a quorum consist of less than 1/3 of the shares entitled to vote at the meeting. In the absence of such specification in the certificate of incorporation or bylaws, a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of shareholders.
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Subject to the provisions of a company’s articles of association, the Companies Act provides that two shareholders present at a meeting (in person or by proxy) shall constitute a quorum.
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Proxy
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Under Delaware law, at any meeting of shareholders, a shareholder may designate another person to act for such shareholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.
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Under the Companies Act, at any meeting of shareholders, a shareholder may designate another person to attend, speak and vote at the meeting on their behalf by proxy (or, in the case of a shareholder which is a corporate body, by way of a corporate representative).
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Delaware
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England
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Issue of New Shares
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Under Delaware law, if the company’s certificate of incorporation so provides, the directors have the power to authorize additional stock. The directors may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the company or any combination thereof.
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Under the Companies Act, the directors
of a company must not exercise any power to allot shares or grant rights to subscribe for, or to convert any security into, shares
unless they are authorized to do so by the company’s articles of association or by an ordinary resolution of the shareholders.
Any authorization given must state the
maximum amount of shares that may be allotted under it and specify the date on which it will expire, which must be not more than
five years from the date the authorization was given. The authority can be renewed by a further resolution of the shareholders.
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Pre-emptive Rights
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Under Delaware law, unless otherwise provided in a corporation’s certificate of incorporation, a stockholder does not, by operation of law, possess pre-emptive rights to subscribe to additional issuances of the corporation’s stock.
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Under the Companies Act, “equity securities” (being (i) shares in the company
other than shares that, with respect to dividends and capital, carry a right to participate only up to a specified amount in a
distribution, or the ordinary shares or (ii) rights to subscribe for, or to convert securities into, ordinary shares) proposed
to be allotted for cash must be offered first to the existing equity shareholders in the company in proportion to the respective
nominal value of their holdings, unless an exception applies or a special resolution to the contrary has been passed by shareholders
in a general meeting or the articles of association provide otherwise in each case in accordance with the provisions of the Companies
Act.
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Liability of Directors and Officers
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Under Delaware law, a corporation’s certificate of incorporation may include a provision eliminating or limiting the personal liability of a director to the corporation and its shareholders for monetary damages arising from a breach of fiduciary duty as a director. However, no provision can limit the liability of a director for:
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Under the Companies Act, any provision (whether contained in a company’s articles of association or any contract or otherwise) that purports to exempt a director of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void.
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Delaware
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England
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• any
breach of the director’s duty of loyalty to the corporation or its shareholders;
• acts
or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
• willful
or negligent payment of unlawful dividends or stock purchases or redemptions; or
• any
transaction from which the director derives an improper personal benefit.
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Any provision by which a company directly or indirectly provides an indemnity (to any extent) for a director of the company or of an associated company against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he or she is a director is also void except as permitted by the Companies Act, which provides exceptions for the company to: (i) purchase and maintain insurance against such liability; (ii) provide a “qualifying third party indemnity” (being an indemnity against liability incurred by the director to a person other than the company or an associated company. Such indemnity must not cover fines imposed in criminal proceedings, penalties imposed by regulatory bodies arising out of non-compliance with regulatory requirements, the defense costs of criminal proceedings where the director is found guilty, the defense costs of civil proceedings successfully brought against the director by the company or an associated company, and the costs of unsuccessful applications by the director for relief); and (iii) provide a “qualifying pension scheme indemnity” (being an indemnity against liability incurred in connection with the company’s activities as trustee of an occupational pension plan).
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Voting Rights
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Delaware law provides that, unless otherwise provided in the certificate of incorporation, each shareholder of record is entitled to one vote for each share of capital stock held by such shareholder.
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Under English law, unless a poll is demanded by the shareholders of a company or is required by the Chairman of the meeting or the company’s articles of association, shareholders shall vote on all resolutions on a show of hands.
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Delaware
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England
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Under the Companies Act, a poll may be demanded by: (i) not fewer than five shareholders having the right to vote on the resolution; (ii) any shareholder(s) representing at least 10% of the total voting rights of all the shareholders having the right to vote on the resolution (excluding any voting rights attached to treasury shares); or (iii) any shareholder (s) holding shares in the company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10% of the total sum paid up on all the shares conferring that right. A company’s articles of association may provide more extensive rights for shareholders to call a poll.
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Under English law, an ordinary resolution is passed on a show of hands if it is approved by a simple majority (more than 50%) of the votes cast by shareholders present (in person or by proxy) and entitled to vote. If a poll is demanded, an ordinary resolution is passed if it is approved by holders representing a simple majority of the total voting rights of shareholders present (in person or by proxy) who (being entitled to vote) vote on the resolution. Special resolutions require the affirmative vote of not less than 75% of the votes cast by shareholders present (in person or by proxy) at the meeting.
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Variation of Class Rights
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Under Delaware law, the holders of the outstanding shares of a class shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely.
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The Companies Act provides that rights
attached to a class of shares may only be varied or abrogated in accordance with provision in the company’s articles for
the variation or abrogation of those rights or, where the company’s articles contain no such provision, if the holders of
shares of that class consent to the variation or abrogation. Consent for these purposes means:
• consent
in writing from the holders of at least 75% in nominal value of the issued shares of that class (excluding any shares held as treasury
shares); or
• a
special resolution passed at a separate meeting of the holders of that class sanctioning the variation.
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Delaware
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England
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The Companies Act provides that the quorum for a class meeting is not less than two persons holding or representing by proxy at least one-third of the nominal value of the issued shares of that class. Following a variation of class rights, shareholders who amount to not less than 15% of the shareholders of the class in question who did not approve the variation may apply to court to have the variation cancelled. Any application must be made within 21 days of the variation. The court may cancel the variation if it is satisfied having regard to all the circumstances of the case that the variation would unfairly prejudice the shareholders of the class represented by the applicant.
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Shareholder Vote on Certain Transactions
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Generally, under Delaware law, unless the
certificate of incorporation provides for the vote of a larger portion of the stock, completion of a merger, consolidation, sale,
lease or exchange of all or substantially all of a corporation’s assets or dissolution requires:
• the
approval of the board of directors; and
• approval
by the vote of the holders of a majority of the outstanding stock or, if the certificate of incorporation provides for more or
less than one vote per share, a majority of the votes of the outstanding stock of a corporation entitled to vote on the matter.
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The Companies Act provides for schemes
of arrangement, which are arrangements or compromises between a company and any class of shareholders or creditors and used in
certain types of reconstructions, amalgamations, capital reorganizations or takeovers. These arrangements require:
• the
approval at a shareholders’ or creditors’ meeting convened by order of the court, of a majority in number of shareholders
or creditors representing 75% in value of the capital held by, or debt owed to, the class of shareholders or creditors, or class
thereof present and voting, either in person or by proxy; and
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Under Delaware law, a contract or transaction
between the company and one or more of its directors or officers, or between the company and any other organization in which one
or more of its directors or officers, are directors or officers, or have a financial interest, shall not be void solely for this
reason, or solely because the director or officer participates in the meeting of the board which authorizes the contract or transaction,
or solely because any such director’s or officer’s votes are counted for such purpose, if:
• the
material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are
disclosed or are known to the board, and the board in good faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the disinterested directors be less than a quorum;
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• the
approval of the court.
Once approved, sanctioned and effective,
all shareholders and creditors of the relevant class and the company are bound by the terms of the scheme. The Companies Act also
contains certain provisions relating to transactions between a director and the company, including transactions involving the acquisition
of substantial non-cash assets from a director or the sale of substantial noncash assets to a director, and loans between a company
and a director or certain connected persons of directors. If such transactions meet certain thresholds set out within the Companies
Act the approval of shareholders by ordinary resolution will be required.
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Delaware
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England
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• the
material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or
• the
contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors,
a committee or the shareholders.
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Standard of Conduct for Directors
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Delaware law does not contain specific provisions setting forth the standard of conduct of a director. The scope of the fiduciary duties of directors is generally determined by the courts of the State of Delaware. In general, directors have a duty to act without self-interest, on a well-informed basis and in a manner they reasonably believe to be in the best interest of the shareholders. Directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and to its shareholders. The duty of care generally requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself or herself of all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. The director must not use his or her corporate position for personal gain or advantage. 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 shareholders.
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Under English law, a director owes various
statutory and fiduciary duties to the company, including:
• to
act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of
its shareholders as a whole;
• to
avoid a situation in which he or she has, or can have, a direct or indirect interest that conflicts, or possibly conflicts, with
the interests of the company;
• to
act in accordance with the company’s constitution and only exercise his or her powers for the purposes for which they are
conferred;
• to
exercise independent judgment;
• to
exercise reasonable care, skill and diligence;
• not
to accept benefits from a third party conferred by reason of his or her being a director or doing (or not doing) anything as a
director; and
• a
duty to declare any interest that he or she has, whether directly or indirectly, in a proposed or existing transaction or arrangement
with the company.
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Delaware
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England
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Shareholder Suits
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Under Delaware law, a shareholder may initiate
a derivative action to enforce a right of a corporation if the corporation fails to enforce the right itself. The complaint must:
• state
that the plaintiff was a shareholder at the time of the transaction of which the plaintiff complains or that the plaintiff’s
shares thereafter devolved on the plaintiff by operation of law; and
• allege
with particularity the efforts made by the plaintiff to obtain the action the plaintiff desires from the directors and the reasons
for the plaintiff’s failure to obtain the action; or
• state
the reasons for not making the effort. Additionally, the plaintiff must remain a shareholder through the duration of the derivative
suit.
