Indicate the number of outstanding shares of each of the issuer’s
classes of capital stock or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Note – Checking the box above will not relieve any registrant
required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 “large accelerated
filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements
in accordance with US GAAP, indicate by checkmark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report
on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
If “Other” has been checked in response to the previous
question indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Unless otherwise indicated or the context
otherwise requires, all references in this annual report on Form 20-F (the “Annual Report”) to “AC Immune”
or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer
to AC Immune SA. The Company owns various registered and unregistered trademarks, for some of which formal protection has been
obtained or is being sought, including Morphomer™, SupraAntigen™ and its corporate name, logo and Nasdaq Global Market
symbol. All other trademarks, trade names and service marks of other companies appearing in this Annual Report are the property
of their respective owners. Solely for convenience, the trademarks and trade names in this Annual Report may be referred to without
the ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert,
to the fullest extent under applicable law, their rights thereto. The Company does not intend to use or display other companies’
trademarks and/or trade names to imply a relationship with, or endorsement or sponsorship of the Company by, any other companies.
Our financial statements are presented
in Swiss Francs and in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting
Standards Board (IASB). None of the financial statements was prepared in accordance with generally accepted accounting principles
in the United States (US). The terms “dollar” and “USD” refer to US dollars, and the terms “Swiss
Franc” and “CHF” refer to the legal currency of Switzerland, unless otherwise indicated. We have made rounding
adjustments to some of the figures included in this Annual Report. Accordingly, any numerical discrepancies in any table between
totals and sums of the amounts listed are due to rounding.
This Annual Report contains statements
that constitute forward-looking statements. All statements other than statements of historical facts contained in this Annual Report,
including statements regarding our future results of operations and financial position, business strategy, product candidates,
product pipeline, ongoing and planned clinical studies, including those of our collaboration partners, regulatory approvals, research
and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are
forward-looking statements. Many of the forward-looking statements contained in this Annual Report can be identified by the use
of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,”
“plan,” “intend,” “estimate,” “will” and “potential,” among others.
Forward-looking statements appear in a
number of places in this Annual Report and include, but are not limited to, statements regarding our intent, belief or current
expectations. Forward-looking statements are based on our management’s beliefs and assumptions, and on information currently
available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from
those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified
under “Item 3. Key information – D. Risk factors” in this Annual Report. These risks and uncertainties include
multiple factors:
These forward-looking statements are applicable
only as of the date of this Annual Report, and are subject to a number of risks, uncertainties and assumptions described under
the sections in this Annual Report entitled “Item 3. Key information—D. Risk factors” and “Item 5. Operating
and financial review and prospects,” and elsewhere in this Annual Report. Because forward-looking statements are inherently
subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you
should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in
our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in
the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge
from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable
law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new
information, future events, changed circumstances or otherwise.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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A.
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Directors and senior management
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Not applicable.
Not applicable.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
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B.
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Method and expected timetable
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Not applicable.
ITEM 3. KEY INFORMATION
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A.
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Selected Financial Data
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Not applicable.
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B.
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Capitalization and indebtedness
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Not applicable.
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C.
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Reasons for the offer and use of proceeds
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Not applicable.
You should carefully consider the risks
and uncertainties described below and the other information in this Annual Report before making an investment in our common shares.
Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs,
and as a result, the market price of our common shares could decline and you could lose all or part of your investment. This Annual
Report also contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result
of certain factors.
The
below provides a summary of our principal risk factors:
Risks
related to our business:
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We depend heavily on the success of our clinical and, to a lesser extent, preclinical
products:
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a.
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Our ability to generate product revenues, which we do not expect to occur for several
years, will depend on clinical and regulatory success which have low probabilities of success in the central nervous system (CNS)
space in which we operate.
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Results of early preclinical and clinical studies may not be predictive of future results:
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a.
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Products that show positive or timely preclinical or early clinical results may not show sufficient safety or efficacy in later-stage
clinical studies and therefore may fail to obtain regulatory approvals.
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Our products may not gain market acceptance or may be preempted by competitors:
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a.
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Even if our products obtain regulatory approval, they may not be accepted by healthcare providers, patients or the medical
community.
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b.
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Our success is dependent on the ability to discover, develop and obtain marketing approval
for our products. We face and will continue to face intense competition from a variety of businesses, including large fully integrated
biopharmaceutical and pharmaceutical companies and others that may have greater financial, technical and human resources.
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c.
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A competitor may enter with a generic of an approved innovator product.
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We may not be successful in using and expanding our Morphomer and SupraAntigen proprietary
technology platforms.
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We operate in highly competitive and rapidly changing industries, which may result in
others discovering, developing or commercializing competing products before or more successfully than we do.
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Our future growth and ability to compete depends on retaining our key personnel and recruiting
additional qualified personnel including members of our Executive Committee.
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Risks
related to our relationships with third parties:
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If we fail to maintain, or realize the benefits from, our current strategic relationships
with our current and potential future license and collaboration partners our financial condition may be materially adversely affected.
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We may seek to form additional strategic alliances in the future with respect to our
product candidates, and if we do not realize the benefits of such alliances, our business, financial condition, commercialization
prospects and results of operations may be materially adversely affected.
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Our collaboration agreements may make us an attractive acquisition target under certain
circumstances.
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Risks
related to intellectual property:
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We or our licensing or collaboration partners may not have sufficient patent terms to
protect our products and business effectively which may adversely affect our product sales and technology development.
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If we fail to comply with the obligations to obtain and maintain patent protection such
as compliance with intellectual property agreements, including those under which we license intellectual property and other rights
to or from third parties, or otherwise experience disruptions to our business relationships with our licensees, our licensors and
partners, we could lose intellectual property rights that are important to our business.
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We may be subject to claims challenging the inventorship of our patents and other intellectual
property.
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Risks
related to our financial condition and capital requirements:
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We are a clinical stage biopharmaceutical company with a history of losses. We anticipate
incurring losses for the foreseeable future. As such, if we fail to obtain additional funding via product revenues, license and
collaboration agreement, equity offerings or other forms of financing, we may need to delay, reduce or eliminate certain of our
product development programs.
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Risks
related to the regulatory environment:
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We cannot give any assurance that any of our product candidates will receive regulatory
approval, which is necessary before they can be commercialized.
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Even if we obtain regulatory approvals in one jurisdiction, we may not be able to obtain
approval in other jurisdictions. Additionally, we will be subject to ongoing obligations and review which may result in significant
additional expense.
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We have conducted and may in the future conduct clinical studies for our drug candidates
outside the US, and the FDA and applicable foreign regulatory authorities may not accept data from such studies.
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Enacted and future legislation may increase the difficulty and cost for us to obtain
marketing approval of and commercialize our product candidates and may affect the prices we may set.
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Risks
related to our common shares:
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We have limited free float in our common shares which may have a negative impact on the
liquidity and market price of our common shares.
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Certain of our existing shareholders exercise significant control over us, and your or
other shareholders’ interests may conflict with the interests of our existing shareholders.
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We are a Swiss corporation. The rights of our shareholders may be different from the
rights of shareholders in companies governed by the laws of US jurisdictions.
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We are a foreign private issuer (FPI) and, as a result, we are not subject to US proxy
rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those
of a US domestic public company.
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As an FPI and as permitted by the listing requirements of Nasdaq, we rely on certain
home country governance practices rather than the corporate governance requirements of Nasdaq. Should we lose our FPI status, we
would be required to comply with the Exchange Act’s domestic reporting regime, which would cause us to incur significant
legal, accounting and other expenses.
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We believe that it is likely that we were a “passive foreign investment
company,” (PFIC) for US federal income tax purposes in 2020, and may also be a PFIC in 2021 or later years. If we were a
PFIC in 2020 or are a PFIC in 2021 or any later year, US shareholders could be subject to adverse US federal income tax consequences.
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Risks related to our business
We depend heavily on the success of our clinical
and, to a lesser extent, preclinical products. Our clinical product candidates include ACI-35, semorinemab, Morphomer Tau, ACI-24
for AD and for DS, crenezumab and PI-2620. If our clinical studies are unsuccessful, if we or our collaboration partners do not
obtain regulatory approval or if we or our collaboration partners are unable to commercialize ACI-35, semorinemab, Morphomer Tau,
ACI-24 for AD and for DS, crenezumab and PI-2620, or if we experience significant delays in doing so, our business, financial condition
and results of operations will be materially adversely affected.
We currently have no products approved
for sale and have invested a significant portion of our efforts and financial resources in the development of ACI-35, semorinemab,
Morphomer Tau, ACI-24 for AD and for DS, crenezumab and PI-2620, all of which are in clinical development as well as other preclinical
candidates. Our ability to generate product revenues, which we do not expect will occur for at least the next several years, if
ever, will depend heavily on successful clinical development, obtaining regulatory approval and eventual commercialization of
these product candidates. In this regard, we rely heavily on our collaboration partners for clinical development of certain of
our product candidates, and they may choose to discontinue the clinical development process in certain cases. For example, in
January 2019, Roche, the parent of our collaboration partner, discontinued the CREAD and CREAD 2 Phase 3 studies of crenezumab
in patients with prodromal-to-mild sporadic AD. The decision came after an interim analysis was conducted by the Independent Data
Monitoring Committee (IDMC). The IDMC analysis indicated that crenezumab was unlikely to meet its primary endpoint of change from
baseline in Clinical Dementia Rating-Sum of Boxes (CDR-SB) Score. However, the Phase 2 development of crenezumab continues in
a preventive trial in Colombia of cognitively healthy individuals with a risk of developing AD. In addition, we currently generate
no revenues from sales of any drugs or diagnostics, and we may never be able to develop or commercialize a marketable drug or
diagnostic. The success of our current and future product candidates will depend on several factors, including the following:
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completing preclinical and clinical studies that demonstrate the efficacy, safety and clinical utility of our preclinical and
product candidates;
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receiving marketing approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities;
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launching commercial sales, marketing and distribution operations;
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acceptance of our product candidates by patients, the medical community and third-party payors;
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a continued acceptable safety profile following approval;
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competing effectively with other therapies or diagnostic approaches; and
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obtaining, maintaining, enforcing and defending our intellectual property rights and claims and not infringing on third parties’
intellectual property rights.
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If we or our collaboration partners do
not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to
successfully commercialize our current or future product candidates, which would materially adversely affect our business, financial
condition and results of operations.
Results of early clinical studies may not be
predictive of future study results.
Positive or timely results from preclinical
or early-stage clinical studies do not ensure positive or timely results in late-stage clinical studies or product approval by
the US FDA, the European Medicines Agency (EMA), or comparable foreign regulatory authorities. Products that show positive preclinical
or early clinical results may not show sufficient safety or efficacy in later-stage clinical studies and therefore may fail to
obtain regulatory approvals. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses.
Many companies that believed their product candidates performed satisfactorily in preclinical and clinical studies have nonetheless
failed to obtain marketing approval for the product candidates. The FDA, the EMA and comparable foreign regulatory authorities
have substantial discretion in the approval process and in determining when or whether regulatory approval will be obtained for
any of our product candidates. Even if we believe that the data collected from clinical studies of our product candidates are promising,
such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.
In some instances, there can be significant
variability in safety and/or efficacy results between different studies of the same product candidate due to numerous factors,
including changes in study procedures set forth in protocols, differences in the size and type of the patient populations, adherence
to the dosing regimen and other study protocols, and the rate of dropout among clinical study participants. In the case of our
later-stage clinical product candidates, results may differ in general on the basis of the larger number of clinical study sites
and the additional countries and languages involved in these clinical studies.
Clinical studies may include subject-reported
outcomes, some of which may be captured with electronic diaries. We have no assurance and cannot rely on past experience that the
high frequency of questioning is not influencing the measured outcome. In addition, low compliance with daily reporting requirements
may impact the studies’ validity or statistical power. We cannot assure you that any Phase 2, Phase 3 or other clinical studies
that either we or our collaboration partners may conduct will demonstrate consistent or adequate efficacy and safety to obtain
regulatory approval to market our product candidates.
If we or our collaboration partners are
required to conduct additional clinical studies or other testing of any of our current or future product candidates that we or
our collaboration partners develop, beyond the studies and testing that we or our collaboration partners contemplate, if we or
our collaboration partners are unable to successfully complete clinical studies of our product candidates or other testing, if
the results of these studies or tests are unfavorable or are only modestly favorable, or if there are safety concerns associated
with our current or future product candidates, we may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including
boxed warnings;
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be subject to conditional approval or otherwise to additional post-marketing studies or other requirements; or
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remove the product from the market after obtaining marketing approval.
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Our product development costs will also
increase if we experience delays in testing or receiving marketing approvals and we may be required to obtain additional funds
to complete clinical studies. We cannot assure you that our clinical studies will begin as planned or be completed on schedule,
if at all, or that we will not need to amend our studies after they have begun. Significant clinical study delays could also shorten
any periods during which we or our collaboration partners may have the exclusive right to commercialize our product candidates,
or allow our competitors to bring products to market before we do, which may harm our business and results of operations. In addition,
some of the factors that cause, or lead to, clinical study delays may ultimately lead to the denial of regulatory approval of our
product candidates.
Additional competitors could enter the market
with generic versions of our products, which may result in a material decline in sales of affected products.
Under the Drug Price Competition and Patent
Term Restoration Act of 1984, or the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application
(ANDA), seeking approval of a
generic
copy of an approved innovator product. Under the Hatch-Waxman Act, a manufacturer may also submit a new drug application (NDA)
under Section 505(b)(2) that references the FDA’s prior approval of the innovator product. A 505(b)(2) NDA product may be
submitted for a new or improved version of the original innovator product. Hatch-Waxman also provides for certain periods of regulatory
exclusivity, which preclude FDA approval (or in some circumstances, FDA filing and reviewing) of an ANDA or 505(b)(2) NDA. These
include, subject to certain exceptions, the period during which an FDA-approved drug is subject to orphan-drug exclusivity. In
addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product
formulation or an approved use of the drug, which would be listed with the product in the FDA publication, “Approved Drug
Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed
in the Orange Book, a generic or 505(b)(2) applicant that seeks to market its product before expiration of the patents must include
in the ANDA what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming
non-infringement of, the listed patent or patents. Notice of the certification must also be given to the innovator, and if within
45 days of receiving notice the innovator, in order to protect its patents, sues the company that manufactures the generic, approval
of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.
Accordingly, if ACI-35, semorinemab, Morphomer
Tau, ACI-24 for AD and for DS, crenezumab and PI-2620 are approved, competitors could file ANDAs for generic versions of ACI-35,
semorinemab, Morphomer Tau, ACI-24 for AD and for DS, crenezumab and PI-2620 or 505(b) (2) NDAs that reference ACI-35, semorinemab,
Morphomer Tau, ACI-24 for AD and for DS, crenezumab and PI-2620, respectively. If there are patents listed in the Orange Book for
ACI-35, semorinemab, Morphomer Tau, ACI-24 for AD and for DS, crenezumab and PI-2620, respectively, those ANDAs and 505(b) (2)
NDAs would be required to include a certification for each listed patent, indicating whether the ANDA applicant does or does not
intend to challenge the patent. We cannot predict whether any patents issuing from our pending patent applications will be eligible
for listing in the Orange Book, how any generic competitor would address such patents, whether we would sue on any such patents
or the outcome of any such suit.
We may not be successful in securing or
maintaining proprietary patent protection for products and technologies we develop or license. Moreover, if any patents that are
granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation,
the affected product could immediately face generic competition and its sales would likely decline rapidly and materially. Should
sales decline, we may have to write off a portion or all of the intangible assets associated with the affected product, and our
results of operations and cash flows could be materially and adversely affected.
The successful commercialization of our product
candidates will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage
and reimbursement levels and pricing policies.
The successful commercialization of our
product candidates will depend, in part, on the extent to which coverage and reimbursement for our products will be available from
government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs,
many governments and third-party payors increasingly scrutinize the pricing of new technologies and require greater levels of evidence
of favorable clinical outcomes and cost-effectiveness before extending coverage. In light of such challenges to prices and the
requirement for increasing levels of evidence of the benefits and clinical outcomes of new technologies, we cannot be sure that
coverage will be available for any of our current or future product candidates that we or our collaboration partners will commercialize
or, if available, that the reimbursement rates will be adequate in each respective region. If we are unable to obtain adequate
levels of coverage and reimbursement for our product candidates, their marketability will be negatively and materially impacted.
Third-party payors may deny coverage and
reimbursement status altogether for a given drug product, or may cover the product but also establish prices at levels that are
too low to enable us to realize an appropriate return on our investment in product development. Because the rules and regulations
regarding coverage and reimbursement change frequently, in some cases at short notice, even when there is favorable coverage and
reimbursement, future changes may occur that adversely impact the favorable status. Further, the net reimbursement for drug products
may be subject to additional reductions in the future depending on policy changes enacted by the US Congress.
The unavailability or inadequacy and variability
of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of our product candidates
and the future revenues we may expect to receive from those products. In addition, we are unable to predict what additional legislation
or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what
effect such legislation or regulation would have on our business.
Our products may not gain market acceptance,
in which case we or our collaboration partners may not be able to generate product revenues, which will materially adversely affect
our business, financial condition and results of operations.
Even if the FDA, the EMA or any other regulatory
authority approves the marketing of any product candidates that we develop, physicians, healthcare providers, patients or the medical
community may not accept or use them. Efforts to educate the medical community and third-party payors on the benefits of our product
candidates may require significant resources and may not be successful. If any of our current or future product candidates does
not achieve an adequate level of acceptance, we or our collaboration partners may not generate significant product or royalty revenues
or any profits from operations. The degree of market acceptance of our product candidates that are approved for commercial sale
will depend on a variety of factors, including:
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how clinicians and potential patients perceive our novel products;
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the timing of market introduction;
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the number and clinical profile of competing products;
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our ability to provide acceptable evidence of safety and efficacy or clinical utility;
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the prevalence and severity of any side effects;
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relative convenience and ease of administration;
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patient diagnostics and screening infrastructure in each market;
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marketing and distribution support;
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availability of coverage, reimbursement and adequate payment from health maintenance organizations and other third-party payors,
both public and private; and
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other potential advantages over alternative treatment methods.
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If our product candidates fail to gain
market acceptance, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any,
return on our investments. Even if some products achieve market acceptance, the market may prove to not be large enough to allow
us to generate significant revenues.
In addition, the potential market opportunity
of our product candidates is difficult to estimate precisely. Our estimates of the potential market opportunity are predicated
on several key assumptions such as industry knowledge and publications, third-party research reports and other surveys. These assumptions
involve the exercise of significant judgment on the part of our management and are inherently uncertain, and the reasonableness
of these assumptions could not have been assessed by an independent source in every detail. If any of the assumptions proves to
be inaccurate, then the actual market for our product candidates could be smaller than our estimates of the potential market opportunity.
If the actual market for our product candidates is smaller than we expect, or if any approved products fail to achieve an adequate
level of acceptance by physicians, healthcare payors and patients, our product or royalty revenue may be limited and it may be
more difficult for us to achieve or maintain profitability.
We depend on enrollment of patients in our
clinical studies for our product candidates. If we are unable to enroll patients in our clinical studies, our research and development
efforts could be materially adversely affected.
Successful and timely completion of clinical
studies will require that we enroll a sufficient number of patient candidates. Studies may be subject to delays as a result of
patient enrollment taking longer than anticipated or by patient withdrawal. Patient enrollment depends on many factors, including
the size and nature of the patient population, the eligibility criteria for the study, the proximity of patients to clinical sites,
the design of the clinical protocol, the existence of competing clinical studies, the availability of new drugs
approved
for the indication the clinical study is investigating, and clinicians’ and patients’ perceptions as to the potential
advantages of the drug being studied in relation to other available therapies.
Generally, the specific target population
of patients and therapeutic time windows may make it difficult for us to enroll enough patients to complete clinical studies for
our products in a timely and cost-effective manner. Delays in the completion of any clinical study of our product candidates will
increase our costs, slow down our product candidate development and approval process, and delay or potentially jeopardize our or
our collaboration partners’ ability to commence product sales and generate revenue. In addition, many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical studies may also ultimately lead to the denial of regulatory
approval of our product candidates.
If serious adverse, undesirable or unacceptable
side effects are identified during the development of our product candidates or following approval, if any, we may need to abandon
our development of such product candidates, the commercial profile of any approved label may be limited, or we may be subject to
other significant negative consequences following marketing approval, if any.
If our product candidates are associated
with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to
certain uses or subpopulations in which such side effects are less prevalent, less severe or more acceptable from a risk–benefit
perspective. Many compounds that initially showed promise in preclinical or early-stage testing were later found to cause side
effects that restricted their use and prevented further development of the compound for larger indications.
Occurrence of serious procedure- or treatment-related
side effects could impede clinical study enrollment and receipt of marketing approval from the FDA, the EMA and comparable foreign
regulatory authorities. Adverse events (AEs) could also adversely affect physician or patient acceptance of our product candidates.
Additionally, if one or more of our product
candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number
of potentially significant negative consequences could result, including the following:
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regulatory authorities may withdraw approvals of such product and require us or our collaboration partners to take any approved
products off the market;
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts
to physicians and pharmacies;
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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we may be required to change the way the product is administered, to conduct additional studies or to change the labeling of
the product;
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we or our collaboration partners may be subject to limitations in how we promote the product;
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sales of the product may decrease significantly;
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we could be sued and held liable for harm caused to patients; and
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our reputation and physician or patient acceptance of our products may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations
and prospects.
We operate in highly competitive and rapidly
changing industries, which may result in others discovering, developing or commercializing competing products before or more successfully
than we do.
The biopharmaceutical and pharmaceutical
industries are highly competitive and subject to significant and rapid technological change. Our success is highly dependent on
our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to
market them successfully. In doing so, we face and will continue to face intense competition from a variety of businesses, including
large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical
companies,
academic institutions, government agencies and other private and public research institutions in Europe, the US and other jurisdictions.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and
human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining
FDA and other regulatory approvals of treatments, and the commercialization of those treatments. Mergers and acquisitions in the
pharmaceutical and biopharmaceutical industries may result in even more resources being concentrated among a smaller number of
our competitors.
The highly competitive nature of and rapid
technological changes in the pharmaceutical and biopharmaceutical industries could render our product candidates or our technology
obsolete or noncompetitive. The commercial opportunity for our products could be reduced or eliminated if our competitors:
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develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;
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obtain quicker FDA or other regulatory approval for their products;
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establish superior intellectual property and proprietary positions;
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have access to more manufacturing capacity;
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implement more effective approaches to sales, marketing and distribution; or
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form more advantageous strategic alliances.
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Should any of these occur, our business,
financial condition and results of operations could be materially adversely affected.
We believe that our key competitor product
candidates are (i) gosuranemab (Biogen), tilavonemab (AbbVie), zagotenemab (Eli Lilly and Company) and bepranemab (UCB/Roche) for
semorinemab; (ii) AADvac1 (Axon Neuroscience) for ACI-35; (iii) UB-311 (Vaxxinity) and ABvac40 (Araclon Biotech) for ACI-24; (iv)
aducanumab (Biogen), gantenerumab (Roche), lecanemab (BioArctic/Eisai) and solanezumab (Eli Lilly and Company) for crenezumab;
and (v) Tauvid (Eli Lilly and Company), APN-1607 (Aprinoia Therapeutics), MK-6240 (Cerveau/Merck), GTP1 (Genentech) and THK-5351
(GE Healthcare) for PI-2620, as described under “Item 4. Information on the Company – B. Business overview –
Competition.”
We may not be successful in our efforts to
use and expand our Morphomer and SupraAntigen proprietary technology platforms to build additional product candidates for our pipeline.
A key element of our strategy is to use
and expand our Morphomer and SupraAntigen proprietary technology platforms to create unique therapies and diagnostics for conformational
diseases, such as AD, and progress these product candidates through clinical development. Although our research and development
efforts to date have resulted in a pipeline of product candidates, we may not be able in the future to develop product candidates
that are safe and effective. Even if we are successful in continuing to build our pipelines, the potential product candidates that
we identify may not be suitable for clinical development, potentially as a result of having harmful side effects or other characteristics
indicating they may be unlikely to receive marketing approval and achieve market acceptance.
Our business is subject to economic, political,
regulatory and other risks associated with international operations.
Our business is subject to risks associated
with conducting business internationally. We and a number of our suppliers and collaborative and clinical study relationships are
located outside the US. Accordingly, our future results could be harmed by a variety of factors, including:
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economic weakness, including inflation, or political instability in particular non-US economies and markets;
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differing regulatory requirements for drug approvals in non-US countries;
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potentially reduced protection for intellectual property rights;
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difficulties in compliance with non-US laws and regulations;
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changes in non-US regulations and customs, tariffs and trade barriers;
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changes in non-US currency exchange rates and currency controls;
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changes in a specific country’s or region’s political or economic environment;
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trade protection measures, import or export licensing requirements or other restrictive actions such as sanctions by US or
non-US governments;
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negative consequences from changes in tax laws;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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workforce uncertainty in countries where labor unrest is more common than in the US;
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difficulties associated with staffing and managing international operations, including differing labor relations;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes,
typhoons, floods and fires.
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The Covid-19 pandemic has adversely
impacted, and may continue to impact, our business, including preclinical and clinical trials and regulatory approvals.
In December 2019, a novel strain of coronavirus,
Covid-19, surfaced in Wuhan, Hubei Province, China. By March 2020, Covid-19 had spread to other countries, including Switzerland
and the United States, and was declared a pandemic by the World Health Organization on March 11, 2020. Since the beginning of the
pandemic, governments, public institutions, and other organizations in countries and localities where Covid-19 cases have been
identified are taking certain preventative or protective measures to combat the transmission of the virus, including implementation
of travel restrictions or bans, closures of non-essential businesses, limitations of public gatherings, other social distancing
and shelter-in-place measures, and delays or cancellations of elective surgeries. The Covid-19 pandemic poses the risk that the
Company, our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an
indefinite period of time due to shutdowns that may be requested or mandated by state and federal governmental authorities.
As Covid-19 continues to spread around
the globe, we have experienced disruptions impacting our business and clinical trials and we may continue to experience disruptions
that could materially impact our business and planned clinical trials, including:
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delays or difficulties in conducting preclinical research and clinical trials;
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interruption in global manufacturing and shipping that may affect the manufacturing and/or transport of clinical trial materials
and other materials, including testing equipment and personal protective equipment, used at our or our contract research organizations’
(CROs’) and contract manufacturing organizations’ (CMOs’) facilities;
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changes in local regulations as part of a response to the Covid-19 coronavirus outbreak which may require us to change the
way in which clinical trials are conducted and may result in unexpected costs; and
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impact our ability to secure additional financing.
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In addition, the outbreak of Covid-19 could
disrupt our operations due to absenteeism by infected or ill members of Executive Management or other employees, or absenteeism
by members of Executive Management and other employees who elect not to come to work due to the illness affecting others in our
office or laboratory facilities, or due to quarantines. Covid-19 illness could also impact members of our Board and its ability
to hold meetings. Further information concerning details of the impact of Covid-19 on our programs can be found under “Item
5: Operating and financial review and prospects.”
We have no history of commercializing biologics
or pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.
We began our operations in 2003. Our operations
to date have been limited to financing and staffing our company, developing our technology and developing our product candidates
as well as early-stage clinical trials. We have not yet demonstrated an ability to successfully complete a large-scale, pivotal
clinical study, obtain marketing approval, manufacture a commercial-scale product, or conduct sales and marketing activities necessary
for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate
as they could be if we had a history of successfully developing and commercializing biologics or pharmaceutical products.
Our future growth and ability to compete depends
on retaining our key personnel and recruiting additional qualified personnel.
Our success depends upon the continued
contributions of our key management, scientific and technical personnel, many of whom have substantial experience with or been
instrumental for us and our projects. Members of our key management include Dr. Andrea Pfeifer, our Chief Executive Officer; Dr.
Marie Kosco-Vilbois, our Chief Scientific Officer; Dr. Johannes Rolf Streffer, our Chief Medical Officer; Piergiorgio Donati,
our Chief Technical Operations Officer; Joerg Hornstein, our Chief Financial Officer; Jean-Fabien Monin, our Chief Administrative
Officer; Dr. Julien Rongère, our Vice President (VP) for Regulatory Affairs and Quality Assurance; Dr. Olivier Sol, our
Associate Vice President Medical Sciences and Clinical Operations; Dr. Bojana Portmann, our Associate Vice President for Intellectual
Property and Business Development (AVP IP); Alexandre Caratsch, our General Counsel; and Mark Danton, our VP Information Systems,
Security and Digital Technologies.
The loss of our key managers and senior
scientists could delay our research and development activities. Laws and regulations on executive compensation, including legislation
in our home country, Switzerland, may restrict our ability to attract, motivate and retain the required level of qualified personnel.
In Switzerland, legislation affecting public companies has been passed that, among other things, imposes an annual binding shareholder’s
“say on pay” vote with respect to the compensation of executive management, including executive officers and the board
of directors, and prohibits severance or similar payment, bonuses for company purchases and sales, and additional contracts as
consultants to or employees of other companies in the group. In addition, the competition for qualified personnel in the pharmaceutical
and biopharmaceutical field is intense, and our future success depends upon our ability to attract, retain and motivate highly
skilled scientific, technical and managerial employees. We face competition for personnel from other companies, universities, public
and private research institutions and other organizations. If our recruitment and retention efforts are unsuccessful in the future,
it may be difficult for us to implement our business strategy, which could have a material adverse effect on our business.
We may become exposed to costly and damaging
liability claims, either when testing our product candidates in the clinic or at the commercial stage or as a result of claims
against our directors and officers; and our liability insurance may not cover all damages from such claims.
We are exposed to potential product liability
and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical
or biopharmaceutical products. Currently we have no products that have been approved for commercial sale; however, our current
and future use of product candidates in clinical studies, and the sale of any approved products in the future, may expose us to
liability claims. These claims might be made by patients that use the product, by healthcare providers, or by pharmaceutical or
biopharmaceutical companies or others selling such products. Any claims against us, regardless of their merit, could be difficult
and costly to defend and could materially adversely affect the market for our product candidates or any prospects for commercialization
of our product candidates.
Although the clinical study process is
designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may
exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical studies or
after approval of the product candidate,
we
may be exposed to substantial liabilities. Physicians and patients may not comply with any warnings that identify known potential
adverse effects and patients who should not use our product candidates.
We purchase liability insurance in connection
with the clinical studies that we undertake and for purposes of indemnifying our directors and officers for claims against them
in amounts that we consider to be consistent with industry norms. It is possible that our liabilities could exceed our insurance
coverage. For example, we intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing
approval for any of our product candidates. However, we may not be able to maintain insurance coverage at a reasonable cost or
obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful liability claim or series
of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient
to cover such claims and our business operations could be impaired.
Should any of the events described above
occur, this could have a material adverse effect on our business, financial condition and results of operations.
We may seek to obtain orphan-drug designation
for certain of our product candidates. Orphan-drug designation may not ensure that we will enjoy market exclusivity in a particular
market, and if we fail to obtain or maintain orphan-drug exclusivity for such product candidates, we may be subject to earlier
competition and our potential revenue will be reduced.
Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population
of fewer than 200,000 in the US, or a patient population greater than 200,000 in the US where there is no reasonable expectation
that the cost of developing the drug will be recovered from sales in the US. In the European Union (EU), the EMA’s Committee
for Orphan Medicinal Products grants orphan-drug designation to promote the development of products that meet the following criteria:
a) they are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically debilitating condition affecting
not more than 5 in 10,000 persons in the EU or for products that are intended for the diagnosis, prevention or treatment of a
life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales
of the drug in the EU would be sufficient to justify the necessary investment in developing the drug or biological product; and
b) there is no satisfactory method of diagnosis, prevention, or treatment, or, if such a method exists, the medicine must be of
significant benefit to those affected by the condition.
In the US, orphan-drug designation entitles
a party to financial incentives such as opportunities for grant funding toward clinical study costs, tax advantages and user-fee
waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the
product is entitled to orphan-drug exclusivity, which means that the FDA cannot approve any other application to market the same
drug for the same indication for a period of 7 years, except in limited circumstances, such as a showing of clinical superiority
over the product with orphan exclusivity or if the manufacturer is unable to assure sufficient product quantity. In the EU, orphan-drug
designation entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market exclusivity
for the orphan indication following drug or biological product approval, provided that the criteria for orphan designation are
still applicable at the time of the granting of the marketing authorization. This period may be reduced to 6 years if at the end
of the fifth year, the orphan-drug designation criteria are no longer met, including where it is shown that the product is sufficiently
profitable not to justify maintenance of market exclusivity.
We may not be able to obtain orphan-drug
designation for any of our product candidates, and even if we do, we may not be the first to obtain marketing approval for any
particular orphan indication due to the uncertainties associated with developing pharmaceutical or biopharmaceutical products.
Further, even if we obtain orphan-drug designation for a product, that exclusivity may not effectively protect the product from
competition because different drugs with different active moieties can be approved for the same condition. Orphan-drug designation
neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review
or approval process.
Due to our limited resources and access to
capital, we must prioritize development of certain product candidates.
Because we have limited resources and access
to capital to fund our operations, we must decide which product candidates to pursue and the amount of resources to allocate to
each. Our decisions concerning the allocation of research, collaboration, management and financial resources toward particular
compounds, product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert
resources away from better opportunities. Similarly, our potential decisions to delay, terminate or collaborate
with
third parties in respect of certain product development programs may also prove not to be optimal and could cause us to miss valuable
opportunities. If we make incorrect determinations regarding the market potential of our product candidates or misread trends
in the pharmaceutical or biopharmaceutical industry, in particular for neurological disorders, our business, financial condition
and results of operations could be materially adversely affected.
Our research and development activities could
be affected or delayed as a result of possible restrictions on animal testing.
Certain laws and regulations require us
to test our product candidates on animals before initiating clinical studies in humans. Animal testing activities have been the
subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop
animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through
protests and other means. To the extent that the activities of these groups are successful, our research and development activities
may be interrupted, delayed or become more expensive.
A breakdown or breach of our information
technology systems and cybersecurity efforts, or those of our key business partners, CROs or service providers, could subject us
to liability or reputational damage or interrupt the operation of our business.
Despite the implementation of security
measures, our internal computer systems and those of our CROs and other contractors and consultants may be vulnerable to damage
from computer viruses and unauthorized access. If such an event were to occur and cause interruptions in our operations, it could
result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial
data from completed, ongoing or future clinical trials could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. Likewise, we rely on our third-party research institution collaborators for
research and development of our product candidates and on other third parties for the manufacture of our product candidates and
to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on
our business. Our ability to monitor our CROs’, contractors’ and consultants’ data security practices are limited,
and due to applicable laws and regulations or contractual obligations, we may be held responsible for any security breaches or
cybersecurity attack attributed to them as they relate to the information we share with them. To the extent that any disruption
or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential
or proprietary information or personal data of our employees, partners or study subjects, we could incur liability and the further
development and commercialization of our product candidates could be delayed.
We are increasingly dependent upon technology
systems and data. Our computer systems continue to increase in multitude and complexity due to the growth in our business, making
them potentially vulnerable to breakdown, malicious intrusion and random attack. Data privacy or security breaches, including
those by individuals authorized to access our technology systems or others may pose a risk that sensitive data, including intellectual
property, trade secrets or personal information belonging to us, our patients, study subjects or other business partners, may be
exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity,
and are becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent
actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious
intent. Cyber-attacks could include the deployment of harmful malware and key loggers, ransomware, a denial-of-service attack,
a malicious website, phishing attacks, computer viruses, social engineering and other means to affect the confidentiality, integrity
and availability of our technology systems and data. Our key business partners, CROs and service providers face similar risks and
any security breach of their systems could adversely affect our security posture. Although we continue to build and improve our
systems and infrastructure, and believe we have taken appropriate security measures to reduce these risks to our data and information
technology systems, there can be no assurance that our efforts will prevent, detect or appropriately respond to breakdowns or breaches
in our systems that could adversely affect our business and operations and/or result in the loss of critical or sensitive information,
including personal information, which could result in financial, legal, business or reputational harm to us. We continue to invest
in industry standard IS/IT solutions and managed services that often include the relevant, layered protection and monitoring practices
surrounding our data and IT systems and related infrastructure. These investments reduce further these risks in that they enable
organizations such as ours to leverage the resources necessary to monitor IT systems and infrastructure for any current or potential
threats. These investments are costly, and as cyber threats continue to evolve, we may be required to expend significant, additional
resources to continue to modify and/or enhance our protective, detective and responsive measures required to remediate any identified
information security vulnerabilities. In addition, our liability insurance may
not
be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
We may be required to expend significant capital and other resources to protect against and respond to any attempted or existing
cybersecurity incidents. In addition, our remediation efforts may not be successful.
Changes in laws, rules or regulations
relating to data privacy and security, or any actual or perceived failure by us to comply with such laws, rules, regulations and
standards, or contractual or other obligations relating to data privacy and security, could have a material adverse effect on our
reputation, results of operations, financial condition and cash flows.
We are, and may increasingly become, subject
to various laws, rules, regulations and standards, as well as contractual obligations, relating to data privacy and security in
the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous,
with new and constantly changing requirements applicable to our business, and enforcement practices are likely to remain uncertain
for the foreseeable future. These laws, rules, regulations and standards may be interpreted and applied differently over time
and from jurisdiction to jurisdiction in a manner that could have a material adverse effect on our results of operations, financial
condition and cash flows. New laws, amendments to or reinterpretations of existing laws, rules, regulations, standards and other
obligations may require us to incur additional costs and restrict our business operations, and may require us to change how we
use, collect, store, transfer or otherwise process certain types of personal information and to implement new processes to comply
with those laws. There are numerous US federal and state laws and regulations related to the privacy and security of personal
information. Regulations promulgated pursuant to the US Health Insurance Portability and Accountability Act of 1996 (HIPAA) establish
privacy and security standards that limit the use and disclosure of protected health information, and require the implementation
of administrative, physical and technological safeguards to protect the privacy of protected health information and to ensure
the confidentiality, integrity and availability of electronic protected health information. Determining whether protected health
information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and
may be subject to changing interpretation. Numerous states have enacted or are in the process of enacting state level data privacy
laws and regulations governing the collection, use, and other processing of state residents’ personal information, such
as the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020 and provides new and enhanced data privacy
rights to California residents, such as affording California residents the right to access and delete their information and to
opt out of certain sharing and sales of personal information, and the California Privacy Rights Act of 2020 (CPRA), which is effective
in most material respects starting on January 1, 2023 and imposes additional obligations on covered companies and will significantly
modify the CCPA. In addition, laws in all 50 states require businesses to provide notice to individuals whose personal information
has been disclosed as a result of a data breach.
All of these evolving compliance and operational
requirements impose significant costs, which are likely to increase over time. In addition, such requirements may require us to
modify our data-processing practices and policies, distract management or divert resources from other initiatives and projects.
For instance, the European Union Court of Justice and the Swiss Data Protection Authority have declared the US Privacy Shield to
be inadequate for transfers of personal data out of the EU and Switzerland, which could increase our compliance burden. If we are
unable to properly protect the privacy and security of personal information, including protected health information, we could be
found to have breached our contracts. In addition, any failure or perceived failure by us to comply with any applicable federal,
state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation and
our relationship with our customers, as well as proceedings or litigation by governmental agencies, customers, partners, collaborators
and/or study subjects, including class action privacy litigation in certain jurisdictions, which would subject us to significant
fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our business, results of
operations, financial condition and prospects.
Business disruptions could seriously
harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our third-party
research institution collaborators, CROs, CMOs, suppliers, and other contractors and consultants, could be subject to earthquakes,
power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions,
medical epidemics, and other natural or man-made disasters or business interruptions, for which we are partly uninsured. In addition,
we rely on our third-party research institution collaborators for conducting research and development of our product candidates,
and they may be affected by government shutdowns or withdrawn funding. The occurrence of any of these business disruptions could
seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers
to produce and process our product
candidates.
Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are
affected by a man-made or natural disaster or by other business interruption.
All of our operations including our corporate
headquarters are located in Ecublens, near Lausanne, Canton of Vaud, Switzerland. Damage or extended periods of interruption to
our corporate, development or research facilities due to fire, natural disaster, power loss, communications failure, unauthorized
entry or other events could cause us to cease or delay development of some or all of our product candidates. Although we maintain
property damage and business interruption insurance coverage on these facilities, our insurance might not cover all losses under
such circumstances and our business may be seriously harmed by such delays and interruption.
We have never commercialized a product candidate
before and may lack the necessary expertise, personnel and resources to successfully commercialize our products on our own or together
with suitable partners.
We have never commercialized a product
candidate, and we currently have no sales force, marketing or distribution capabilities. To achieve commercial success for our
product candidates, we will have to develop our own sales, marketing and supply organization or outsource these activities to third
parties.
Factors that may affect our ability to
commercialize our product candidates on our own include recruiting and retaining adequate numbers of effective sales and marketing
personnel, obtaining access to or persuading adequate numbers of physicians to prescribe our drug candidates, and other unforeseen
costs associated with creating an independent sales and marketing organization. Developing a sales and marketing organization requires
significant investment, is time-consuming and could delay the launch of our product candidates. We may not be able to build an
effective sales and marketing organization. In addition, successful commercialization also requires an enhanced regulatory organization
which we currently do not have. If we are unable to build our own distribution and marketing capabilities, are unable to find suitable
partners for the commercialization of our product candidates or do not successfully obtain the necessary regulatory capabilities,
we may not generate revenues from them or be able to reach or sustain profitability.
Risks related to our relationships with third parties
If we fail to maintain our current strategic
relationships with Genentech, a member of the Roche Group, Eli Lilly and Company (Lilly), Janssen Pharmaceuticals Inc. (Janssen),
Life Molecular Imaging SA (LMI) (formerly Piramal Imaging SA) and other of our current or future strategic partners, our business,
commercialization prospects and financial condition may be materially adversely affected.
We have two partnerships with Genentech.
In 2006, we granted Genentech an exclusive, worldwide license for crenezumab. In 2012, we entered into a second partnership to
commercialize anti-Tau antibodies for use as immunotherapies. In December 2018, we signed a license agreement with Lilly to research
and develop Morphomer Tau small molecules for the treatment of AD and other neurodegenerative diseases. This collaboration commenced
in Q1 2019. We are in a partnership with Janssen to develop and commercialize therapeutic anti-Tau vaccines for the treatment of
AD and potentially other Tauopathies. We also have a diagnostic partnership with LMI for one of our compounds from our Morphomer
chemical library, which bind pathological Tau for use as a PET tracer. Our collaboration partners each have the right to terminate
their agreements with us for any reason upon providing us with a certain notice period. If Genentech, Lilly, Janssen, LMI or other
of our current or future strategic partners terminates its agreement with us at any time, it could delay or prevent development
of our product candidates and materially harm our business, financial condition, commercialization prospects and results of operations.
Good relationships with Genentech, Lilly,
Janssen, LMI and other of our current or future strategic partners are important for our business prospects. If our relationships
with Genentech, Lilly, Janssen, LMI or other of our current or future strategic partners were to deteriorate substantially or if
Genentech, Lilly, Janssen, LMI or other of our current or future strategic partners were to challenge our use of their intellectual
property or our calculations of the payments we are owed under our agreements, our business, financial condition, commercialization
prospects and results of operations could be materially adversely affected.
Lastly, our collaboration agreements with
Genentech, Lilly, Janssen and LMI provide each partner with control over, and responsibility for, the clinical development process,
including obtaining regulatory and marketing approvals, manufacturing costs and sales and marketing costs. Our other existing collaboration
agreements provide our collaboration partners with similar control over the clinical development process, and future collaboration
agreements may also relinquish development control to our partners. Genentech or our other current or future collaboration partners
may and do separately pursue competing products, therapeutic approaches or technologies to develop treatments for the diseases
targeted by us or our collaborative efforts.
Even
if our partners continue their contributions to the collaborative agreements to which we are a party, they may nevertheless determine
not to actively pursue the development or commercialization of any resulting products. Our partners may also fail to perform their
obligations under the collaboration agreements or may be slow in performing their obligations. Any of these circumstances could
result in a material adverse impact on our business, financial condition, commercialization prospects or results of operations.
We may seek to form additional strategic alliances
in the future with respect to our product candidates, and if we do not realize the benefits of such alliances, our business, financial
condition, commercialization prospects and results of operations may be materially adversely affected.
Our product development programs and the
potential commercialization of our product candidates will require substantial additional liquidity to fund expenses and may require
expertise, such as sales and marketing expertise, which we do not currently possess. Therefore, in addition to our relationships
with Genentech, Lilly, Janssen and LMI, we may decide to enter into strategic alliances or to create joint ventures or collaborations
with pharmaceutical or biopharmaceutical companies for the further development and potential commercialization of those and other
of our product candidates.
We face significant competition in seeking
appropriate collaborators. Collaborations are complex and time-consuming to negotiate, document and manage. Any delays in entering
into new strategic partnership agreements related to our product candidates could delay the development and commercialization
of our product candidates and reduce their competitiveness even if they reach the market. We may also be restricted under existing
and future collaboration agreements from entering into strategic partnerships or collaboration agreements on certain terms with
other potential collaborators. We may not be able to negotiate collaborations on acceptable terms, or at all, for any of our existing
or future product candidates and programs because the potential partner may consider that our research and development pipeline
is insufficiently developed to justify a collaborative effort, or that our product candidates and programs do not have the requisite
potential to demonstrate safety and efficacy in the target population. If we are unsuccessful in establishing and maintaining
a collaboration with respect to a particular product candidate, we may have to curtail the development of that product candidate,
reduce the scope of or delay its development program or one or more of our other development programs, delay its potential commercialization
or reduce the scope of our sales or marketing activities, or increase our expenditures and undertake development or commercialization
activities at our own expense, for which we have not budgeted. If we elect to increase our expenditures to fund development or
commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable
terms or at all. If we do not have sufficient funds, we will not be able to bring our product candidates to market and generate
product revenue. Even if we are successful in establishing a new strategic partnership or entering into a collaboration agreement,
we cannot be certain that, following such a strategic transaction or license, we will be able to progress the development and
commercialization of the applicable product candidates as envisaged, or that we will achieve the revenues that would justify such
transaction, and we could be subject to the following risks, each of which may materially harm our business, commercialization
prospects and financial condition:
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we may not be able to control the amount and timing of resources that the collaboration partner devotes to the product development
program;
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the collaboration partner may experience financial difficulties;
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we may be required to grant or otherwise relinquish important rights such as marketing, distribution and intellectual property
rights;
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a collaboration partner could move forward with a competing product developed either independently or in collaboration with
third parties, including our competitors; or
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business combinations or significant changes in a collaboration partner’s business strategy may adversely affect our
willingness to continue any arrangement.
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We rely on third parties to conduct our nonclinical
and clinical studies and perform other tasks for us. If these third parties do not successfully carry out their contractual duties,
meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize
our product candidates, and our business could be substantially harmed.
We have relied upon and plan to continue
to rely upon third-party clinical CROs, to monitor and manage data for our ongoing nonclinical and clinical programs, including
the clinical studies of our product candidates. We rely on these parties for execution of our nonclinical and clinical studies
and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is
conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the clinical
CROs does not relieve us of our regulatory responsibilities. We and our clinical CROs and other vendors are required to comply
with current Good Manufacturing Practice (cGMP), current Good Clinical Practice (cGCP), and current Good Laboratory Practice (cGLP),
which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the EU and comparable
foreign regulatory authorities for our product candidates in nonclinical and clinical development (where applicable). Regulatory
authorities enforce these regulations through periodic inspections of study sponsors, principal investigators, study sites and
other contractors. If we or any of our clinical CROs or vendors fail to comply with applicable regulations, the data generated
in our nonclinical and clinical studies may be deemed unreliable and the EMA, FDA, other regulatory authorities may require us
to perform additional nonclinical and clinical studies before approving our marketing applications. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that all of our clinical studies comply with
cGCP regulations. In addition, our clinical studies must be conducted with products produced under cGMP regulations. Our failure
to comply with these regulations may require us to repeat clinical studies, which would delay the regulatory approval process.
If any of our relationships with these
third-party clinical CROs terminates, we may not be able to enter into arrangements with alternative clinical CROs or do so on
commercially reasonable terms. In addition, our clinical CROs are not our employees, and except for remedies available to us under
our agreements with such clinical CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing
nonclinical and clinical programs. If clinical CROs do not successfully carry out their contractual duties or obligations or meet
expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to their
failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical studies may be extended, delayed,
or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. Clinical
CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our
product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
Switching or adding additional clinical
CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a
new clinical CROs commences work. As a result, delays occur, which could materially impact our ability to meet our desired clinical
development timelines. Though we carefully manage our relationships with our clinical CROs, there can be no assurance that we will
not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact
on our business, financial condition and prospects.
We currently rely on third-party suppliers
and other third parties for production of our product candidates and our dependence on these third parties may impair the advancement
of our research and development programs and the development of our product candidates.
We currently rely on and expect to continue
to rely, on third parties for the manufacturing and supply of chemical and biological compounds and formulations for the clinical
studies of our current and future product candidates. For the foreseeable future, we expect to continue to rely on such third parties
for the manufacture of any of our product candidates on a clinical or commercial scale, if any of our product candidates receives
regulatory approval. Reliance on third-party providers may expose us to different risks than if we were to manufacture product
candidates ourselves. The facilities used by our contract manufacturers to manufacture our product candidates must be approved
by the FDA or other regulatory authorities, pursuant to inspections that will be conducted after we submit our NDA or comparable
marketing application to the FDA or other regulatory authority. We do not have control over a supplier’s or manufacturer’s
compliance with these laws, regulations and applicable cGMP standards and other laws and regulations, such as those related to
environmental health and safety matters. If our contract manufacturers cannot successfully manufacture material that conforms to
our specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain
regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers
to maintain adequate quality control (QC), quality assurance (QA) and qualified personnel. If we are compelled or we wish to find
alternative manufacturing facilities, this could significantly impact our ability to develop, obtain regulatory approval for or
market our product candidates. Any failure to achieve and maintain compliance with these laws, regulations and standards could
subject us to the risk that we may have to suspend the manufacturing of our product candidates or that obtained approvals could
be revoked, which would adversely affect our business and reputation.
Third-party providers may breach agreements
they have with us because of factors beyond our control. Contract manufacturers often encounter difficulties involving production
yields, QC and QA, as well as shortages of qualified personnel. They may also terminate or refuse to renew their agreements because
of their own financial difficulties or business priorities, potentially at a time that is costly or otherwise inconvenient for
us. If we are unable to find adequate replacement or another acceptable solution in time, our clinical studies could be delayed
or our commercial activities could be harmed.
In addition, the fact that we are dependent
on our suppliers and other third parties for the manufacture, storage and distribution of our product candidates means that we
are subject to the risk that our product candidates and, if approved, commercial products may have manufacturing defects that we
have limited ability to prevent or control. The sale of products containing such defects could result in recalls or regulatory
enforcement action that could adversely affect our business, financial condition and results of operations.
Growth in the costs and expenses of components
or raw materials may also adversely influence our business, financial condition and results of operations. Supply sources could
be interrupted from time to time and, if interrupted, we cannot be certain that supplies could be resumed (whether in part or in
whole) within a reasonable timeframe and at an acceptable cost or at all. Our current and anticipated future dependence upon others
for the manufacturing of our current and future product candidates may adversely affect our future profit margins and our, or our
collaboration partners’, ability to commercialize any products that receive marketing approval on a timely and competitive
basis.
Our collaboration arrangements with our strategic
partners may make us an attractive target for potential acquisitions under certain circumstances.
Under certain circumstances, due to the
structure of our collaboration arrangements with our strategic partners, our strategic partners may prefer to acquire us rather
than paying the milestone payments or royalties under the collaboration arrangements, which may bring additional uncertainties
to our business development and prospects. For example, under our collaboration arrangements with Genentech, Lilly and Janssen,
we may become entitled to substantial milestone payments and royalties. As a result, rather than paying the milestone payments
or royalties, Genentech, Lilly or Janssen, or one of their affiliates including Roche or Johnson & Johnson, may choose to
acquire us.
Risks related to intellectual property
We may not have sufficient patent terms to
protect our products and business effectively.
Patents have a limited lifespan. In the
US, the natural expiration of a patent is generally 20 years after it is filed. Although various extensions or adjustments may
be available, such as adjustments based on certain delays caused by the US Patent and Trademark Office (USPTO) the life of a patent,
and the protection it affords, is limited. Given the amount of time required for the development, testing and regulatory review
of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
As a result, our owned, co-owned and licensed patent portfolios may not provide us with sufficient rights to exclude others from
commercializing products similar or identical to ours or otherwise provide us with a competitive advantage. Even if patents covering
our product candidates are obtained and unchallenged, once the patent life has expired for a product, we may be open to competition
from generic medications.
Although patent term extensions under the
Hatch-Waxman Act, in the US and under supplementary protection certificates (SPCs) in Europe may be available to extend the patent
exclusivity term for our products, we cannot provide any assurances that any such patent term extension will be obtained and, if
so, for how long. The Hatch-Waxman Act permits a patent extension term of up to 5 years as compensation for patent term lost during
the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years
from the date of product approval, only one patent may be extended, and only those claims covering the approved drug, a method
for using it or a method for manufacturing it may be extended. However, we may not be granted any extension because of, for example,
failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines,
failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. It is not possible
to base an SPC in Europe on a patent in a European Member State if that patent expires before the MA of the clinical product, protected
by the patent, is obtained. As the “product” (active ingredient(s)) must be “protected by a basic patent in force,”
only a granted patent that is in force, and remains in force until it reaches the end of its full term, can serve as a “basic
patent” upon which an SPC can be based. Therefore, expired patents and pending patent applications cannot serve as the basis
for an SPC. Given the relatively long clinical
development
timelines of biologicals and new chemical entities for therapeutic purpose, we may not be granted any patent extensions as we
might fail to apply for the extensions prior to expiration of relevant patents. Moreover, the applicable time period or the scope
of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or if the term of
any such extension is less than we request, such result could have a material adverse effect on our business.
We or our licensing or collaboration partners
may become subject to intellectual property-related litigation or other proceedings to protect or enforce our patents or the patents
of our licensors or licensees and collaborators, any of which could be expensive, time-consuming, and unsuccessful, and may ultimately
result in our loss of ownership of intellectual property.
Competitors may infringe our patents or
the patents of our licensors or collaborators. To counter such infringement, we may be required to file infringement claims against
those competitors, which can be expensive and time-consuming. If we or one of our licensing or collaboration partners were to
initiate legal proceedings against a third party to enforce a patent covering one of our product candidates, the defendant could
counterclaim that the patent covering our product candidate is invalid or unenforceable or that the defendant’s products
do not infringe our or our licensing collaborators’ patents or that we or our licensing collaborators infringe the defendant’s
patents. In patent litigation in the US, defendant counterclaims alleging invalidity, unenforceability and non-infringement are
commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including
lack of novelty, obviousness, obviousness-type double patenting, lack of written description, or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information
from the USPTO, or made a misleading statement, during prosecution. In addition, third parties may raise similar claims before
administrative bodies in the US or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant
review, inter partes review, interference and derivation proceedings as well as equivalent proceedings in foreign jurisdictions,
such as opposition proceedings in Europe. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Such proceedings or patent litigations could result in the revocation or cancellation of or amendment to our patents in such a
way that they no longer cover our product candidates or otherwise provide any competitive advantage. With respect to the validity
question, for example, we cannot be certain that there is no invalidating prior art, of which the patent examiner and we or our
licensing or collaboration partners were unaware during prosecution. A court may also refuse to stop a third party from using
the technology in question on the grounds that our patents do not cover that technology. An adverse result in any proceeding could
put one or more of our patents at risk of being invalidated or interpreted narrowly, which could have a material adverse effect
on our business and financial condition.
Interference proceedings provoked by third
parties or brought by us, or declared by the USPTO may be necessary to determine the priority of inventions with respect to our
patents or patent applications or those of our licensors, licensees or collaborators. An unfavorable outcome could require us or
our licensing or collaboration partners to cease using the related technology or to attempt to license rights to it from the prevailing
party. Our business could be materially harmed if the prevailing party does not offer us or our licensing or collaboration partners
a license on commercially reasonable terms or at all. If we or our licensing or collaboration partners are unsuccessful in any
interference proceedings, we may lose our ownership of intellectual property or our patents may be narrowed or invalidated. There
can be no assurance as to the outcome of the interference and opposition proceedings, and any of the foregoing could result in
a material adverse effect on our business, financial condition, results of operations or prospects.
Our defense of litigation, interference
proceedings or other intellectual property-related proceedings may fail and, even if successful, may result in substantial costs
and distract our management and other employees from their normal responsibilities. Such litigation or proceedings could substantially
increase our operating losses and could substantially reduce the funds necessary to continue our clinical studies and research
programs or force us to license necessary technology from third parties, or enter into development partnerships that would help
us bring our product candidates to market. We may not be able to prevent, alone or with our licensing or collaboration partners,
misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as
fully as in the US.
Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. There could also be public announcements of the
results of hearings, motions, decisions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a material adverse effect on the price of our common shares.
If we or our licensing or collaboration partners
are unable to obtain and maintain effective patent rights for our technologies, product candidates or any future product candidates,
or if the scope of the patent rights obtained is not sufficiently broad, our competitors could develop and commercialize products
and technology similar or identical to ours, and our, or our collaboration partners’ ability to successfully commercialize
our products and technology may be adversely affected.
We rely upon a combination of patents,
trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies and product
candidates. Our success depends in large part on our and our licensing or collaboration partners’ ability to obtain and maintain
patent and other intellectual property protection in the US, the EU and other countries with respect to our proprietary technologies
and product candidates. In particular, Genentech, Lilly, Janssen or our other licensing or collaboration partners may be dependent
on a license with a third party for the development and future commercialization of our product candidates. If such license is
not granted or terminated, Genentech, Lilly, Janssen or other licensing or collaboration partners may be required to cease development
and commercialization of our product candidates, any of which could have a material adverse effect on our business, financial condition,
results of operations or prospects.
We have sought to protect our proprietary
position by filing patent applications in the US and abroad related to any of our novel technologies and products that are important
to our business. This process is expensive, time-consuming, and complex, and we may not be able to file and prosecute all necessary
or desirable patent applications at a reasonable cost, in a timely manner or in all jurisdictions. It is also possible that we
will fail to identify patentable aspects of our or our licensing or collaboration partners’ research and development output
before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents, covering technology that we license to or from third
parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests
of our business.
The patent position of pharmaceutical
and biopharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal
principles remain unsolved. As a result, the inventorship, issuance, scope, validity, enforceability and commercial value of our
patent rights are highly uncertain. The pending or future patent applications that we own, co-own or in-license may fail to issue,
fail to result in issued patents with claims that cover our product candidates in the US or in other foreign countries, or fail
to effectively prevent others from commercializing competitive technologies and product candidates. Changes in either the patent
laws or interpretation of the patent laws in the US and other countries may diminish the value of our patents or narrow the scope
of our patent protection.
We may not be aware of all third-party
intellectual property rights potentially relating to our technologies or product candidates. Publications of discoveries in the
scientific literature often lag behind the actual discoveries, and patent applications in the US and other jurisdictions remain
confidential for a period of time after filing, and some remain so until issued. Therefore, we cannot be certain that we were the
first to file any patent application related to our product candidates or technologies, or whether we were the first to make the
inventions claimed in our owned or co-owned patents or pending patent applications, nor can we know whether those from whom we
license patents were the first to make the inventions claimed or were the first to file.
There is no assurance that all potentially
relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent
from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our product
candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed,
found unenforceable or invalidated, which could allow third parties to commercialize our technology or products and compete directly
with us, without payment to us, or result in our or our collaboration partners’ inability to manufacture or commercialize
products without infringing third-party patent rights. Furthermore, even if they are unchallenged, our patents and patent applications
may not adequately protect our intellectual property, provide exclusivity for our product candidates, prevent others from designing
around our claims or provide us with a competitive advantage. Any of these outcomes could impair our ability to prevent competition
from third parties, which may have a material adverse effect on our business.
We may be subject to claims challenging the
inventorship of our patents and other intellectual property.
We may be subject to claims that former
employees, collaborators or other third parties have an interest or title in our patents or other intellectual property as an inventor
or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants, CROs, CMOs, academic
institutions or others who are involved in developing our product candidates. Litigation may be necessary to defend against
these
and other claims challenging inventorship or our ownership of our patents or other intellectual property. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive
ownership of, or the right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our
business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to management and other employees.
Patent policy and rule changes could increase
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents, thereby impairing our ability to protect our technologies and products.
Changes in either the patent laws or interpretation
of the patent laws in the US, EU or elsewhere could increase the uncertainties and costs surrounding the prosecution of patent
applications and the enforcement or defense of issued patents. Assuming the other requirements for patentability are met, in the
US prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, whereas outside the US, the first
to file a patent application was entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act (the Leahy-Smith
Act), enacted on September 16, 2011, the US has moved to a first-to-file system. Under a first-to-file system, assuming the other
requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent
on an invention regardless of whether a third party was the first to invent the invention. The Leahy-Smith Act also includes a
number of significant changes that affect the way patent applications are prosecuted and may also affect patent litigation. These
include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack
the validity of a patent by the USPTO administered during post grant proceedings, including re-examination proceedings, inter
partes review, post-grant review and derivation proceedings. Therefore, the Leahy-Smith Act and its implementation increases
the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, future actions by the US Congress, the federal courts and the USPTO could cause the laws and regulations governing
patents to change in unpredictable ways. Any of the foregoing could harm our business, financial condition and results of operations.
In addition, the patent positions of companies
in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. US Supreme Court rulings
have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain
situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once
obtained. Depending on future actions by the US Congress, the federal courts, and the USPTO, the laws and regulations governing
patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability
to protect and enforce our intellectual property in the future in the US.
If we are unable to maintain effective proprietary
rights for our technologies, product candidates or any future product candidates, we may not be able to compete effectively in
our markets.
In addition to the protection afforded
by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable
or that we elect not to patent, processes for which patents are difficult to enforce, and any other elements of our product candidate
discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents.
However, trade secrets can be difficult to protect and some courts inside and outside the US are less willing or unwilling to protect
trade secrets. For instance, the EU has introduced a new Directive on trade secrets increasing the standards for protection. Because
we rely on our advisors, employees and third-party contractors and consultants to research and develop and to manufacture our product
candidates, we must, at times, share our intellectual property with them. We seek to protect our intellectual property and other
proprietary technology in part by entering into confidentiality agreements and master service agreements, if applicable, material
transfer agreements, consulting agreements or other similar agreements with our advisors, employees, contractors, consultants,
licensing and collaboration partners, and other third parties with confidentiality provisions. These agreements typically limit
the rights of these third parties to use or disclose our confidential information, including our intellectual property and trade
secrets. These agreements also typically restrict the ability of third parties to publish data potentially relating to our intellectual
property, although our agreements may contain certain limited publication rights. For example, any academic institution that we
may collaborate with in the future may expect to be granted rights to publish data arising out of such collaboration, provided
that we may have the right to be notified in advance and given the opportunity to delay publication for a limited time period in
order for us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity
to remove confidential or trade secret information from any such publication. We also conduct joint research and development programs
that may require us to share intellectual
property
under the terms of our research and development or similar agreements. However, we cannot guarantee that we have entered into
such agreements with each party that may have or have had access to our trade secrets or other confidential information or proprietary
technology and processes, or that such agreements will not be breached or that our trade secrets or other confidential information
will not otherwise be disclosed. Despite the contractual provisions employed when working with these advisors, employees and third-party
contractors and consultants, the need to share intellectual property and other confidential information increases the risk that
such confidential information becomes known by our competitors, is inadvertently incorporated into the product development of
others or is disclosed or used in violation of these agreements. Additionally, our grant agreements typically provide for dissemination
of results to academic institutions and to the general public. As a result, our information may be disseminated with the loss
of protection status.