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Under English law, generally, the company, rather than its shareholders, is the proper claimant in an action in respect of a wrong done to the company or where there is an irregularity in the company’s internal management. Notwithstanding this general position, the Companies Act provides that (i) a court may allow a shareholder to bring a derivative claim (that is, an action in respect of and on behalf of the company) in respect of a cause of action arising from a director’s negligence, default, breach of duty or breach of trust, subject to complying with the procedural requirements under the Companies Act and (ii) a shareholder may bring a claim for a court order where the company’s affairs have been or are being conducted in a manner that is unfairly prejudicial to some or all of its shareholders.
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Other U.K. Law Considerations
Squeeze-Out
Under the Companies
Act, if a takeover offer (as defined in Section 974 of the Companies Act) is made for the shares of a company and the offeror
were to acquire, or unconditionally contract to acquire: (i) not less than 90% in value of the shares to which the takeover
offer relates, or the Takeover Offer Shares; and (ii) where those shares are voting shares, not less than 90% of the voting
rights attached to the Takeover Offer Shares, the offeror could acquire compulsorily the remaining 10% within three months of the
day after the last day on which its offer can be accepted. It would do so by sending a notice to outstanding shareholders telling
them that it will acquire compulsorily their Takeover Offer Shares and then, six weeks later, it would execute a transfer of the
outstanding Takeover Offer Shares in its favor and pay the consideration to the company, which would hold the consideration on
trust for outstanding shareholders. The consideration offered to the shareholders whose Takeover Offer Shares are acquired compulsorily
under the Companies Act must, in general, be the same as the consideration that was available under the takeover offer.
Sell-Out
The Companies Act also
gives minority shareholders a right to be bought out in certain circumstances by an offeror who has made a takeover offer (as defined
in Section 974 of the Companies Act). If a takeover offer related to all the shares of a company and, at any time before the
end of the period within which the offer could be accepted, the offeror held or had agreed to acquire not less than 90% of the
shares to which the offer relates, any holder of the shares to which the offer related who had not accepted the offer could by
a written communication to the offeror require it to acquire those shares. The offeror is required to give any shareholder notice
of his or her right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights
of the minority shareholders to be bought out, but that period cannot end less than three months after the end of the acceptance
period. If a shareholder exercises his or her rights, the offeror is bound to acquire those shares on the terms of the offer or
on such other terms as may be agreed.
Disclosure of Interest in Shares
Pursuant to Part 22
of the Companies Act, a company is empowered by notice in writing to require any person whom the company knows to be, or has reasonable
cause to believe to be, interested in the company’s shares or at any time during the three years immediately preceding the
date on which the notice is issued to have been so interested, within a reasonable time to disclose to the company details of that
person’s interest and (so far as is within such person’s knowledge) details of any other interest that subsists or
subsisted in those shares. If a shareholder defaults in supplying the company with the required details in relation to the shares
in question, or the Default Shares, the shareholder shall not be entitled to vote or exercise any other right conferred by membership
in relation to general meetings. Where the Default Shares represent 0.25% or more of the issued shares of the class in question,
in certain circumstances the directors may direct that:
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any dividend or other money payable in respect of the Default Shares shall be retained by the company without any liability to pay interest on it when such dividend or other money is finally paid to the shareholder; and/or
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(ii)
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no transfer by the relevant shareholder of shares (other than a transfer approved in accordance with the provisions of the company’s articles of association) may be registered (unless such shareholder is not in default and the transfer does not relate to Default Shares).
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Dividends
Under English law,
before a company can lawfully make a distribution, it must ensure that it has sufficient distributable reserves. A company’s
distributable reserves are its accumulated, realized profits, so far as not previously utilized by distribution or capitalization,
less its accumulated, realized losses, so far as not previously written off in a reduction or reorganization of capital duly made.
In addition to having sufficient distributable reserves, a public company will not be permitted to make a distribution if, at the
time, the amount of its net assets (that is, the aggregate of the company’s assets less the aggregate of its liabilities)
is less than the aggregate of its issued and paid-up share capital and undistributable reserves, or if the distribution would result
in the amount of its net assets being less than that aggregate.
Purchase of Own Shares
Under English law,
a public limited company may purchase its own shares only out of the distributable profits of the company or the proceeds of a
new issue of shares made for the purpose of financing the purchase, provided that it is not restricted from doing so by its articles.
A public limited company may not purchase its own shares if as a result of the purchase there would no longer be any issued shares
of the company other than redeemable shares or shares held as treasury shares. Shares must be fully paid in order to be repurchased.
Subject to the foregoing,
because Nasdaq is not a “recognized investment exchange” under the Companies Act, a company may purchase its own fully
paid shares only pursuant to a purchase contract authorized by ordinary resolution of the holders of its ordinary shares before
the purchase takes place. Any authority will not be effective if any shareholder from whom the company proposes to purchase shares
votes on the resolution and the resolution would not have been passed if such shareholder had not done so. The resolution authorizing
the purchase must specify a date, not being later than five years after the passing of the resolution, on which the authority to
purchase is to expire.
A share buyback by a company of its ordinary shares will give
rise to U.K. stamp duty at the rate of 0.5% of the amount or value of the consideration payable by the company, and such stamp
duty will be paid by the company. Our Articles of Association do not have conditions governing changes in our capital which are
more stringent than those required by law.
Statutory Pre-Emption Rights
Under English law,
a company must not allot equity securities to a person on any terms unless the following conditions are satisfied:
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it has made an offer to each person who holds ordinary shares in the company to allot to them on the same or more favorable terms a proportion of those securities that is as nearly as practicable equal to the proportion in nominal value held by them of the ordinary share capital of the company; and
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(ii)
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the period during which any such offer may be accepted has expired or the company has received notice of the acceptance or refusal of every offer so made.
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For these purposes
“equity securities” means ordinary shares in the company or rights to subscribe for, or to convert securities into,
ordinary shares in the company. “Ordinary shares” means shares other than shares that, with respect to dividends and
capital, carry a right to participate only up to a specified amount in a distribution. The statutory pre-emption rights are subject
to certain exceptions, including the issue of ordinary shares for non-cash consideration, an allotment of bonus shares and the
allotment of equity securities pursuant to an employees’ share scheme. The statutory pre-emption rights may also be disapplied
with the approval of 75% of shareholders.
U.K. City Code On Takeovers And Mergers
The UK City Code on
Takeovers and Mergers, or the Takeover Code, applies, among other things, to an offer for a public company whose registered office
is in the United Kingdom and whose securities are not admitted to trading on a regulated market in the United Kingdom if the company
is considered by the Panel on Takeovers and Mergers, or the Takeover Panel, to have its place of central management and control
in the United Kingdom. This is known as the “residency test.” The test for central management and control under the
Takeover Code is different from that used by the UK tax authorities. Under the Takeover Code, the Takeover Panel will determine
whether we have our place of central management and control in the United Kingdom by looking at various factors, including the
structure of our board of directors, the functions of the directors and where they are resident.
If at the time of a
takeover offer the Takeover Panel determines that we have our place of central management and control in the United Kingdom, we
would be subject to a number of rules and restrictions, including but not limited to the following: (1) our ability to enter into
deal protection arrangements with a bidder would be extremely limited; (2) we may not, without the approval of our shareholders,
be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions
or disposals; and (3) we would be obliged to provide equality of information to all bona fide competing bidders.
Further, the Takeover
Code contains certain rules in respect of mandatory offers. Under Rule 9 of the Takeover Code, if a person: (a) acquires an interest
in our shares which, when taken together with shares in which he or persons acting in concert with him are interested, carries
30% or more of the voting rights of our shares; or (b) who, together with persons acting in concert with him, is interested in
shares that in the aggregate carry not less than 30% and not more than 50% of the voting rights in us, acquires additional interests
in shares that increase the percentage of shares carrying voting rights in which that person is interested, the acquirer and depending
on the circumstances, its concert parties, would be required (except with the consent of the Takeover Panel) to make a cash offer
for our outstanding shares at a price not less than the highest price paid for any interests in the shares by the acquirer or its
concert parties during the previous 12 months.
Set forth below are
summaries of material agreements to which we are a party, other than contracts entered into in the ordinary course of business.
In addition to the agreements described below, we also enter into agreements with clinical research organizations, or CROs, for
the conduct of our clinical trials. The descriptions provided below do not purport to be complete and are qualified in their entirety
by the complete agreements, which are attached as exhibits to this Annual Report.
Relationship Agreement
As a condition to the
closing of the Acquisition, we and RPC entered into a Relationship Agreement, which provided, subject to closing of the Acquisition,
the right for RPC to appoint the following number of directors to our board of directors in relation to the percentage of our Ordinary
Shares held in aggregate by RPC from time to time: (i) two class A directors if RPC holds 25% or more of our Ordinary Shares; (ii)
one class A director if RPC holds 10% or more but less than 25% of our Ordinary Shares; and (iii) no directors if RPC holds less
than 10% of our Ordinary Shares.
Additionally, where
such right to appoint a director falls away, RPC is obliged to procure the resignation of the relevant director as soon as practicably
possible thereafter at no cost to us. Unless otherwise agreed by our board of directors, the directors appointed by RPC shall be
class A directors.
Employment and Consulting Agreements
See “Item 6.
Directors, Senior Management and Employees—Compensation—Employment and Consulting Agreements”.
There are currently
no U.K. laws, decrees or regulations that restrict the export or import of capital, including, but not limited to, foreign exchange
controls, or that affect the remittance of dividends or other payments to non-U.K. residents or to U.S. holders of our securities
except as otherwise set forth in “Taxation” below. There are no limitations under our Memorandum and Articles
of Association restricting voting or shareholding.
The following summary
contains a description of certain United Kingdom and United States federal income tax consequences of the acquisition, ownership
and disposition of our ordinary shares or ADSs to a U.S. Holder (as defined below) of our ordinary shares or ADSs and, to the limited
extent discussed below, a Non-U.S. Holder (as defined below) of our ordinary shares or ADSs. The summary is based upon the tax
laws of the United Kingdom and the United States and the respective regulations thereunder as of the date hereof, which are subject
to change.
For purposes of this
description, a “U.S. Holder” includes any beneficial owner of our ordinary shares or ADSs that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or organized under the laws of any state thereof, or the District of Columbia;
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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
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a trust if (1) a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of the substantial decisions of such trust; or (2) such trust has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.
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A “Non-U.S. Holder”
is any beneficial owner of our ordinary shares or ADSs that is not a U.S. Holder.
This section does not
purport to be a comprehensive description of all of the tax considerations that may be relevant to any particular investor. This
discussion assumes that you are familiar with the tax rules applicable to investments in securities generally, and with any special
rules to which you may be subject. In particular, the discussion deals only with investors that will hold our ordinary shares or
ADSs as capital assets (generally, property held for investment), and does not address the tax treatment of investors that are
subject to special rules, such as banks, financial institutions, insurance companies, dealers or traders in securities or currencies,
persons that elect mark-to- market treatment, tax-exempt entities or government organizations , real estate investment trusts,
regulated investment companies, grantor trusts, individual retirement and other tax-deferred accounts, persons that received our
ordinary or ADS shares as compensation for the performance of services, persons who own, directly, indirectly through non-U.S.
entities or by attribution by application of the constructive ownership rules of section 958(b) of the United States Internal Revenue
Code of 1986, or the Code, 10% or more of our total voting power or value, persons that are residents of the U.K. for U.K. tax
purposes or that conduct a business or have a permanent establishment in the U.K., persons that hold our ordinary shares or ADSs
as a position in a straddle, hedging, conversion, integration, constructive sale or other risk reduction transaction, certain former
citizens or long-term residents of the U.S., partnerships and their partners and persons whose functional currency is not the U.S.
dollar. This discussion is based on laws, treaties, judicial decisions, and regulatory interpretations in effect on the date hereof,
all of which are subject to change, as well as, in the United States, the Code, administrative pronouncements, judicial decisions,
and final, temporary and proposed Treasury regulations, all as of the date hereof, any of which is subject to change, possibly
with retroactive effect. Additionally, the summary below regarding U.S. federal income tax does not address any U.S. state or local
tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations or any U.S. federal tax considerations
other than U.S. federal income tax considerations.
If a partnership (or
any other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares or ADSs, the tax treatment
of a partner will generally depend upon the status of the partner and upon the activities of the partnership.
We will not seek a
ruling from the IRS, with regard to the U.S. federal income tax treatment of an investment in our ordinary shares or ADSs, and
we cannot assure you that the IRS will agree with the conclusions set forth below.
You are urged to
consult with your own advisers regarding the tax consequences of the acquisition, ownership, and disposition of our ordinary shares
or ADSs in the light of your particular circumstances, including the effect of any state, local, or other national laws.
United Kingdom tax considerations
Taxation of dividends
Under current U.K.
tax law, no tax is required to be withheld in the United Kingdom at source from cash dividends paid to U.S. resident holders.
Taxation of Capital Gains
Subject to the comments
in the following paragraph, a holder of our ordinary shares or ADSs who, for U.K. tax purposes, is not resident in the U.K. will
not be liable for U.K. taxation on capital gains realized on the disposal of our ordinary shares or ADS unless at the time of the
disposal:
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the holder carries on a trade, or in the case of an individual, a profession or vocation in the United Kingdom through, in the case of an individual, a branch or agency, or, in the case of a company, a permanent establishment, and
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our ordinary shares or ADSs are or have been used, held, or acquired for the purpose of such trade, profession, vocation, branch, agency or permanent establishment.
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A holder of our ordinary
shares or ADSs who (1) is an individual who has ceased to be resident for U.K. tax purposes in the United Kingdom, (2) was solely
resident for U.K. tax purposes in the United Kingdom for at least four out of the seven U.K. tax years immediately preceding the
year in which he or she ceased to be resident in the United Kingdom, (3) only remains non-resident in the United Kingdom for a
period of five years or less and (4) disposes of his or her ordinary shares or ADSs during that period may also be liable, upon
returning to the United Kingdom, for U.K. tax on capital gains, subject to any available exemption or relief, even though he or
she was not resident in the United Kingdom at the time of the disposal.
Inheritance Tax
Our ordinary shares
or ADSs are assets situated in the United Kingdom for the purposes of U.K. inheritance tax (the equivalent of U.S. estate and gift
tax). Subject to the discussion of the U.K.-U.S. estate tax treaty in the next paragraph, U.K. inheritance tax may apply (subject
to any available reliefs) if an individual who holds our ordinary shares or ADSs gifts them or dies even if he or she is neither
domiciled in the United Kingdom nor deemed to be domiciled there under U.K. law. For inheritance tax purposes, a transfer of our
ordinary shares or ADSs at less than full market value may be treated as a gift for these purposes. Special inheritance tax rules
apply (1) to gifts if the donor retains some benefit, (2) to close companies and (3) to trustees of settlements.
However, as a result
of the U.K.-U.S. estate tax treaty, our ordinary shares or ADSs held by an individual who is domiciled in the United States for
the purposes of the U.K.-U.S. estate tax treaty and who is not a U.K. national will not be subject to U.K. inheritance tax on that
individual’s death or on a gift of our ordinary shares or ADSs unless the ordinary shares or ADSs:
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are part of the business property of a permanent establishment in the United Kingdom, or
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pertain to a fixed base in the United Kingdom used for the performance of independent personal services.
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The U.K.-U.S. estate
tax treaty provides a credit mechanism if our ordinary shares or ADSs are subject to both U.K. inheritance tax and to U.S. estate
and gift tax.
U.K. Stamp Duty and Stamp
Duty Reserve Tax (SDRT)
U.K. legislation provides that SDRT is chargeable
at 1.5% on the issuance of a depositary receipt for U.K. shares or securities, or the issuance of such shares or securities into
a clearance system. HMRC currently accepts that these provisions contravene European Union law, and accordingly does not seek to
enforce SDRT on issues of UK shares and securities to depositary receipt issuers and clearance services anywhere in the world.
The UK government has indicated that it will not seek to reimpose such a charge when European Union law ceases to apply in the
United Kingdom at the end of the transition period following Brexit, which is expected to be 31 December 2020 (subject to potential
extension by up to two years), although no legislation has been introduced to repeal the charging provision. HMRC still contends
that stamp duty/SDRT at 1.5% is payable on transfers (by sale or otherwise) of shares and securities to depository receipt systems
or clearance services that are not an integral part of an issue of share capital.
Transfers of ADSs do
not attract stamp duty or SDRT.
Transfer of shares in registered
form
A transfer of shares
in registered form would attract ad valorem stamp duty generally at the rate of 0.5% of the purchase price of the shares. There
is no charge to ad valorem stamp duty on gifts.
SDRT would generally
be payable on an unconditional agreement to transfer shares in registered form at 0.5% of the amount or value of the consideration
for the transfer, but is repayable if, within six years of the date of the agreement, an instrument transferring the shares is
executed or, if the SDRT has not been paid, the liability to pay the tax (but not necessarily interest and penalties) would be
cancelled.
Transfer of ADSs
No U.K stamp duty will
be payable on a written instrument transferring an ADS or on a written agreement to transfer an ADS provided that the instrument
of transfer or the agreement to transfer is executed and remains at all times outside the United Kingdom. Where these conditions
are not met, the transfer of, or agreement to transfer, an ADS could, depending on the circumstances, attract a charge to U.K.
stamp duty at the rate of 0.5% of the value of the consideration given in connection with the transfer.
No SDRT will be payable
in respect of an agreement to transfer an ADS.
There is generally
no charge to ad valorem stamp duty on gifts. However, transfers of, and unconditional agreements to transfer shares in registered
form for nil or non-monetary consideration to a connected person (within the meaning of section 1122 U.K. Corporation Tax Act 2010)
on or after 29 October 2018 which are listed on a regulated market, a multilateral trading facility or a recognized foreign exchange
(each within the meaning of sections 80B and 88B of the Finance Act 1986) will attract stamp duty and SDRT respectively on the
market value of the shares. It is possible that Nasdaq could be either a regulated market or a multilateral trading facility for
these purposes, although the position has not been confirmed. As such, any transfers of, or unconditional agreements to transfer,
shares in registered form in these circumstances may attract stamp duty and SDRT respectively.
United States federal income tax considerations
Ownership of ADSs
For U.S. federal income
tax purposes, a holder of ADSs generally will be treated as the owner of the ordinary shares represented by such ADSs. Gain or
loss will generally not be recognized on account of exchanges of ordinary shares for ADSs, or of ADSs for ordinary shares. References
to ordinary shares in the discussion below are deemed to include ADSs, unless context otherwise requires.
U.S. Taxation of Distributions
Subject to the discussion
below under “Passive Foreign Investment Company Rules,” the gross amount of any distributions made by us to a U.S.
Holder will generally be subject to U.S. federal income tax as dividend income to the extent paid or deemed paid out of our current
or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will not be eligible
for the dividends received deduction generally allowed to U.S. corporations with respect to dividends received from other U.S.
corporations. To the extent that an amount received by a U.S. Holder exceeds its allocable share of our current and accumulated
earnings and profits, such excess would, subject to the discussion below, be treated first as a tax-free return of capital which
will reduce such U.S. Holder’s tax basis in his ordinary shares or ADSs and then, to the extent such distribution exceeds
such U.S. Holder’s tax basis, it will be treated as capital gain. We have not maintained and do not plan to maintain calculations
of earnings and profits under U.S. federal income tax principles. Accordingly, it is unlikely that U.S. Holders will be able to
establish whether a distribution by us is in excess of our and accumulated earnings and profits (as computed under U.S. federal
income tax principles). Thus, it is expected that any distribution will be reported as a dividend, even if that distribution would
otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. The amount of any distribution
of property other than cash will be the fair market value of that property on the date of distribution.