We also seek to preserve the integrity
and confidentiality of our data and trade secrets by maintaining the physical security of our premises and the physical and electronic
security of our information technology systems. Despite our efforts to protect our intellectual property, our competitors may discover
our trade secrets through breach of our agreements by third parties, for which we may not have adequate remedies for any breach,
or publication of information by any of our CROs, academic partners, funding organizations or our licensing or collaboration partners.
Additionally, if the steps taken to maintain our trade secrets are deemed inadequate by law, we may have insufficient recourse
against third parties for misappropriating such trade secrets. Misappropriation or unauthorized disclosure of our trade secrets
could impair our competitive position and may have a material adverse effect on our business. Moreover, if any of our trade secrets
were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent
such competitor or other third party from using that technology or information to compete with us. A competitor’s or other
third party’s discovery of our intellectual property would impair our competitive position and have a material adverse effect
on our business.
Further, the laws of some foreign countries
do not protect proprietary rights to the same extent or in the same manner as the laws of the US. As a result, we may encounter
significant problems in protecting and defending our intellectual property both in the US and abroad. If we are unable to prevent
material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish
or maintain a competitive advantage in our market, which could materially adversely affect our business, financial condition and
results of operations.
Despite confidentiality clauses within
our employment agreements, we cannot ensure that departing employees will not breach any post-termination commitments in such agreements
by allowing others to access our trade secrets.
Obtaining and maintaining our patent protection
depends on compliance with various procedural, document-submission, fee-payment and other requirements imposed by governmental
patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees, renewal fees,
annuity fees and various other government fees on a patent and patent application are due to be paid to the USPTO and foreign patent
agencies in several stages over the lifetime of the patent and patent application. The USPTO and various foreign governmental patent
agencies require compliance with a number of procedural, documentary, fee-payment and other similar provisions during the patent
application process. We employ reputable law firms and other professionals to help us comply with these requirements and we are
also dependent on our licensors or collaboration partners to take the necessary action to comply with these requirements with respect
to certain of our intellectual property. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by
other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse
of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance
events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to
respond to official actions within prescribed time limits, nonpayment of fees and failure to properly legalize and submit formal
documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our
business.
The patent protection and patent prosecution
for some of our product candidates is dependent on third parties.
Although we normally seek to obtain the
right to control prosecution, maintenance and enforcement of the patents relating to our product candidates, there may be times
when the filing and prosecution activities for patents relating to our product candidates are controlled by our licensors or collaboration
partners. If any of our current or future licensing or collaboration partners fail to prosecute, maintain and enforce such patents
and
patent
applications in a manner consistent with the best interests of our business, including by payment of all applicable fees for patents
covering our product candidates, we could lose our rights to the intellectual property or our exclusivity with respect to those
rights, our or our collaboration partners’ ability to develop and commercialize those product candidates may be adversely
affected and we may not be able to prevent competitors from making, using, and selling competing products. In addition, even where
we have the right to control patent prosecution of patents and patent applications we have licensed to and from third parties,
we may still be adversely affected or prejudiced by actions or inactions of our licensees, our licensors and their counsel that
took place prior to the date upon which we assumed control over patent prosecution.
Additionally, we may be adversely affected
or prejudiced by actions or inactions of our external and internal patent counsels working solely on our projects or our joint
patent counsels representing us and our collaboration partners.
If we fail to comply with the obligations in
our intellectual property agreements, including those under which we license intellectual property and other rights to or from
third parties, or otherwise experience disruptions to our business relationships with our licensees, our licensors and partners,
we could lose intellectual property rights that are important to our business.
We are a party to a number of intellectual
property license and co-ownership agreements and research and development collaborations that are important to our business and
expect to enter into additional such agreements in the future. Under certain circumstances, the royalties payable to us under these
agreements are subject to certain reductions, which may have a materially adverse effect on our business, financial condition,
results of operations and prospects. In addition, our existing agreements impose, and we expect that future agreements will impose,
various diligence, commercialization, milestone payment, royalty and other obligations on us. If we fail to comply with our obligations
under these agreements, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license
or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products
covered by the license.
Licensing of intellectual property is of
critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding intellectual
property subject to a licensing or co-ownership agreement, including:
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the scope of rights granted under the agreement, any restrictions in licensed fields and other interpretation-related issues;
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the extent to which our technology and processes infringe or otherwise violate the intellectual property of the licensor, the
licensee or partner that is not subject to the agreement;
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the sublicensing of patent and other rights;
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the diligence, development and commercialization obligations under the agreement and what activities satisfy those obligations;
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the ownership of inventions and know-how resulting from the joint or mutual creation or use of intellectual property by our
licensors or collaboration partners and us;
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the priority of invention in patented technology;
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non-compete commitments; and
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consequences for changes in control.
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If disputes over intellectual property
and other rights that we own, have licensed or co-own prevent or impair our ability to maintain our current licensing or exclusivity
arrangements on acceptable terms, we or our collaboration partners may be unable to successfully develop and commercialize the
affected product candidates.
In addition, certain provisions in the
agreements under which we currently license intellectual property or technology to and from third parties may be susceptible to
multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe
to be the scope of our rights to the relevant intellectual property or technology, increase what we believe to be our financial
or other obligations
under
the relevant agreement, or decrease the third party’s financial or other obligations under the relevant agreement, any of
which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We or our licensors or licensees and collaborators
may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Our or our licensors or licensees and collaborators
programs may require the use of proprietary rights held by third parties in the future, and the growth of our business will likely
depend in part on our ability to acquire, in-license, maintain or use these proprietary rights. In addition, our product candidates
may require specific processes and/or formulations to work effectively and efficiently and the rights to these processes and/or
formulations may be held by others. We or our licensors or licensees may be unable to acquire or in-license from third parties
any compositions, methods of use, processes, or other third-party intellectual property rights that we identify as necessary for
our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a
number of more established companies may pursue strategies to license or acquire third-party intellectual property rights that
we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size,
cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to
be a competitor may be unwilling to assign or license rights to us. We or our licensors or licensees also may be unable to license
or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
For example, we sometimes collaborate
with US and foreign academic institutions to accelerate our preclinical research or development under written agreements with
these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s
rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within
the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual
property rights to other parties, potentially blocking our ability to pursue our applicable product candidate or program.
If we are unable to successfully obtain
a license to third-party intellectual property rights necessary for the development of a product candidate or program, we may have
to abandon development of that product candidate or program and our business and financial condition could suffer.
Third-party claims of intellectual property
infringement may expose us to substantial liability or may prevent or delay our or our collaboration partners’ development
and commercialization efforts.
Numerous US- and foreign-issued patents
and pending patent applications, which are owned by third parties, exist in the fields in which we are developing product candidates.
For example, we are aware of third-party patents or patent applications that may be construed to cover one or more of our product
candidates. If these patents are asserted against us or our licensing or collaboration partners and either we or our licensing
or collaboration partners are found to infringe any of these patents, and are unsuccessful in demonstrating that such patents are
invalid or unenforceable, then we and our licensing or collaboration partners could be required to pay substantial monetary damages
or cease further development or commercialization of one or more of our product candidates or be compelled to enter into onerous
licenses with such third parties. There may also be other third-party patents or patent applications with claims to materials,
formulations, methods of manufacture or methods of treatment related to the use or manufacture of our product candidates and technology.
Although we generally conduct a freedom-to-operate search and review with respect to our product candidates, we cannot guarantee
that our search and review is complete and thorough, nor can we be sure that we have identified each and every patent and pending
application in the US and abroad that is relevant or necessary to the manufacturing or commercialization of our product candidates
or use of our technology. Because patent applications can take many years to issue, there may be currently pending patent applications
that may later result in issued patents that our product candidates may infringe. In addition, third parties may file and obtain
additional patents in the future and claim that use of our technologies infringes upon these patents.
Third parties may assert infringement claims
against us based on existing patents or on patents that may be granted in the future, regardless of merit. Even if we believe such
claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and
infringed, which could materially and adversely affect our or our collaboration partners’ ability to commercialize our product
candidates or technologies covered by the asserted third-party patents.
Parties making claims against us may also
obtain injunctive or other equitable relief, which could effectively block our or our collaboration partners’ ability to
further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would
involve substantial litigation expense and would be a substantial diversion of management and employee resources from our business.
In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages
and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses
from third parties, which may be impossible or require substantial time and monetary expenditure. Any of the foregoing could have
a material and adverse effect on our business, financial conditions, results of operations and prospects.
In addition, claims that we have misappropriated
the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial
condition, results of operations and prospects.
There could also be public announcements
of the results of hearings, motions, decisions, or other interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have a material adverse effect on the price of our common shares.
Some of our competitors may have substantially
greater resources and more mature and developed intellectual property portfolios than we do, and may be able to sustain the costs
of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent-holding
companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. As the pharmaceutical
and biopharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject
to claims of infringement of the patent rights of third parties. The uncertainties resulting from the initiation and continuation
of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
We may be subject to claims that our employees,
consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our
employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ and utilize the services of individuals
who were previously employed or provided services to universities or other pharmaceutical or biopharmaceutical companies, including
our competitors or potential competitors. Although we try to ensure that our employees, consultants, and independent contractors
do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees,
consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade
secrets or other proprietary information, of any of our employees’, consultants’ or independent contractors’
former employers or of other third parties. Litigation may be necessary to defend against these claims. If we fail in defending
any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which
could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and other employees.
In addition, although it is our policy
to require our employees, consultants and independent contractors who may be involved in the conception or development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement
with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual
property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against
third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual
property.
We may not be able to protect our
intellectual property rights throughout the world.
Filing, prosecuting and defending patents
on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights
in some countries outside the US may be less extensive than those in the US. In addition, the laws of some foreign countries do
not protect intellectual property rights to the same extent as the laws in the US. Consequently, we may not be able to prevent
third parties from practicing our inventions in all countries outside the US, or from selling or importing products made using
our inventions in and into the US or other jurisdictions. In the ordinary course of prosecution and maintenance activities, we
determine whether to seek patent protection outside the US and in which countries. This also applies to patents we have acquired
or in-licensed from third parties. In some cases, we, or our predecessors in interest or licensors of patents within our portfolio,
have sought patent protection in a limited
number
of countries for patents covering our product candidates. Competitors may use our technologies and products in jurisdictions where
we have not obtained or are unable to adequately enforce patent protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the US.
These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient
to prevent them from competing, which would have a material adverse effect on our business and financial positions.
Many companies have encountered significant
problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property
protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement,
misappropriation or other violations of our intellectual property and proprietary rights. Proceedings to enforce our patent rights
in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from
other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications
at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we
initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
If our trademarks and trade names
are not adequately protected, then we may not be able to build name recognition in our markets of interest, our names and brands
may be misappropriated by third parties, and our business may be adversely affected
We have filed trademark applications seeking
protection for our corporate name, logo, Nasdaq Global Market symbol and selected names of our technology platforms in selected
geographies. While we have been granted registrations in certain geographies for certain trademarks, there is no guarantee that
our trademark applications will be approved by the respective authorities at all or that we will not be required to narrow the
scope of protection in certain or all geographies. Our applications may face opposition from third parties, potentially resulting
in the lack of protection or narrower protection. Our trademarks or trade names may be challenged, infringed, circumvented, declared
generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade
names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors
or other third parties may adopt trade names, domain names or trademarks similar to ours, thereby impeding our ability to build
brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement
claims brought by owners of other registered trademarks or trademarks that incorporate variations of our trademarks or trade names.
Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be
able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights
related to trademarks and domain names may be ineffective and could result in substantial costs and diversion of resources, and
could adversely affect our business, financial condition, results of operations and growth prospects.
Risks related to our financial condition and capital requirements
We are a clinical-stage company and
have a history of operating losses. We anticipate that we will
continue to incur losses for the foreseeable
future.
We are a clinical-stage biopharmaceutical
company. Since 2003, although we have received upfront and milestone payments from our collaboration partners and certain other
contract revenue, we have also incurred significant operating losses. We incurred net losses (defined as net loss attributable
to owners of the Company) of CHF 61.9 million for the year ended December 31, 2020. In addition, we had accumulated losses of CHF
132.9 million as of December 31, 2020.
Our losses have resulted principally from
research and development expenses and from general business and administrative expenses. We expect to continue to incur significant
operating losses in the future as we continue our research and development efforts for our current and future product candidates
and seek to obtain regulatory approval and commercialization of such product candidates.
To date, the Company has financed its liquidity
requirements primarily from its public offerings, share issuances, contract revenues from license and collaboration agreements
and grants. We have no products approved for commercialization and have never generated any revenues from product sales. Biopharmaceutical
and pharmaceutical product development is a highly speculative undertaking and involves a substantial degree
of
risk. It may be several years, if ever, before we or our collaboration partners complete pivotal clinical studies and have a product
candidate approved for commercialization and we begin to generate revenue or royalties from product sales.
Although we have generated revenues from upfront
and milestone payments related to our collaboration agreements, we have never generated any revenue from product sales and may
never be profitable.
Although we have generated contract revenue
from upfront and milestone payments related to our collaboration agreements, we have no products approved for commercialization
and have never generated any revenue from product sales. Our ability to generate revenue and achieve profitability depends on our
ability to successfully complete the development of, and obtain the marketing approvals necessary, to commercialize one or more
of our product candidates. We do not anticipate generating revenue from product sales unless and until we or our collaboration
partners obtain regulatory approval for, and commercialize, our product candidates. Our ability to generate future revenue from
product sales depends heavily on our and our collaboration partners’ success in many areas, including but not limited to:
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successfully completing research and clinical development of our product candidates, by we or our collaboration partners, as
the case may be;
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obtaining marketing approvals for our product candidates, including ACI-35, semorinemab, Morphomer Tau, ACI-24 for AD and for
DS, crenezumab and PI-2620, for which we complete clinical studies;
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developing a sustainable and scalable manufacturing process for any approved product candidates, and maintaining supply and
manufacturing relationships with third parties that can conduct the process and provide adequate (in amount,
quality and time) products to support clinical development and the market demand for our product candidates, if approved;
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launching and commercializing product candidates for which we obtain marketing approval, either directly or with a collaborator
or distributor;
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obtaining market acceptance of our product candidates as viable treatment or diagnostic options;
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addressing any competing technological and market developments;
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identifying, assessing, acquiring and/or developing new product candidates;
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negotiating favorable terms in any collaboration, licensing, or other similar arrangements into which we may enter;
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maintaining, protecting, acquiring and expanding our portfolio of intellectual property rights, including patents, trade secrets
and know-how; and
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attracting, hiring and retaining qualified personnel.
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Because of the numerous risks and uncertainties
with biopharmaceutical and pharmaceutical product development, we are unable to accurately predict the timing or amount of increased
expenses and when, or if, we will be able to achieve profitability. Our expenses could increase beyond expectations if we are required
by the FDA, the EMA or other regulatory agencies, domestic or foreign, to change our manufacturing processes, or to perform clinical,
nonclinical or other types of studies in addition to those that we currently anticipate. In cases where we are successful in obtaining
regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of
the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to obtain
coverage and reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable
patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or
the treatment population is narrowed by competition, physician choice or treatment guidelines, we may not generate significant
revenue from sales of such products, even if approved. Accordingly, we may not be profitable in the future from the sale of any
approved products.
We or our collaboration partners may be
unable to develop and commercialize any of our current or future product candidates and, even if we do, may not achieve profitability
in the future. Even if we do achieve
profitability
in the future, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to be profitable
in the future would decrease the value of our company and could impair our ability to raise capital, expand our business or continue
our operations. A decline in the value of our company could cause you to lose all or part of your investment.
If we fail to obtain additional funding, we
may delay, reduce or eliminate our product development programs or commercialization efforts.
We are currently advancing our product
candidates through clinical development, either together with a collaboration partner (ACI-35, semorinemab, Morphomer Tau, crenezumab
and PI-2620) or independently (ACI-24 for AD and for DS). We expect our research and development expenses to continue to increase
in connection with our ongoing activities, particularly as we and/or our collaboration partners continue our ongoing studies and
initiate new studies of ACI-35, semorinemab, Morphomer Tau, ACI-24 for AD and for DS, crenezumab and PI-2620 and initiate preclinical
and clinical development of our other product candidates.
As of December 31, 2020, we had cash
and cash equivalents of CHF 160.9 million and short-term financial assets of CHF 65 million resulting in a total liquidity
position of CHF 225.9 million. We currently believe that our existing capital resources, not including potential milestone payments,
will be sufficient to meet our projected operating requirements through at least Q1 2024. We have based this estimate on assumptions
that may prove to be wrong, and we could exhaust our capital resources sooner than we currently expect. In addition, changing circumstances
may cause us to adjust our projected spending to amounts more than currently expected. We may also need to raise additional funds
sooner than we anticipate due to various factors such as the scope and rate of progress of our development activities, regulatory
approval outcomes and emergence of competing technologies, among others.
We expect that we will require additional
capital to develop and commercialize certain of our product candidates. If we receive regulatory approval for our current and future
product candidates, and if we have not already licensed such product candidate to a collaboration partner and choose to commercialize
such product candidate independently, we expect to incur significant commercialization expenses related to product manufacturing,
sales, marketing, distribution and establishing a regulatory structure, depending on where we choose to commercialize. Additional
funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to
enable us to continue to implement our long-term business strategy. Additionally, we may be dependent on the status of the capital
markets at the time such capital is sought. If we are not able to raise capital when needed, we could be forced to delay, reduce
or eliminate our product development programs or commercialization efforts.
Raising additional capital may cause dilution
to our shareholders, restrict our operations or require us to relinquish rights to our intellectual property or future revenue
streams.
Until such time, if ever, as we can generate
substantial product royalty revenue, we expect to finance our liquidity needs through a combination of equity offerings, debt financings,
grants, and license and development agreements in connection with collaborations. In September 2020, the Company established an
“at the market offering” (ATM) for the sale of up to USD 80 (CHF 71.3) million worth of our common shares from time
to time by entering into an Open Market Sale Agreement (Sales Agreement) with Jefferies LLC (Jefferies). We do not have any material
committed external source of funds. In the event we need to seek additional funds, we may raise additional capital through the
sale of equity, convertible debt or other securities. In such an event, your ownership interest will be diluted, and the terms
of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our common shares.
Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or proposing dividends to our shareholders.
If we raise additional funds through collaborations,
strategic alliances, or marketing, distribution or licensing arrangements with third parties, we may have to grant or otherwise
relinquish valuable rights to our intellectual property or future revenue streams.
Our ability to use tax loss carry-forwards
in Switzerland may be limited.
As of December 31, 2020, we reported tax
loss carry-forwards from financial years 2014 until 2020 for purposes of Swiss corporate income tax in the aggregate amount of
CHF 121.9 million, which could be available to offset future taxable income. If not used, these tax losses will expire 7 years
after the year in which they were incurred. Due to our limited income, there is a high risk that the tax loss carry-forwards will
expire
partly
or entirely and we will not be able to use them to offset future taxable income thereafter for Swiss corporate income tax purposes.
Exchange rate fluctuations may materially affect
our results of operations and financial condition.
Under our existing agreements, we receive
and make a significant amount of payments in Swiss Franc, USD and EUR. As a result, changes and fluctuations in currency exchange
rates between the Swiss Franc and other currencies, especially the USD and EUR, could have a materially adverse effect on our operating
results. As our reporting currency is the Swiss Franc, financial line items are converted into Swiss Francs at the applicable exchange
rates. We also expect that in the future, a significant portion of our revenues and expenses will be denominated in Swiss Franc,
USD and EUR. Therefore, unfavorable developments in the value of the Swiss Franc as compared to the USD and EUR or any other currency
could have a material adverse effect on our business, financial condition and results of operations.
Risks related to the regulatory environment
We cannot give any assurance that any of our
product candidates will receive regulatory approval, which is necessary before they can be commercialized.
Our future success is dependent on our
and our collaboration partners’ ability to successfully develop, obtain regulatory approval for, and then successfully commercialize
one or more product candidates. We currently have one product candidate that has completed Phase 2 clinical studies and five that
are in a Phase 2 clinical study. We are not permitted to market or promote any of our product candidates before we receive regulatory
approval from the FDA, EMA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for
any of our product candidates.
We cannot be certain that any of our product
candidates will be successful in clinical studies or receive regulatory approval. Applications for our product candidates could
fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical studies;
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the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full
population for which we seek approval;
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the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from nonclinical or
clinical studies;
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the data collected from clinical studies of our product candidates may not be sufficient to support the submission of an NDA
or other submission or to obtain regulatory approval in the US or elsewhere;
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we may be unable to demonstrate to the FDA, EMA or comparable foreign regulatory authorities that a product candidate’s
benefit-risk ratio for its proposed indication is acceptable;
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the FDA, EMA or other regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications,
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may change significantly
in a manner rendering our clinical data insufficient for approval.
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We generally plan to seek regulatory approval
to commercialize our product candidates in the US, the EU and in additional foreign countries where we have commercial and typically
IP rights. To obtain regulatory approval in other countries, we must comply with numerous and varying regulatory requirements of
such other countries regarding safety, efficacy, chemistry, manufacturing and controls, clinical studies, commercial sales, pricing,
marketing and distribution of our product candidates. Even if we are successful in obtaining approval in one jurisdiction, we cannot
ensure that we will obtain approval in any other jurisdictions. Failure to obtain marketing authorization for our product candidates
will result in our being unable to market and sell such products, which would materially adversely affect our business, financial
condition and results of operations. If we fail to obtain approval in any jurisdiction, the geographic market for our product candidates
could be limited.
Similarly,
regulatory agencies may not approve the labeling claims that are necessary or desirable for the successful commercialization of
our product candidates.
Clinical drug development involves a lengthy
and expensive process with uncertain timelines and uncertain outcomes. If clinical studies of our product candidates are prolonged
or delayed, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize our product candidates
on a timely basis or at all.
To obtain the necessary regulatory approvals
to market and sell any of our product candidates, we must demonstrate through extensive preclinical and clinical studies that our
products are safe and effective in humans. Clinical testing is expensive and can take many years to complete, and its outcome is
inherently uncertain. Failure can occur at any time during the clinical study process. The results of preclinical and early clinical
studies of our product candidates may not be predictive of the results of later-stage clinical studies. For example, the positive
results generated to date in clinical studies for our product candidates do not ensure that later clinical studies will demonstrate
similar results. Product candidates in later stages of clinical studies may fail to show the desired safety and efficacy traits
despite having progressed through preclinical studies and initial clinical studies. A number of companies in the pharmaceutical
or biopharmaceutical industry, including us, have suffered significant setbacks in advanced clinical studies due to lack of efficacy
or adverse safety profiles, notwithstanding promising results in earlier studies. Our future clinical study results may not be
successful.
Clinical studies must be conducted in
accordance with the legal requirements, regulations or guidelines of the FDA, EMA and comparable foreign regulatory authorities,
and are subject to oversight by these governmental agencies and Institutional Review Boards (IRBs) at the medical institutions
where the clinical studies are conducted. In addition, clinical studies must be conducted with supplies of our product candidates
produced under cGMP and other requirements. We depend on medical institutions and CROs to conduct our clinical studies in compliance
with cGCP standards. To the extent the CROs fail to enroll participants for our clinical studies, fail to conduct the study to
cGCP standards or are delayed for a significant time in the execution of studies, including achieving full enrollment, we may
be affected by increased costs, program delays or both, which may harm our business.
To date, neither we nor our collaboration
partners have completed all clinical studies required for the approval of any of our product candidates.
The completion of clinical studies for
our clinical product candidates may be delayed, suspended or terminated as a result of many factors, including but not limited
to:
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the delay or refusal of regulators or IRBs to authorize us to commence or amend a clinical study at a prospective study site
or changes in regulatory requirements, policies and guidelines;
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delays or failure to reach agreement on acceptable terms with prospective CROs and clinical study sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different CROs and study sites;
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delays in patient enrollment and variability in the number and types of patients available for clinical studies;
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the inability to enroll a sufficient number of patients in studies to ensure adequate statistical power to detect statistically
significant treatment effects;
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negative or inconclusive results, which may require us to conduct additional preclinical or clinical studies or to abandon
projects that we expected to be promising;
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safety or tolerability concerns, which could cause us to suspend or terminate a study if we find that the participants are
being exposed to unacceptable health risks;
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regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements or safety concerns, among others;
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lower than anticipated retention rates of patients and volunteers in clinical studies;
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our CROs or clinical study sites failing to comply with regulatory requirements or meet their contractual obligations to us
in a timely manner, or at all, deviating from the protocol or dropping out of a study;
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delays relating to adding new clinical study sites;
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difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
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delays in establishing the appropriate dosage levels;
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the quality or stability of the product candidate falling below acceptable standards;
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the inability to produce or obtain sufficient quantities of the product candidate to complete clinical studies; and
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exceeding budgeted costs due to difficulty in accurately predicting costs associated with clinical studies.
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Any delays in completing our clinical studies
will increase our costs, slow our product candidate development and approval process, and jeopardize our ability to commence product
sales and generate sales revenues. Any of these occurrences may significantly harm our business, financial condition and prospects.
In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical studies may also
ultimately lead to the denial of regulatory approval of our product candidates.
Even if we obtain and maintain approval for
our drug candidates from one jurisdiction, we may never obtain approval for our drug candidates in other jurisdictions, which would
limit our market opportunities and adversely affect our business.
Sales by us of our approved drugs will
be subject to US and non-US regulatory requirements governing clinical studies and regulatory approval, and we plan to seek regulatory
approval to commercialize our drug candidates in the US, the EEA, and other countries. Clinical studies conducted in one country
may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not ensure approval
in any other country, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the
regulatory approval process in others. For example, approval in the US by the FDA does not ensure approval by the regulatory authorities
in other countries or jurisdictions, and similarly, approval by a non-US regulatory authority, such as the EMA, does not ensure
approval by regulatory authorities in other countries, including by the FDA. However, the failure to obtain approval in one jurisdiction
may have a negative impact on our ability to obtain approval elsewhere. Approval processes and regulatory requirements vary among
countries and can involve additional drug testing and validation and additional administrative review periods. Even if a drug is
approved, the FDA or EMA, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings
on the drug labeling, or require expensive and time-consuming clinical studies or reporting as conditions of approval. In many
countries outside the US, a drug candidate must be approved for reimbursement before it can be approved for sale in that country.
In some cases, the price that would be charged for a drug is also subject to approval. Regulatory authorities in other countries
also have their own requirements for approval of drug candidates with which we must comply prior to marketing in those countries.
Obtaining non-US regulatory approvals and compliance with such non-US regulatory requirements could result in significant delays,
difficulties and costs for us and could delay or prevent the introduction of our current and any future drugs, in certain countries.
If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if
regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full
market potential of our drug candidates will be unrealized.
Even if our product candidates obtain
regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant
additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and
market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated
problems with our products.
If marketing authorization is obtained
for any of our product candidates, the product will remain subject to continual regulatory review and therefore authorization could
be subsequently withdrawn or restricted. Any regulatory approvals that we receive for our product candidates may also be subject
to limitations on the
approved
indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially
costly post-marketing testing, including Phase 4 clinical studies and surveillance to monitor the safety and efficacy of the product
candidate. In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, we will
be subject to ongoing regulatory obligations and oversight by regulatory authorities, including with respect to the manufacturing
processes, labeling, packing, distribution, adverse event reporting, storage, advertising and marketing restrictions, and record-keeping
and, potentially, other post-marketing obligations, all of which may result in significant expense and limit our or our collaboration
partners’ ability to commercialize such products. These requirements include submissions of safety and other post-marketing
information and reports, registration, as well as continued compliance with cGMP and cGCP requirements for any clinical studies
that we conduct post-approval. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity
or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements,
may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory
product recalls;
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fines, warning letters or holds on clinical studies;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation
of product license approvals;
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regulatory constraints in promotion and distribution of drug products in various markets;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties.
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If any of these events occurs, our ability
to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which
could materially adversely affect our business, financial condition and results of operations. The FDA’s policies may change
and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we
are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely
affect our business, prospects and ability to achieve or sustain profitability.
We have conducted and may in the future conduct
clinical studies for our drug candidates outside the US, and the FDA and applicable foreign regulatory authorities may not accept
data from such studies.
We have conducted and may in the future
choose to conduct one or more of our clinical studies outside the US, including in Germany, Austria, Denmark, Sweden, Finland,
the UK, Poland and the Netherlands. The acceptance of study data from clinical studies conducted outside the US or another jurisdiction
by the FDA or applicable foreign regulatory authority may be subject to certain conditions. In cases where data from foreign clinical
studies are intended to serve as the basis for marketing approval in the US, the FDA will not approve the application on the basis
of foreign data alone unless the following are true: the data are applicable to the US population and US medical practice; the
studies were performed by clinical investigators of recognized competence; and the data are considered valid without the need for
an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data
through an on-site inspection or other appropriate means. Additionally, the FDA’s clinical study requirements, including
sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory bodies have similar requirements.
In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions in which the studies
are conducted. There can be no assurance that the FDA or any applicable foreign regulatory authority will accept data from studies
conducted outside of the US or the applicable jurisdiction. If the FDA or any applicable foreign regulatory authority does not
accept such data, it would result in the need for additional studies, which would be costly and time-consuming and delay aspects
of our business plan, and which may result in our drugs or drug candidates not receiving approval or clearance for commercialization
in the applicable jurisdiction.
Enacted and future legislation may increase
the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and may affect the prices
we may set.
In the US and the EU, there have been a
number of legislative and regulatory changes and proposed changes regarding the healthcare system. These changes could prevent
or delay marketing approval of our product candidates and restrict or regulate post-approval activities and affect our ability
to profitably sell any products for which we obtain marketing approval.
In the US, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (Medicare Modernization Act), changed the way Medicare covers and pays for pharmaceutical
and biopharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new
reimbursement methodology based on average sale prices for physician-administered drugs. In addition, this legislation provided
authority for limiting the number of drugs that will be covered in any therapeutic class. Cost-reduction initiatives and other
provisions of this legislation could decrease the coverage and price that we receive for any approved products. Although the Medicare
Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy
and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the
Medicare Modernization Act may result in a similar reduction in payments from private payors.
In March 2010, former President Obama
signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act
(HCERA) (collectively, the Health Care Reform Law), a sweeping law intended to broaden access to health insurance, reduce or constrain
the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care
and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.
The Health Care Reform Law, among other things, increased the rebates a manufacturer must pay to the Medicaid program; addressed
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that
are inhaled, infused, instilled, implanted or injected; established a new Medicare Part D coverage gap discount program, in which
manufacturers must provide 50% point-of-sale discounts on products covered under Part D; and implemented payment system reforms,
including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination,
quality and efficiency of certain healthcare services through bundled payment models. Further, the new law imposed a significant
annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance
were enacted, which may affect our business practices with healthcare practitioners. On July 24, 2020 and September 13, 2020,
the Trump administration announced several executive orders related to prescription drug pricing that attempt to implement several
of the administration’s proposals. As a result, the FDA released a final rule on September 24, 2020, effective November
30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada. Further, on November 20,
2020, the US Department of Health and Human Services, or HHS, finalized a regulation removing safe harbor protection for price
reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers,
unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale,
as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. On November 20,
2020, CMS issued an interim final rule implementing former President Trump’s Most Favored Nation executive order, which
would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other economically advanced
countries, effective January 1, 2021. On December 28, 2020, the US District Court in Northern California issued a nationwide preliminary
injunction against implementation of the interim final rule. It is unclear whether the Biden administration will work to reverse
these measures or pursue similar policy initiatives. At the state level, legislatures have increasingly passed legislation and
implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in
some cases, designed to encourage importation from other countries and bulk purchasing.
In 2020, we continued to face uncertainties
because of continued US federal legislative and administrative efforts to repeal, substantially modify or invalidate some or all
of the provisions of the Health Care Reform Law. In January 2017, Congress voted to adopt a budget resolution for the fiscal year
2017 that authorized the implementation of legislation that would repeal portions of the Health Care Reform Law. On December 14,
2018, a federal judge in Texas ruled that the Health Care Reform Law is unconstitutional in its entirety because the “individual
mandate” was repealed by Congress as part of the 2017 Tax Act. While the judge, as well as the Trump administration and CMS,
have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent
appeals, and other efforts to repeal and replace the ACA, will impact our business. On December 18, 2019, the Fifth Circuit Court
of Appeals upheld the lower court’s decision that the Health Care Reform Law was unconstitutional. On March 2, 2020, the
US Supreme Court granted certiorari to review the case and oral arguments were held on November 10, 2020. Although the US
Supreme
Court has yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate
a special enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through
the Health Care Reform Law marketplace. The executive order also instructs certain governmental agencies to review and reconsider
their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration
projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access
to health insurance coverage through Medicaid or the ACA. Pending review, the Health Care Reform Law remains in effect, but it
is unclear what effect this litigation, other efforts to repeal and replace the Health Care Reform Law and the healthcare reform
measures of the Biden administration will have on the status of the ACA. Litigation and legislation over the Health Care Reform
Law are likely to continue, with unpredictable and uncertain results. Congress also could consider subsequent legislation to replace
elements of the Health Care Reform Law that are repealed. There is no assurance that the Health Care Reform Law, as currently
enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future
federal or state legislative or administrative changes relating to healthcare reform will affect our business.
Moreover, other legislative changes have
also been proposed and adopted in the US since the Health Care Reform Law was enacted. On August 2, 2011, the Budget Control
Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction,
tasked with recommending a targeted deficit reduction of at least USD 1.2 trillion for the years 2013 through 2021, was unable
to reach the required goals, thereby triggering the legislation’s automatic reduction to several government programs. This
includes aggregate reductions in Medicare payments to providers of 2% per fiscal year, which went into effect on April 1,
2013 and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional Congressional action
is taken. The Coronavirus Aid, Relief, and Economic Security Act suspended the 2% Medicare sequester from May 1, 2020 through
December 31, 2020, and extended the sequester reductions by one year, through 2030. On January 2, 2013, former President
Obama signed into law the American Taxpayer Relief Act of 2012 which, among other things, further reduced Medicare payments to
several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations
period for the government to recover overpayments to providers from 3 to 5 years. These new laws may result in additional reductions
in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial
operations.
Our business is subject to complex
and evolving US and international laws and regulations regarding clinical trials reimbursement and privacy and data protection.
Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our
business practices, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
Regulatory authorities around the world
have adopted laws and regulations, and are continuing to consider a number of legislative and regulatory proposals, concerning
privacy and data protection, including measures to ensure that encryption of users’ data does not hinder access of law enforcement
agencies to that data. In addition, the interpretation and application of consumer and data protection laws in the US, Europe and
elsewhere are often uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent
with our data practices. These laws and regulations, and legislative and regulatory proposals, if adopted, and such interpretations
could, in addition to the possibility of fines, result in an order requiring that we change our data practices, which could have
an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial
costs or require us to change our business practices in a manner adverse to our business.
In the EU, new clinical trial regulations
are scheduled to come into force in 2021. This new legislation will enforce the centralization of clinical trial applications and
approvals, which will eliminate redundancy, but in some cases, this may extend timelines for clinical study approvals, due to potentially
longer wait times. The GDPR, which became effective in May 2018 in all EU Member States, created a range of new compliance obligations
for companies that process the personal data of EU residents. Although it is expected that the GDPR will provide consistency across
the territory of the EU, it imposes more onerous requirements concerning consent and the obligations of sponsors of clinical trials
(acting as Data Controllers), among other measures, which may increase the costs and extend the timelines of our product development
efforts. Austerity measures in certain European nations may also affect the prices we are able to seek if our products are approved,
as discussed below. Furthermore, the Brexit vote and the impact of the withdrawal of the UK may adversely affect business activity,
political stability and economic conditions in the UK, the Eurozone, the EU and elsewhere. Specifically, Brexit and ongoing developments
in the UK have created uncertainty with regard to data protection regulation in the UK. We may be required to comply with both
the GDPR and the UK GDPR to the extent of our operations in the UK, exposing us to two parallel regimes with potentially divergent
interpretations and
enforcement
actions for certain violations. The relationship between the UK and the EU in relation to certain aspects of data protection law
remains unclear, for example, how data transfers between EU member states and the UK will be treated and the role of the UK’s
Information Commissioner’s Office with respect to the EU following the end of the transitional period. Although we do not
have material operations in the UK, we cannot rule out potential disruptions in relation to the clinical regulatory framework
applicable to our clinical studies in the UK, and to data privacy and security rules with respect to personal data sharing with
vendors and clinical investigators in the UK, and we cannot predict future implications.
Both in the US and in the EU, legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
pharmaceutical and biopharmaceutical products. We do not know whether additional legislative changes will be enacted, whether the
regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our
product candidates, if any, may be.
We could be subject to liabilities under environmental,
health and safety laws or regulations, or fines, penalties or other sanctions, if we fail to comply with such laws or regulations
or otherwise incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental,
health and safety laws, regulations, and permitting requirements, including those governing laboratory procedures, decontamination
activities, and the handling, transportation, use, remediation, storage, treatment and disposal of hazardous materials, human
substances and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological
materials that produce hazardous waste products. We generally contract with third parties for the disposal of these materials
and wastes. We cannot eliminate the risk of contamination or injury from these materials or wastes either at our sites or at third-party
disposal sites. In the event of such contamination or injury, we could be held liable for any resulting damages, and any liability
could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties. Although
we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees
resulting from the use of hazardous materials, human substances or other work-related injuries, this insurance may not provide
adequate coverage against potential liabilities.
In addition, we may incur substantial costs
in order to comply with current or future environmental, health and safety laws, regulations or permitting requirements. Such laws,
regulations and requirements are becoming increasingly more stringent and may impair our research, development or production efforts.
Failure to comply with these laws, regulations and permitting requirements also may result in substantial fines, penalties or other
sanctions.
Our relationships with clinical centers, customers
and payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which, if violated,
could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational
harm and diminished profits and future earnings.
Healthcare providers, physicians and others
play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future arrangements
with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations,
primarily in the US, which may constrain the business or financial arrangements and relationships through which we market, sell
and distribute our products for which we obtain marketing approval. Restrictions under applicable healthcare laws and regulations
include the following:
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the US healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under US government
healthcare programs such as Medicare and Medicaid;
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the US False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against
individuals or entities for knowingly presenting, or causing to be presented, to the US government, claims for payment that are
false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the US HIPAA imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters;
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the HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes obligations, including
mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health
information;
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the transparency requirements under the Health Care Reform Law require manufacturers of drugs, devices, biologics and medical
supplies to report to the US Department of Health and Human Services information related to payments and other transfers of value
made by such manufacturers to physicians and teaching hospitals, and ownership and investment interests held by physicians or their
immediate family members; and
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in various other jurisdictions, analogous laws and regulations, such as state anti-kickback and false claims laws, will apply
to sales or marketing arrangements, consultancy and service agreements, and claims involving healthcare items or services reimbursed
by nongovernmental third-party payors, including private insurers, and some state laws require pharmaceutical and biopharmaceutical
companies to comply with the pharmaceutical and biopharmaceutical industries’ voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government, in addition to requiring manufacturers to report information related
to payments to physicians and other healthcare providers or marketing expenditures.
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Because of the breadth of these laws and
the narrowness of the statutory exceptions and safe harbors available under the US federal Anti-Kickback Statute, it is possible
that some of our future business activities could be subject to challenge under one or more of such laws. In addition, recent
healthcare-reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends
the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs
to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides 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 False Claims Act.
Efforts to ensure that our business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that
governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations
or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil,
criminal and administrative penalties, damages, fines, exclusion from US government-funded healthcare programs, such as Medicare
and Medicaid, other foreign healthcare reimbursement and procurement programs, and the curtailment or restructuring of our operations.
If any of the physicians or other providers or entities with whom we expect to do business with is found to be not in compliance
with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded
healthcare programs.
Risks from the improper conduct of employees,
agents, contractors, or collaborators could adversely affect our reputation and our business, prospects, operating results, and
financial condition.
We cannot ensure that our compliance controls,
policies, and procedures will in every instance protect us from acts committed by our employees, agents, contractors, or collaborators,
which would violate the laws or regulations of the jurisdictions in which we operate, including, without limitation, healthcare,
employment, foreign corrupt practices, environmental, competition, and patient privacy and other privacy laws and regulations.
Such improper actions could subject us to civil or criminal investigations, and monetary and injunctive penalties, and could adversely
impact our operating results, our ability to conduct business and our reputation.
We are exposed to the risk of employee
fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA or EMA regulations, to
provide accurate information to the FDA or the EMA, or intentional failures to report financial information or data accurately
or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in
the course of clinical studies, which could result in regulatory sanctions and serious harm to our reputation. In June 2016, we
adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take
to detect and prevent this activity may not be effective in controlling unknown or
unmanaged
risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply
with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves
or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant
fines or other sanctions.
Our business activities may be subject to the
Foreign Corrupt Practices Act (FCPA), and similar anti-bribery and anti-corruption laws.
Our business activities may be subject
to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate, including
the UK Bribery Act. The FCPA generally prohibits offering, promising, giving or authorizing others to give anything of value,
either directly or indirectly, to a non-US government official in order to influence official action, or otherwise obtain or retain
business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions
of the corporation, and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated
and therefore involves significant interaction with public officials, including officials of non-US governments. Additionally,
in many other countries, the healthcare providers who prescribe pharmaceuticals or biopharmaceuticals and the investigators who
perform our studies are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore,
our dealings with these prescribers and purchasers are subject to regulation under the FCPA. The Securities and Exchange Commission
(SEC) and the Department of Justice have increased their FCPA enforcement activities with respect to pharmaceutical companies.
There is no certainty that all of our employees, agents, contractors or collaborators, or those of our affiliates, will comply
with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws
and regulations could result in fines, criminal sanctions against us, our officers or our employees, the closing down of our facilities,
requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance
programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer
our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts,
our ability to attract and retain employees, and our business, prospects, operating results and financial condition.
Risks related to our common shares
The price of our common shares may be volatile
and may fluctuate due to factors beyond our control.
The share prices of publicly traded emerging
pharmaceutical, biopharmaceutical and drug discovery and development companies have been highly volatile and are likely to remain
highly volatile in the future. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
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positive or negative results of testing and clinical studies by us, strategic partners, or competitors;
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delays in entering into strategic relationships with respect to development and/or commercialization of our product candidates
or entry into strategic relationships on terms that are not deemed to be favorable to us;
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technological innovations or commercial product introductions by us or competitors;
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changes in government regulations;
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developments concerning proprietary rights, including patents and litigation matters;
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public concern relating to the commercial value or safety of any of our product candidates;
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financing or other corporate transactions;
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publication of research reports or comments by securities or industry analysts;
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general market conditions in the pharmaceutical or biopharmaceutical industry or in the economy as a whole; or
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other events and factors beyond our control.
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Broad market and industry factors may materially
affect the market price of companies’ stock, including ours, regardless of actual operating performance. Furthermore, issuers
such as ourselves, whose securities have historically had limited trading volumes and/or have been susceptible to relatively high
volatility levels, can be particularly vulnerable to short-seller attacks and trading in our common shares by non-fundamental investors
such as hedge funds and others who may enter and exit positions in our common shares frequently and suddenly, causing increased
volatility of our share price. Short selling is the practice of selling securities that the seller does not own but rather has
borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to
the lender, and profit from a decline in the value of the securities in the process. The publication of any commentary by short
sellers with the intent of creating negative market momentum may bring about a temporary, or possibly long-term, decline in the
market price of our common stock.
There is only a limited free float of our common
shares; this may have a negative impact on the liquidity of and the market price for our common shares.
As of the date hereof, certain principal
shareholders controlling 5% or more of our common shares as well as our executive officers and directors together beneficially
own approximately 69.2% of our common shares. The limited free float may have a negative impact on the liquidity of our common
shares and result in a low trading volume of our common shares, which could adversely affect the price of our common shares.
Certain of our existing shareholders exercise
significant control over us, and your interests may conflict with the interests of our existing shareholders.
Certain principal shareholders as well
as our executive officers and directors together beneficially own approximately 69.2% of our common shares. Depending on the level
of attendance at our general meetings of shareholders, these shareholders may be in a position to determine the outcome of decisions
taken at any such general meeting. To the extent that the interests of these shareholders may differ from the interests of the
Company’s other shareholders, the latter may be disadvantaged by any action that these shareholders may seek to pursue.
Among other consequences, this concentration of ownership may have the effect of delaying or preventing a change in control and
might therefore negatively affect the market price of our common shares.
Future sales, or the possibility of future
sales, of a substantial number of our common shares could adversely affect the price of our common shares.
Future sales of a substantial number of
our common shares, or the perception that such sales will occur, could cause a decline in the market price of our common shares.
If certain of our shareholders sell substantial amounts of common shares in the public market, or the market perceives that such
sales may occur, the market price of our common shares and our ability to raise capital through an issue of equity securities in
the future could be adversely affected. We also entered into a registration rights agreement in connection with the Series E Private
Placement with certain investors in the Series E Private Placement, pursuant to which we agreed under certain circumstances to
file a registration statement to register the resale of the common shares held by certain of our existing shareholders, as well
as to cooperate in certain public offerings of such common shares. In October 2020 and August 2018, we filed registration statements
on Form F-3 to register the resale of two of our shareholder’s common shares pursuant to the requirements of their registration
rights agreements. In addition, in 2019, we adopted a new omnibus equity incentive plan under which we have the discretion to grant
a broad range of equity-based awards to eligible participants. These shares were registered pursuant to the registration statement
on Form S-8 that we filed with the SEC and, therefore, can be freely sold in the public market upon issuance, subject to volume
limitations applicable to affiliates. If a large number of our common shares are sold in the public market after they become eligible
for sale, the sales could reduce the trading price of our common shares and impede our ability to raise future capital.
We have broad discretion in the use of our
cash and cash equivalents and short-term financial assets (liquidity) and may not use them effectively.
Our management will have broad discretion
in the application of our cash and cash equivalents and short-term financial assets. Our or our collaboration partners’ decisions
concerning the allocation of research, development, collaboration, management and financial resources toward particular product
candidates or therapeutic areas may not lead to the development of any viable commercial product and may divert resources away
from better opportunities. If we make incorrect determinations regarding the viability or market potential of any of our programs
or product candidates or misread trends in the pharmaceutical or biopharmaceutical industry, in particular for neurodegenerative
diseases, our business, financial condition and results of operations could be materially adversely affected. As a result, we may
fail to capitalize on viable commercial products or
profitable
market opportunities, be required to forego or delay pursuit of opportunities with other product candidates or other diseases
and disease pathways that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable
rights to such product candidates through collaboration, licensing or other royalty arrangements in cases in which it would have
been advantageous for us to invest additional resources to retain sole development and commercialization rights.
We do not expect to pay dividends
in the foreseeable future.
We have not paid any dividends since our
incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings
will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing
dividends. Under our articles of association, the declaration of dividends requires a resolution passed by a simple majority of
the votes cast at a shareholders’ meeting regardless of abstentions and empty or invalid votes. The proposal to pay future
dividends to shareholders will in addition effectively be at the discretion of our board of directors after considering various
factors including our business prospects, liquidity requirements, financial performance and new product development. In addition,
payment of future dividends is subject to certain limitation pursuant to Swiss law or by our articles of association. Accordingly,
investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely
depend entirely upon any future appreciation in the price of our common shares.
We are a Swiss corporation. The rights of our
shareholders may be different from the rights of shareholders in companies governed by the laws of US jurisdictions.
We are a Swiss corporation. Our corporate
affairs are governed by our articles of association and by the laws governing companies, including listed companies, incorporated
in Switzerland. The rights of our shareholders and the responsibilities of members of our board of directors may be different
from the rights and obligations of shareholders and directors of companies governed by the laws of US jurisdictions. In the performance
of its duties, our board of directors is required by Swiss law to consider the interests of our Company, our shareholders, our
employees and other stakeholders in all cases, with due observation of the principles of reasonableness and fairness. It is possible
that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. Swiss
corporate law limits the ability of our shareholders to challenge resolutions made or other actions taken by our board of directors
in court. Our shareholders generally are not permitted to file a suit to reverse a decision or an action taken by our board of
directors but are instead only permitted to seek damages for breaches of fiduciary duty. As a matter of Swiss law, shareholder
claims against a member of our board of directors for breach of fiduciary duty would have to be brought in Lausanne, Switzerland,
or the country in which the relevant member of our board of directors is domiciled. In addition, under Swiss law, any claims by
our shareholders against us must be brought exclusively in Lausanne, Switzerland (except for certain US securities and other claims
that may be brought in US federal court).
Our common shares are issued under the laws
of Switzerland, which may not protect investors in a similar fashion afforded by incorporation in a US state.
We are organized under the laws of Switzerland.
There can be no assurance that Swiss law will not change in the future in a way detrimental to shareholders or that it will serve
to protect investors in a similar fashion afforded under corporate law principles in the US, which could adversely affect the rights
of investors.
Our status as a Swiss corporation may limit
our flexibility with respect to certain aspects of capital management and may cause us to be unable to make distributions without
subjecting our shareholders to Swiss withholding tax.
Swiss law allows our shareholders to authorize
share capital that can be issued by the board of directors without additional shareholder approval. This authorization is limited
to 50% of the existing registered share capital and must be renewed by the shareholders every 2 years. Additionally, as a principle,
Swiss law grants pre-emptive subscription rights to existing shareholders to subscribe to any new issuance of shares. Any ordinary
share capital increase resolution preserving pre-emptive subscription rights expires after 3 months and requires a simple majority
of the votes cast at the shareholder’s meeting regardless of abstentions and empty or invalid votes. Swiss law also does
not provide as much flexibility in the various terms that can attach to different classes of shares as do the laws of some other
jurisdictions. Swiss law also reserves for approval by shareholders certain corporate actions over which a board of directors would
have authority in some other jurisdictions. For example, dividends must be approved by shareholders. These Swiss law requirements
relating to our capital
management
may limit our flexibility, and situations may arise in which greater flexibility would have provided substantial benefits to our
shareholders.
Under Swiss law, a Swiss corporation may
pay dividends only if the corporation has sufficient distributable profits from previous fiscal years, or if the corporation has
distributable reserves, each as evidenced by its audited statutory balance sheet. Freely distributable reserves are generally booked
either as “free reserves” or as “capital contributions” (apports de capital, contributions received
from shareholders) in the “reserve from capital contributions.” Distributions may be made out of issued share capital—the
aggregate nominal value of a company’s issued shares—only by way of a capital reduction. As of December 31, 2020, the
Company has CHF 341.5 million of reserves from capital contributions and CHF 1,537,748 of issued share capital (consisting of 76,887,449
common shares each with a nominal value of CHF 0.02 and no preferred shares) on its audited statutory balance sheet. Of the total
issued shares and issued share capital, the Company holds 5,000,000 fully paid-in treasury shares representing CHF 100,000 of issued
share capital.
We expect the aggregate of these amounts
(less the lowest legally possible issued share capital and legal reserve of together CHF 150,000) to represent the amount available
for future dividends or capital reductions on a Swiss withholding tax-free basis. We will not be able to pay dividends or make
other distributions to shareholders on a Swiss withholding tax-free basis in excess of that amount unless the Company increases
its share capital or its reserves from capital contributions. We would also be able to pay dividends out of distributable profits
or freely distributable reserves but such dividends would be subject to Swiss withholding taxes. There can be no assurance that
we will have sufficient distributable profits, free reserves, reserves from capital contributions or registered share capital to
pay a dividend or effect a capital reduction, that our shareholders will approve dividends or capital reductions proposed by us,
or that we will be able to meet the other legal requirements for dividend payments or distributions as a result of capital reductions.
Generally, Swiss withholding tax of 35%
is due on dividends and similar distributions to our shareholders, regardless of the place of residency of the shareholder, unless
the distribution is made to shareholders out of (i) a reduction of nominal value or (ii) assuming certain conditions are met,
reserves from capital contributions accumulated on or after January 1, 1997. A US Holder who qualifies for benefits under
the Convention Between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect
to Taxes on Income, which we refer to as the “US-Swiss Treaty,” may apply for a refund of the tax withheld in excess
of the 15% treaty rate (or in excess of the 5% reduced treaty rate for qualifying corporate shareholders with at least 10% participation
in our voting stock, or for a full refund in the case of qualified pension funds). There can be no assurance that we will have
sufficient reserves from capital contributions to pay dividends free from Swiss withholding tax, or that Swiss withholding tax
rules will not be changed in the future. In addition, we cannot provide assurance that the current Swiss law with respect to distributions
out of reserves from capital contributions will not be changed or that a change in Swiss law will not adversely affect us or our
shareholders, in particular as a result of distributions out of reserves from capital contributions becoming subject to additional
corporate law or other restrictions. In addition, over the long term, the amount of par value available to us for nominal value
reductions or reserves from capital contributions available to us to pay out as distributions is limited. If we are unable to
make a distribution through a reduction in nominal value or out of reserves from capital contributions, we may not be able to
make distributions without subjecting our shareholders to Swiss withholding taxes.
As of December 31, 2020, the Company held
5,000,000 fully paid-in treasury shares issued initially as part of an ATM offering established in September 2020. These shares
were not sold before December 31, 2020 and are held by the Company for future subscription (or, possibly, as part of a future share-dividend
program, should the Company become profitable and have enough earnings carried forward to cover such distribution). Under present
Swiss tax laws, repurchases of shares for the purposes of cancellation are treated as a partial liquidation and are subject to
35% Swiss withholding tax on the difference between the repurchase price and the nominal value of the shares except, since January 1,
2011, to the extent attributable to reserves from capital contributions (apports de capital) if any, and to the extent that
the repurchase of shares is out of retained earnings or other taxable reserves. No partial liquidation treatment applies and no
withholding tax is triggered if the shares are not repurchased for cancellation but held by the Company as treasury shares, provided
the limitations imposed by corporate law are respected (the nominal value of such shares does not exceed 10% of the outstanding
share capital and the purchase price is covered by freely disposable equity). Regarding the above-mentioned 5,000,000 treasury
shares and given the specificities of the ATM offering, the Company has obtained a tax ruling from the Swiss Federal Tax Administration
confirming that their acquisition by the Company did not constitute a direct partial liquidation and therefore does not trigger
withholding tax. A second tax ruling request is pending with the concerned Cantonal Tax Authority at our place of incorporation,
to obtain confirmation that the future placement of these treasury shares for a subscription price superior to their nominal value
will not trigger any corporate income tax for the Company.
US shareholders may not be able to obtain judgments
or enforce civil liabilities against us or our executive officers or members of our board of directors.
We are organized under the laws of Switzerland
and our registered office and domicile is located in Ecublens, near Lausanne, Canton of Vaud, Switzerland. Moreover, a number of
our directors and executive officers are not residents of the US, and all or a substantial portion of the assets of such persons
are located outside the US. As a result, it may not be possible for investors to effect service of process within the US upon us
or upon such persons or to enforce against them judgments obtained in US courts, including judgments in actions predicated upon
the civil liability provisions of the federal securities laws of the US. We have been advised by our Swiss counsel that there is
doubt as to the enforceability in Switzerland of original actions, or of actions for enforcement of judgments of US courts, for
civil liabilities to the extent solely predicated upon the federal and state securities laws of the US. Original actions against
persons in Switzerland based solely upon the US federal or state securities laws are governed, among other things, by the principles
set forth in the Swiss Federal Act on Private International Law. This statute provides that the application of provisions of non-Swiss
law by the courts in Switzerland shall be precluded if the result is incompatible with Swiss public policy. Additionally, certain
mandatory provisions of Swiss law may be applicable regardless of any other law that would otherwise apply.
Switzerland and the US do not have a treaty
providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. The recognition and enforcement
of a judgment of the courts of the US in Switzerland is governed by the principles set forth in the Swiss Federal Act on Private
International Law. This statute provides in principle that a judgment rendered by a non-Swiss court may be enforced in Switzerland
only if:
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the non-Swiss court had jurisdiction pursuant to the Swiss Federal Act on Private International Law;
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the judgment of such non-Swiss court has become final and non-appealable;
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the judgment does not contravene Swiss public policy;
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the court procedures and the service of documents leading to the judgment were in accordance with the due process of law; and
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no proceeding involving the same parties and the same subject matter was first brought in Switzerland, or adjudicated in Switzerland,
or was earlier adjudicated in a third state for which the decision is recognizable in Switzerland.
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Our status as a Swiss corporation means that
our shareholders enjoy certain rights that may limit our flexibility to raise capital, issue dividends and otherwise manage ongoing
capital needs.
Swiss law reserves for approval by shareholders
certain corporate actions over which a board of directors would have authority in some other jurisdictions. For example, the payment
of dividends and cancellation of treasury shares must be approved by shareholders. Swiss law also requires that our shareholders
themselves resolve, or authorize our board of directors, to increase our share capital. Although our shareholders may authorize
share capital that can be issued by our board of directors without additional shareholder approval, Swiss law limits this authorization
to 50% of the issued share capital at the time of the authorization. The authorization, furthermore, has a limited duration of
up to 2 years and must be renewed by the shareholders from time to time thereafter in order to be available for raising capital.
Additionally, subject to specified exceptions, including exceptions explicitly described in our articles of association, Swiss
law grants pre-emptive subscription rights to existing shareholders to subscribe for new issuances of shares. Swiss law also does
not provide as much flexibility in the various rights and regulations that can attach to different categories of shares as do the
laws of some other jurisdictions. These Swiss law requirements relating to our capital management may limit our flexibility, and
situations may arise where greater flexibility would have provided benefits to our shareholders.
Swiss law restricts our ability to pay dividends.
The proposal to pay future dividends to
shareholders will effectively be at the discretion of our board of directors and subject to approval by, at their discretion, our
shareholders after considering various factors including our business prospects, liquidity requirements, financial performance
and new product development.
In
addition, payment of future dividends is subject to certain limitations pursuant to Swiss law or our articles of association.
Investors cannot rely on dividend income from our common shares and any returns on an investment in our common shares will likely
depend entirely upon any future appreciation in the price of our common shares. Dividends paid on our common shares are subject
to Swiss Federal withholding tax, except if paid out of reserves from capital contributions (apports de capital).
See “Item 10. Additional information-
E. Taxation—Swiss tax considerations” for a summary of certain Swiss tax consequences regarding dividends distributed
to holders of our common shares.
Shareholders in countries with a currency other
than Swiss Francs face additional investment risks from currency exchange rate fluctuations in connection with their holding of
our common shares
Any future payments of dividends, if any,
will likely be denominated in Swiss Francs. The foreign currency equivalent of any dividend, if any, paid on our common shares
or received in connection with any sale of our common shares could be adversely affected by the depreciation of the Swiss Franc
against such other currency.
We are a foreign private issuer and, as a result,
we are not subject to US proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient
and less frequent than those of a US domestic public company.
We are reporting under the Exchange Act
as a non-US company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act
and although we are subject to Swiss laws and regulations with regard to such matters and intend to furnish quarterly financial
information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to US domestic public companies,
including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect
of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public
reports of their stock ownership and trading activities and their liability for insiders who profit from trades made in a short
period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form
10-Q containing unaudited financial and other specified information, or of current reports on Form 8-K, upon the occurrence of
specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until
4 months after the end of each financial year, whereas US domestic issuers that are accelerated filers are required to file their
annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the
Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result
of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
As a foreign private issuer and as permitted
by the listing requirements of Nasdaq, we rely on certain home country governance practices rather than the corporate governance
requirements of Nasdaq.
We are a foreign private issuer. As a result,
in accordance with Nasdaq Listing Rule 5615(a)(3), we comply with home country (in this case, Swiss) governance requirements and
certain exemptions thereunder rather than complying with certain of the corporate governance requirements of Nasdaq. Swiss law
does not require that a majority of our board of directors consist of independent directors. Our board of directors therefore may
include fewer independent directors than would be required if we were subject to Nasdaq Listing Rule 5605(b)(1). In addition, we
are not subject to Nasdaq Listing Rule 5605(b)(2), which requires that independent directors regularly have scheduled meetings
at which only independent directors are present.
Although Swiss law also requires that we
adopt a compensation committee, we follow home country requirements with respect to such committee and our compensation, nomination
and corporate governance committee is tasked with certain director nomination and governance responsibilities as described under
“Item 6. Directors, senior management and employees.” As a result, our practice varies from the requirements of Nasdaq
Listing Rule 5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation
committees, and from the independent director oversight of director nominations requirements of Nasdaq Listing Rule 5605(e).
Furthermore, in accordance with Swiss law
and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable
to general meetings of shareholders. Our practice thus varies from the requirement of Nasdaq Listing Rule 5620(c), which requires
an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the
outstanding voting stock. Our articles of association provide for an independent proxy holder elected by our shareholders, who
may represent our shareholders at a general meeting of shareholders, and we must provide
shareholders
with an agenda and other relevant documents for the general meeting of shareholders. Our practice varies from the requirement
of Nasdaq Listing Rule 5620(b), which sets forth certain requirements regarding the solicitation of proxies. In addition, we have
opted out of shareholder approval requirements for the issuance of securities in connection with certain events such as the acquisition
of stock or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a
change of control of us, and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Listing
Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with
such events.
For an overview of our corporate governance
principles, see “Item 16G. Corporate governance.” As a result of the above, you may not have the same protections afforded
to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer status,
which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant
legal, accounting and other expenses.
We are a foreign private issuer and therefore
we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable
to US domestic issuers. We may no longer be a foreign private issuer as of June 30, 2021 (or the end of our second fiscal
quarter in any subsequent fiscal year), which would require us to comply with all of the periodic disclosure and current reporting
requirements of the Exchange Act applicable to US domestic issuers as of January 1, 2022 (or the first day of the fiscal
year immediately succeeding the end of such second quarter). In order to maintain our current status as a foreign private issuer,
either (a) a majority of our common shares must be either directly or indirectly owned of record by non-residents of the
US or (b) (i) a majority of our executive officers or directors may not be US citizens or residents, (ii) more than 50 percent
of our assets cannot be located in the US and (iii) our business must be administered principally outside the US. If we lost
this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to US domestic issuers,
which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes
in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs
to us under US securities laws if we are required to comply with the reporting requirements applicable to a US domestic issuer
may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign
private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming
and costly. We also expect that if we were required to comply with the rules and regulations applicable to US domestic issuers,
it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required
to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make
it more difficult for us to attract and retain qualified members of our board of directors.
We are an “emerging growth company,”
and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make
our common shares less attractive to investors.
We are an “emerging growth company,”
as defined in the Jumpstart our Business Startups Act of 2012, (JOBS Act). For as long as we continue to be an “emerging
growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public
companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an
“emerging growth company” until the end of our fiscal year 2021, although circumstances could cause us to lose that
status earlier, including if the market value of our common shares held by non-affiliates exceeds USD 700 million as of any June
30 (the end of our second fiscal quarter) before the end of our fiscal year 2021, in which case we would no longer be an “emerging
growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors will find our
common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive
as a result, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.
If we fail to maintain an effective system
of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As
a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the
trading price of our common shares.
Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures,
are designed to prevent fraud, among other objectives. Any failure to implement required new or improved controls, or difficulties
encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted
in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial reporting, which are deemed to be material weaknesses
or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention
or improvement. Inferior internal controls could also subject us to regulatory scrutiny and sanctions, impair our ability to raise
revenue and cause investors to lose confidence in our reported financial information, which could have a negative effect on the
trading price of our common shares.
We are required to disclose changes made
in our internal controls and procedures and our management is required to assess the effectiveness of these controls annually.
However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting
firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section
404. We could be an “emerging growth company” until the end of our fiscal year 2021.
Furthermore, in March 2020, the SEC approved
amendments to exempt from the requirements of Section 404(b) any companies with less than USD 100 million of revenue and less than
USD 700 million of public float. These amendments provide that such companies are no longer required to obtain an attestation of
their internal controls over financial reporting from an independent outside auditor, even if such companies are no longer “emerging
growth companies.”
For as long as we remain an “emerging
growth company” or are exempt from the requirement of Section 404(b) per the aforementioned SEC amendments adopted in March
2020, we may not be able to detect problems that an independent assessment of the effectiveness of our internal controls could.
Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur
the expense of remediation.
If securities or industry analysts do not publish
research, or publish inaccurate or unfavorable research, about our business, the price of our common shares and our trading volume
could decline.
The trading market for our common shares
will depend in part on the research and reports that securities or industry analysts publish about us or our business. If no or
too few securities or industry analysts cover our company, the trading price for our common shares would likely be negatively affected.
In addition, if one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research
about our business, the price of our common shares would likely decline. If one or more of these analysts cease coverage of our
company or fail to publish reports on us regularly, demand for our common shares could decrease, which might cause the price of
our common shares and trading volume to decline.
We
believe that it is likely that we were a “passive foreign investment company,” (PFIC) for US federal income tax purposes
in 2020, and may also be a PFIC in 2021 or later years. If we were a PFIC in 2020 or are a PFIC in 2021 or any later year, US shareholders
could be subject to adverse US federal income tax consequences.
Under
the Internal Revenue Code of 1986, as amended Code, we will be a PFIC for any taxable year in which, after the application of certain
look-through rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of passive income or (ii)
50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive
income. Passive income generally includes dividends, interest, certain non-active rents and royalties, and capital gains. Although
we have not obtained independent valuations of our assets during 2020 and thus are not in a position to make a definitive determination
as to whether we were a PFIC in 2020, based on the composition of our income and assets during 2020 and certain estimates and assumptions,
including as to both the total value and the relative value of our assets as implied by our market capitalization during 2019,
we believe that it is likely that we were a PFIC in 2020. In addition, it is possible that we may also be a PFIC in 2021 or one
or more future years because, among other things, (i) we may not generate a substantial amount of non-passive gross income, for
US federal income tax purposes, in any year, (ii) we currently own, and expect to continue to own, a substantial amount of passive
assets, including cash, and (iii) the estimated valuation, for PFIC purposes, of our assets that generate non-passive income for
PFIC purposes, including our intangible assets, is likely to be dependent in large part on our market capitalization and is therefore
uncertain and may vary substantially over time. Accordingly, there can be no assurance that we will not be a PFIC in 2021 or any
future taxable year.
If
we were a PFIC in 2020 or in any future year during which a US investor held or holds common shares, we generally would continue
to be treated as a PFIC with respect to that US investor for all succeeding years during which the US investor holds common shares,
even if we ceased to meet the threshold requirements for PFIC status. Such a US investor may be subject to adverse US federal income
tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) the application
of a deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements.
We do not intend to provide the information that would enable investors to take a qualified electing fund election that could mitigate
the adverse US federal income tax consequences should we be classified as a PFIC.
For
further discussion, see “Item 10. Additional information—Section E. Taxation.”
ITEM 4. INFORMATION ON THE COMPANY
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History and development of the company
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We are a Swiss stock corporation (société
anonyme) organized under the laws of Switzerland. We were formed as a Swiss limited liability company (société
à responsabilité limitée) on February 13, 2003 with our registered office and domicile in Basel,
Switzerland. We converted to a Swiss stock corporation (société anonyme) under the laws of Switzerland on
August 25, 2003. Our Swiss enterprise identification number is CHE-109.878.825. Our domicile and registered office is in Ecublens,
at the École Polytechnique Fédérale Lausanne (EPFL) Innovation Park Building B, 1015 Lausanne, Vaud, Switzerland.
Our ordinary shares were admitted to trading on Nasdaq Global Market on September 23, 2016, and trade under the symbol ACIU.
Our registered and principal executive
offices are located in Ecublens, at EPFL Innovation Park, Building B, 1015 Lausanne, Switzerland, our general telephone number
is (41) 21 345 91 21 and our internet address is www.acimmune.com. Our website and the information contained on or accessible through
our website are not part of this document.
AC Immune is a leading, clinical stage
biopharmaceutical company advancing one of the broadest portfolios focused on pioneering precision medicine for neurodegenerative
diseases. Our highly differentiated approach integrates novel therapeutics and diagnostics to overcome the fundamental challenge
in this therapeutic area – the high number of co-pathologies driving disease and the urgent need for more tailored therapeutic
regimens.
Leveraging our dual proprietary technology
platforms, we have built a comprehensive pipeline of first-in-class or best-in-class candidates spanning multiple treatment modalities
and targeting both established and emerging neurodegenerative pathologies. We are currently advancing nine therapeutic and three
diagnostic product candidates, with six currently in clinical trials, targeting five different types of misfolded pathological
proteins related to AD and other neurodegenerative disorders. Our pipeline assets are further validated by the multiple partnerships
we have established with leading global pharmaceutical companies. We believe our validated technology platforms and personalized
medicine approach position AC Immune to revolutionize the treatment of neurodegenerative disease in the way precision diagnostics
and targeted therapies are revolutionizing the treatment of cancer.
Figure 1: AC Immune
investment highlights
Our Team
We have assembled an outstanding management
team with relevant scientific, clinical and regulatory expertise. Our scientific founders, Dr. Jean-Marie Lehn, Dr. Claude
Nicolau, and Dr. Fred van Leuven, are regarded as pioneers in their respective scientific domains, including in the study
of AD. Our co-founder and Chief Executive Officer, Dr. Andrea Pfeifer, a Pharmacologist with a Ph.D. in cancer research and
a former National Institute of Health researcher, has a 30-year track record in product innovation and implementation, and was
formerly Head of Nestlé Global Research and the co-founder of Nestlé Venture Fund. Dr. Marie Kosco-Vilbois, our Chief
Scientific Officer, brings more than 20 years of experience in various aspects of discovery research and drug development, including
work on multiple drug development programs. In January 2021, Prof. Johannes Rolf Streffer joined AC Immune as our Chief Medical Officer.
Prof. Streffer is a Neurologist and Psychiatrist with extensive expertise in AD including biomolecular modalities such as PET,
volumetric and functional MRI, genetics, cognition and cerebrospinal fluid (CSF) marker.
Unmet need in neurodegenerative diseases
Figure 2: The World Health Organization
recognizes dementia as a global public health priority
Neurodegenerative diseases, including dementias
and other diseases associated with protein misfolding, are prevalent, but there is currently an absence of reliable, early-stage
diagnosis and disease-modifying treatments for these diseases. The growth in the number of people with neurodegenerative diseases
has been significant, as evidenced by the prevalence of people affected by AD and PD, two of the most common neurodegenerative
diseases.
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The World Health Organization recognizes dementia as a global public health priority. Worldwide, there is a new case
of dementia every 3 seconds, with an estimated global patient population of approximately 50 million in 2020. This is predicted
to increase to 152 million by 2050 (Alzheimer’s Disease International).
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The estimated total healthcare costs for the treatment of Alzheimer disease in the United States in 2020 is estimated to be
USD 305 billion per the Alzheimer’s Association, with the cost expected to increase to more than USD 1 trillion by 2050 as
the population ages. In fact, if the estimated global costs of dementia were a country, it would be the 18th largest
economy.
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Current diagnostic and treatment paradigms
for neurodegenerative diseases are suboptimal. Diagnosis typically takes the form of observation of cognitive, functional and behavioral
impairment and other symptoms of the diseases, which are generally only apparent after irreversible neuronal damage has already
occurred. These symptoms are treated with medicines capable of providing cognitive benefit and functional improvement but fail
to affect the progression of the disease. For AD, there are currently five approved therapies, all of which only provide modest
efficacy in treating the symptoms of AD, while having significant side effect risks, and fail to address the progression of the
disease. Despite these shortcomings, marketed therapies, such as Eisai and Pfizer’s Aricept, have achieved peak annual global
sales of approximately USD 4 billion prior to loss of exclusivity. Similarly, in the treatment of PD, the current standard
of care is intended only to alleviate physical symptoms. In both AD and PD, there are no approved disease-modifying treatments
that slow or stop the course of disease progression.
Neurodegenerative disease overview
Folding and unfolding of proteins are important
ways of regulating the biological activity and cellular location of those proteins. Misfolding of proteins occurs due to a breakdown
of cellular quality control systems and is a common feature of many neurodegenerative diseases. Misfolded proteins are unable to
carry out their normal functions and aggregate to form insoluble deposits in the brain, which eventually lead to neuronal damage
and cell death. The progression of neurodegenerative diseases, such as AD and PD, is linked to the spread of misfolded, pathological
protein aggregates throughout the brain. Figure 3 shows how misfolded proteins play a key role in the pathology of neurodegenerative
diseases.
Figure 3: Misfolded proteins key impact
on the pathology of neurodegenerative diseases
Typically, protein misfolding occurs in
response to cellular stress, which can be triggered by many different, largely unknown, causes. A cascade of molecular events begins
with the misfolding of single proteins within a cell, which then aggregate and ultimately form larger aggregates including plaques
and tangles. These misfolded proteins are then exported or shed from dying neurons where they can spread to healthy cells nearby.
Once inside, misfolded proteins can interact with normal proteins and cause them to misfold in a process known as “seeding,”
leading to spreading of the disease pathology throughout the brain, increased neuronal death and a progressive decline in cognitive
function.
Figure 3 also shows how our therapies are
designed to intervene and prevent key pathological steps in the progression of neurodegenerative diseases. They are designed to
(i) prevent initial misfolding; (ii) promote disaggregation of misfolded proteins; (iii) inhibit spreading of pathological protein
to healthy cells; (iv) prevent seeding of new misfolded protein aggregates inside healthy cells; and (v) inhibit downstream neurodegeneration.
This robust approach to targeting neurodegenerative diseases is enabled by our two validated technology platforms, SupraAntigen
and Morphomer, which generate highly specific biologics and small molecule inhibitors that can distinguish normal from misfolded
proteins and inhibit key disease pathways both inside and outside of cells.
Our strategic vision
Our goal is to continue leveraging our
proprietary discovery platforms, SupraAntigen and Morphomer, to become a global leader in precision medicine for the diagnosis
and treatment of neurodegenerative diseases. We are executing a clear business strategy built on three pillars: (i) accelerate
development of novel therapeutics in AD with our partners; (ii) expand our strategic focus in non-AD neurodegenerative diseases,
including NeuroOrphan indications, Parkinson’s disease (PD) and limbic-predominant age-related TDP-43 encephalopathy (LATE);
and (iii) a continued focus on diagnostics enabling precision medicine to be an ultimate differentiator for the Company.
Figure 4: AC Immune’s
three-pillar strategy
Our three-pillar execution strategy reflects
our unique precision medicine approach, which ultimately creates differentiation due to our ability to address the high levels
of co-pathologies present in AD and other neurodegenerative diseases. Much like cancer, neurodegenerative diseases are heterogeneous
and may require multiple therapeutic interventions tailored to patients’ specific disease drivers, to be used in concert
in order to slow or stop the disease course. Ultimately, it is our belief that precision medicine will increase the chance of treatment
success by enabling clinical trial participants to be better defined by their various proteinopathies, affording treatment with
the right therapies at the right time.
AC Immune has established itself
as a leader in developing precision medicines for neurodegenerative diseases by utilizing our diagnostic capabilities to enable
improved diagnosis of co-pathologies, patient selection and assessment of clinical trial outcomes. Our dual technology platforms
allow for a multi-modal approach encompassing a portfolio of vaccines, antibodies and small molecules tailored to the underlying
pathology driving patients’ disease. In addition to generating targeted monotherapies, this approach creates the potential
for combination regimens, which may treat a broader spectrum of disease and offer greater efficacy.
AC Immune’s Roadmap to Successful Therapies for
Neurodegenerative Diseases
Precision medicine is a key element of
our five-point framework for developing successful therapies in neurodegenerative diseases, building on one of the broadest pipelines
in the field.
Figure 5: AC Immune’s roadmap to
successful therapies for neurodegenerative diseases
Treat earlier
Identifying patients at risk or in early
stages of disease when pathological burden is low and neuronal health is preserved offers the best chance of intercepting pathological
spread in neurodegenerative diseases. For example, it is now believed that treatments targeting beta-amyloid (Abeta) may be most
effective before
symptoms
become apparent. The Alzheimer’s Prevention Initiative (API) trial of crenezumab aims to answer this fundamental question.
Target Tau
Tau plays a very important role in neurodegeneration.
Understanding whether the aggregation and spreading of pathological Tau throughout the brain can be stopped by therapies targeting
Tau is a critical question that we are examining. This is being addressed through AC Immune’s multiple Tau research programs
in early and late-stage diseases.
More homogeneous populations
Multiple pathologies are thought to contribute
to the development of AD, including genetic, lifestyle and environmental factors. To understand if a candidate drug has therapeutic
potential, it is important to first engage more genetically homogeneous patient populations to minimize variability with respect
to pathophysiology. We are developing these efforts with our prevention studies in genetically defined populations such as familial
AD and DS-related AD.
Precision medicine
Building on the understanding that multiple
pathologies contribute to AD, there is a need to accurately diagnose and target the underlying pathology. We are developing an
integrated diagnostic and therapeutic strategy to deliver, for the first time, precision medicine for patients with neurodegenerative
conditions.
Target neuroinflammation
It is well established that microglia maintain
a healthy brain environment by clearing debris, including misfolded and aggregated Abeta, Tau and alpha-synuclein (a-syn). Chronic
hyper-stimulation of microglial cells by these protein aggregates is now emerging as a hallmark of AD – and potentially all
neurodegenerative diseases – that leads to unwanted inflammation and further damage to brain cells. We focus on the NOD-like
receptor pyrin domain-containing protein 3 (NLRP3) inflammasome pathway, based on emerging evidence showing its particular relevance
for neurodegenerative diseases.
Key elements of our approach include:
1. Execution
on advancing our product candidates, in partnership or alone, from clinical development to regulatory approval and potential commercialization
Figure 6: Our broad and robust established
targets pipeline
Our clinical stage product candidates include:
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ACI-35.030. Janssen and AC Immune are evaluating the anti-phosphorylated-Tau (anti-pTau) vaccine candidate ACI-35.030
in a Phase 1b/2a study in early AD. Interim results show that ACI-35.030 vaccination generated a potent antigen-specific antibody
response against pTau in 100% of older patients, achieving antibody levels several orders of magnitude higher than pre-vaccination
levels. No
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vaccine relevant adverse events
were observed. These results support plans to further develop the Alzheimer Vaccine into Phase 2/3. ACI-35.030 specifically targets
pathological pTau and is intended as a disease-modifying treatment for AD and other Tauopathies.
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Semorinemab. Our collaboration partner, Genentech, a member of the Roche Group, is currently completing
a Phase 2 clinical program for our anti-Tau monoclonal antibody semorinemab. A Phase 2 study (Tauriel) conducted in patients with
prodromal-to-mild AD was completed in Q3 2020 and did not meet its primary efficacy endpoint
of reducing decline on Clinical Dementia Rating-Sum of Boxes (CDR-SB) compared to placebo. A second Phase 2 study (Lauriet)
conducted in patients with moderate AD remains ongoing with primary completion estimated in Q2 2021. Semorinemab is designed to
slow the prion-like propagation of Tau pathology, which coincides with both clinical symptoms and disease progression in AD.
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Morphomer Tau. In collaboration with our partner, Lilly, we are researching and developing small molecule Tau
aggregation inhibitors with plans to evaluate candidates in AD and NeuroOrphan indications. We completed a Phase 1 clinical study
in healthy volunteers with ACI-3024, in Q2 2020, which showed a dose-dependent exposure and brain penetration, achieving the desired
levels of ACI-3024 in the cerebrospinal fluid. In addition to AD, the program was expanded to NeuroOrphan indications and ACI-3024
will be further evaluated for efficacy in models of rare Tauopathies. Continued candidate characterization across the research
program has also identified new and highly differentiated candidates with excellent cerebrospinal fluid exposure and selectivity
for pathological aggregated Tau. These will be broadly developed in Tau-dependent neurodegenerative diseases.
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ACI-24. We currently own the global rights to our anti-Abeta vaccine candidate ACI-24, and we continue to develop
this asset in-house for AD and DS.
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ACI-24 for AD. A Phase 2 study commenced in October 2018 and is currently ongoing to assess the safety, tolerability,
immunogenicity and target engagement of ACI-24 formulations using intramuscular injections, and to analyze the effects of ACI-24
on brain amyloid as assessed by PET imaging. Encouraging 12-month interim results were reported and results from the 18-month interim
analysis are expected in Q2 2021. The previous Phase 1/2 study was completed and the clinical study report finalized in 2019.
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ACI-24 for DS. Our Phase 1b clinical study of ACI-24 for individuals with DS, intended to assess safety, tolerability
and immunogenicity at two doses, was completed and results reported in Q1 2021. The results support a favorable safety and tolerability
profile of ACI-24 in this vulnerable patient population and the advancement of this program into Phase 2 studies, the initiation
of which will be determined by appropriate public safety measures related to Covid-19.
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Crenezumab. The parent of our collaboration partner discontinued, as of January 2019, the Phase 3 clinical trials
in AD but is continuing in a landmark prevention trial in Columbia, in a population of genetically predisposed people at risk of
developing familial AD. The overall beneficial safety profile was confirmed in the CREAD studies, supporting use of crenezumab
in healthy individuals with risk of developing AD.
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Diagnostic candidates. In addition to the above product candidates, we will continue to develop our complementary
diagnostic product candidates for Tau (with LMI), a-syn and TDP-43 to advance these through clinical development, either independently
or with collaboration partners.
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2. Expand
product development into NeuroOrphan and additional neurodegenerative diseases
Beyond AD, we aim to pursue NeuroOrphan
indications, specifically Tau- and TDP-43-driven diseases, such as FTLD-Tau (e.g., PSP, CBD, FTLD-MAPT), and ALS and FTLD-TDP,
respectively. Pursuing NeuroOrphan indications may enable us to obtain a streamlined regulatory approval pathway and favorable
reimbursement for any approved products. In addition, we are accelerating our novel therapeutic and diagnostic candidates targeting
a-syn as a primary pathology in Parkinson’s disease and other a-synucleinopathies. A summary of our diversified novel targets
pipeline including non-AD neurodegenerative diseases, with an in-house focus on NeuroOrphan indications, is shown below:
Figure 7: Robust
novel targets pipeline: diversification into non-AD and non-CNS diseases
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3.
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Accelerating the advancement of our diagnostic portfolio
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To realize our vision for precision medicine
in neurodegenerative disease, we are developing a suite of companion diagnostics designed to be first-in-class or best-in-class,
which will enable improved diagnosis of co-pathologies, patient selection and assessment of clinical trial outcomes. We currently
have three families of diagnostic candidates in our pipeline, developed using our Morphomer platform; each addresses a key therapeutic
target: Tau, a-syn and TDP-43.
The most advanced clinical candidate is
PI-2620, our Tau-PET imaging agent. We are working with our partner, LMI, to advance PI-2620 as a highly differentiated, best-in-class
Tau diagnostic for AD as well as non-AD Tauopathies such as PSP. A study published in JAMA Neurology showed that PI-2620
could facilitate earlier and more reliable diagnosis of PSP, where previous Tau tracers and other biomarkers failed. Further, results
demonstrated PI-2620’s excellent characteristics as a diagnostic tool for studying Tau-related diseases following recent
publications about its capabilities in early and more advanced AD.
We are also developing proprietary PET
imaging diagnostics for diseases resulting from the misfolding of a-syn and TDP-43 proteins. No such diagnostics are currently
available for these important pathologies and AC Immune has identified promising compounds with high affinity and target specificity,
as well as favorable central nervous system (CNS) pharmacokinetic properties. In 2020, the a-syn-PET tracer won the Ken Griffin
Alpha-synuclein Imaging Competition from The Michael J. Fox Foundation for Parkinson’s Research. Our novel TDP-43-PET tracer
and our antibody-based immuno-assay for biofluid detection of TDP-43 also were awarded highly competitive grants from the EU Joint
Programme – Neurodegenerative Disease Research’ (JPND) and The Target ALS Foundation, respectively, in 2020. Our diagnostics
for a-syn and TDP-43, if validated clinically, will be the first in the world to effectively diagnose these proteinopathies, which
are highly relevant for multiple neurodegenerative diseases.
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4.
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Continuing to optimize our long-term growth by selectively partnering product candidates for global development and commercialization
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We have a strong track record of establishing
value-driving collaboration agreements with leading pharmaceutical companies, including two collaborations with Genentech, one
with Janssen and one with Lilly. This strategy allows us to leverage our partners’ scientific, development, manufacturing
and commercialization expertise and other resources while partially monetizing our investments, de-risking and accelerating the
development of our product candidates. This strategy also enables us to use non-dilutive partnership revenue to bolster our investment
into our early-stage proprietary programs and fuel our continued growth. We have five current collaboration agreements with leading
global pharmaceutical companies, summarized in the table below:
Figure 8: External
validation and cash generation through external collaborations
For any additional product candidates targeting
large markets, we may selectively partner with leading companies that we believe can contribute development, manufacturing and
marketing expertise, geographic reach and/or other resources that can enhance the value of our wholly-owned products. We will continue
to seek to retain certain indications (e.g., NeuroOrphan) and/or geographies, such that we can begin to grow our own marketing
capabilities as we develop AC Immune into a fully integrated pharmaceutical company.
Additionally, in this respect, we established
a strategic partnership with WuXi Biologics for its expertise in manufacturing biologicals as well as the application of our vaccine
portfolio in China and potential collaborations regarding AC Immune’s SupraAntigen platform.
The benefits of our clinically validated, proprietary technology
platforms
The engines that drive our growth are our
two unique proprietary and versatile technology platforms: our SupraAntigen platform, which is our biological and immunological
platform, and our Morphomer platform, which is our chemical platform. These platforms generate biologics (vaccines and antibodies)
and small molecules, respectively, which are designed to selectively interact with the misfolded proteins that are common in a
broad range of neurodegenerative diseases. These clinically validated platforms form the basis of our ongoing pipeline development
and the value-driving strategic partnerships we have established to date.
The key aspect of both our SupraAntigen
and Morphomer technology platforms is conformational specificity, which we believe is central to the development of effective and
safe therapeutics for neurodegenerative diseases. Our SupraAntigen platform targets misfolded proteins through antigens displayed
on the surface of liposomes, which mimic the targeted pathological form of the protein. In a complementary approach, our Morphomer
platform uses small molecular weight compounds to target the aggregation and seeding process, which prevents the misfolded proteins
from aggregating inside the cell and prevents the formation of new misfolded proteins in healthy neighboring cells through a seeding
mechanism. Small molecules derived from our Morphomer platform, which we refer to as Morphomers, not only reduce aggregation of
pathological proteins, but also promote disaggregation of already formed aggregates, thereby potentially enhancing their therapeutic
potential even in established disease states.
Figure 9: Morphomer
and SupraAntigen platforms: an integrated approach to CNS-specific therapies
The SupraAntigen platform was first developed
by AC Immune’s scientific co-founders to overcome a challenge common to neurodegenerative diseases: the lack of immunogenicity
of disease-causing self-proteins. The SupraAntigen platform uses liposomes (small spherical vesicles formed by a lipid bilayer)
to present specific antigens designed to evoke an immune response. SupraAntigen is used to generate conformation-specific antibodies
for immunotherapy in neurodegenerative diseases. The overarching idea behind the platform is that antibodies, which are large in
size, are well-suited to target extracellular proteins, interrupt spreading of pathological proteins, and break up and clear aggregates
of misfolded proteins through phagocytosis.
AC Immune has acquired advanced mastery
of the design and manipulation of liposomes to develop either passive or active immunization techniques to generate antibodies
targeting neurodegenerative diseases. When pursuing active immunization approaches, we use liposomes carrying a specific antigen
as a vaccine. After vaccination with a liposome, antigen and confirmation specific antibodies are produced naturally by the host
with very high affinity without further optimization. This immune response can be long-lasting and may be ideal to prevent the
onset of a disease, as the immune system is now primed to rapidly identify disease-causing misfolded proteins.
Product candidates generated utilizing
the SupraAntigen platform include vaccines ACI-35 in Phase 1b/2a for AD and ACI-24 in Phase 2 for AD and Phase 1b for DS, as well
as antibodies semorinemab in Phase 2 for AD, crenezumab in Phase 2 for AD and the preclinical candidates targeting a-syn and TDP-43
for PD and NeuroOrphan indications.
The Morphomer platform is designed to enable
the development of small molecules (Morphomers) able to bind/interact with beta-sheets containing fibrillary aggregates from candidate
selection through preclinical proof-of-concept. Morphomers can target pathological protein aggregates in any brain compartment
and are equally well suited for therapeutic and diagnostic applications.
The first key component of the Morphomer
platform is its library of rationally designed, CNS-optimized non-dye compounds. AC Immune’s extensive know-how has enabled
the identification of CNS compounds that penetrate the brain and demonstrate high selectivity for the target. This knowledge has
been used to focus the Morphomer library to approximately 12,000 compounds that display these favorable characteristics, making
this library an ideal starting point when developing molecules to target human proteinopathies of the CNS. Thus, rather than using
the non-directed trial and error strategy of the typical drug development process, the Morphomer platform utilizes its bias for
successful CNS candidates to improve efficiency and accelerate the early stages of the drug development process. Extensive expertise
in medicinal chemistry and a suite of proprietary assays developed to screen and validate candidate compounds enables AC Immune
to rapidly optimize multiple, highly diversified lead compounds for further preclinical and clinical development.
Therapeutic product candidates generated
by the Morphomer platform include our lead Morphomer Tau candidates, Morphomer a-syn in PD (preclinical stage) and the diagnostic
programs PI-2620 in Phase 2 and Phase 1 in AD and PSP, respectively, and a-syn-PET and TDP-43-PET imaging agents in the preclinical
stage.
Shifting the current treatment paradigm for neurodegenerative
diseases
Modifying the progression of the disease
requires targeting the specific underlying biological processes that drive disease progression. Unfortunately, these processes
evolve over the course of many years prior to
manifestation
of symptoms and a high percentage of neurons may be lost prior to clinical manifestation. Earlier intervention could have a major
impact, but it requires accurate disease detection prior to developing symptoms. Thus, in addition to highly targeted therapeutics,
new precision diagnostics are critical to the clinical development and effective deployment of potentially disease-modifying therapies.
This early, and potentially preventative, precision medicine approach may ultimately lead to better disease management for patients
with neurodegenerative diseases.
Figure 10: Treatment
and diagnosis of AD
Due to the high level of co-pathologies
involved in neurodegenerative diseases, future treatment paradigms for may involve different combinations of disease modifiers
at various stages of a disease. Therefore, combination therapies may include combinations of immunotherapies or combinations of
small and large molecules targeting proteinopathies and neuroinflammation. Our therapeutic product candidates seek to modify the
course of AD by intervening at an earlier stage of the disease progression, prior to irreversible neuronal damage. Beyond AD, we
believe that we can leverage our proprietary platforms to generate additional molecules that address the pathologies of other neurodegenerative
diseases (Figure 11).
Figure 11: Market
opportunities targeting key primary and co-pathologies
Furthermore, we believe that we are a leader
in discovering new PET imaging agents to improve the timing and accuracy of diagnoses in neurodegenerative diseases. In our pipeline,
we have three families of diagnostic candidates that were developed through our Morphomer platform, which target Tau, a-syn and
TDP-43. We believe our Tau-PET imaging program has received external validation through our partnership with LMI, a leader in imaging
agents. We are also developing a-syn and TDP-43 PET imaging agents for PD and other neurodegenerative diseases.
With our unique integrated approach focused
on precision medicine, we believe that our diagnostic product candidate pipeline will complement our disease-modifying treatment
product candidate pipeline and potentially reshape the clinical course and treatment of neurodegenerative diseases.
Our programs
Anti-pTau vaccine
In collaboration with Janssen, we are advancing
an anti-pTau vaccine program directed against a key component of the pathology of AD: phosphorylated Tau proteins, found in Tau
tangles. Developed using our SupraAntigen technology, our vaccine is designed to stimulate a patient’s immune system to produce
antibodies against misfolded and phosphorylated, pathological Tau protein, which aggregate to create the neurofibrillary tangles
that characterize AD.
Advantages of Tau vaccination over other therapeutic approaches
Tau vaccines which are able to induce a
long-lasting and boost-able antibody response have the potential to be even more advantageous than other anti-Tau therapeutic modalities
such as small molecules or monoclonal antibodies, which typically show much shorter half-lives in vivo, requiring more frequent
administration. Tau vaccines such as ACI-35.030 may thus offer a more cost effective, and less invasive approach for the treatment
or prevention of Tau pathology, which may be particularly relevant for addressing slow-progressing chronic neurodegenerative Tauopathies
such as AD.
ACI-35
ACI-35 is a liposomal anti-pTau active
investigational vaccine designed to elicit antibodies against extracellular pTau protein in order to prevent and reduce the spread
and development of Tau pathology within the brain. In preclinical testing, the vaccine candidate induced an antibody response that
was highly specific to phosphorylated Tau. This antibody response resulted in a significant reduction of pTau and an improvement
in clinical parameters. ACI-35 was the first vaccine candidate against pathological pTau to be tested in a clinical study involving
patients with mild-to-moderate AD. The Phase 1b study was completed in June 2017.
Mechanism of action
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ACI-35 is composed of a human pTau synthetic peptide T3 as the antigen, derived from Tau sequence 393-408 and phosphorylated
at serine residues S396 and S404. Lipidation of the peptide enables it to embed itself into the lipid bi-layer of the liposome
and confers a specific conformation to the peptide (Theunis et al., PLoS ONE 2013).
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In wild-type and transgenic mice, immunization with ACI-35 generated a specific antibody response to phosphorylated vs. non-phosphorylated
Tau protein (Vukicevic et. al. AAT-AD/PD 2020).
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In transgenic mice, immunization with ACI-35 led to a significant decrease of soluble and insoluble total Tau protein and insoluble
pTau species in brain (Figure 12).
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Figure 12: Immunization
of hTauP301L mice leads to a reduction of the levels of pS396 and HT7 in the Sarkosyl insoluble forebrain of Tau.P301L mice
Ref: Theunis et al., PLoS ONE 2013
Clinical development
Phase 1b study design
The safety, tolerability and immunogenicity
of ACI-35 were tested in a Phase 1b study in patients with mild-to-moderate AD. It was a randomized, placebo-controlled, double-blind
study. Different doses and dosing schedules were investigated in an ascending dose design. Multiple injections of ACI-35 were administered
per cohort for active or placebo treatment in a three-to-one ratio.
Safety
The ACI-35 vaccine is considered to be
safe and well tolerated with no events related to CNS inflammation. As previously reported, five SAEs were observed in three patients.
Antibody response
ACI-35 elicited a rapid induction of anti-pTau
antibodies after the first immunization in all study cohorts, indicating a T-cell-independent antibody response. However, this
response lacked the boosting effect desired for optimal long-term and potentially preventive application. Therefore, in a collaborative
effort, AC Immune and Janssen successfully developed an optimized anti-Tau vaccine, ACI-35.030.
ACI-35.030
ACI-35.030 is an optimized liposomal anti-pTau
vaccine formulation designed to elicit an enhanced antibody response. In preclinical studies, ACI-35.030 showed that it retains
the excellent non-clinical safety profile and the highly specific antibody response against pTau observed with ACI-35, while demonstrating
an enhanced and more homogeneous antibody response with a significant, long-lasting boosting effect. We are developing ACI-35.030
with Janssen in accordance with our collaboration agreement.
Mechanism of Action
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ACI-35.030 comprises a pTau peptide and a T-cell epitope capable of binding to human leukocyte antigen-major histocompatibility
complex, class II (HLA-DR) molecules.
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In rhesus monkeys, ACI-35.030 induced a specific response to pTau over non-phosphorylated Tau, similar to that observed with
ACI-35 (Vukicevic et. al. AAT-AD/PD 2020). This is significant as Tau hyper-phosphorylation is considered an early event
in the development of Tau pathology, occurring even several decades before the onset of Tau deposits.
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Sera from rhesus monkeys immunized with ACI-35.030 binds specifically to pathological Tau in brain sections with AD as compared
to healthy human brain tissue (Kosco-Vilbois, KOL event
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‘Untangling’ Tau
Pathology to Treat Alzheimer’s and Neurodegenerative Diseases NYC, Nov 2019)
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In nonclinical studies, immunization with ACI-35.030 elicits an enhanced and homogeneous antibody response with boosting effect.
In non-human primates (NHPs), immunization with ACI-35.030 lead to an increased level of specific anti-pTau IgG titers compared
to ACI-35 (Figure 13).
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Figure 13: pTau-specific IgG titers in
NHP induced by ACI-35.030 and ACI-35
Ref: Dr. Marie Kosco-Vilbois, KOL event
‘Untangling’ Tau Pathology to Treat Alzheimer’s and Neurodegenerative Diseases 2019
JACI-35.054
JACI-35.054 is an investigational exploratory
alternative pTau vaccine, which is developed with Janssen in accordance with our collaboration agreement.
Mechanism of action
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JACI-35.054 is an alternative anti-pTau vaccine.
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Immunization of rhesus macaques with JACI-35.054 generates an immune response that specifically binds to pathological tau structures
in human AD brain sections.
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Clinical development
Phase 1b/2a study
The Phase 1b/2a study is a randomized,
multicenter, double-blind, placebo-controlled clinical study with a primary objective to assess the safety, tolerability and immunogenicity
of different doses of ACI-35.030 and JACI-35.054 in patients with early AD. Secondary objectives will assess additional immunogenicity
parameters, while exploratory endpoints will include notable biomarkers of progression of AD as well as clinical assessments. This
Phase 1b/2a study evaluating ACI-35.030 and JACI-35.054 was initiated in Q3 2019 and is currently ongoing.
Safety
To date, a total of
16 patients (six on active vaccination and two on placebo per sub-cohort) have been randomized in the first two dose-level cohorts
with ACI-35.030 and vaccination has commenced in the 3rd dose-level sub-cohort. In addition, a further eight subjects (six subjects
on active vaccination and two on placebo) have been randomized to the first dose-level sub-cohort with JACI-35.054 in the Phase
1b/2a study, and the recruitment will be pursued in the subsequent sub-cohorts. Two SAEs have been reported to date, an episode
of acute diverticulitis and one sick sinus syndrome, both of them are considered unlikely related to the study treatment.
Antibody response
(interim)
Based on interim results from the first
two dose-level sub-cohorts, ACI-35.030 vaccination resulted in an anti-Tau IgG response that preferentially targets phosphorylated
Tau in all patients. 100% of patients demonstrated an anti-pTau IgG response after the 1st injection for both lowest and second
highest dosages. Very high anti-pTau IgG titers were observed following injection. An anti-pTau IgM response was also elicited
in all patients for both doses.
Semorinemab
Semorinemab is a humanized high-affinity
IgG4 isotype antibody candidate discovered using our SupraAntigen technology that binds all forms of Tau. Semorinemab is designed
to intercept extracellular Tau, stopping or slowing cell-to-cell spread and propagation of pathological Tau in the brain. Semorinemab
is in Phase 2 clinical development for AD as part of an ongoing collaboration, which was established in 2012, with Genentech.
Lead characterization
Our anti-Tau monoclonal antibody program
successfully generated multiple humanized antibodies for potential use as passive immunotherapies, which are highly specific for
pathological forms of Tau found in AD and other Tauopathies. Results from preclinical studies demonstrated a reduction in pathological
Tau and improvement of long-term spatial memory. Efficacy studies run in mouse models of AD and other Tauopathies exhibited dose–response
alleviation of Tau pathology with behavioral improvements.
Figure 14: Alleviation
of Tau pathology in models of AD
Ref: Ayalon et al., AD/PD 2017
Representative images of hippocampal coronal
sections from human Tau-P301L transgenic mice treated with (A) control antibody or (B) semorinemab, and immunostained
for pathological Tau deposits
Clinical development
A Phase 1 clinical trial involving 75 subjects
evaluated the safety, tolerability, pharmacokinetics and preliminary data on therapeutic activity of semorinemab in people with
AD and in healthy volunteers. This trial was completed in the second quarter of 2017. Semorinemab was administered at single doses
of up to 16,800 mg to healthy volunteers, and at multiple doses of 8,400 mg to healthy volunteers and patients with mild-to-moderate
AD. No dose-limiting toxicities and no SAEs were observed. No participant withdrawals, modifications or interruptions due to an
adverse event were reported. Results were presented at multiple conferences, including the 13th International Conference
on Alzheimer's & Parkinson's Diseases and Related Neurological Disorders (AD/PD) in 2017, the AAIC in 2017, and the 10th
international CTAD conference in 2017.
Semorinemab exhibited a dose-proportional
pharmacokinetic profile and CNS exposure, with a median half-life of 32.3 days. Plasma total Tau concentration increased with increasing
drug doses and was doubled in participants with AD compared with healthy volunteers, suggesting a pharmacodynamic signal as shown
in the figure below.
Figure 15: Phase
1 pharmacokinetic and plasma Tau results
Ref: Kerchner et al., CTAD 2017.
A Phase 2 clinical trial (Tauriel) commenced
in Q4 2017 with the dosing of the first patient. This multicenter trial, which enrolled 457 participants, assessed the safety,
tolerability and efficacy of semorinemab in people with prodromal-to-mild AD. Participants received one of three active doses or
a placebo for 72 weeks, followed by a 96-week optional open-label extension (OLE) (Figure 16). Primary endpoints included safety
assessment and the composite functional and cognitive endpoint CDR (Clinical Dementia Rating scale) CDR-SB score.
Figure 16: Phase
2 (Tauriel) study design
Ref: Kerchner et al., CTAD 2017
On
September 23, 2020, the Company reported that Genentech informed us of top line results which showed that semorinemab did not meet
its primary efficacy endpoint of reducing decline on Clinical Dementia Rating-Sum of Boxes (CDR-SB) compared to placebo. Two secondary
endpoints, Alzheimer’s Disease Assessment Scale-Cognitive Subscale 13 (ADAS-Cog13) and Alzheimer’s Disease Cooperative
Study Group – Activities of Daily Living Inventory (ADCS-ADL), were also not met. The primary safety endpoint was however
met.
Further analyses revealed a dose-dependent
increase in serum pharmacokinetics and evidence of target engagement, measured by an increase in plasma Tau levels, which is consistent
with previous Phase 1 study results (Figure 17). Semorinemab did not show a dose-dependent effect on Tau PET signal in the brain.
Additional biomarker data are being analyzed.
Figure 17: Phase
2 (Tauriel) study pharmacokinetic and pharmacodynamic results
Ref: Teng et al., CTAD 2020
A second Phase 2 trial (Lauriet) was initiated
in Q1 2019. This is a multicenter study enrolling 260 participants, and is designed to evaluate the clinical efficacy, safety,
pharmacokinetics and pharmacodynamics of semorinemab in patients with moderate AD [Mini Mental State Examination (MMSE) 16–21,
CDR-GS 1 or 2]. The study consists of a screening period, a double-blind treatment period of 49 weeks, an optional OLE period,
and a follow-up period, with the 11-item Alzheimer's Disease Assessment Scale-cognitive subscale (ADAS-Cog11) and Alzheimer's Disease
Cooperative Study-Activities of Daily Living tools as the primary endpoints, and CDR-SB, MMSE and safety as secondary endpoints.
Primary completion (last patient, last visit) is estimated in Q2 2021.
Anti-Morphomer Tau
Approximately 1,600 compounds were screened
so far for the Morphomer Tau program. This allowed the identification of several chemical series of orally bioavailable small molecules
with suitable CNS properties. The lead compounds displayed selectivity for binding to pathological Tau aggregates in preference
to other protein aggregates. In addition, the lead compounds were able to prevent Tau aggregation and promote its disaggregation.
Further characterization using multiple orthogonal in vitro, ex vivo and in vivo tests addressing pharmacology,
absorption, distribution, metabolism, and excretion (ADME), and safety properties led to the identification of the first clinical
candidate ACI-3024.
ACI-3024
ACI-3024 is a potent inhibitor of Tau aggregation
that acts not only on the Tau native form, but also on synthetic fibers derived from the six human Tau isoforms as well as from
the four mutants containing common point mutations associated with human Tauopathies, such as FTLD-Tau (e.g. PSP, Pick’s
disease, corticobasal degeneration). ACI-3024 selectively binds to aggregated Tau and does not bind to the monomeric forms of Tau.
Moreover, the binding to Tau aggregates is selective, with no cross-reactivity to aggregates of Abeta and a-syn.
ACI-3024 showed a potent and dose-dependent
reduction in spontaneous intracellular Tau aggregation and misfolding as measured by immunocytochemistry in human neuronal-like
cells over-expressing Tau. Furthermore, ACI-3024 promoted ex vivo disaggregation of Tau neurofibrillary tangles on human
AD brain sections.
The in vivo efficacy of ACI-3024
was evaluated in the Tg4510 mouse model (Ramsden et al., 2005). In vivo treatment of Tg4510 transgenic mice with
ACI-3024 reduced aggregated and insoluble hyper-phosphorylated Tau. Immunohistochemistry analysis of misfolded Tau using an MC1
antibody in Tg4510 brain sections of the same mice treated with ACI-3024 showed reduction of misfolded Tau. These effects were
proportional to the plasma concentration of ACI-3024 (Figure 18).
Total Tau concentration in
cerebrospinal fluid (CSF) was inversely correlated with ACI-3024 exposure in plasma, suggesting the
possibility of exploring CSF Tau concentrations as a biomarker of target engagement.
ACI-3024 further assessment is ongoing
in rare NeuroOrphan indications.
Figure 18: Dose-dependent
reduction in Tau misfolding in vivo
Ref: AC Immune unpublished data
Preclinical safety
ACI-3024 has a good in vitro and
in vivo ADME profile, including low clearance, long half-life and good CNS disposition as assessed by brain and CSF concentrations.
ACI-3024 was negative in in vitro and in vivo genotoxicity assays [Ames, micronucleus test (MNT) and mouse lymphoma
cell mutagenesis (MLY)] and has undergone an extensive toxicology and safety pharmacology assessment. The no observed adverse effect
level has been established at 300 mg/kg in rodent and at 450 mg/kg in non-rodent animals after 4 weeks of treatment (Poli, CTAD
2018).
Effect on neuroinflammation
ACI-3024 efficacy on pathological Tau-induced
neuroinflammation was assessed in vitro and in vivo. In vitro, ACI-3024 induced a potent reduction of Tau-induced
neuroinflammation markers (Figure 19, below). In vivo, in Tg4510 mice, treatment with ACI-3024 overall reduced microgliosis, most
likely as a downstream consequence of reducing Tau pathology, by reducing the derived pathological Tau-induced microglial activation
(Figure 19).
Figure 19: ACI-3024
significantly reduces Tau-induced neuroinflammation
Ref: AC Immune unpublished data
Clinical development
Phase 1 study
This Phase 1 study was a
first-in-human (FiH), randomized, placebo-controlled, double-blind, sequential single and multiple ascending dose study. The
study assessed the safety, tolerability, pharmacokinetics, and pharmacodynamics of ACI-3024. Part I included five single
ascending doses in healthy volunteers, with a food effect assessment in the fourth dose cohort. In Part II, three escalating
multiple dose regimens were evaluated; regimen two was assessed in different populations of healthy volunteers. CSF samples
were collected from the highest multiple dose group.
The study was executed as planned
and all single and multiple dosing regimens were completed in healthy young, elderly, and Japanese subjects. ACI-3024 was
administered following single or multiple oral doses and dose-dependent plasma exposure was observed. ACI-3024 showed a long
half-life (47.5 to 101 h), with steady state reached after 12-13 days. Low renal clearance was shown. After multiple doses,
ACI-3024 concentrations in CSF exceeded target concentrations based on animal studies.
Plans to conduct additional clinical trials with ACI-3024 in AD have been suspended. The Companies have decided to pursue other promising
Tau Morphomer candidates from AC Immune’s research platform for potential clinical development in AD. ACI-3024 will be further evaluated
for efficacy in models of rare Tauopathies.
Figure 20: Morphomer
Tau therapeutic program: summary and outlook
ACI-24
ACI-24 is an anti-amyloid-beta vaccine
candidate that is currently in parallel clinical development for AD and Down syndrome-related AD. ACI-24 was developed utilizing
our SupraAntigen platform and is designed to stimulate a patient’s immune system to produce antibodies that specifically
target the misfolded Abeta conformer to prevent plaque accumulation and to enhance plaque clearance. Preclinical data demonstrated
significant activity in plaque reduction and memory restoration. ACI-24 has a favorable safety profile, characterized by a lack
of observed local and CNS inflammation and a mechanism of action independent of inflammatory T cells. ACI-24 is fully owned by
AC Immune and has been developed in-house.
Clinical development in AD
Phase 1/2 study
To be considered a Phase 1/2 study, a study,
or part of it, must include as a primary goal the assessment of efficacy in a patient population, assessed using either clinical
endpoints or biomarkers. This is in contrast to a Phase 1 study, for which the primary goal typically includes only safety
and pharmacokinetic or pharmacodynamic measures.
The Phase 1 part of the combined Phase
1/2 study is completed, and the clinical study report was finalized in 2019. The efficacy, tolerability and immunogenicity of ACI-24
were tested in patients with mild-to-moderate AD with four different doses in a randomized, placebo-controlled, double-blind study.
The different doses were tested via an ascending dose design in four consecutive cohorts with 12 patients each (nine on active,
three on placebo treatment). ACI-24 was administered with multiple injections per cohort. The initial safety follow-up period for
two years was shortened to one year mainly for the patients of the last cohort.
Phase 1 study data
Safety and tolerability
Due to the observed favorable safety profile,
the treatment-free safety follow-up period of the Phase 1 part of the study was shortened to one year using a protocol amendment.
Fifteen non-drug related SAEs were observed in the Phase 1/2 study. In the current Phase 2 study in patients with mild AD, seven
SAEs have been reported. Six of them were assessed as not related to study treatment and one SAE (transient ischemic attack) was
considered unlikely to be related to the study treatment. Currently, the ACI-24 vaccine is considered safe and well tolerated.
Antibody response
Antibody responses were observed only in
the two higher-dose groups of cohorts 3 and 4, indicating a dose-dependent effect of the vaccine. No IgG antibody response was
observed in placebo-treated patients of those cohorts.
PET Imaging and cognitive measures
Although the study
was not powered to examine efficacy, a tendency for reduction in accumulation in brain amyloid measured by PET imaging was observed
in cohorts 3 and 4.
Due to the safety
profile and potential dose-dependent reduction of amyloid plaques as measured by PET imaging, we have moved this program forward
into a Phase 2 clinical trial, which is currently ongoing. In order to optimize the immune response, the route of administration
has been switched to intramuscular, as this route was associated with a better antibody response in a non-clinical study.
Phase 2
Phase 2 study design
The aim of the Phase 2 double-blind, randomized,
placebo-controlled adaptive design study is to assess the safety, tolerability, immunogenicity and target engagement of ACI-24
formulations in patients with mild AD. The trial will seek to confirm the positive trends on Abeta PET imaging observed in the
previous Phase 1/2 study. The currently ongoing Phase 2 trial is being conducted in several European countries and the first dosing
occurred in October 2018 via the intramuscular route of administration. A 12-month interim analysis was completed, and a further
18-month interim analysis is planned for Q2 2021. AC Immune will complete the Phase 2 study with the 24-month analysis on the basis of currently enrolled patients.
Phase 2
results (interim)
Treatment has
been safe and well tolerated to date. There have been no safety concerns nor evidence for central nervous system (CNS)
inflammation or amyloid-related imaging abnormalities (ARIA) related to ACI-24 in any subject in the study.
ACI-24 for Down syndrome-related AD
The AD dementia that commonly develops
in people with DS bears remarkable clinical and pathological similarity to familial and sporadic forms of AD and is characterized
by progressive changes in Abeta and a number of other relevant biomarkers, making this genetically defined population an excellent
model for the disease. AC immune is pioneering this approach with ACI-24.
Individuals with DS have an extra copy
of chromosome 21, which is where the gene for amyloid precursor protein (APP) resides. These individuals develop AD at a rate that
is three to five times that of the general population and develop the disease at a much younger age. At autopsy, AD pathology has
been reported in 80% of people with DS over the age of 40 and 100% over the age of 60 years. The prevalence of AD in people with
DS is more than 50% over the age of 50 and 75–100% over the age of 60 years (Strydom, 2018). It is estimated that there are
six million people with DS worldwide, with 250,000 in the US Preclinical results published by AC Immune in collaboration with Dr. Mobley
of the University of California, San Diego in March 2016, showed, in a DS mouse model (Ts65Dn), a significant 20% memory improvement and
a 27% reduction of Abeta in the brain following vaccination with ACI-DS-01, the mouse equivalent of ACI-24.
Clinical development in DS
Phase 1b study
design
A Phase 1b clinical trial was completed
in 2020 and evaluated the safety and tolerability of ACI-24, its effect on induction of antibodies against Abeta and changes in
biomarkers such as Abeta levels in blood and CSF, in adult participants with DS. The study was primarily funded by the Company
with additional partial funding provided by a grant from the US National Institute on Aging, a part of the US National Institutes
of Health (NIH) and an additional grant from the LuMind Research Down Syndrome Foundation. This dose-escalation study included
16 participants across all cohorts, aged 25−45 years and treated for 12 months, with a 12-month safety follow-up.
Phase 1b results (top line)
ACI-24 was safe and well tolerated in adults with DS, with no serious adverse events (SAEs) or evidence for CNS inflammation, meningoencephalitis,
or ARIA. There have been no early subject withdrawals at any dose. ACI-24 vaccination in adults with DS resulted in encouraging immunogenicity
(generation of anti-Abeta antibodies) and a positive pharmacodynamic response as measured by an increase in plasma Abeta.
Due to the high
vulnerability of people with DS to severe COVID-19 sequelae, initiation of the next clinical trial will be delayed to ensure the safety
of study participants. In the interim, AC Immune is taking advantage of this time to accelerate development of its optimized anti-Abeta
vaccine formulation, which demonstrated encouraging safety and superior immunogenicity results in mouse and non-human primate (NHP) studies.
The optimized vaccine formulation primes, boosts and maintains a strong antibody response against key pathological Abeta species (including
oligomeric and pyroglutamate Abeta). The antibodies elicited by the vaccine in NHPs showed clear target engagement by binding to human
Abeta plaques on AD patient-derived brain tissue.
AC immune is in discussion with the Food and Drug Administration on a potentially accelerated
development pathway for the optimized Abeta vaccine and expects to file an Investigational New Drug (IND) application in Q4 2021. The
Company then plans to initiate a follow-on clinical trial in DS with the optimized vaccine formulation as soon as possible, depending
on Covid-19.
Crenezumab
Crenezumab is a humanized, conformation-specific
monoclonal antibody that targets misfolded Abeta and has a broad binding profile. Crenezumab was developed using our proprietary
SupraAntigen platform. In 2006, we licensed crenezumab to Genentech, a company with a long history of developing and commercializing
innovative biologics.
Mechanism of action
|
·
|
Crenezumab binds to multiple forms of Abeta, particularly oligomeric forms, which it binds to with ten times higher affinity
than to monomers. This is a desirable property since oligomeric forms of Abeta are believed to be principally responsible for neurotoxicity
in AD.
|
|
·
|
Crenezumab localizes to brain regions rich in oligomers, including the halo around plaques and hippocampal mossy fibers, but
not to vascular Abeta (Maloney et al., 2019).
|
|
·
|
Crenezumab has been designed with an IgG4 backbone to reduce effector function on microglia compared with an IgG1 backbone,
and to clear Abeta from the brain while limiting inflammation by minimizing FcγR-mediated inflammatory activation of microglia
(Adolfsson et al., J. Neurosci 2012).
|
Figure 21: Crenezumab’s
IgG4 backbone balances efficacy with safety
Data reported in Adolfsson et al.,
J. Neurosci 2012
The potential for a better safety profile
derived from a human IgG4 rather than a IgG1 backbone has been born out in practice by the safety findings from the Phase 1, 2
and 3 clinical studies of crenezumab, in which, following either single or multiple doses, no increase in ARIA-E was reported (Cummings
et al., 2014 and Cummings et al., 2018).
|
·
|
Due to its capacity to bind to multiple forms of Abeta, with 10-fold higher specificity to oligomers, which are thought to
be the most toxic species, crenezumab also protects against oligomer-induced neurotoxicity.
|
|
·
|
Linked to its unique epitope, crenezumab has been shown to promote disaggregation of existing Abeta aggregates and to disrupt
their assembly, preventing amyloid plaque formation. The crystal structure reveals binding interactions that are consistent with
this flexible binding profile and provides further explanation for crenezumab’s ability to block aggregation and to promote
disaggregation.
|
Signal of activity in patients with
milder AD (MMSE 22–26) in Phase 2 clinical trials
|
·
|
In the proof-of-concept Phase 2 studies of crenezumab, a positive trend in cognition was observed, with a greater effect on
cognition in patients with a milder stage of AD (MMSE 22–26).
|
|
·
|
In the ABBY cognition study, there, was a statistically significant 35% reduction in the rate of cognitive decline in the non-pre-specified
milder AD patient population (MMSE 22–26) for the high-dose arm.
|
|
·
|
In the BLAZE biomarker study, the high-dose arm showed a consistent trend of reduced Abeta accumulation in the brain over time,
as shown in two independent exploratory analyses of florbetapir-PET data. In addition, results have shown that crenezumab has the
ability to enhance the removal of these proteins from the brain as evidenced by a significant increase in CSF Abeta, confirming
target engagement by crenezumab.
|
Favorable safety profile allowing for
higher dosing
|
·
|
Phase 2 data from ABBY and BLAZE studies suggested that there were no imbalances in overall rate of AEs, and these were not
dose-related, with only one case of asymptomatic ARIA-E (0.4% in ABBY, 0.3% on active pooled) in patients treated with crenezumab.
AEs also included inflammation of the throat and nasal passages, urinary tract infections and upper respiratory infections. However,
no patients in the studies experienced SAEs that were believed related to the administration of crenezumab.
|
|
·
|
A Phase 1 study with higher doses of crenezumab up to 120 mg/kg showed good tolerability with no investigator assessed drug-related
SAEs and no events of ARIA-E, supporting the dose of 60 mg/kg in the Phase 3 CREAD clinical trials.
|
|
·
|
The good safety profile and lack of induction of ARIA-E was confirmed in the Phase 3 CREAD and CREAD 2 studies, in which there
was no increase in incidence of SAEs compared with placebo.
|
|
·
|
Crenezumab is currently being evaluated in a Phase 2 clinical prevention trial in Colombia, which has enrolled 300 cognitively
healthy individuals of whom 200 are genetically predisposed to develop early AD. As of January 2019, two Phase 3 clinical trials,
CREAD and CREAD 2, in patients with prodromal-to-mild AD were discontinued after an interim analysis of the CREAD study conducted
by our collaboration partner Genentech.
|
Clinical development
Phase 2 studies
Phase 2 study design overview
Crenezumab has been studied in two Phase
2 clinical studies, the ABBY proof-of-concept study and the BLAZE biomarker study. These two studies enrolled a total of 522 patients.
The purpose of these studies was to investigate whether crenezumab could delay cognitive and functional decline and reduce the
accumulation of brain amyloid in patients with mild-to-moderate AD. The sample size of the studies was not expected to have adequate
power to detect a modest but clinically significant difference between active medication and placebo at the 5% significance level
(as is commonly the case in Phase 2 studies in AD). Instead, consistent trends across different endpoints and dose dependencies
were considered indicators of a response in this learning phase of development, with confirmation to then be sought in Phase 3.
Both studies had two active arms: a low-dose arm receiving 300 mg subcutaneous injection, every 2 weeks and a higher-dose arm receiving
15 mg/kg intravenously every 4 weeks. The primary analysis was conducted at 73 weeks, after 68 weeks of treatment. Safety and tolerability
measures included repeated MRI scans to assess for the development of ARIA, both vasogenic edema (E) and hemorrhages (H).
ABBY study results
In the ABBY study, a positive trend in
cognition was observed with a greater effect on cognition in patients with a milder stage of AD (MMSE 22–26), although the
study did not meet its co-primary endpoints in patients with mild-to-moderate AD (MMSE 18–26). There was no significant change
in cognition in patients who received low-dose subcutaneous crenezumab. Results of an exploratory analysis of the high-dose intravenous
arm demonstrated that patients with the mildest cognitive impairment at screening (MMSE 22–26) showed a statistically significant
35% slowing of the rate of cognitive decline over 73 weeks. The effect became greater over time, as shown by the increasing separation
of the crenezumab (solid line) and placebo (dashed line) curves in the figure below. The milder group was not pre-specified, meaning
the group of patients with milder AD was not identified before commencing the Phase 2 clinical studies.
Figure 22: ABBY
high-dose arm: Change in ADAS-Cog 12
Ref: Cummings et al., AAIC, 2014
An exploratory subanalysis in a non-pre-specified
subgroup of patients with milder symptoms (MMSE 22–26) showed a 35.4% reduction in cognitive decline. The sample size
of the study was not expected to have adequate power to detect a modest but clinically significant difference between active medication
and placebo at the 5% significance level (as is commonly the case in Phase 2 studies in AD). Instead, consistent trends across
different
endpoints and dose dependency are considered indicators of a response in this learning phase of development, with confirmation
then sought in Phase 3. In the pre-specified subgroup analysis in patients with mild AD (MMSE 20–26), treatment with
high-dose intravenous crenezumab led to a 23.8% reduction in cognitive decline. In patients with mild-to-moderate AD (MMSE 18–26)
treated with high-dose intravenous crenezumab, there was a 16.8% reduction in cognitive decline. Effect sizes and p-values for
exploratory analyses were not adjusted for multiplicity.
BLAZE study design
The BLAZE study was a randomized, double-blind,
parallel-group, placebo-controlled study to evaluate the effects of crenezumab on brain amyloid burden as assessed by amyloid PET
imaging and other biomarker endpoints in patients with mild-to-moderate AD. The primary endpoint was the change in brain amyloid
load using florbetapir-PET. The terms “brain amyloid burden” and “brain amyloid load” refer to the total
amount of amyloid deposited in the brain. In total, 91 patients were included in the study.
BLAZE study results
The primary endpoint of change in brain
amyloid load by florbetapir-PET was not met, but the study was not powered to detect statistically significant results. However,
positive trends were observed as shown below in exploratory analyses of the BLAZE amyloid PET results using a white matter reference
region, which is considered a more sensitive approach for longitudinal studies. These analyses, conducted independently by two
laboratories, the Banner Alzheimer’s Institute and MNI Laboratories, produced analogous results, with a trend in the reduction
of Abeta accumulation observed in the high-dose arm (Figure 23). As described below, a similar result was obtained in the Phase
3 studies.
Figure 23: Blaze
high-dose arm: amyloid PET results
Ref: Honigberg et al., CTAD 2014
The BLAZE biomarker study high-dose intravenous
cohort showed a consistent trend of reduced Abeta accumulation in the brain over time as shown by two independent exploratory analyses
of florbetapir-PET data. Using white matter rather than cerebellum as the key reference region in the brain is generally considered
a more robust method of showing treatment effects of AD therapies.
In the BLAZE study, patients also showed
a statistically significant increase in CSF Abeta1–42, which we believe confirms target engagement by crenezumab.
Similar results were observed in the ABBY study, which assessed CSF Abeta1-42 level in 49 patients. These results suggest
that Abeta is being eliminated from the brain when treated with crenezumab.
Figure 24: BLAZE
high-dose arm: crenezumab increases CSF total Abeta levels relative to placebo
Ref: Honigberg et al.,
CTAD 2014
The BLAZE study results suggest that Abeta
is being eliminated from the brain as patients showed a statistically significant increase in CSF Abeta1–42, which
confirms target engagement by crenezumab.
Safety data from ABBY and BLAZE studies
Crenezumab demonstrated favorable safety
and tolerability in Phase 2 clinical studies even at high doses. Crenezumab’s safety profile is especially reflected in a
low incidence of ARIA-E (0.3%) in Phase 2 clinical studies. ARIA-E was observed in only one patient who received high-dose intravenous
crenezumab in the ABBY study. No case of ARIA-E was reported in the placebo arm or the BLAZE study. Favorable pharmacokinetic properties
coupled with a favorable safety and tolerability profile enables crenezumab to penetrate the brain more readily at therapeutically
relevant doses. As dose-limiting toxicities are a potential reason for the failure of other antibodies to demonstrate efficacy,
crenezumab’s potential safety at high doses is a distinguishing product feature.
At AAIC in 2014, it was reported that in
the combined Phase 2 study populations, SAEs occurred at similar rates in patients treated with crenezumab (16.5%) and in patients
given a placebo (11.9%).
Phase 1b study to explore higher doses
To explore safety at higher doses, crenezumab
was tested in a Phase 1b dose-escalation clinical study (NCT02353598) conducted in the US. This randomized, placebo-controlled,
double-blind, four parallel-arm study evaluated the safety and tolerability of at least four doses of intravenous crenezumab in
77 patients with mild-to-moderate AD (MMSE 18–28) between the ages of 50 and 90 years. An optional OLE stage was offered
to patients after completion of the double-blind stage of the study. At the 2017 AAIC meeting, Genentech presented the results
of the four cohorts with mild-to-moderate AD. No dose-limiting toxicities were observed at crenezumab doses of 30, 45, 60 and 120
mg/kg. No events of ARIA-E were observed and only few patients (6 of 75) showed asymptomatic ARIA-H. The pharmacokinetic profile
of crenezumab was dose-proportional up to the 120 mg/kg dose, with the 60mg/kg dose being selected for the Phase 3 CREAD and CREAD
2 studies.
Phase 2 AD prevention study
There is increasing understanding from
studies in patients at risk of AD due to genetic mutations that the build-up of Abeta in the brain is a very early event in the
condition, starting around 25 years before symptoms develop (McDade et al. 2018). To treat the underlying amyloid pathology
effectively it may therefore be necessary to use anti-amyloid therapies in a preventive mode, starting in patients in whom symptoms
have not yet emerged.