Subject to applicable
holding period (which generally requires our ordinary shares to be held for at least 61 days without protection from the risk of
loss during the 121-day period beginning 60 days before the ex-dividend date) and other limitations, the U.S. Dollar amount of
dividends received on our ordinary shares or ADSs by certain non-corporate U.S. Holders are currently subject to taxation at a
maximum rate of 20% if the dividends are “qualified dividends” and certain other requirements are met. Dividends paid
on our ordinary shares or ADSs will be treated as qualified dividends if: (i) we are eligible for the benefits of the U.S.-U.K.
Tax Treaty (as defined below) or the ordinary shares or ADSs are readily tradable on an established U.S. securities market and
(ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend
is paid, a PFIC. Our ADSs are listed on the Nasdaq Capital Market, which is an established securities market in the United States,
and we expect the ADSs to be readily tradable on the Nasdaq Capital Market. However, there can be no assurance that the ADSs will
be considered readily tradable on an established securities market in the United States in later years. The Company, which is incorporated
under the laws of England and Wales, believes that it qualifies as a resident of the United Kingdom for the purposes of, and is
eligible for the benefits of, the Convention between the Government of the United States of America and the Government of the United
Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital Gains, signed on July 24, 2001, or the U.S.-U.K. Tax Treaty, although there can be no assurance
in this regard. Further, the IRS has determined that the U.S.-U.K. Tax Treaty is satisfactory for purposes of the qualified dividend
rules and that it includes an exchange-of-information program. Based on the foregoing, we expect to be considered a qualified foreign
corporation under the Code. Accordingly, dividends paid by us to non-corporate U.S. Holders with respect to shares that meet the
minimum holding period and other requirements are expected to be treated as “qualified dividend income.” However, dividends
paid by us will not qualify for the 20% maximum U.S. federal income tax rate if we are treated, for the tax year in which the dividends
are paid or the preceding tax year, as a “passive foreign investment company” for U.S. federal income tax purposes,
as discussed below. Although we currently believe that distributions on our ordinary shares or ADSs that are treated as dividends
for U.S. federal income tax purposes should constitute qualified dividends, no assurance can be given that this will be the case.
U.S. Holders should consult their tax advisors regarding the tax rate applicable to dividends received by them with respect to
our ordinary shares or ADSs, as well as the potential treatment of any loss on a disposition of our ordinary shares or ADSs as
long-term capital loss regardless of the U.S. Holders’ actual holding period for our ordinary shares or ADSs.
For foreign tax credit
computation purposes, dividends will generally constitute foreign source income, and with certain exceptions, will constitute “passive
category income.”
The additional 3.8%
“net investment income tax” (described below) may apply to dividends received by certain U.S. Holders who meet certain
modified adjusted gross income thresholds.
U.S. Taxation upon Sale or
Other Disposition
Subject to the discussion
under “Passive Foreign Investment Company Rules” below, gain or loss realized by a U.S. Holder on the sale or other
taxable disposition of our ordinary shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an
amount equal to the difference between the U.S. Holder’s adjusted tax basis in our ordinary shares or ADSs and the amount
realized on the disposition. Such gain or loss generally will be treated as long-term capital gain or loss if our ordinary shares
or ADSs have been held for more than one year at the time of the sale or disposition. Any such gain or loss realized will generally
be treated as U.S. source gain or loss. In the case of a non-corporate U.S. Holder, long-term capital gains are currently eligible
for federal income tax at preferential rates. The deductibility of capital losses is subject to significant limitations.
For a cash basis taxpayer,
units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the settlement date of the purchase
or sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date
and the settlement date of such a purchase or sale. An accrual basis taxpayer, however, may elect the same treatment required of
cash basis taxpayers with respect to purchases and sales of the ADSs that are traded on an established securities market, provided
the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. For an
accrual basis taxpayer who does not make such election, units of foreign currency paid or received are translated into U.S. dollars
at the spot rate on the trade date of the purchase or sale. Such an accrual basis taxpayer may recognize exchange gain or loss
based on currency fluctuations between the trade date and settlement date. Any foreign currency gain or loss a U.S. Holder realizes
will be U.S. source ordinary income or loss. U.S. Holders should consult their own tax advisors regarding the U.S. federal income
tax consequences of receiving currency other than U.S. dollars upon the disposition of their ordinary shares or ADSs.
The maximum individual
rate for long-term capital gain is currently 20%.
The additional 3.8%
“net investment income tax” (described below) may apply to gains recognized upon the sale or other taxable disposition
of our ordinary shares or ADSs by certain U.S. Holders who meet certain modified adjusted gross income thresholds.
Medicare Tax
Certain U.S. Holders
including individuals, estates and trusts are subject to a Medicare tax of 3.8% on “net investment income,” which includes
dividends, interest, and capital gain from the sale of investment securities, adjusted for certain deductions properly allocated
to such investment income. The Medicare tax will apply to the lesser of such net investment income or the excess of the taxpayer’s
adjusted gross income (with certain modifications) over a specified amount. The specified amount is $250,000 for married individuals
filing jointly, $125,000 for married individuals filing separately, and $200,000 for single individuals. U.S. Holders should consult
with their own tax advisers regarding the application of the net investment income tax to them as a result of their investment
in our ADSs or ordinary shares.
Passive Foreign Investment
Company Rules
Based on the nature
of our present business operations, assets and income, we believe that for the year 2019, we were not a PFIC. However, because
the PFIC determination is highly fact intensive, there can be no assurance that we will not be a PFIC for 2020 or for any other
taxable year. A separate determination must be made after the close of each taxable year as to whether we are a PFIC for that year.
As a result, our PFIC status may change from year to year.
We would be a PFIC
for U.S. federal income tax purposes in any taxable year if 75% or more of our gross income would be passive income, or on average
at least 50% of the gross value of our assets is held for the production of, or produces, passive income. Passive income for this
purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities
transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts
derived by reason of the temporary investment of funds, including those raised in a public offering. Assets that produce or are
held for the production of passive income include cash, even if held as working capital or raised in a public offering, marketable
securities and other assets that may produce passive income. In making the above determination, we are treated as earning our proportionate
share of any income and owning our proportionate share of any asset of any company in which we are considered to own, directly
or indirectly, 25% or more of the shares by value. If we were considered a PFIC at any time when a U.S. Holder held our ordinary
shares or ADSs, we generally should continue to be treated as a PFIC with respect to that U.S. Holder, and the U.S. Holder generally
will be subject to special rules with respect to (a) any gain realized on the disposition of our ordinary shares or ADSs and (b)
any “excess distribution” by us to the U.S. Holder in respect of our ordinary shares or ADSs. Generally, a distribution
during a taxable year to a U.S. Holder with respect to ordinary shares would be treated as an “excess distribution”
to the extent that the distribution plus all other distributions received (or deemed to be received) by the U.S. Holder during
the taxable year with respect to such ordinary shares, is greater than 125% of the average annual distributions received by the
U.S. Holder with respect to such ordinary shares during the three preceding years (or during such shorter period as the U.S. Holder
may have held the ordinary shares or ADSs). Under the PFIC rules: (i) the gain or excess distribution would be allocated ratably
over the U.S. Holder’s holding period for our ordinary shares or ADSs, (ii) the amount allocated to the taxable year in which
the gain or excess distribution was realized or to any year before we became a PFIC would be taxable as ordinary income and (iii)
the amount allocated to each other taxable year would be subject to tax at the highest tax rate in effect in that year and an interest
charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each such year. Because
a U.S. Holder that is a direct (and in certain cases indirect) shareholder of a PFIC is deemed to own its proportionate share of
interests in any lower-tier PFICs, U.S. Holders should be subject to the foregoing rules with respect to any of our subsidiaries
characterized as PFICs, if we are deemed a PFIC.
In the event we are
treated as a PFIC for any taxable year, the tax consequences under the default PFIC regime described above could be avoided by
either a “mark-to-market” or “qualified electing fund” election. If our ordinary shares or ADSs are considered
“marketable stock,” a U.S. Holder may elect to “mark-to-market” its ADSs provided the U.S. Holder completes
and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. A U.S. Holder making a mark-to-market
election (if the eligibility requirements for such an election were satisfied) generally would not be subject to the PFIC rules
discussed above, except with respect to any portion of the holder’s holding period that preceded the effective date of the
election. Instead, such U.S. Holder would generally include in income any excess of the fair market value of the ordinary shares
or ADSs at the close of each tax year over its adjusted basis in the ordinary shares or ADSs. If the fair market value of the ordinary
shares of ADSs had depreciated below the U.S. Holders adjusted basis at the close of the tax year, the U.S. Holder may generally
deduct the excess of the adjusted basis of the ordinary shares or ADSs over its fair market value at that time. However, such deductions
generally would be limited to the net mark-to-market gains, if any, that the U.S. Holder included in income with respect to such
ordinary shares or ADSs in prior years. Income recognized and deductions allowed under the mark-to-market provisions, as well as
any gain or loss on the disposition of ordinary shares or ADSs with respect to which the mark-to-market election is made, is treated
as ordinary income or loss (except that loss is treated as capital loss to the extent the loss exceeds the net mark-to-market gains,
if any, that a U.S. Holder included in income with respect to such ordinary share or ADSs in prior years). Gain or loss from the
disposition of ordinary shares or ADSs (as to which a “mark-to-market” election was made) in a year in which we are
no longer a PFIC, will be capital gain or loss. Our ordinary shares or ADSs should be considered “marketable stock”
if they traded at least 15 days during each calendar quarter of the relevant calendar year in more than de minimis quantities.