In 2012, crenezumab was independently selected
from among 25 product candidates for use in the first-ever such AD prevention study. The study, a collaboration worth USD 100 million
between the NIH, Banner
Alzheimer’s
Institute and Genentech, is the cornerstone of the global Alzheimer’s Prevention Initiative. Crenezumab is being administered
pre-symptomatically to 300 members of an extended Colombian family, of which 200 members carry a mutation that causes early-onset
AD. Family members usually develop symptoms before the age of 45 years. The 5-year study has cognitive endpoints. An interim analysis
is possible according to the protocol, but the data and results of that analysis may not be made public due to patient sensitivity.
The study commenced Q4 2013 and the data for the primary outcome measures are expected in Q1 2022.
Figure 25: Crenezumab
AD prevention trial (Alzheimer's Prevention Initiative AD/AD): unique population to study prevention treatment
|
(1)
|
Mild cognitive impairment; (2) Alzheimer’s disease; (3) Presenilin-1
|
Ref: McDade et al., Neurology
2018
Phase 3 studies (CREAD and CREAD 2)
The randomized, double-blind, placebo-controlled,
parallel-group Phase 3 CREAD study enrolled about 750 participants with prodromal or mild AD at the age of 50−85 years. A
high dose of crenezumab (60 mg/kg) was administered intravenously once every 4 weeks for 100 weeks. The primary outcome measure
was the change from baseline to week 105 in CDR-SB score. An exposure–response model to evaluate the best dose of crenezumab
for the treatment of AD was established, which predicted an improved outcome of the Phase 3 CREAD study by using the higher dose
of 60 mg/kg relative to the Phase 2 trials (Polhamus et al., CTAD 2016).
On January 30, 2019, we announced that
Roche, the parent company of our collaboration partner, is discontinuing the CREAD and CREAD 2 (BN29552 and BN29553) Phase 3 studies
of crenezumab in people with prodromal-to-mild sporadic AD. The decision came after an interim analysis of the first CREAD study
conducted by the IDMC, which indicated that crenezumab was unlikely to meet its primary endpoint of change from baseline in CDR-SB
score.
As presented at CTAD 2019, target engagement
was observed with increases in levels of Abeta1–42 in blood and CSF.
Figure 26: CSF total
Abeta42 and total Abeta change from baseline, pooled CREAD/CREAD2 results
Ref: Bittner et al., Roche CTAD
2019
Reduced accumulation of Abeta in the brain
on florebetapir amyloid PET scans was observed, with a pattern very similar to that observed in the Phase 2 BLAZE studies.
Figure 27: [18F]
Florbetapir amyloid PET SUVR change from baseline, pooled CREAD/CREAD2 (SUVR standard uptake value ratio)
Ref: Bittner et al., Roche CTAD
2019
A numerical trend to reduction in level
of total Tau and phospho-Tau 181 (pTau181) in the CSF in patients on crenezumab compared with placebo was observed although the
small numbers in the analysis due to early termination of the studies preclude firm conclusions from being drawn.
Figure 28: CFS total
Tau and pTau181 change from baseline, polled CREAD/CREAD2
Ref: Bittner et al., Roche CTAD
2019
Positive trends on a range of biomarkers
associated with AD in CSF including neurogranin, neurofilament light chain (NFL), Glial fibrillary acidic protein (GFAP), soluble
Triggering receptor expressed on myeloid cells 2 (sTREM2), Chitinase-3-like protein 1(YKL-40) and a-syn were reported by Roche
at the CTAD 2019 conference, although again the small numbers due to early termination of the studies limit interpretability of
the results.
Figure 29: Exploratory
biomarkers: Roche NeuroToolkit
Ref: Bittner et al., Roche CTAD
2019
Safety in the CREAD and CREAD 2 studies
The decision to terminate the CREAD and
CREAD 2 was not related to safety. No safety signals for crenezumab were observed in this analysis and the overall safety profile
was similar to that seen in previous trials. There was no difference in the rate of newly developing ARIA-E (0.3%) between the
active and placebo arms and the rates of ARIA-H were also similar (8.8% on crenezumab vs 6.8% on placebo).
Prevention trial in familial AD
As described above crenezumab continues
to be studied under the Alzheimer's Prevention Initiative in a preventive trial in Colombia, which began in 2013, of cognitively
healthy individuals with an autosomal-dominant mutation who are at risk of developing familial AD.
Discovery therapeutic programs
Using our SupraAntigen and Morphomer platforms,
we have generated additional discovery and preclinical stage molecules targeting key pathologies that drive a range of neurodegenerative
diseases, including TDP-43, a-syn, and NLRP3. We are accelerating the development of several therapeutic product candidates currently
in preclinical development, including several programs focused on indications outside of AD as a critical part of our expansion
strategy.
Figure 30: Key pathologies
for further pipeline expansion
Based on the data to date, our technology
platforms can be applied to misfolded proteins across a broad range of indications. Five of our preclinical programs are outlined
below:
Product candidate
|
Target
|
Lead application
|
Partner
|
Platform
|
a-syn antibody
|
a-syn
|
PD, NeuroOrphan
|
Proprietary
|
SupraAntigen
|
Morphomer a-syn
|
a-syn
|
PD, NeuroOrphan
|
Proprietary
|
Morphomer
|
Anti-TDP-43 antibody
|
TDP-43
|
NeuroOrphan
|
Proprietary
|
SupraAntigen
|
Morphomer inflammasome
|
NLRP3-ASC
|
CNS, non-CNS
|
Proprietary
|
Morphomer
|
Anti-inflammasome antibody
|
NLRP3-ASC
|
CNS
|
Proprietary
|
SupraAntigen
|
AC Immune’s proprietary SupraAntigen
platform is used to generate antibodies that can be used as therapeutic and diagnostic products. Such antibodies are generated
by injecting the full-length protein and/or corresponding peptide constructs in mice and by selecting the antibodies for their
ability to bind to and break up aggregated forms of misfolded proteins. The a-syn and TDP-43 antibodies were discovered using the
SupraAntigen technology platform. Both antibodies have unique binding properties allowing them to bind to unique epitopes of the
pathological forms of a-syn and TDP-43, respectively.
A-syn antibody
The a-syn antibodies generated in our SupraAntigen
program have unique binding properties allowing them to bind preferentially to the pathological forms of a-syn. A-syn aggregation
and spreading are established targets for PD, MSA and other synucleinopathy diseases. Antibodies that interfere with the aggregation
and spreading mechanisms of a-syn provide a therapeutic option for the treatment of PD. The a-syn antibodies were able to significantly
delay the seeded aggregation of pathological a-syn in an in vitro aggregation assay, and were able to significantly decrease
pathological a-syn spreading in an in vivo animal model of PD. Characterization using
multiple
orthogonal in vitro and in vivo tests addressing binding, specificity, functionality and pharmacological properties
has led to the identification of the lead candidate ACI-5755.
Lead characterization
ACI-5755 selectively binds to pathological
forms of a-syn with low-nanomolar affinity and shows a significant preference over monomeric a-syn. Additionally, ACI-5755 shows
strong recognition for pathological a-syn in patient-derived tissues in both PD and MSA. ACI-5755 showed a potent and dose-dependent
reduction in the seeding capacity of pathological a-syn in a proprietary in vitro aggregation assay. Moreover, ACI-5755
substantially reduced the propagation of a-syn aggregates in a cell-based model. The in vivo efficacy of ACI-5755 was evaluated
in the M83 propagation mouse model (Luk et al., 2012). Treatment of mice with ACI-5755 significantly decreased pathological
a-syn spreading in vivo. Furthermore, a significant reduction in the rate of body weight loss compared with the vehicle-treated
control group was observed for mice treated with ACI-5755.
Figure 31: Key results for the anti-a-syn
antibody program
Ref: AC Immune data presented
at AD/PD 2020
Morphomer a-Syn
Leveraging our Morphomer platform, we
identified and characterized the first biologically active small molecule inhibitors targeting intracellular alpha-synuclein aggregates.
Initial compounds, from several distinct chemical series, significantly decrease alpha-synuclein aggregate formation in cellular
assays by interfering with the fibrillation process. Iterative medicinal chemistry optimization led to the identification of compounds
with favorable CNS-penetrant pharmacokinetic properties, which will be progressed into in vivo proof-of-concept studies
in models of alpha-synucleinopathies, expected to begin in Q3 2021.
TDP-43 antibody
TDP-43 is a recently identified target
of growing interest for NeuroOrphan indications such as frontotemporal dementia (FTD) and ALS. Interestingly, TDP-43 also plays
an important role in other significant neurodegenerative indications such as AD or LATE.
Anti-TDP-43 antibodies binding to various
regions of TDP-43 were generated by our SupraAntigen platform. A subset displayed conformational selectivity to misfolded TDP-43,
while others recognized all TDP-43 isoforms. Multiple antibodies were generated and characterized in vitro, from which two
pan-TDP-43 antibodies (ACI-5891 and ACI-5886) were selected for the evaluation of their efficacy in mitigating TDP-43 aggregation
in vitro and in vivo. ACI-5891 showed a high binding affinity for TDP-43 and ability to inhibit TDP-43 aggregation
in vitro.
Lead characterization
To evaluate the functional efficacy of
TDP-43 antibodies in vitro, the ability of ACI-5891 to inhibit TDP-43 aggregation was tested. In an in vitro assay
with recombinant TDP-43, ACI-5891 significantly inhibited TDP-43 aggregation by 98% compared with the isotype control and significantly
promoted their phagocytosis by mouse primary microglia. Moreover, ACI-5891 significantly reduced templated aggregation of TDP-43
induced by FTLD-TDP brain extracts in a cell model of TDP-43 proteinopathy.
To further characterize functional efficacy
of ACI-5891 in vivo, its ability to mitigate TDP-43 neuropathology in a transgenic Tg(rNLS8) mouse model of TDP-43 proteinopathies
was evaluated (Walker et al., Acta Neuropath, 2015). In the Tg(rNLS8) mice, systemic administration of ACI-5891 led to a
significant reduction in the density of phosphorylated TDP-43 and insoluble TDP-43 in the brain compared with the vehicle-treated
control mice (Figure 32). In vitro and in vivo data demonstrates that microglia promote the phagocytic clearance of TDP-43
neuropathology. These characteristics demonstrated for the first time that an antibody targeting TDP-43 ameliorates TDP-43-mediated
pathology in vivo providing validation for further development to target TDP-43-mediated neuropathology.
ACI-5891 humanization and manufacturability
assessment
ACI-5891 was successfully humanized on
a VH2-VK1 human framework. Several variants had a similar binding capacity for TDP-43 as well as potency for inhibition of TDP-43
aggregation as compared to the chimeric monoclonal antibody. The target values were achieved for the clinical lead (ACI-5891.1)
in terms of target affinity, functional efficacy and percentage humanness. Developability of clinical lead (ACI-5891.1) was further
confirmed in manufacturability assessment studies and cell line development for the lead initiated.
Figure 32: Key results
for TDP-43 antibodies program
Ref: Pfeifer et al., AC Immune
Key Opinion Leader event, 2019
Neuroinflammation and the NLRP3 inflammasome pathway
Microglial cells (microglia) are the main
resident immune cells in the brain, which maintain a healthy environment by removing damaged cells and misfolded protein aggregates.
When overstimulated, microglia can drive neuroinflammation, leading to increased neuronal death and disease progression. A key
molecular pathway that is activated by misfolded proteins related to neurodegenerative and other diseases, is the NLRP3 (NOD-like
receptor pyrin domain-containing protein 3) inflammasome, a multi-protein complex that forms within microglia leading to production
of pro-inflammatory factors that exacerbate neuronal atrophy. NLRP3 inflammasome activation also leads to increased production,
truncation and/or aggregation of the pathological misfolded proteins, setting up a vicious, chronic cycle of neuroinflammation,
pathology and cell death. A critical component of the NLRP3 pathway is ASC (apoptosis-associated speck-like protein containing
a C-terminal caspase recruitment domain), which is formed and released by activated microglia. Intracellularly, ASC specks participate
in the production of pro-inflammatory cytokines, whereas extracellular ASC specks cause acute
inflammatory reactions. ASC specks have been identified in microglia within the CNS of patients with NDD (Venegas, 2017) as well
in the body fluids of patients. As illustrated in Figure 33, pathological species of Abeta, Tau, a-syn and TDP-43 have been
found to induce NLRP3 inflammasome activation and ASC speck formation.
Figure 33: Activation of the NLRP3-ASC
inflammasome pathway exacerbates neuronal damage and promotes further neurodegeneration
Ref: Adapted from Ransohoff et al. Nature
2017
Aberrant activation of the NLRP3 pathway
contributes to numerous neurodegenerative diseases, as well as atherosclerosis, asthma, cryopyrin-associated periodic syndromes,
gout, inflammatory bowel disease, nonalcoholic fatty liver disease and nonalcoholic steatohepatitis, and multiple sclerosis. Because
of the broad role of this pathway across a number of diseases, NLRP3 and ASC have emerged as attractive and highly valued molecular
targets to modulate certain pathological inflammatory responses.
AC Immune is developing multiple small
molecule and antibody-based candidates with the potential to inhibit the NLRP3 pathway. Recent in vitro studies and in
vivo experiments in animal models of AD, PD and ALS have validated this approach.
Targeting NLRP3-ASC in neurodegenerative diseases
Alzheimer’s disease
Abeta peptides, which accumulate to form
the characteristic plaques in AD, activate the NLRP3 inflammasome (Halle, 2008). Expression of NLRP3 and downstream pro-inflammatory
factors IL-1b and IL-18 are increased in cells from AD patients and patients with mild cognitive impairment (Saresella, 2016).
NLRP3-deficiency or pharmaceutical inhibition in a mouse model decreases neuroinflammation and Abeta accumulation and improves
neuronal function (Heneka, 2013; Demspey, 2017). ASC specks purified from mouse macrophages accelerate Abeta aggregation, and crossing
AD and ASC knockout mouse strains lowers the load of Abeta significantly and rescues memory loss (Venegas, 2017). Recently, ASC
speck and IL-18 levels were shown to be higher in human MCI and AD brain samples, with data comparable to that of established biomarkers
soluble amyloid precursor protein (sAPP) and neurofilament light chain (Nfl), indicating that ASC is a promising biomarker of MCI
and AD (Scott, 2020).
Tauopathies
Extracellular Tau activates NLRP3 and ASC
formation in microglia. Intracerebral injection of fibrillar Abeta-containing brain homogenates induces Tau pathology in an NLRP3-dependent
manner (Ising, 2019). Elevated cleavage of caspase-1, increased ASC levels and mature IL-1b are indicative of NLRP3 activation
in patients with frontotemporal dementia (Ising, 2019). ASC deficiency decreases exogenously- and non-exogenously-seeded Tau in
a mouse model of Tauopathy. Inhibition of NLRP3 also inhibits exogenously-seeded Tau pathology in primary microglia (Stancu, 2019).
Finally, NLRP3 inhibition improved inflammation and ER stress signaling, both peripherally and centrally, in a mouse Tauopathy
model, alongside a partial normalization of phospho-tau levels (Hull, 2020).
Parkinson’s disease
NLRP3 is activated and ASC formation is
upregulated in postmortem brains of PD patients (Gordon, 2018 and Anderson, 2021). In addition, NLRP3 inhibition mitigated pathological
hyper-phosphorylated a-syn accumulation in the substantia nigra and rescued dopaminergic neurons in the mouse model of a-syn propagation
using preformed fibrils (Gordon, 2018). Furthermore, exome sequencing analysis of NLRP3 identified multiple single-nucleotide polymorphisms
(SNPs), including rs7525979, which was associated with a significantly reduced risk of developing PD (von Herrmann, 2018). NLRP3
inhibition decreases fibrillar α-synuclein-mediated inflammasome
activation in mouse microglial cells and extracellular ASC release in vitro and in multiple rodent PD models effectively
mitigates motor deficits, nigrostriatal dopaminergic degeneration and accumulation of α-synuclein
aggregates (Gordon 2018). Taken together, NLRP3 is responsible for driving neuroinflammation that results in progressive dopaminergic
neuropathology, highlighting NLRP3 as a potential target for disease-modifying treatments for PD.
TDP-43 proteinopathies
TDP-43-mediated activation of microglia
causes motor neuron cell death in vitro (Zhao, 2015). Recently, studies demonstrated that TDP-43 activates microglia via
CD14, with downstream activation of NF-kB and NLRP3 (Clark, 2020). This finding is clinically relevant as increased microglial
CD14 expression is observed in postmortem spinal cord tissue from patients with ALS, a TDP-43-driven disease (Clark, 2020). Furthermore,
wildtype and mutant forms of TDP-43 activate microglia to generate IL-1b, which is abolished by NLRP3 inhibition (Deora, 2019).
Amyotrophic Lateral Sclerosis
Microglia isolated from the ALS mouse model,
SOD1G93A, express elevated levels of NLRP3 when in the pathological stage of disease (Deora, 2019). When microglia are incubated
with soluble or aggregated SOD1G93A, NLRP3 is activated, ASC specks are formed, and IL-1b is secreted. This effect is abolished
by pre-treatment with an NLRP3 inhibitor.
Our strategy for targeting the NLRP3-ASC inflammasome
AC Immune is aggressively pursuing this
key pathway in order to reduce the unwanted progression of inflammation in diseases and syndromes caused by the hyper-activation
of the NLRP3 inflammasome. Our aim is to develop therapeutics that decrease production of pro-inflammatory factors yet maintain
normal phagocytosis of debris and misfolded proteins as well as allow the function of other pathogen-sensing pathways. Currently,
AC Immune is targeting the NLRP3-ASC pathway using two complementary approaches, derived from our two technology platforms (Figure
34):
Figure 34: Strategy to use dual proprietary
technology platforms to target NLRP3-ASC
Ref: Adapted from Ransohoff et al.
Nature 2017
Small molecule inhibitors of NLRP3
Leveraging the know-how of our proprietary
Morphomer™ platform, which generated AC Immune’s small molecule Tau aggregation inhibitors, the Company has successfully
identified and filed patent applications for various chemical series of potent small molecule NLRP3 inhibitors. The Company has
established biological activity for these compounds in multiple functional assays (Figures 35 and 36), and initial animal studies
show highly potent target inhibition in a model of peripheral inflammation (Figure 37), providing the first evidence of in vivo
activity. AC immune is currently evaluating potential lead compounds for further in vivo efficacy and optimization for CNS
delivery. The Company expects to initiate in vivo proof-of-concept studies in animal models of AD and other key neurodegenerative
diseases by year end, as well as evaluate the potential of a second lead molecule in a clinically relevant non-CNS disease model.
Figure 35: Screening assay to quantify
the compound-mediated inhibition of IL-1β production in vitro using human microglia
Ref: Adapted from Choi et al.,
Mol Cell 2014; AC Immune unpublished data
Figure 36: Secondary assays involving
human whole blood demonstrate potent hit compounds active in vitro using multiple donors
Ref: AC Immune unpublished data
Figure 37: In a mouse model of peritonitis,
several of the initial hits targeting NLRP3 show significant inhibition of IL-1β production in vivo
Ref: AC Immune unpublished data
Therapeutic antibodies for neuroinflammation
(mAb-ASC)
It has been shown in the APP/PSI mouse
model of AD, intracellular and extracellular ASC specks are present and treatment using an anti-ASC antibody decreases the Abeta
load in these mice (Figure 38).
Figure 38: ASC specks in AD patients
and mouse model of AD
Ref: Vanegas et al. Nature
2017
Using our proprietary and validated SupraAntigen
platform, AC Immune generated neutralizing anti-ASC antibodies that bind extracellular human ASC and potently inhibit inflammation-mediated
formation of ASC specks (Figure 39). Selected antibodies will be further evaluated in in vivo proof-of-concept studies using
animal models of human disease, which AC Immune expects to start by year end. These innovative, potentially disease-modifying antibodies
are designed to have the highest potential to prevent inflammation and modify the downstream exacerbation of various proteinopathies.
Figure 39: Inhibition of ASC speck formation
in vitro
(human ASC transfected cells or microglia
activated by monosodium urate (MSU) crystals)
Ref: AC Immune unpublished data
Diagnostics
Early detection of neurodegenerative diseases
may be critical to enhancing the effectiveness of both symptomatic and disease-modifying therapies. As a result, therapeutic development
for AD increasingly focuses on treating early-stage disease to delay or prevent progression and to preserve the maximum amount
of cognitive function before it is irreversibly lost. Most clinical studies now target mild or even preclinical stages of the disease
increasing the need for accurate diagnosis that is independent of potentially subjective cognitive metrics. At least one study
estimates that as many as one-third of patients in previous AD studies did not in fact have AD. Accurate and early diagnosis of
AD is thus a substantial unmet market need, and diagnostic products will have a key role in generating a new treatment paradigm,
including by selecting more uniform and stage-specific clinical study subjects, tracking patient progress and results, managing
patients who are receiving treatment, and ultimately diagnosing disease at its earliest stage for immediate treatment.
Figure 40: The need for precision medicine
in AD: high level of other proteinopathies and co-pathologies in AD
Ref: Adapted from Robinson et al.,
Brain, 2018
We are developing three diagnostic product
candidates derived from our Morphomer technology platform. These product candidates are PET ligands, which are highly specific
chemical tracers that can be used to image the extent and location of Tau, a-syn and TDP-43 pathology in the brains of living patients.
Tau diagnostics
The severity of cognitive impairment in
patients with AD is correlated with the presence of Tau protein tangles, leading us to believe that an imaging agent for Tau is
equally, if not more important than Abeta-PET to assess spreading of pathology in the brain. In May 2020, Eli Lilly received FDA
approval for the first Tau PET tracer TAUVID (flortaucipir F18 injection). However, TAUVID received approval only for a pathology
indication (i.e., correlation with histopathology findings in Braak 5 and 6 patients), but has not received a prognostic label
(i.e., prediction of cognitive deterioration based on a positive Tau PET scan.)
Our Tau-PET tracers are designed to bind
specifically to the pathological forms of human Tau in AD and other Tauopathies. They have demonstrated an excellent PET tracer
profile with their ability to cross the blood brain barrier and a high selectivity to pathological Tau even in the early-stage
disease.
In May 2014, we established a license and
collaboration agreement for our Tau-PET imaging program with LMI. The Phase 1 clinical study of our clinical candidate PI-2620
in AD was completed in Q1 2018. LMI commenced a Phase 2 longitudinal study in AD of the program in Q3 2019. A second Phase 2 longitudinal
study in AD was launched in South Korea (Asan Medical Center) in Q2 2019 (NCT03903211).
PI-2620 is selective for Tau over Abeta
and other “off-target” binding compared with current published Tau-PET agents in development, as no binding to Abeta
in vivo and no “off-target” retention in basal ganglia or choroid plexus was observed. In addition, PI-2620
can be readily radiolabeled with fluorine 18. A major differentiator for PI-2620 is its ability to bind 4-repeat (4R) Tau isoforms,
which are present in varying amounts in different neurodegenerative diseases. Most Tau PET tracers in development are not able
to bind 4R Tau and are of limited use for certain diseases driven by these Tau species.
Figure 41: PI-2620
– a surrogate marker of neuronal injury
Ref: Beyer et al., EJNMMI 2020
Figure 41 shows that PI-2620 early-phase
imaging can serve as a surrogate biomarker for neuronal injury, as it shows excellent semi-quantitative and visual agreement with
metabolic imaging using FDG PET. Dynamic imaging or a dual time-point protocol for Tau PET could supersede additional FDG PET imaging
by indexing both the distribution of Tau and the extent of neuronal injury. The shorter time required for recording the images
for PI-2620 (0.5 to 2.5 min) is an advantage for patient comfort, examination time, radiation safety and cost-effectiveness compared
to FDG (30 to 50 min).
Figure 42: PI-2620 – a tool to
assess early AD
Ref: Mormino et al., EJNMMI. 2020
The PI-2620 Tau-PET data displayed in Figure
42 showed the mean regional PI-2620 Standardized Uptake Value Ratio (SUVR) values corresponding to 60 to 90 min post-injection
for the medial temporal lobe (MTL, a), posterior cingulate (b), and lateral parietal (c). The data revealed strong differences
in the MTL and cortical regions known to be impacted in AD using PI-2620 Tau PET in patients along the AD trajectory. The data
highlights the promise of PI-2620 to measure Tau aggregates throughout the course of AD.
Figure 43: PI-2620
– a potential game-changer for PSP
Ref: Brendel et al., JAMA Neurology
2020
The PI-2620 Tau-PET data displayed in Figure
43 showed that PI-2620 PET imaging can detect and assess PSP (4R Tau) pathology in vivo to establish an earlier and more
reliable diagnosis. Differentiation at the single patient level by semiquantitative and visual classification (sensitivity/specificity.
for PSP-RS >80%). Statistically significant signal in PSP target regions was observed by PI-2620 Tau PET compared to healthy
controls (HC) and disease controls (α-synucleinopathies, AD (3R/4R Tau)).
Data from the Tau-PET imaging program was
presented at multiple conferences in 2020, including the Human Amyloid Imaging (HAI) conference 2020, AD/PD 2020, AAIC 2020, European
Association of Nuclear Medicine Meeting (EANM) 2020.
Tau diagnostics are a major market opportunity
that will be driven by the growth in the aging population and the testing and availability of disease-modifying drugs. We believe
a best-in-class Tau tracer has the potential to achieve a substantial global market share in this large and growing market, which
includes AD as well as other important Tauopathies.
A-syn diagnostics
We are also developing PET imaging agents
to detect a-syn, which progressively accumulates in the brains of PD patients and is believed to be central to the neurodegenerative
process of PD, as well as several other disorders, including Lewy body dementia and MSA, making it a priority target for development
of therapeutics and diagnostics. We have identified molecules leveraging our Morphomer technology that selectively bind to a-syn
pathological structures from human PD brain with affinity in the low-nanomolar range.
Our second-generation clinical candidate,
ACI-3847, shows low-nanomolar binding to pathological a-syn from PD brain homogenates, good selectivity and a strong preclinical
pharmacokinetic (PK) profile, with minimal background. It was evaluated in an FiH study in a small cohort of patients with idiopathic
PD and healthy volunteers. Although no statistically significant differences between PD and healthy volunteers were observed, overall,
PD patients showed higher tracer retention in the substantia nigra and surrounding brain regions, where a-syn deposits start accumulating
in PD. These encouraging data support further evaluation of [18F]ACI-3847 in a-syn
indications with expected higher a-syn load than idiopathic PD, and these studies are currently ongoing.
In May 2020, we received an additional
substantial grant from the Michael J. Fox Foundation for Parkinson’s Disease Research to support the clinical development
of the second-generation candidate in
different
a-synucleinopathies and the initial clinical evaluation of the third-generation candidate. The current status of the program was
presented at the HAI 2020 and AAIC 2020.
In 2020, we advanced
a third-generation candidate, ACI-12589. Compared to the second-generation tracer, ACI-12589 retained the good selectivity and
pharmacokinetic profile while also showing a significantly increased signal specificity in PD versus non-diseased human tissues
(Figure 44). The Phase 1-enabling preclinical and manufacturing activities for ACI-12589 were completed in 2020 and the IND was
accepted in early 2021. The FiH clinical evaluation of the third-generation tracer began in February 2021 and is expected to be
completed in Q3 2021.
Figure 44: 3rd
generation alpha-synuclein tracers with improved properties
Ref: AC Immune, AAIC Conference, 2020
Currently there are no imaging products
in the market that target a-syn. This provides us with the opportunity to become the market leader in a-syn PET imaging. We believe
the ability to image a-syn deposits in the brain will enable a fundamental change in the approach toward treating PD and other
a-syn-associated diseases.
TDP-43 imaging diagnostics
To complement our pipeline of PET imaging
tracers, we also selected TDP-43 as a third target. TDP-43 in its physiological function is a protein participating in nucleic
acid transport. Similar to Tau, Abeta and a-syn, TDP-43 misfolds in TDP-43-mediated proteinopathies into insoluble aggregates predominantly
in the cytoplasm of neurons, leading to cellular dysfunction and eventually clinical symptoms. TDP-43 pathology often appears in
other neurodegenerative diseases (e.g., AD) as a part of mixed pathologies, and it has been proposed that misfolded TDP-43 contributes
to the observed clinical phenotype in addition to the primary pathology. The precise molecular diagnosis and differentiation of
early stages of such diseases is of critical importance. Using proprietary assays, a set of small molecular weight compounds from
four chemically distinct series were identified, which bind to patient-derived pathological TDP-43. Several of these compounds
demonstrated favorable pharmacokinetic profiles in rodents suggesting suitable properties for further development as PET ligands.
We identified candidates showing nanomolar affinities on tissues from patients with TDP-43 proteinopathies. Affinity and selectivity
are being further optimized to deliver a potential first-in-class PET tracer for TDP-43.
There are no imaging products in the market
today targeting TDP-43. This provides us with a unique opportunity to become the first company to provide a TDP-43-PET tracer to
the market. We believe the ability to image TDP-43 deposits in the brain will enable fundamental change in the approach toward
treating primary and secondary TDP-43 proteinopathies including improved design for AD clinical trials to provide the best outcome
for patients.
License agreements and collaborations
Our SupraAntigen and Morphomer platforms
have generated large numbers of clinical assets that address multiple diseases related to protein misfolding. Selected key assets
in the product pipeline have been licensed
for
upfront payments, milestones and royalties to help offset the cost of our research and internal product development. Discussions
with other companies are ongoing. We have signed a number of licensing agreements with leading pharmaceutical companies to assist
and accelerate the development of our product pipeline, including:
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·
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a worldwide licensing agreement with Genentech signed in November 2006 (and amended in March 2009, January 2013, May 2014 and
May 2015) for crenezumab for AD, under which we may become eligible to receive payments potentially greater than USD 340 (CHF 303)
million, excluding royalties;
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·
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a worldwide licensing agreement with Genentech signed in June 2012 (and amended in December 2015) for semorinemab to treat
AD and potentially other indications, under which we may become eligible to receive payments potentially greater than CHF 400 million,
excluding royalties;
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·
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a worldwide licensing agreement with Janssen signed in December 2014 (and amended in April 2016, July 2017, January 2019 and
November 2019) for therapeutic anti-Tau vaccines for AD, and potentially other Tauopathies, under which we may become eligible
to receive payments totaling up to CHF 500 million, excluding royalties;
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·
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a worldwide licensing and collaboration agreement (LCA) with LMI (formerly Piramal Imaging SA) signed in May 2014 for small-molecule
Tau ligands for use as PET tracers under which we may become eligible to receive payments totaling up to EUR 159 (CHF 175) million,
excluding royalties; and
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·
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a worldwide license agreement with Lilly to research and develop Morphomer Tau small molecules for the treatment of AD and
other neurodegenerative diseases, which was entered into in December 2018 (and amended in September 2019 and March 2020). The agreement
was deemed effective on January 23, 2019. Under this, we may become eligible to receive payments up to approximately CHF 1.9 billion,
excluding royalties.
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Further information concerning details
of our agreements and collaborations can be found under “Item 5: Operating and financial review and prospects.”
Competition
The pharmaceutical and biopharmaceutical
industries are highly competitive across all therapeutic fields. In the field of neurodegenerative diseases, there are many public
and private companies or institutions that are actively engaged in the discovery and development of therapeutic and diagnostic
products. Some of these products may have a similar target to our product candidates or address similar markets. The industry is
still in its infancy in terms of defining the pathology of neurodegenerative diseases. As disease understanding progresses, the
number of novel product candidates may well increase and broaden the therapeutic and diagnostic options in our product markets.
Currently, there are no approved disease-modifying
products for AD or any other neurodegenerative disease. Current approved therapies seek to treat the symptoms of AD, such as cognitive
decline, but do not slow or stop the progression of the disease. In addition, commonly, there is off-label prescription of antidepressant
and antipsychotic agents for more patients with advanced AD who may have agitation, aggressive behaviors, psychosis and depression.
No new drugs have been approved for the treatment of AD since 2003.
We expect there to be several classes of
disease-modifying agents that will enter the AD market. One target for monoclonal antibodies is pathological Tau protein. Therapeutic
vaccines are a second class of disease-modifying therapies, and include our candidate products ACI-35.030, which targets aggregated,
phosphorylated Tau protein and ACI-24, which targets pathological Abeta.
The availability of novel diagnostic agents
to visualize the disease development in patients with AD is critical for successful clinical development of disease-modifying products
in AD. At the forefront of this new diagnostic effort are PET agents for in-life imaging of disease, and in particular, Tau-targeting
PET agents, which we believe will allow precise assessment of disease in patients with AD.
ACI-35.030. ACI-35.030, if
approved, would compete with other approved Tau-targeting therapeutic vaccines. This includes the AADvac1 vaccine developed by
Axon Neuroscience, which completed a Phase 2 study in 2020.
Semorinemab. Semorinemab
is one of several Tau-targeting monoclonal antibodies in development to potentially act as disease-modifying agents. Biogen is
evaluating gosuranemab (licensed from Bristol-Myers Squibb) in a Phase 2 clinical trial in AD. AbbVie is currently investigating
tilavonemab in AD in Phase 2 studies. Zagotenemab (Lilly) is currently in a Phase 2 study in AD. Bepranemab (UCB/Roche), BIIB076
(Biogen/Neuroimmune), JNJ3657 (Janssen), Lu AF87908 (Lundbeck), PNT001 (Pinteon Therapeutics) and E-2814 (Eisai) are being evaluated
in Phase 1 studies.
Morphomer Tau. AC Immune
has developed the first small molecule targeting aggregated Tau with high selectivity for the target. In collaboration with Lilly,
this molecule (ACI-3024) was studied in a Phase 1 clinical trial which was completed in 2020 as a first-in-class, Tau-specific,
disease-modifying, Tau aggregation inhibitor small molecule for the treatment of neurodegenerative diseases characterized by misfolded
Tau. Together with our partner Eli Lilly, we have identified optimized candidates that will now be prioritized for Alzheimer’s
disease development. The optimized candidates have been shown to have enhanced brain uptake, good safety profiles and high affinity
for Tau. These new candidates are being further characterized in in vivo preclinical models and will be advanced into investigational
new drug (IND)-enabling studies, and one of them is expected to advance into development in 2021. ACI-3024 will continue to be
investigated in Orphan indications.
ACI-24 for AD. ACI-24, if
approved, would compete with other approved anti-Abeta-targeting therapeutic vaccines. This includes the ABvac 40 (Araclon Biotech),
which is currently being evaluated in a Phase 2 study and UB-311(Vaxxinity), which has completed a Phase 2 study.
ACI-24 for DS. ACI-24 is
the first disease-modifying vaccine candidate addressing DS-related AD, with a potential preventive and therapeutic application.
Although there are symptomatic treatments of DS in clinical development, to our knowledge there are currently no other disease-modifying
treatments in clinical development for AD in DS.
Crenezumab. Crenezumab is
the first monoclonal antibody candidate that targets Abeta in cognitively healthy individuals at risk of developing familial AD.
However, Lilly’s solanezumab, Roche’s gantenerumab and Eisai’s lecanemab are being evaluated in studies of presymptomatic
AD.
A-syn and TDP-43 antibodies.
Several a-syn antibodies are currently in development; Roche/Prothena entered a Phase 2 with prasinezumab in June 2017; Biogen
entered a Phase 2 with cinpanemab in January 2018; Astra Zeneca/Takeda started a Phase 1 study in patients with Parkinson’s
disease with MEDI1341 in August 2020; Lundbeck/Genmab entered a Phase 1 with Lu AF82422 in July 2018; and BAN0805 (AbbVie/BioArctic)
is currently in a Phase 1 study. To our knowledge, there are no TDP-43 antibodies in the clinic.
Diagnostics. Tauvid (previously
known as Flortaucipir), which was developed by Eli Lilly and approved by FDA in May 2020. However, should PI-2620 be approved,
it would also compete with (i) APN-1607 (previously known as 18F-PM-PBB3), a product candidate in a Phase 2 study and being
advanced by Aprinoia; (ii) THK-5351 (FluoroTau), a product candidate in a Phase 2 study being advanced by GE Healthcare; (iii)
18F-MK-6240, which is being evaluated by Cerveau/Merck in a Phase 2 clinical trial in patients with ADAD; (iv) 18F-GTP1, which
is being developed by Genentech and is in a Phase 2 study in subjects at risk of developing ADAD, (v) 18F-RO6958948, for which
Roche has completed a Phase 1 study in patients with AD and (vi)18F-JNJ-067, for which Janssen has completed a Phase 1 study in
patients with AD.
Many of our competitors have significantly
greater financial, technical and human resources than we have available. Mergers and acquisitions in the pharmaceutical and biotechnology
industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity
and our success will be based in part on our ability to identify, develop and manage a portfolio of product candidates that are
safer and more effective than competing products. However, this opportunity could be eroded or even eliminated if our competitors
develop and/or market products that are novel and have superior safety and efficacy profiles, that may be brought to the market
more rapidly due to greater available resources, or that are less costly than our current or future product candidates.
Commercialization strategy
Our strategy to date has been to focus
on identifying partnerships for our early-stage product candidates as both a way to secure non-dilutive capital to fund our other
research and development programs and also as a
way
to accelerate the development of these partnered products by leveraging our partners’ extensive knowledge in clinical studies,
drug development, manufacturing and commercialization.
With greater financial resources at our
disposal and the significant knowledge acquired by our scientists and scientific leadership, we intend to retain selected promising
product candidates in-house for a longer period of time and fund their development from our own resources. This will allow us to
generate greater value from these product candidates, allowing us to demand more significant terms from a prospective partner.
For example, while we plan to seek a strategic partner for our Abeta vaccine program in AD, our current plan is to retain full
control of this asset for development in the DS population. We will complete the ongoing Phase 2 study for AD before partnering
this program and intend to fund further clinical development in DS from our own financial resources. In the field of diagnostics,
the parallel development of therapeutic compounds and companion diagnostics is of growing importance to the pharmaceutical and
biopharmaceutical industries. The development timeframe of a PET diagnostic agent is significantly shorter than for a therapeutic
product, providing the prospect for potential diagnostic product revenues to be realized quicker than potential therapeutic product
revenues. Our Morphomer platform is particularly well suited to generate molecules for use in the development of companion diagnostics.
Given our current stage of product development,
we currently do not have a commercialization infrastructure. If any of our product candidates is granted marketing approval, we
intend to focus our initial commercial efforts in the US and select European markets, which we believe represent the largest market
opportunities for us. In those markets, we expect our commercial operations to include our own specialty sales force that will
target Neurologists and Gerontologists, both in hospitals and in private practice. In other markets, we expect to seek partnerships
that would maximize our products’ commercial potential.
Intellectual property
We strive to protect the proprietary technology
that we believe is important to our business, including seeking and maintaining US and foreign patents intended to cover our products
and compositions, their methods of use and processes for their manufacture, and our proprietary technology platforms, diagnostic
candidates and any other inventions that are commercially important to the development of our business. We also rely on trade secrets
and know-how to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will significantly depend on
our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and
know-how related to our business, to defend and enforce patents, to preserve the confidentiality of our trade secrets and to operate
our business without infringing any patents and other intellectual property or proprietary rights of third parties. See the section
titled “Risk factors— Risks related to intellectual property” for additional information.
As of December 31, 2020 we owned or co-owned
approximately 40 issued US patents and 323 issued patents in other jurisdictions, as well as 26 pending US patent applications
and 354 pending foreign patent applications. As of December 31, 2020 we licensed approximately 25 issued US patents and 20 pending
US patent applications, as well as 236 issued patents in other jurisdictions and 238 pending foreign patent applications.
The patent portfolios for our most advanced
product candidates as of December 31, 2020 are summarized below:
Anti-Tau vaccines
Our patent portfolio for anti-Tau vaccines
includes a patent family with composition-of-matter claims (including claims directed to the ACI-35 antigenic peptide and a pharmaceutical
composition comprising such an antigenic peptide), claims directed to treating certain indications using ACI-35 including AD, and
claims directed to using ACI-35 to induce an immune response. This patent family currently contains approximately 27 issued patents
and four pending patent applications in 27 countries. The issued patents in this patent family, if the appropriate maintenance,
renewal, annuity or other governmental fees are paid, are expected to expire in 2030, excluding any additional term for patent
term adjustments or patent term extensions.
Our patent portfolio for anti-Tau vaccines
also includes a patent family relating to therapeutic Tau vaccine claims (including claims directed to a pharmaceutical composition
comprising an antigenic Tau peptide), claims directed to using such vaccines to induce an immune response in a subject, and claims
directed to methods for preventing or treating a neurodegenerative disease or disorder, including AD, among others. Any patents
issuing
in
this patent family, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire
in 2038, excluding any additional term for patent term adjustments or patent term extensions.
Semorinemab
Our global patent portfolio relating to
semorinemab includes patents and patent applications with claims directed to compositions of matter, methods of treatment for certain
indications including AD, and methods of use, among others.
Morphomer Tau
Our patent portfolio relating to Morphomer
Tau therapeutics includes patent applications with claims directed to composition of matter (including claims directed to the molecule,
a pharmaceutical composition comprising such molecule and a mixture comprising such molecule), and claims directed to prevention
and treatment of certain indications using such molecules including AD and PSP, among others.
Our patent portfolio relating to the Morphomer
Tau therapeutic program includes patent applications that we own or co-own in four different patent families. As of December 31,
2020, we owned or co-owned approximately 51 pending patent applications and one US issued patent in our main patent family directed
to the ACI-3024 small molecule Tau aggregation inhibitor. If the appropriate maintenance, renewal, annuity, or other governmental
fees are paid, national-stage applications issuing from this PCT patent application are expected to expire in 2039, excluding any
additional term for patent term adjustments or patent term extensions, as applicable.
ACI-24
Our patent portfolio for ACI-24 includes
composition-of-matter claims (including claims directed to the ACI-24 antigenic construct), claims directed to treating certain
indications using ACI-24 including AD, and claims directed to using ACI-24 to induce an immune response. Our patent portfolio for
ACI-24 consists of approximately 25 issued patents and 9 pending patent applications in 30 countries. With respect to the US, we
own two issued US patents. The issued patents in this patent portfolio, if the appropriate maintenance, renewal, annuity or other
governmental fees are paid, are expected to expire in 2026, excluding any additional term for patent term adjustments or patent
term extensions.
Our patent portfolio for ACI-24 also consists
of an additional patent family directed to the use of the ACI-24 vaccine in the treatment and/or prevention of memory and/or cognitive
impairments or abnormalities in the DS subpopulation, among others. As of December 31, 2020, in this patent family, we owned approximately
10 patents and 8 pending patent applications in 18 countries. The issued patents in this patent family, if the appropriate maintenance,
renewal, annuity or other governmental fees are paid, are expected to expire in 2032, excluding any additional term for patent
term adjustments or patent term extensions.
Our patent portfolio for ACI-24 also includes
a patent family related to therapeutic anti-Abeta vaccine claims (including claims directed to a pharmaceutical composition comprising
an antigenic peptide), and claims directed to using such vaccines in treating, preventing, inducing a protective immune response
against or alleviating the symptoms associated with an Abeta-associated disease in a subject, among others. This patent family
currently contains approximately 29 pending patent applications in 31 countries and one issued US patent. Any issued patents in
this patent family, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire
in 2039, excluding any additional term for patent term adjustments or patent term extensions.
Crenezumab
Our patent portfolio relating to crenezumab
includes patents and patent applications with claims directed to composition of matter (including claims directed to the crenezumab
antibody or a fragment thereof, a polynucleotide encoding the crenezumab antibody or a fragment thereof, a cell line used to produce
the crenezumab antibody as well as pharmaceutical compositions comprising the crenezumab antibody), claims directed to treating
certain indications using the crenezumab antibody including AD, claims directed to a method of manufacturing the crenezumab antibody
and claims directed to diagnostic and prognostic uses of the crenezumab antibody.
Our patent portfolio relating to crenezumab
includes patents and patent applications that we own or co-own in four different patent families. As of December 31, 2020, we owned
or co-owned approximately 45 patents
(not
including the patents in the individual countries where the issued European patent was validated) and 19 patent applications in
34 countries in our main patent family directed to the crenezumab antibody and methods of using the crenezumab antibody to treat
certain indications, including AD. This patent portfolio includes three issued US patents and one pending US patent applications,
which, if the appropriate maintenance or other governmental fees are paid, are expected to expire in 2027, excluding any additional
term for patent term adjustments or patent term extensions. This patent portfolio also includes a PCT patent application that
was filed on July 13, 2007. If the appropriate maintenance, renewal, annuity, or other governmental fees are paid, national-stage
applications issuing from this PCT patent application are expected to expire in 2027, excluding any additional term for patent
term adjustments or patent term extensions, as applicable.
PI-2620
Our patent portfolio relating to PI-2620
includes patent applications with claims directed to composition of matter (including claims directed to the molecule, its precursor
and a diagnostic composition comprising such molecule), claims directed to diagnosis of certain indications using PI-2620 including
AD and PSP, and claims directed to a method of manufacturing PI-2620, among others.
Our patent portfolio relating to PI-2620
includes patent applications that we own or co-own in three different patent families. As of December 31, 2020, we owned or co-owned
approximately 16 patent applications in 16 countries in our main patent family directed to the PI-2620 molecule, its precursor
and methods of using the PI-2620 to diagnose certain indications, including AD and PSP. If the appropriate maintenance, renewal,
annuity, or other governmental fees are paid, national-stage applications issuing from this PCT patent application are expected
to expire in 2037, excluding any additional term for patent term adjustments or patent term extensions, as applicable.
Manufacturing and supply
We do not own or operate facilities for
the manufacture, packaging, labeling, storage, testing or distribution of preclinical or clinical supplies of any of our drug candidates.
We instead contract with and rely on third-party CMOs to manufacture, package, label, store, test and distribute all preclinical
development and clinical supplies of our drug candidates, and we plan to continue to do so for the foreseeable future. We have
established relationships with CMOs such as WuXi AppTec (WuXi STA), Bachem AG, Polymun GmbH, Syngene International Limited and
Avecia among others.
Compliance with governing
rules and quality requirements
The facilities used by our collaboration
partners and CMOs to manufacture our product candidates are systematically audited by local authorities and occasionally inspected
by competent authorities where the clinical studies are ongoing. The facilities where the commercial productions are performed
must be approved by the FDA or other relevant regulatory authorities, pursuant to inspections that are conducted after we submit
our NDA or comparable marketing applications. We perform periodic quality audits of the manufacturing facilities and CMOs to monitor
their compliance with the regional laws, regulations and applicable cGMP standards and other laws and regulations, such as those
related to environmental health and safety matters. The scope of our audits also involves monitoring the ability of our providers
to maintain adequate QCs and QA systems including personnel qualification.
After manufacturing, our products are submitted
to extensive characterization and QC testing plans performed by using properly developed analytical methods that are qualified
or validated; this ensures the accuracy of the results generated and provides evidence of the quality of our products. In addition,
our products are submitted to detailed and standardized stability programs aimed at demonstrating product stability during the
storage period; this, in addition to guaranteeing the safety of the products, supports the definition of a suitable supply chain
that may encompass the distribution of the products in different continents.
Contractual framework
We have established, with CMOs supplying
drug substances or drug products under cGMP, quality agreements and master service agreements. Quality agreements define the quality
standards required to develop, produce and supply the product, and also define the responsibilities related to the collaboration
with regards to the quality related aspects. Manufacturing service agreements define the commercial and financial framework under
which product manufacturing under cGMP is performed. Any failure to achieve and maintain compliance with the laws, regulations
and standards, suspension of the manufacturing of our product candidates or revoke of cGMP permissions, which would adversely affect
our business and reputation, are defined in the master service
agreements
and quality agreements. The risk that any third-party providers may breach the agreements they have with us because of factors
beyond our control and the possibility that they may also terminate or refuse to renew their agreements because of their own financial
difficulties or business priorities, potentially at a time that is costly or otherwise inconvenient for us, is managed by us with
constant investments toward maintaining reserve stocks and in-depth process know-how. The latter is supported by continuous in-house
process development and production activities of small-scale/research grade materials, which may offer the chance to rapidly identify
alternative contract manufacturers to whom the manufacturing process could be transferred providing continuity for the clinical
study.
Interaction with collaboration
partners and CMOs
Finally, our partnership with CMOs is managed
through an efficient project management platform in which teams are formed with the representatives of each key function from both
parties. Meetings occur either through telephone conferences aimed at updating short-term actions or face-to-face conferences when
mid- to long-term development plans are discussed.
Government regulation and our regulatory
department
Our regulatory department has a strong
culture of regulatory compliance, operating under three guiding principles, to:
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provide constructive regulatory input for development products;
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ensure smooth regulatory approvals by anticipating hurdles; and
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build confidence with regulators by continuous communication.
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The QA group is included within the regulatory department with
the mission to:
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create and maintain a corporate quality management system; and
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ensure cGCP, cGMP, cGLP and current Good Distribution Practice (cGDP) compliance.
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A science-driven approach is the cornerstone
of our interactions and this has helped us to build and maintain a high level of trust with regulators. Besides informal conversations
with the authorities, our regulatory department has conducted several pre-Investigational New Drug (pre-IND) meetings with the
FDA (ACI-24 for AD and DS, and PI-2620) and Scientific Advice meetings, which are the European equivalent of pre-IND meetings (with
the German Paul-Ehrlich-Institut, Swedish Medical Products Agency; UK Medicine & Healthcare Products Regulatory Agency, Finnish
Medicines Agency, the Spanish Agency of Medicines and Medical Devices and the EMA). Since 2008, our regulatory department has filed
a total of 18 clinical trial applications in the EU (one each in Austria, Denmark, the Netherlands and Poland, two in Germany,
three in Sweden, four in Finland and five in the UK) and 4 INDs in the US. Given the seriousness of AD and public pressure for
new therapeutics, we consider regulatory agencies to be important stakeholders in our product development strategies. We are committed
to working closely with global regulatory authorities to adhere to and achieve the highest levels of safety and quality of our
product candidates in the most timely and efficient manner. The transparency we have achieved and our goal of a close working relationship
with the regulatory agencies, in particular the FDA, are intended to facilitate expeditious execution through the regulatory approval
process.
Our regulatory department contains a QA
group. As every quality issue ultimately requires regulatory involvement and input, this approach is intended to lead to rapid
resolution of issues and ensure full compliance to satisfy both the reviewers and the inspectors at the government health authorities.
Our regulatory department is charged with keeping our entire organization, directly or indirectly involved in the clinical study
application process, in a state of “inspection readiness.” To that end, we ensure that the Trial Master Files are complete
and regularly updated. Our regulatory department is also tasked with generating our annual quality plan. The personnel tasked with
QA have issued a set of approximately 77 standard operating procedures and working instructions and continuously train the relevant
staff. Our QA personnel conduct regular audits, including in-person audits of the contract manufacturers, contract research organizations
and laboratories conducting primary endpoint analysis. In addition, we have a full-time QA documentation assistant to ensure good
documentation practice and archiving.
Product approval process
The clinical studies, manufacturing, labeling,
storage, distribution, record-keeping, advertising, promotion, import, export and marketing, among other things, of our product
candidates are subject to extensive regulation by governmental authorities in the US and other countries. The US FDA, under the
Federal Food, Drug, and Cosmetic Act (FDCA), regulates pharmaceutical products in the US. The steps required before a drug may
be approved for marketing in the US generally include:
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the completion of preclinical laboratory tests and animal tests conducted under cGLP regulations;
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the submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical
studies commence;
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obtaining a positive opinion from the ethics committee (Europe)/institutional review board (US) to commence study on human
subjects;
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the performance of adequate and well-controlled human clinical studies to establish the safety and efficacy of the product
candidate for each proposed indication and conducted in accordance with cGCP requirements;
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pre-NDA submission meeting with FDA (highly recommended);
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the submission to the FDA of an NDA;
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the FDA’s acceptance of the NDA;
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satisfactory completion of an FDA Pre-Approval Inspection (PAI) of the manufacturing facilities at which the product is made
to assess compliance with cGMP requirements;
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the FDA’s review and approval of an NDA prior to any commercial marketing or sale of the drug in the US; and
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having parallel scientific advice from the EMA or Health Technology Assessment body whereby the payors are involved at the
outset (Phase 2), which is intended to facilitate the design of clinical studies to target primarily populations with a high chance
of obtaining reimbursement and accelerate the process of time to reimbursement.
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The FDA has various programs, including
Fast Track, Priority review, Accelerated Approval and Breakthrough Therapy designation, which are intended to increase agency interactions,
expedite or facilitate the process for reviewing drug candidates, and/or provide for initial approval based on surrogate endpoints.
We believe that one or more of our product candidates may qualify for some of these expedited development and review programs.
However, even if a drug candidate qualifies for one or more of these programs, the FDA may later decide that the drug candidate
no longer meets the conditions for qualification.
The Fast Track program is intended to expedite
or facilitate the process for reviewing new drugs that meet certain criteria. Specifically, new drugs are eligible for Fast Track
designation if they are designed to treat a serious or life-threatening condition and demonstrate the potential to address unmet
medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for
which it is being studied. The sponsor of a new drug may request the FDA to designate the drug as a Fast Track product at any time
during the clinical development of the product. AD, for example, meets both pre-requisites—it is life-threatening and constitutes
an unmet medical need. Unique to a Fast Track product, the FDA may consider for review sections of the marketing application on
a rolling basis before the complete application is submitted if the sponsor provides a schedule for the submission of the sections
of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the
sponsor pays any required user fees upon submission of the first section of the application.
Any product submitted to the FDA for marketing,
including under a Fast Track program may be eligible for other types of FDA programs intended to expedite development and review,
such as Priority Review and Accelerated Approval. Any product is eligible for priority review if it has the potential to provide
safe and effective therapy where no satisfactory alternative therapy exists or it provides a significant improvement in the treatment,
diagnosis or prevention of a disease compared with marketed products. The FDA will attempt to
direct
additional resources to the evaluation of an application for a new drug designated for Priority Review to facilitate the review.
Additionally, a product may be eligible for the Accelerated Approval program. Drug candidates that are studied for their safety
and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing
treatments may receive Accelerated Approval, which means that they may be approved on the basis of adequate and well-controlled
clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical
benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of
approval, the FDA may require that a sponsor of a drug receiving Accelerated Approval perform adequate and well-controlled post-marketing
clinical studies. Failure to conduct required post-approval trials, or the inability to confirm a clinical benefit during post-marketing
trials, may allow the FDA to withdraw the drug from the market on an expedited basis. In addition, as a condition for Accelerated
Approval the FDA currently requires pre-approval of promotional materials, which could adversely impact the timing of the commercial
launch of the product. The Fast Track, Priority Review and Accelerated Approval programs do not change the standards for approval
but may expedite the development or approval process.
The Food and Drug Administration Safety
and Innovation Act of 2012 also amended the FDCA to require the FDA to expedite the development and review of a breakthrough therapy.
A drug can be designated as a breakthrough therapy if it is intended to treat a serious or life-threatening disease or condition
and preliminary clinical evidence indicates that it may demonstrate substantial improvement over existing therapies in one or more
clinically significant endpoints. A sponsor may request that a drug be designated as a breakthrough therapy at any time during
the clinical development of the product. If so designated, the FDA shall act to expedite the development and review of the product’s
marketing application, including by meeting with the sponsor throughout the product’s development, providing timely advice
to the sponsor to ensure that the development program to gather nonclinical and clinical data is as efficient as practicable, involving
senior managers and experienced review staff in a cross-disciplinary review, assigning a cross-disciplinary project lead for the
FDA review team to facilitate an efficient review of the development program and to serve as a scientific liaison between the review
team and the sponsor, and taking steps to ensure that the design of the clinical trials is as efficient as practicable.
The testing and approval process requires
substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. Given this paradigm,
AD has been given Life-Threatening Disease status by the FDA and therefore AD therapies are eligible for the expanded access program
for investigational drugs and other pathways such as Breakthrough Therapy, Accelerated Approval and Priority Review. Additionally,
a single well-designed, well-conducted, pivotal clinical study could be sufficient to trigger market approval pending a successful
PAI.
Preclinical studies include laboratory
evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate.
The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as
part of the IND, which must become effective before clinical studies may be commenced. The IND will automatically become effective
30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the studies as outlined in the
IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical studies
can proceed.
Clinical studies involve the administration
of the product candidates to healthy volunteers or patients with the disease to be treated under the supervision of a qualified
principal investigator. Clinical studies are conducted under protocols detailing, among other things, the objectives of the study,
the parameters to be used in monitoring safety and the efficacy criteria to be evaluated. A protocol for each clinical study and
any subsequent protocol amendments must be submitted to the FDA as part of the IND. Further, each clinical study must be reviewed
and approved by an independent IRB, either centrally or individually at each institution at which the clinical study will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution.
There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.
The FDA, the IRB or the clinical study sponsor may suspend or terminate clinical studies at any time on various grounds, including
a finding that the subjects or patients are being exposed to an unacceptable health risk. Additionally, some clinical studies are
overseen by an independent group of qualified experts organized by the clinical study sponsor, known as a Data Safety Monitoring
Board/Committee. This group provides authorization for whether or not a study may move forward at designated checkpoints based
on access to certain data from the study. We may also suspend or terminate a clinical study based on evolving business objectives
and/or competitive climate.
Clinical studies are typically conducted
in three sequential phases prior to approval, but the phases may overlap. These phases generally include the following:
Phase 1. Phase 1 clinical studies represent
the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate
is usually tested for safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism, excretion and
pharmacodynamics.
Phase 2. Phase 2 clinical studies
usually involve studies in a limited patient population to (i) evaluate the efficacy of the product candidate for specific indications,
(ii) determine dosage tolerance and optimal dosage, and (iii) identify possible adverse effects and safety risks.
Phase 3. If a product candidate is
found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical study program will
be expanded to Phase 3 clinical studies to further demonstrate clinical efficacy, optimal dosage and safety within an expanded
patient population at geographically dispersed clinical study sites.
Phase 4. Phase 4 clinical studies are conducted
after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document
a clinical benefit in the case of drugs approved under Accelerated Approval regulations, or when otherwise requested by the FDA
in the form of post-marketing requirements or commitments. Failure to conduct any required Phase 4 clinical studies promptly could
result in withdrawal of approval.
The results of preclinical studies and
clinical studies, including negative or ambiguous results as well as positive findings, together with detailed information on the
manufacture, composition and quality of the product, are submitted to the FDA in the form of an NDA requesting approval to market
the product. The NDA must be accompanied by a significant user-fee payment. The FDA has substantial discretion in the approval
process and may refuse to accept any application or decide that the data is insufficient for approval and require additional preclinical,
clinical or other studies.
We estimate that it generally takes 10
to 15 years, or possibly longer, to discover, develop and bring to market a new pharmaceutical or biopharmaceutical product in
the US. Several years may be needed to complete each phase, including discovery, preclinical, Phase 1, 2 or 3, or marketing authorization.
In addition, under the Pediatric Research
Equity Act, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed
indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation
for which the product is safe and effective. Recently, the Food and Drug Administration Safety and Innovation Act (FDASIA), which
was signed into law on July 9, 2012, amended the FDCA. The FDASIA requires that a sponsor who is planning to submit a marketing
application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing
regimen or new route of administration submit an initial Pediatric Study Plan within 60 days of an end-of-Phase-2 meeting or as
may be agreed between the sponsor and the FDA. The initial Pediatric Study Plan must include an outline of the pediatric study
or studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical
approach, or a justification for not including such detailed information, and any request for a deferral of pediatric assessments
or a full or partial waiver of the requirement to provide data from pediatric studies along with supporting information. The FDA
and the sponsor must reach agreement on the Pediatric Study Plan. A sponsor can submit amendments to an agreed-upon initial Pediatric
Study Plan at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical studies,
early-phase clinical trials, and/or other clinical development programs.
The cost of preparing and submitting an
NDA is substantial. Under federal law, NDAs are subject to substantial application user fees and the sponsor of an approved NDA
is also subject to annual product and establishment user fees. Under the Prescription Drug User Fee Act (PDUFA), as amended, each
NDA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA VI eliminates fees for supplements
as well as for establishments, although applicants will be assessed for annual prescription drug program fees for prescription
drug products, rather than the prescription drug product fee assessed under the previous iteration of PDUFA. According to the FDA’s
fee schedule for the 2021 FY, the user fee for each NDA application requiring clinical data is USD 2,875,842 and the annual program
fee is USD 336,432. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee
for the first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as
orphan drugs, unless the product also includes a non-orphan indication.
Once the NDA submission has been submitted,
the FDA has 60 days after submission of the NDA to conduct an initial review to determine whether it is sufficient to accept for
filing. Under the PDUFA, the FDA
sets
a goal date by which it plans to complete its review. This is typically 12 months from the date of submission of the NDA application.
The review process is often extended by FDA requests for additional information or clarification. Before approving an NDA, the
FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing
facility complies with cGMP regulations and may also inspect clinical study sites for integrity of the data supporting safety
and efficacy. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating
to risk, benefit and interpretation of clinical study data. The FDA is not bound by the recommendations of an advisory committee,
but generally follows such recommendations in making its decisions. The FDA may delay approval of an NDA if applicable regulatory
criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing
and surveillance to monitor safety or efficacy of a product.
After the FDA evaluates the NDA and conducts
inspections of the manufacturing facilities where the drug product and/or its API will be produced, it may issue an Approval Letter
or a Complete Response Letter. An Approval Letter authorizes commercial marketing of the drug with specific prescribing information
for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application
is not ready for approval. A Complete Response Letter may require additional clinical data and/or an additional pivotal Phase 3
clinical study or studies, and/or other significant, expensive and time-consuming requirements related to clinical studies, preclinical
studies or manufacturing. Even if such additional information is submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. The FDA could also approve the NDA with a Risk Evaluation and Mitigation Strategy (REMS), plan
to mitigate risks, which could include medication guides, physician communication plans, or elements to assure safe use, such as
restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on,
among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct
one or more post-marketing studies or clinical studies. Such post-marketing testing may include Phase 4 clinical studies and surveillance
to further assess and monitor the product’s safety and effectiveness after commercialization.
Special protocol assessment
The FDA and an IND sponsor may agree in
writing on the design and size of clinical studies intended to form the primary basis of a claim of effectiveness in an NDA. This
process is known as a special protocol assessment (SPA). Upon a specific request for a SPA by an IND sponsor, the FDA will evaluate
the protocol. If an SPA agreement is reached, however, it is not a guarantee of product approval by the FDA or approval of any
permissible claims about the product. The FDA retains significant latitude and discretion in interpreting the terms of the SPA
agreement and the data and results from any study that is the subject of the SPA agreement. In particular, the SPA agreement is
not binding on the FDA if previously unrecognized public health concerns later come to light, other new scientific concerns regarding
product safety or efficacy arise, the IND sponsor fails to comply with the agreed-upon protocol, or the relevant data, assumptions,
or information provided by the IND sponsor when requesting a SPA agreement change, are found to be false statements or misstatements,
or are found to omit relevant facts. An SPA agreement may not be changed by the sponsor or the FDA after the study begins except
with the written agreement of the sponsor and the FDA, or if the FDA determines that a substantial scientific issue essential to
determining the safety or effectiveness of the drug was identified after the testing began.
Orphan-drug designation
Under the Orphan Drug Act, the FDA may
grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is a disease or condition
that either affects fewer than 200,000 individuals in the US, or affects more than 200,000 individuals in the US but there is no
reasonable expectation that the cost of developing and making a drug product available in the US for this type of disease or condition
will be recovered from sales of the product in the US. Orphan-product designation must be requested before submitting an NDA. After
the FDA grants orphan-product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly
by the FDA. Orphan-product designation does not convey any advantage in or shorten the duration of the regulatory review and approval
process.
If a product that has orphan designation
subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled
to orphan-product exclusivity, which means that the FDA cannot approve any other applications to market the same drug or biological
product for the same indication for 7 years, except in limited circumstances, such as a showing of clinical superiority to the
product with orphan exclusivity. The designation of such drug also entitles a party to financial incentives such as opportunities
for grant funding toward clinical study costs, tax advantages and user-fee waivers. Competitors,
however,
may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval
for the same product but for a different indication for which the orphan product has exclusivity. Orphan-product exclusivity also
could block the approval of one of our products for 7 years if a competitor obtains approval of the same drug or biological product
as defined by the FDA or if our drug candidate is determined to be contained within the competitor’s product for the same
indication or disease. If a drug product designated as an orphan product receives marketing approval for an indication broader
than what is designated, it may not be entitled to orphan-product exclusivity. Orphan-drug status in the EU has similar but not
identical benefits in that jurisdiction.
Disclosure of clinical trial information
Sponsors of clinical trials (other than
Phase 1 trials) of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information.
Information related to the product, comparator, patient population, phase of investigation, trial sites and investigators and other
aspects of the clinical trial is made public as part of the registration. Sponsors are also obligated to disclose the results of
their clinical trials after completion. Disclosure of the results of certain trials may be delayed until the new product or new
indication being studied has been approved. However, there are evolving rules and increasing requirements for publication of trial-related
information, and it is possible that data and other information from trials involving drugs that never garner approval could be
required to be disclosed in the future. In addition, publication policies of major medical journals mandate certain registration
and disclosures as a pre-condition for potential publication, even when this is not presently mandated as a matter of law. Competitors
may use this publicly available information to gain knowledge regarding the progress of development programs.
Post-approval requirements
Drugs manufactured or distributed pursuant
to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating
to record-keeping, periodic reporting, product distribution, advertising and promotion and reporting of adverse experiences with
the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are
subject to prior FDA review and approval. There also are continuing, annual user-fee requirements for any marketed products and
the establishments at which such products are manufactured, as well as new application fees for supplemental applications with
clinical data.
In addition, drug manufacturers and other
entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the
FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance
with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly,
manufacturers must continue to expend time, money, and effort in the areas of production and QC to maintain cGMP compliance.
Once an approval is granted, the FDA may
withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the
product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity
or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the
approved labeling to add new safety information, imposition of post-marketing studies or clinical studies to assess new safety
risks, or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other
things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product
recalls;
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fines, warning letters or holds on post-approval clinical studies;
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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license
approvals;
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product seizure or detention, or refusal to permit the import or export of products; or
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injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates marketing, labeling,
advertising and promotion of 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. The FDA and other agencies actively enforce the laws and regulations prohibiting
the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant
liability.
Patent term restoration and marketing
exclusivity
Depending upon the timing, duration, and
specifics of FDA approval of the use of our drug candidates, some of our US 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 Act. The Hatch-Waxman
Act permits a patent term to be extended up to 5 years as compensation for patent term effectively lost due to the FDA’s
pre-market approval requirements. 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 of the time between
the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval
of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence.
Only one patent applicable to an approved drug is eligible for the extension. Extensions are not granted as a matter of right and
the extension must be applied for prior to expiration of the patent and within a 60-day period from the date the product is first
approved for commercial marketing. The USPTO, in consultation with the FDA, reviews and approves the application for any patent
term extension or restoration. Where a product contains multiple active ingredients, if any one active ingredient has not been
previously approved, it can form the basis of an extension of patent term provided the patent claims that ingredient or the combination
containing it.
In the future, we may apply for patent
term restoration for some of our presently owned patents to add patent life beyond their current expiration date, depending on
the expected length of clinical studies and other factors involved in the submission of the relevant NDA; however, there can be
no assurance that any such extension will be granted to us.
The Biologics Price Competition and Innovation
Act of 2009 provides up to 12 years of non-patent data exclusivity within the US to the first applicant to gain approval of a Biologics
License Application for a new biologic product that has not previously been approved by the FDA, which we refer to as a reference
product. This 12-year data exclusivity does prohibit the FDA from approving a biosimilar or interchangeable product of such reference
product until 12 years after the licensure of such reference product. In addition, the FDA will not accept a biosimilar or interchangeable
product application for review until 4 years after the date of first licensure of such reference product. Under 21CFR314.108, 5
years’ exclusivity is also granted to new chemical entities that contain no active moiety that has been approved by the FDA
under section 505(b). This market exclusivity bars the FDA from accepting for review any ANDA or 505(b)(2) application for a drug
containing the same active moiety for (i) 5 years if an ANDA or 505(b)(2) application does not contain a paragraph IV certification
to a listed patent, or (ii) 4 years if an ANDA or 505(b)(2) is submitted containing a paragraph IV certification to a listed patent.
Moreover, pediatric exclusivity, if granted, may add 6 months of exclusivity if the reference product has been studied with respect
to a pediatric indication in accordance with certain regulatory requirements. A reference product may also be granted 7 years of
orphan-drug exclusivity for the treatment of a rare disease or condition under section 527(a) of FDCA, which would run in parallel
with the 12 years of data exclusivity of the reference product, if applicable.
Non-US regulation
In order to market any product outside
of the US, we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding
quality, safety and efficacy, and governing, among other things, clinical studies, marketing authorization, commercial sales and
distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals
by the comparable foreign regulatory authorities before we can commence clinical studies or marketing of the product in foreign
countries and jurisdictions. Although many of the issues discussed above with respect to the US apply similarly in the context
of the EU, the approval process varies between countries and jurisdictions and can involve additional product testing and additional
administrative review periods, as described in greater detail below. The time required to obtain approval in other countries and
jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or
jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country
or jurisdiction may negatively impact the regulatory process in others.
EU drug review approval
In the EEA, which is comprised of the 27
Member States of the EU plus Norway, Iceland and Liechtenstein medicinal products can only be commercialized after obtaining a
marketing authorization. There are two types of marketing authorization: the Community Marketing Authorization, which is issued
by the EC through the Centralized Procedure based on the opinion of the Committee for Medicinal Products for Human Use (CHMP),
a body of the EMA, and which is valid throughout the entire territory of the EEA; and the National Marketing Authorization, which
is issued by the competent authorities of the Member States of the EEA and authorizes marketing only in that Member State’s
national territory and not the EEA as a whole.
The Centralized Procedure is compulsory
for human medicines for the treatment of human immunodeficiency virus or acquired immune deficiency syndrome (AIDS), cancer, diabetes,
neurodegenerative diseases, autoimmune and other immune dysfunctions, and viral diseases; for veterinary medicines for use as growth
or yield enhancers; for medicines derived from biotechnology processes, such as genetic engineering; for advanced-therapy medicines,
such as gene-therapy, somatic cell-therapy or tissue-engineered medicines; and for officially designated ‘orphan medicines’
(medicines used for rare human diseases). The Centralized Procedure is optional for products containing a new active substance
not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or technical innovation, or
for products that are in the interest of public health in the EU. The National Marketing Authorization is for products not falling
within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member
State of the EEA, this National Marketing Authorization can be recognized in another Member State through the Mutual Recognition
Procedure. If the product has not received a National Marketing Authorization in any Member State at the time of application, it
can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure,
an identical dossier is submitted to the competent authorities of each of the Member States in which the marketing authorization
is sought, one of which is selected by the applicant as the Reference Member State (RMS). If the RMS proposes to authorize the
product, and the other Member States do not raise objections, the product is granted a National Marketing Authorization in all
the Member States in which the authorization was sought. Before granting the marketing authorization, the EMA or the competent
authorities of the Member States of the EEA assesses the risk–benefit balance of the product on the basis of scientific criteria
concerning its quality, safety and efficacy.
Regulation in the EU
Product development, the regulatory approval
process, and safety monitoring of medicinal products and their manufacturers in the EU proceed in much the same manner as they
do in the US. Therefore, many of the issues discussed above apply similarly in the context of the EU. In addition, drugs are subject
to the extensive price and reimbursement regulations of the various EU Member States.
Clinical studies
As is the case in the US, the various phases
of preclinical and clinical research in the EU are subject to significant regulatory controls. The Clinical Trials Directive 2001/20/EC,
as amended and which will be replaced in 2021 or later by Regulation (EU) No 536/2014) provides a system for the approval of clinical
studies in the European Union via implementation through national legislation of the Member States. Under this system, approval
must be obtained from the competent national authorities of the EU Member States in which the clinical trial is to be conducted.
Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical
trial application, which must be supported by an investigational medicinal product dossier with supporting information prescribed
by the Clinical Trials Directive and corresponding national laws of the Member States, and further detailed in applicable guidance
documents. A clinical trial may only be undertaken if provision has been made for insurance or indemnity to cover the liability
of the investigator or sponsor. In certain countries, the sponsor of a clinical trial has a strict (faultless) liability for any
(direct or indirect) damage suffered by trial subjects. The sponsor of a clinical trial, or its legal representative, must be based
in the EEA. European regulators and ethics committees also require the submission of AE reports during a study and a copy of the
final study report.
Marketing approval
Marketing approvals under the EU regulatory
system may be obtained through a centralized or decentralized procedure. The centralized procedure results in the grant of a single
marketing authorization, which is valid for all (currently 27) EU Member States and the three European Free Trade Association (EFTA)
members (Norway, Iceland and Liechtenstein).
Pursuant to Regulation (EC) No. 726/2004,
as amended, the centralized procedure is mandatory for drugs developed by means of specified biotechnological processes, advanced-therapy
medicinal products, drugs for human use containing a new active substance for which the therapeutic indication is the treatment
of specified diseases, including but not limited to AIDS, neurodegenerative disorders, auto-immune diseases and other immune dysfunctions,
as well as drugs designated as orphan drugs. The CHMP also has the discretion to permit other products to use the centralized procedure
if it considers them sufficiently innovative or they contain a new active substance.
In the marketing authorization application,
the applicant has to properly and sufficiently demonstrate the quality, safety and efficacy of the drug. Under the centralized
approval procedure, the CHMP, possibly in conjunction with other committees, is responsible for drawing up the opinion of the EMA
on any matter concerning the admissibility of the files submitted in accordance with the centralized procedure, such as an opinion
on the granting, variation, suspension or revocation of a marketing authorization, and pharmacovigilance.
The CHMP and other committees are also
responsible for providing guidelines and have published numerous guidelines that may apply to our product candidates. These guidelines
provide additional guidance on the factors that the EMA will consider in relation to the development and evaluation of drug products
and may include, among other things, the preclinical studies required in specific cases, the manufacturing and control information
that should be submitted in a marketing authorization application, and the post-approval measures required to monitor patients
and evaluate the long-term efficacy and potential adverse reactions. Although these guidelines are not legally binding, we believe
that our compliance with them is likely to be necessary to gain approval for any of our product candidates.
The maximum timeframe for the evaluation
of a marketing authorization application by the CHMP under the centralized procedure is 210 days after receipt of a valid application.
This period will be suspended until such time as the supplementary information requested by the CHMP has been provided by the applicant.
Likewise, this time limit will be suspended for the time allowed for the applicant to prepare oral or written explanations. When
an application is submitted for a marketing authorization in respect of a drug that is of major interest from the viewpoint of
public health and in particular therapeutic innovation, the applicant may request an accelerated assessment procedure. If the CHMP
accepts such a 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.
If the CHMP concludes that the quality,
safety and efficacy of the product are sufficiently proven, it adopts a positive opinion. This is sent to the EC, which drafts
a decision within approximately 67 days following the CHMP opinion. After consulting with the Member States, the EC adopts a decision
and grants a marketing authorization, which is valid for the whole of the EEA. The marketing authorization may be subject to certain
conditions, which may include, without limitation, the performance of post-authorization safety and/or efficacy studies.
The EMA has various programs, including
accelerated assessment, conditional approval and PRIority MEdicines (PRIME), which are intended to increase agency interactions,
expedite or facilitate the process for reviewing drug candidates, and/or provide for initial approval on the basis of surrogate
endpoints. One or more of our product candidates may qualify for some of these expedited development and review programs. However,
even if a drug candidate qualifies for one or more of these programs, the EMA may later decide that the drug candidate no longer
meets the conditions for qualification. Eligibility to the PRIME scheme is limited to products considered to offer a major therapeutic
advantage in populations with high unmet need. PRIME is a voluntary scheme aimed at enhancing interaction and early dialogue with
developers of promising medicines through achieving the early appointment of the Rapporteur for the product, optimizing development
plans and speeding up evaluation so these medicines can reach patients earlier. Products benefiting from PRIME can expect to be
eligible for accelerated assessment at the time of application for a marketing authorization application.
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 a complete independent data package benefit from 8 years of data exclusivity and an additional 2 years of market exclusivity.
Data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic (abbreviated)
application. During the additional 2-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 10-year period will be extended to a
maximum
of 11 years if, during the first 8 years of those 10 years, the marketing authorization holder (MAH) obtains an authorization
for one or more new therapeutic indications that, 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 can 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 a marketing authorization application with a completely independent
data package of pharmaceutical test, preclinical tests and clinical studies. However, products designated as orphan medicinal
products enjoy, upon receiving marketing authorization, a period of 10 years of orphan market exclusivity. See also “—Orphan
drug regulation” below. Depending upon the timing and duration of the EU marketing authorization process, products may be
eligible for an SPC of up to 5 years’, pursuant to Regulation (EC) No. 469/2009. Such SPCs extend the rights under
the basic patent for the drug.
In the EU, the pediatric regulation [Regulation
(EC) No 1901/2006 as amended] requires sponsors to submit a pediatric investigation plan at the end of Phase 1. This plan will
provide the details of the quality, non-clinical and clinical studies required to support the authorization of a pediatric indication.
Additional rules apply to medicinal products for pediatric use under Regulation (EC) No. 1901/2006. Potential incentives include
a six-month extension of any supplementary protection certificate granted pursuant to Regulation (EC) No. 469/2009, but not
in cases in which the relevant product is designated as an orphan medicinal product pursuant to Regulation (EC) No. 141/2000,
as amended. Instead, a medicinal product designated as an orphan medicinal product may enjoy an extension of the 10-year market
exclusivity period granted under Regulation (EC) No. 141/2000 to 12 years subject to the conditions applicable to orphan drugs.
Orphan drug regulation
In the EU, Regulation (EC) No. 141/2000,
as amended, states that a drug will be designated as an orphan drug if its sponsor can establish:
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that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition
affecting not more than 5 in 10,000 persons in the EU when the application is made, or that it is intended for the diagnosis, prevention
or treatment of a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives
it is unlikely that the marketing of the drug in the EU would generate sufficient return to justify the necessary investment; and
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that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized
in the EU or, if such method exists, that the drug will be of significant benefit to those affected by that condition.
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Regulation (EC) No. 847/2000 sets
out further provisions for implementation of the criteria for designation of a drug as an orphan drug. An application for the designation
of a drug as an orphan drug must be submitted at any stage of development of the drug before filing of a marketing authorization
application.
If a EU-wide community marketing authorization
in respect of an orphan drug is granted or if all the EU Member States have granted marketing authorizations in accordance with
the procedures for mutual recognition, the EU and the Member States will 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 drug. This period may, however, be reduced to 6 years if, at the end
of the fifth year, it is established, with respect to the drug concerned, that the criteria for orphan-drug designation are no
longer met; in other words, when it is shown on the basis of available evidence that the product is sufficiently profitable not
to justify maintenance of market exclusivity. Notwithstanding the foregoing, a marketing authorization may be granted, for the
same therapeutic indication, to a similar drug if:
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the holder of the marketing authorization for the original orphan drug has given its consent to the second applicant;
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the holder of the marketing authorization for the original orphan drug is unable to supply sufficient quantities of the drug;
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the second applicant can establish in the application that the second drug, although similar to the orphan drug already authorized,
is safer, more effective or otherwise clinically superior.
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Other incentives available to orphan drugs
in the EU include financial incentives such as a reduction of fees or fee waivers and protocol assistance. Orphan-drug designation
does not shorten the duration of the regulatory review and approval process.
Manufacturing and manufacturers’
license
Pursuant to Directive 2003/94/EC, as transposed
into the national laws of the Member States, the manufacturing of investigational medicinal products and approved drugs is subject
to a separate manufacturer’s license and must be conducted in strict compliance with cGMP requirements, which mandate the
methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. Manufacturers
must have at least one qualified person permanently and continuously at their disposal. The qualified person is ultimately responsible
for certifying that each batch of finished product released onto the market has been manufactured in accordance with cGMP and the
specifications set out in the marketing authorization or investigational medicinal product dossier. cGMP requirements are enforced
through mandatory registration of facilities and inspections of those facilities. Failure to comply with these requirements could
interrupt supply and result in delays, unanticipated costs and lost revenues, and 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.
Wholesale distribution and license
Pursuant to Directive 2001/83/EC, the wholesale
distribution of medicinal products is subject to the possession of an authorization to engage in activity as a wholesaler in medicinal
products. Possession of a manufacturing authorization includes authorization to distribute by wholesale the medicinal products
covered by that authorization. The distribution of medicinal products must comply with the principles and guidelines of cGDP.
Advertising
In the EU, the promotion of prescription
medicines is subject to intense regulation and control, including EU and national legislation as well as self-regulatory codes
(industry codes). Advertising legislation inter alia includes a prohibition on direct-to-consumer advertising. All advertising
of prescription medicines must be consistent with the product’s approved Summary of Product Characteristics, and must be
factual, accurate, balanced and not misleading. Advertising of prescription medicines pre-approval or off-label is not allowed.
Some jurisdictions require that all promotional materials for prescription medicines be subjected to prior review and approval,
either internal or regulatory.
Other regulatory requirements
An MAH for a medicinal product is legally
obliged to fulfill a number of obligations by virtue of its status as an MAH. The MAH can delegate the performance of related tasks
to third parties, such as distributors or marketing partners, provided that this delegation is appropriately documented and the
MAH maintains legal responsibility and liability.
The obligations of an MAH include the
following:
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Manufacturing and batch release—MAHs should guarantee that all manufacturing operations comply with relevant laws
and regulations, applicable GMPs, and the product specifications and manufacturing conditions set out in the marketing authorization,
and that each batch of product is subject to appropriate release formalities.
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Availability and continuous supply—Pursuant to Directive 2001/83/EC, as transposed into the national laws of the
Member States, the MAH for a medicinal product and the distributors of the said medicinal product actually placed on the market
in a Member State shall, within the limits of their responsibilities, ensure appropriate and continued supplies of that medical
product to pharmacies and persons authorized to supply medicinal products so that the needs of patients in the Member State in
question are covered.
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Pharmacovigilance—MAHs are obliged to establish and maintain a pharmacovigilance system, including a qualified
person responsible for oversight, to submit safety reports to the regulators and to comply with the good pharmacovigilance practice
guidelines adopted by the EMA.
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Advertising and promotion—MAHs remain responsible for all advertising and promotion of their products, including
promotional activities by other companies or individuals on their behalf, and in some cases must conduct internal or regulatory
pre-approval of promotional materials. Regulation in this area also covers interactions with healthcare practitioners and/or patient
groups, and in some jurisdictions legal or self-regulatory obligations to disclose such interactions exist.
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Medical affairs/scientific service—MAHs are required to disseminate scientific and medical information on their
medicinal products to healthcare professionals, regulators and patients.
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Legal representation and distributor issues—MAHs are responsible for regulatory actions or inactions of their
distributors and agents.
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Preparation, filing and maintenance of the application and subsequent marketing authorization— MAHs must maintain
appropriate records, comply with the marketing authorization’s terms and conditions, fulfill reporting obligations to regulators,
submit renewal applications and pay all appropriate fees to the authorities. We may hold any future marketing authorizations granted
for our product candidates in our own name, or appoint an affiliate or a collaboration partner to hold marketing authorizations
on our behalf. Any failure by an MAH to comply with these obligations may result in regulatory action against an MAH and ultimately
threaten our ability to commercialize our products.
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Pricing and reimbursement
In the EU, the pricing and reimbursement
mechanisms by private and public health insurers vary largely by country and even within countries. The public systems reimbursement
for standard drugs is determined by guidelines established by the legislator or responsible national authority. The approach taken
varies by Member State. Some jurisdictions operate positive and negative list systems under which products may only be marketed
once a reimbursement price has been agreed. Other Member States allow companies to fix their own prices for medicines, but monitor
and control company profits and may limit or restrict reimbursement. The downward pressure on healthcare costs in general, particularly
prescription drugs, has become very intense. As a result, increasingly high barriers to the entry of new products are being erected
and some EU countries require the completion of studies that compare the cost-effectiveness of a particular product candidate with
that of currently available therapies in order to obtain reimbursement or pricing approval. Special pricing and reimbursement rules
may apply to orphan drugs. Inclusion of orphan drugs in reimbursement systems tend to focus on the medical usefulness, need, quality
and economic benefits to patients and the healthcare system as for any drug. Acceptance of any medicinal product for reimbursement
may come with cost, use and often volume restrictions, which again can vary by country. In addition, results based rules of reimbursement
may apply.
Other US healthcare laws
In addition to FDA restrictions on marketing
of pharmaceutical or biopharmaceutical products, federal and state healthcare laws restrict certain business practices in the pharmaceutical
and biopharmaceutical industries. These laws include, but are not limited to, anti-kickback, false claims, data privacy and security,
and transparency statutes and regulations.
The US federal Anti-Kickback Statute prohibits,
among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to
induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any good, facility, item
or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has
been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment,
credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market
value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical and biopharmaceutical manufacturers
on the one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions
and regulatory safe harbors protecting certain common activities from prosecution, the exceptions and safe harbors are drawn narrowly,
and our practices may not in all cases meet all the criteria for a statutory exception or safe harbor protection. Practices involving
remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny
if they do not qualify for an exception or safe harbor.
Failure to meet all the requirements of
a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the
Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative
review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that
if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare-covered business, the
statute has been violated. The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation
Act (collectively, the PPACA), amended the intent requirement under the Anti-Kickback Statute and criminal healthcare fraud statutes
(discussed below) such that a person or entity no longer needs to have actual knowledge of the statute or the specific intent to
violate it in order to have committed a violation. In addition, the PPACA provides 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 civil False Claims Act (discussed below). Further, the Civil Monetary Penalties Law imposes penalties against
any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal health
program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
The federal false claims laws prohibit,
among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for
payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement
material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement
and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the US government.
Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things,
allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.
Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the
product for unapproved, and thus non-covered, uses. The federal HIPAA created new federal criminal statutes that prohibit knowingly
and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party
payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.
Additionally, the PPACA also included the
federal Physician Payments Sunshine Act, which requires that certain manufacturers of drugs, devices, biologicals and medical supplies
for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions)
to report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals,
or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report
annually certain ownership and investment interests held by physicians and their immediate family members.
Additionally, many states have similar
healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in
several states, apply regardless of the payor. Certain states require the posting of information relating to clinical studies,
and require pharmaceutical companies to implement a comprehensive compliance program that includes a limit on expenditures for,
or payments to, individual medical or health professionals and to track and report gifts and other payments made to physicians
and other healthcare providers. If our operations are found to be in violation of any of the health regulatory laws described above
or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and/or administrative
penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products from reimbursement under government programs,
contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or
restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and regulations,
which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws,
implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Data privacy and security laws
In addition, we may be subject to international,
federal and state data privacy and security laws, regulations, rules and standards. Internationally, laws, regulations and standards
in many jurisdictions, such as the GDPR and the UK GDPR, apply broadly to the collection, use, retention, security, disclosure,
transfer and other processing of personal information. At the federal level, HIPAA, as amended by the Health Information Technology
for Economic and Clinical Health Act (HITECH), and its implementing regulations, imposes
certain
requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things,
HITECH makes HIPAA’s privacy and security standards directly applicable to business associates—independent contractors
or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf
of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal
penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce the federal HIPAA laws and to seek attorneys’ fees and costs associated
with pursuing federal civil actions. In addition, state laws, [such as the CCPA and the CPRA,] govern the privacy and security
of health and other personal information in certain circumstances, many of which differ from each other in significant ways and
may not have the same effect, thus complicating compliance efforts. Non-compliance with these laws, regulations, rules and standards
could result in significant penalties or legal liability. Although we take steps to comply with applicable laws, rules and regulations,
we cannot ensure that we will not be subject to regulatory or private actions, investigations, disputes and litigation, which
may include substantial fines or other legal liability for noncompliance of data privacy and security laws, rules and regulations,
including in the event of a cybersecurity breach or other security incident. We could be adversely affected if legislation or
regulations are expanded to require changes in our or our third-party service providers’ business practices or if governing
jurisdictions interpret or implement their legislation or regulations in ways that negatively affect our business, results of
operations or financial condition. See “Risk Factors— Changes in laws, rules or regulations relating to data privacy
and security, or any actual or perceived failure by us to comply with such laws, rules, regulations and standards, or contractual
or other obligations relating to data privacy and security, could have a material adverse effect on our reputation, results of
operations, financial condition and cash flows.”
Pharmaceutical coverage, pricing and
reimbursement
In both domestic and foreign markets, our
or our collaboration partners’ sales of any approved products will depend in part on the availability of coverage and adequate
reimbursement from third-party payors. Third-party payors include government authorities, managed care providers, private health
insurers and other organizations. Patients who are prescribed treatments for their conditions and providers performing the prescribed
services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely
to use our products, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the
cost of our products. Sales of our products will therefore depend substantially, both domestically and abroad, on the extent to
which the costs of our products will be paid by third-party payors. These third-party payors are increasingly focused on containing
healthcare costs by challenging the price and examining the cost-effectiveness of medical products and services.
In addition, significant uncertainty exists
as to the coverage and reimbursement status of newly approved healthcare product candidates. The market for our product candidates
for which we may receive regulatory approval will depend significantly on access to third-party payors’ drug formularies,
or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included
in such formularies often leads to downward pricing pressures on pharmaceutical or biopharmaceutical companies. Additionally, third-party
payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug
when a less costly generic equivalent or another alternative is available. Because each third-party payor individually approves
coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming, costly and sometimes unpredictable
process. We may be required to provide scientific and clinical support for the use of any product to each third-party payor separately
with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the cost-effectiveness of our products. This process could delay the market acceptance of any product and could have a negative
effect on our future revenues and operating results. We cannot be certain that our product candidates will be considered cost-effective.
Because coverage and reimbursement determinations are made on a payor-by-payor basis, obtaining acceptable coverage and reimbursement
from one payor does not guarantee we will obtain similar acceptable coverage or reimbursement from another payor. If we are unable
to obtain coverage of, and adequate reimbursement and payment levels for, our product candidates from third-party payors, physicians
may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them.
This in turn could affect our ability to successfully commercialize our products and impact our profitability, results of operations,
financial condition and future success.
Furthermore, in many foreign countries,
particularly the countries of the EU, the pricing of prescription drugs is subject to government control. In some non-US jurisdictions,
the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary
widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal
products
for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human
use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect
controls on the profitability of the company placing the medicinal product on the market. We may face competition for our product
candidates from lower-priced products in foreign countries that have placed price controls on pharmaceutical or biopharmaceutical
products. In addition, there may be importation of foreign products that compete with our own products, which could negatively
impact our profitability.
Healthcare reform
In the US and other jurisdictions, there
have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that
could affect our future results of operations as we begin to commercialize our products directly.
In particular, there have been and continue
to be a number of initiatives at the US federal and state level that seek to reduce healthcare costs. Initiatives to reduce the
federal deficit and to reform healthcare delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures
and the private sector will continue to review and assess alternative benefits, controls on healthcare spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing
groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed or actual
changes could limit or eliminate our spending on development projects and affect our ultimate profitability.
In March 2010, the PPACA, as amended by
the HCERA (collectively, the Health Care Reform Law) was signed into law. The Health Care Reform Law has the potential to substantially
change the way healthcare is financed by both governmental and private insurers. The Health Care Reform Law among other things,
established an annual, non-deductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic
agents; revised the methodology by which rebates owed by manufacturers for covered outpatient drugs under the Medicaid Drug Rebate
Program are calculated; increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program;
extended the Medicaid Drug Rebate program to utilization of certain injectable outpatient drugs, as well as prescriptions of individuals
enrolled in Medicaid managed care organizations; required manufacturers to offer 50% point-of-sale discounts on negotiated prices
of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D; and implemented payment system reforms including a national pilot program
on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency
of certain healthcare services through bundled payment models. On July 24, 2020 and September 13, 2020, the Trump administration
announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s
proposals. As a result, the FDA released a final rule on September 24, 2020, effective November 30, 2020, providing guidance for
states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, the US Department of Health
and Human Services, or HHS, finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers
to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by
law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for
certain fixed fee arrangements between pharmacy benefit managers and manufacturers. On November 20, 2020, CMS issued an interim
final rule implementing former President Trump’s Most Favored Nation executive order, which would tie Medicare Part B payments
for certain physician-administered drugs to the lowest price paid in other economically advanced countries, effective January 1,
2021. On December 28, 2020, the US District Court in Northern California issued a nationwide preliminary injunction against implementation
of the interim final rule. It is unclear whether the Biden administration will work to reverse these measures or pursue similar
policy initiatives. At the state level, legislatures have increasingly passed legislation and implemented regulations designed
to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing.
The future of the Health Care Reform Law
remains uncertain. In January 2017, Congress voted to adopt a budget resolution for the fiscal year 2017 that authorized the implementation
of legislation that would repeal portions of the Health Care Reform Law. On December 14, 2018, a federal judge in Texas ruled that
the Health Care Reform Law is unconstitutional in its entirety because the “individual mandate” was repealed by Congress
as part of the 2017 Tax Act. While the judge, as well as the Trump administration and CMS, have stated that the ruling will have
no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent
appeals,
and other efforts to repeal and replace the ACA, will impact our business. On December 18, 2019, the Fifth Circuit Court of Appeals
upheld the lower court’s decision that the Health Care Reform Law was unconstitutional. On March 2, 2020, the US Supreme
Court granted certiorari to review the case and oral arguments were held on November 10, 2020. Although the US Supreme Court has
yet ruled on the constitutionality of the ACA, on January 28, 2021, President Biden issued an executive order to initiate a special
enrollment period from February 15, 2021 through May 15, 2021 for purposes of obtaining health insurance coverage through the
Health Care Reform Law marketplace. The executive order also instructs certain governmental agencies to review and reconsider
their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration
projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access
to health insurance coverage through Medicaid or the ACA. Pending review, the Health Care Reform Law remains in effect, but it
is unclear what effect this litigation, other efforts to repeal and replace the Health Care Reform Law and the healthcare reform
measures of the Biden administration will have on the status of the ACA. Litigation and legislation over the Health Care Reform
Law are likely to continue, with unpredictable and uncertain results.
In the future, there may continue to be
additional proposals relating to the reform of the US healthcare system, some of which could further limit the prices we are able
to charge for our products candidates, or the amounts of reimbursement available for our product candidates. If future legislation
were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our business.
Managed care organizations, as well as Medicaid and other government agencies, continue to seek price discounts. Some states have
implemented, and other states are considering, price controls or patient access constraints under the Medicaid program, and some
states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible.
Due to the volatility in the current economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown
legislative, regulatory, payor or policy actions, which may include cost-containment and healthcare-reform measures. Such policy
actions could have a material adverse impact on our profitability.
Moreover, the recently enacted federal
Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical or biopharmaceutical products, among
others, related to product tracking and tracing. Among the requirements of this new federal legislation, manufacturers will be
required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred,
label drug product with a product identifier, and keep certain records regarding the drug product. Further, under this new legislation,
manufacturers will have drug product investigation, quarantine, disposition and notification responsibilities related to counterfeit,
diverted, stolen and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or
that are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or
death.
Physician Payment Sunshine
Act
The Physician Payment Sunshine Act requires
most pharmaceutical and biopharmaceutical manufacturers to report annually to the Secretary of Health and Human Services any and
all financial arrangements, payments, or other transfers of value made by that entity to physicians and teaching hospitals. The
payment information is made publicly available in a searchable format on a content management system (CMS) website. Over the next
several years, we will need to dedicate significant resources to establish and maintain systems and processes in order to comply
with these regulations. Failure to comply with the reporting requirements can result in significant civil monetary penalties. Similar
laws have been enacted or are under consideration in foreign jurisdictions, including France, which has adopted the Loi Bertrand,
or French Sunshine Act, which became effective in 2013.
Environmental, health and safety laws
and regulations
We are subject to numerous environmental,
health and safety laws and regulations and permitting requirements, including those governing laboratory procedures, decontamination
activities, and the handling, transportation, use, remediation, storage, treatment, and disposal of hazardous materials and wastes.
Our operations involve the use of hazardous and flammable materials, and the risk of injury, contamination or noncompliance with
environmental, health and safety requirements cannot be eliminated. Although compliance with such laws and regulations and permitting
requirements has not had a material effect on our capital expenditures, earnings or competitive position, environmental, health
and safety laws, and regulations and permitting requirements have tended to become increasingly stringent and, to the extent that
legal or regulatory changes may occur in the future, they could result in, among other things, increased costs to us or the impairment
of our research, development or production efforts.
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C.
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Organizational structure
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We are a Swiss stock corporation (société
anonyme) organized under the laws of Switzerland. We were formed as a Swiss limited liability company (société
à responsabilité limitée) on February 13, 2003 with our registered office and domicile in Basel, Switzerland.
We converted to a Swiss stock corporation (société anonyme) under the laws of Switzerland on August 25, 2003.
Our Swiss enterprise identification number is CHE-109.878.825. Prior to our initial public offering, we were a privately owned
company. Our domicile and registered office is in Ecublens, near Lausanne, Canton of Vaud, Switzerland. Our registered and principal
executive offices are located at EPFL Innovation Park, Building B, 1015 Lausanne, Switzerland, our general telephone number is
(41) 21 345 91 21 and our internet address is www.acimmune.com.
We did not have any subsidiaries as of
December 31, 2020.
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D.
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Property, plant and equipment
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The Company’s capital expenditures
were CHF 2 million in 2020 with CHF 1.6 million for laboratory equipment and leasehold improvements. These investments are to enhance
our research facilities.
Facilities
We lease approximately 23,600 square feet
of space at the Innovation Park of the EPFL, Switzerland as of December 31, 2020. This property serves as our corporate headquarters,
our research facility and laboratories. We believe that using the EPFL facilities instead of building our own infrastructure helps
us to maximize the value of our research and development capital and make efficient use of our funds as we continue to build and
develop our pipeline. We believe that the space of our existing facilities is sufficient to meet our current needs.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion
and analysis of our financial condition and results of operations together our audited financial statements, including the notes
thereto, included in this Annual Report. The following discussion is based on our financial information prepared in accordance
with IFRS as issued by the IASB, which might differ in material respects from generally accepted accounting principles in other
jurisdictions. The following discussion includes forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors,
including but not limited to those described under “Item 3. Key information—D. Risk factors” and elsewhere in
this Annual Report.
Overview
To date, we have primarily financed our
operations through the proceeds from our public offerings, share issuances, contract revenues from license and collaboration agreements
and grants. We have no products approved for commercialization and have never generated any revenues from product sales. Pharmaceutical
and biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. It may
be several years, if ever, before we or our collaboration partners complete pivotal clinical studies and have a product candidate
approved for commercialization, and we begin to generate revenue and royalties from product sales. Since our inception, we have
received upfront and milestone payments from our collaboration partners and certain other revenue. However, we have also incurred
significant operating losses. We incurred net losses of CHF 61.9 million for the fiscal year ended December 31, 2020 and have
an accumulated losses balance of CHF 132.9 million as of December 31, 2020.
Strategic collaborations and licensing agreements
Since our inception, we have entered into
strategic collaboration agreements with a range of partners covering a number of our product candidates. We entered into a strategic
collaboration with Genentech in November 2006 (as amended in March 2009, January 2013, May 2014 and May 2015) regarding the development,
manufacture and commercialization of crenezumab, and we refer to this agreement as the 2006
Agreement.
In June 2012, we entered into an additional strategic collaboration agreement with Genentech regarding the development, manufacture
and commercialization of anti-Tau antibodies, and we refer to this agreement as the 2012 Agreement. We expect to capitalize on
Genentech’s drug development and regulatory expertise and commercial capabilities to bring our partnered therapeutic products
to market. In May 2014, we entered into a license and collaboration agreement with LMI (formerly Piramal Imaging SA) covering
our Tau-PET Imaging tracer. In December 2014 (as amended in April 2016, July 2017, January 2019 and November 2019), we entered
into a strategic collaboration agreement with Janssen regarding the development, manufacture and commercialization of ACI-35,
an anti-Tau vaccine. We expect to capitalize on Janssen and Johnson & Johnson’s extensive regulatory expertise
and experience in developing, manufacturing and, if approved, commercializing vaccines to bring ACI-35 to market.
We entered into a license agreement with
Lilly in December 2018 (as amended in September 2019 and March 2020) to research and develop Morphomer Tau small molecules for
the treatment of AD and other neurodegenerative diseases. Under the terms of this agreement, we have completed a Phase 1 clinical
study with ACI-3024. Lilly is responsible for leading and funding further clinical development and will retain global commercialization
rights for all indications.
Genentech, a member of the Roche Group
We have two partnership agreements with
Genentech, a company with a reputation for scientific excellence and a history of bringing innovative protein therapeutics to market.
Anti-Abeta antibody in AD – 2006 agreement
In November 2006, we signed an exclusive,
worldwide licensing agreement for crenezumab, our humanized monoclonal therapeutic antibody targeting misfolded Abeta. The agreement
was amended March 2009, January 2013, May 2014 and May 2015. The agreement also provides for the development of a second therapeutic
product for a non-AD indication based on the same intellectual property and anti-Abeta antibody compound. The value of this partnership
is potentially greater than USD 340 (CHF 303) million. The structure of the collaboration agreement is as follows:
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A right-of-use license;
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Clinical milestone payments: payable upon commencement of each of Phase 1 and Phase 2 of clinical developments, and
upon the earlier of Genentech’s decision to authorize Phase 3 or the commencement of Phase 3 of clinical developments. In
addition, for a second indication, clinical milestone payments would be payable upon commencement of Phase 2 of clinical developments
and upon the earlier of Genentech’s decision to authorize Phase 3 or the commencement of Phase 3 of clinical developments;
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Regulatory milestone payments: payable upon making regulatory filings in the US and Europe, respectively, and milestone
payments upon obtaining marketing approval in each of the US and Europe. In addition, for a second indication, additional regulatory
and approval milestones would be payable.
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Royalties: payable on sales, with different royalty rates applicable in the US and Europe. Royalty levels are tied
to annual sales volumes. We may receive royalties on sales of crenezumab with the percentage rates ranging from the
mid-single digits to mid-teens.
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To date, we have received total milestone
payments of USD 65 (CHF 70.1) million comprised of an upfront payment of USD 25 (CHF 31.6) million and of USD 40 (CHF 38.2) million
for clinical development milestones achieved all-in prior to January 1, 2017.
Under the terms of the agreement, Genentech
bears all the costs of developing crenezumab through the clinical phases. In addition, Genentech is responsible for the costs associated
with seeking and obtaining regulatory and marketing approvals, along with manufacturing sales and marketing costs. Intellectual
property costs related to any crenezumab-related intellectual property filed solely by us and any costs associated with filing,
maintaining and protecting intellectual property filed jointly we share with Genentech. The agreement will terminate by its terms
on the date on which all obligations between the parties with respect to the payment of milestones or royalties for licensed products
have passed or expired. Either party may terminate the agreement for any material breach by the other Party, provided a cure period
of 90 days from the date when that notice is given.
On January 30, 2019, we announced that
Roche, the parent of Genentech, is discontinuing the CREAD and CREAD 2 (BN29552 and BN29553) Phase 3 studies of crenezumab in people
with prodromal-to-mild sporadic AD.
Crenezumab continues to be studied in the
Phase 2 preventive trial, which began in 2013 in Columbia, of cognitively healthy individuals who carry the PSEN1 E280A autosomal-dominant
mutation and are in a preclinical phase of ADAD. This study will determine if treating people carrying this mutation with crenezumab
prior to the onset of AD symptoms will slow or prevent the decline of cognitive and functional abilities.
Anti-Tau antibody in AD – 2012 agreement
In June 2012, we entered into a second
agreement with Genentech to research, develop and commercialize our anti-Tau antibodies for use as immunotherapeutics and diagnostics.
The agreement was amended in December 2015. The value of this exclusive, worldwide alliance is potentially greater than CHF 400
million and includes upfront and clinical, regulatory and commercial milestone payments. In addition to milestones, we will be
eligible to receive royalties on sales at a percentage rate ranging from the mid-single digits to low-double digits. The agreement
also provides for collaboration on at least one additional therapeutic indication outside of AD built on the same anti-Tau antibody
program as well an anti-Tau diagnostic product for AD.
To date, we have received payments totaling
CHF 59 million, including a milestone payment of CHF 14 million received and recognized in Q4 2017 associated with the first patient
dosing in a Phase 2 clinical trial for AD with an anti-Tau monoclonal body known as semorinemab, a milestone payment of CHF 14
million recognized in Q2 2016 and received in July 2016, associated with the announcement of the commencement of the Phase 1 clinical
study of semorinemab, and a milestone payment of CHF 14 million received in 2015 in connection with the ED-GO decision.
The structure of the collaboration agreement
is as follows.
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A right-of-use license.
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Preclinical and clinical milestone payments: payable upon selection of a lead candidate and commencement of each of
Phase 1, 2 and 3 of clinical development. In addition, for a second indication, clinical milestone payments would be payable upon
commencement of each of Phase 2 and 3 of clinical development.
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Regulatory milestone payments: payable upon making regulatory filings for marketing approvals in each of the US, Europe
and Japan. In addition, for a second indication, similar regulatory milestones would be payable.
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Commercialization milestones: payable upon making a first commercial sale in each of the US, Europe and Japan. For a
second indication, commercialization milestones exist for each of the US, Europe and Japan, which are triggered by the first commercial
sale for the second indication in each of those jurisdictions.
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Royalties: payable on sales with royalty rates differing based on the source of the intellectual property underlying
the commercial product.
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Under the terms of the agreement, Genentech
bears all the costs of developing semorinemab through the clinical phases. In addition, Genentech is responsible for the costs
associated with seeking and obtaining regulatory and marketing approvals, along with manufacturing, sales and marketing costs.
Intellectual property costs related to any anti-Tau antibody-related intellectual property filed solely by us and any costs associated
with filing, maintaining and protecting intellectual property filed jointly we share with Genentech. The agreement will terminate
by its terms on the date on which all obligations between the parties with respect to the payment of milestones or royalties for
licensed products have passed or expired. Either party may terminate the agreement for any material breach by the other Party,
provided a cure period of 90 days from the date when that notice is given.
On
September 23, 2020, the Company reported that Genentech informed us of top line results from a Phase 2 trial of the anti-Tau antibody,
semorinemab, in early (prodromal to mild) Alzheimer’s disease (AD) which show that semorinemab did not meet its primary efficacy
endpoint of reducing decline on Clinical Dementia Rating-Sum of Boxes (CDR-SB) compared to placebo. The primary safety endpoint
was however met. Two secondary endpoints, Alzheimer’s Disease Assessment Scale-Cognitive Subscale 13 (ADAS-Cog13) and
Alzheimer’s
Disease Cooperative Study Group – Activities of Daily Living Inventory (ADCS-ADL), were not met. A second Phase 2 study
of semorinemab in patients with moderate AD remains ongoing.
Janssen Pharmaceuticals, Inc.
Tau Vaccine in AD – 2014 agreement
In December 2014, we entered into an agreement
with Janssen Pharmaceuticals, Inc. (Janssen) one of The Janssen Pharmaceutical Companies of Johnson & Johnson, to develop and
commercialize therapeutic anti-Tau vaccines for the treatment of AD and potentially other Tauopathies. The value of this partnership
is potentially up to CHF 500 million and includes upfront and clinical, regulatory and commercial milestones. In addition to milestones,
we will be eligible to receive royalties on sales at a percentage rate ranging from the low-double digits to the mid-teens. In
April 2016, July 2017, January 2019 and November 2019, the companies entered into the first, second, third and fourth amendments,
respectively. These amendments allow for the alignment of certain payment and activity provisions with the Development Plan and
Research Plan activities. We and Janssen are co-developing the second-generation lead therapeutic vaccines, ACI-35.030 and JACI-35.054,
through Phase 1b/2a completion. AC Immune and Janssen will jointly share research and development costs until the completion of
the first Phase 2b (AC Immune’s contribution to the first Phase 2b trial is capped). From Phase 2b and onwards, Janssen will
assume responsibility for the clinical development, manufacturing and commercialization of the second-generation vaccines.
The Company received an upfront, non-refundable
license fee of CHF 25.9 million, which we recognized as revenue in 2014. In May 2016, we received a payment of CHF 4.9 million
for reaching a clinical milestone in the Phase 1b study. As we met all performance obligations on reaching the milestone, we recognized
this milestone as revenue.
The structure of the collaboration agreement
is as follows:
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A right-of-use license.
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Clinical milestone payments: payable upon completion of Phase 1b, commencement of the first Phase 2b or 2b/3 of clinical
development, upon reaching enrollment thresholds in the first Phase 2b or Phase 2b part of the first Phase 2b/3, commencement of
the first Phase 3 or Phase 3 part of a Phase 2b/3 study. In addition, for a second indication, clinical milestone payments would
be payable upon commencement of a Phase 3 clinical study, which would be payable concurrently with the first regulatory milestone,
if Janssen were to file for regulatory approval based on Phase 2 clinical data.
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Regulatory milestone payments: payable upon making regulatory filings in the US, Europe, and Japan, respectively. In
addition, for a second indication, similar regulatory milestones would be payable. For a second indication, additional regulatory
milestone payments are payable by Janssen to us upon receipt of each of the regulatory approvals in the US, Europe and Japan.
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Commercialization milestones: payable upon making a first commercial sale in each of the US, Europe and Japan, and upon
achieving certain commercial milestones.
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Royalties: payable on sales, with royalty rates differing based on the level of annual sales.
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Under the terms of the agreement, Janssen
may terminate the agreement at any time after completion of the first Phase 1b clinical study in 2016 by providing 90 days’
notice to us. If not otherwise terminated, the agreement shall continue until the expiration of all royalty obligations as outlined
in the contract.
LMI (formerly Piramal Imaging SA)
Tau-PET imaging agent in AD – 2014 agreement
In May 2014, we entered into an agreement,
our first diagnostic partnership, with LMI, the former Piramal Imaging SA. The partnership with LMI is an exclusive, worldwide
licensing agreement for the research, development and commercialization of the Company’s Tau protein PET tracers supporting
the early diagnosis and clinical management of AD and other Tau-related disorders and includes upfront and sales milestone payments
totaling up to EUR 159 (CHF 175) million, plus royalties on sales at a percentage rate ranging from mid-single digits to low-teens.
LMI may terminate the LCA at any time by providing 3 months’ notice to us.
The structure of the collaboration agreement
is as follows:
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A right-of-use license.
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Clinical milestone payments: payable upon the commencement of the Phase 1, 2 and 3 studies for generation of data intended
to support a regulatory submission in the US or the EU. We would be entitled to further clinical milestone payments for the commencement
of a Phase 2 and 3 study for a second indication.
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Regulatory milestone payments: payable upon acceptance of Regulatory filing (NDA) and Regulatory approval for Commercialization
in the US or the EU.
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Commercialization milestones: tied to specific annual net sales amounts.
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Royalties: payable on sales with royalty rates differing based on the level of annual sales.
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Eli Lilly and Company
Morphomer Tau small molecule – 2018 license
agreement
In December 2018, we entered into an exclusive,
worldwide licensing agreement with Eli Lilly and Company (Lilly) to research and develop Morphomer Tau small molecules for the
treatment of AD and other neurodegenerative diseases. Per the terms of the agreement, the Company received an initial upfront payment
of CHF 80 million in Q1 2019 for the rights granted by the Company to Lilly. To date, the Company has completed a Phase 1 clinical
study with ACI-3024. The program will be expanded to NeuroOrphan indications and ACI-3024 will be further evaluated for efficacy
in models of rare Tauopathies.
Additionally, the Company and Lilly have
continued candidate characterization across the research program, identifying new and highly differentiated candidates with desired
cerebrospinal fluid exposure and selectivity for pathological aggregated Tau. These will be broadly developed in Tau-dependent
neurodegenerative diseases by Lilly. Lilly is responsible for leading and funding further clinical development and will retain
global commercialization rights for all indications.
Per the terms of the agreement, the Company
may become eligible to receive additional milestone payments totaling up to approximately CHF 1.9 billion. In addition to
milestones, we will be eligible to receive royalties on sales at a percentage rate ranging from the low double-digits to the mid-teens.
The agreement became effective on January 23, 2019 (the “effective date”) when the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, expired. In Q3 2019, the Company and Lilly entered into the first amendment to
divide the first discretionary milestone payment under the agreement of CHF 60 million into two installments. with the first CHF
30 million paid in Q3 2019 and the second CHF 30 million to be paid on or before March 31, 2020 unless Lilly terminated the agreement
earlier. In Q1 2020, the Company and Lilly entered into a second amendment to replace the second CHF 30 million to be paid on or
before March 31, 2020 with two milestone payments, one of CHF 10 million to be paid on or before March 31, 2020 and the other of
CHF 60 million following the first patient dosed in a Phase 2 clinical study of a licensed product in the US or the EU.
The Company received an initial upfront
payment of CHF 80 million in February 2019. We used the residual approach to estimate the selling price for the right-of-use license
and an expected cost plus margin approach for estimating the research and development activities. The right-of-use license was
delivered on the effective date. The research and development activities were delivered over time as the services were performed.
For these services, revenue was recognized over time using the input method, based on costs incurred to perform the services, as
the level of costs incurred over time is thought to best reflect the transfer of services to Lilly.
The structure of the collaboration agreement
is as follows.
|
·
|
An exclusive license: granted by us to Lilly under certain of our intellectual property to develop,
|
manufacture and commercialize products containing
Morphomer Tau small molecules for the treatment of AD and other neurodegenerative diseases throughout the world in any indication.
|
·
|
Clinical milestone payments: payable upon completion of the Lilly preclinical activities period and following the first
patient dosed in a Phase 2 and Phase 3 clinical study of a licensed product in the US or the EU.
|
|
·
|
Regulatory milestone payments: payable within 60 days after obtaining regulatory approval for any licensed product in
the first indication and any licensed product in certain additional indications in the US, Europe and Japan, respectively.
|
|
·
|
Commercialization milestones: payable upon achieving certain commercial sales milestones.
|
|
·
|
Royalties: payable on sales with royalty rates differing based on the level of annual sales of licensed products.
|
The agreement will terminate by the date
of expiration of the last royalty term for the last licensed product. However, under the terms of the agreement, Lilly may terminate
the agreement at any time after March 31, 2020 by providing 3 months’ notice to us.
We and Lilly also entered into a convertible
note agreement that became effective on January 23, 2019 for USD 50 (CHF 50.3) million from Lilly. In Q2 2019, the Convertible
Note Agreement with Lilly automatically converted in line with the terms of the agreement. As a result of this conversion, 3,615,328
of our common shares were issued to Lilly. This note is now fully settled and there is no further equity or cash consideration
due to Lilly thereunder.
Grants
Michael J. Fox Foundation for Parkinson’s
Research
In Q3 2017, we
formally signed a grant continuation with the Michael J. Fox Foundation for Parkinson’s disease research (MJFF). This grant
provides funds for the development of PET tracers for pathological forms of the protein alpha-synuclein, to support the early diagnosis
and clinical management of Parkinson’s disease. We subsequently signed two additional grants that facilitated the execution
of a first-in-human study for a potential alpha-synuclein-PET tracer (PET tracer) with the current lead compound and to further
develop the PET tracer. The Company retains its intellectual property rights for these alpha-synuclein-PET tracers.
These grants concluded in Q2 2020.
In May 2020, the
Company, as part of a joint arrangement with Skåne University Hospital (Skåne) in Sweden, was awarded a USD 3.2 (CHF
2.9) million grant from the MJFF’s Ken Griffin Alpha-synuclein Imaging Competition. As part of this grant, AC Immune is eligible
to receive USD 2.5 (CHF 2.2) million directly from the MJFF. Skåne will receive USD 0.7 (CHF 0.7) million of the total grant
directly from the MJFF over two years to conduct and support the clinical arm of the project.
Critical accounting policies and significant judgments and
estimates
Revenue recognition
In May 2014, the IASB issued IFRS 15 (Revenue
from Contracts with Customers), which amends the guidance for accounting for revenues from contracts with customers.
This IFRS replaces all current revenue standards in IFRS including IAS 11 (Construction Contracts), IAS 18 (Revenue)
and various interpretations. The Company adopted this new standard on January 1, 2018, and would have recognized the cumulative
effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated losses; however, the
Company did not deem that any adjustments were required in the transition to the new standard.
This standard applies to all contracts
with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements
and financial instruments. Under IFRS 15, an entity recognizes revenue when its customer obtains control of promised goods or services,
in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine
revenue recognition for arrangements that an entity determines are within the scope of IFRS 15, the entity performs the following
five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine
the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. The Company applies the five-step model to contracts only when it is
probable that the
entity
will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract
inception, once the contract is determined to be within the scope of IFRS 15, the Company assesses the goods or services promised
within each contract, and determines those that are performance obligations, and assesses whether each promised good or service
is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance
obligation when (or as) the performance obligation is satisfied.
Contract revenue. The Company enters
into LCAs, which are within the scope of IFRS 15, under which it licenses certain proprietary rights to its product candidates
and intellectual property to third parties. The terms of these arrangements typically include payment to the Company of one or
more of the following: non-refundable, upfront license fees, development, regulatory and/or commercial milestone payments, payments
for research and clinical services the Company provides through either its full-time employees or third-party vendors, and royalties
on net sales of licensed commercialized products depending on the Company’s intellectual property. Each of these payments
results in license, collaboration and other revenues, which are classified as contract revenue on the statements of income/(loss).
Licenses of intellectual property. If
the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified
in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license
is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are sold in conjunction
with a related service, the Company uses judgment to assess the nature of the combined performance obligation to determine whether
the combined performance obligation is satisfied over time or at a point in time. If the performance obligation is settled over
time, the Company determines the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable,
upfront fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance
and related revenue recognition.
Milestone payments. At the
inception of each arrangement that includes development, regulatory and/or commercial milestone payments, the Company evaluates
whether the milestones are considered highly probable of being reached and estimates the amount to be included in the transaction
price using the most likely amount method. If it is highly probable that a significant revenue reversal would not occur in future
periods, the associated milestone value is included in the transaction price. These amounts for the performance obligations under
the contract are recognized as they are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the
probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall
transaction price. Any such adjustments recorded would affect contract revenues and earnings in the period of adjustment.
Research and development services. The
Company has certain arrangements with our collaboration partners that include contracting our employees for research and development
programs. The Company assesses if these services are considered distinct in the context of each contract and, if so, they are accounted
for as separate performance obligations. These revenues are recorded in contract revenue as the services are performed.
Sublicense revenues. The Company
has certain arrangements with our collaboration partners that include provisions for sublicensing. The Company recognizes any sublicense
revenues at the point in time it is highly probable to obtain and not subject to reversal in the future.
Contract balances: The Company
receives payments and determines credit terms from its customers for its various performance obligations based on billing schedules
established in each contract. The timing of revenue recognition, billings and cash collections results in billed other current
receivables, accrued income (contract assets), and deferred income (contract liabilities) on the balance sheets. Amounts are recorded
as other current receivables when the Company’s right to consideration is unconditional. The Company does not assess whether
a contract has a significant financing component if the expectation at contract inception is such that the period between payment
by the licensees and the transfer of the promised goods or services to the licensees will be 1 year or less.
Accrued research and development costs
We record accrued expenses for estimated
costs of our research and development activities conducted by third-party service providers, which include among others the conduct
of preclinical studies and clinical studies and contract manufacturing activities. We record accrued expenses for estimated costs
of our research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include
these costs in accrued expenses on the balance sheets and within research and development expenses in
the
statements of income/(loss). These costs are a significant component of our research and development expenses.
We record accrued expenses for these costs
based on the estimated amount of work completed in accordance with agreements established with these third parties, which involves
the following process:
|
·
|
communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the
level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified
of actual costs;
|
|
·
|
estimating and accruing expenses in our financial statements as of each balance sheet date based on facts and circumstances
known to us at the time; and
|
|
·
|
periodically confirming the accuracy of our estimates with selected providers and adjusting, if necessary.
|
Examples of estimated research and development expenses that
we accrue include:
|
·
|
fees paid to CROs in connection with preclinical and toxicology studies and clinical studies;
|
|
·
|
fees paid to investigative sites in connection with clinical studies;
|
|
·
|
fees paid to CMOs in connection with the production of our product candidates prior to qualifying for capitalization as inventory;
and
|
|
·
|
professional service fees for consulting and related services.
|
We base our expense accruals related to
clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions
and clinical CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements vary from contract
to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful
enrollment of patients and the completion of clinical study milestones. Our service providers invoice us monthly in arrears for
services performed. In accruing service fees, we estimate the time period over which the services will be performed and the level
of effort to be expended in each period. If we do not identify costs that we have begun to incur or if we underestimate or overestimate
the level of services performed or the costs of these services, our actual expenses could differ from our estimates.
To date, we have not experienced significant
changes in our estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates,
we may be required to make changes to our estimates in the future as we become aware of additional information about the status
or conduct of our clinical studies and other research activities.
Share-based compensation
Options
The Company operates an equity-settled,
share-based compensation plan. The fair value of the employee services received in exchange for the grant of equity-based awards
is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value
of the instruments granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included
in assumptions about the number of instruments that are expected to become exercisable. At each balance sheet date, the Company
revises its estimates of the number of instruments that are expected to become exercisable. It recognizes the impact of the revision
of original estimates, if any, prospectively in the statements of income/(loss), and a corresponding adjustment to equity over
the remaining vesting period.
We estimate the fair value of all time-vested
options as of the date of grant using the Black-Scholes option-pricing model. Key assumptions in determining the fair value of
share options granted utilizing the Black-Scholes valuation method include the following:
|
Assumption
|
|
Method of estimation
|
|
|
|
|
●
|
Estimated expected term of options
|
●
|
Simplified method
|
●
|
Expected volatility
|
●
|
Estimate based on average historical volatilities of common shares of comparable publicly traded companies. We will continue to apply this process to grants made as a public company until a sufficient amount of historical information regarding the volatility of our own stock price becomes available
|
●
|
Risk-free interest rate
|
●
|
Yields of long-dated Swiss government zero coupon bond issues
|
●
|
Forfeiture rates
|
●
|
Historical and expected forfeiture data
|
●
|
Expected dividends
|
●
|
Zero percent as dividends have not been paid
|
Historically, for all periods prior to
the initial public offering (IPO), the fair value of the common shares underlying our share-based awards was estimated on each
grant date by our management and approved by our board of directors. In order to determine the fair value of our common shares
underlying option grants, our board of directors considered, among other things, the breadth of our product candidate portfolio,
the stages of development of our various product candidates and major changes to stage of development, the progress and additions
to our collaboration agreements, risks inherent in our activities, the lack of liquidity of our Company’s securities, and
the valuations and sentiment toward biotech companies. Given the absence of a public trading market for our common shares, our
board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best
estimate of the fair value of our common shares, including our stage of development, progress of our research and development efforts,
the strength of our balance sheets and capital base, equity market conditions affecting comparable public companies, and the lack
of liquidity of our common shares.
Restricted shares and restricted share
units
We estimate the fair value of non-vested
stock awards (restricted shares and restricted share units) using a reasonable estimate of market value of the common stock on
the date of the award. We classify our share-based payments as equity-classified awards as they are settled in shares of our common
stock. We measure equity-classified awards at their grant date fair value and do not subsequently re-measure them. Compensation
costs related to equity-classified awards are equal to the fair value of the award at grant date amortized over the vesting period
of the award using the graded method. We reclassify that portion of vested awards to share premium as the awards vested.
Right-of-use assets and lease liabilities
Effective January 1, 2019, the Company
adopted IFRS 16 (Leases), which provides a new model for lessee accounting in which all leases, other than short-term and
low-value leases, are accounted for by the recognition on the balance sheet of a right-of-use asset and a lease liability, and
the subsequent amortization of the right-of-use asset over the earlier of the end of the useful life or the lease term. The Company
applied the modified retrospective approach, which requires the recognition of the cumulative effect of initially applying IFRS
16 as of January 1, 2019 to accumulated losses and not restating previous years. As the Company recognized the right-of-use assets
at the amount equal to the lease liabilities there was no impact to accumulated losses. For a complete discussion of accounting,
see “Note 5. Right-of-use assets and lease liabilities.”
Results of operations
The Covid-19 global
pandemic has impacted various countries where we currently operate our clinical trials and business operations. The extent to which
Covid-19 may impact us will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
such as the duration of the outbreak, the severity of Covid-19, or the effectiveness of actions to contain and treat for Covid-19.
The Company effected
its business continuity plan during the interim period ended September 30, 2020. The Company implemented its plan quickly and continues
to adapt as the situation evolves. Currently, we have mostly resumed normal operations at full capacity with minimal disruptions
to our business. We are continuously assessing and adapting our working practices and business operations to ensure compliance
with official guidance and orders related to the pandemic, and are working proactively with our partners and other
stakeholders
to take steps intended to mitigate and minimize any negative impact to our research, clinical programs and other business operations.
Many of our key
trials are already fully enrolled and patient follow-up can continue remotely in most cases. However, the current pandemic may
impact certain clinical trials as long as the pandemic is ongoing. Most notably:
ACI-35.030
for AD: The Company continues to collect data from the Phase 1b/2a study. The interim analysis of ACI-35.030 at the lowest
dose (safety, tolerability and immunogenicity) was obtained in Q2 2020 and led to the initiation of the second highest dosing group
in the Phase 1b/2a clinical trial. The interim analysis of this second highest dosing group (safety, tolerability and immunogenicity)
was obtained in Q4 2020 and led to the initiation of the highest dosing group in the Phase 1b/2a clinical trial in Q1 2021. The
initiation of these dosing groups of ACI-35.030 commenced in accordance with the underlying development plans.
ACI-3024:
Our Phase 1 study for ACI-3024 in healthy young, elderly non-Japanese and Japanese volunteers was completed in 2020.
ACI-24 for
DS: The Company’s ACI-24 Phase 1b trial has been completed and the final analysis is ongoing.
The Regulatory
submission of the ACI-24-DS Phase 2 trial was initiated as planned. The initiation of the clinical trial will be dependent on the
evolving Covid-19 situation.