Any such mark to market election would not be available for a lower-tier PFIC.
Alternatively, a U.S.
Holder making a valid and timely “qualified electing fund” or “QEF” election generally would not be subject
to the default PFIC regime discussed above. Instead, for each PFIC year to which such an election applied, the electing U.S. Holder
would be subject to U.S. federal income tax on the electing U.S. Holder’s pro rata share of our net capital gain and ordinary
earnings, regardless of whether such amounts were actually distributed to the electing U.S. Holder. Any gain on sale or other disposition
of a U.S. Holder’s ordinary shares or would be treated as capital, and the interest penalty will not be imposed. If an investor
provides reasonable notice to us that it has determined to make a QEF election, we intend to provide annual financial information
to such investor as may be reasonably required for purposes of filing United States federal income tax returns in connection with
such QEF election.
U.S. Holders are urged
to consult their tax advisors about the PFIC rules, including the advisability, procedure and timing of making a mark-to-market
election or QEF election and the U.S. Holder’s eligibility to file such elections (including, with respect to making a mark-to-mark
election, whether our ordinary shares or ADSs are treated as “marketable stock” for such purpose). A U.S. Holder will
be required to file Internal Revenue Service Form 8621 if such U.S. Holder owns our ordinary shares or ADSs in any year in which
we are classified as a PFIC.
Information reporting and
backup withholding
A U.S. Holder may be
subject to information reporting to the IRS and possible backup withholding with respect to dividends paid on, or proceeds of the
sale or other disposition of our ordinary shares or ADSs unless such U.S. Holder is a corporation or qualifies within certain other
categories of exempt recipients or in the case of backup withholding provides a taxpayer identification number and certifies as
to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules.
Amounts withheld under these rules may be credited against the U.S. Holder’s U.S. federal income tax liability and a U.S.
Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate IRS forms
and furnishing any required information. A U.S. Holder who does not provide a correct taxpayer identification number may be subject
to penalties imposed by the IRS.
A Non-U.S. Holder generally
will not be subject to information reporting or backup withholding with respect to dividends on our ordinary shares or ADSs, unless
payment is made through a paying agent (or office) in the United States or through certain U.S.-related financial intermediaries.
However, a Non-U.S. Holder generally may be subject to information reporting and backup withholding with respect to the payment
within the United States of dividends on our ordinary shares or ADSs, unless such Non-U.S. Holder provides a taxpayer identification
number, certifies under penalties of perjury as to its foreign status, or otherwise establishes an exemption.
Certain reporting requirements
Certain U.S. Holders
are required to file IRS Form 926, Return by U.S. Transferor of Property to a Foreign Corporation, and certain U.S. Holders may
be required to file IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, reporting transfers
of cash or other property to us and information relating to the U.S. Holder and us. Substantial penalties may be imposed upon a
U.S. Holder that fails to comply. See also the discussion regarding Form 8621, Information Return by a Shareholder of a Passive
Foreign Investment Company or Qualified Electing Fund, above.
In addition, certain
U.S. Holders must report information on IRS Form 8938, Statement of Specified Foreign Financial Assets, with respect to their investments
in certain “foreign financial assets,” which would include an investment in our ordinary shares or ADSs, if the aggregate
value of all of those assets exceeds $50,000 on the last day of the taxable year (or in some circumstances, a higher threshold).
This reporting requirement applies to individuals and certain U.S. entities.
U.S. Holders who fail
to report required information could become subject to substantial penalties. U.S. Holders should consult their tax advisors regarding
the possible implications of these reporting requirements arising from their investment in our ordinary shares or ADSs.
F.
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Dividends and Paying Agents
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Not applicable.
Not applicable.
We are currently subject
to the information and periodic reporting requirements of the Exchange Act, and file periodic reports and other information with
the SEC through its electronic data gathering, analysis and retrieval (EDGAR) system. The SEC maintains an Internet website that
contains reports and other information regarding issuers that file electronically with the SEC. You may read and copy this annual
report, including the related exhibits and schedules, and any document we file with the SEC at http://www.sec.gov.
As a foreign private
issuer, we are exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our
officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current
reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered
under the Exchange Act.
Not applicable.
Item 11.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT RISK
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You should read
the following information in conjunction with Item 5, “Operating and Financial Review and Prospects;” Item 3, “Risk
Factors;” and our consolidated financial statements, including the related notes thereto, including Note 2, both of which
are included elsewhere in this document. The following discussion about our financial risk management activities includes
“forward-looking statements” that involve risks and uncertainties. Actual results could differ materially
from those projected in these forward-looking statements.
Risk Management Framework
We are exposed to a
variety of risks, including changes in foreign currency exchange risk and interest rates.
Currency Exchange Rate Sensitivity
The results of our
operations are subject to currency transactional risk. Operating results and financial position are reported in local currencies
and then translated into United States dollars at the applicable exchange rate for preparation of our consolidated financial statements.
The fluctuation of the U.S. dollar in relation to the British Pound, Euro and Swiss Franc will therefore have an impact upon profitability
of our operations and may also affect the value of our assets and the amount of shareholders’ equity.
Our functional currency
is the United States dollar and our activities are predominantly executed using both the U.S. dollar, Euro and British Pound. We
have done a limited number of financings, and we are not subject to significant operational exposures due to fluctuations in these
currencies. We have not entered into any agreements, or purchased any instruments, to hedge any possible currency risks at this
time.
Interest Rate Sensitivity
We currently have no
short-term or long-term debt requiring interest payments. This does not require us to consider entering into any agreements or
purchasing any instruments to hedge against possible interest rate risks at this time. Our interest-earning investments are short-term.
Thus, any reductions in future income or carrying values due to future interest rate declines are believed to be immaterial.
Item 12.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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Not applicable.
Not applicable.
Not applicable.
D.
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American Depositary Shares
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Deutsche Bank Trust
Company Americas, as depositary, will register and deliver the ADSs. Each ADS will represent ownership of one hundred (100) ordinary
shares deposited with State Street Bank & Trust Company, having its principal office at 525 Ferry Road, Crewe Toll, Edinburgh,
EH5 2AW Scotland, as custodian for the depositary. Each ADS will also represent ownership of any other securities, cash or other
property which may be held by the depositary. The depositary’s corporate trust office at which the ADSs will be administered
is located at 60 Wall Street, New York, NY 10005, USA. The principal executive office of the depositary is located at 60 Wall Street,
New York, NY 10005, USA.
Fees and Charges
As a holder ADSs, you
will be required to pay the following service fees to the depositary bank:
Service:
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Fee:
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Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
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Up to $0.05 per ADS issued
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Cancellation of ADSs, including in the case of termination of the deposit agreement
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Up to $0.05 per ADS cancelled
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Distribution of cash dividends or other cash distributions
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Up to $0.05 per ADS held
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Distribution of ADSs pursuant to share dividends, free share distributions or exercise of rights
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Up to $0.05 per ADS held
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Distribution of securities other than ADSs or rights to purchase ADSs additional ADSs
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A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSs
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Depositary services
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Up to $0.05 per ADS held on the applicable record date(s) established by the depositary bank
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Transfer of ADRs
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$1.50 per certificate presented for transfer
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As an ADS holder, you
will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges
such as:
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Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the United Kingdom (i.e., upon deposit and withdrawal of ordinary shares).
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Expenses incurred for converting foreign currency into U.S. dollars.
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Expenses for cable, telex and fax transmissions and for delivery of securities.
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Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when ordinary shares are deposited or withdrawn from deposit).
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Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
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Fees and expenses incurred in connection with complying with exchange control regulations and any other regulatory requirements that are not currently applicable but may arise or become applicable to Ordinary Shares, deposited securities, ADSs and ADRs.
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Any applicable fees and penalties thereon.
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The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.
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The depositary fees
payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable
property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights, etc.), the depositary bank
charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the
name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the
applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank
generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC)
from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs
in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.
In the event of refusal
to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until
payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
The depositary has
agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and maintenance of the American
Depository Receipt, or ADR, program, including investor relations expenses. There are limits on the amount of expenses for which
the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary
collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of
ADSs. Neither the depositary nor we can determine the exact amount to be made available to us because (i) the number of ADSs that
will be issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and (iii) our reimbursable expenses
related to the program are not known at this time.
Payment of Taxes
You will be responsible for any taxes or other governmental
charges payable on your American Depository Shares (ADSs) or on the deposited securities represented by any of your ADSs. The depositary
may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until
such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your ADSs to
pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate,
reduce the number of ADSs to reflect the sale and pay to you any net proceeds, or send to you any property, remaining after it
has paid the taxes. You agree to indemnify us, the depositary, the custodian and each of our and their respective agents, directors,
employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes (including applicable interest
and penalties thereon) arising from any tax benefit obtained for you.
Akari Therapeutics, Plc, (the “Company” or “Akari”)
is incorporated in the United Kingdom. The Company is a clinical-stage biopharmaceutical company focused on developing inhibitors
of acute and chronic inflammation, specifically the complement system, the eicosanoid system and the bioamine system for the treatment
of rare and orphan diseases. The Company’s activities since inception have consisted of performing research and development
activities and raising capital.
To fund its capital needs, the Company
plans to raise funds through equity or debt financings or other sources, such as strategic partnerships and alliance and licensing
arrangements, and in the long term, proceeds from sales of commercial product. As of December 31, 2019, the Company has an accumulated
deficit of $143,909,438, cash of $5,731,691 and negative cash flows from operating activities in the amount of $12,918,313. On
September 26, 2018, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Aspire
Capital Fund, LLC, an Illinois limited liability company (“Aspire Capital”), which provides that, upon the terms and
subject to the conditions and limitations set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0
million of the Company’s ADSs over the 30-month term of the Purchase Agreement (See Note 4). As of December 31, 2019, $10,731,875
remains available under the facility. The Company believes its current capital resources are sufficient to support its operations
through the end of the second quarter of 2020 without giving effect to the sale of additional shares to Aspire Capital under the
Purchase Agreement.