ACI-24 for
AD: The Company continues to collect safety, immunogenicity and biomarker data from patients in the ongoing Phase 2 study of
ACI-24. The 18-month interim data analysis is anticipated for the ongoing study in Q2 2021.
crenezumab:
In response to the government-imposed stay at home order in Colombia related to the Covid-19 pandemic, the dosing of participants
in the Colombian API study was temporarily interrupted in H1 2020. The dosing restarted on May 18, 2020. Participants are
receiving crenezumab or placebo for at least five years as part of the long-term prevention study, and, despite the interruption,
we continue to expect data from the study in Q1 2022.
PI-2620: The
longitudinal Phase 2 study in AD and the Phase 1 test/re-test study in PSP enrolling patients in the UK were impacted by Covid-19
and Brexit and have been suspended. An investigator-initiated Phase 2 study in AD in Korea continues with a potential data analysis
in Q2 2021. The Phase 1 PSP study may resume in Q2 2021 in the UK, depending on the ongoing Covid-19 pandemic, but a backup study
is being also prepared in Germany which could begin in H2 2021.
The Company has drug supplies that are expected to be sufficient to complete ongoing trials as well as additional drug substance supplies
expected to be sufficient to support ongoing cohorts of clinical trials for a period of at least three to six months. The Company will
refrain from starting new clinical trials if a minimum of a six-months supply on hand cannot be secured. Finally, the Company currently
does not expect delays to its clinical trials due to manufacturing or supply-chain issues.
Financial operations overview
Contract Revenue
Given our stage of development, we have
not generated any revenue from product sales. Our contract revenues to date have been derived primarily from separate license and
collaboration agreements on some of our product candidates in various stages of preclinical and clinical development.
Our contract revenues have experienced
fluctuations over the past 3 years as a result of securing new collaboration agreements, the timing of milestone achievement and
the size of each milestone payment. We expect that any revenue we generate from our collaboration agreements with each of Lilly,
Genentech, Janssen and LMI and/or from any other current or future collaboration partners will fluctuate from year to year as a
result of the timing and amount of milestones and other payments.
Research and development expenses
Research and development costs are expensed
as incurred, and consist of salaries and benefits, laboratory supplies, materials, intellectual property and facility costs, as
well as fees paid to other non-employees and entities that conduct certain research and development activities on our behalf. Amounts
incurred in connection with license and collaboration agreements are also included in research and development expense. Payments
made prior to the receipt of goods or services to be used in research and development are capitalized until those goods or services
are received.
Clinical trial costs are a component of
research and development expenses. We accrue and expense clinical trial activities performed by third parties based upon actual
work completed in accordance with agreements established with clinical CROs and clinical sites. We determine the actual costs through
monitoring patient enrollment and discussions with internal personnel and external service providers as to the progress or stage
of completion of trials or services and the agreed-upon fee to be paid for such services.
Manufacturing start-up costs are a component
of research and development expenses. Additionally, manufacturing costs incurred after regulatory approval but in connection with
significant changes and/or enhancements to the approved manufacturing process are recorded as research and development expenses.
We accrue and expense the manufacturing activities performed by third parties based upon actual work completed in accordance with
agreements established with contract manufacturers.
Our investment in research and development
activities, including the clinical development of our product candidates has historically been and is projected to be more than
75% of our total annual operating costs. Research and development expenses represent costs incurred to conduct research, such as
the discovery and development of our product candidates, as well as development of new product candidates from our SupraAntigen
and Morphomer platforms and the development of product candidates pursuant to our collaboration agreements with Lilly, Genentech,
Janssen and LMI. We recognize all research and development costs as they are incurred. Clinical study costs, contract manufacturing
and other development costs incurred by third parties are expensed as the contracted work is performed. At present, our research
activities comprise three major areas:
|
·
|
focused non-Alzheimer’s neurodegenerative diseases including NeuroOrphan indications; and
|
We expect our research and development
expenses to increase substantially in the future and expect to fund a broader number of projects, which will impact our research
strategy in four key ways:
(i) we expect to undertake later-stage
research and development of our product candidates and, if approved, to take some of those product candidates into commercialization;
(ii) we will allocate more funding to existing
programs to advance the development of these programs;
(iii) we will increase our research and
development efforts on non-AD indications including NeuroOrphans and diagnostics; and
(iv) we will initiate a number of new research
initiatives that are complementary to our existing and planned research initiatives.
We expect that our total future research
and development costs will continue to increase over current levels in line with our three-pillar strategy that focuses on (i)
AD, (ii) focused non-Alzheimer’s neurodegenerative diseases including NeuroOrphan indications and (iii) diagnostics.
General and administrative expenses
General and administrative expenses include
personnel costs, expenses for outside professional services and all other allocated expenses. Personnel costs consist of salaries,
cash bonuses, benefits and share-based compensation. Outside professional services consist of legal, accounting and audit services,
information technology (IT) and other consulting fees. Allocated expenses consist of depreciation expense related to our office
and research and development facility. We continue to incur additional expenses as a result of operating as a public company, including
expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which
our securities are traded (Nasdaq), additional insurance expenses, investor relations activities and other administrative and professional
services.
Finance Result, net
Financial income and expenses include bank
fees associated with charges levied by banks on foreign payments, interest income and expense associated with our cash balances
and interest expense associated with
lease
liabilities. Additionally, for the year ended December 31, 2019, we incurred effective interest to amortize the host debt for
the convertible loan due to Lilly and accrue interest for our financing obligation.
Exchange differences consist of foreign
exchange transactions and re-measurement gains and losses that arise from our cash being held in currency other than Swiss Francs,
certain collaboration agreements such as the collaboration agreements with Genentech and LMI being denominated in currencies other
than Swiss Francs, and selected purchases, which we effect in foreign currencies.
Finally, the Company recorded a gain on
the conversion feature of the convertible loan due to Lilly for the year ended December 31, 2019 that did not repeat in 2020.
Taxation
AC Immune is subject to corporate Swiss
federal, cantonal and communal taxation, respectively, in Switzerland, Canton of Vaud, Commune of Ecublens, near Lausanne.
We are entitled under Swiss laws to carry
forward any losses incurred for a period of 7 years and can offset our losses carried forward against future taxes. As of December
31, 2020, we had tax loss carry-forwards totaling CHF 121.9 million. There is no certainty that we will make sufficient profits
to be able to utilize these tax loss carry-forwards in full.
The effective corporate income tax rate
(federal, cantonal and communal) where we are domiciled is currently 13.63%.
As of January 1, 2020, the Company may
request for 2020 and future tax years a tax relief of 60%, which would be applied to income from patents and similar rights at
the communal and cantonal levels. This relief would first require the reintegration of all expensed and deducted research and development
costs related to the concerned patents and similar rights for consideration in our taxable results from the prior ten years. The
Company has not currently made any decision to enter this patent box system. Additionally, a “super-deduction” may
be granted for payroll and other expenses of research and development of Swiss origins.
However, the aforementioned tax relief
based on the patent box and deductions for research and development may not exceed 50% of the overall taxable profit before these
tax relief and deductions.
Notwithstanding the corporate income tax,
the corporate capital is taxed at a rate of 0.13% (cantonal and communal tax only, as there is no federal tax on capital).
Value added tax (VAT) is charged on all
qualifying goods and services supplied by VAT-registered businesses. Rates vary based on category, but the Company applies a standard
rate of 7.7% on the value of the goods or services to all sales invoices, which is payable to the Swiss tax authorities. Similarly,
VAT paid on purchase invoices is reclaimable from the Swiss tax authorities.
Results of operations
The numbers below have been derived from
our audited financial statements included elsewhere in this Annual Report. The discussion below should be read along with these
financial statements and it is qualified in its entirety by reference to them.
Comparison of the years ended December 31, 2020 and 2019
Contract revenue
The following table summarizes our contract
revenues during the years ended December 31, 2020 and 2019:
|
|
For the Years Ended
December 31,
|
|
|
In CHF thousands
|
|
2020
|
|
2019
|
|
Change
|
Contract revenue
|
|
|
15,431
|
|
|
|
110,456
|
|
|
|
(95,025
|
)
|
Total revenues
|
|
|
15,431
|
|
|
|
110,456
|
|
|
|
(95,025
|
)
|
Our contract revenues experience fluctuations
as a result of securing new collaboration agreements, the timing of milestone achievements and the size of each milestone payment.
For the year ended December 31, 2020, the decrease of CHF 95 million in contract revenues compared to the year ended December 31,
2019 was primarily a result of:
|
·
|
a decrease of CHF 91.3 million in our agreement with Lilly. The Company recognized a CHF 10 million milestone and CHF 4.3 million
for research and development activities in 2020. These were offset by an upfront payment of CHF 73.1 million for a right-of-use
license fee, CHF 30 million for the first installment of the first milestone achieved and CHF 2.6 million for research and development
activities in 2019;
|
|
·
|
a decrease of CHF 0.1 million for research and development activities associated with our collaboration agreement with Janssen;
and
|
|
·
|
a decrease of CHF 3.6 million from non-recurring revenues for a CHF 2.2 million Phase 2 milestone earned in 2019 from LMI,
CHF 1.1 million earned in our Biogen collaboration which ended in April 2019 and CHF 0.4 million in other contract revenues.
|
Research and development expenses
Research and development activities are
essential to our business and represent the majority of our costs incurred. Costs for certain development activities, such as clinical
trials, are recognized based on an evaluation of the progress to completion of specific tasks using information from the clinical
sites and our vendors. Our collaboration arrangements share costs for the development of our product candidates differently. We
have completed our research and development spending in both of our Genentech collaborations. We and Janssen are co-developing
the second-generation lead therapeutic vaccines through the Phase 1b/2a completion. AC Immune and Janssen will jointly share research
and development costs until the completion of the first Phase 2b. From Phase 2b and onwards, Janssen will assume responsibility
for the clinical development, manufacturing and commercialization of the second-generation vaccines. We expect to incur additional
research and development expenditures associated with the expansion of our Morphomer Tau program into NeuroOrphan indications as
well as an expansion of ACI-3024 to be evaluated in other rare Tauopathies. In addition to these arrangements, we expect that our
total future research and development costs will continue to increase over current levels in line with our three-pillar strategy
that focuses on (i) AD, (ii) focused non-Alzheimer’s neurodegenerative diseases including NeuroOrphan indications and (iii)
diagnostics.
The table below provides a breakdown of
our research and development costs, including direct research and development costs and manufacturing costs related to research
and development, by major development categories of our programs for the periods covered by this Annual Report. The research and
development costs not allocated to specific programs include employment costs, regulatory, QA and intellectual property costs.
We do not assign our internal costs, such as salary and benefits, share-based compensation expenses, laboratory supplies and other
direct expenses and infrastructure costs to individual research and development projects, because the employees within our research
and development groups are typically deployed across multiple research and development programs.
The following table summarizes our research
and development expenses during the years ended December 31, 2020 and 2019:
Detailed research and development expenditures
by major development category
|
|
For the Years Ended
December 31,
|
|
|
In CHF thousands
|
|
2020
|
|
2019
|
|
Change
|
Discovery and preclinical expenses
|
|
|
20,408
|
|
|
|
17,809
|
|
|
|
2,599
|
|
Clinical expenses
|
|
|
17,124
|
|
|
|
13,806
|
|
|
|
3,318
|
|
Group function expenses
|
|
|
904
|
|
|
|
1,025
|
|
|
|
(121
|
)
|
Total Direct R&D
|
|
|
38,436
|
|
|
|
32,640
|
|
|
|
5,796
|
|
Payroll expenses
|
|
|
14,424
|
|
|
|
12,382
|
|
|
|
2,042
|
|
Share-based compensation
|
|
|
1,276
|
|
|
|
585
|
|
|
|
691
|
|
Other non-allocated
|
|
|
5,351
|
|
|
|
4,825
|
|
|
|
526
|
|
Total R&D
|
|
|
59,487
|
|
|
|
50,432
|
|
|
|
9,055
|
|
|
|
For the Years Ended
December 31,
|
|
|
In CHF thousands
|
|
2020
|
|
2019
|
|
Change
|
Operating expenses1
|
|
|
43,787
|
|
|
|
37,465
|
|
|
|
6,322
|
|
Salaries and related costs2
|
|
|
15,700
|
|
|
|
12,967
|
|
|
|
2,733
|
|
Total research and development expenses
|
|
|
59,487
|
|
|
|
50,432
|
|
|
|
9,055
|
|
_______________
1Includes depreciation
expenses
2Includes share-based
compensation
Discovery and preclinical expenses increased
CHF 2.6 million, primarily due to:
|
·
|
an increase in ACI-24 for DS of CHF 3.6 million for development costs associated with the second generation, CHF 1.2 million
for preclinical and manufacturing costs to advance our a-syn projects, CHF 0.9 million
for certain neuroinflammation investments, CHF 0.9 million for the development of our anti-TDP-43
antibody with the initiation of IND-enabling studies, CHF 0.8 million for preclinical and manufacturing activities for our
a-syn Imaging program, CHF 0.4 million for the expansion of our Morphomer Tau program into NeuroOrphan indications, and CHF 0.6
million in other discovery programs,
|
partially offset by:
|
·
|
a decrease of CHF 4.2 million in ACI-24 for AD based on completion of manufacturing process development and CHF 1.5 million
in our collaboration with Janssen due to the completion of the majority of the preclinical safety evaluation for JACI-35.054 in
the prior period.
|
Clinical expenses increased by CHF 3.3
million, primarily due to:
|
·
|
an increase of CHF 2.2 million in ACI-24 for DS related to scaling up activities for
a Phase 2 clinical study, CHF 0.8 million for the full year Phase 1 activities of our Morphomer Tau compound and CHF 0.9
million for ACI-35.030 related to the current Phase 1b/2a including enrollment of additional subjects and other clinical activities.
|
partially offset by:
|
·
|
a decrease of CHF 0.5 million for ACI-24 for AD as the 18-month treatment completes.
|
The variances in Group function expenses
relate to regulatory and quality assurance, IP and other non-allocated costs. The variances in Other non-allocated expenses relate
to administrative R&D and certain non-allocated functional expenses.
Total salaries and related costs increased
by CHF 2.7 million, primarily due to:
|
·
|
an increase in salary- and benefit-related costs of CHF 2.0 million due to the hiring of 13 additional full-time equivalent
employees and annualization of 2019 hires; and
|
|
·
|
higher share-based compensation expense of CHF 0.7 million related predominantly to an increase of stock options issued to
employees.
|
General and administrative expenses
The following table summarizes our general
and administrative expenses during the years ended December 31, 2020 and 2019:
|
|
For the Years Ended
December 31,
|
|
|
In CHF thousands
|
|
2020
|
|
2019
|
|
Change
|
Operating expenses1
|
|
|
7,471
|
|
|
|
6,637
|
|
|
|
834
|
|
Salaries and related costs2
|
|
|
11,086
|
|
|
|
9,421
|
|
|
|
1,665
|
|
Total general and administrative expenses
|
|
|
18,557
|
|
|
|
16,058
|
|
|
|
2,499
|
|
_______________
1Includes depreciation
expenses
2Includes share-based
compensation
For the year ended December 31, 2020, our
general and administrative expenses totaled CHF 18.6 million, an increase of CHF 2.5 million from CHF 16.1 million incurred during
the year ended December 31, 2019. This increase is primarily due to:
|
·
|
an increase in salary- and benefit-related costs of CHF 1.1 million due to the hiring of 3 additional full-time equivalent
employees and annualization of 2019 hires;
|
|
·
|
an increase in share-based compensation expense of CHF 0.6 million related predominantly to an increase of stock options issued
to executive officers and directors;
|
|
·
|
a CHF 0.5 million increase in administrative expenditures, predominantly driven by a CHF 0.4 million increase in our directors
and officers insurance and CHF 0.1 million in other miscellaneous items;
|
|
·
|
a CHF 0.6 million increase in depreciation expense of our right-of-use assets and capital
equipment; and
|
|
·
|
a CHF 0.2 million increase in legal fees, driven by an increase for professional services
associated with our at the market offering issuance costs,
|
partially offset by:
|
·
|
a CHF 0.3 million decrease in travel and entertainment expenditures; and
|
|
·
|
a CHF 0.2 million decrease in investor relations expenditures.
|
Finance result, net
The following table summarizes our financial
income and expenses during the years ended December 31, 2020 and 2019:
|
|
For the Years Ended
December 31,
|
|
|
In CHF thousands
|
|
2020
|
|
2019
|
|
Change
|
Financial income
|
|
|
78
|
|
|
|
303
|
|
|
|
(225
|
)
|
Financial expense
|
|
|
(184
|
)
|
|
|
(1,926
|
)
|
|
|
1,742
|
|
Change in fair value of conversion feature
|
|
|
—
|
|
|
|
4,542
|
|
|
|
(4,542
|
)
|
Exchange differences
|
|
|
(555
|
)
|
|
|
(2,013
|
)
|
|
|
1,458
|
|
Finance result, net
|
|
|
(661
|
)
|
|
|
906
|
|
|
|
(1,567
|
)
|
Net finance result was a loss primarily
increased related to:
|
·
|
the non-repetition of a CHF 4.5 million gain on the conversion feature related to the Company’s convertible loan
due to Lilly. This gain was mainly related to the change in value of the shares between the share price determined in the convertible
loan and the share price at the date of the conversion,
|
partially offset by:
|
·
|
a CHF 1.7 million decrease in financial expense, of which CHF 1.4 million was effective interest recorded to amortize the host
debt per the convertible loan due to Lilly; and
|
|
·
|
a CHF 1.5 million decrease in exchange differences predominantly related to a CHF 1.2 million remeasurement loss related to
the settlement of the convertible loan that did not repeat in the current period.
|
|
B.
|
Liquidity and capital resources
|
Cash flows
Comparison of the years ended December 31,
2020 and 2019
The following table summarizes our cash
flows for the years ended December 31, 2020 and 2019, respectively:
|
|
For the Years Ended
December 31,
|
|
|
In CHF thousands
|
|
2020
|
|
2019
|
|
Change
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
(59,517
|
)
|
|
|
55,220
|
|
|
|
(114,737
|
)
|
Investing activities
|
|
|
28,329
|
|
|
|
(66,885
|
)
|
|
|
95,214
|
|
Financing activities
|
|
|
(803
|
)
|
|
|
49,616
|
|
|
|
(50,419
|
)
|
Net change in cash and cash equivalents
|
|
|
(31,991
|
)
|
|
|
37,951
|
|
|
|
(69,942
|
)
|
Operating activities
Net cash used in operating activities was
CHF 59.5 million for the year ended December 31, 2020 compared with net cash provided by operating activities of CHF 55.2 million
for the year ended December 31, 2019. The change in cash provided by operating activities for the year ended December 31, 2020
was due to the Company incurring a net loss of CHF 61.9 million for the year ended December 31, 2020 compared with net income of
CHF 45.4 million for the same period in 2019, which was driven by (i) a decrease of CHF 95 million in contract revenues principally
due to the recognition of a CHF 10 million milestones which was offset by an upfront payment of CHF 73.1 million for a right-of-use
license fee and CHF 30 million for the first installment of the first milestone achieved in 2019 and (ii) offset by the increase
in research and development costs in the year ended December 31, 2020.
Investing activities
Net cash provided by investing activities
was CHF 28.3 million for the year ended December 31, 2020 compared with net cash used in investing activities of CHF 66.9 million
for the year ended December 31, 2019.
A net of CHF 30 million
worth of short-term financial assets matured for the year ended December 31, 2020, compared to a CHF 65 million increase in investments
in short-term financial assets for the prior period.
Financing activities
Net cash used in financing activities was
CHF 0.8 million for the year ended December 31, 2020 compared with net cash provided by financing activities of CHF 49.6 million
for the year ended December 31, 2019. The decrease of CHF 50.4 million is predominantly related to CHF 50.3 million received from
Lilly for a convertible loan, offset by CHF 0.5 million for transaction costs associated with loan settlement in 2019 which did
not repeat in 2020.
Operating capital requirements and plan of operations
We do not expect to generate revenues from
royalties based on product sales unless and until our partners obtain regulatory approval of, and successfully commercialize, our
current or any future product candidates. As of December 31, 2020, we had cash and cash equivalents of CHF 160.9 million and short-term
financial assets of CHF 65 million, resulting in CHF 225.9 million of liquidity. The decrease relative to December 31, 2019 is
due to a decrease in contract revenues of CHF 95 million in 2020 as discussed above. The Company also increased its research and
development spending on our major discovery, research and development programs and the strengthening of the Company’s infrastructure,
systems and organization. There can be no certainty as to the exact timing, or in fact, whether any future milestone payments will
ever be made given that these milestone payments are contingent on clear milestones being reached. Accordingly, assuming we do
not receive potential milestone payments and based upon our currently contemplated research and development strategy, we believe
that our existing capital resources will be sufficient to meet our projected operating requirements through Q1 2024.
We expect to generate losses for the foreseeable
future, and these losses could increase as we continue product development until we successfully achieve regulatory approvals for
our product candidates and begin to commercialize any approved products. We are subject to all the risks pertinent to the development
of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may
harm our business. We expect to incur additional costs associated with operating a public company and we anticipate that we will
need substantial additional funding in connection with our continuing operations. If we need to raise additional capital to fund
our operations and complete our ongoing and planned clinical studies, funding may not be available to us on acceptable terms, or
at all.
Our future funding requirements will depend
on many factors, including but not limited to the following:
|
·
|
the scope, rate of progress, results and cost of our preclinical and clinical studies and other related activities, according
to our long-term strategic plan;
|
|
·
|
the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates and any other products
we may develop;
|
|
·
|
the cost, timing and outcomes of regulatory approvals;
|
|
·
|
the costs and timing of establishing sales, marketing and distribution capabilities;
|
|
·
|
the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone
and royalty payments thereunder;
|
|
·
|
the emergence of competing technologies or other adverse market developments; and
|
|
·
|
the potential cost and timing of managing, protecting, defending and enforcing our portfolio of intellectual property.
|
Contractual obligations
In addition, the Company has been a tenant
at our current location in the EPFL Innovation Park since shortly after our inception in 2003. We have entered into long-term rental
lease agreements with respect to these facilities. However, our lease agreements are structured such that we can exit these lease
agreements without penalty provided we give the owner of our premises sufficient notice. We have capitalized a portion of our lease
liabilities in accordance with IFRS 16. See “Note 5. Right-of-use assets and lease liabilities.”
The Company currently projects CHF 0.8
million in undiscounted short-term lease obligations and CHF 1.9 million in undiscounted long-term lease obligations. Additionally,
the Company projects CHF 24.7 million in short-term purchase commitments and CHF 9.3 million in long-term purchase commitments
predominantly driven by R&D activities.
ATM program
In September 2020, the Company established
an “at the market offering” for the sale of up to USD 80 (CHF 71.3) million worth of our common shares from time to
time by entering into a Sales Agreement with Jefferies. As of December 31, 2020, 5,000,000 shares have been issued and are held
as treasury shares.
Comparison of the years ended December 31, 2019 and
2018
For a discussion of the financial results
and condition for the fiscal year ended December 31, 2018, please refer to “Item 5. Operating and financial review and prospects—A.
Operating results – comparison of the years ended December 31, 2019 and 2018” of our Annual Report on Form 20-F for
the year ended December 31, 2019 filed on March 30, 2020.
|
C.
|
Research and development, patents and licenses, etc.
|
See “Item 4. Information on the Company
– B. Business overview” and “Item 5. Operating and financial review and prospects –A. Operating results
– results of operations.”
See “Item 5. Operating and financial
review and prospects.”
See “Forward-Looking Statements.”
|
F.
|
Non-IFRS financial measures
|
In addition to our operating results, as
calculated in accordance with IFRS, as adopted by the IASB, we use adjusted income/(loss) and adjusted earnings/(loss) per share
when monitoring and evaluating our operational performance. Adjusted income/(loss) is defined as income/(loss) for the relevant
period, as adjusted for certain items that we believe are not indicative of our ongoing operating performance. Adjusted earnings/(loss)
per share is defined as adjusted income/(loss) for the relevant period divided by the weighted-average number of shares for such
period.
We believe that these measures assist our
shareholders because they enhance the comparability of our results each period and provide more useful insight into operational
results for the period. The Company’s executive management uses these non-IFRS measures to evaluate our operational performance.
These non-IFRS financial measures are not meant to be considered alone or as substitutes for our IFRS financial measures, and should
be read in conjunction with our financial statements prepared in accordance with IFRS. The most directly comparable IFRS measure
to these non-IFRS measures is net income/(loss). The following table reconciles net income/(loss) to adjusted income/(loss) and
adjusted earnings/(loss) per share for the periods presented:
Reconciliation of income/(loss) to
adjusted income/(loss) and
earnings/(loss) per share to adjusted earnings/(loss) per share
|
|
For the Years Ended
December 31,
|
In CHF thousands, except for share and per share data
|
|
2020
|
|
2019
|
|
2018
|
Income/(loss)
|
|
|
(61,921
|
)
|
|
|
45,442
|
|
|
|
(50,951
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash share-based payments1
|
|
|
4,088
|
|
|
|
2,834
|
|
|
|
2,518
|
|
Foreign currency (gains)/losses2
|
|
|
703
|
|
|
|
826
|
|
|
|
1,179
|
|
Effective interest expenses3
|
|
|
—
|
|
|
|
1,355
|
|
|
|
—
|
|
Change in fair value of conversion feature4
|
|
|
—
|
|
|
|
(4,542
|
)
|
|
|
—
|
|
Adjusted income/(loss)
|
|
|
(57,130
|
)
|
|
|
45,915
|
|
|
|
(47,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share – basic
|
|
|
(0.86
|
)
|
|
|
0.64
|
|
|
|
(0.82
|
)
|
Earnings/(loss) per share – diluted
|
|
|
(0.86
|
)
|
|
|
0.64
|
|
|
|
(0.82
|
)
|
Adjustment to earnings/(loss) per share – basic
|
|
|
0.07
|
|
|
|
0.01
|
|
|
|
0.06
|
|
Adjustment to earnings/(loss) per share – diluted
|
|
|
0.07
|
|
|
|
0.00
|
|
|
|
0.06
|
|
Adjusted earnings/(loss) per share – basic
|
|
|
(0.79
|
)
|
|
|
0.65
|
|
|
|
(0.76
|
)
|
Adjusted earnings/(loss) per share – diluted
|
|
|
(0.79
|
)
|
|
|
0.64
|
|
|
|
(0.76
|
)
|
Weighted-average number of shares used to compute adjusted loss per share – basic
|
|
|
71,900,212
|
|
|
|
70,603,611
|
|
|
|
61,838,228
|
|
Weighted-average number of shares used to compute adjusted loss per share – diluted
|
|
|
71,900,212
|
|
|
|
71,103,341
|
|
|
|
61,838,228
|
|
1Reflects non-cash expenses associated
with share-based compensation for equity awards issued to directors, management and employees of the Company. This expense reflects
the awards’ fair value recognized for the portion of the equity award which is vesting over the period.
2Reflects foreign currency re-measurement
gains and losses for the period, predominantly impacted by the change in the exchange rate between the US Dollar and the Swiss
Franc.
3Effective interest expense for
the period relates to the accretion of the Company’s convertible loan in accordance with the effective interest method.
4Change in fair value
of conversion feature that is bifurcated from the convertible loan host debt with Lilly.
Adjustments for the years ended December
31, 2020, 2019 and 2018 decreased net loss by CHF 4.8 million, increased net income by CHF 0.5 million and decreased net loss
by CHF 3.7 million, respectively. The Company recorded share-based compensation expenses of CHF 4.1 million, CHF 2.8 million and
CHF 2.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. There were foreign currency re-measurement
losses of CHF 0.7 million, CHF 0.8 million and CHF 1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively,
predominantly related to the cash balance of the Company as a result of fluctuations of the US Dollar against the Swiss Franc.
Related to the Company’s convertible note settled with Lilly in 2019, we recorded CHF 1.4 million for amortization of effective
interest for the year ended December 31, 2019 and recognized a CHF 4.5 million gain for the change in fair value of the liability
related to the conversion feature in 2019. There were no comparable expenses or gains in 2020 nor 2018.
The Company also discloses liquidity, which
is defined as a financial indicator comprised of cash and cash equivalents and short-term financial assets. See “Note 3.
Summary of significant accounting policies” to our Financial Statements for further definition.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors and senior management
|
Executive Officers, other key employees and board of directors
The following table presents information
about our executive officers, other key employees, and directors and director nominees, including their ages, as of March 1, 2021.
The term of each of our directors is 1 year and, accordingly, will expire at our 2021 annual shareholder meeting to be held in
June 2021.
Name
|
Position
|
Age
|
Initial
year of appointment
|
Executive Officers
|
|
|
|
Andrea Pfeifer, Ph.D.
|
Chief Executive Officer and Director
|
63
|
2003
|
Marie Kosco-Vilbois, Ph.D.
|
Chief Scientific Officer
|
63
|
2019
|
Johannes Rolf Streffer, M.D.
|
Chief Medical Officer
|
52
|
2020
|
Piergiorgio Donati
|
Chief Technical Operations Officer
|
50
|
2019
|
Joerg Hornstein
|
Chief Financial Officer
|
43
|
2017
|
Jean-Fabien Monin
|
Chief Administrative Officer
|
50
|
2009
|
|
|
|
|
Other Key Employees
|
|
|
|
Julien Rongère, Ph.D.
|
VP Regulatory Affairs and Quality Assurance
|
43
|
2017
|
Alexandre Caratsch
|
General Counsel
|
55
|
2018
|
Olivier Sol, M.D.
|
AVP Medical Sciences and Clinical Operations
|
54
|
2016
|
Bojana Portmann, Ph.D.
|
AVP IP and Business Development
|
41
|
2011
|
Julian Gray, M.D., Ph.D.
|
Clinical Advisor
|
63
|
2007
|
Mark Danton
|
VP Information Systems, Security and Digital Technologies
|
57
|
2019
|
|
|
|
|
Non-Executive Directors
|
|
|
|
Douglas Williams, Ph.D.
|
Chairman and Director
|
62
|
2018
|
Martin Velasco
|
Vice-Chairman and Director
|
66
|
2003
|
Peter Bollmann, Ph.D.
|
Director
|
67
|
2015
|
Thomas Graney
|
Director
|
56
|
2016
|
Werner Lanthaler, Ph.D.
|
Director
|
52
|
2018
|
Roy Twyman, M.D.
|
Director
|
64
|
2019
|
Carl June, M.D.
|
Director
|
67
|
2020
|
The current business addresses for our
executive officers, other key employees, directors and director nominee is AC Immune SA, EPFL Innovation Park, Building B, 1015
Lausanne, Switzerland.
Executive Officers
Andrea Pfeifer, Ph.D., Co-Founder, Chief
Executive Officer and Director: Prof. Andrea Pfeifer co-founded AC Immune SA in 2003, successfully leading it to an IPO in
2016, since when she has served as a Director on the Board. Under her leadership, multiple transformative partnerships have been
established with leading pharmaceutical companies, yielding a potential value of up to CHF 3.3 billion plus additional royalties.
Before founding the Company, she was the Head of Nestlé Research Centre in Lausanne, Switzerland where she played a major
role in connecting science and business. Whilst at Nestlé she led the scientific development of a number of highly innovative,
critically acclaimed products from laboratory to market, established the microbiome as a major cross-category product development
platform and co-founded the Life Science focused Nestlé Venture Capital Fund. Prior to this she was a Visiting Fellow at
the Human Carcinogenesis Branch of The National Institute of Health, Bethesda, USA. She currently serves as the Chair of Investment
Fund BioMedInvest, Basel and AB2 Bio SA, Lausanne, and is a member of the Supervisory Board of Symrise AG, Holzminden, Germany.
She is also a key member of the CEOi initiative on Alzheimer’s Disease and the Davos Alzheimer’s Collaborative (DAC).
Prof. Pfeifer holds a Ph.D. in Toxicology
(Cancer Research) from the University of Würzburg, Germany and is a registered Toxicologist and Pharmacist. She received her
Habilitation from the University of Lausanne, Switzerland and is an Honorary Professor at the Ecole Polytechnique Fédérale
de Lausanne (EPFL).
Marie Kosco-Vilbois, Ph.D., Chief Scientific
Officer: A US citizen, Dr. Kosco-Vilbois has extensive experience in the biopharmaceutical industry and served as Chief Scientific
Officer of Novimmune since 2005. Prior to joining Novimmune in 2002, Dr. Kosco-Vilbois was Head of Immunology and Preclinical Pharmacology
at the Serono Pharmaceutical Research Institute, a Senior Scientist and then Head of Immunology at the Glaxo Wellcome Research
Institute in Geneva, and a Scientific Member of the Basel Institute for Immunology. During her career, she has taken numerous biologicals
from discovery into preclinical studies and clinical development, most notably filing market applications of a biological for an
orphan indication. Dr. Kosco-Vilbois gained her Bachelor's Degree in Biology from Rutgers University, New Jersey,
US,
and a PhD in Anatomy and Immunology from the Medical College of Virginia/Virginia Commonwealth University School of Medicine,
US.
Johannes
Rolf Streffer, M.D., Chief Medical Officer: Prof. Johannes Streffer joined AC Immune SA in January 2021 as Chief Medical
Officer from UCB Biopharma SPRL where he was VP, Head of Translational Medicine Neuroscience. Prior to this he was a member
of the Alzheimer Disease Area Leadership Team at Janssen R&D and the industrial lead for EMIF-AD, where 14 countries are
combined to foster understanding of early biomarkers and change in the predementia AD spectrum. His recognized expertise and
standing in the scientific and medical community provide an invaluable asset as we work to develop innovative treatments for
neurodegenerative diseases based on our proprietary technology platforms.
Prof. Streffer
graduated from the University of Tübingen, Germany with a medical degree. He completed graduate studies on neuro-oncology
and is Board certified in Psychiatry and Neurology. Currently he is a visiting Professor in the Department of Biomedical Sciences,
University of Antwerp.
Piergiorgio Donati, Chief Technical
Operations Officer: Mr. Donati joined AC Immune in June 2018 as Director, Global Program Management, having previously worked
for AC Immune from 2011 to 2015 as Head of Manufacturing and Project Management. Between 2015 and 2018, Mr. Donati was Head of
CMC program development at Glenmark Pharmaceuticals and Biotech CMC Lead at Merck KGaA. Prior to 2011, he held R&D positions
at Abiogen, Merck Group and Serono. Mr. Donati holds a degree in Analytical Chemistry from the Technical Institute G.L. Bernini.
Joerg Hornstein, Chief Financial Officer:
Mr. Hornstein has served as our Chief Financial Officer since April 2017. Prior to joining AC Immune, Mr. Hornstein served
as Senior Vice President Group Controlling for Unternehmensgruppe Theo Müller based in Luxembourg from January 2014 to March
2017. Between 2002 and 2013 he worked for Merck KGaA, a leading science and technology company in healthcare, life science and
performance materials, where he held various senior finance roles. Among other appointments, he was CFO for Merck’s operations
in Indonesia and Merck Serono’s operations in China. Furthermore, he served as Vice President Group Controlling for Merck
Group Headquarters in Germany and as Divisional CFO for Merck Millipore in the US. Mr. Hornstein holds an MBA with Distinction
from London Business School, UK, and a Bachelor of Business Administration from Baylor University in the US.
Jean-Fabien Monin, Chief Administrative
Officer: Mr. Monin was nominated Chief Administrative Officer in July 2015 following his role as our Chief Financial Officer
from March 2009 to July 2015. Prior to AC Immune, he held several positions during his tenure of 14 years at bioMérieux,
a leading international in vitro diagnostics group, culminating in his nomination as Chief Financial Officer. His last position
was CFO of bioMérieux Central Europe based in Vienna, Austria from December 2006 to March 2009. Mr. Monin holds a Masters
in Finance and International Business from the University of Paris-Dauphine, France.
Other key employees
Julien Rongère, Ph.D., VP Regulatory
Affairs and Quality Assurance: Dr. Rongère joined AC Immune in July 2017 as Head of European Regulatory Affairs and
Quality Assurance. Prior to joining AC Immune, Dr. Rongère held positions of increasing responsibility at Celgene in Switzerland.
Most recently, he served as Director, Regulatory Affairs, leading the development of regulatory strategies for small molecules
and CAR-T cell therapies and contributed to the development and approval of Revlimid in multiple myeloma and mantle cell lymphoma.
Prior to Celgene, Dr. Rongère served as a Regulatory Expert at Apoxis, SA in Switzerland. During his career, Dr. Rongère
gained specific expertise in the development of regulatory strategies for taking products from Phase 1 through to commercialization
in the field of hematology/oncology and immunology/inflammation, including fast-to-market approaches, orphan drugs and pediatric
development. Dr. Rongère gained his Master’s Degree in Medical Genetics from the University of Aberdeen, UK, and holds
a Ph.D. in Molecular Biology from the University of Lausanne, Switzerland.
Alexandre Caratsch, General Counsel:
Alexandre Caratsch is a Swiss-qualified attorney with 30 years’ experience in private practice, multinational companies
and in ventures. He initially worked as an in-house lawyer for E&Y and the SGS Group before specializing in healthcare, holding
senior legal positions at Novartis and Medtronic. Before joining AC Immune, he led the Corporate Legal Affairs and Intellectual
Property group for Medtronic’s Europe, Middle East and Africa (EMEA) region. Mr. Caratsch has also co-founded two start-up
companies in the field of information technology and medical technology, respectively, and has supported other start-up companies
with strategic, transactional and general counsel. Mr. Caratsch holds a Master’s degree in Law from the University of Neuchâtel,
Switzerland and is admitted to the Bar of Geneva, Switzerland.
Oliver Sol, M.D., AVP Medical Sciences
and Clinical Operations: Prior to joining AC Immune, Dr. Olivier Sol was Clinical Director of Exonhit (Paris) and thereafter
Medical & Regulatory Affairs Director for Diaxonhit, where he was responsible for the development and medical validation of
in vitro diagnostic products in cancer, infectious diseases and Alzheimer's disease. Dr. Sol spent his over 20-year career
as a Medical Expert in several therapeutic areas with a strong focus on central nervous system diseases, within pharmaceutical
companies as Janssen, UCB-Pharma, GlaxoSmithKline and Sanofi. He contributed to the clinical development of currently marketed
drugs in epilepsy (topiramate and levetiracetam) and galantamine in Alzheimer’s disease. He has also gained significant experience
in the field of biological biomarkers. Dr. Sol holds an M.D. from the Paris-Sud University (Paris-Saclay) with a specialization
in Medical Biology.
Bojana Portmann, Ph.D., AVP IP and Business
Development: Dr. Portmann joined AC Immune in 2011 as Intellectual Property Manager and has held multiple roles within the
IP department with increasing responsibility over the past years, during which her work was mainly focused on creating and strengthening
patent portfolios for biologicals, small molecules and liposomal technology. Dr. Portmann holds a Ph.D. degree from the EPFL University
in Switzerland, and a LL.M. degree, Master of Intellectual Property Law and Management (MIPLM), from the CEIPI in France. She also
received a M.Sc. (Dipl. Ing.) degree in Polymer and Chemical Engineering from the University of Belgrade in Serbia.
Julian Gray, M.D., Ph.D., Clinical Advisor:
Dr. Gray has served as Clinical Advisor to our programs in neurodegenerative diseases since January 2007 and works in this function
exclusively for AC Immune. He has previously held the position of Head of CNS Therapeutics at Eisai Ltd in London leading the global
development of early and late-stage CNS projects in Alzheimer’s disease, Parkinson’s disease and other CNS areas. Prior
to this he served as Head of Alzheimer Clinical Research at Hoffmann-La Roche in Basel where he conducted large-scale clinical
trials in the US and Europe. After his studies he was Medical Expert at Sandoz Pharmaceuticals in Basel undertaking clinical studies
of different compounds in dementia and Parkinson’s disease. Dr. Gray holds the title of a Specialist in Pharmaceutical Medicine
(Switzerland). He received his medical degree (MBBS) from the University of London, a B.A. and Ph.D. from the University of Oxford
and an MBA from Oxford Brookes University.
Mark Danton, VP Information Systems,
Security and Digital Technologies: Mr. Mark Danton is a globally recognized and experienced executive in Information Systems/Information
Technology (IS/IT) with extensive experience in developing, launching and managing business-relevant IS, cybersecurity and digital
technology solutions and services.
Prior to joining AC Immune, Mr. Danton
served as IS/IT Global Manager at Nestlé and held a number of global roles at BT Global Services and in Dimension Data PLC.
Mr. Danton holds an Executive MBA from the Business School Lausanne, graduating cum laude and as the Executive MBA Student
of the Year.
Non-Executive Directors
Douglas Williams, Ph.D., Chairman and
Director: Douglas E. Williams, Ph.D., is currently the President, CEO and member of the Board of Directors of Codiak BioSciences.
He was previously Biogen’s Executive Vice President, Research and Development, serving in this role from January 2011 to
July 2015. He joined Biogen from ZymoGenetics, where he was most recently CEO and member of the Board of Directors. ZymoGenetics
was purchased for USD 985 million by Bristol Myers Squibb during Dr. Williams’ tenure. Previously, he held leadership positions
within the biotechnology industry, including Chief Scientific Officer and Executive Vice President of Research and Development
at Seattle Genetics, and Senior Vice President and Washington Site Leader at Amgen. Dr. Williams served in a series of scientific
and senior leadership positions over a decade at Immunex, including Executive Vice President and Chief Technology Officer and a
member of the Board of Directors. During his 30+ year career in the biotechnology industry he has played a role in the development
of several novel drugs including Enbrel, Tecfidera, and Spinraza. He has served on the board of numerous biotechnology companies
and is currently a member of the Board of Directors of Ovid Pharmaceuticals, and Chairman of the Board of AC Immune, and is a Director
for private companies Cygnal Therapeutics, and Xenikos.
Martin Velasco, Vice-Chairman and Director:
Mr. Velasco has served on our board of directors since December 2003. Martin Velasco is an entrepreneur and business
angel with extensive experience in the IT, medical and biotech areas. He serves on the board of directors or advisory board
of several other high-tech companies including as Founder, Chairman and Chief Executive Officer of Anecova, an assisted reproductive
technology (ART) company and World Economic Forum Technology Pioneer 2008, as Chairman of the Supervisory Board of Cocomore, a
digital communications agency and information technology services firm, and as a Board Member of Aridhia, a health informatics
company. Martin is also the Founder of Infantia
Foundation,
a philanthropic organization aiding children in the developing world. He is an Ambassador of BlueOrchard, the leading private
microfinance investment advisory company and a member of the Strategic Advisory Board of the École Polytechnique Fédérale
de Lausanne (EPFL)..
Peter Bollmann, Ph.D., Director:
Dr. Bollmann has joined our board in December 2015. He has extensive management and finance experience in Switzerland and abroad
as CEO, CFO and Board Member. His broad industry experience embraces biotechnology and medical technology firms, including previous
Board positions with Cytos Biotechnology and Prionics.
Thomas Graney, Director: Thomas
Graney is currently the Chief Financial Officer of Oxurion NV. Prior to Oxurion, he was CFO of Generation Bio, Senior Vice President
and Chief Financial Officer at Vertex Pharmaceuticals Inc. and Chief Financial Officer and Senior Vice President of Finance &
Corporate Strategy at Ironwood Pharmaceuticals. Prior to Ironwood Pharmaceuticals, Mr. Graney spent 20 years working with J&J
and its affiliates, serving for 4 years as worldwide Vice President of Finance and Chief Financial Officer of Ethicon. Mr. Graney
has extensive global experience that spans corporate development, commercial strategy, portfolio management and supply chain management,
communication and investor relations. A Chartered Financial Analyst charterholder, Mr. Graney holds a B.S. in accounting from the
University of Delaware and an MBA in Marketing, Finance and International Business from the Leonard N. Stern School of Business
at New York University.
Werner Lanthaler, Ph.D., Director: Dr.
Werner Lanthaler is the CEO of Evotec AG, a drug discovery alliance and development partnership company focused on rapidly progressing
innovative product approaches with leading pharmaceutical and biotechnology companies, academics, patient advocacy groups and venture
capitalists. Since joining Evotec in 2009, Dr. Lanthaler has focused the company on collaborating with biotech and pharma companies
and academia, supporting biotech innovation. He previously served as Chief Financial Officer at Intercell AG where he played a
key role in many of that company's major milestones. During his tenure, Intercell undertook an IPO and developed from a venture-backed
biotechnology company into a global vaccine player. Dr. Lanthaler has also served as Director of the Federation of Austrian Industry,
and from 1995 to 1998 was a Senior Management Consultant at McKinsey & Company. Dr. Lanthaler is a Non-Executive Member of
the Board of Directors of arGEN-X and is a member of the Supervisory Board of Topas Therapeutics GmbH. He holds a Doctorate in
Economics from Vienna University, a Master's degree in Business Administration from Harvard University, and a degree in Psychology.
Roy Twyman, M.D., Director: Dr.
Twyman is a Neurologist and is founder and current CEO of Amron Neuroscience, LLC, a private consulting company focused on neuroscience
drug development. Prior to this, Dr. Twyman spent almost 20 years at Janssen Research & Development, LLC (a Johnson & Johnson
company) and was a member of the Neuroscience Therapeutic Area Leadership team responsible for clinical R&D and strategic planning
of CNS neurology and psychiatry pipeline products. From 2012 to March 2018, Dr. Twyman was a Senior Vice President in the Neuroscience
Therapeutic Area overseeing the Alzheimer’s Disease Area. He currently participates as an independent Board Member or as
a Scientific Advisory Board Member for a number of small biotech or pharmaceutical companies.
Carl June, M.D., Director: Prof.
June is Richard W. Vague Professor in Immunotherapy, Director of the Center for Cellular Immunotherapies and Director of the Parker
Institute for Cancer Immunotherapy at the Perelman School of Medicine at the University of Pennsylvania. Due to his lifelong work
on lymphocyte activation, Prof. June is considered a world authority on mechanisms related to immune tolerance and adoptive immunotherapy
in the fields of chronic inflammation and cancer. He and his team pioneered the groundbreaking work in immunotherapy in which patients
with refractory and relapsed chronic lymphocytic leukemia are treated with genetically engineered versions of their own T cells.
This CAR-T therapy approach, which trains the immune system to attack and destroy cancer cells, has opened a new era of innovative
treatments and personalized medicine for cancer patients.
Prof. June is a graduate of the Naval
Academy in Annapolis, USA, and Baylor College of Medicine in Houston, USA, where he received his medical degree. Prof. June also
completed graduate training in immunology and malaria with Dr. Paul-Henri Lambert at the World Health Organization, Geneva, Switzerland,
and post-doctoral training in transplantation biology with E. Donnell Thomas and John Hansen at the Fred Hutchinson Cancer Research
Center in Seattle, USA. He has published more than 500 manuscripts and is the recipient of numerous honors and prizes.
Compensation of directors and executive officers
For the year ended December 31, 2020,
the aggregate compensation accrued or paid to the members of our board of directors and our executive officers for services in
all capacities was CHF 6.6 million.
During the year ended December 31,
2020, the total fair value of stock options granted to directors and executive officers was CHF 2.9 million.
The amount set aside or accrued by us to
provide pension, retirement or similar benefits to members of our board of directors and executive officers amounted to a total
of CHF 0.2 million in the year ended December 31, 2020.
We incorporate by reference into this Annual
Report the information in “Item 1. C—2020 Board Compensation” and “Item 2. C—2020 Executive Compensation”
of Exhibit 99.3 to our report on Form 6-K filed with the SEC on March 23, 2021.
Equity incentive plans
In 2016, we ceased issuing new grants under
our prior equity incentive plans, which we refer to as the Prior Plans, and adopted a new omnibus equity incentive plan under which
we have the discretion to grant a broad range of equity-based awards to eligible participants.
Prior plan: C1
Since our inception in 2003, we have had
four separate Prior Plans under which stock options were granted (Prior Plans A, B and C2 have terminated): Options granted under
Plan C1 from 2013 through the adoption of the current 2016 Stock Option and Incentive Plan (SOIP) were taxed upon exercise instead
of at grant due to a change in taxation rules.
Plan administration. Under Plan
C1, an option, which can only be granted with the approval of our board of directors, is evidenced by an option agreement signed
by the participant to indicate his or her acceptance of the option and is subject to the terms and conditions of the applicable
Prior Plan.
Eligibility. Under Plan C1, options
were granted to our directors, employees, advisors and agents.
Options exercise price. The exercise
price of all options issued under the Prior Plan is CHF 0.15.
Vesting period. Under
Plan C1, the options vesting period was 4 years with 25% of the options vesting each year.
Expiration period. The expiry dates
for each plan are as follows:
Plan C1: 10 years
Amendment. Our board of directors
has the authority to amend each of the Prior Plans.
2016 SOIP
At the November 15, 2016 AGM of the Company,
our board of directors approved the 2016 SOIP (as amended and restated the “2016 SOIP”). The maximum number of shares
available for issuance under the 2016 SOIP is 3,523,000 common shares. The shares available for issuance under the 2016 SOIP
were initially registered with the SEC on a Form S-8 on March 8, 2017, and additional shares were registered on a Form S-8 on August
5, 2019. As of December 31, 2020, there were a total of 1,099,015 shares underlying options that were exercisable and 2,900,667
shares underlying outstanding options and 19,494 shares underlying outstanding restricted share units issued from both our Prior
Plans and the 2016 SOIP.
Plan Administration. The 2016 SOIP
is administered by either our board of directors or the compensation committee, or a similar committee performing the functions
of the compensation committee. Approval of the plan administrator is required for all grants of awards under the 2016 SOIP, but
the administrator may delegate to our CEO the authority to grant awards, subject to certain limitations set forth on the plan.
Awards. Awards may be granted in
the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted share units, restricted
share awards, unrestricted share awards, performance share awards and dividend equivalent rights.
Eligibility. Under the 2016 SOIP,
full or part-time officers and other employees, non-employee directors and consultants of the Company and its subsidiaries who
are selected by the administrator are eligible to participate in the plan.
Options exercise price. Under the
2016 SOIP, the option exercise price is determined by the plan administrator at the time of grant, but will not be less than fair
market value (as defined in the 2016 SOIP) on the grant date, and for incentive stock options granted to any employee who is a
10 percent owner in the Company, will not be less than 110 percent of the fair market value on the grant date.
Vesting period. Vesting conditions
are determined by the administrator at the time of grant and are specified in the applicable award certificate.
Accelerated vesting. The administrator
may accelerate the exercisability or vesting of all or any portion of any award in circumstances involving the grantee’s
death, disability, retirement or termination of employment, or a change in control.
Amendment. Our board of directors
has the authority to amend the 2016 SOIP.
Amendment and restatement to the
2016 SOIP
In June 2019, the Board authorized, and
the shareholders approved, an increase in the maximum number of shares reserved for issuance under the 2016 SOIP. In October 2019,
the Board authorized a second amendment and restatement to the 2016 SOIP. These amendments were made to align certain elements
with Swiss statutory requirements and had no financial impact for the Company in 2020.
Equity compensation
For the fiscal year ended December 31,
2020, the Company has granted our directors and executive officers, in the aggregate, options for the right to acquire 689,700
shares at exercise prices ranging from USD 5.04 to USD 6.95 per share, which vest either over a 1 year, 3 year or 4 year period
with vesting to occur quarterly or annually depending on the nature of the award. The Company did not grant restricted share units
to its directors and executive officers in 2020 or 2019. Previous restricted share units granted to directors vested over a 1 year
period. Restricted share units granted to executives have a 4 year vesting life with vesting to occur quarterly. Please see “Note
17. Share-based compensation” for further detail.
Composition of board of directors
Our board of directors is composed of eight
directors. Each director is elected for a 1-year term. The current members of our board of directors were appointed at a shareholders’
meetings held on June 26, 2020 and November 20, 2020 to serve until the 2021 shareholders’ meeting to be held in June 2021.
We are a foreign private issuer. As a result,
in accordance with the Nasdaq stock exchange listing requirements, we rely on home country governance requirements and certain
exemptions thereunder rather than relying on the stock exchange corporate governance requirements. For an overview of our corporate
governance principles, see “Item 16G. Corporate governance.”
Board meetings
Our Board of Directors met in accordance
with their respective mandate both physically, by video-conference and telephonically throughout 2020. The Board members analyzed
the scientific, business, financial and organizational risks of the Company based on the external factors and internal changes
that could potentially impact the risks for the Company in the future.
Director independence
As a foreign private issuer, under the
listing requirements and rules of Nasdaq, we are not required to have independent directors on our board of directors, except to
the extent that our audit and finance committee is required to comply with independence requirements, subject to certain phase-in
schedules. However, our board of directors has determined that, under current listing requirements and rules of Nasdaq (which we
are not subject to) and considering any applicable committee independence standards, Douglas Williams, Martin Velasco, Peter Bollmann,
Thomas Graney, Werner Lanthaler, Roy Twyman and Carl June are “independent directors.” In making such determination,
our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances
our board of directors deemed relevant in determining the director’s independence, including the number of ordinary shares
beneficially owned by the director and his or her affiliated entities, if any.
Committees of the board of directors
Our board of directors established two
separate committees: an audit and finance committee and a compensation, nomination and corporate governance committee.
Audit and finance committee
The audit and finance committee, which
consists of Peter Bollmann (Chair), Thomas Graney, Werner Lanthaler and Martin Velasco, assists our board of directors in overseeing
our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit and finance
committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered
public accounting firm. The audit and finance committee consists exclusively of members of our board who are financially literate,
and Peter Bollmann, Thomas Graney, Werner Lanthaler and Martin Velasco are considered to be “audit committee financial experts”
as defined by the SEC. Our board of directors has determined that Peter Bollmann, Thomas Graney, Werner Lanthaler and Martin Velasco
satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act.
The audit and finance committee is governed
by a charter that complies with Nasdaq rules. The audit and finance committee has the responsibility to, among other things:
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·
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review and assess the qualifications, independence, performance and effectiveness of the independent auditor;
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·
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review the scope of the prospective audit by the independent auditor, the estimated fees, and any other matters pertaining
to the audit;
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approve any audit and non-audit services proposed to be provided by the independent auditor to ensure independent auditor independence;
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·
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review and assess the independent auditor’s report and management letters and take notice of all comments of the independent
auditor on accounting procedures and systems of control, and review the independent auditor’s reports with management;
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be responsible for the resolution of disagreements between the management and the independent auditor;
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review and evaluate the lead audit partner of the independent audit team and confirm and evaluate their rotation;
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review and discuss all (i) financial statements, (ii) reports intended for publication and (iii) any other financial
statements intended for publication to consider significant financial reporting issues and judgments made in connection with the
preparation of our financial statements, including any significant changes in our selection or application of accounting principles;
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·
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approve the quarterly financial statements;
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·
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review with the management, personnel responsible for the design and implementation of the internal audit function, and the
independent auditor in separate meetings any analysis or other written communication prepared by the management and/or the independent
auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial
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statements, including critical
accounting policies, the effect of regulatory and accounting initiatives, and off-balance sheet transactions and structures on
our financial statements;
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·
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review in cooperation with the independent auditor and the management whether the accounting principles applied are appropriate
in view of our size and complexity;
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periodically review our policies and procedures for risk management and assess the effectiveness thereof, including discussing
with management our major financial risk exposures and the steps that have been taken to monitor and control such exposure;
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discuss with management and external advisors any legal matters that may have a material impact on our financial statements
and any material reports or inquiries from regulatory or governmental agencies that could materially impact our contingent liabilities
and risks;
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review our disclosure controls and procedures and internal control over financial reporting, including significant deficiencies
and material weaknesses in the design or operation of internal controls over financial reporting;
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establish procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting
or auditing matters; and
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review and approve or ratify any related-person transaction in accordance with our related-person transaction policy.
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The audit and finance committee will meet
as often as it determines is appropriate to carry out its responsibilities, but in any event will meet at least four times per
year.
Compensation, nomination and corporate governance
committee
The compensation, nomination and corporate
governance committee, consists of Douglas Williams (Chair), Martin Velasco and Thomas Graney.
The compensation, nomination and corporate
governance committee is governed by a charter that complies with Nasdaq rules. The compensation, nomination and corporate governance
committee has the responsibility to, among other things:
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recommend to the board the guidelines for the overall compensation and equity awards for the board of directors and executive
officers along with the rationale for such recommendations;
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recommend to the board the compensation of executive officers;
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propose the maximum total compensation of the board of directors and executive officers for approval at the Annual General
Meeting;
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periodically review policies and principles for the Company’s corporate governance;
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establish the process for assessment of the performance of members of the board, its committees and individual members;
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prepare and reviews the Company’s succession plan for members of the board and the executive committee;
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periodically review the Company’s code of conduct and recommends changes as needed;
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recommend for presentation to our shareholders the compensation report for shareholder vote; and
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define guidelines for the selection of candidates for election or re-election as members of the board and our executive officers.
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Swiss law requires that we adopt a compensation
committee, so in accordance with Nasdaq Listing Rule 5615(a)(3), we will follow home country requirements with respect to the compensation,
nomination and corporate governance committee. As a result, our practice will vary from the requirements of Nasdaq Listing Rule
5605(d), which sets forth certain requirements as to the responsibilities, composition and independence of compensation committees,
and from the independent director oversight of director nomination requirements of Nasdaq Listing Rule 5605(e). We will be subject
to the Swiss Ordinance Against Executive Compensation (Say on Pay) Rule. In addition, this committee will also be responsible for
director and board committee nominations as well as reviewing and amending, if required, our corporate governance framework and
guidelines.
As of December 31, 2020, we employed 149
employees, 24 of whom were part-time employees. 69 of our employees hold Ph.D. degrees and 50 hold M.Sc. degrees. Our 149 employees
are from more than 25 countries. The average number of employees (calculated on full-time equivalents) in 2020 was 134.4. As of
December 31, 2019 and 2018 we had 132 and 104 employees, respectively. We have never had a work stoppage, and none of our employees
is represented by a labor organization or under any collective-bargaining arrangements. We consider our employee relations to be
good.
See “Item 7. Major shareholders and
related-party transactions-A. Major shareholders.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS
The following table presents information relating to the beneficial
ownership of our common shares as of the date of this Annual Report by:
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each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding common shares;
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·
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each of our executive officers and directors; and
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all executive officers and directors as a group.
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The number of common shares beneficially
owned by each entity, person, executive officer or director is determined in accordance with 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
common shares over which the individual has sole or shared voting power or investment power as well as any common shares that the
individual has the right to acquire within 60 days of March 1, 2021 through the exercise of any option, warrant or other right.
Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting
and investment power with respect to all common shares held by that person.
The percentage of outstanding common shares
is computed on the basis of 72,701,715 common shares outstanding as of March 1, 2021. Common shares that a person has the right
to acquire within 60 days of March 1, 2021 are deemed outstanding for purposes of computing the percentage ownership of the
person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person,
except with respect to the percentage ownership of all executive officers and directors as a group. Unless otherwise indicated
below, the address for each beneficial owner is AC Immune, EPFL Innovation Park, Building B, 1015 Lausanne, Switzerland.
Shareholder
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Number
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|
Shares beneficially owned (%)
|
5% Shareholders
|
|
|
|
|
|
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dievini Hopp BioTech holding GmbH & Co KG1
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18,041,000
|
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24.8
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%
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Varuma AG2
|
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11,999,999
|
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16.5
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%
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Biotechnology Value Fund (BVF) Inc.3
|
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7,916,658
|
|
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10.9
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%
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EcoR1 Capital, LLC4
|
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4,702,160
|
|
|
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6.5
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%
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Eli Lilly and Company5
|
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3,615,328
|
|
|
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5.0
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%
|
Executive Officers and Directors
|
|
|
|
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Andrea Pfeifer6
|
|
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2,675,887
|
|
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3.7
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%
|
Marie Kosco-Vilbois7
|
|
|
*
|
|
|
|
*
|
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Johannes Rolf Streffer8
|
|
|
*
|
|
|
|
*
|
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Piergiorgio Donati9
|
|
|
*
|
|
|
|
*
|
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Joerg Hornstein10
|
|
|
*
|
|
|
|
*
|
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Jean-Fabien Monin11
|
|
|
*
|
|
|
|
*
|
|
Douglas Williams12
|
|
|
*
|
|
|
|
*
|
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Martin Velasco13
|
|
|
*
|
|
|
|
*
|
|
Peter Bollmann14
|
|
|
*
|
|
|
|
*
|
|
Thomas Graney15
|
|
|
*
|
|
|
|
*
|
|
Werner Lanthaler16
|
|
|
*
|
|
|
|
*
|
|
Roy Twyman17
|
|
|
*
|
|
|
|
*
|
|
Carl June18
|
|
|
*
|
|
|
|
*
|
|
All executive officers and directors as a group (13 persons)
|
|
|
4,048,942
|
|
|
|
5.6
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%
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_______________
* Indicates beneficial ownership of less than 1% of the total
issued and outstanding common shares.
1Represents 18,041,000 shares held by dievini Hopp
BioTech holding GmbH & Co KG. Dietmar Hopp controls the voting and investment decisions of the ultimate parent company of dievini
Hopp BioTech holding GmbH & Co KG. The address for dievini Hopp BioTech holding GmbH & Co KG is Johann-Jakob-Astor Str.
57, 69190 Walldorf, Germany.
2Represents 11,999,999 shares held by Varuma AG set
forth in a Schedule 13G/A filed with the SEC on February 12, 2019. The address for Varuma AG is Aeschenvorstadt 55, CH-4051 Basel,
Switzerland. Rudolf Maag controls the voting and investment decisions of Varuma AG.
3Based on information
set forth in a Schedule 13G filed with the SEC by BVF on January 14, 2021, these shares consist of 7,916,658 shares held of record
by BVF Inc. The address of BVF Inc. is 44 Montgomery St., 40th Floor, San Francisco, California 94104.
4Based on information
set forth in a Schedule 13G filed with the SEC by EcoR1 Capital on January 22, 2021, these shares consist of 4,702,160 shares held
of record by EcoR1 Capital, LLC. The address of EcoR1 Capital, LLC is 357 Tehama Street #3, San Francisco, California 94103.
5Represents 3,615,328 shares that Lilly obtained as
part of its conversion in April 2019 of the Convertible Note Agreement, which was deemed effective in January 2019. See “Note
9. Share Capital” in our financial statements.
6Consists of 2,365,066 of our common shares and options
to purchase 310,821 of our common shares exercisable within 60 days of March 1, 2021.
7Consists of 20,661 of our common shares and options
to purchase 32,777 of our common shares exercisable within 60 days of March 1, 2021.
8Dr. Streffer holds neither common shares nor non-vested
equity instruments exercisable within 60 days of March 1, 2021.
9Consists of 4,500 of our common shares and options
to purchase 28,158 of our common shares exercisable within 60 days of March 1, 2021.
10Consists of 0 of our common shares and options to
purchase 303,950 of our common shares exercisable within 60 days of March 1, 2021.
11Consists of 291,593 of our common shares and options
to purchase 24,759 of our common shares exercisable within 60 days of March 1, 2021.
12Consists of 12,818 of our common shares and options
to purchase 23,295 of our common shares exercisable within 60 days of March 1, 2021.
13Consists of 456,078 of our common shares and options
to purchase 21,023 of our common shares exercisable within 60 days of March 1, 2021.
14Consists of 46,609 of our common shares and options
to purchase 18,750 of our common shares exercisable within 60 days of March 1, 2021.
15Consists of 15,851 of our common shares and options
to purchase 18,750 of our common shares exercisable within 60 days of March 1, 2021.