The Company is subject to a number of risks
similar to those of clinical stage companies, including dependence on key individuals, uncertainty of product development and generation
of revenues, dependence on outside sources of capital, risks associated with clinical trials of products, dependence on third-party
collaborators for research operations, need for regulatory approval of products, risks associated with protection of intellectual
property, and competition with larger, better-capitalized companies. In addition, the Company is subject to risks related to an
SEC investigation and the coronavirus outbreak.
For the year ended December 31, 2019, the
Company reported a net loss of $17,105,791 and expects to continue to incur substantial losses over the next several years during
its development phase. To fully execute its business plan, the Company will need, among other things, to complete its research
and development efforts and clinical and regulatory activities. These activities may take several years and will require significant
operating and capital expenditures in the foreseeable future. There can be no assurance that these activities will be successful.
If the Company is not successful in these activities or there is not a favorable resolution of the SEC investigation it could delay,
limit, reduce or terminate preclinical studies, clinical trials or other research and development activities. To fund its capital
needs, the Company plans to raise funds through equity or debt financings or other sources, such as strategic partnerships and
alliance and licensing arrangements, and in the long term, from the proceeds from sales. Additional funds may not be available
when the Company needs them, on terms that are acceptable to it, or at all. These matters raise substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do not include any adjustments to the carrying amounts and classifications
of assets and liabilities that would result if the Company was unable to continue as a going concern.
The reporting currency of the Company is
U.S. Dollars. The Company translated its non-U.S. operations’ assets and liabilities denominated in foreign currencies into
U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate
for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded as foreign currency translation
adjustments, a component of accumulated other comprehensive loss. Gains or losses from foreign currency transactions are included
in foreign currency exchange gains/(losses).
The Company’s liabilities related
to options and warrants relate to equity and debt financing rounds and options related to RPC Pharma Limited (“RPC”),
Akari’s largest shareholder, and unregistered warrants issued to investors and a placement agent in connection with the July
3, 2019 registered direct offering.
The liability related to RPC Options was
recognized on the Consolidated Balance Sheet at their fair value, with changes in the fair value accounted for in the Consolidated
Statements of Comprehensive Loss and included in changes in fair value of options and warrants liabilities (loss) gain.
The Company accounts for unregistered warrants
issued to investors and a placement agent in connection with the July 3, 2019 registered direct offering as a warrant liability
on the balance sheet and measured at their grant date fair value and subsequently re-measured at each reporting period, with changes
being recorded in Consolidated Statements of Comprehensive Loss and included in changes in fair value of option liabilities (loss)
gain (See Note 3).
Depreciation expense for the years ended
December 31, 2019, 2018 and 2017 was $15,412, $35,473 and $39,351, respectively, and was recorded in both research and development
expenses and general and administrative expenses in the consolidated statements of operations and comprehensive loss.
Payments made prior to the receipt of goods
or services to be used in research and development are capitalized until the goods or services are received. The Company records
expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and
efforts expended pursuant to contracts with multiple contract research organizations (CROs) and manufacturing vendors that conduct
and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract
to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors
will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend
on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In amortizing or accruing
service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites
activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the level
of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly.
Research and development expenses for the
years ended December 31, 2019, 2018 and 2017 were $8,739,420, $11,795,376 and $23,285,279, respectively. The Company accounts for
research and development tax credits at the time its realization becomes probable as a credit to research and development expenses
in the Consolidated Statements of Comprehensive Loss (See Note 8). The Company realized $7,907,213 of research and development
tax credits in 2019 related to the 2018 and 2017 tax years, $3,794,094 in 2018 related to the 2016 tax year, and did not realize
research and development credits in 2017.
The following table provides details with
respect to changes in accumulated other comprehensive loss, which is comprised of foreign currency translation adjustments, as
presented in the balance sheets at December 31, 2019 and 2018:
The estimated fair value of financial instruments
has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required
in estimating fair values. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current
market exchange.
The carrying amounts of cash, restricted
cash, prepaid expenses and other current assets, deferred financing costs, accounts payable and accrued expenses approximate their
fair value due to the short-term maturity of such instruments.
Fair value is an exit price, representing
the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would
use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820, Fair Value Measurements
and Disclosures (“ASC 820”) establishes a three-tier value hierarchy, which prioritizes the inputs used in
the valuation methodologies in measuring fair value:
Level 1 - quoted
prices in active markets for identical assets or liabilities;
Level 2 - inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar
assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;
or
Level 3 - unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The fair value hierarchy also requires
an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
In June 2015, the Company raised short-term
working capital in the form of loans from shareholders of approximately $3 million with the loans carrying with it, options in
RPC, equivalent to 15% of the current outstanding equity issued by RPC. RPC is a private company that is a large shareholder of
the Company. RPC Options were accounted for in accordance with ASC 718, Compensation - Stock Compensation . The fair value
of RPC Options was estimated using the fair value of Akari Ordinary Shares times RPC’s ownership in Akari Ordinary Shares
times 15% and was initially valued at approximately $26 million. These options do not relate to the share capital of Akari. The
exact terms of these options have not been finalized.
In accordance with ASC 820, the Company
measures its liability related to RPC Options on a recurring basis at fair value. The liability related to RPC Options are classified
within Level 3 value hierarchy because the liabilities are based on present value calculations and external valuation models. Unobservable
inputs used in these models are significant.
The fair value of the RPC options was $2,102,012
and $1,842,424 as of December 31, 2019 and December 31, 2018, respectively. The fair value of the RPC options for the year ended
December 31, 2019 increased by $259,588 and for the year ended December 31, 2018 decreased by $3,238,911. The change was recognized
as change in fair value of liability related to RPC Options from year to year, which represents a gain (loss), was recognized as
changes in fair value of options and warrant liabilities gains (losses) in the Consolidated Statements of Comprehensive Loss. The
Company accounts for RPC Options as a liability in accordance with ASC 815-40-25, Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock and ASC 815-40-15, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock .
On July 3, 2019, the Company sold to certain
institutional investors, accredited investors and an existing shareholder, RPC Pharma Ltd., an affiliated entity of Dr. Ray Prudo,
the Company’s Chairman, an aggregate of 2,368,392 ADSs in a registered direct offering at $1.90 per ADS, resulting in gross
proceeds of approximately $4.5 million. The Company also entered into a letter agreement with Paulson Investment Company, LLC (the
“Placement Agent”) to serve as the placement agent for the Company in connection with this offering. In connection
with the sale of the ADSs in this registered direct offering, the Company issued to the investors unregistered warrants to purchase
an aggregate of 1,184,213 ADSs in a private placement (“Investor Warrants”). The Investor Warrants are immediately
exercisable and will expire five years from issuance at an exercise price of $3.00 per ADS, subject to adjustment as set forth
therein. Subject to certain conditions, the Company has the option to “call” the exercise of the warrants from time
to time after any 10-consecutive trading day period during which the daily volume weighted average price of the ADSs exceeds $4.50.
The Company paid to the Placement Agent an aggregate of $337,496 in placement agent fees and expenses and issued unregistered warrants
to the Placement Agent to purchase an aggregate of 177,629 ADS (“Placement Agent Warrants”) on the same terms as the
Investor Warrants, except that the Placement Agent Warrants are exercisable at $2.85 per ADS and expire on June 28, 2024. Both
the Investor Warrants and the Placement Agent Warrants (together the “Paulson Warrants”) may be exercised on a cashless
basis if six months after issuance there is no effective registration statement registering the ADSs underlying the warrants. Pursuant
to the cashless exercise provision, the warrant holder must make an additional payment to the Company equal to the nominal value
of an ADS (i.e., £1) per warrant ADS actually to be issued pursuant to the cashless exercise. The total amount of Paulson
Warrants issued in connection with this registered direct offering amounted to 1,361,842, all of which were outstanding as of December
31, 2019.
The portion of costs directly attributable to realizing proceeds
of issuing ADSs such as placement agent fees, commissions, legal and accounting fees pertaining to the financing and other external,
incremental fees and expenses paid to advisors are recognized in the Shareholders (Deficit) Equity in the Consolidated Financial
Statements in accordance with ASC 835-30-45-3.
The Company has determined that the Paulson
Warrants represent freestanding financial instruments whose foreign currency considerations pursuant to cash and cashless exercise
require liability classification and should be recorded as liability-classified awards in accordance with ASC 815-40-25, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock and ASC 815-40-15,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. In accordance with ASC
820, the Company measured its warrants at grant date fair value. The fair value related to warrants are classified within the Level
3 value hierarchy because it is based on external valuation models whose inputs include market interest rates, required return
on capital, and standard deviation. Unobservable inputs used in these models are significant. The Paulson Warrants were measured
at their grant date fair value and subsequently remeasured at each reporting period with changes being recorded as a component
of Other Income (Expenses) in the Condensed Consolidated Statements of Comprehensive Loss. The total grant date fair value of these
warrants was $1,213,816 and was recognized within Current Liabilities in the Condensed Consolidated Balance Sheets. The change
in fair value of liability related to Paulson Warrants from period to period, which represents a gain of $198,948 for the year
ended December 31, 2019, was recognized as change in fair value of option and warrant liabilities gains (losses) in the Condensed
Consolidated Statements of Comprehensive Loss. At December 31, 2019, the fair value of the Paulson Warrants was $1,014,868.