16Consists of 9,922 of our common shares and options
to purchase 18,750 of our common shares exercisable within 60 days of March 1, 2021.
17Consists of 0 of our common shares and options to
purchase 24,811 of our common shares exercisable within 60 days of March 1, 2021.
18Dr. June holds neither common shares nor non-vested
equity instruments exercisable within 60 days of March 1, 2021.
Holders
As of March 1, 2021, we had approximately
229 shareholders of record of our common stock. The actual number of stockholders is greater than this number of record holders
and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This
number of holders of record also does not include stockholders whose shares may be held in trust or by other entities.
Significant changes in ownership by major shareholders
We have experienced significant changes
in the percentage ownership held by major shareholders as a result of our IPO. Prior to our IPO in September 2016, our principal
shareholders were dievini Hopp BioTech holding GmbH & Co KG and Varuma AG, which held shares representing 36.5% and 23.1% prior
to our IPO, respectively. As of March 1, 2021, dievini Hopp BioTech holding GmbH & Co KG and Varuma AG held 24.8% and 16.5%
of our common shares, respectively. BVF Inc. decreased its holdings from 15.8% to 10.9% of our outstanding common shares and EcoR1
Capital, LLC held 6.5% of our outstanding common shares in 2020. Finally, Lilly continued to hold shares representing 5% beneficial
ownership as of March 1, 2021.
In July 2018, we completed three offerings
of our common shares. In these offerings, we issued and sold 10,000,000 common shares, including 1,108,695 sold to the underwriters
pursuant to the underwriters’ over-allotment option. The percentage ownership held by certain shareholders decreased as a
result of the issuance of the common shares sold by us in these offerings.
In September 2016, we completed our IPO
and listed our common shares on the Nasdaq Global Market. In the IPO, we issued and sold 6,900,000 common shares, including 900,000
common shares sold to the underwriters pursuant to the underwriters’ over-allotment option. While none of our existing shareholders
sold common shares in the IPO, the percentage ownership held by certain shareholders decreased as a result of the issuance of the
common shares sold by us in the IPO.
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B.
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Related-party transactions
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In July 2018, as part of the Company’s
previously announced second subscription rights offering, a major shareholder and members of the board and executive management
purchased an aggregate of 614,147 of the Company’s common shares on the same basis and otherwise on the same terms as the
other participants in such rights offering.
The above transaction represents the only
related-party transactions we have entered into since January 1, 2018 with any of our executive officers, directors and holders
of more than 10% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons,
other than the compensation arrangements we describe under “Item 6. Directors, senior management and employees–B. Compensation.”
Registration rights agreement
We entered into a registration rights agreement
in connection with the Series E Private Placement with certain investors in the Series E Private Placement pursuant to which we
granted them certain demand and piggyback registration rights for the resale of the common shares held by them, as described below.
The registration rights described below will expire on the earlier to occur of (i) the fifth anniversary of the completion
of our IPO and (ii) the date on which there are no remaining registrable securities held by the parties to the registration
rights agreement. The registration rights agreement provides that we must pay certain registration expenses in connection with
any demand, piggyback or shelf registration. The registration rights agreement contains customary indemnification and contribution
provisions.
Demand registration rights
Pursuant to the terms of the registration
rights agreement, a shareholder or group of shareholders holding at least 10% of our outstanding common shares may request that
we effect a registration under the Securities Act of all or any portion of such requesting shareholders’ registrable securities.
As of March 1, 2021 dievini Hopp BioTech holding GmbH & Co KG and Varuma AG were our only shareholders party to the registration
rights agreement who held at least 10% of our outstanding commons shares, and together they beneficially held 30,040,999 of our
common shares, representing approximately 41.3% of the voting power of our common shares outstanding as of March 1, 2021. At least
10 business days prior to the anticipated filing date of the registration statement relating to such demand registration, we must
give all other shareholders party to the registration rights agreement notice of such requested registration. Within 5 business
days of such notice, any of
the
other shareholders party to the registration rights agreement may request that we also effect the registration of the registrable
securities held by them. We will not be required to effect a registration of all such registrable securities unless the aggregate
proceeds expected to be received from the sale of such registrable securities equals or exceeds USD 10 million or such lesser
amount that constitutes all of the requesting shareholders’ registrable securities (provided that such lesser amount
is at least USD 5 million). In no event will we be required to effect more than two demand registrations or underwritten
take downs referred to under “Shelf registration rights” below. Depending on certain conditions, we may postpone a
demand registration on two occasions during any period of 12 consecutive months for up to 90 days.
“Piggyback” registration rights
Pursuant to the terms of the registration
rights agreement, at any time after the trigger date, if we propose to register any of our securities, whether or not for sale
for our own account, we must give notice to the shareholders party to the registration rights agreement, and they will be entitled
to certain piggyback registration rights allowing them to add any of their remaining registrable securities in the registration,
subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the
Securities Act, the holders of these shares are entitled to notice of the registration and to request that we include their shares
in the registration.
Shelf registration rights
Pursuant to the terms of the registration
rights agreement, if we are eligible to use a shelf registration statement, then a shareholder or group of shareholders holding
at least 10% of our outstanding common shares may request that we effect a shelf registration on similar terms as the demand registrations
described above, except that offerings will be conducted as underwritten takedowns. As of March 1, 2021 dievini Hopp BioTech holding
GmbH & Co KG and Varuma AG were our only shareholders party to the registration rights agreement who held at least 10% of our
outstanding commons shares, representing approximately 41.3% of the voting power of our common shares outstanding. We will only
be required to effect one public offering from such shelf registration statement within any six-month period, each of which shall
be deemed to constitute a demand registration for purposes of the number of demand registrations we are required to effect as described
under “Demand registration rights” above.
In October 2020 and August 2018, respectively,
we filed registration statements on Form F-3 to register the resale of two of our shareholder’s common shares pursuant to
the requirements of the registration rights agreements.
Related-person transaction policy
Prior to our IPO, we entered into a new
related-person transaction policy under which any such transaction must be approved or ratified by the audit and finance committee.
The board of directors reviews the policy on a yearly basis and has, lastly, determined that it adequately covers the requirements
of Sarbanes-Oxley control mechanisms.
Indemnification of directors and executive management
In connection with our IPO, our articles
of association require us to indemnify our directors and executive management to the fullest extent permitted by law.
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C.
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Interests of experts and counsel
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Not applicable.
ITEM 8. FINANCIAL INFORMATION
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A.
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Consolidated statements and other financial information
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Financial statements
See “Item 18. Financial statements,”
which contains our financial statements prepared in accordance with IFRS.
Legal proceedings
From time to time we may become involved
in legal proceedings that arise in the ordinary course of business. During the period covered by the financial statements contained
herein, we have not been a party to or paid any damages in connection with litigation that has had a material adverse effect on
our financial position. No assurance can be given that future litigation will not have a material adverse effect on our financial
position. When appropriate in the management’s estimation, we may record reserves in our financial statements for pending
litigation and other claims.
Dividends and dividend policy
We have never declared or paid cash dividends
on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion
of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related
to dividend policy will be made at the discretion of our board of directors.
Under Swiss law, any dividend must be approved
by our shareholders. In addition, our auditors must confirm that the dividend proposal of our board of directors conforms to Swiss
statutory law and our articles of incorporation. A Swiss corporation may pay dividends only if it has sufficient distributable
profits brought forward from the previous business years (report des bénéfices) or if it has distributable
reserves (réserves à libre disposition), each as evidenced by its audited standalone statutory balance sheet
prepared pursuant to Swiss law and after allocations to reserves required by Swiss law and its articles of association have been
deducted. Distributable reserves are generally booked either as “free reserves” (réserves libres) or
as “reserve from capital contributions” (apports de capita”). Distributions out of nominal share capital,
which is the aggregate nominal value of a corporation’s issued shares, may be made only by way of a share capital reduction.
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”
and “Item 4. Information on the Company–B. Business overview.”
ITEM 9. THE OFFER AND LISTING
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A.
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Offering and listing details
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See “Item 9–C. Markets”
below.
Not applicable.
Our common shares trade on the Nasdaq Global
Market under the symbol “ACIU.”
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
Not applicable.
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B.
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Memorandum and articles of association
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Please see the Articles of Association of AC Immune SA (Exhibit 3.1 to this Form 20-F).
Except as otherwise disclosed in this Annual
Report on Form 20-F (including the Exhibits), we are not currently, and have not been in the past 2 years, party to any material
contract, other than contracts entered into in the ordinary course of business.
There are no Swiss governmental laws, decrees
or regulations that restrict, in a manner material to us, the export or import of capital, including any foreign exchange controls,
or that generally affect the remittance of dividends or other payments to non-residents or non-citizens of Switzerland who hold
our common shares.
The following summary contains a description
of the material Swiss and US federal income tax consequences of the acquisition, ownership and disposition of common shares, but
it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase
common shares. The summary is based upon the tax laws of Switzerland and regulations thereunder and on the tax laws of the US and
regulations thereunder as of the date hereof, which are subject to change.
Swiss tax considerations
This summary of material Swiss tax consequences
is based on Swiss law and regulations and the practice of the Swiss tax administration as in effect on the date hereof, all of
which are subject to change (or subject to changes in interpretation), possibly with retroactive effect. The summary does not purport
to consider the specific circumstances of any particular shareholder or potential investor and does not relate to persons in the
business of buying and selling common shares or other securities. The summary is not intended to be, and should not be interpreted
as, legal or tax advice to any particular potential shareholder, and no representation with respect to the tax consequences to
any particular shareholder is made.
Current and prospective shareholders are
advised to consult their own tax advisors in light of their particular circumstances as to the Swiss tax laws, regulations and
regulatory practices that could be relevant to them in connection with the acquiring, owning and selling or otherwise disposing
of common shares and receiving dividends and similar cash or in-kind distributions on common shares (including dividends on liquidation
proceeds and stock dividends) or distributions on common shares based upon a capital reduction (remboursements de la valeur
nominale) or reserves paid out of capital contributions (réserves sur les apports en capital) and the consequences
thereof under the tax laws, regulations and regulatory practices of Switzerland.
Taxation of AC Immune
AC Immune is subject to corporate Swiss
federal, cantonal and communal taxation in Switzerland, Canton of Vaud, Commune of Ecublens, near Lausanne, respectively.
We are entitled under Swiss laws to carry
forward any losses incurred for a period of 7 years and can offset our losses carried forward against future taxes. As of December
31, 2020, we had tax loss carry-forwards totaling CHF 121.9 million. There is no certainty that we will make sufficient profits
to be able to utilize these tax loss carry-forwards in full.
The effective corporate income tax rate
(federal, cantonal and communal) where we are domiciled is currently 13.63%.
As of January 1, 2020, the Company may
request a tax relief of 60%, which would be applied to income from patents and similar rights at communal and cantonal levels.
Additionally, a so-called “super-deduction” may be granted for payroll and other expenses of research and development
of Swiss origins.
However, the aforementioned tax relief
based on the patent box and deductions for research and development may not exceed 50% of the overall taxable profit before these
tax relief and deductions.
Notwithstanding the corporate income tax,
the corporate capital is taxed at a rate of 0.13% (cantonal and communal tax only, as there is no federal tax on capital). As of
January 1, 2020 the capital attributable to patents and similar rights is considered with 50% relief in the capital tax calculation.
Federal, cantonal and communal individual income
tax and corporate income tax
Non-resident shareholders
Shareholders who are not resident in Switzerland
for tax purposes, and who, during the relevant taxation year, have not engaged in a trade or business carried on through a permanent
establishment or fixed place of business situated in Switzerland for tax purposes (all such shareholders for purposes of this section
termed, “Non-resident shareholders”), will not be subject to any Swiss federal, cantonal and communal income tax on
dividends and similar cash or in-kind distributions on Shares (including liquidation proceeds and stock dividends) (for the purposes
of this section, “dividends”), distributions based upon a capital reduction (remboursements liés à
la réduction de la valeur nominale des actions) and distributions paid out of reserves from capital contributions (apports
de capital) on shares, or capital gains realized on the sale or other disposition of shares (see, however, “—Swiss
federal withholding tax” below for a summary of Swiss federal withholding tax on dividends.)
Resident private shareholders
Swiss-resident individuals who hold their
shares as private assets are required to include dividends, but not distributions based upon a capital reduction (remboursements
liés à la réduction de la valeur nominale des actions) and distributions paid out of reserves from capital
contributions (apports de capital), in their personal income tax return and are subject to Swiss federal, cantonal and communal
income tax on any net taxable income for the relevant taxation period, including the dividends, but not the distributions based
upon a capital reduction (remboursements liés à la réduction de la valeur nominale des actions) and
distributions paid out of reserves from capital contributions (apports de capital). Shareholders holding at least 10% of
the share capital of the Company may be able to deduct their taxable dividends at 30% at the federal level and up to 50% at the
cantonal level, depending on their respective cantonal rates, as partial relief from economic double taxation. Capital gains resulting
from the sale or other disposition of shares are, subject to a few exceptions, not subject to Swiss federal, cantonal and communal
income tax, and conversely, capital losses are not tax-deductible for resident private shareholders (the shareholders referred
to in this paragraph for the purposes of this section, “Resident private shareholders”). See “Domestic commercial
shareholders” below for a summary of the taxation treatment applicable to Swiss-resident individuals, who, for income
tax purposes, are classified as “professional securities dealers” or are otherwise deemed to hold Company shares in
their commercial wealth.
Domestic commercial shareholders
Corporate and individual shareholders who
are resident in Switzerland for tax purposes, and corporate and individual shareholders who are not resident in Switzerland, and
who, in each case, hold their shares as part of a trade or business carried on in Switzerland, in the case of corporate and individual
shareholders not resident in Switzerland, through a permanent establishment or fixed place of business situated, for tax purposes,
in Switzerland, are required to recognize dividends, distributions based upon a capital reduction (remboursements liés
à la réduction de la valeur nominale des actions) and distributions paid out of reserves from capital contributions
(apports de capital) received on shares and capital gains or losses realized on the sale or other disposition of shares
in their income statement for the relevant taxation period and are subject to Swiss federal, cantonal and communal individual or
corporate income tax, as the case may be, on any net taxable earnings for such taxation period. The same taxation treatment also
applies to Swiss-resident private individuals who, for income tax purposes, are classified as “professional securities dealers”
for reasons of, inter alia, frequent dealing, or leveraged investments, in shares and other securities (the shareholders
referred to in this paragraph for purposes of this section, “Domestic commercial shareholders”). Domestic commercial
shareholders who are
corporate taxpayers may be eligible for
tax relief (réduction pour participations) in respect of dividends and distributions based upon a capital reduction
(remboursements liés à la réduction de la valeur nominale des actions) and distributions paid out of
reserves from capital contributions (apports de capital), as well as capital gains on sales of shares, if the Shares held
by them as part of a Swiss business have an aggregate market value of at least CHF 1 million or represent 10% or more of the
outstanding share capital of the Company (in the case of capital gains, if the shares have been held for at least one year).
Swiss cantonal and communal private wealth
tax and capital tax
Non-resident shareholders
Non-resident shareholders are not subject
to Swiss cantonal and communal private wealth tax or capital tax.
Resident private shareholders and domestic commercial
shareholders
Resident private shareholders and domestic
commercial shareholders who are individuals are required to report their shares as part of their private wealth or their Swiss
business assets, as the case may be, and will be subject to Swiss cantonal and communal private wealth tax on any net taxable wealth
(including shares), in the case of domestic commercial shareholders to the extent the aggregate taxable wealth is allocable to
Switzerland. Domestic commercial shareholders who are corporate taxpayers are subject to Swiss cantonal and communal capital tax
on taxable capital to the extent the aggregate taxable capital is allocable to Switzerland.
Swiss federal withholding tax
Dividends that the Company pays on the
shares are subject to Swiss Federal withholding tax (impôt anticipé) at a rate of 35% on the gross amount of
the dividend. The Company is required to withhold the Swiss federal withholding tax from the dividend and remit it to the Swiss
Federal Tax Administration. Distributions based upon a capital reduction (remboursements liés à la réduction
de la valeur nominale des actions) and distributions paid out of reserves from contributions (apports de capital) are
not subject to Swiss federal withholding tax.
The Swiss federal withholding tax on a
dividend will be refundable in full to a resident private shareholder and to a domestic commercial shareholder, who, in each case,
inter alia, as a condition to a refund, duly reports the dividend in his individual income tax return as income or recognizes
the dividend in his income statement as earnings, as applicable.
A Non-resident shareholder may be entitled
to a partial or full refund, as the case may be, of the Swiss federal withholding tax on a dividend if the country of his or her
residence for tax purposes has entered into a bilateral treaty for the avoidance of double taxation with Switzerland and the conditions
of such treaty are met. Such shareholders should be aware that the procedures for claiming treaty benefits (and the time required
for obtaining a refund) might differ from country to country. For example, a shareholder who is a resident of the US for the purposes
of the bilateral tax treaty between the US and Switzerland is eligible for a partial refund of the amount of the withholding tax
in excess of the 15% treaty rate, provided such shareholder: (i) qualifies for benefits under this treaty and qualifies as
beneficial owner of the dividends; (ii) holds, directly or indirectly, less than 10% of the voting stock of the Company; (iii) does
not qualify as a pension scheme or retirement arrangement for the purpose of the bilateral treaty; and (iv) does not conduct
business through a permanent establishment or fixed base in Switzerland to which the shares are attributable. Such an eligible
US shareholder may apply for a refund of the amount of the withholding tax in excess of the 15% treaty rate. The applicable refund
request form may be filed with the Swiss Federal Tax Administration following receipt of the dividend and the relevant deduction
certificate, however no later than 31 December of the third year following the calendar year in which the dividend was payable.
Swiss federal stamp taxes
The Company will be subject to and pay
to the Swiss Federal Tax Administration a 1% Swiss federal issuance stamp duty (droit de timbre d’émissions)
on the consideration received for the issuance of the shares less certain costs incurred in connection with the issuance. The issuance
and delivery of the shares to the initial shareholders at the offering price is not subject to Swiss federal securities transfer
stamp duty (droit de timbre de négociation).
Any subsequent dealings in the shares,
for which a bank or another securities dealer in Switzerland, as defined in the Swiss Federal Stamp Tax Act, acts as an intermediary,
or is a party, to the transaction, are, subject
to
certain exemptions provided for in the Swiss Federal Stamp Tax Act, subject to Swiss securities transfer stamp duty tax at an
aggregate tax rate of up to 0.15% of the consideration paid for such shares.
Material US federal income tax considerations for US Holders
The following is a description of the material
US federal income tax consequences to US Holders, as defined below, of owning and disposing of our common shares. It does not describe
all tax considerations that may be relevant to a particular person’s decision to acquire common shares.
This discussion applies only to a US Holder
that holds common shares as capital assets for US federal income tax purposes. In addition, it does not describe all of the US
federal income tax consequences that may be relevant in light of a US Holder’s particular circumstances, including alternative
minimum tax consequences, the potential application of the provisions of the Code known as the Medicare contribution tax and tax
consequences applicable to US Holders subject to special rules, such as:
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·
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certain financial institutions;
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·
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dealers or traders in securities who use a mark-to-market method of tax accounting;
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·
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persons holding common shares as part of a hedging transaction, straddle, wash sale, conversion transaction or other integrated
transaction or persons entering into a constructive sale with respect to the common shares;
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·
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US Holders whose functional currency for US federal income tax purposes is not the US dollar;
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·
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entities classified as partnerships for US federal income tax purposes;
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·
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tax-exempt entities, including an “individual retirement account” or “Roth IRA;”
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·
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persons that own or are deemed to own 10% or more of our shares, by vote or value; and
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·
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persons holding common shares in connection with a trade or business conducted outside of the US.
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If an entity that is classified as a partnership
for US federal income tax purposes holds common shares, the US federal income tax treatment of a partner will generally depend
on the status of the partner and the activities of the partnership. Partnerships holding common shares and partners in such partnerships
should consult their tax advisors as to the particular US federal income tax consequences of owning and disposing of the common
shares.
This discussion is based on the Code,
administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty
between Switzerland and the US (the “Treaty”) all as of the date hereof, any of which is subject to change or differing
interpretations, possibly with retroactive effect.
A “US Holder” is a holder who,
for US federal income tax purposes, is a beneficial owner of common shares, who is eligible for the benefits of the Treaty and
who is any of the following:
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·
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a citizen or individual resident of the US;
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·
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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the US, any state therein
or the District of Columbia; and
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·
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an estate or trust the income of which is subject to US federal income taxation regardless of its source.
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US
Holders should be aware that the Company has determined that it was likely a PFIC for 2019, and may be a PFIC in 2020 or one or
more future years, which could result in adverse US federal income tax consequences for US Holders. See “—PFIC rules”
below. US Holders should consult their tax advisors concerning the US federal, state, local and non-US tax consequences of owning
and disposing of common shares in their particular circumstances, including the consequences to them under the PFIC rules discussed
below.
Taxation
of distributions
As discussed above under “Dividends
and dividend policy,” we do not currently expect to make distributions on our common shares. In the event that we do make
distributions of cash or other property, subject to the PFIC rules described below, distributions paid on common shares, other
than certain pro rata distributions of common shares, will generally be treated as dividends to the extent paid out of our current
or accumulated earnings and profits (as determined under US federal income tax principles). Because we do not maintain calculations
of our earnings and profits under US federal income tax principles, we expect that distributions generally will be reported to
US Holders as dividends. For so long as our common shares are listed on Nasdaq or we are eligible for benefits under the Treaty,
dividends paid to certain non-corporate US Holders will be eligible for taxation as “qualified dividend income” and
therefore, subject to applicable limitations, will be taxable at rates not in excess of the long-term capital gain rate applicable
to such US Holder.
US Holders should consult their tax advisors
regarding the availability of the reduced tax rate on dividends in their particular circumstances. The amount of a dividend will
include any amounts withheld by us in respect of Swiss income taxes. The amount of the dividend will be treated as foreign-source
dividend income to US Holders and will not be eligible for the dividends-received deduction generally available to US corporations
under the Code. Dividends will be included in a US Holder’s income on the date of the US Holder’s receipt of the dividend.
The amount of any dividend income paid in Swiss Francs will be the US dollar amount calculated by reference to the exchange rate
in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into US dollars
at that time. If the dividend is converted into US dollars on the date of receipt, a US Holder should not be required to recognize
foreign currency gain or loss in respect of the dividend income. A US Holder may have foreign currency gain or loss if the dividend
is converted into US dollars after the date of receipt.
Subject to applicable limitations, some
of which vary depending upon the US Holder’s particular circumstances, Swiss income taxes withheld from dividends on common
shares at a rate not exceeding the rate provided by the Treaty will be creditable against the US Holder’s US federal income
tax liability. The rules governing foreign tax credits are complex and US Holders should consult their tax advisors regarding the
creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, US Holders may, at
their election, deduct foreign taxes, including any Swiss income tax, in computing their taxable income, subject to generally applicable
limitations under US law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes
paid or accrued in the taxable year.
Sale or other disposition of common shares
Subject to the PFIC rules described below,
gain or loss realized on the sale or other disposition of common shares will be capital gain or loss, and will be long-term capital
gain or loss if the US Holder held the common shares for more than 1 year. The amount of the gain or loss will equal the difference
between the US Holder’s tax basis in the common shares disposed of and the amount realized on the disposition, in each case
as determined in US dollars. This gain or loss will generally be US-source gain or loss for foreign tax credit purposes. The deductibility
of capital losses is subject to various limitations.
Passive
foreign investment company (PFIC) rules
Under
the Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with
respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more
of the average quarterly value of our assets consists of assets that produce, or are held for the production of, “passive
income.” For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of,
and directly receive our proportionate share of the income of, any other corporation in which we directly or indirectly own at
least 25%, by value, of the shares of such corporation. Passive income generally includes interest, dividends, rents, certain non-active
royalties and capital gains. Although we have not obtained independent valuations of our assets during 2020 and thus are not in
a position to make a definitive determination as to whether we were a PFIC in 2020, based on our income and assets during 2020
and certain estimates and assumptions, including as to both the total value and the relative value of our assets as implied by
our market capitalization during 2019, we believe that it is likely that we were a PFIC in 2020. In addition, it is possible that
we may also be a PFIC in 2021 or one or more future years because, among other things, (i) we may not generate a substantial amount
of non-passive gross income, for US federal income tax purposes, in any year, (ii) we currently own, and expect to continue to
own, a substantial amount of passive assets, including cash, and (iii) the estimated valuation, for PFIC purposes, of our assets
that generate non-passive income for PFIC purposes, including our intangible assets, is likely to be dependent in
large
part on our market capitalization and is therefore uncertain and may vary substantially over time. Accordingly, there can be no
assurance that we will not be a PFIC in 2021 or any future taxable year.
If
we were a PFIC in 2020 or in any future year during which a US investor held or holds common shares, we generally would continue
to be treated as a PFIC with respect to that US Holder for all succeeding years during which the US Holder holds common shares,
even if we ceased to meet the threshold requirements for PFIC status.
If
we were a PFIC in 2020 or in any future year during which a US investor held or holds common shares (assuming such US Holder has
not made a timely mark-to-market election, as further described below), any gain recognized by a US Holder on a sale or other disposition
(including certain pledges) of the common shares would be allocated ratably over the US Holder’s holding period for the common
shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would
be taxed as ordinary income. The amount allocated to any other taxable year would be subject to tax at the highest rate in effect
for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the amount allocated
to that taxable year. Further, to the extent that any distribution received by a US Holder on its common shares exceeds 125% of
the average of the annual distributions on the common shares received during the preceding 3 years or the US Holder’s holding
period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately
above.
A US Holder can avoid certain of the adverse
rules described above by making a mark-to-market election with respect to its common shares, provided that the common shares are
“marketable.” Common shares will be marketable if they are “regularly traded” on a “qualified exchange”
or other market within the meaning of applicable Treasury regulations. If a US Holder makes the mark-to-market election, it generally
will recognize as ordinary income any excess of the fair market value of the common shares at the end of each taxable year over
their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the common
shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously
included as a result of the mark-to-market election). If a US Holder makes this election, the holder’s tax basis in the common
shares will be adjusted to reflect the income or loss amounts recognized. Any gain recognized on the sale or other disposition
of common shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss
(but only to the extent of the net amount of income previously included as a result of the mark-to-market election).
In addition, in order to avoid the application
of the foregoing rules, a US person who owns stock in a PFIC for US federal income tax purposes may make a “qualified electing
fund” (QEF) election with respect to such PFIC if the PFIC provides the information necessary for such election to be made.
If a US person makes a QEF election with respect to a PFIC, the US person will be currently taxable on their pro rata share of
the PFIC’s ordinary earnings and net capital gain (at ordinary income and capital gain rates, respectively) for each taxable
year that the entity is classified as a PFIC, and will not be required to include such amounts in income when actually distributed
by the PFIC. We do not intend to provide the information necessary for US Holders to make QEF elections.
In addition, if we were a PFIC or, with
respect to particular US Holder, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable
year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate US Holders would
not apply.
If a US Holder owns common shares during
any year in which we are a PFIC, the holder generally must file annual reports containing such information as the US Treasury may
require on Internal Revenue Service (IRS) Form 8621 (or any successor form) with respect to us, generally with the holder’s
federal income tax return for that year.
US Holders should consult their tax advisors
concerning our potential PFIC status and the potential application of the PFIC rules.
Information reporting and backup withholding
Payments of dividends and sales proceeds
that are made within the US or through certain US-related financial intermediaries generally are subject to information reporting,
and may be subject to backup withholding, unless (i) the US Holder is a corporation or other exempt recipient or (ii) in
the case of backup withholding, the US Holder provides a correct taxpayer identification number and certifies that they are not
subject to backup withholding.
The amount of any backup withholding from
a payment to a US Holder will be allowed as a credit against the holder’s US federal income tax liability and may entitle
the Holder to a refund, provided that the required information is furnished in a timely manner to the IRS.
Information with respect to foreign financial
assets
Certain US Holders who are individuals
(and, under proposed regulations, certain entities) may be required to report information relating to an interest in our common
shares, subject to certain exceptions (including an exception for common shares held in accounts maintained by certain US financial
institutions). US Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership
and disposition of the common shares.
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F.
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Dividends and paying agents
|
Not applicable.
Not applicable.
We are subject to the informational
requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual
reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the
Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports
and other information about issuers, such as us, that file electronically with the SEC. The address of that website is www.sec.gov.
Additionally, pursuant to Swiss law, any
shareholder of record has the right to receive a free copy of this Annual Report and to inspect this Annual Report at any time
at our registered office in Ecublens, near Lausanne, Canton of Vaud, Switzerland.
As a foreign private issuer, we are exempt
under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our
executive 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 will not be required under the Exchange Act to file periodic reports
and financial statements with the SEC as frequently or as promptly as US companies whose securities are registered under the Exchange
Act.
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I.
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Subsidiary information
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Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company’s activities
expose it to the following financial risks: market risk (currency and interest rate risk), credit risk and liquidity risk. The
Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential
adverse effects on the Company’s financial performance.
Market risk arises from our exposure to
fluctuation in currency exchange rates. We are exposed to market risks in the ordinary course of our business, which are principally
limited to foreign currency exchange rate fluctuations and to a lesser degree, interest rate fluctuations.
Market risk
Foreign exchange risk
The Company is exposed to foreign exchange
risk arising from currency exposures, primarily with respect to the EUR, USD and to a lesser extent to GBP, DKK and SEK. The currency
exposure is not hedged. However,
the
Company has the policy of matching its cash holdings to the currency structure of its expenses. As of December 31, 2020, the Company
holds almost 95% of its overall cash and cash equivalents balance in CHF with the remainder predominantly in EUR and USD (see
“Note 6. Cash and cash equivalents and financial assets” of the financial statements). The Company holds almost 96%
of its liquidity (cash and cash equivalents plus short-term financial assets) in CHF.
We have a number of collaboration agreements
for which the upfront payments, milestone payments and future royalty payments are not denominated in Swiss Francs, our reporting
currency. Furthermore, many of our research and development activities are subcontracted to parties outside of Switzerland and
we purchase materials from suppliers outside of Switzerland. As a result, we are exposed to foreign exchange risk. Approximately
39% of our total costs are incurred in currencies other than the Swiss Franc. Due to the size of some of the income received from
collaboration agreements and also the high percentage of our costs indirectly being in foreign currencies, a hypothetical 10% change
in exchange rates relative to the Swiss Franc could have a material impact on our financial statements.
Interest rate risk
We maintain financial instruments in accordance
with our treasury management policy. The primary objectives of our policy are to preserve principal, maintain proper liquidity
and meet operating needs. Our financial assets are subject to interest rate risk and will decrease in value if market interest
rates increase. Due to the current negative interest rates in Switzerland and our policy to maintain the majority of our cash and
cash equivalents in our functional currency. However, due to the conservative nature of our investments and relatively short duration,
interest rate risk is mitigated. We do not own derivative financial instruments. Accordingly, we do not believe that there is any
material market risk exposure with respect to derivative or other financial instruments.
Credit risk
The Company maintains a formal treasury
risk and investment management policy to limit counterparty credit risk. As of December 31, 2020, the Company’s cash and
cash equivalents and short-term financial assets are held with four financial institutions, each with a high credit rating assigned
by international credit-rating agencies. The maximum amount of credit risk is the carrying amount of the financial assets. Receivables
are fully performing, not past due and not impaired (see “Note 6. Cash and cash equivalents and financial assets” and
“Note 8. Other current receivables”).
Liquidity risk
Inherent in the Company’s business
are various risks and uncertainties, including its limited operating history and the high uncertainty that new therapeutic concepts
will succeed. AC Immune’s success may depend in part upon its ability to (i) establish and maintain a strong patent
position and protection, (ii) enter into collaborations with partners in the pharmaceutical and biopharmaceutical industries,
(iii) acquire and keep key personnel employed, and (iv) acquire additional capital to support its operations.
The Company’s approach of managing
liquidity is to ensure sufficient cash to meet its liabilities when due. Therefore, management closely monitors the cash position
on rolling forecasts based on expected cash flow to enable the Company to finance its operations for at least 18 months.
Based on the Company’s current liquidity
position, comprised of cash and cash equivalents and short-term financial assets, the Company is well financed through Q1 2024,
excluding any potential milestones
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
Not applicable.
Not applicable.
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D.
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American depositary shares
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Not applicable.
For the year ended December 31, 2020, the
acquisition of CHF 0.3 million of property, plant and equipment was non-cash. For the year ended December 31, 2019, the Company
settled its convertible loan via equity for CHF 48.3 million, gross of CHF 0.5 million for transaction costs.
Notes to the Financial Statements
(In CHF thousands except for share and per share data)
AC Immune SA (the
“Company,” “AC Immune,” “ACIU,” “we,” “our,” “ours,” or
“us”) is a clinical stage biopharmaceutical company leveraging our two proprietary technology platforms to discover,
design and develop novel, proprietary medicines and diagnostics for prevention and treatment of neurodegenerative diseases associated
with protein misfolding. Misfolded proteins are generally recognized as the leading cause of neurodegenerative diseases, such as
Alzheimer’s disease, or AD, and Parkinson’s disease, or PD, with common mechanisms and drug targets, such as Abeta,
Tau, alpha-synuclein and TDP-43. Our corporate strategy is founded upon a three-pillar approach that targets (i) AD, (ii) focused
non-Alzheimer’s neurodegenerative diseases including NeuroOrphan indications and (iii) diagnostics. We use our two unique
proprietary platform technologies, SupraAntigen (conformation-specific biologics) and Morphomer (conformation-specific small molecules),
to discover, design and develop novel medicines and diagnostics to target misfolded proteins.
The Company was initially incorporated
as a limited liability company on February 13, 2003 in Basel, and effective August 25, 2003 was transitioned into a stock
company. The Company’s corporate headquarters are located at EPFL Innovation Park Building B, 1015 Lausanne, Switzerland.
Going concern
The financial statements have been prepared
on the basis that the Company will continue as a going concern after considering the Company’s cash position of CHF 160.9
million and short-term financial assets of CHF 65 million as of December 31, 2020. This total derives from multiple capital raising
efforts and revenues from license and collaboration agreements (LCAs). In 2020, the Company received CHF 10 million for a development
milestone from its licensing agreement with Lilly. In 2019, the Company received CHF 80 million for an upfront payment, CHF
30 million for a development milestone and USD 50 (CHF 50.3) million from a convertible loan with Lilly. In 2018, the Company completed
three offerings, raising USD 117.5 (CHF 116.3) million in gross proceeds before underwriting discounts and expenses.
To date, the Company
has financed its cash requirements primarily from its public offerings, share issuances, contract revenues from license and collaboration
agreements and grants. The Company is a clinical stage company and is exposed to all the risks inherent to establishing a business.
Inherent to the Company’s business are various risks and uncertainties, including the substantial uncertainty as to whether
current projects will succeed. The Company’s success may depend in part upon its ability to (i) establish and maintain a
strong patent position and protection, (ii) enter into collaborations with partners in the pharmaceutical and biopharmaceutical
industries, (iii) successfully move its product candidates through clinical development, (iv) attract and retain key personnel
and (v) acquire capital to support its operations.
In addition to
the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its long-term
development timeline, its liquidity or ability to remain a going concern due to the worldwide spread of the Covid-19 virus. The
Company continues to assess the effect on its operations by carefully monitoring the spread of Covid-19 and taking appropriate
steps intended to offset any negative impacts from the Covid-19 virus.
Statement of compliance
The financial statements have been prepared
in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB). These financial statements have been approved for issue by the Board of Directors on March 19, 2021.
Basis of measurement
The financial statements have been prepared
under the historical cost convention except for items that are required to be accounted for at fair value.
Functional currency
The financial statements of the Company
are presented in Swiss Francs (CHF), which is also the functional currency of the Company. All financial information presented
in Swiss Francs (except for share capital and earnings per share data) has been rounded to the nearest thousand CHF (CHF thousands),
unless otherwise indicated.
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3.
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Summary of significant accounting policies
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The principal accounting policies adopted
in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
Current vs. non-current classification
The Company presents assets and liabilities
in the balance sheet based on current/non-current classification. The Company classifies all amounts to be realized or settled
within 12 months after the reporting period to be current and all other amounts to be non-current.
Foreign currency transactions
Foreign currency transactions are translated
into the functional currency, CHF, using prevailing exchange rates at the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies are translated into CHF at rates of exchange prevailing at reporting date. Any gains or losses
from these translations are included in the statements of income/(loss) in the period in which they arise.
Revenue recognition
The Company has adopted IFRS 15 (Revenue
from Contracts with Customers). This standard applies to all contracts with customers, except for contracts that are within
the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under IFRS 15, an
entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration
that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that
an entity determines are within the scope of IFRS 15, the entity performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate
the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies
a performance obligation. The Company applies the five-step model to contracts only when it is probable that the entity will collect
the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception,
once the contract is determined to be within the scope of IFRS 15, the Company assesses the goods or services promised within each
contract, and determines those that are performance obligations, and assesses whether each promised good or service is distinct.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation
when (or as) the performance obligation is satisfied.
The Company enters into LCAs which are
within the scope of IFRS 15, under which it licenses certain rights to its product candidates and IP to third parties. The terms
of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license
fees, development, regulatory and/or commercial milestone payments; payments for research and clinical services the Company
provides through either its full-time employees or third-party vendors, and royalties on net sales of licensed products commercialized
from the Company’s IP. Each of these payments results in license, collaboration and other revenues, which are classified
as contract revenue on the statements of income/(loss).
Licenses of intellectual property
If the license to the Company’s intellectual
property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes
revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer
is able to use and benefit from the license. For licenses that are sold in conjunction with a related service, the Company uses
judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is
satisfied over time or at a point in time. If the performance obligation is settled over time, the Company determines the appropriate
method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. The Company evaluates the measure
of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone payments
At the inception of each arrangement that
includes development, regulatory and/or commercial milestone payments, the Company evaluates whether the milestones are considered
highly probable of being reached and estimates the amount to be included in the transaction price using the most likely amount
method. If it is highly probable that a significant revenue reversal would not occur in future periods, the associated milestone
value is included in the transaction price. These amounts for the performance obligations under the contract are recognized as
they are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of
such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments
recorded would affect contract revenues and earnings in the period of adjustment.
Research and development services
The Company has certain arrangements with
our collaboration partners that include contracting our employees for research and development programs. The Company assesses if
these services are considered distinct in the context of each contract and, if so, they are accounted for as separate performance
obligations. These revenues are recorded in contract revenue as the services are performed.
Sublicense revenues
The Company has certain arrangements with
our collaboration partners that include provisions for sublicensing. The Company recognizes any sublicense revenues at the point
in time it is highly probable to obtain and not subject to reversal in the future.
Contract balances
The Company receives
payments and determines credit terms from its customers for its various performance obligations based on billing schedules established
in each contract. The timing of revenue recognition, billings and cash collections results in billed other current receivables,
accrued income (contract assets), and deferred income (contract liabilities) on the balance sheets. Amounts are recorded as other
current receivables when the Company’s right to consideration is unconditional. The Company does not assess whether a contract
has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees
and the transfer of the promised goods or services to the licensees will be 1 year or less.
For a complete discussion
of accounting for contract revenue, see “Note 12. Contract revenues.”
Research and development expenses
Given the stage of development of the Company’s
products, all research expenditure is expensed as incurred. Research and development expenditures include:
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·
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the cost of acquiring, developing and manufacturing active pharmaceutical ingredients for product candidates that have not
received regulatory approval, clinical trial materials and other research and development materials;
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|
·
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fees and expenses incurred under agreements with contract research organizations, investigative sites and other entities in
connection with the conduct of clinical trials and preclinical studies and related services, such as administrative, data-management
and laboratory services;
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|
·
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fees and costs related to regulatory filings and activities;
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|
·
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costs associated with preclinical and clinical activities; and
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|
·
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employee-related expenses, including salaries and bonuses, benefits, travel and share-based compensation expenses.
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For external research contracts, expenses
include those associated with contract research organizations, or CROs, or contract manufacturing organizations, or CMOs. The invoicing
from CROs or CMOs for services rendered do not always align with work performed. We accrue the cost of services rendered in connection
with CRO or CMO activities based on our estimate of the “stage of completion” for such contracted services. We maintain
regular communication with our CRO or CMO vendors to gauge the reasonableness of our estimates and accrue expenses as of the balance
sheet date in the financial statements based on facts and circumstances known at the time.
Registration costs for patents are part
of the expenditure for research and development projects. Therefore, registration costs for patents are expensed when incurred
as long as the research and development project concerned does not meet the criteria for capitalization.
Grant income
The Company has
received grants, from time to time, from the Michael J. Fox Foundation (MJFF) and other institutions to support certain research
projects. Grants are recorded at their fair value in the statements of income/(loss) within other operating income/(expenses) when
there is reasonable assurance that the Company will satisfy the underlying grant conditions and the grants will be received. In
certain circumstances, grant income may be recognized before formal grantor acknowledgement of milestone achievements. To the extent
required, grant income is deferred and recognized on a systematic basis over the periods in which the Company expects to recognize
the related expenses for which the grants are intended to compensate.
Leases
Effective January 1, 2019, the Company
adopted IFRS 16 (Leases), which provides a new model for lessee accounting in which all leases, other than short-term and
low-value leases, are accounted for by the recognition on the balance sheet of a right-of-use asset and a lease liability, and
the subsequent amortization of the right-of-use asset over the earlier of the end of the useful life or the lease term. The Company
applied the modified retrospective approach, which required the recognition of the cumulative effect of initially applying IFRS
16 as of January 1, 2019 to accumulated losses and not restating previous years. As the Company recognized the right-of-use assets
at the amount equal to the lease liabilities there was no impact to accumulated losses. For a complete discussion of accounting,
see “Note 5. Right-of-use assets and lease liabilities.”
Right-of-use assets and lease liabilities
At inception of a leasing contract, the
Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use
of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease
liability at the lease commencement date. The lease liability is initially measured at the present value of the lease payments
that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Company’s incremental borrowing rate. The lease liabilities are classified as current or non-current
based on the due dates of the underlying principal payments.
Lease payments generally are fixed for
the contract term. The lease liability is measured at amortized cost using the effective interest method. The lease liability is
re-measured if there is a change in the estimated lease term, a change in future lease payments arising from a change in an index
or rate, a change in the Company’s estimate of
the
amount expected to be payable under a residual value guarantee or a change in assessment of whether it will exercise a purchase,
extension or termination option.
At inception, the right-of-use asset comprises
the initial lease liability and any initial direct costs. The right-of-use asset is depreciated over the shorter of the lease term
or the useful life of the underlying asset. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted
for certain re-measurements of the lease liability. When the lease liability is re-measured, a corresponding adjustment is made
to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset
has been reduced to zero.
The estimated lease term by right-of-use
asset categories are as follows:
Buildings
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5 years
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Office equipment
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5 years
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IT equipment
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5 years
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Both the right-of-use-assets and lease
liabilities are recognized in the balance sheets.
Property, plant and equipment
Equipment is shown at historical acquisition
cost, less accumulated depreciation and any accumulated impairment losses. Historical costs include expenditures that are directly
attributable to the acquisition of the property, plant and equipment. Depreciation is calculated using a straight-line method to
write off the cost of each asset to its residual value over its estimated useful life as follows:
IT equipment
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3 years
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Laboratory equipment
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5 years
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Leasehold improvements/furniture
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5 years
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The assets’ residual values and useful
lives are reviewed, and adjusted if appropriate, at each balance sheet date. Where an asset’s carrying amount is greater
than its estimated recoverable amount, it is written down to its recoverable amount.
Gains and losses on disposals are determined
by comparing the disposal proceeds with the carrying amount and are included in the statements of income/(loss).
Fair value of financial assets and liabilities
The Company’s financial assets and
liabilities are comprised of receivables, short-term financial assets, cash and cash equivalents, trade payables and financing
obligations. The fair value of these financial instruments approximates their respective carrying values due to the short-term
maturity of these instruments and are held at their amortized cost in accordance with IFRS 9 (Financial Instruments).
Receivables
Receivables are recognized at their billing
value. An allowance for doubtful accounts is recorded for potential estimated losses when there is evidence of the debtor’s
inability to make required payments and the Company assesses on a forward-looking basis the expected credit losses associated with
these receivables held at amortized cost.
Short-term financial assets
Short-term financial assets are held with
external financial institutions and comprise fixed-term deposits with maturities ranging from more than 3 through 12 months in
duration.
Cash and cash equivalents
Cash and cash equivalents include deposits
held with external financial institutions and cash on hand. All cash and cash equivalents are either in cash or in deposits with
original duration of less than 3 months.
The Company assesses at each period whether
there is objective evidence that financial assets are impaired.
Trade payables
Trade payables are amounts due to third
parties in the ordinary course of business.
Financing obligation
The Company’s financing obligation
related to its agreement with a third party. This financing obligation has been fully repaid as of December 31, 2020.
Share capital and public offerings
Common shares are
classified as equity. Share issuance costs are capitalized as incurred and will be shown in equity as a deduction, net of tax,
from the proceeds received from existing or future offerings. Should a planned equity offering
not be assessed as probable, the issuance costs would be expensed immediately. See “Note 9. Share capital.”
Employee benefits
Post-employment benefits
The Company operates the mandatory pension
schemes for its employees in Switzerland. The schemes are generally funded through payments to insurance companies. The Company
has a pension plan designed to pay pensions based on accumulated contributions on individual savings accounts. However, this plan
is classified as a defined benefit plan under IAS 19.
The net defined benefit liability is the
present value of the defined benefit obligation at the balance sheet date minus the fair value of plan assets. Significant estimates
are used in determining the assumptions incorporated in the calculation of the pension obligations, which is supported by input
from independent actuaries. The defined benefit obligation is calculated annually with the assistance of an independent actuary
using the projected unit credit method, which reflects services rendered by employees to the date of valuation, incorporates assumptions
concerning employees’ projected salaries and pension increases as well as discount rates of highly liquid corporate bonds
that have terms to maturity approximating the terms of the related liability.
Re-measurements of the net defined benefit
liability, which comprise actuarial gains and losses and the return on plan assets (excluding interest) are recognized immediately
in the statements of other comprehensive income/(loss). Past service costs, including curtailment gains or losses, are recognized
immediately as a split in research and development and general and administrative expenses within the operating results. Settlement
gains or losses are recognized in either research and development and/or general and administrative expenses within the operating
results. The Company determines the net interest expense/(income) on the net defined benefit liability for the period by applying
the discount rate used to measure the defined benefit obligation at the beginning of the annual period or in case of any significant
events between measurement dates to the then-net defined benefit liability, considering any changes in the net defined benefit
liability during the period as a result of contributions and benefit payments. Net interest expense/(income) and other expenses
related to defined benefit plans are recognized in the statements of income/(loss).
Share-based compensation
The Company operates an equity-settled,
share-based compensation plan. The fair value of the employee services received in exchange for the grant of equity-based awards
is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value
of the instruments granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included
in assumptions about the number of instruments that are expected to become exercisable. At each balance sheet date, the Company
revises its estimates of the number of instruments that are expected to become exercisable. It
recognizes
the impact of the revision of original estimates, if any, prospectively in the statements of income/(loss), and a corresponding
adjustment to equity over the remaining vesting period.
Stock options granted under the Company’s
stock option plans A, B, C and the 2016 Stock Option and Incentive Plan are valued using the Black-Scholes option-pricing model
(see “Note 17. Share-based compensation”). This valuation model as well as parameters used such as expected volatility
and expected term of the stock options are partially based on management’s estimates.
The proceeds received net of any directly
attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.
We estimate the fair value of non-vested
stock awards (restricted shares and restricted share units) using a reasonable estimate of market value of the common stock on
the date of the award. We classify our share-based payments as equity-classified awards as they are settled in shares of our common
stock. We measure equity-classified awards at their grant date fair value and do not subsequently re-measure them. Compensation
costs related to equity-classified awards are equal to the fair value of the award at grant date amortized over the vesting period
of the award using the graded method. We reclassify that portion of vested awards to share capital and share premium as the awards
vest.
Provisions
Provisions are recognized when the Company
has a present legal or constructive obligation as a result of past events where it is more likely than not that an outflow of resources
will be required to settle the obligation, and a reliable estimate of the amount can be made.
Taxation
Current income tax assets and liabilities
for the period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the tax amounts are those that are enacted or substantively enacted, at the reporting date in accordance
with the fiscal regulations of the respective country where the Company operates and generates taxable income. Deferred tax is
provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the reporting date.
Deferred tax assets and liabilities are
measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based
on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. If required, deferred taxation
is provided in full using the liability method, on all temporary differences at the reporting dates. It is calculated at the tax
rates that are expected to apply to the period when it is anticipated the liabilities will be settled, and it is based on tax rates
(and laws) that have been enacted or substantively enacted at the reporting date.
Deferred income tax assets are recognized
to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized. Although the Company has substantial tax loss carry-forwards, historically, due to the fact that
the Company had limited certainty on the achievement of key milestones, it has not recognized any deferred tax assets as the probability
for use is low.
Income taxes
As disclosed in “Note 15. Income
taxes,” the Company has tax losses that can generally be carried forward for a period of 7 years from the period the loss
was incurred. These tax losses represent potential value to the Company to the extent that the Company is able to create taxable
profits before the expiry period of these tax losses. The Company has not recorded any deferred tax assets in relation to these
tax losses.
Earnings per share
The Company presents basic earnings per
share for each period in the financial statements. The earnings per share are calculated by dividing the earnings of the period
by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential dilution
that could occur if dilutive securities such as share options or non-vested restricted share units were vested or exercised into
common shares or resulted in the issuance of common shares that would participate in net income. Anti-dilutive shares are excluded
from basic and dilutive earnings per share calculation.
Critical judgments and accounting estimates
The preparation of financial statements
in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income and expenses.
The areas where AC Immune has had to make
judgments, estimates and assumptions relate to (i) revenue recognition on LCAs, (ii) clinical development accruals, (iii) net
employee defined benefit liability, (iv) income taxes, (v) share-based compensation and (vi) right-of-use assets and
lease liabilities. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods
affected.
Segment reporting
The Company has one segment. The Company
currently focuses all of its resources on discovering and developing therapeutic and diagnostic products targeting misfolded proteins.
The Company is managed and operated as
one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business.
Accordingly, the Company views its business and manages its operations as one operating segment. Non-current assets are located
in and revenue is attributable to the Company’s country of domicile, Switzerland.
Accounting policies, new standards, interpretations and
amendments adopted by the Company
The Company has
not adopted any other standard, interpretation or amendment that has been issued but is not yet effective. Such standards are not
currently expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future
transactions.
4. Property, plant
and equipment
The following tables show the movements
in the net book values of property, plant and equipment for the years ended December 31, 2020 and 2019, respectively:
In CHF thousands
|
|
Furniture
|
|
IT equipment
|
|
Laboratory equipment
|
|
Leasehold improvements
|
|
Total
|
Acquisition cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
158
|
|
|
|
1,187
|
|
|
|
6,698
|
|
|
|
402
|
|
|
|
8,445
|
|
Acquisitions
|
|
|
96
|
|
|
|
310
|
|
|
|
1,566
|
|
|
|
62
|
|
|
|
2,034
|
|
Disposals
|
|
|
(40
|
)
|
|
|
—
|
|
|
|
(306
|
)
|
|
|
—
|
|
|
|
(346
|
)
|
Balance at December 31, 2020
|
|
|
214
|
|
|
|
1,497
|
|
|
|
7,958
|
|
|
|
464
|
|
|
|
10,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
(68
|
)
|
|
|
(627
|
)
|
|
|
(3,619
|
)
|
|
|
(214
|
)
|
|
|
(4,528
|
)
|
Depreciation expenses
|
|
|
(33
|
)
|
|
|
(343
|
)
|
|
|
(1,092
|
)
|
|
|
(67
|
)
|
|
|
(1,535
|
)
|
Disposals
|
|
|
40
|
|
|
|
—
|
|
|
|
306
|
|
|
|
—
|
|
|
|
346
|
|
Balance at December 31, 2020
|
|
|
(61
|
)
|
|
|
(970
|
)
|
|
|
(4,405
|
)
|
|
|
(281
|
)
|
|
|
(5,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
90
|
|
|
|
560
|
|
|
|
3,079
|
|
|
|
188
|
|
|
|
3,917
|
|
December 31, 2020
|
|
|
153
|
|
|
|
527
|
|
|
|
3,553
|
|
|
|
183
|
|
|
|
4,416
|
|
In CHF thousands
|
|
Furniture
|
|
IT equipment
|
|
Laboratory equipment
|
|
Leasehold improvements
|
|
Total
|
Acquisition cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
126
|
|
|
|
1,025
|
|
|
|
5,367
|
|
|
|
350
|
|
|
|
6,868
|
|
Acquisitions
|
|
|
65
|
|
|
|
291
|
|
|
|
1,470
|
|
|
|
59
|
|
|
|
1,885
|
|
Disposals
|
|
|
(33
|
)
|
|
|
(129
|
)
|
|
|
(139
|
)
|
|
|
(7
|
)
|
|
|
(308
|
)
|
Balance at December 31, 2019
|
|
|
158
|
|
|
|
1,187
|
|
|
|
6,698
|
|
|
|
402
|
|
|
|
8,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
(77
|
)
|
|
|
(455
|
)
|
|
|
(2,857
|
)
|
|
|
(155
|
)
|
|
|
(3,544
|
)
|
Depreciation expenses
|
|
|
(24
|
)
|
|
|
(285
|
)
|
|
|
(899
|
)
|
|
|
(66
|
)
|
|
|
(1,274
|
)
|
Disposals
|
|
|
33
|
|
|
|
113
|
|
|
|
137
|
|
|
|
7
|
|
|
|
290
|
|
Balance at December 31, 2019
|
|
|
(68
|
)
|
|
|
(627
|
)
|
|
|
(3,619
|
)
|
|
|
(214
|
)
|
|
|
(4,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
49
|
|
|
|
570
|
|
|
|
2,510
|
|
|
|
195
|
|
|
|
3,324
|
|
December 31, 2019
|
|
|
90
|
|
|
|
560
|
|
|
|
3,079
|
|
|
|
188
|
|
|
|
3,917
|
|
For the years ended December 31, 2020,
2019 and 2018, the Company incurred CHF 1.5 million, 1.3 million and CHF 1.0 million in depreciation expenses, respectively.
|
5.
|
Right-of-use assets and lease liabilities
|
The Company recognized
additions of right-of-use of leased assets for buildings or for office equipment totaling CHF 0.4 and CHF 0.5 million for the years
ended December 31, 2020 and 2019, respectively.
Regarding lease liabilities, the amortization
depends on the rate implicit in the contract or the incremental borrowing rate for the respective lease component. The weighted
averages of the incremental borrowing rates as of December 31, 2020 are 2.5% for buildings, 4.2% for office equipment and 2.6%
for IT equipment.
The following tables show the movements
in the net book values of right-of-use of leased assets for the years ended December 31, 2020 and 2019, respectively:
In CHF thousands
|
|
Buildings
|
|
Office equipment
|
|
IT equipment
|
|
Total
|
Balance as of December 31, 2019
|
|
|
2,106
|
|
|
|
81
|
|
|
|
68
|
|
|
|
2,255
|
|
Additions
|
|
|
400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
400
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Depreciation
|
|
|
(400
|
)
|
|
|
(18
|
)
|
|
|
(14
|
)
|
|
|
(432
|
)
|
Balance as of December 31, 2020
|
|
|
2,106
|
|
|
|
63
|
|
|
|
54
|
|
|
|
2,223
|
|
In CHF thousands
|
|
Buildings
|
|
Office equipment
|
|
IT equipment
|
|
Total
|
Balance as of January 1, 2019
|
|
|
2,106
|
|
|
|
79
|
|
|
|
—
|
|
|
|
2,185
|
|
Additions
|
|
|
400
|
|
|
|
29
|
|
|
|
71
|
|
|
|
500
|
|
Disposals
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
(10
|
)
|
Depreciation
|
|
|
(400
|
)
|
|
|
(17
|
)
|
|
|
(3
|
)
|
|
|
(420
|
)
|
Balance as of December 31, 2019
|
|
|
2,106
|
|
|
|
81
|
|
|
|
68
|
|
|
|
2,255
|
|
There are no variable lease payments which
are not included in the measurement of lease obligations. All extension options have been included in the measurement of lease
obligations.
For the years
ended December 31, 2020, and 2019, the impact on the Company’s statements of income/(loss) and statements of cash flows is
detailed in the table below.
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Statements of income/(loss)
|
|
|
|
|
Depreciation of right-of-use assets
|
|
|
432
|
|
|
|
420
|
|
Interest expense on lease liabilities
|
|
|
53
|
|
|
|
52
|
|
Expense for short-term leases and leases of low value
|
|
|
603
|
|
|
|
565
|
|
Total
|
|
|
1,088
|
|
|
|
1,037
|
|
Statements of cash flows
|
|
|
|
|
|
|
|
|
Total cash outflow for leases
|
|
|
1,088
|
|
|
|
1,037
|
|
The following table presents the contractual
undiscounted cash flows for lease liabilities as of December 31, 2020 and 2019:
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Within 1 year
|
|
|
485
|
|
|
|
485
|
|
Between 1 and 3 years
|
|
|
970
|
|
|
|
970
|
|
Between 3 and 5 years
|
|
|
912
|
|
|
|
948
|
|
Total
|
|
|
2,367
|
|
|
|
2,403
|
|
|
6.
|
Cash and cash equivalents and financial assets
|
The Company’s cash and cash equivalents
are maintained in the following respective currencies as of December 31, 2020 and 2019:
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Cash and cash equivalents
|
|
|
160,893
|
|
|
|
193,587
|
|
Total
|
|
|
160,893
|
|
|
|
193,587
|
|
By currency
|
|
|
|
|
|
|
|
|
CHF
|
|
|
152,537
|
|
|
|
158,173
|
|
EUR
|
|
|
4,215
|
|
|
|
10,169
|
|
USD
|
|
|
4,141
|
|
|
|
25,245
|
|
Total cash and cash equivalents
|
|
|
160,893
|
|
|
|
193,587
|
|
At the balance sheet dates, Company funds
were held in CHF, EUR and USD currencies. As of December 31, 2020 and 2019, funds in EUR and USD were translated into CHF at a
rate of 1.095 and 0.891 and 1.096 and 0.978, respectively, for each currency and year.
The following table summarizes the Company’s
short-term financial assets as of December 31, 2020 and 2019:
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Short-term financial assets due in 1 year or less
|
|
|
65,000
|
|
|
|
95,000
|
|
Total
|
|
|
65,000
|
|
|
|
95,000
|
|
The Company also has two deposits in escrow
accounts totaling CHF 0.3 million and CHF 0.3 million for the lease of the Company’s premises as of December 31, 2020 and
2019, respectively.
|
7.
|
Prepaid expenses and accrued income
|
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Prepaid expenses
|
|
|
3,954
|
|
|
|
2,788
|
|
Accrued income
|
|
|
1,591
|
|
|
|
1,095
|
|
Total
|
|
|
5,545
|
|
|
|
3,883
|
|
The prepaid expenses relate mainly to research
contracts with down-payments at contract signature and the related activities will start or continue into 2021.
Accrued income consists of CHF 1.1 million
as of December 31, 2020 associated with our Janssen collaboration (see “Note 12. Contract revenues”). This amount represents
68.1% of our total accrued income as of December 31, 2020.
|
8.
|
Other current receivables
|
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Swiss VAT
|
|
|
309
|
|
|
|
234
|
|
Withholding tax
|
|
|
20
|
|
|
|
70
|
|
Total
|
|
|
329
|
|
|
|
304
|
|
The maturity of these assets is less than
3 months. The Company considers the counterparty risk as low and the carrying amount of these receivables is considered to approximate
their fair value.
As of December 31, 2020 and 2019,
the issued share capital amounted to CHF 1,538,896 and CHF 1,437,351, respectively, and is composed of common shares of 71,936,738
and 71,859,431, respectively, and treasury shares of 5,000,000 and nil, respectively.
The table below summarizes the Company’s
capital structure:
|
|
|
|
|
|
In CHF thousands
|
|
|
Common shares
|
|
Treasury shares
|
|
Share capital
|
|
Share premium
|
|
Treasury shares
|
December 31, 2018
|
|
|
67,562,333
|
|
|
|
—
|
|
|
|
1,351
|
|
|
|
298,149
|
|
|
|
—
|
|
Issuance of shares – incentive plans
|
|
|
681,770
|
|
|
|
—
|
|
|
|
13
|
|
|
|
672
|
|
|
|
—
|
|
Conversion of note agreement, net of transaction costs
|
|
|
3,615,328
|
|
|
|
—
|
|
|
|
73
|
|
|
|
47,705
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
December 31, 2019
|
|
|
71,859,431
|
|
|
|
—
|
|
|
|
1,437
|
|
|
|
346,526
|
|
|
|
—
|
|
Issuance of shares – incentive plans, net of RSU expiration and forfeiture
|
|
|
77,307
|
|
|
|
—
|
|
|
|
1
|
|
|
|
364
|
|
|
|
—
|
|
Issuance of shares to be held as treasury shares, net of transaction costs
|
|
|
5,000,000
|
|
|
|
(5,000,000
|
)
|
|
|
100
|
|
|
|
—
|
|
|
|
(100
|
)
|
December 31, 2020
|
|
|
76,936,738
|
|
|
|
(5,000,000
|
)
|
|
|
1,538
|
|
|
|
346,890
|
|
|
|
(100
|
)
|
The common shares and treasury shares have
nominal values of CHF 0.02 per share. All shares have been fully paid. These treasury shares are held by the Company and are not
considered outstanding shares as of December 31, 2020. Finally, as of December 31, 2020 the Company has an additional 9,500,000
authorized shares for issuance which have not been issued nor are outstanding. Additionally, 19,632 RSUs either expired or were
forfeited in 2020.
At the market equity offering
In September 2020, the Company established
an “at the market offering program” for the sale of up to USD 80 (CHF 71.3) million worth of our common shares issued
from time to time by entering into an Open Market Sale Agreement (Sales Agreement) with Jefferies LLC (Jefferies) as the sales
agent. Issuance costs incurred in connection with establishing this facility and execution of the Sales Agreement with Jefferies
primarily consist of legal, printing and accounting fees.
No common shares have been sold pursuant
to the Sales Agreement as of December 31, 2020. For the years ended December 31, 2020, 2019 and 2018, the Company has expensed
issuance costs of CHF 0.5 million, nil and nil, respectively, in the statement of income/(loss).
Convertible note agreement
The Company and Lilly entered into a convertible
note agreement effective January 23, 2019 for USD 50 (CHF 50.3) million. In April 2019, the convertible note agreement with Lilly
automatically converted in line with the terms of the agreement. As a result of this conversion, 3,615,328 of our common shares
were issued to Lilly. This note is now fully settled and there is no further equity or cash consideration due to Lilly thereunder.
Follow-on offerings
On July 24, 2018, the Company announced
that it had closed the first subscription rights offering and underwritten the primary offering of its common shares, and that
the underwriters had exercised in full their option to purchase an additional 1,108,695 shares at a price per share of USD 11.75.
The underwriters’ exercise of the option to purchase additional shares brought the total number of common shares sold by
the Company to 8,500,000 shares, resulting in total gross proceeds raised in these offerings, before underwriting discounts and
estimated expenses of the offering, to approximately USD 99.9 (CHF 98.9) million. On July 20, 2018, the Company commenced a second
subscription rights offering of up to 1,500,000 shares. At closing of the second subscription rights offering on July 31, 2018,
the Company issued 1,500,000 additional common shares, resulting in gross proceeds of approximately USD 17.6 (CHF 17.4) million.
At the conclusion of these three offerings,
the Company raised gross proceeds of USD 117.5 (CHF 116.3) million. Net underwriting fees and transaction costs totaled CHF 6.8
million for a net total of CHF 109.5 million. Transaction costs associated with these offerings and related to the issuance of
new shares were charged directly against the share premium account thereby reducing the total equity reported.
Shelf registration statement
On May 4, 2018, the Company filed a Shelf
Registration Statement on Form F-3 (Reg. No. 333-2246694) (the “Shelf Registration Statement”) with the SEC. The Shelf
Registration Statement was declared effective by the SEC on June 8, 2018.
The Shelf Registration Statement allows
the Company to offer and sell, from time to time, up to USD 350,000,000 of common stock, debt securities, warrants, purchase contracts,
units, subscription rights or any combination of the foregoing in one or more future public offerings. The terms of any future
offering would be determined at the time of the offering and would be subject to market conditions and approval by the Company’s
Board of Directors. Any offering of securities covered by the Shelf Registration Statement will be made only by means of a written
prospectus and prospectus supplement authorized and filed by the Company.
As the Company raised USD 117.5 (CHF 116.3)
million in its three offerings completed in July 2018, the Company may execute one or more future offering of securities covered
by the Shelf Registration Statement up to USD 232.5 million.
|
10.
|
Trade payables and accrued liabilities
|
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Trade and other payables
|
|
|
2,184
|
|
|
|
142
|
|
Total trade and other payables
|
|
|
2,184
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
Accrued research and development costs
|
|
|
5,298
|
|
|
|
7,228
|
|
Accrued payroll expenses
|
|
|
3,494
|
|
|
|
2,896
|
|
Other accrued expenses
|
|
|
2,293
|
|
|
|
1,673
|
|
Total accrued expenses
|
|
|
11,085
|
|
|
|
11,797
|
|
An accrual of CHF 2.1 million and CHF 1.8
million was recognized for performance-related remuneration within accrued payroll expenses for 2020 and 2019, respectively.
On January 4, 2016, September 13, 2016
and January 26, 2018 for the fiscal years 2016, 2017 and 2018, respectively, AC Immune obtained separate funding commitment notices
from the LuMind Research Down Syndrome Foundation (LuMind) totaling USD 200 thousand in each instance. Per the Research Grant Agreement,
AC Immune has an obligation to reimburse LuMind for an amount equal to 125% of the then funding commitment made by LuMind to AC
Immune.
On October 31, 2018, LuMind and the Company
modified the repayment terms in an effort to fund a Down Syndrome Clinical Trials Network. The repayment terms were modified such
that the Company will repay the outstanding balance in three installments in 2018, 2019 and 2020, with the total repayment to equal
the total the Company is to receive in funding plus the additional 25% interest.
As of December 31, 2020, the Company has
fully repaid this financing obligation.
For the years
ended December 31, 2020, 2019 and 2018, AC Immune generated contract revenues of CHF 15.4 million, CHF 110.5 million and CHF 6.9
million, respectively. For comparability, the Company reclassified CHF 0.3 million, CHF 0.6 million and CHF 0.3 million from contract
revenues to other income/(expense) for the years ended December 31, 2020, 2019 and 2018, respectively for prior grants from the
MJFF.
The
following tables provide contract revenue amounts from its LCAs for the years ended December 31, 2020, 2019 and 2018, respectively.
|
|
For the years ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Lilly
|
|
|
14,348
|
|
|
|
105,662
|
|
|
|
—
|
|
Genentech
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Janssen
|
|
|
1,083
|
|
|
|
1,173
|
|
|
|
2,157
|
|
Life Molecular Imaging
|
|
|
—
|
|
|
|
2,206
|
|
|
|
—
|
|
Biogen
|
|
|
—
|
|
|
|
1,063
|
|
|
|
4,024
|
|
Other
|
|
|
—
|
|
|
|
352
|
|
|
|
731
|
|
Total contract revenue
|
|
|
15,431
|
|
|
|
110,456
|
|
|
|
6,912
|
|
Lilly accounted for 93% and 96% of our
contract revenues in 2020 and 2019, respectively. Biogen and Janssen accounted for 58% and 31% of our contract revenues in 2018,
respectively.
The following table
presents changes in the Company’s contract assets and liabilities during the years ended December 31, 2020 and 2019:
In CHF Thousands
|
|
Balance at the beginning of the reporting period
|
|
Additions
|
|
Deductions
|
|
Balance at the end of the reporting period
|
Twelve months ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued income
|
|
|
1,095
|
|
|
|
2,354
|
|
|
|
(1,858
|
)
|
|
|
1,591
|
|
Deferred income
|
|
|
4,477
|
|
|
|
1,467
|
|
|
|
(5,638
|
)
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued income
|
|
|
3,667
|
|
|
|
2,211
|
|
|
|
(4,783
|
)
|
|
|
1,095
|
|
Deferred income
|
|
|
351
|
|
|
|
7,686
|
|
|
|
(3,560
|
)
|
|
|
4,477
|
|
During the years ended December 31, 2020,
2019 and 2018, the Company recognized the following contract revenues as a result of changes in the contract asset and the contract
liability balances in the respective periods:
|
|
For the years ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Revenues recognized in the period from:
|
|
|
|
|
|
|
Amounts included in the contract liability at the beginning of the period
|
|
|
4,477
|
|
|
|
351
|
|
|
|
1,551
|
|
Performance obligations satisfied in previous periods
|
|
|
10,000
|
|
|
|
2,206
|
|
|
|
—
|
|
12.1
Licensing and collaboration agreements
Morphomer Tau small molecule – 2018
license agreement with Eli Lilly and Company
In December 2018, we entered into an exclusive,
worldwide licensing agreement with Eli Lilly and Company (Lilly) to research and develop Morphomer Tau small molecules for the
treatment of AD and other neurodegenerative diseases. More specifically, this is an exclusive license with the right to Lilly to
grant sublicenses under the ACIU Patents, the ACIU know-how, and ACIU’s interests in the Joint Patents and the joint know-how
to Exploit the Licensed Compounds and Licensed Products. The agreement became effective on January 23, 2019 (the “effective
date”) when the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired. In Q3
2019, the Company and Lilly entered into the first amendment to divide the first discretionary milestone payment under the agreement
of CHF 60 million into two installments, with the first CHF 30 million paid in Q3 2019 and the second CHF 30 million to be paid
on or before March 31, 2020 unless Lilly terminated the agreement earlier. In Q1 2020, the Company and Lilly entered into a second
amendment to replace the second CHF 30 million to be paid on or before March 31, 2020 with two milestone payments, one of CHF 10
million to be paid on or before March 31, 2020 and the other of CHF 60 million following the first patient dosed in a Phase 2 clinical
study of a licensed product in the US or EU.
Per the terms of the agreement, the Company
received an initial upfront payment of CHF 80 million in Q1 2019 for the rights granted by the Company to Lilly. To date, the Company
has completed a Phase 1 clinical study with ACI-3024. The program will be expanded to NeuroOrphan indications and ACI-3024 will
be further evaluated for efficacy in models of rare Tauopathies.
Additionally, the Company and Lilly have
continued candidate characterization across the research program, identifying new and highly differentiated candidates with desired
cerebrospinal fluid exposure and selectivity for pathological aggregated Tau. These will be broadly developed in Tau-dependent
neurodegenerative diseases by Lilly.
Lilly is responsible for leading and funding
further clinical development and will retain global commercialization rights for all indications.
Per the terms of the agreement, the Company
may become eligible to receive additional milestone payments totaling up to approximately CHF 880 million for clinical and regulatory
milestones and CHF 900 million upon achievement of certain commercial milestones. In addition to milestones, we will be eligible
to receive royalties on sales at a percentage rate ranging from the low double-digits to the mid-teens. The agreement will terminate
by the date of expiration of the last royalty term for the last licensed product. However, under the terms of the agreement, Lilly
may terminate the agreement at any time by providing 3 months’ prior notice to us.
AC Immune assessed this arrangement in
accordance with IFRS 15 and concluded that Lilly is a customer. The Company identified the following significant performance obligations
under the contract: (i) a right-of-use license and (ii) research and development activities outlined in the development plan. Per
the agreement, the Company was responsible for the preclinical and Phase 1 activities for the first clinical candidate, ACI-3024,
which the Company determined was distinct and capable of being completed by Lilly or a third party. Preclinical activities for
which AC Immune was responsible prior to their completion in Q2 2019 included final manufacturing of materials for use in the regulatory
submission of the protocol and in the Phase 1 study. For the completed Phase 1, AC Immune was responsible for leading the study
design, obtaining relevant regulatory agency approvals, arranging necessary third-party contracts, completing patient selection,
ensuring patient treatment, following up with patients, drafting the clinical study report development and other relevant clinical
activities to ensure that the primary objective of the study was completed. The Company used CMOs for certain of its preclinical
activities and CROs to complete certain Phase 1 activities and to issue the final clinical study report.
The Company’s preclinical and Phase
1 activities did not represent integrated services with the licensed IP for which Lilly contracted. Lilly purchased a license to
the Company’s Tau therapeutic small-molecule program, which was delivered at commencement of the agreement, and AC Immune’s
preclinical and Phase 1 activities did not affect the form or functionality of this license. The Company’s objective for
the Phase 1 activity was to assess safety and tolerability and did not modify or customize ACI-3024. The completion of these preclinical
and Phase 1 activities does not affect the licensed IP.
Finally, per the agreement, each party
has three representatives on a joint steering committee (JSC); depending upon the agenda, additional field experts can attend the
JSC to provide the technical and scientific contribution required. The JSC meets on a regular basis depending on agreements between
the representatives. The JSC is responsible for serving as the forum to (i) discuss, review and approve certain activities by reviewing
and discussing the development progress with updates on back-up candidates, (ii) discuss, review and approve all amendments to
the global development plan, (iii) periodically discuss and review commercialization of licensed products and (iv) review and approve
reports related to development costs among other activities. The JSC is intended to ensure that communication between the parties
remains consistent and that the development plan is progressing as intended.
The valuation of each performance obligation
involves estimates and assumptions with revenue recognition timing to be determined by either delivery or the provision of services.
The Company used the residual approach
to estimate the selling price for the right-of-use license and an expected cost plus margin approach for estimating the research
and development activities. The right-of-use license was delivered on the effective date. The research and development activities
were delivered over time as the services were performed. For these services, revenue was recognized over time using the input method,
based on costs incurred to perform the services, as the level of costs incurred over time is thought to best reflect the transfer
of services to Lilly. The Company determined the value of the research and development activities to be CHF 6.9 million and deferred
this balance from the effective date. As of December 31, 2020, the Company has cumulatively recognized CHF 6.9 million in contract
revenue, resulting in no deferred income (contract liability) on the balance sheets. The remaining CHF 73.1 million from the upfront
payment was allocated to the right-of-use license and recognized on the effective date.
At inception of the agreement, none of
the clinical, regulatory or commercial milestones had been included in the transaction price, as all milestone amounts were fully
constrained. Through December 31, 2020, the Company has recognized CHF 40 million from milestone payments triggered in Q3 2019
and Q1 2020 related to the right-of-
use
license for IP as there were no further constraints related to these milestones. In assessing that future clinical, regulatory
or commercial milestones are fully constrained, the Company considered numerous factors to determine that these milestones are
not highly probable to obtain, including that receipt of the milestones is outside the control of the Company and contingent upon
success in future clinical trials and the licensee’s efforts. Any consideration related to sales-based milestones (including
royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the license granted
to Lilly and therefore have also been excluded from the transaction price. The Company will re-evaluate the transaction price
in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
For the years ended December 31, 2020,
2019 and 2018, we have recognized CHF 14.3 million, CHF 105.7 million and nil, respectively from this arrangement.
Anti-Abeta antibody in AD – 2006 agreement
with Genentech, a member of the Roche Group
In November 2006, we signed an exclusive,
worldwide licensing agreement for crenezumab, our humanized monoclonal therapeutic antibody targeting misfolded Abeta. The agreement
was amended March 2009, January 2013, May 2014 and May 2015. The agreement also provides for the development of a second therapeutic
product for a non-AD indication based on the same intellectual property and anti-Abeta antibody compound. The value of this partnership
is potentially greater than USD 340 (CHF 303) million.
The term of the agreement commenced on
the effective date and, unless sooner terminated by mutual agreement or pursuant to any other provision of the agreement, terminates
on the date on which all obligations between the parties with respect to the payment of milestones or royalties with respect to
licensed products have passed or expired. Either party may terminate the agreement for any material breach by the other party,
provided a cure period of 90 days from the date when that notice is given.
Genentech commenced a first Phase 3 clinical
study in March 2016 for crenezumab (CREAD). In March 2017, Genentech started a second Phase 3 clinical trial (CREAD 2).
Since 2013, crenezumab has also been studied in a Phase 2 trial in individuals who carry the PSEN1 E280A autosomal-dominant mutation
and do not meet the criteria for mild cognitive impairment due to AD or dementia due to AD and are, thus, in a preclinical phase
of AD (autosomal dominant AD (ADAD)). In 2019, Genentech initiated a Tau Positron Emission Tomography (PET) substudy
to the ongoing Phase 2 trial in ADAD to evaluate the effect of crenezumab on Tau burden, which may also increase the understanding
of disease progression in the preclinical stage of ADAD.
If crenezumab receives regulatory
approval, we will be entitled to receive royalties that are tied to annual sales volumes with different royalty rates
applicable in the US and Europe ranging from the mid-single digits to mid-teens. To date, we have received total milestone
payments of USD 65 million (CHF 70.1 million) comprised of an upfront payment of USD 25 (CHF 31.6) million and of USD 40 (CHF
38.2) million for clinical development milestones achieved all-in prior to January 1, 2017. Genentech may terminate the
agreement at any time by providing 3 months’ notice to us. In such event all costs incurred are still refundable.
AC Immune assessed this arrangement in
accordance with IFRS 15 and concluded that Genentech is a customer. The Company identified the following performance obligations
under the contract: (i) a right-of-use license and (ii) conducting of research under a research plan. The Company considered the
research and development capabilities of Genentech and Genentech’s right to sublicense to conclude that the license has stand-alone
functionality and is distinct. The Company’s obligation to perform research does not significantly impact or modify the licenses’
granted functionality.
At execution of the agreement, the transaction
price included the upfront consideration received of USD 25 (CHF 31.6) million. At inception, none of the clinical or regulatory
milestones had been included in the transaction price, as all milestone amounts were fully constrained. The Company has received
three milestone payments since inception, totaling USD 40 (CHF 38.2) million. The Company could receive greater than USD 275 (CHF
245) million or more for further regulatory milestones for this exclusive, worldwide alliance. In assessing that future regulatory
milestones are fully constrained, the Company considered numerous factors, including that receipt of the milestones is outside
the control of the Company and contingent upon success in future clinical trials and the licensee’s efforts. Any consideration
related to royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license
granted to Genentech and therefore have also been excluded from
the
transaction price. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved
or other changes in circumstances occur.
On January 30, 2019, we announced that
Roche, the parent of Genentech, is discontinuing the CREAD and CREAD 2 (BN29552 and BN29553) Phase 3 studies of crenezumab in people
with prodromal-to-mild sporadic AD. The decision came after an interim analysis conducted by the Independent Data Monitoring Center
(IDMC) indicated that crenezumab was unlikely to meet its primary endpoint of change from baseline in Clinical Dementia Rating-Sum
of Boxes (CDR-SB) Score. This decision was not related to the safety of the investigational product. No safety signals for crenezumab
were observed in this analysis and the overall safety profile was similar to that seen in previous trials.
Crenezumab continues to be studied in the
Phase 2 preventive trial, which began in 2013 in Columbia, of cognitively healthy individuals who carry the PSEN1 E280A autosomal-dominant
mutation and are in a preclinical phase of ADAD. This study will determine if treating people carrying this mutation with crenezumab
prior to the onset of AD symptoms will slow or prevent the decline of cognitive and functional abilities.
For the years ended December 31, 2020,
2019 and 2018, we have recognized no revenues from this arrangement.
Anti-Tau antibody in AD – 2012 agreement
with Genentech, a member of the Roche Group
In June 2012, we entered into a second
agreement with Genentech to research, develop and commercialize our anti-Tau antibodies for use as immunotherapeutics and diagnostics.
The agreement was amended in December 2015. The value of this exclusive, worldwide alliance is potentially greater than CHF 400
million and includes upfront and clinical, regulatory and commercial milestone payments. In addition to milestones, we will be
eligible to receive royalties on sales at a percentage rate ranging from the mid-single digits to low-double digits. The agreement
also provides for collaboration on at least one additional therapeutic indication outside of AD built on the same anti-Tau antibody
program as well an anti-Tau diagnostic product for AD.
The term of the agreement commenced on
the effective date and, unless sooner terminated by mutual agreement or pursuant to any other provision of the agreement, terminates
on the date on which all obligations between the parties with respect to the payment of milestones or royalties with respect to
licensed products have passed or expired. Either party may terminate the agreement for any material breach by the other party,
provided a cure period of 90 days from the date when that notice is given.
To date, we have received payments totaling
CHF 59 million, including a milestone payment of CHF 14 million received and recognized in Q4 2017 associated with the first patient
dosing in a Phase 2 clinical trial for AD with an anti-Tau monoclonal body known as semorinemab, a milestone payment of CHF 14
million recognized in Q2 2016 and received in July 2016, associated with the announcement of the commencement of the Phase 1 clinical
study of semorinemab, and a milestone payment of CHF 14 million received in 2015 in connection with the ED-GO decision. As we met
all performance obligations on reaching these milestones, we have recognized revenue in the respective periods. Genentech may terminate
the agreement at any time by providing 3 months’ notice to us.
AC Immune assessed this arrangement in
accordance with IFRS 15 and concluded that Genentech is a customer. The Company identified the following performance obligations
under the contract: (i) a right-of-use license and (ii) conduct of research under a research plan. The Company considered the research
and development capabilities of Genentech and Genentech’s right to sublicense to conclude that the license has stand-alone
functionality and is distinct. The Company’s obligation to perform research does not significantly impact or modify the licenses’
granted functionality.
At execution of the agreement, the transaction
price included an upfront consideration received of CHF 17 million. At inception, none of the clinical or regulatory milestones
had been included in the transaction price, as all milestone amounts were fully constrained. The Company has received three milestones
since inception totaling CHF 42 million. The Company could also receive up to an additional CHF 368.5 million in clinical, regulatory
and commercial milestones. In assessing that future clinical, regulatory or commercial milestones are fully constrained, the Company
considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon
success in future clinical trials. Any consideration related to sales-based milestones (including royalties) will be recognized
when the related sales occur as they were determined to relate
predominantly
to the license granted to Genentech and therefore have also been excluded from the transaction price. The Company will re-evaluate
the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
On
September 23, 2020, the Company reported that Genentech informed us of top line results from a Phase 2 trial of the anti-Tau antibody,
semorinemab, in early (prodromal to mild) Alzheimer’s disease (AD) which show that semorinemab did not meet its primary efficacy
endpoint of reducing decline on Clinical Dementia Rating-Sum of Boxes (CDR-SB) compared to placebo. The primary safety endpoint
was however met. Two secondary endpoints, Alzheimer’s Disease Assessment Scale-Cognitive Subscale 13 (ADAS-Cog13) and Alzheimer’s
Disease Cooperative Study Group – Activities of Daily Living Inventory (ADCS-ADL), were not met. A second Phase 2 study of
semorinemab in patients with moderate AD remains ongoing.
For the years ended December 31, 2020,
2019 and 2018, we have recognized no revenues from this arrangement, respectively.
Tau vaccine in AD – 2014 agreement with
Janssen Pharmaceuticals, Inc.
In December 2014, we entered into an agreement
with Janssen Pharmaceuticals, Inc. (Janssen) one of The Janssen Pharmaceutical Companies of Johnson & Johnson, to develop and
commercialize therapeutic anti-Tau vaccines for the treatment of AD and potentially other Tauopathies. The value of this partnership
is potentially up to CHF 500 million and includes upfront and clinical, regulatory and commercial milestones. In addition to milestones,
we will be eligible to receive royalties on sales at a percentage rate ranging from the low-double digits to the mid-teens. In
April 2016, July 2017, January 2019 and November 2019, the companies entered into the first, second, third and fourth amendments,
respectively. These amendments allow for the alignment of certain payment and activity provisions with the Development Plan and
Research Plan activities. We and Janssen are co-developing the second-generation lead therapeutic vaccines, ACI-35.030 and JACI-35.054,
through Phase 1b/2a completion. AC Immune and Janssen will jointly share research and development costs until the completion of
the first Phase 2b (AC Immune’s contribution to the first Phase 2b trial is capped). From Phase 2b and onwards, Janssen will
assume responsibility for the clinical development, manufacturing and commercialization of the second-generation vaccines.
Under the terms of the agreement, Janssen
may terminate the agreement at any time after completion of the first Phase 1b clinical study in 2016 by providing 90 days’
notice to us. If not otherwise terminated, the agreement shall continue until the expiration of all royalty obligations as outlined
in the contract.
The agreement also allows for the expansion
to a second indication based on the same anti-Tau vaccine program and based on intellectual property related to this program.
The Company received an upfront, non-refundable
license fee of CHF 25.9 million, which we recognized as revenue in 2014. In May 2016, we received a payment of CHF 4.9 million
for reaching a clinical milestone in the first Phase 1b study. As we met all performance obligations on reaching the milestone,
we have recognized this income as revenue.
AC Immune assessed this arrangement in
accordance with IFRS 15 and concluded that Janssen is a customer. The Company identified the following performance obligations
under the contract: (i) a right-of-use license and (ii) research and development services including a development and chemistry,
manufacturing and controls work plan. The Company considered the research and development capabilities of Janssen, Janssen’s
right to sublicense, and the fact that the research and development services are not proprietary and can be provided by other vendors,
to conclude that the license has stand-alone functionality and is distinct. The Company’s obligation to perform research
and development services does not significantly impact or modify the licenses’ granted functionality. Based on these assessments,
the Company identified the license and the research and development services as the performance obligations at the inception of
the arrangement, which were deemed to be distinct in the context of the contract.
At execution of the agreement, the transaction
price included only the upfront consideration received of CHF 25.9 million. At inception, none of the clinical, regulatory or commercial
milestones has been included in the transaction price, as all milestone amounts were fully constrained. The Company did receive
a payment of CHF 4.9 million for reaching a clinical milestone in the first Phase 1b study in May 2016. The Company could also
receive up to more than CHF 458 million in clinical, regulatory and commercial milestones as well as tiered, low-double digit to
mid-teen royalties on aggregate net sales of products. In assessing that future clinical, regulatory or
commercial
milestones are fully constrained, the Company considered numerous factors to determine that these milestones are not highly probable
to obtain, including that receipt of the milestones is outside the control of the Company and contingent upon success in future
clinical trials and the licensee’s efforts. Any consideration related to sales-based milestones (including royalties) will
be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Janssen and
therefore have also been excluded from the transaction price. The Company will re-evaluate the transaction price in each reporting
period and as uncertain events are resolved or other changes in circumstances occur.
For the years ended December 31, 2020,
2019 and 2018, we have recognized revenues totaling CHF 1.1 million, CHF 1.2 million and CHF 2.2 million, respectively from this
arrangement.
Tau-PET imaging agent in AD –2014 agreement
with Life Molecular Imaging (LMI) (formerly Piramal Imaging SA)
In May 2014, we entered into an agreement,
our first diagnostic partnership, with LMI, the former Piramal Imaging SA. The partnership with LMI is an exclusive, worldwide
licensing agreement for the research, development and commercialization of the Company’s Tau protein PET tracers supporting
the early diagnosis and clinical management of AD and other Tau-related disorders and includes upfront and sales milestone payments
totaling up to EUR 159 (CHF 175) million, plus royalties on sales at a percentage rate ranging from mid-single digits to low-teens.
LMI may terminate the LCA at any time by providing 3 months’ notice to us.
In connection with this agreement, AC Immune
received a payment of EUR 500 (CHF 664) thousand, which was fully recognized in 2015. In Q1 2017, we recorded a milestone payment
of EUR 1 (CHF 1.1) million related to the initiation of “Part B” of the first-in-man Phase 1 study. In Q3 2019, the
Company recognized EUR 2 (CHF 2.2) million in connection with the initiation of a Phase 2 trial of Tau-PET tracer in patients with
mild cognitive impairment and mild–to-moderate AD in comparison with non-demented control participants. The Company is eligible
to receive variable consideration related to the achievement of certain clinical milestones totaling EUR 8 (CHF 9) million should
the compound make it through Phase 3 clinical studies. We are also eligible to receive potential regulatory and sales-based milestones
totaling EUR 148 (CHF 162) million. Finally, the Company is eligible for royalties from the mid-single digits to low-double digits.
AC Immune assessed this arrangement in
accordance with IFRS 15 and concluded that LMI is a customer. The Company has identified that the right-of-use license as the only
performance obligation. The Company determined that transaction price based on the defined terms allocated to each performance
obligation specified in the contract.
The upfront payment constitutes the amount
of consideration to be included in the transaction price and has been allocated to the license. None of the clinical, regulatory
or commercial milestones has been included in the transaction price as these variable consideration elements are considered fully
constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the
milestones is outside the control of the Company and contingent upon success in future clinical trials and the licensee’s
efforts.
Any consideration related to sales-based
milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate
predominantly to the license granted to LMI and therefore are recognized at the later of when the performance obligation is satisfied
or the related sales occur. The Company considered LMI’s right to sublicense and develop the Tau protein PET tracers, and
the fact that LMI could perform the research and development work themselves within the license term without AC Immune, to conclude
that the license has stand-alone functionality and is distinct. The Company believes that the contracted amount represents the
fair value. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or
other changes in circumstances occur.
For the years ended December 31, 2020,
2019 and 2018, the Company has recognized nil, CHF 2.2 million and nil, respectively, from this arrangement.
A-syn and TDP-43 PET tracers – 2016
agreement with Biogen
On April 13, 2016, we entered into a non-exclusive
research collaboration agreement with Biogen International GmbH, (Biogen). Under the agreement, we and Biogen have agreed to collaborate
in the research and early clinical
development
of our a-syn PET tracer program for PD and other synucleinopathies, and a second program for the identification, research and
development of novel PET ligands against TDP-43, a protein recently linked to neurodegeneration in diseases such as amyotrophic
lateral sclerosis (ALS). In addition, we have agreed to share the costs of the collaboration, with Biogen primarily funding the
majority of research costs, subject to a cap, which includes an upfront technology access fee and funding toward research and
development personnel. We own all intellectual property rights to any invention relating to a-syn or TDP-43 PET tracers.
AC Immune assessed this arrangement in
accordance with IFRS 15 and concluded that Biogen is a customer. The Company has identified two performance obligations in our
Biogen collaboration: (i) technology access fee and (ii) research and development services. The Company determined the transaction
price based on the defined terms allocated to each performance obligation specified in the contract. In instances where the Company
is reimbursed for research and development contributions procured from third parties such as negotiated terms with clinical CROs,
AC Immune records revenues for such services as it is acting as a principal in procuring the goods or services. The Company has
the primary responsibility for fulfilling the promise to provide the specified good or service, it has inventory risk before transfer
to the customer and it has discretion in negotiating the price with third parties. For other research and development services,
revenues are recognized as work is performed, which correspond with and best depict the transfer of control to the customer in
line with the terms outlined in the contract.
For the years ended December 31, 2020,
2019 and 2018, the Company has recognized nil, CHF 1.1 million and CHF 4.0 million, respectively, from this arrangement. This collaboration
ended in April 2019.
12.2
Grant income
Grants from the Michael J. Fox Foundation
In Q3 2017, we
formally signed a grant continuation with the MJFF. This grant provides funds for the development of PET tracers for pathological
forms of the protein alpha-synuclein, to support the early diagnosis and clinical management of Parkinson’s disease. We subsequently
signed two additional grants which facilitated the execution of a first-in-human study for
a potential alpha-synuclein-PET tracer (PET tracer) with the current lead compound and to further develop the PET tracer. The
Company retains its intellectual property rights for these alpha-synuclein-PET tracers. These grants concluded in Q2 2020.
In May 2020, the
Company, as part of a joint arrangement with Skåne University Hospital (Skåne) in Sweden, was awarded a USD 3.2 (CHF
2.9) million grant from the MJFF’s Ken Griffin Alpha-synuclein Imaging Competition. As part of this grant, AC Immune is eligible
to receive USD 2.5 (CHF 2.2) million directly from the MJFF. Skåne will receive USD 0.7 (CHF 0.7) million of the total grant
directly from the MJFF over two years to conduct and support the clinical arm of the project.
The MJFF expects
that AC Immune and Skåne will complete tasks according to the agreed timelines. AC Immune’s funding is variable depending
on the satisfactory achievement of these specific tasks within a specific period of time.
For the years ended December 31, 2020,
2019 and 2018, the Company has recognized CHF 1.3 million, CHF 0.6 million and CHF 0.3 million, respectively, from these grants.
13.
Expenses by category
Research and Development
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Operating expenses
|
|
|
43,787
|
|
|
|
37,465
|
|
|
|
32,921
|
|
Payroll expenses
|
|
|
14,424
|
|
|
|
12,382
|
|
|
|
10,662
|
|
Share-based compensation
|
|
|
1,276
|
|
|
|
585
|
|
|
|
694
|
|
Total research and development expenses
|
|
|
59,487
|
|
|
|
50,432
|
|
|
|
44,277
|
|
For the year ended December 31, 2020, 2019
and 2018, the Company incurred CHF 59.5 million, CHF 50.4 million and CHF 44.3 million in research and development expenses, respectively.
These increases are predominantly driven by increases in investments in our research and development projects and full-time equivalents
(FTEs).
For the years ended December 31, 2020, 2019
and 2018, the Company had 115.3, 102.7 and 87 FTEs in research and development.
General and administrative
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Operating expenses
|
|
|
7,471
|
|
|
|
6,637
|
|
|
|
4,903
|
|
Payroll expenses
|
|
|
8,274
|
|
|
|
7,172
|
|
|
|
5,740
|
|
Share-based compensation
|
|
|
2,812
|
|
|
|
2,249
|
|
|
|
1,824
|
|
Total general and administrative expenses
|
|
|
18,557
|
|
|
|
16,058
|
|
|
|
12,467
|
|
For the year ended December 31, 2020, 2019
and 2018, the Company incurred CHF 18.6 million, CHF 16.1 million and CHF 12.5 million in general and administrative expenses,
respectively. These increases are predominantly driven by increases in full-time equivalents (FTEs).
For the years ended December 31, 2020, 2019
and 2018, the Company had 26.7, 24.1 and 17 FTEs general and administrative functions.
Financial result, net
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Financial income
|
|
|
78
|
|
|
|
303
|
|
|
|
127
|
|
Financial expense
|
|
|
(184
|
)
|
|
|
(1,926
|
)
|
|
|
(334
|
)
|
Change in fair value of conversion feature
|
|
|
—
|
|
|
|
4,542
|
|
|
|
—
|
|
Exchange differences
|
|
|
(555
|
)
|
|
|
(2,013
|
)
|
|
|
(1,194
|
)
|
Finance result, net
|
|
|
(661
|
)
|
|
|
906
|
|
|
|
(1,401
|
)
|
Our financial income and expense primarily
consist of interest income and interest expense associated with our lease liabilities and prior convertible debt instrument.
For the year ended December 31, 2020, the
following items from 2019 did not repeat:
|
·
|
the CHF 4.5 million gain on the conversion feature
related to the Company’s convertible loan due to Lilly in 2019;
|
|
·
|
CHF 1.4 million in interest expenses related to effective
interest recorded to amortize the host debt per the convertible loan due to Lilly; and
|
|
·
|
a CHF 1.2 million remeasurement loss related to the
settlement of the convertible loan.
|
14. Related-party
transactions
For key management, including the board
of directors (seven individuals excluding the CEO) and the executive management (five individuals including the CEO), compensation
was as follows.
|
|
For the years ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Short-term employee benefits
|
|
|
3,497
|
|
|
|
3,526
|
|
|
|
2,681
|
|
Post-employment benefits
|
|
|
214
|
|
|
|
215
|
|
|
|
160
|
|
Share-based compensation
|
|
|
2,578
|
|
|
|
2,155
|
|
|
|
1,683
|
|
Total
|
|
|
6,289
|
|
|
|
5,896
|
|
|
|
4,524
|
|
In 2018, as part of the Company’s
subscription rights offering, a major shareholder and members of the board and executive management purchased an aggregate of 614,147
of the Company’s common shares on the same basis and otherwise on the same terms as the other participants in such rights
offering.
15. Income taxes
The Company recognized no income tax expense
or deferred tax asset or liability positions for the years ended December 31, 2020, 2019, and 2018.
The income tax expense for each year can
be reconciled to loss before tax as follows:
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Income/(loss) before income tax
|
|
|
(61,921
|
)
|
|
|
45,442
|
|
|
|
(50,951
|
)
|
Tax expense/(benefit) calculated at the statutory rate of 13.6% (13.6% for 2019 and 20.6% for 2018)
|
|
|
(8,441
|
)
|
|
|
6,194
|
|
|
|
(10,507
|
)
|
Income not subject to tax/(expenses) not deductible for tax purposes
|
|
|
462
|
|
|
|
(62
|
)
|
|
|
334
|
|
Effect of unused tax losses and tax offsets not recognized as deferred tax assets
|
|
|
7,979
|
|
|
|
(6,132
|
)
|
|
|
10,173
|
|
Effective income tax rate benefit/(expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
The tax rate used for the 2020 reconciliations
above is the corporate tax rate of 13.6% (13.6% in 2019 and 20.6% in 2018) payable by corporate entities in the Canton of Vaud,
Switzerland on taxable profits under tax law in that jurisdiction.
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Unrecognized deductible temporary differences, unused tax losses and unused tax credits
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductible temporary differences, unused tax losses and unused tax credits for which no deferred tax assets have been recognized are attributable to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax losses
|
|
|
121,948
|
|
|
|
64,125
|
|
|
|
109,294
|
|
Deductible temporary differences related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets and lease liabilities, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Retirement benefit plan
|
|
|
7,464
|
|
|
|
7,485
|
|
|
|
5,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
129,412
|
|
|
|
71,610
|
|
|
|
114,959
|
|
Tax losses expiry dates are shown in the
table below:
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Tax losses split by expiry date:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
16,566
|
|
December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
10,338
|
|
December 31, 2021
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
December 31, 2022
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
December 31, 2023
|
|
|
—
|
|
|
|
—
|
|
|
|
7,628
|
|
December 31, 2024
|
|
|
15,231
|
|
|
|
15,231
|
|
|
|
25,868
|
|
December 31, 2025
|
|
|
48,894
|
|
|
|
48,894
|
|
|
|
48,894
|
|
December 31, 2026
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
December 31, 2027
|
|
|
57,824
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
|
121,948
|
|
|
|
64,125
|
|
|
|
109,294
|
|
The tax losses available for future offset
against taxable profits have increased by CHF 57.8 million from 2019, representing the amount of tax losses that are additionally
available as an offset, subject to expiration as disclosed in the table above, against future taxable income.
Consistent with prior years, the Company
has not recorded any deferred tax assets in relation to the past tax losses available for offset against future profits as the
recognition criteria were not met at the balance sheet date.
16. Retirement benefit
plan
The Company participates in a collective
foundation covering all of its employees including its executive officers. In addition to retirement benefits, the plan provides
death or long-term disability benefits.
Contributions paid to the plan are computed
as a percentage of salary, adjusted for the age of the employee and shared approximately 47% and 53% by employee and employer,
respectively.
This plan is governed by the Swiss Law
on Occupational Retirement, Survivors and Disability Pension Plans (BVG), which requires contributions to be made to a separately
administered fund. The fund has the legal form of a foundation and it is governed by the board of trustees, which consists of an
equal number of employer and employee representatives. The board of trustees is responsible for the administration of the plan
assets and for the definition of the investment strategy.
The collective foundation is governed by
a foundation board. The board is made up of an equal number of employee and employer representatives of the different affiliated
companies. The Company has no direct influence on the investment strategy of the foundation board.
The assets are invested by the pension
plan, to which many companies contribute, in a diversified portfolio that respects the requirements of the Swiss BVG. Therefore,
disaggregation of the pension assets and presentation of plan assets in classes that distinguish the nature and risks of those
assets is not possible. Under the plan, both the Company and the employee share the costs equally. The structure of the plan and
the legal provisions of the BVG mean that the employer is exposed to actuarial risks. The main risks are investment risk, interest
risk, disability risk and the life expectancy of pensioners. Through our affiliation with the pension plan, the Company has minimized
these risks, as they are shared between a much greater number of participants. On leaving the Company, a departing employee’s
retirement savings are transferred to the pension institution of the new employer or to a vested benefits institution. This transfer
mechanism may result in pension payments varying considerably from year to year.
The pension plan is exposed to Swiss inflation,
interest rate risks and changes in the life expectancy for pensioners. For accounting purposes under IFRS, the plan is treated
as a defined benefit plan.
As of January 1, 2019 the Company changed
from a fully insured plan to a plan for which the Company now bears investment and old age risks. The new plan has a higher statutory
coverage ratio, which led to an increase in plan assets of 10% (CHF 1.2 million) for the year ended December 31, 2019. The increase
is presented in Table B as part of the line “Return on plan assets excluding interest income.”
The following table sets forth the status
of the defined benefit pension plan and the amount that is recognized in the balance sheet:
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Defined benefit obligation
|
|
|
(30,213
|
)
|
|
|
(26,624
|
)
|
|
|
(17,942
|
)
|
Fair value of plan assets
|
|
|
22,749
|
|
|
|
19,139
|
|
|
|
12,277
|
|
Total liability
|
|
|
(7,464
|
)
|
|
|
(7,485
|
)
|
|
|
(5,665
|
)
|
The following amounts have been recorded
as net pension cost in the statement of income:
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Service cost
|
|
|
1,626
|
|
|
|
1,313
|
|
|
|
1,095
|
|
Interest cost
|
|
|
71
|
|
|
|
195
|
|
|
|
100
|
|
Interest income
|
|
|
(42
|
)
|
|
|
(133
|
)
|
|
|
(65
|
)
|
Net pension cost
|
|
|
1,655
|
|
|
|
1,375
|
|
|
|
1,130
|
|
The changes in defined benefit obligation,
fair value of plan assets and unrecognized gains/(losses) are as follows.
|
A.
|
Change in defined benefit obligation
|
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Defined benefit obligation as of January 1
|
|
|
(26,624
|
)
|
|
|
(17,942
|
)
|
|
|
(14,278
|
)
|
Service cost
|
|
|
(1,626
|
)
|
|
|
(1,313
|
)
|
|
|
(1,095
|
)
|
Interest cost
|
|
|
(71
|
)
|
|
|
(195
|
)
|
|
|
(100
|
)
|
Change in demographic assumptions
|
|
|
1,428
|
|
|
|
1,138
|
|
|
|
—
|
|
Change in financial assumptions
|
|
|
(71
|
)
|
|
|
(2,171
|
)
|
|
|
750
|
|
Change in experience assumptions
|
|
|
(931
|
)
|
|
|
(2,003
|
)
|
|
|
(888
|
)
|
Benefits deposited
|
|
|
(1,467
|
)
|
|
|
(3,382
|
)
|
|
|
(1,710
|
)
|
Employees’ contributions
|
|
|
(851
|
)
|
|
|
(756
|
)
|
|
|
(621
|
)
|
Defined benefit obligation as of December 31
|
|
|
(30,213
|
)
|
|
|
(26,624
|
)
|
|
|
(17,942
|
)
|
|
B.
|
Change in fair value of plan assets
|
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Fair value of plan assets as of January 1
|
|
|
19,139
|
|
|
|
12,277
|
|
|
|
9,352
|
|
Interest income
|
|
|
42
|
|
|
|
133
|
|
|
|
65
|
|
Employees’ contributions
|
|
|
851
|
|
|
|
756
|
|
|
|
621
|
|
Employer’s contributions
|
|
|
950
|
|
|
|
859
|
|
|
|
693
|
|
Benefits deposited
|
|
|
1,467
|
|
|
|
3,382
|
|
|
|
1,710
|
|
Return on plan assets excluding interest income
|
|
|
300
|
|
|
|
1,732
|
|
|
|
(164
|
)
|
Fair value of plan assets as of December 31
|
|
|
22,749
|
|
|
|
19,139
|
|
|
|
12,277
|
|
Expected contributions by the employer
to be paid to the post-employment benefit plans during the annual period beginning after the end of the reporting period amount
to approximately CHF 1.1 million.
|
C.
|
Change in net defined benefit liability
|
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Net defined benefit liabilities as of January 1
|
|
|
7,485
|
|
|
|
5,665
|
|
|
|
4,926
|
|
Net pension cost through statement of income
|
|
|
1,655
|
|
|
|
1,375
|
|
|
|
1,130
|
|
Remeasurement through other comprehensive loss
|
|
|
(726
|
)
|
|
|
1,304
|
|
|
|
302
|
|
Employer’s contribution
|
|
|
(950
|
)
|
|
|
(859
|
)
|
|
|
(693
|
)
|
Net defined benefit liabilities as of December 31
|
|
|
7,464
|
|
|
|
7,485
|
|
|
|
5,665
|
|
|
D.
|
Change in other comprehensive loss
|
|
|
For the Years Ended
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
|
2018
|
Other comprehensive loss as of January 1
|
|
|
(5,587
|
)
|
|
|
(4,283
|
)
|
|
|
(3,981
|
)
|
Effect of changes in demographic assumptions
|
|
|
1,428
|
|
|
|
1,138
|
|
|
|
—
|
|
Effect of changes in financial assumptions
|
|
|
(71
|
)
|
|
|
(2,171
|
)
|
|
|
750
|
|
Effect of changes in experience assumptions
|
|
|
(931
|
)
|
|
|
(2,003
|
)
|
|
|
(888
|
)
|
Return on plan assets excluding interest income
|
|
|
300
|
|
|
|
1,732
|
|
|
|
(164
|
)
|
Other comprehensive loss as of December 31
|
|
|
(4,861
|
)
|
|
|
(5,587
|
)
|
|
|
(4,283
|
)
|
The fair value of the plan assets is the
cash surrender value of the insurance with the insurance company (AXA). The investment strategy defined by the board of trustees
follows a conservative profile.
The plan assets are primarily held within
instruments with quoted market prices in an active market, with the exception of real estate and mortgages.
The weighted-average duration of the defined
benefit obligation is 17.6 years and 19.3 years as of December 31, 2020 and 2019, respectively.
The actuarial assumptions used for the
calculation of the pension cost and the defined benefit obligation of the defined benefit pension plan for the years ended December
31, 2020, 2019 and 2018, respectively, are as follows:
|
|
For the Years Ended
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Discount rate
|
|
|
0.20
|
%
|
|
|
0.20
|
%
|
|
|
0.90
|
%
|
Rate of future increase in compensations
|
|
|
1.75
|
%
|
|
|
1.75
|
%
|
|
|
1.50
|
%
|
Rate of future increase in current pensions
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.50
|
%
|
Interest rate on retirement savings capital
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.90
|
%
|
Mortality and disability rates
|
|
|
BVG 2020-CMI
|
|
|
|
BVG 2015-CMI
|
|
|
|
BVG 2015G
|
|
In defining the benefits, the minimum requirements
of the Swiss BVG and its implementing provisions must be observed. The BVG defines the minimum pensionable salary and the minimum
retirement credits.
A quantitative sensitivity analysis for
significant assumptions as of December 31, 2020 is shown below:
|
|
Discount rate
|
|
Future salary increase
|
|
Future pension cost
|
|
Interest rate on savings capital
|
Assumptions
|
|
0.5% increase
|
|
0.5% decrease
|
|
0.5% increase
|
|
0.5% decrease
|
|
0.5% increase
|
|
0.5% decrease
|
|
0.5% increase
|
|
0.5% decrease
|
|
|
In CHF thousands
|
Potential defined benefit obligation
|
|
|
27,740
|
|
|
|
33,080
|
|
|
|
30,912
|
|
|
|
29,519
|
|
|
|
31,652
|
|
|
|
28,916
|
|
|
|
31,070
|
|
|
|
29,405
|
|
Decrease/(increase) from actual defined benefit obligation
|
|
|
2,473
|
|
|
|
(2,867
|
)
|
|
|
(699
|
)
|
|
|
694
|
|
|
|
(1,439
|
)
|
|
|
1,297
|
|
|
|
(857
|
)
|
|
|
808
|
|
A quantitative sensitivity analysis for
significant assumptions as of December 31, 2019 is shown below:
|
|
Discount rate
|
|
Future salary increase
|
|
Future pension cost
|
|
Interest rate on savings capital
|
Assumptions
|
|
0.5% increase
|
|
0.5% decrease
|
|
0.5% increase
|
|
0.5% decrease
|
|
0.5% increase
|
|
0.5% decrease
|
|
0.5% increase
|
|
0.5% decrease
|
|
|
in CHF thousands
|
Potential defined benefit obligation
|
|
|
24,248
|
|
|
|
29,396
|
|
|
|
27,317
|
|
|
|
25,930
|
|
|
|
27,993
|
|
|
|
25,393
|
|
|
|
27,447
|
|
|
|
25,848
|
|
Decrease/(increase) from actual defined benefit obligation
|
|
|
2,376
|
|
|
|
(2,772
|
)
|
|
|
(693
|
)
|
|
|
694
|
|
|
|
(1,369
|
)
|
|
|
1,231
|
|
|
|
(823
|
)
|
|
|
776
|
|
The sensitivity analyses above are subject
to limitations and have been determined based on a method that extrapolates the impact on net defined benefit obligation as a result
of reasonable changes in key assumptions occurring at the end of the reporting period.
|
17.
|
Share-based compensation
|
Share-based option awards
Through the year ended December 31, 2020,
there are equity-based instruments outstanding that the Company has granted under four different plans.
The Company’s 2016 Share Option and
Incentive Plan (SOIP) was approved by the shareholders at the ordinary shareholders' meeting in November 2016. The 2016 Plan authorizes
the grant of incentive and non-qualified share options, share appreciation rights, restricted share awards, restricted share units,
unrestricted share awards, performance share awards, performance-based awards to covered employees and dividend equivalent rights.
The Company only grants equity-based instruments from the SOIP as of December 31, 2020.
The following table summarizes equity-settled
share option grants since inception under each plan type:
PLAN
|
|
Number of options awarded (since inception)
|
|
Vesting conditions
|
|
Contractual life of options
|
Share option plan A
|
|
|
362,750
|
|
|
At grant
|
|
15.5 years
|
Share option plan B
|
|
|
819,000
|
|
|
At grant
|
|
10.5 years
|
Share option plan C1
|
|
|
6,775,250
|
|
|
4 years’ service from grant date
|
|
10 years
|
2016 SOIP:
|
|
|
|
|
|
|
|
|
Executives and directors
|
|
|
1,898,222
|
|
|
1 year, 3 year and 4 years’ service from the date of grant, quarterly and annually
|
|
10 years
|
Employees
|
|
|
989,279
|
|
|
4 years’ service from the date of grant, annually
|
|
10 years
|
The number and weighted-average exercise
prices (in CHF) of options under the share option programs for Plans A, B, C1 and the 2016 SOIP are as follows:
|
|
Number of options
|
|
Weighted-average exercise price (CHF)
|
|
Weighted-average remaining
term (years)
|
Outstanding at January 1, 2018
|
|
|
1,359,891
|
|
|
|
2.09
|
|
|
|
5.8
|
|
Forfeited during the year
|
|
|
(73,624
|
)
|
|
|
9.16
|
|
|
|
—
|
|
Exercised during the year
|
|
|
(151,814
|
)
|
|
|
0.15
|
|
|
|
—
|
|
Granted during the year
|
|
|
484,403
|
|
|
|
9.79
|
|
|
|
—
|
|
Outstanding at December 31, 2018
|
|
|
1,618,856
|
|
|
|
4.25
|
|
|
|
6.3
|
|
Exercisable at December 31, 2018
|
|
|
932,175
|
|
|
|
1.25
|
|
|
|
4.4
|
|
Outstanding at January 1, 2019
|
|
|
1,618,856
|
|
|
|
4.25
|
|
|
|
6.3
|
|
Forfeited during the year
|
|
|
(73,699
|
)
|
|
|
6.71
|
|
|
|
—
|
|
Exercised during the year
|
|
|
(616,833
|
)
|
|
|
0.15
|
|
|
|
—
|
|
Granted during the year
|
|
|
1,053,305
|
|
|
|
5.24
|
|
|
|
—
|
|
Outstanding at December 31, 2019
|
|
|
1,981,629
|
|
|
|
5.93
|
|
|
|
8.3
|
|
Exercisable at December 31, 2019
|
|
|
602,218
|
|
|
|
4.94
|
|
|
|
6.5
|
|
Outstanding at January 1, 2019
|
|
|
1,981,629
|
|
|
|
5.93
|
|
|
|
8.3
|
|
Forfeited during the year
|
|
|
(53,591
|
)
|
|
|
6.03
|
|
|
|
—
|
|
Expired during the year
|
|
|
(26,729
|
)
|
|
|
4.38
|
|
|
|
—
|
|
Exercised during the year
|
|
|
(73,669
|
)
|
|
|
2.00
|
|
|
|
—
|
|
Granted during the year
|
|
|
1,073,027
|
|
|
|
6.29
|
|
|
|
—
|
|
Outstanding at December 31, 2020
|
|
|
2,900,667
|
|
|
|
5.90
|
|
|
|
8.2
|
|
Exercisable at December 31, 2020
|
|
|
1,099,015
|
|
|
|
5.49
|
|
|
|
7.0
|
|
The outstanding stock options as of December
31, 2020 have the following range of exercise prices. In fiscal year 2018, we began to grant awards solely with USD denominated
exercise prices and discontinued granting awards with a CHF denominated exercise price.
|
|
Total options
|
|
Range of expiration dates
|
Range of exercise prices
|
|
|
|
|
|
|
|
|
CHF 0.15
|
|
|
243,125
|
|
|
|
2020–2026
|
|
CHF 9.53
|
|
|
223,646
|
|
|
|
2027
|
|
USD 5.04 to USD 12.30
|
|
|
2,433,896
|
|
|
|
2028–2030
|
|
Total outstanding options
|
|
|
2,900,667
|
|
|
|
|
|
The weighted-average exercise price for
options granted in 2020, 2019 and 2018 is USD 7.11 (CHF 6.29), USD 5.41 (CHF 5.24) and USD 9.97 (CHF 9.79), respectively. The range
of exercise prices for outstanding options was CHF 0.15 to CHF 9.53 for awards previously granted in CHF and USD 5.04 to USD 12.30
for awards granted in USD as of December 31, 2020.
Prior to the IPO, the exercise price was
set by the board of directors. The volatility is based on the historical trend of an appropriate sample of companies operating
in the pharmaceutical and biopharmaceutical industries. The risk-free interest rate is based on the CHF swap rate for the expected
life of the option. The weighted-average share price of common share options exercised in 2020 is USD 6.86 (CHF 6.07).
The weighted-average grant date fair values
of the options granted in 2020, 2019 and 2018 are USD 5.25 (CHF 4.65), USD 3.71 (CHF 3.59) and USD 6.66 (CHF 6.54), respectively.
The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining
the fair value of these awards:
|
|
For the Years Ended
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Exercise price
|
|
USD 5.04-9.16
|
|
USD 5.15–5.54
|
|
USD 8.33–12.30
|
Share price (weighted average)
|
|
|
7.11
|
|
|
|
5.41
|
|
|
|
9.87
|
|
Risk-free interest rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
80
|
%
|
|
|
80
|
%
|
|
|
80
|
%
|
Expected term
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Restricted share awards
A summary of non-vested share awards (restricted
share and restricted share units) activity as of December 31, 2020 and changes during the year then ended is presented
below:
Grantee type
|
|
Number of non-vested share awards granted
|
|
Vesting conditions
|
|
Contractual life of non-vested share awards
|
Restricted share units
|
|
|
|
|
|
|
|
|
Directors
|
|
|
83,864
|
|
|
1 year service from date of grant, annually
|
|
10 years
|
Executives
|
|
|
110,839
|
|
|
4 years’ service from the date of grant, quarterly
|
|
10 years
|
Restricted share awards
|
|
|
4,023
|
|
|
2.75 years’ service from date of grant, quarterly
|
|
10 years
|
|
|
Number of
non-vested shares
|
|
Weighted-average
grant date fair value (CHF)
|
Non-vested at December 31, 2017
|
|
|
122,014
|
|
|
|
9.59
|
|
Forfeited during the year
|
|
|
(25,673
|
)
|
|
|
9.48
|
|
Granted during the year
|
|
|
69,371
|
|
|
|
9.43
|
|
Vested during the year
|
|
|
(56,671
|
)
|
|
|
9.60
|
|
Non-vested at December 31, 2018
|
|
|
109,041
|
|
|
|
9.51
|
|
Vested and exercisable at December 31, 2018
|
|
|
64,012
|
|
|
|
9.65
|
|
Non-vested at December 31, 2018
|
|
|
109,041
|
|
|
|
9.51
|
|
Forfeited during the year
|
|
|
—
|
|
|
|
—
|
|
Granted during the year
|
|
|
—
|
|
|
|
—
|
|
Vested during the year
|
|
|
(66,278
|
)
|
|
|
9.51
|
|
Non-vested at December 31, 2019
|
|
|
42,763
|
|
|
|
9.52
|
|
Vested and exercisable at December 31, 2019
|
|
|
130,290
|
|
|
|
9.58
|
|
Non-vested at December 31, 2019
|
|
|
42,763
|
|
|
|
9.52
|
|
Forfeited during the year
|
|
|
(11,828
|
)
|
|
|
9.47
|
|
Expired during the year
|
|
|
(7,804
|
)
|
|
|
9.52
|
|
Exercised during the year
|
|
|
(84,638
|
)
|
|
|
9.51
|
|
Granted during the year
|
|
|
—
|
|
|
|
—
|
|
Vested during the year
|
|
|
(23,269
|
)
|
|
|
9.52
|
|
Non-vested at December 31, 2020
|
|
|
19,494
|
|
|
|
9.51
|
|
Vested and exercisable at December 31, 2020
|
|
|
49,289
|
|
|
|
9.47
|
|
The Company did not grant restricted share
awards in 2020 or 2019, respectively. The weighted-average grant date fair value of the restricted share awards granted (restricted
shares and restricted share units) was CHF 9.43 for the year ended December 31, 2018. The weighted-average grant date fair values
of the remaining non-vested share awards as of the respective year end (restricted shares and restricted share units) was CHF 9.51,
CHF 9.52 and CHF 9.51 for the years ended December 31, 2020, 2019 and 2018, respectively. These fair values of non-vested share
awards granted have been determined using a reasonable estimate of market value of the common stock on the date of the award.
The expense charged against the income
statement was CHF 4.1 million, CHF 2.8 million and CHF 2.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The expense is revised by the Company based on the number of instruments that are expected to become exercisable.
|
18.
|
Commitments and contingencies
|
In the normal course of business, we
conduct product research and development programs through collaborative programs that include, among others, arrangements with
universities, contract research organizations and clinical research sites. We have contractual arrangements with these organizations.
As of December 31, 2020, external research projects included in the schedule below for 2021 total CHF 24.7 million that
have been committed.
We lease our corporate, laboratory and
other facilities under multiple leases at the EPFL Innovation Park in Ecublens, near Lausanne, Canton of Vaud, Switzerland. Our
lease agreements have no termination clauses longer
than a 12-month contractual notice period.
Since January 1, 2019, the Company has applied IFRS 16 and recognized a right-of-use asset for its leases, except for short-term
and low-value leases as indicated in Note 3. See “Note 5. Right-of-use assets and lease liabilities” for the
contractual undiscounted cash flows for lease obligations.
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Within 1 year
|
|
|
25,072
|
|
|
|
19,907
|
|
Between 1 and 3 years
|
|
|
8,885
|
|
|
|
12,993
|
|
Between 3 and 5 years
|
|
|
341
|
|
|
|
4,816
|
|
More than 5 years
|
|
|
57
|
|
|
|
2,193
|
|
Total
|
|
|
34,355
|
|
|
|
39,909
|
|
|
|
For the Years Ended
December 31,
|
In CHF thousands, except for share and per share data
|
|
2020
|
|
2019
|
|
2018
|
Basic income/(loss) per share (EPS):
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
Net income/(loss) attributable to equity holders of the Company
|
|
|
(61,921
|
)
|
|
|
45,442
|
|
|
|
(50,951
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding to equity holders
|
|
|
71,900,212
|
|
|
|
70,603,611
|
|
|
|
61,838,228
|
|
Basic income/(loss) for the period attributable to equity holders
|
|
|
(0.86
|
)
|
|
|
0.64
|
|
|
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income/(loss) per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to equity holders of the Company
|
|
|
(61,921
|
)
|
|
|
45,442
|
|
|
|
(50,951
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding to equity holders
|
|
|
71,900,212
|
|
|
|
70,603,611
|
|
|
|
61,838,228
|
|
Effect of dilutive securities from equity incentive plans
|
|
|
—
|
|
|
|
499,730
|
|
|
|
—
|
|
Weighted-average number of shares outstanding – diluted to equity holders
|
|
|
71,900,212
|
|
|
|
71,103,341
|
|
|
|
61,838,228
|
|
Diluted income/(loss) for the period attributable to equity holders
|
|
|
(0.86
|
)
|
|
|
0.64
|
|
|
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In periods for which we have a loss, basic
net loss per share is the same as diluted net loss per share. We have excluded from our calculation of diluted loss per share all
potentially dilutive in-the-money (i) share options and (ii) shares that were issued upon conversion of the convertible note
as their inclusion would have been anti-dilutive. Potentially dilutive securities that were not included in the diluted per share
calculations because they would be anti-dilutive were as follows:
|
|
As of
December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
Share options issued and outstanding (in-the-money)
|
|
|
412,191
|
|
|
|
1,081,836
|
|
|
|
1,472,589
|
|
Restricted share awards subject to future vesting
|
|
|
28,418
|
|
|
|
—
|
|
|
|
109,041
|
|
Convertible shares
|
|
|
—
|
|
|
|
911,261
|
|
|
|
—
|
|
Total
|
|
|
440,609
|
|
|
|
1,993,097
|
|
|
|
1,581,630
|
|
|
20.
|
Financial instruments and risk management
|
The Company’s activities expose it
to the following financial risks: market risk (foreign exchange and interest rate risk), credit risk and liquidity risk. The Company’s
overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects
on the Company’s financial performance.
The following table shows the carrying
amounts of financial assets and financial liabilities:
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Financial assets
|
|
|
|
|
|
|
|
|
Long-term financial assets
|
|
|
334
|
|
|
|
304
|
|
Other current receivables
|
|
|
329
|
|
|
|
304
|
|
Short-term financial assets
|
|
|
65,000
|
|
|
|
95,000
|
|
Cash and cash equivalents
|
|
|
160,893
|
|
|
|
193,587
|
|
Total financial assets
|
|
|
226,556
|
|
|
|
289,195
|
|
|
|
As of
December 31,
|
In CHF thousands
|
|
2020
|
|
2019
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Long-term lease liabilities
|
|
|
1,780
|
|
|
|
1,813
|
|
Trade and other payables
|
|
|
2,184
|
|
|
|
142
|
|
Accrued expenses
|
|
|
11,085
|
|
|
|
11,797
|
|
Short-term financing obligation
|
|
|
—
|
|
|
|
652
|
|
Short-term lease liabilities
|
|
|
443
|
|
|
|
442
|
|
Total financial liabilities
|
|
|
15,492
|
|
|
|
14,846
|
|
Foreign exchange risk
The Company is exposed to foreign exchange
risk arising from currency exposures, primarily with respect to the EUR, USD and to a lesser extent to GBP, DKK and SEK. The currency
exposure is not hedged. However, the Company has a policy of matching its cash holdings to the currency structure of its expenses,
which means that the Company holds predominately CHF, with lesser balances of EUR and USD (see “Note 6. Cash and cash equivalents
and financial assets”). The Company recognized a loss of CHF 0.7 million, CHF 0.8 million and CHF 1.2 million for the years
ended December 31, 2020, 2019 and 2018, respectively, within “Finance result, net.”
As of December 31, 2020, if the CHF had
strengthened/weakened by 10% against the EUR and the USD with all other variables held constant, the net loss for the period would
have been lower/higher by CHF 0.8 million (2019: CHF 3.5 million), mainly as a result of foreign exchange gains/losses on predominantly
EUR/USD denominated cash and cash equivalents and short-term financial assets.
Interest rates
The Company’s CHF cash holdings (inclusive
of those held in short-term financial assets) are subject to negative interest rates at certain counterparty thresholds. As of
December 31, 2020 if the interest rates charged by the counterparties had increased/decreased by 10%, the net income for the
period would have been higher/lower by less than CHF 0.1 million. Interest income and interest expense are recorded within finance
results, net in our statements of income/(loss).
Credit risk
The Company maintains a formal treasury
risk and investment management policy to limit counterparty credit risk. As of December 31, 2020, the Company’s cash and
cash equivalents and short-term financial assets are held with four financial institutions, each with a high credit rating assigned
by international credit-rating agencies. The maximum amount of credit risk is the carrying amount of the financial assets. Trade
and other receivables are fully performing, not past due and not impaired (see “Note 6. Cash and cash equivalents and financial
assets” and “Note 8. Other current receivables”).
Liquidity risk
Inherent in the Company’s business
are various risks and uncertainties, including its limited operating history and the high uncertainty that new therapeutic concepts
will succeed. AC Immune’s success may depend in part upon its ability to (i) establish and maintain a strong patent
position and protection, (ii) enter into collaborations with partners in the pharmaceutical and biopharmaceutical industries,
(iii) acquire and keep key personnel employed and (iv) acquire additional capital to support its operations.
The Company’s approach of managing
liquidity is to ensure sufficient cash to meet its liabilities when due. Therefore, management closely monitors the cash position
on rolling forecasts based on expected cash flow to enable the Company to finance its operations for at least 18 months. The Company
has CHF 2.2 million in trade and other payables, which are due within 12 months from the reporting date. Finally, as it relates
to the Company’s lease liabilities please see “Note 5. Right-of-use assets and lease liabilities” for detail
of when corresponding lease liabilities are due.
21. Capital risk
management
The Company’s objectives when managing
capital are to safeguard the Company’s ability to continue as a going concern and to preserve the capital on the required
statutory level in order to succeed in developing a cure against (i) AD, (ii) focused non-Alzheimer’s neurodegenerative diseases
including NeuroOrphan indications and (iii) diagnostics.
22. Subsequent events
Management has
evaluated subsequent events after the balance sheet date, through the issuance of these financial statements, for appropriate accounting
and disclosures. We raised USD 8.8 (CHF 8.0) million, net of sales agent commissions, from the sale 764,977 of our ordinary shares
pursuant to our ATM program in February 2021.