Below are the assumptions used for the
fair value calculations of the warrants as of:
The Company had no financial assets that
require fair value measurement on a recurring basis. The Company’s financial liabilities measured at fair value on a recurring
basis, consisted of the following instruments as of the following dates:
On September 26, 2018, the Company entered
into a Purchase Agreement with Aspire Capital, which provides that, upon the terms and subject to the conditions and limitations
set forth therein, Aspire Capital is committed to purchase up to an aggregate of $20.0 million of the Company’s ADS, with
each ADS representing one hundred (100) ordinary shares, during a 30-month period beginning on the effective date of a registration
statement related to the transaction. Concurrently with entering into the Purchase Agreement, the Company also entered into a registration
rights agreement with Aspire Capital, in which the Company agreed to file one or more registration statements, as permissible and
necessary to register under the Securities Act of 1933, as amended (the “Securities Act”), the sale of the Company’s
securities that have been and may be issued to Aspire Capital under the Purchase Agreement.
Under the Purchase Agreement, after the
SEC has declared effective the registration statement referred to above (which occurred in March 2019), on any trading day selected
by the Company, the Company has the right, in its sole discretion, to present Aspire Capital with a purchase notice (each, a “Purchase
Notice”), directing Aspire Capital (as principal) to purchase up to 150,000 ADSs per business day and up to $20.0 million
of the Company’s ADSs in the aggregate at a per share price (the “Purchase Price”) equal to the lesser of:
In addition, on any date on which the Company
submits a Purchase Notice to Aspire Capital in an amount of 150,000 ADSs, the Company also has the right, in its sole discretion,
to present Aspire Capital with a volume-weighted average price purchase notice (each, a “VWAP Purchase Notice”) directing
Aspire Capital to purchase an amount of ADSs equal to up to 30% of the aggregate shares of the Company’s ADSs traded on its
principal market on the next trading day (the “VWAP Purchase Date”), subject to a maximum number of 250,000 ADSs. The
purchase price per share pursuant to such VWAP Purchase Notice is generally 97% of the volume-weighted average price for the Company’s
ADSs traded on its principal market on the VWAP Purchase Date.
The Purchase Price will be adjusted for
any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the period(s)
used to compute the Purchase Price. The Company may deliver multiple Purchase Notices and VWAP Purchase Notices to Aspire Capital
from time to time during the term of the Purchase Agreement, so long as the most recent purchase has been completed.
The Purchase Agreement provides that the
Company and Aspire Capital shall not effect any sales under the Purchase Agreement on any purchase date where the closing sale
price of the Company’s ADSs is less than $0.25. There are no trading volume requirements or restrictions under the Purchase
Agreement, and the Company will control the timing and amount of sales of the Company’s ADSs to Aspire Capital. Aspire Capital
has no right to require any sales by the Company but is obligated to make purchases from the Company as directed by the Company
in accordance with the Purchase Agreement. There are no limitations on use of proceeds, financial or business covenants, restrictions
on future fundings, rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement. In
consideration for entering into the Purchase Agreement, concurrently with the execution of the Purchase Agreement, the Company
issued to Aspire Capital 30,000,000 ordinary shares of the Company (the “Commitment Shares”) and sold to Aspire Capital
25,000,000 Ordinary Shares (the “Initial Shares”) for gross proceeds of $500,000. The Company recorded the value of
the Commitment shares as deferred financing costs and included the costs in current assets. They are amortized proportionally as
the Company sells shares to Aspire. As of December 31, 2019, the Company recognized approximately $278,000 of such costs which
are offset against additional paid-in capital. The Purchase Agreement may be terminated by the Company at any time, at its discretion,
without any cost to the Company. Aspire Capital has agreed that neither it nor any of its agents, representatives and affiliates
shall engage in any direct or indirect short-selling or hedging of the Company’s securities during any time prior to the
termination of the Purchase Agreement. Any proceeds the Company receives under the Purchase Agreement are expected to be used for
working capital and general corporate purposes.
In addition to the issuance of the Commitment
Shares and Initial Shares for gross proceeds of $500,000, during the year ended December 31, 2019, the Company sold to Aspire Capital
428,333,300 ordinary shares of the Company for gross proceeds of $8,768,125. As of December 31, 2019, $10,731,875 of the original
purchase commitment remains available under the facility. Subsequent to December 31, 2019, the Company sold additional
shares to Aspire Capital (See Note 10).
On July 3, 2019, the Company sold to certain
institutional investors, accredited investors and an existing shareholder, RPC Pharma Ltd., an affiliated entity of Dr. Ray Prudo,
the Company’s Chairman, an aggregate of 2,368,392 ADSs in a registered direct offering at $1.90 per ADS, resulting in gross
proceeds of approximately $4.5 million. The Company also entered into a letter agreement with the Placement Agent to serve as the
placement agent for the Company in connection with this offering. In connection with the sale of the ADSs in this registered direct
offering, the Company issued unregistered warrants to investors and a placement agent to purchase an aggregate of 1,361,842 ADSs
in a private placement at $3.00 per ADS and $2.85 per ADS respectively (See Note 3).
In accordance with the Company’s
2014 Equity Incentive Plan (the “Plan”), the number of shares that may be issued upon exercise of options under the
Plan shall not exceed 183,083,207 ordinary shares. At December 31, 2019, 88,734,172 ordinary shares are available for future issuance
under the Plan. The option plan is administered by the Company’s board of directors and grants are made pursuant thereto
by the compensation committee. The per share exercise price for the shares to be issued pursuant to the exercise of an option shall
be such price equal to the fair market value of the Company’s Ordinary Shares on the grant date and set forth in the individual
option agreement. Options expire ten years after the grant date and typically vest over one to four years.
The following is a summary of the Company’s
share option activity and related information for employees and directors for the years ended December 31, 2019, 2018 and 2017:
The Company measures compensation cost
for all share-based awards at fair value on the date of grant and recognizes compensation expense in general administrative and
research and development expenses within its Consolidated Statements of Comprehensive Loss using the straight-line method over
the service period over which it expects the awards to vest.
The Company estimates the fair value of
all time-vested options as of the date of grant using the Black-Scholes option valuation model, which was developed for use in
estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models
require the input of highly subjective assumptions, including the expected share price volatility, which is calculated based on
the historical volatility of peer companies. The Company uses a risk-free interest rate, based on the U.S. Treasury instruments
in effect at the time of the grant, for the period comparable to the expected term of the option. Given its limited history with
share option grants and exercises, the Company uses the “simplified” method in estimating the expected term, the period
of time that options granted are expected to be outstanding, for its grants.
The Company classifies its
stock-based payments as either liability-classified awards or as equity-classified awards. The Company re-measures
liability-classified awards to fair value at each balance sheet date until the award is settled. The Company measures
equity-classified awards at their grant date fair value and does not subsequently re-measure them. The Company has classified
its stock-based payments, which are settled in ordinary shares as equity-classified awards, and share-based payments that are
settled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally are equal
to the grant-date fair value of the award amortized over the vesting period of the award. The liability for
liability-classified awards generally is equal to the fair value of the award as of the balance sheet date multiplied by the
percentage vested at the time. The Company charges (or credits) the change in the liability amounts from one balance sheet
date to another to stock-based compensation expense.
Below are the assumptions used for the
options granted during the years ended December 31, 2019, 2018 and 2017:
The following is a summary of the Company’s
share options granted separated into ranges of exercise price:
During the years ended December 31, 2019,
2018 and 2017, the Company recorded approximately $1,047,387, $1,649,044 and $2,734,946, respectively, in stock-based compensation
expenses for employees and directors. At December 31, 2019, there was approximately $447,924 of unrecognized compensation cost
related to unvested share-based compensation arrangements granted under the Company’s share option plans which the Company
expects to recognize over 2.0 years.
On May 12, 2017, a putative securities
class action captioned Derek Da Ponte v. Akari Therapeutics, PLC, Gur Roshwalb, and Dov Elefant (Case 1:17-cv-03577) was filed
in the U.S. District Court for the Southern District of New York against the Company, its former Chief Executive Officer, and its
former Chief Financial Officer. The plaintiff asserted claims alleging violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (the “Exchange Act”), based primarily on the Company’s press releases or statements issued
between April 24, 2017 and May 11, 2017 concerning the Phase II PNH trial of nomacopan (formerly known as Coversin) and the Edison
Report about the Company and actions taken by it after the report was issued. The purported class covers the period from March
30, 2017 to May 11, 2017. The complaint seeks unspecified damages and costs and fees. On May 19, 2017, an almost identical class
action complaint captioned Shamoon v. Akari Therapeutics, PLC, Gur Roshwalb, and Dov Elefant (Case 1:17-cv-03783) was filed in
the same court. On July 11-12, 2017, candidates to be lead plaintiff filed motions to consolidate the cases and appoint a lead
plaintiff. On August 10, 2017, the court issued a stipulated order: (i) consolidating the class actions under the caption In re:
Akari Therapeutics, PLC Securities Litigation (Case 1:17-cv-03577); and (ii) setting out a schedule for plaintiffs to file
a consolidated amended complaint and defendants to respond thereto.
By order dated September 7, 2017, the court
appointed lead plaintiffs for the class and lead plaintiffs’ counsel. On November 6, 2017, lead plaintiffs filed a consolidated
amended complaint (the “CAC”). While the CAC contains similar substantive allegations to the initial complaints, it
adds two additional defendants, Ray Prudo and Edison Investment Research Ltd., and the purported class period was changed to April
24, 2017 through May 30, 2017. On January 10, 2018, at a hearing regarding the defendants’ impending motions to dismiss the
CAC, the Court gave plaintiffs permission to file a second consolidated amended complaint (the “SCAC”) and established
a briefing schedule for defendants’ motions to dismiss the SCAC. Pursuant to that schedule, plaintiffs’ SCAC
was filed on January 31, 2018. All briefing on the motions to dismiss was completed on April 20, 2018.
On May 9, 2018, the parties engaged in
a mediation session and came to an agreement in principle to settle the dispute. On June 8, 2018, the parties entered into a memorandum
of understanding. A memorandum of understanding is not a definitive settlement agreement, which must be approved by the Court.
By the terms of the memorandum, the parties agreed in principle to a total payment of $2.7 million in cash. The Company
recorded the $2.7 million SCAC litigation settlement loss in the Consolidated Statement of Comprehensive Loss in the year
ended December 31, 2017, which is the period in which the lawsuits were originally filed. The $2.7 million SCAC settlement
liability was recorded as a loss contingency in accrued expenses in the Company’s Consolidated Balance Sheets as of December
31, 2017. On July 26, 2018, plaintiffs filed a notice with the Court voluntarily dismissing Edison from the action. On August 3,
2018, the remaining parties executed and filed a stipulation and agreement of settlement (the terms of which were consistent with
the memorandum of understanding). On August 7, 2018, the Court granted plaintiffs’ motion for preliminary approval of the
settlement, and on November 28, 2018, following a hearing with the parties, the court ordered final approval of the settlement.
On August 24, 2018, the Company received
a $2.7 million payment from its directors’ and officers’ liability insurance provider, the sum of which was paid to
an escrow account for the benefit of the settlement class on August 27, 2018. This was recorded as a gain in the Consolidated Statements
of Comprehensive Loss during the third quarter of 2018. Plaintiffs subsequently moved to distribute the settlement funds to the
class, and the Court granted plaintiffs’ motion on February 4, 2019.
Separately, Edison sought indemnification
from the Company pursuant to its contract with the Company, including reimbursement of all legal expenses that Edison incurs in
connection with the securities class action (to which, as discussed above, Edison was added as a defendant on November 6, 2017)
and lost profits from customer relationships that Edison claims it lost as a result of the retraction of the Edison Report. The
parties came to an agreement in the fourth quarter of 2018 and settled the dispute for an amount immaterial to the Company’s
operations and cash flows.
The Company voluntarily reported to the
SEC the circumstances leading to the withdrawal of the Edison Report and the outcome of its special committee’s investigation.
In response, the SEC requested certain documents from the Company with respect to the matters it reported. The Company is cooperating
with the SEC’s requests for information. On June 5, 2018, the Company received a subpoena from the SEC, which requested further
documents and information primarily related to the Company’s Phase II clinical trial of nomacopan (formerly known as Coversin)
in connection with an investigation of the Company that the SEC is conducting. The Company has responded to the subpoena and will
continue to cooperate with the SEC.
The Company’s lease agreement for
offices in New York, NY ended early in December 2018. The Company currently leases office space in New York, NY on a month-to-month
basis.
For the years ended December 31, 2019,
2018 and 2017, the Company incurred rental expense in the amount of approximately $392,000, $814,000 and $446,000, respectively.
Basic loss per Ordinary Share is computed
by dividing net loss available to ordinary shareholders by the weighted-average number of Ordinary Shares outstanding during the
period. Diluted loss per ordinary share is computed by dividing net loss available to ordinary shareholders by the sum of (1) the
weighted-average number of Ordinary Shares outstanding during the period, (2) the dilutive effect of the assumed exercise of share
options using the treasury stock method, and (3) the dilutive effect of other potentially dilutive securities.
The following is the calculation of the
basic and diluted weighted average shares outstanding for the years ended December 31, 2019, 2018 and 2017, respectively:
For purposes of the diluted net
loss per share calculation, share options and warrants are considered to be potentially dilutive securities and are excluded from
the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, basic and diluted net loss
per share was the same for the periods presented due to the Company’s net loss position.
The following table shows the
number of share equivalents that were excluded from the computation of diluted loss per share for the respective periods because
the effect would have been anti-dilutive:
The Company is incorporated in England.
The effective corporate tax rate applying to a company that is incorporated in England on December 31, 2019 is 19%, which is consistent
with the rate from December 31, 2018, and reduced from the 19.25% rate from December 31, 2017.
The periods open to inquiry by the United
Kingdom (“UK”) tax authorities are 2019, 2018 and 2017. The Company has not been issued final tax assessments since
its establishment in Switzerland.
Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Management currently believes that since the Company has a history of losses, it
is more likely than not that the deferred tax assets relating to the loss carryforwards and other temporary differences will not
be realized in the foreseeable future. Therefore, the Company provided a full valuation allowance to reduce the deferred tax assets.
The main reconciling item between the
statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowances in respect of deferred
taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred
taxes.
At December 31, 2019 and 2018, there were
no known uncertain tax positions. The Company has not identified any tax positions for which it is reasonably possible that a
significant change will occur during the next 12 months.
Income taxes at the UK statutory rate compared to the Company’s
income tax expenses as reported are as follows:
The Company has reviewed its tax positions
for its past domestic and foreign tax filings and has not identified any uncertain income tax positions. The Company’s position
is to record penalties and interest on any uncertain tax position, if any, and record such items to general and administrative
expense.
At December 31, 2019, the Company had
approximately $71.3 million of UK operating loss carryforwards to reduce future UK taxable income. These carryforwards do not
expire. At December 31, 2019, the Company had approximately $20.5 million of foreign operating loss carryforwards in the US and
Switzerland. Carryforwards in the US totaling approximately $1.1 million expire in 2033, $1.2 million expire in 2037, $3.5 million
expire in 2038 and $6.9 million do not expire. The carryforwards in Switzerland expire beginning in 2021. The Company has not
conducted a formal analysis and the net operating loss carryovers may be subject to limitation under U.S. Internal Revenue Code
Section 382 should there have been a greater than 50% ownership change as determined under the regulations.
The Company carries out extensive research
and development activities and may benefit from the UK research and development tax relief regime, whereby the Company can receive
an enhanced UK tax deduction on its research and development activities. Qualifying expenditures comprise of chemistry and manufacturing
consumables, employment costs for research staff, clinical trials management, and other subcontracted research expenditures. Where
the Company is loss making for the period it can elect to surrender taxable losses for a refundable tax credit. The losses available
to surrender are equal to the lower of the sum of the research and development qualifying expenditure and enhanced tax deduction
and the Company’s taxable losses for the period with the tax credit for December 31, 2019 available at a rate of 14.5%. The
credit therefore gives a cash flow advantage to Company at a lower rate than would be available if the enhanced losses were carried
forward and relieved against future taxable profits.
The Company accounts for research and development
tax credits at the time its realization becomes probable (Note 2). Due to the uncertainty of the approval of these tax credit claims
and the potential that an election for a tax credit in the form of cash is not made, the Company did not record a receivable for
the 2019 tax year at December 31, 2019.
The chief operating decision
maker (“CODM”) is the Company’s CEO. Neither the CODM nor the Company’s directors receive disaggregated
financial information about the locations in which research and development is occurring. Therefore, the Company considers that
it has only one reporting segment.
The following table presents
the Company’s tangible fixed assets by geographic region:
In January 2020, the Company
sold to Aspire Capital 650,000 ADSs of the Company for gross proceeds of approximately $1,108,000 under the Purchase Agreement.
On February 13, 2020,
February 19, 2020, February 20, 2020 and February 28, 2020, respectively, the Company sold to certain accredited investors
including Dr. Ray Prudo, the Company’s Chairman, an aggregate of 5,620,296 ADSs in a private placement at $1.70 per
ADS, resulting in aggregate gross proceeds of approximately $9.5 million. In addition, the Company issued to the investors
unregistered warrants to purchase an aggregate of 2,810,136 ADSs in a private placement. The warrants are immediately
exercisable and will expire five years from issuance at an exercise price of $2.20 per ADS, subject to adjustment as set
forth therein. The warrants may be exercised on a cashless basis if six months after issuance there is no effective
registration statement registering the ADSs underlying the warrants. Subject to certain conditions, the Company has the
option to “call” the exercise of the warrants from time to time after any 10-consecutive trading day period
during which the daily volume weighted average price of the ADSs exceeds $3.30. The Company paid an aggregate of approx.
$808,362 in placement agent fees and expenses and issued unregistered placement agent warrants to purchase an aggregate of
449,623 ADS on the same terms as the warrants to investors, except that the placement agent warrants are exercisable at $2.55
per ADS.
In late 2019, a novel strain of COVID-19, also known as coronavirus,
was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread to several other
countries, including in the United Kingdom and the United States, and infections have been reported globally. In particular, the
Company’s clinical trial sites are based in areas currently affected by coronavirus. Epidemics such as this can adversely
impact our business as a result of disruptions, such as travel bans, quarantines, and interruptions to access the trial sites and
supply chain, which could result in material delays and complications with respect to the Company’s research and development
programs and clinical trials. Moreover, as a result of coronavirus, there is a general unease of conducting unnecessary activities
in medical centers. As a consequence, the Company’s ongoing trials have been halted or disrupted. It is too early to assess
the full impact of the coronavirus outbreak on trials for nomacopan, but coronavirus is expected to affect the Company’s
ability to complete recruitment in the original timeframe. The extent to which the coronavirus impacts the Company’s operations
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration
and severity of the outbreak, and the actions that may be required to contain the coronavirus or treat its impact. In particular,
the continued spread of the coronavirus globally could adversely impact the Company’s operations and workforce, including
its research and clinical trials and its ability to raise capital, could affect the operations of key governmental agencies, such
as the FDA, which may delay the development of the Company’s product candidates, and could result in the inability of the
Company’s suppliers to deliver components or raw materials on a timely basis or at all, each of which in turn could have
an adverse impact on the Company’s business, financial condition and results of operation.